t72589_10k.htm

New product developments in the healthcare industry are inherently risky and unpredictable. These risks include:

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failure to prove feasibility;

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time required from proof of feasibility to routine production;

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timing and cost of product development and regulatory approvals and clearances;

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competitors’ response to new product developments;

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development, launch, manufacturing, installation, warranty and maintenance cost overruns;

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failure to obtain customer acceptance and payment;

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customer demands for retrofits of both old and new products; and

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excess inventory caused by phase-in of new products and phase-out of old products.

The high cost of technological innovation is coupled with rapid and significant change in the regulations governing the products that compete in both our surgical products and brachytherapy markets. We may also be affected by industry standards that could change on short notice and by the introduction of new products and technologies that could render existing products and technologies uncompetitive. We cannot be sure that we will be able to successfully develop new products or enhancements to our existing brachytherapy products and innovative surgical products. Without new product introductions, our revenues will likely suffer. Even if customers accept new enhanced products, the costs associated with making these products available to customers, as well as our ability to obtain capital to finance such costs, could reduce or prevent us from increasing our operating margins.

Our cash balances and marketable securities are subject to risks, which may cause losses and affect the liquidity of these investments.

Our cash and cash equivalents represent cash deposits, money market funds, and commercial paper and are invested with a limited number of financial institutions. Investments in marketable securities are made in accordance with our investment policies, which generally allow investments in high-credit quality corporate and municipal obligations. All of these cash, cash equivalents and marketable securities investments are subject to general credit, liquidity, market, interest rate and counterparty risks. These risks may be exacerbated by the disruptions and volatility in the economic climate, lack of liquidity in the credit and investment markets, economic difficulties encountered by many financial institutions and other economic uncertainties that have in the past and may in the future affect various sectors of the financial markets causing credit and liquidity issues. These market risks associated with our investment portfolio may have a negative adverse effect on our results of operations, liquidity and financial condition.

We face unknown and unpredictable risks related to the economic climate.

Financial markets and the economies in the United States and internationally have experienced extreme disruption in recent periods and volatility and conditions could recur. This can result in severely diminished liquidity and credit availability in the market, which could impair our ability to access capital or adversely affect our operations. An economic downturn may also, among other things:

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create downward pressure on the pricing of our products;

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affect the collection of accounts receivable;

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increase the sales cycle for certain of our products;

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slow the adoption of new products and technologies;

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adversely affect our customers, causing them to reduce spending; or

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adversely affect our suppliers, which could adversely affect our ability to produce our products.

Any of these conditions could have a material adverse effect on our business, financial position, liquidity and results of operations.

Changes in FDA requirements for obtaining 510(k) approval to market and sell medical device products in the U.S. may adversely affect our business, financial condition and results of operations.

The FDA has been considering legislative, regulatory and/or administrative changes to the FDA’s 510(k) program. Various committees of the U.S. Congress have also indicated that they may consider investigating the FDA’s 510(k) process. Under the current 510(k) rules, certain types of medical devices can obtain FDA approval without lengthy and expensive clinical trials. Among our product offerings, those products that require FDA approval have received such approval under the 510(k) rules. Our R&D programs and new product programs contemplate obtaining any required FDA approvals under the current 510(k) rules. Any changes to the current 510(k) or related FDA rules that make such rules more stringent or require more clinical data can significantly increase the time and costs associated with bringing new products to market. This may have a material adverse effect on our business, financial condition and results of operations.

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We face risks in connection with our current project to install a new ERP system.

We are currently replacing our multiple legacy business systems with a corporate-wide ERP system to handle various business, operating and financial processes. ERP implementations are complex and time-consuming projects that can involve substantial expenditures for system hardware, software, and implementation activities. Such an integrated, wide-scale implementation is extremely complex and may require transformation of business and financial processes in order to reap the benefits of the ERP system. Problems or delays in our ERP implementation could result in operational issues including delayed shipments or production, missed sales, inefficiencies in our business operations, billing and accounting errors and other operational issues. Our business and results of operations may be adversely affected if we experience operating problems and/or cost overruns during the ERP implementation process or if the ERP system and the associated process changes do not function as expected or do not give rise to the expected benefits. System delays or malfunctions could also disrupt our ability to timely and accurately process and report the results of our consolidated operations, financial position, and cash flows. This may have a material adverse effect on our business, financial condition and results of operations.

The adoption of healthcare reform in the United States may adversely affect our business, results of operations and/or financial condition.

In March 2010, significant reforms to the healthcare system were adopted in the form of the Patient Protection and Affordable Care Act (the “PPACA”). The PPACA includes provisions that, among other things, reduce and/or limit Medicare reimbursement to certain providers, require all individuals to have health insurance (with limited exceptions) and impose new and/or increased taxes. Specifically, the law requires the medical device industry to subsidize healthcare reform in the form of a 2.3% excise tax on U.S. sales of most medical devices beginning in 2013. Regulations implementing the tax have been proposed, but not finalized. In addition, some members of Congress are working to repeal the tax. While we continue to evaluate the impact of this tax on our overall business, if this tax was applicable to all of our product sales this would have equated to an excise tax of approximately $2 million in 2011. Various healthcare reform proposals have also emerged at the state level. The PPACA and these proposals could reduce medical procedure volumes and impact the demand for our products or the prices at which we sell our products. In addition, the excise tax will increase our cost of doing business. The impact of the PPACA and these proposals could have a material adverse effect on our business and/or results of operations.

There have been a number of lawsuits filed that challenge all or part of the healthcare reform law. A number of the lawsuits have been ruled on by federal appeals courts, and those rulings were not consistent. The U,S, Supreme Court has agreed to hear these cases, but we cannot predict how it will rule. Further, we cannot predict whether Congress may revisit some or all of the healthcare reform law during 2012. Because of these uncertainties, we cannot predict whether any or all of the legislation will be overturned, repealed, or modified and what the impact on our business may be resulting from any such changes.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties

Our executive offices are located in Buford, Georgia. Our manufacturing and development operations are carried out at four principal plants. We own our brachytherapy seed manufacturing facility, located in Buford, Georgia. In our surgical products segment, we own a manufacturing facility located in Massachusetts and lease facilities located in Oregon and Texas. All of our owned and leased spaces are well maintained and suitable for the operations conducted within.

Item 3. 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 4. Mine Safety Disclosures

Not applicable.

I-21

PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities

Our Common Stock, $.01 par value, (“Common Stock”) is traded on the New York Stock Exchange (NYSE) under the symbol “TGX”. The high and low prices for our Common Stock for each fiscal quarterly period in 2011 and 2010 are as follows:

	High		Low
2011
First Quarter	$	2.19		1.50
Second Quarter		2.29		1.75
Third Quarter		1.85		1.23
Fourth Quarter		1.73		1.18

2010
First Quarter	$	1.84	$	1.25
Second Quarter		1.80		1.04
Third Quarter		1.40		1.10
Fourth Quarter		1.57		1.18

As of February 29, 2012, the closing price of our Common Stock was $1.59 per share. Also, as of that date, there were approximately 367 holders of record of our Common Stock. The number of record holders does not reflect the number of beneficial owners of our Common Stock for whom shares are held by depositary trust companies, brokerage firms and others.

We have a Shareholder Rights Plan (the “Rights Plan”), which contains provisions designed to protect our stockholders. Pursuant to the Rights Plan, each share of our Common Stock contains a share purchase right (a “Right”). The Rights expire in February 2017 and do not become exercisable unless certain events occur including the acquisition of, or commencement of a tender offer for, 20% or more of the outstanding Common Stock. In the event certain triggering events occur, including the acquisition of 20% or more of the outstanding Common Stock, each Right that is not held by the 20% or more stockholders will entitle its holder to purchase additional shares of Common Stock at a substantial discount to the then current market prices. The Rights Plan and the terms of the Rights, which are set forth in a Rights Agreement between us and Computershare Investor Services LLC, as Rights Agent, could add substantially to the cost of acquiring us and consequently could delay or prevent a change in control of us.

We have not previously declared or paid a cash dividend on our Common Stock. It is the present policy of our Board of Directors to retain all earnings to support operations and our strategy of continued diversification and expansion.

II-1

Item 6. Selected Financial Data

The following selected financial data are derived from our consolidated financial statements. The selected financial data set forth below should be read in conjunction with our consolidated financial statements and related notes thereto and Management’s Discussion and Analysis of Financial Condition and Results of Operations included elsewhere herein.

(Amounts in thousands, except per share data)	Year ended December 31,
	2011			2010			2009			2008			2007
Statement of Operations Data:
Product sales	$	80,454			80,683		$	77,151		$	66,447		$	61,286
License and fee income		2,276			1,501			1,175			911			924
Total revenue		82,730			82,184			78,326			67,358			62,210

Cost of sales		50,073			49,155			44,953			36,264			31,994
Gross profit		32,657			33,029			33,373			31,094			30,216

Selling, general and administrative		22,685			24,013			22,020			20,500			19,131
Amortization of purchased intangibles		2,793			3,077			3,441			2,410			1,875
Research and development		1,649			1,942			2,160			1,300			1,365
Impairment of goodwill and tradenames		—			—			—			70,376			—
Other operating items		34			111			3			(147	)		500
Total operating expenses		27,161			29,143			27,624			94,439			22,871

Earnings (loss) from operations		5,496			3,886			5,749			(63,345	)		7,345

Other income (expense), net		(530	)		(583	)		(837	)		277			1,502

Earnings (loss) before income taxes		4,966			3,303			4,912			(63,068	)		8,847

Income tax expense (benefit)		1,902			1,233			1,837			(4,528	)		3,212

Net earnings (loss)	$	3,064			2,070		$	3,075		$	(58,540	)	$	5,635

Net earnings (loss) per share
Basic and Diluted	$	0.09			0.06		$	0.09		$	(1.77	)	$	0.17

	December 31,
(In thousands)	2011		2010		2009		2008		2007
Balance Sheet Data:
Cash and cash equivalents	$	29,553	$	29,674	$	45,326	$	39,088	$	28,666
Marketable securities		11,625		10,949		—		1,507		20,123
Goodwill and other intangible assets, net		9,459		12,319		15,464		18,720		50,539
Total assets		115,818		115,187		116,108		114,419		148,821
Long-term borrowings		—		23,667		27,000		—		7,500
Total debt		23,667		27,000		30,333		32,000		7,500
Shareholders’ equity	$	84,122	$	80,279	$	77,653	$	74,110	$	132,619

Comparability of the selected financial data above is affected by certain material changes in our business, including:

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The acquisitions of NeedleTech in July 2008. The results of operations of an acquired company are included in our consolidated results for periods subsequent to each respective acquisition date,

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impairment charges related to the write off of goodwill and tradenames in 2008, and

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refinancing of our credit agreement in 2009.

The above list is not intended to identify all material changes in our business in the periods presented. Rather, we believe the above information is useful in understanding the period-to-period comparability of the above selected financial data. Please read the information included elsewhere in this Form 10-K, including Business, Risk Factors, Management’s Discussion and Analysis of Financial Condition and Results of Operations, Financial Statements and Supplementary Data, as well as other information contained herein for a more complete discussion of our business, financial condition, and results of operations.

II-2

THERAGENICS CORPORATION

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Overview and Business Strategy

Theragenics Corporation®, a Delaware corporation formed in 1981, 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 manufactures, markets and sells disposable devices primarily utilized in certain surgical procedures. Our brachytherapy seed business manufactures, markets and sells radioactive “seeds” primarily utilized in the treatment of early stage prostate cancer. At the present time, both of our segments do business primarily in the United States. Our surgical products business is the faster growing of our businesses and has been supported by the cash flows generated by our market leading brachytherapy seed business and our flagship TheraSeed® brand. In our surgical products business we plan to grow and diversify revenues by adding product offerings and manufacturing capabilities, expanding the applications and markets in which we compete, and gaining scale to improve profitability.

Our surgical products business was built through the acquisitions of CP Medical Corp. in May 2005, Galt Medical Corporation in August 2006, and NeedleTech Products, Inc. in July 2008. We currently manufacture almost 3,500 products in this business as part of three broad product platforms; wound closure, vascular access and specialty needles. To date we have maintained the names and brands under which each of these companies previously manufactured, marketed and sold their products. We serve a number of markets and applications, including, among other areas, interventional cardiology, interventional radiology, vascular surgery, orthopedics, plastic surgery, dental surgery, urology, veterinary medicine (sutures), pain management, endoscopy, and spinal surgery. With the exception of veterinary sutures, our surgical products hold relatively small market shares. Our products include both finished goods and components. Our products are sold primarily to original equipment manufacturers (“OEMs”) and to a network of distributors. On a pro forma basis, our surgical products business has achieved a compound annual revenue growth rate of 8.3% from 2006 through 2011 (pro forma, assuming all acquisitions had been made at the beginning of 2006). We have accomplished this primarily by increasing sales to existing customers and, to a lesser extent, adding new customers. Further, we achieved this revenue growth during a period which included severe economic difficulties. Our strategy for increasing sales and scale going forward includes: becoming more integral within the supply chain of our customers both for existing products and for our customers’ development programs (which may allow us to increase sales to existing and new customers from all product platforms); developing new products internally; acquiring products, licenses, and other intellectual property; acquiring businesses and; entering certain markets outside the United States.

We have operated our brachytherapy seed business since 1987, emerging from the development stage in 1990. Historically our brachytherapy seed segment has generated strong cash flows, which have enabled us to diversify our business substantially. Positive cash flows from our brachytherapy seed business continue despite an industry-wide decline in brachytherapy procedures in the United States which began about six years ago. The overall brachytherapy industry in the United States is now experiencing difficulties primarily due to competition from other treatments. Many of these competing treatments enjoy favorable Medicare reimbursement rates relative to brachytherapy reimbursement rates. We believe this results in a non-level playing field for brachytherapy device manufacturers, providers, and patients. One of the primary competitive treatments provided by our radiation oncologist customers is Intensity Modulated Radiation Therapy, or “IMRT”. IMRT enjoys substantially higher reimbursement rates than brachytherapy yet, clinical studies do not indicate that IMRT delivers improved outcomes. We believe the market positioning and heavy promotion of robotic surgery for prostate cancer treatment has also adversely affected the number of brachytherapy procedures performed. Despite these industry-wide difficulties we have maintained positive cash flows in our brachytherapy business for a variety of reasons including, among other things, the relatively fixed nature of our brachytherapy seed manufacturing costs; our ability to anticipate changes in market conditions; our ability to respond to government controlled pricing policies surrounding reimbursement of our products and, more recently; increasing our overall market share.

At the present time we believe that we have additional opportunities to increase our market share through additional strategic agreements, diversification of our product and service offerings, and potential opportunities in markets outside of the United States. One such opportunity was the February 2012 acquisition of Core Oncology’s prostate brachytherapy customer base (see below). We believe we have these opportunities to expand and broaden our distribution channels because of, among other things, the reliability of our supply, the quality of our products, the quality of our direct sales force, and our long-term commitment to the brachytherapy industry including patient education, direct to consumer advertising, and congressional lobbying for fair reimbursement.

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Acquisition of Core Oncology’s Prostate Brachytherapy Customers

On February 17, 2012, we acquired Core Oncology’s prostate brachytherapy customer base. This transaction is expected to substantially increase our share of the iodine-125 segment of the prostate brachytherapy market. We expect $5 million to $6 million of incremental revenue in our brachytherapy segment for the remaining portion of calendar 2012 from this transaction and for the transaction to be accretive to earnings and to generate positive operating cash flow in 2012. Our total brachytherapy segment revenue was $24.1 million in 2011. In addition to the customer base, we also acquired certain packaging technologies. We did not acquire Core’s facilities, manufacturing equipment or processes, or Core’s employees. The total earn-out based purchase price is expected to be approximately $7.5 million to $10.5 million. We paid $3.8 million in cash as a prepayment for a portion of the earn-out at closing and will make six quarterly earn-out payments thereafter, beginning in June 2012. Core’s prostate brachytherapy sales were approximately $13 million for their fiscal year ended June 30, 2011 and $4 million for the six months ended December 31, 2011.

Results of Operations

Year Ended December 31, 2011 Compared to Year Ended December 31, 2010

Revenue

Following is a summary of revenue by segment for each of the three years in the period ended December 31, 2011 (in thousands):

Revenue by segment	Year ended December 31,
	2011			2010			2009
Surgical products
Product sales	$	59,258		$	58,991		$	53,591
License and fee income		151			36			69
Total surgical products		59,409			59,027			53,660

Brachytherapy seed
Product sales		21,952			22,287			23,860
License and fee income		2,125			1,465			1,106
Total brachytherapy seed		24,077			23,752			24,966

Intersegment eliminations		(756	)		(595	)		(300	)

Consolidated
Product sales		80,454			80,683			77,151
License and fee income		2,276			1,501			1,175
Total consolidated	$	82,730		$	82,184		$	78,326

Surgical Products Segment

Revenue in our surgical products business increased 1% in 2011 over 2010. We believe this reflects the variable and unpredictable ordering patterns of our larger customers, especially on a quarter to quarter basis. Also, it has been widely reported that consumers are making fewer visits to doctors’ offices, which in turn is reducing demand for medical devices. This trend may have a negative effect on revenue.

Open orders in our surgical products segment were $13.9 million at December 31, 2011 compared to $13.0 million at December 31, 2010. Open orders represent orders from customers for future delivery that we believe to be firm. Open orders are not guaranteed shipments, and they are subject to cancellation or delay. Backlog in our surgical products business was $379,000 at December 31, 2011 and $345,000 at December 31, 2010. Backlog represents orders included in open orders, but for which we have missed promised shipment dates.

A significant portion of the products in our surgical business continue to be sold 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, revenue has been and will continue to be affected by our customers’ response to efforts by hospitals to reduce inventories and to conserve cash due to the difficult economic climate and macroeconomic uncertainties. All of these factors may cause the fluctuations in our results to be even more volatile from period to period.

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Brachytherapy Seed Segment

We sell our TheraSeed® palladium-103 device directly to healthcare providers and to third-party distributors. We also sell iodine-125 based devices, and other brachytherapy related products, directly to healthcare providers.

Our brachytherapy product sales decreased 2% in 2011 from 2010. We believe that the prostate brachytherapy industry in the United States continues to experience pressure from newer forms of treatment. Some competitive forms of treatment have increased their market share, especially those with Medicare reimbursement levels that are higher than reimbursement levels for brachytherapy. These competitive forms of alternative treatments include IMRT and robotic surgery. In addition to competing treatment options that enjoy favorable reimbursement rates, we believe brachytherapy seed volume and revenue are also affected by disruptive pricing from other brachytherapy providers and uncertainties surrounding reimbursement. In February 2012 we acquired Core Oncology’s prostate brachytherapy customer base (see above under “Overview and Business Strategy”). This transaction is expected to result in $5 million to $6 million of incremental revenue in our brachytherapy segment in calendar 2012.

We have non-exclusive distribution agreements in place for our TheraSeed® device. Under our third party distribution agreements, we are the exclusive palladium-103 seed supplier for the treatment of prostate cancer for each distributor, and each distributor has the non-exclusive right to sell TheraSeed® in the U.S. and Canada. Certain agreements also provide distributors with the right to distribute TheraSeed® for the treatment of solid localized tumors other than in the prostate and with rights to distribute to certain locations outside of North America. Such applications (non-prostate and outside of North America) have not been material and are not expected to become material in the near future. Our principal non-exclusive distribution agreement is with C.R. Bard (“Bard”). Our agreement with Bard provides 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, 2013 and will be automatically extended for one additional year unless either party gives notice of its intent not to extend by December 31, 2012. Sales to Bard by our brachytherapy segment represented 28% and 33% of brachytherapy seed segment revenue in 2011 and 2010, respectively. (Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, represented 10% and 11% of consolidated revenue in 2011 and 2010, respectively).

Core became an additional non-exclusive distributor of TheraSeed® in January 2010. In February 2011, we terminated our agreement with Core due to Core’s failure to satisfy its financial obligation to us in accordance with the contractual terms of the agreement. Core had been attempting to become current with amounts due to us. However, litigation filed against Core by a third party in January 2011 created what we viewed as an unacceptable level of uncertainty surrounding Core’s ability to satisfy their financial obligations to us for both current and ongoing sales. Subsequent to termination of the agreement, we continued to supply TheraSeed® to Core on a prepaid basis. Sales to Core in our brachytherapy segment totaled approximately 8% and 14% of total brachytherapy seed segment revenue for in 2011 and 2010, respectively. In the latter half of 2011, certain customers who previously purchased TheraSeed® through Core began purchasing either from us on a direct basis or through one of our other TheraSeed® distributors. In February 2012 we acquired Core’s prostate brachytherapy customer base. See above under “Overview and Business Strategy”.

We also currently have other non-exclusive distribution agreements in place for TheraSeed®, none of which represented 10% or more of our brachytherapy product sales in 2011 and 2010. We may pursue additional distribution agreements for both palladium-103 and iodine-125 products in an effort to increase market share. We may also have opportunities to enter certain markets outside of the United States with an iodine-125 device.

We believe that Medicare reimbursement policies have affected the brachytherapy market and will continue to affect the brachytherapy market. Prior to 2010, Medicare provided reimbursement 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. The Centers for Medicare & Medicaid Services (“CMS”) published a final hospital outpatient prospective payment system (“OPPS”) on November 20, 2009 with fixed prospective payment rates for brachytherapy seeds. This fixed OPPS, which we sometimes refer to as “fixed reimbursement”, went in effect on January 1, 2010. The fixed per seed rate at which Medicare reimburses hospitals for the purchase of seeds is established annually by CMS. We expect to continue to support efforts to urge Congress and CMS to replace this “fixed reimbursement” rule by returning to the “pass-through” reimbursement policies which existed prior to 2010. Fixed reimbursement policies at CMS can be expected to lead to pricing pressure from hospitals and other healthcare providers, and to have an adverse effect on our brachytherapy revenue. The extent of the effect is impossible for us to predict, especially when fixed reimbursement policies coincide with 1) competition from competing technologies for the treatment of early stage prostate cancer, which enjoy favorable CMS reimbursement rates even though these technologies are less proven than brachytherapy and 2) uncertainties regarding the implementation and impact of healthcare reform generally. These factors could have an adverse effect on brachytherapy revenue.

II-5

License fees in our brachytherapy segment increased $660,000 or 45%, in 2011 over 2010. License fees include fees from the licensing of our TheraSphere® product, a medical device used for the treatment of liver cancer. Licensing fees also includes fees related to the licensing of certain intellectual property related to a brachytherapy catheter-based delivery system that we developed. This delivery system is primarily utilised in the treatment of breast cancer. The licensing agreement, which was executed in May 2008, provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums. Cost and expenses associated with our license agreements are not material.

Operating income and costs and expenses

Following is a summary of operating income by segment for each of the three years in the period ended December 31, 2011 (in thousands):

	Year ended December 31,
	2011			2010			2009

Surgical products		607			215			1,664
Brachytherapy seed		4,923			3,685			4,081
Intersegment eliminations		(34	)		(14	)		4

Consolidated	$	5,496		$	3,886		$	5,749

Surgical Products Segment

Operating income in our surgical products segment increased to $607,000 in 2011 from $215,000 in 2010. Our gross profit margins on sales were approximately 35% in 2011 compared to 36% in 2010. Gross margins continue to be affected by changes in product and customer mix. During 2011 we were also impacted by changes in customer ordering patterns, ERP implementation and severe winter storms causing the closure of our Dallas, Texas plant for several days in the first quarter. As a result of these and other items, our backlog fluctuated and we incurred higher overtime, utilized more temporary workers and experienced operating inefficiencies. Gross margins were also affected in 2011 by increased material costs; some of which were not passed on to our customers.

Items affecting comparability between the 2011 and 2010 periods include certain expenses that were only incurred in either 2011 or 2010, including the following (in thousands):

	Year Ended December 31,
	2011		2010

Acquisition proposal expenses (a)	$	218	$	—
Professional fees (b)		—		629
Moving related expenses (c)		—		570
Core receivables (d)		—		380

(a)	Acquisition proposal expenses related to expenses to consider, address, and respond to an unsolicited acquisition proposal.

(b)	Professional fees related to our legal action against the former owner of CP Medical to enforce certain non-compete agreements and to protect the trade secrets and other assets of that business.

(c)	Moving related expenses associated with the move into our new specialty needle manufacturing facility.

(d)	Core receivables represent amounts due from Core Oncology for which we believed collectability was doubtful.

In addition, corporate overhead allocated to our surgical products segment increased in 2011 primarily due to higher professional fees, compensation, and depreciation associated with our new ERP system. These increases were partially offset by a decline in amortization of purchased intangibles in the 2011 periods as certain intangible assets have become fully amortized.

Research and development (“R&D”) expenses decreased $128,000, or 7%, in 2011 from 2010. Our R&D program is intended to focus on product extensions, next generation products, and new products that are complementary to our current product lines and that support our customers’ product lines. Our R&D program is directed toward 510(k) products that have an established market and not on products that require lengthy and expensive clinical trials. Looking forward, our results are expected to be affected by the timing of these investments.

II-6

During 2011, we have continued development of a corporate-wide Enterprise Resource Planning (“ERP”) system. As our ERP system was under development, we capitalized certain internal costs associated with its development. These costs, which consisted primarily of employee payroll and related expenses, totaled $240,000 and $331,000 in 2011 and 2010, respectively, in our surgical products segment. Upon completion of the ERP system development at each location, these development costs will no longer be capitalized but will be charged as operating expenses. We expect to complete the system development at the remaining location within the next twelve months.

Looking forward, we expect a number of items to continue to affect the profitability in our surgical products business including, among other things:

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ordering patterns of our larger OEM and distributor customers,

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costs incurred to address significant changes in demand,

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continued investments in infrastructure, R&D, products, and companies as we make investments to support anticipated future growth and to develop products to address growth opportunities,

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changes in product mix and sales channels, with sales through OEM channels generally carrying a relatively lower gross profit margin and sales through distributor channels generally carrying a somewhat higher gross profit margin,

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continued pricing pressure from customers,

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the implementation of our new, corporate-wide ERP systems,

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the increasing scale of our surgical products business, and

●

trends of consumers making fewer visits to doctors’ offices and the effect on demand for medical devices.

Brachytherapy Seed Segment

Operating income in our brachytherapy business increased to $4.9 million in 2011 from $3.7 million in 2010. Manufacturing related expenses in our brachytherapy business tend to be relatively fixed in nature. Accordingly, even modest changes in revenue can have a significant impact on operating income. Gross margin 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. The increase in license and fee income in 2011 offset the decline in product sales. The primary expense item affecting comparability between the periods was bad debt expense related to Core Oncology. In 2011 we recorded $215,000 as bad debt expense related to amounts due from Core for which we believed collectability was doubtful. In 2010 we recorded $1.6 million of bad debt expense related to Core. In February 2012 we acquired Core’s prostate brachytherapy customers. See above under “Overview and Business Strategy”. Corporate overhead costs allocated to our brachytherapy segment increased from 2010 due to increases in professional fees, compensation, and depreciation associated with our new ERP system. We were able to reduce some operating expenses during 2011 including advertising and personnel related costs. Looking forward, we may not be able to continue to reduce our operating costs.

Non-operating income/expense

A summary of our interest expense is as follows:

	Year Ended December 31,
	2011			2010			2009

Interest paid or accrued, including loan fees	$	866		$	982			$	822
Fair value adjustment		(130	)		107				80
Interest capitalized		(39	)		(113	)			(37	)

Total interest expense	$	697		$	976			$	865

Interest expense paid or accrued, including loan fees, is related to our effective interest rates and the level of our outstanding borrowings under our credit agreement. Fair value adjustments are related to our interest rate swaps. Such fair value adjustments are unrealized (gains) and losses and reflect the period to period changes in the estimated fair value of our swaps. Interest capitalized primarily relates to the development of our ERP system. Interest capitalized in 2012 is expected to be similar to 2011 levels. Our weighted average effective rate was 3.0% at December 31, 2011.

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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”, as defined under guidance issued by the Financial Accounting Standards Board (“FASB”). 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 its credit rating and the rating of its parent company. We continue to monitor our counterparty credit risk.

Other income in 2010 includes $200,000 received in the settlement of the lawsuit with the former owner of CP Medical. Interest income was not material in 2011 or 2010.

Income tax expense

Our effective income tax rate, which includes federal and state income taxes, was approximately 38% and 37% in 2011 and 2010, respectively. Looking forward, state and investment tax and R&D credits may cause fluctuations in our effective income tax rate for financial reporting purposes. Future tax rates can be 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), changes in tax regulations, changes in statutory tax rates, changes in the tax jurisdictions in which we must file income tax returns, and many other items that affect the taxability and deductibility of our revenue and expenses and for which we cannot currently predict.

Year Ended December 31, 2010 Compared to Year Ended December 31, 2009

Revenue

Surgical Products Segment

Revenue in our surgical products business increased 10% in 2010 over 2009. All three of our general product categories, including wound closure, vascular access, and specialty needles, recorded organic growth during 2010. The majority of our 2010 revenue growth was driven by our vascular access and wound closure products. Our organic revenue growth was primarily a result of increased sales to existing customers.

Backlog in our surgical products business was $345,000 at December 31, 2010 and $931,000 at December 31, 2009. Backlog represents orders included in open orders, but for which we have missed promised shipment dates. During the first quarter of 2010, we experienced a spike in demand and changes in customer purchasing behavior. These factors increased our backlog early in 2010. This increase in our backlog added to an already high level of open orders (including backlog) that we had entering into the year. In an attempt to compensate for the additional lead time we were experiencing in shipping orders, some customers added to existing orders. We incurred overtime, hired temporary labor, and added shifts, among other actions, to help relieve our backlog and address opportunities during the first quarter. A portion of the increase in product sales experienced in 2010 resulted from reducing our backlog.

Brachytherapy Seed Segment

Our brachytherapy product sales decreased 7% in 2010 from 2009. Our strategy of increasing market share through new distribution agreements helped to offset the continued year over year industry-wide decline in procedures. This reduced the decline in product sales we would have otherwise experienced in 2010. Indeed, our product sales increased 3% in the second half of 2010 compared to the second half of 2009.

License fees in our brachytherapy segment increased $359,000, or 32%, in 2010 over 2009. License fees include fees from the licensing of our TheraSphere® product, a medical device used for the treatment of liver cancer. License fees also includes fees related to the licensing of certain intellectual property related to an expandable brachytherapy delivery system that we developed. This agreement, which was executed in May 2008, provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums.

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Operating income (loss) and costs and expenses

Surgical Products Segment

Operating income in our surgical products segment decreased to $215,000 in 2010 from $1.7 million in 2009. Affecting profitability in the 2010 periods was a decline in our gross profit margins on product sales. Our gross profit margins were approximately 36% in 2010 compared to 39% in 2009. This decline was driven by several factors: spikes in demand early in 2010; continuing changes in customer behavior; pricing pressures; changes in product mix and distribution channels; and the move to our new specialty needle manufacturing facility.

We experienced a spike in demand during the first quarter of 2010, increasing our backlog and putting pressure on certain facilities that were already at or near capacity. To address the spike in demand and backorders, we ran overtime, brought in temporary labor and implemented a third shift at one plant, among other things. These additional costs eroded our gross margins. Amplifying the costs associated with these actions were changes in customer behavior. Recurring changes in order quantities and requested delivery dates of orders reduced the ability of our operations to efficiently address production requirements. Our former specialty needle manufacturing plant was running at near capacity, putting a strain on operations. We also saw an increase in our OEM sales relative to our dealer sales during 2010. OEM sales generally carry a lower gross profit margin. Additionally, we experienced pricing pressure from customers and from the need to respond to aggressive pricing behavior of competitors.

We were able to reduce the backlog experienced early in 2010 and reduce or eliminate some of the additional costs we had incurred to address the circumstances that existed during that time. We also implemented certain measures to better control costs and margins on an ongoing basis. However, we continued to experience changes in customer behavior, ordering and pricing pressures which in turn, caused variability in our gross margins from period to period.

Also affecting our 2010 gross margins was the move to our new specialty needle facility in July 2010. We experienced inefficiencies, such as planned downtime, to facilitate the move. Our new facility, which is 43% larger than our previous operating facilities, also has higher operating costs associated with it.

Another factor reducing income in the 2010 periods was legal fees of $629,000 associated with our initiation of legal action against the former owner of CP Medical. This legal action was intended to enforce certain non-compete agreements and to protect the trade secrets and other assets of that business, which we acquired in 2005. We had no such legal fees in 2009. The action was settled in October 2010, and no further significant legal fees are expected to be incurred in this matter.

Moving related expenses of $570,000 were incurred in 2010 in connection with the move to our new, larger specialty needle manufacturing facility. These expenses were included in selling, general and administrative expenses and in loss on disposal of assets in our 2010 statement of earnings. We completed the move to the new facility in the third quarter of 2010.

Bad debt expense also increased in 2010, primarily a result of amounts due from Core for which we believed collection was doubtful of approximately $380,000. Selling, general and administrative expenses, other than the aforementioned legal, moving and bad debt expenses, were 24% of revenue in 2010 compared to 25% in 2009.

Research and development (“R&D”) expenses decreased $380,000, or 18%, in 2010 from 2009.

During 2010, we continued development of a corporate-wide Enterprise Resource Planning (“ERP”) system. As our ERP system was under development, we capitalized certain internal costs associated with its development. These costs, which consisted primarily of employee payroll and related expenses, totaled $331,000 and $247,000 in 2010 and 2009, respectively, in our surgical products segment.

Brachytherapy Seed Segment

Operating income in our brachytherapy business decreased to $3.7 million in 2010 from $4.1 million in 2009. Manufacturing related expenses in our brachytherapy business tend to be relatively fixed in nature. Accordingly, even modest changes in revenue can have a significant impact on operating income. The decline in product sales had a negative effect on operating income in 2010. Increases in our license and fee income contributed to profitability as there were minimal costs associated with those licensing agreements. The increase in license and fee income in 2010 partially offset the declines in product sales. We were able to decrease some operating expenses during 2010, including personnel related costs, advertising and professional fees. Our brachytherapy business also absorbed fewer corporate overhead costs since we allocate corporate costs based upon the relative revenue of our business segments. Corporate overhead costs allocated to our brachytherapy business declined $320,000 in 2010 from 2009.

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Partially offsetting reductions in operating expenses noted in the preceding paragraph was $1.6 million of bad debt expense related to amounts due from Core for which we believe collection is doubtful. We terminated our distribution agreement with Core in February 2011 and in February 2012 we acquired Core’s prostate brachytherapy customers. See above under “Overview and Business Strategy”.

Non-operating income/expense

Other income in 2010 includes $200,000 received in the settlement of the lawsuit with the former owner of CP Medical. Interest income was not material in 2010 or 2009.

Income tax expense

Our effective income tax rate, which includes federal and state income taxes, was approximately 37% in 2010 and 2009. In 2010, our tax rate was reduced by approximately $227,000 of state investment tax credits and R&D tax credits. A significant portion of these credits in 2010 related to the construction of our new needle manufacturing facility.

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. The following is not intended to be a comprehensive list of our accounting policies. Our significant accounting policies are more fully described in the notes to our consolidated financial statements. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for our judgment in their application. The accounting policies described below are those which we believe are most critical to aid 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.

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.

Due to the severe volatility and disruptions related to the U.S. and global investment and credit markets, 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. While we will continue to research, analyze and monitor our investments, we cannot predict what effect the current investment and credit market circumstances might have on our portfolio going forward. You can find more information related to the valuation of our marketable securities in Note D in the accompanying consolidated financial statements, Liquidity and Capital Resources in Management’s Discussion and Analysis, and Item 7A, Quantitative and Qualitative Disclosures About Market Risk, all of which are included in this report.

Property and equipment. Property and equipment are recorded at cost and depreciated on a straight-line basis over the estimated useful lives of such assets. Our estimates can result in differences from the actual useful lives of certain assets. The significant portion of property and equipment includes cyclotrons, which are utilized in our brachytherapy business, and manufacturing buildings. As of December 31, 2011, we owned and operated eight cyclotrons, the first of which entered service in 1998. The estimated service life of our cyclotron equipment is 15 years. At December 31, 2011, the net book value of our cyclotrons was $1.2 million. The estimated service life of our buildings is 30 years.

We will continue to periodically examine estimates used for depreciation for reasonableness. If we determine that the useful life of property or equipment should be shortened or lengthened, depreciation expense would be adjusted accordingly for the remaining useful lives of the identified assets.

We assess the impairment of our depreciable assets (including property and equipment) whenever events or circumstances indicate that such assets might be impaired. In the event the expected undiscounted future cash flow attributable to the asset is less than the carrying value of the asset, an impairment loss equal to the excess of the asset’s carrying value over its fair value is recorded. The estimation of fair value, whether in conjunction with an asset to be held and used or with an asset held for sale, also involves judgment. It is possible that our estimates of fair value may change and impact our financial condition and results of operations.

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Intangible assets. Our intangible assets are determined to have finite lives and are amortized over their useful lives using a method that is expected to reflect the pattern of its economic benefit. When a pattern of economic benefit cannot be determined, or if the straight-line method results in greater amortization, then the straight-line method is used. To date, all finite lived intangible assets have been amortized using the straight-line method. We also review finite lived intangible assets for impairment to ensure they are appropriately valued if conditions exist that indicate the carrying value may not be recoverable.

Allowance for doubtful accounts and returns. We make estimates and use our judgments in connection with establishing an allowance for the possibility that portions of our accounts receivable balances may become uncollectible or subject to return. Accounts receivable are reduced by this allowance. Specifically, we analyze accounts receivable in relation to customer creditworthiness, current economic trends, changes in our customer payment history, and changes in sales returns history in establishing this allowance. It is possible that these or other underlying factors could change and impact our financial position and results of operations.

Allowance for obsolete inventory. We review inventory periodically and record an estimated allowance for inventory that has become obsolete, that has a cost basis in excess of its expected net realizable value, or that is in excess of expected requirements. Specifically, we analyze inventory in relation to sales history, inventory turnover and days supply on hand, competing products, current economic trends, changes in our customers’ ordering histories, and historical write-offs. Our estimate is subjective and dependent on our estimates of future demand for a particular product. If our estimate of future demand exceeds actual demand, we may have to increase the allowance for obsolete inventory for that product and record a charge to cost of product sales.

Asset Retirement Obligations. We estimate the future cost of asset retirement obligations, discount that cost to its present value, and record a corresponding asset and liability in our consolidated balance sheet. The values ultimately derived are based on many significant estimates, including future decommissioning costs, inflation, cost of capital, and market risk premiums. The nature of these estimates requires us to make judgments based on historical experience and future expectations. Revisions to the estimates may be required based on such things as changes to cost estimates or the timing of future cash outlays. Any such changes that result in upward or downward revisions in the estimated obligation will result in an adjustment to the related capitalized asset and corresponding liability on a prospective basis. Our asset retirement obligations consist primarily of decommissioning obligations related to our brachytherapy seed manufacturing equipment and facilities.

Share-based compensation. We account for share-based compensation in accordance with the fair value recognition provisions of guidance issued by FASB. Under this method, share-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense over the vesting period. In order to determine the fair value of stock options on the date of grant, we utilize the Black-Scholes model. Inherent in this model are assumptions related to expected stock-price volatility, option life, risk-free interest rate and dividend yield. The risk-free interest rate and dividend yield are based on factual data derived from public sources. The expected stock-price volatility and option life assumptions require significant judgment, which makes them critical accounting estimates. Our expected volatility is based upon weightings of the historical volatility of our stock. With respect to the weighted-average option life assumption, we consider the exercise behavior of past grants and model the pattern of aggregate exercises.

Accounting for income taxes. Our judgments, assumptions and estimates relative to the provision for income taxes take into account current tax laws and our interpretation of current tax laws. We must make assumptions, judgments and estimates to determine our tax provision and our deferred income tax assets and liabilities, including the valuation allowance to be recorded against a deferred tax asset. Actual operating results and the underlying amount and category of income in future years could differ materially from our current assumptions, judgments and estimates of recoverable net deferred taxes.

We periodically evaluate the recoverability of our deferred tax assets and recognize the tax benefit only as reassessment demonstrates that they are realizable. We evaluate the realizability of the deferred tax assets and assess the need for the valuation allowance each reporting period. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance is adjusted. In the future if, based on the facts and circumstances surrounding our ability to generate adequate future taxable income, it becomes more likely than not that some or all of the deferred tax asset will not be realized, the valuation allowance may be required to be increased.

We review all of our tax positions. The tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have concluded that there were no significant uncertain tax positions as of December 31, 2011 and 2010. Our policy is to recognize accrued interest expense and penalties associated with uncertain tax positions as a component of income tax expense.

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Contingencies. From time to time we may be subject to various legal proceedings and claims, including, for example, disputes on agreements, employment disputes and other commercial disputes, the outcomes of which are not within our complete control and may not be known for extended periods of time. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures. We record a liability in our consolidated financial statements for damages and/or costs related to claims, settlements and judgments where we have assessed that a loss is probable and an amount can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. Legal costs associated with these matters are expensed as incurred.

Commitments and Other Contractual Obligations

Contractual Obligations

We lease equipment and production, warehouse, office and other space under non-cancelable leases that expire at various dates through August 2016. We also have $23.7 million of borrowings outstanding under our credit agreement. Our contractual obligations as of December 31, 2011 are as follows (amounts in thousands):

	Total		Less than 1 year		1-3 years		3-5 years		More than 5 years
Obligation
Operating lease obligations (1)
Rental space and equipment	$	687	$	443	$	232	$	12	$	—

Borrowings under credit agreement (2)		23,667		23,667		—		—		—
Interest payable on borrowings (3)		566		566		—		—		—
Total borrowings		24,233		24,233		—		—		—

Other obligations		454		57		397		—		—

Total	$	25,374	$	24,733	$	629	$	12	$	—

(1)	Represents minimum rental payments for operating leases, one of which is subject to adjustment based on the Consumer Price Index.

(2)	Includes $1.7 million outstanding under a term loan payable at $278,000 monthly through June 1, 2012, and $22.0 million outstanding under $30.0 million revolving credit facility, which matures October 2012.

(3)	Interest on outstanding borrowings under credit agreement at December 31, 2011 is based on effective interest rates at December 31, 2011.

Letter of Credit

We have a letter of credit outstanding under the credit facility as of December 31, 2011 totaling $946,000. This letter of credit is related to asset retirement obligations of long-lived assets.

Liquidity and Capital Resources

We assess our liquidity in terms of our ability to generate cash to fund our operating, investing and financing activities. Significant factors affecting the management of liquidity are: cash flows generated from operating activities, capital expenditures, operational investments to support growth (such as research and development programs), and acquisitions of businesses and technologies.

We have cash, cash equivalents and marketable securities of $41.2 million and $40.6 million at December 31, 2011 and 2010, respectively. Marketable securities consisted primarily of high-credit quality corporate and municipal obligations in accordance with our investment policies. See Cash, Cash Equivalents and Marketable Securities below for more information.

Working capital was $42.3 million and $57.1 million at December 31, 2011 and 2010, respectively. The decrease in working capital is primarily due to the classification of $22.0 million of borrowings under our revolving credit facility as a short-term liability at December 31, 2011. Our credit facility expires on October 31, 2012. At December 31, 2010, all outstanding borrowings under our revolving credit facility were classified as long-term and, accordingly, were not a part of working capital.

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Cash provided by operations was $6.1 million in 2011 compared to $7.9 million in 2010. 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 and higher income tax payments. The decline in 2011 was primarily a result of the increase in inventories to support growth in our surgical products segment and higher income taxes paid.

Capital expenditures totaled $2.0 million in 2011 and $9.1 million in 2010. The 2011 expenditures were primarily for the development of our new ERP system. The 2010 expenditures were primarily for the construction of our new specialty needle manufacturing facility and, to a lesser extent, the development of our new ERP system. Construction of our new facility was completed in July 2010. Looking forward, we expect our rate of 2012 capital expenditures, exclusive of the Core asset acquisition, to be consistent with 2011 levels.

Cash used by financing activities was $3.3 million in both 2011 and 2010. Cash used for financing activities primarily consisted of principal repayments of our outstanding borrowings, in accordance with the terms of our credit agreement. The terms of our credit agreement require monthly principal payments of $278,000 through June 1, 2012.

R&D expenses were $1.6 million in 2011 and $1.9 million in 2010. We expect to continue to use cash in 2012 to support growth in the surgical products segment, especially for R&D. Looking forward, we expect R&D expense levels in 2012 to be similar to the 2011 level. However, R&D activities can be complex, and expense levels are also dependent upon the discovery of opportunities of which we are not currently aware. Accordingly, R&D expenses are subject to significant variability form period to period.

On February 17, 2012, we acquired Core Oncology’s prostate brachytherapy customer base. In addition to the customer base, we also acquired certain packaging technologies. We did not acquire Core’s facilities, manufacturing equipment or processes, or Core’s employees. The total purchase price is expected to be approximately $7.5 million to $10.5 million. We paid $3.8 million in cash as a prepayment of a portion of the earn-out at closing, and will make six quarterly earn-out payments thereafter, beginning in June 2012.

We may also continue to use cash for increased marketing and support activities in our brachytherapy seed business and in the pursuit of additional diversification efforts such as product development, the purchase of technologies, products, companies, and other strategic initiatives. We believe that current cash, cash equivalents, and investment balances and 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.

Credit Agreement

We have a Credit Agreement with a financial institution which 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. As of December 31, 2011, borrowings of $22.0 million and $1.7 million were outstanding under the Revolver and Term Loan, respectively, and letters of credit totaling $946,000, representing decommission funding required by the Georgia Department of Natural Resources, were outstanding under the Credit Agreement. The Term Loan is payable in equal monthly installments of $278,000 plus interest at LIBOR plus 1.75%, through June 1, 2012. We intend to seek renewal or replacement of this Credit Agreement during 2012. 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 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, as amended, as of December 31, 2011.

We also have 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 $6.0 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 December 31, 2011 was 3.0%.

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Cash, Cash Equivalents and Marketable Securities

Our cash and cash equivalents include bank deposits, money market funds, U.S. Treasury securities, and commercial paper held at a limited number of financial institutions. We review our investments in marketable securities and cash equivalents 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. 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. 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. Due to the disruptions, volatility and uncertainties related to the U.S. and global investment and credit markets we are exposed to the risk of further changes in fair value of our cash equivalents and marketable securities in future periods, which may cause us to take impairment charges that are not currently anticipated. While we will continue to research, analyze and monitor our investments, we cannot predict what the effect of current investment and credit market circumstances might have on our portfolio going forward.

Medicare Developments

Prior to 2010, Medicare provided reimbursement 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. CMS published a final hospital OPPS on November 20, 2009 with fixed prospective payment rates for brachytherapy seeds. This fixed OPPS, which we sometimes refer to as “fixed reimbursement”, went in effect on January 1, 2010 and fixes the per seed rate at which Medicare reimburses hospitals for the purchase of seeds. Under the fixed opps, CMS establishes the fixed per seed rate on an annual basis. We continue to support efforts that urge Congress and CMS to replace this “fixed reimbursement” rule by returning to the “pass-through” reimbursement policies which existed prior to 2010. Fixed reimbursement policies at CMS can be expected to lead to pricing pressure from hospitals and other healthcare providers, and to have an adverse effect on our brachytherapy revenue. The extent of the effect is impossible for us to predict, especially when fixed reimbursement policies coincide with 1) competition from competing technologies for the treatment of early stage prostate cancer, which enjoy favorable CMS reimbursement rates even though these are less proven technologies and 2) uncertainties regarding the implementation and impact of healthcare reform generally.

In August 2011, the Budget Control Act of 2011 was enacted into law to increase the federal debt ceiling. The law provided for spending cuts of nearly $1 trillion over the next 10 years, including proposed cuts to Medicare providers. The law further created a Congressional committee that was given a deadline of November 23, 2011 to develop recommendations for further reducing the federal deficit by another $1.2 trillion over 10 years. The committee was unable to agree on a plan by the November deadline, and as a result, automatic spending cuts, including a likely 2% cut to Medicare providers, will become effective beginning in 2013. Medicaid is exempted from the automatic cuts. Any cuts to Medicare reimbursement which affect our products could have a material adverse effect on our business and/or our results of operations.

Other Regulatory Developments

On December 19, 2011, CMS published proposed regulations that would implement provisions in PPACA related to disclosure of payments made by manufacturers to physicians and teaching hospitals. Because we manufacture a number of devices that are covered by the regulations, all payments that we make to physicians and teaching hospitals would be subject to this reporting requirement even if the payment relates to a device that is not considered a covered device. CMS has accepted public comments on the proposed regulations and will publish final regulations at some point in the future. The tracking and reporting of these payments could have an adverse impact on our business and/or results of operations and on our relationships with customers and potential customers.

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Forward Looking and Cautionary Statements

This document contains forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including, without limitation, statements regarding sales, expected impact of the acquisition of Core’s prostate brachytherapy customers, marketing and distribution efforts, ordering patterns of customers and our ability to fill our backlog, our expectation regarding changes in product mix and sales channels, with sales through OEM channels generally carrying a relatively lower gross profit margin and sales through distributor channels generally carrying a somewhat higher gross profit margin, effects of healthcare reform, third-party reimbursement, CMS policy, sales mix, effectiveness and continuation of non-exclusive distribution agreements, anticipated growth in the surgical products business segment, the increasing scale of our surgical products business, future cost of sales and gross margins, R&D efforts and expenses, investment in additional personnel, infrastructure and capital assets, implementation of a new ERP system, future SG&A expenses, potential new products and opportunities, future results in general, plans and strategies for continuing diversification, valuation of marketable securities and cash equivalents we may hold, and the sufficiency of our liquidity and capital resources.

Forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from those projected, anticipated or implied. Although it is not possible to predict or identify all such risks and uncertainties, they may include, but are not limited to, the following factors. You should not consider this list to be a complete statement of all potential risks and uncertainties:

●

changes in the U.S. healthcare industry and regulatory environment;

●

competition;

	●	ability to successfully retain acquired customers;
	●	new product development cycles;

●

development and growth of new applications within our markets;

●

changes in FDA regulatory approval processes;

●

effectiveness and execution of marketing and sales programs, including those of our distributors;

●

changes in third-party reimbursement, including CMS and private payors;

●

potential changes in product pricing;

●

changes in costs and availability of materials and other operating costs;

●

continued acceptance of our products in the marketplace;

●

changes in demand for products;

●

our ability to meet customer demands and/or the need to incur additional costs and inefficiencies to meet such demand;

●

a reduction in the number of procedures utilizing our devices caused by cost containment pressures, alternative therapies, or by other reasons;

●

our ability to successfully identify, consummate and integrate strategic acquisitions or otherwise capitalize on opportunities for growth;

●

increased costs or product delays required to comply with existing and changing regulations applicable to our businesses, operations and products;

●

effectiveness of implementation of our new ERP system;

●

ability to realize our estimate of fair value upon sale or liquidation of cash, cash equivalents and marketable securities that we may hold;

●

retention of key employees;

●

damage to one or more of our facilities;

●

volatility in U.S. and global financial markets;

●

substantial defaults in payments or a material reduction in purchases by, or loss of, a large customer;

●

changes in circumstances that could impair our intangible assets;

●

new or revised tax legislation or challenges to our tax positions;

●

changes in accounting principles generally accepted in the United States of America;

●

general economic conditions, including changes in the financial markets that may affect the availability and cost of credit to us, our customers or our suppliers; and

●

the other factors set forth or incorporated by reference under “Risk Factors”.

These and other risks and uncertainties are described herein and in other information contained in our publicly available SEC filings and press releases. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date such statements were first made. Except to the extent required by federal securities laws, we undertake no obligation to publicly release the result of any revisions to these forward-looking statements to reflect events or circumstances after the date hereof, or to reflect the occurrence of unanticipated events.

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Recent Accounting Pronouncements

In June 2011, the FASB issued an accounting standards update that eliminates the current option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. Under this statement, we can elect to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. This statement will be effective for us in our first quarter 2012 Form 10-Q and will be applied retrospectively to all prior periods presented.

Quarterly Results

The following table sets forth certain statement of earnings data for each of the last eight quarters. This unaudited quarterly information has been prepared on the same basis as the annual audited information presented elsewhere in this Form 10-K, reflects all adjustments (consisting only of normal, recurring adjustments) which are, in our opinion, necessary for a fair presentation of the information for the periods covered and should be read in conjunction with the consolidated financial statements and notes thereto. The operating results for any quarter are not necessarily indicative of results for any future period. Quarterly data presented may not reconcile to totals for full year results due to rounding.

	2011												2010
	First Qtr			Second Qtr			Third Qtr			Fourth Qtr			First Qtr			Second Qtr			Third Qtr			Fourth Qtr
	(Amounts in thousands, except per share data)

Total revenue	$	20,253		$	21,536		$	21,062		$	19,879		$	20,318		$	20,777		$	20,412		$	20,677
Cost of sales		12,286			12,828			12,293			12,666			12,471			11,953			11,919			12,812
Gross profit		7,967			8,708			8,769			7,213			7,847			8,824			8,493			7,865
Selling, general and administrative		5,847			5,546			5,651			5,641			5,904			6,118			5,889			6,102
Amortization of purchased intangibles		698			698			698			699			846			805			728			698
Research and development		535			460			380			274			440			414			529			559
Loss on sale of assets		1			1			2			30			—			39			72			—
Other income (expense)		(136	)		(141	)		(126	)		(127	)		(287	)		(161	)		(230	)		95
Earnings before income taxes		750			1,862			1,912			442			370			1,287			1,045			601
Income tax expense		292			677			771			162			226			505			274			228
Net earnings	$	458		$	1,185		$	1,141		$	280		$	144		$	782		$	771		$	373

Earnings per share:
Basic	$	0.01		$	0.04		$	0.03		$	0.01		$	0.00		$	0.02		$	0.02		$	0.01
Diluted	$	0.01		$	0.04		$	0.03		$	0.01		$	0.00		$	0.02		$	0.02		$	0.01
Weighted average shares outstanding:
Basic		33,338			33,418			33,442			33,455			33,213			33,266			33,276			33,280
Diluted		33,645			33,753			33,727			33,793			33,362			33,374			33,407			33,508

Inflation

We do not believe that the relatively moderate levels of inflation, which have been experienced in the United States in recent years, have had a significant effect on our results of operations.

Item 7A. Quantitative and Qualitative Disclosure 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. We have outstanding borrowings of $1.7 million under our Credit Agreement in the form of a Term Loan that is payable in equal monthly installments of approximately $278,000 plus interest through June 1, 2012. Interest is payable at LIBOR plus 1.75%. We have entered into a floating to fixed rate swap agreement that expires June 1, 2012 with respect to the outstanding amount of the Term Loan at a fixed interest rate of 3.27%. We also have outstanding borrowings of $22 million under the Revolver component of our Credit Agreement. The Revolver matures in October 2012. Interest on outstanding borrowings under the Revolver is payable at LIBOR plus 2.25%. We entered into a separate floating to fixed rate swap that expires June 1, 2012 with respect to $6 million of the principal amount outstanding under the Revolver at a fixed interest rate of 4.26%. Accordingly, we are exposed to changes in interest rates on outstanding borrowings in excess of $6 million under our Revolver. 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.

II-16

We review our investments in marketable securities and cash equivalents 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. Due to the uncertainties related to the U.S. and global investment and credit markets we are exposed to the risk of further changes in fair value of our cash equivalents and marketable securities in future periods, which may cause us to take impairment charges that are not currently anticipated. While we will continue to research, analyze and monitor our investments, we cannot predict what the effect of current investment and credit market circumstances might have on our portfolio going forward.

Our Credit Agreement expires on October 31, 2012. Continued disruption in U.S. and global markets could adversely affect our ability to renew or replace this Credit Agreement, and any new or replacement agreement may not be as favorable as the current Credit Agreement. The negative impact of recent and continuing adverse changes in the economy and credit markets generally or our inability to obtain financing on favorable terms, if at all, may have a material adverse effect on our results of operations and business.

Item 8. Financial Statements and Supplementary Data

See index to Financial Statements (Page F-1) and following pages.

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure.

None

Item 9A. Controls and Procedures

Evaluation of Disclosure 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 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 (the “Exchange Act”). Based on this evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of December 31, 2011, the end of the period covered by this annual report.

Management’s Report on Internal Control over Financial Reporting

We are responsible for preparing our annual consolidated financial statements and for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) or 15d-15(f) promulgated under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision of, a company’s principal executive and principal financial officers and effected by a company’s board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

●

Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of the assets of the company;

●

Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and

●

Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.

All internal control systems, no matter how well designed, have inherent limitations and can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

II-17

We assessed the effectiveness of our internal control over financial reporting as of December 31, 2011. In making our assessment, we used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control-Integrated Framework. Based on that assessment, we believe that, as of December 31, 2011, our internal control over financial reporting is effective based on those criteria.

Changes in Internal Control over Financial Reporting

During 2011, we have continued development of a corporate-wide Enterprise Resource Planning (“ERP”) system. Our new ERP system is expected to standardize and automate business processes, to improve operational and financial performance, and to enhance internal controls. We implemented our new ERP system at one of our four primary locations during the first quarter of 2011. The implementation of our new ERP system at this location has resulted in changes to our business processes and internal controls over financial reporting.

No changes in our internal control over financial reporting were identified as having occurred during the quarter ended December 31, 2011, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting. Further changes in our internal control over financial reporting are expected as we complete the implementation of our new ERP system at our remaining location.

Item 9B. Other Information

None.

II-18

PART III

Item 10. Directors, Executive Officers and Corporate Governance*

We have adopted a Code of Ethics for the Chief Executive Officer and Senior Financial Officers and a Code of Conduct for all employees, including Directors. These codes are available on our website at http://www.theragenics.com. These codes are also available without charge upon request directed to Investor Relations, Theragenics Corporation, 5203 Bristol Industrial Way, Buford, Georgia 30518. We intend to disclose amendments or waivers of these codes with respect to the Chief Executive Officer, Senior Financial Officers or Directors required to be disclosed by posting such information on our website.

Our Chief Executive Officer is required to certify to the New York Stock Exchange each year that she was not aware of any violation by us of the Exchange’s corporate governance listing standards. Our Chief Executive Officer made her annual certification to that effect to the New York Stock Exchange on June 1, 2011. This report includes the certifications of our Chief Executive Officer and Chief Financial Officer required by Rule 13a-14 and Section 302 of the Sarbanes-Oxley Act of 2002.

Item 11. Executive Compensation*

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters*

Item 13. Certain Relationships and Related Transactions, Director Independence*

Item 14. Principal Accounting Fees and Services*

* Except as set forth above, the information called for by Items 10, 11, 12, 13 and 14 is omitted from this Report and is incorporated by reference to the definitive Proxy Statement to be filed by us not later than 120 days after December 31, 2011, the close of our fiscal year.

III-1

PART IV

Item 15. Exhibits and Financial Statement Schedules

(a) The following documents are filed as part of this Report.

Financial Statements.

See index to financial statements on page F-1.

Financial Schedules.

See financial statement schedule on page S-2.

IV-1

Exhibits

2.1

Stock Purchase Agreement dated as of July 16, 2008 with respect to NeedleTech Products, Inc. by and among Theragenics Corporation, as Purchaser, Ronald Routhier, as Sellers’ Representative, the individual Stockholders of NeedleTech Products, Inc. listed on Schedule 1 to the Agreement, as Sellers, and Rockland Trust Company, as Special Fiduciary and Trustee (incorporated by reference to Exhibit 2.1 of the Company’s Form 8-K filed on July 21, 2008).

3.1	Certificate of Incorporation as amended through July 29, 1998 (incorporated by reference to Exhibit 3.1 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 1998)

3.2	Amended and Restated By-Laws (incorporated by reference to Exhibit 3.1 of the Company’s Current Report on Form 8-K filed September 14, 2011)

4.1	See Exhibits 3.1 - 3.2 for provisions in the Company’s Certificate of Incorporation and By-Laws defining the rights of holders of the Company’s Common Stock

4.2	See Exhibit 10.19

10.1	License Agreement with University of Missouri, as amended (incorporated by reference to Exhibit 10.3 of the Company’s registration statement on Form S-1, File No. 33-7097, and post-effective amendments thereto)

10.2	Reassignment and Release Agreement among the Company, John L. Russell, Jr., and Georgia Tech Research Institute (incorporated by reference to Exhibit 10.8 of the Company’s registration statement on Form S-1, File No. 33-7097, and post-effective amendments thereto)

10.3	Agreement with Nordion International Inc. (incorporated by reference to the Company’s report on Form 8-K dated March 23, 1995)

10.4

Amended and Restated Credit Agreement dated May 27, 2009 among the Company, C.P. Medical Corporation, Galt Medical Corp., NeedleTech Products, Inc. and Wachovia Bank, National Association, together with related Term Loan Note and Amended, Restated and Consolidated Line of Credit Note (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended July 5, 2009)

10.4A

First Amendment dated August 4, 2010 and effective as of June 30, 2010 to the Amended and Restated Credit Agreement dated May 27, 2009 among the Company, C.P. Medical Corporation, Galt Medical Corp., NeedleTech Products, Inc. and Wells Fargo Bank, National Association, successor in interest by merger to Wachovia Bank, National Association (incorporated by reference to Exhibit 10.1 of the Company’s Current Report on Form 8-K filed August 6, 2010)

10.5	Theragenics Corporation 1995 Stock Option Plan* (incorporated by reference to Exhibit 10.1 of the Company’s common stock registration statement on Form S-8, file no. 333-15313)

10.6	1997 Stock Incentive Plan* (incorporated by reference to Appendix B of the Company’s Proxy Statement for its 1997 Annual Meeting of Stockholders filed on Schedule 14A)

10.7	Theragenics Corporation 2000 Stock Incentive Plan* (incorporated by reference to Exhibit 10.16 of the Company’s report on Form 10-K for the year ended December 31, 1999)

10.8	Employment Agreement dated April 13, 2000 of M. Christine Jacobs* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended March 31, 2000)

10.8A

First Amendment dated July 8, 2003 to Executive Employment Agreement for M. Christine Jacobs* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 2003)

10.8B

Amendment to Employment Agreement dated August 8, 2006, between Theragenics Corporation and M. Christine Jacobs* (incorporated by reference to Exhibit 10.3 of the Company’s report on Form 10-Q for the quarterly period ended July 2, 2006)

10.8C

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and M. Christine Jacobs* (incorporated by reference to Exhibit 10.11C of the Company’s report on Form 10-K for the year ended December 31, 2008)

10.9	Employment Agreement dated January 1, 1999 of Bruce W. Smith* (incorporated by reference to Exhibit 10.22 of the Company’s report on Form 10-K for the year ended December 31, 1998)

10.9A

Amendment to Executive Employment Agreement dated June 29, 1999 for Bruce W. Smith* (incorporated by reference to Exhibit 10.18 of the Company’s report on Form 10-K for year ended December 31, 2002)

IV-2

10.9B

Second Amendment dated June 15, 2001 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.19 of the Company’s report on Form 10-K for year ended December 31, 2002)

10.9C

Third Amendment dated September 3, 2002 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.20 of the Company’s report on Form 10-K for year ended December 31, 2002)

10.9D

Fourth Amendment dated May 28, 2003 to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.2 of the Company’s report on Form 10-Q for the quarterly period ended June 30, 2003)

10.9E

Fifth Amendment to Executive Employment Agreement for Bruce W. Smith* (incorporated by reference to Exhibit 10.15E of the Company’s report on Form 10-K for the year ended December 31, 2005)

10.9F

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and Bruce W. Smith* (incorporated by reference to Exhibit 10.12F of the Company’s report on Form 10-K for the year ended December 31, 2008)

10.10

Forms of Option Award for grants prior to 2007* (incorporated by reference to Exhibit 10.22 of the Company’s report on Form 10-K for the year ended December 31, 2004)

10.11

Advisor to the Chief Executive Officer Agreement dated February 3, 2011 with John Herndon* (incorporated by reference to Exhibit 10.12 of the Company’s Form 10-K for the year ended December 31, 2010)

10.12

Form of Directors and Officers Indemnification Agreement* (incorporated by reference to Exhibit 10.28 of the Company’s report on Form 10-K for the year ended December 31, 2003)

10.13

Form of Restricted Stock Agreement for directors as of May 2005* (incorporated by reference to Exhibit 10.1 of the Company’s report on Form 10-Q for the quarterly period ended July 3, 2005)

10.14

Employment Agreement between the Company and Francis J. Tarallo dated August 10, 2005* (incorporated by reference to Exhibit 10.5 of the Company’s report on Form 10-Q for the quarterly period ended July 3, 2005)

10.14A

Amendment to Employment Agreement dated December 31, 2008, between Theragenics Corporation and Francis J. Tarallo* (incorporated by reference to Exhibit 10.20A of the Company’s Form 10-K for the year ended December 31, 2008)

10.15

Theragenics Corporation Incentive Stock Option Award for 2007 grants* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated February 20, 2007)

10.16

Restricted Stock Award Pursuant to the Theragenics Corporation 2006 Stock Incentive Plan for 2007 grants* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated February 20, 2007)

10.17

Theragenics Corporation Amended and Restated 2007 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.24 of the Company’s Form 10-K for the year ended December 31, 2007)

10.18

Employment Agreement dated May 6, 2005 by and between the Company and Patrick Ferguson* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed May 12, 2005)

10.19

Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Appendix A to the Company’s definitive proxy statement for its May 9, 2006 annual meeting of stockholders filed with the Securities and Exchange Commission on March 27, 2006).

10.19A

First Amendment to Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Exhibit 18.1 on Form 8-K filed November 13, 2006)

10.20

Rights Agreement dated February 14, 2007 between the Company and Computershare Investor Services LLC (incorporated by reference to Exhibit 99.1 of the Company’s registration statement on Form 8-A/A filed February 16, 2007)

10.21

Theragenics Corporation Incentive Stock Option Award for 2008-2011 grants* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated February 25, 2008)

10.22

Restricted Stock Award for 2008-2011 grants, pursuant to the Theragenics Corporation 2006 Stock Incentive Plan* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K dated February 25, 2008)

10.23

Theragenics Corporation 2008 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.3 of the Company’s Form 8-K dated February 25, 2008)

IV-3

10.24

Employment Agreement between NeedleTech Products, Inc. and Ronald Routhier, dated as of July 28, 2008* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K filed on July 31, 2008).

10.24A

Amendment to Employment Agreement dated December 31, 2008, between NeedleTech Products, Inc. and Ronald Routhier* (incorporated by reference to Exhibit 10.36A of the Company’s Form 10-K for the year ended December 31, 2008)

10.25

Employment Agreement between NeedleTech Products, Inc. and Russell Small, dated as of July 28, 2008* (incorporated by reference to Exhibit 10.2 of the Company’s Form 8-K filed on July 31, 2008)

10.25A

Amendment to Employment Agreement dated December 31, 2008, between NeedleTech Products, Inc. and Russell Small* (incorporated by reference to Exhibit 10.37A of the Company’s Form 10-K for the year ended December 31, 2008)

10.26

Employment Agreement between CP Medical Corporation and Janet Zeman dated August 6, 2008 (incorporated by reference to Exhibit 10.1 of the Company’s Form 10-Q filed on November 6, 2008)

10.26A

Amendment to Employment Agreement dated December 31, 2008, between CP Medical Corporation and Janet Zeman* (incorporated by reference to Exhibit 10.38 of the Company’s Form 10-K for the year ended December 31, 2008)

10.27

Theragenics Corporation 2009 Long-Term Cash Incentive Plan* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated March 4, 2009)

10.28

Employment Agreement between Theragenics Corporation and Joseph Plante, dated as of January 6, 2011* (incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended December 31, 2010)

10.29

Theragenics Corporation Cash Incentive Plan* (incorporated by reference to Exhibit 10.31 of the Company’s Form 10-K for the year ended December 31, 2009)

10.30

Theragenics Corporation 2012 Omnibus Incentive Plan* (incorporated by reference to Exhibit 10.1 of the Company’s Form 8-K dated March 1, 2012)

23.1	Consent of Dixon Hughes Goodman LLP

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 pursuant 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 pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101

Interactive Data Files providing financial information from the Registrant's Annual Report on Form 10-K for the year ended December 31, 2011 in XBRL (eXtensible Business Reporting Language). Pursuant to Regulation 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Section 11 or 12 of the Securities Act of 1933, as amended, or Section 18 of the Securities Exchange Act of 1934, as amended, and are otherwise not subject to liability.

* Management contract or compensatory plan.

IV-4

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) 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.

	THERAGENICS CORPORATION
	(Registrant)

	By:	/s/ M. Christine Jacobs
		M. Christine Jacobs
		Chief Executive Officer
Dated: March 6, 2012
Buford, Georgia

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

Name	Title	Date

/s/ M. Christine Jacobs	Chief Executive Officer	3/6/12
M. Christine Jacobs	(Principal Executive Officer)
	President and Chairman

/s/ Francis J. Tarallo	Chief Financial Officer (Principal Financial	3/6/12
Francis J. Tarallo	and Accounting Officer) and Treasurer

/s/ Kathleen A. Dahlberg	Director	3/6/12
Kathleen A. Dahlberg

/s/ K. Wyatt Engwall	Director	3/6/12
K. Wyatt Engwall

/s/ John V. Herndon	Director	3/6/12
John V. Herndon

/s/ C. David Moody, Jr.	Director	3/6/12
C. David Moody, Jr.

/s/ Peter A.A. Saunders	Director	3/6/12
Peter A. A. Saunders

IV-5

THERAGENICS CORPORATION®

TABLE OF CONTENTS

		Page

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM		F-2

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated Statements of Earnings and Comprehensive Earnings for each of the three years in the period ended December 31, 2011		F-3

Consolidated Balance Sheets as of December 31, 2011 and 2010		F-4

Consolidated Statements of Shareholders’ Equity for each of the three years in the period ended December 31, 2011		F-5

Consolidated Statements of Cash Flows for each of the three years in the period ended December 31, 2011		F-6

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-8

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON SCHEDULE		S-1

Schedule II - Valuation and Qualifying Accounts for each of the three years in the period ended December 31, 2011		S-2

F-1

Report of Independent Registered Public Accounting Firm

To the Board of Directors and

Shareholders of Theragenics Corporation

We have audited the accompanying consolidated balance sheets of Theragenics Corporation and subsidiaries (the “Company”) as of December 31, 2011 and 2010, and the related consolidated statements of earnings, comprehensive earnings, shareholders’ equity, and cash flows for each of the three years in the period ended December 31, 2011. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the Company as of December 31, 2011 and 2010, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2011, in conformity with accounting principles generally accepted in the United States of America.

The Company was not required to have, nor were we engaged to perform, an examination of management’s assessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2011, included in Management’s Report on Internal Control over Financial Reporting, referred to in Item 9A of the Company’s Annual report on Form 10-K, and, accordingly, we do not express an opinion thereon.

/s/ DIXON HUGHES GOODMAN LLP

Atlanta, Georgia

March 6, 2012

F-2

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF EARNINGS

AND COMPREHENSIVE EARNINGS

Year ended December 31,

(Amounts in thousands, except per share data)

	2011			2010			2009
Revenue
Product sales	$	80,454		$	80,683		$	77,151
License and fee income		2,276			1,501			1,175
		82,730			82,184			78,326
Cost of sales		50,073			49,155			44,953
Gross profit		32,657			33,029			33,373

Operating expenses
Selling, general and administrative		22,685			24,013			22,020
Amortization of purchased intangibles		2,793			3,077			3,441
Research and development		1,649			1,942			2,160
Loss on sale of equipment		34			111			3
		27,161			29,143			27,624

Earnings from operations		5,496			3,886			5,749

Other income (expense)
Interest income		162			99			25
Interest expense		(697	)		(976	)		(865	)
Other, net		5			294			3
		(530	)		(583	)		(837	)

Earnings before income taxes		4,966			3,303			4,912

Income tax expense		1,902			1,233			1,837

NET EARNINGS	$	3,064		$	2,070		$	3,075

NET EARNINGS PER SHARE
Basic	$	0.09			0.06		$	0.09
Diluted	$	0.09			0.06		$	0.09

WEIGHTED AVERAGE SHARES
Basic		33,414			33,259			33,145
Diluted		33,820			33,485			33,269

COMPREHENSIVE EARNINGS
Net earnings	$	3,064			2,070			3,075
Other comprehensive earnings (loss), net of taxes
Reclassification adjustment for (gain) loss included in net earnings		(2	)		1			—
Unrealized (loss) gain on securities arising during the year		(26	)		11			—
Total other comprehensive (loss) earnings		(28	)		12			—
Total comprehensive earnings	$	3,036			2,082			3,075

The accompanying notes are an integral part of these consolidated financial statements.

F-3

Theragenics Corporation and Subsidiaries

CONSOLIDATED BALANCE SHEETS

December 31,

(Amounts in thousands, except per share data)

	2011		2010

ASSETS

CURRENT ASSETS
Cash and cash equivalents	$	29,553	$	29,674
Marketable securities		11,625		10,949
Trade accounts receivable, less allowance of $2,757 in 2011 and $2,413 in 2010		11,375		9,567
Inventories		15,771		13,116
Deferred income tax asset		2,028		1,843
Refundable income taxes		401		—
Prepaid expenses and other current assets		985		917
Total current assets		71,738		66,066

Property and equipment, net		34,519		36,722
Intangible assets, net		9,459		12,319
Other assets		102		80

Total assets	$	115,818	$	115,187

LIABILITIES AND SHAREHOLDERS’ EQUITY

CURRENT LIABILITIES
Accounts payable	$	1,816		$	1,887
Accrued salaries, wages and payroll taxes		2,861			2,340
Short-term borrowings		23,667			3,333
Other current liabilities		1,104			1,408
Total current liabilities		29,448			8,968

Long-term borrowings		—			23,667
Deferred income taxes		1,043			1,213
Asset retirement obligations		807			749
Other long-term liabilities		398			311
Total liabilities		31,696			34,908

COMMITMENTS AND CONTINGENCIES

SHAREHOLDERS’ EQUITY
Common stock - authorized 100,000 shares of $.01 par value; issued and outstanding, 33,991 in 2011 and 33,651 in 2010		340			336
Additional paid-in capital		74,705			73,902
Retained earnings		9,093			6,029
Accumulated other comprehensive gain (loss)		(16	)		12
Total shareholders’ equity		84,122			80,279

Total liabilities and shareholders’ equity	$	115,818		$	115,187

The accompanying notes are an integral part of these consolidated financial statements.

F-4

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

For the three years ended December 31, 2011

(Amounts in thousands, except per share data)

	Common Stock
	Number of Shares			Par value $0.01			Additional paid-in capital			Retained earnings		Accumulated other comprehensive income (loss)			Total
Balance, December 31, 2008		33,243		$	332		$	72,894		$	884	$	—		$	74,110

Issuance of restricted shares		166			2			(2	)		—		—			—

Restricted shares retired and forfeited		(64	)		(1	)		(7	)		—		—			(8	)

Issuance of common stock upon vesting of restricted units		64			1			(1	)		—		—			—

Employee stock purchase plan		26			—			26			—		—			26

Share-based compensation		—			—			450			—		—			450

Net earnings for the year		—			—			—			3,075		—			3,075

Balance, December 31, 2009		33,435		$	334		$	73,360		$	3,959	$	—		$	77,653

Issuance of restricted shares		205			2			(2	)		—		—			—

Employee stock purchase plan		11			—			11			—		—			11

Share-based compensation		—			—			533			—		—			533

Other comprehensive income		—			—			—			—		12			12

Net earnings for the year		—			—			—			2,070		—			2,070

Balance, December 31, 2010		33,651		$	336		$	73,902		$	6,029	$	12		$	80,279

Issuance of restricted shares		298			3			(3	)		—		—			—

Restricted shares retired		(8	)		—			(14	)		—		—			(14	)

Employee stock purchase plan		50			1			61			—		—			62

Share-based compensation		—			—			759			—		—			759

Other comprehensive loss		—			—			—			—		(28	)		(28	)

Net earnings for the year		—			—			—			3,064		—			3,064

Balance, December 31, 2011		33,991		$	340		$	74,705		$	9,093	$	(16	)	$	84,122

The accompanying notes are an integral part of these consolidated statements.

F-5

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year ended December 31,

(Amounts in thousands)

	2011			2010			2009
Cash flows from operating activities:
Net earnings	$	3,064			2,070		$	3,075
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization		7,225			7,207			6,927
Deferred income taxes		(338	)		(907	)		421
Share-based compensation		759			533			450
Provision for allowances		396			1,959			(82	)
(Gain) loss on marketable securities		(2	)		1			2
Decommissioning retirement liability		58			53			50
Loss on sale of equipment		34			111			3
Changes in assets and liabilities:
Accounts receivable		(2,156	)		(2,628	)		(462	)
Inventories		(2,703	)		(1,379	)		108
Refundable income taxes		(401	)		645			859
Prepaid expenses and other current assets		(68	)		(60	)		272
Other assets		(22	)		6			(7	)
Trade accounts payable		(28	)		(1	)		408
Accrued salaries, wages and payroll taxes		521			37			335
Income taxes payable		(8	)		8			(209	)
Other current liabilities		(328	)		342			(838	)
Other		87			(111	)		275

Net cash provided by operating activities		6,090			7,886			11,587

Cash flows from investing activities:
Purchases and construction of property and equipment		(2,026	)		(9,065	)		(4,980	)
Proceeds from sale of equipment		36			7			—
Purchases of marketable securities		(10,879	)		(14,927	)		—
Maturities of marketable securities		9,575			3,095			500
Proceeds from sales of marketable securities		368			674			1,005

Net cash used in investing activities		(2,926	)		(20,216	)		(3,475	)

F-6

Theragenics Corporation and Subsidiaries

CONSOLIDATED STATEMENTS OF CASH FLOWS - Continued

Year ended December 31,

(Amounts in thousands)

	2011			2010			2009
Cash flows from financing activities:
Repayment of borrowings		(3,333	)		(3,333	)		(1,667	)
Loan fees on refinancing of credit facility		—			—			(225	)
Retirement of common stock		(14	)		—			(8	)
Proceeds from stock purchase plan		62			11			26

Net cash used by financing activities		(3,285	)		(3,322	)		(1,874	)

Net (decrease) increase in cash and cash equivalents		(121	)		(15,652	)		6,238

Cash and cash equivalents at beginning of year		29,674			45,326			39,088

Cash and cash equivalents at end of year	$	29,553		$	29,674		$	45,326

Supplementary Cash Flow Disclosure

Interest paid	$	806		$	920		$	842
Income taxes paid	$	2,650		$	1,486		$	766

Non-cash investing and financing activities:

Liability for property and equipment acquired	$	32		$	43		$	433

The accompanying notes are an integral part of these consolidated statements.

F-7

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE A - ORGANIZATION AND DESCRIPTION OF BUSINESS

The terms “Company”, “we”, “us”, or “our” mean Theragenics Corporation and all entities included in our consolidated financial statements.

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 seed business manufactures, markets, and distributes “seeds” used primarily in the minimally invasive treatment of localized prostate cancer. Our brachytherapy product line includes our palladium-103 TheraSeed® device, the iodine-125 based device I-Seed, and other related products and services, all of which are used primarily in the minimally invasive treatment of localized prostate cancer.

NOTE B - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A summary of the significant accounting policies consistently applied in the preparation of the accompanying financial statements follows:

1. Consolidation

These consolidated financial statements include the accounts of Theragenics Corporation and our wholly owned subsidiaries. We have no unconsolidated entities and no special purpose entities. All significant intercompany accounts and transactions have been eliminated in consolidation.

2. Use of Estimates

The preparation of our financial statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”) requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and the related disclosure of contingent assets and liabilities at the date of the financial statements. We evaluate these estimates and judgments on an ongoing basis and base our estimates on historical experience, current conditions and various other assumptions that we believe to be reasonable under the circumstances. The results of these estimates form the basis for making judgments about the carrying values of assets and liabilities as well as identifying and assessing the accounting treatment with respect to commitments and contingencies. Actual results may differ from these estimates under different assumptions or conditions.

3. 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 collectability 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.

4. Cash and Cash Equivalents

For purposes of reporting cash flows, cash and cash equivalents include cash on hand, cash in banks, variable rate demand notes, treasury investments and U.S. obligations and commercial paper with original maturities equal to or less than 90 days from purchase.

F-8

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

5. Marketable Securities

Marketable securities are classified as available-for-sale and are reported at fair value with unrealized gains or losses reported net of tax in accumulated other comprehensive income (loss).

6. Interest Rate Swap Derivative Instruments

We recognize our interest rate swap derivative instruments at fair value as either assets or liabilities in our consolidated balance sheet. Changes in fair value of derivative instruments are recorded in each period in current earnings as interest expense.

7. Accounts Receivable and Allowance for Doubtful Accounts and Returns

Trade accounts receivable arise from sales in our various markets, are stated at the amount expected to be collected and do not bear interest. We maintain an allowance for doubtful accounts based upon reviewing our accounts receivable aging and our estimate of the expected collectability of the amounts. Outstanding receivables are considered past due based upon invoice due dates. The collectability of trade receivable balances is regularly evaluated based on a combination of factors such as customer credit-worthiness, past transaction history with the customer, current economic industry trends, and changes in customer payment terms. If we determine that a customer will be unable to fully meet its financial obligation, such as in the case of a bankruptcy filing or other material events impacting its business, we record a specific reserve for bad debt to reduce the related receivable to the amount expected to be recovered.

8. Inventories

Inventories are stated at the lower of cost or market. Cost is determined using the first-in, first-out (FIFO) method 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 consist of the following (in thousands):

	December 31,
	2011			2010

Raw materials	$	7,756		$	5,709
Work in progress		3,724			2,423
Finished goods		3,988			4,625
Spare parts and supplies		920			928
		16,388			13,685
Allowance for obsolete inventory		(617	)		(569	)
Inventories, net	$	15,771		$	13,116

9. Property, Equipment, and Depreciation

Property and equipment are recorded at historical cost. Depreciation is provided for in amounts sufficient to relate the cost of depreciable assets to operations over their estimated service lives on a straight-line basis. Leasehold improvements are amortized over the useful life of the asset or the lease term, whichever is shorter. Estimated service lives are 30 years for buildings and improvements, and 3 to 15 years for machinery, equipment, furniture, and land improvements. Expenditures for repairs and maintenance not considered to substantially lengthen the life of the asset or increase capacity or efficiency are charged to expense as incurred.

10. Impairment of Long-Lived Assets

We evaluate long-lived assets, including property and equipment and finite lived intangible assets whenever events or changes in conditions may indicate that the carrying value may not be recoverable. Factors that we consider important that could initiate an impairment review include the following:

●

Significant or recurring operating losses;

●

Significant adverse change in legal factors or in the business climate;

●

Significant declines in demand for a product produced by an asset capable of producing only that product;

●

Assets that are idled or held for sale; and

●

Assets that are likely to be divested.

F-9

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The impairment review requires us to estimate future undiscounted cash flows associated with an asset or group of assets. If the future undiscounted cash flows are less than the carrying amount of the asset, we must estimate the fair value of the asset. If the fair value of the asset is below the carrying value, then the asset carrying value will be adjusted to its fair value. Estimating future cash flows requires us to make judgments regarding future economic conditions, product demand and pricing. Although we believe our estimates are appropriate, significant differences in the actual performance of the asset or group of assets may materially affect the values of our asset and our results of operations.

No impairment charges related to long-lived assets subject to depreciation and amortization were recorded in any of the three years in the period ended December 31, 2011.

11. Intangible Assets

Our intangible assets are determined to have finite lives and are amortized over their useful lives using a method that is expected to reflect the pattern of its economic benefit. When a pattern of economic benefit cannot be determined, or if the straight-line method results in greater amortization, then the straight-line method is used. To date, all finite lived intangible assets have been amortized using the straight-line method.

12. Income Taxes

We account for income taxes using the asset and liability method. Under this method, we recognize deferred tax assets and liabilities for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates applied to taxable income. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided for deferred tax assets when it is more likely than not that the asset will not be realized.

We review all of our tax positions, and the tax benefits of uncertain tax positions are recognized only if it is more likely than not that we will be able to sustain a position taken on an income tax return. We have concluded that there were no significant uncertain tax positions as of December 31, 2011 and 2010. Our policy is to recognize accrued interest expense and penalties associated with uncertain tax positions as a component of income tax expense.

13. Contingencies

From time to time we may be subject to various legal proceedings and claims, including, for example, disputes on agreements, employment disputes and other commercial disputes, the outcomes of which are not within our complete control and may not be known for extended periods of time. In some cases, the claimants seek damages, as well as other relief, which, if granted, could require significant expenditures. We record a liability for damages and/or costs related to claims, settlements and judgments where we have assessed that a loss is probable, and an amount can be reasonably estimated. If the estimate of a probable loss is a range and no amount within the range is more likely, we accrue the minimum amount of the range. Legal costs associated with these matters are expensed as incurred.

14. Earnings Per Share

Basic net earnings per common share is based upon the weighted average number of common shares outstanding during the period. Diluted net earnings per common share is based upon the weighted average number of common shares outstanding plus dilutive potential common shares, including options and awards outstanding during the period.

F-10

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

15. Share-Based Compensation

Compensation costs related to share-based payments, including stock options and other equity awards, are measured at the grant date fair value of the award. To estimate the fair value of stock options, we use the Black-Scholes options-pricing model. Inherent in this model are assumptions related to expected stock price volatility, option life, risk-free interest rate and dividend yield. Expected stock price volatility is primarily based on the historical volatility of our stock price over the most recent period commensurate with the expected option life. When determining 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. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the grant date with a term equal to the expected term of the stock option. Fair value of restricted shares is based on the fair value of the underlying common stock at the grant date. The fair value of the restricted shares granted to non-employees is remeasured each period until they are vested based on the fair value of the underlying common stock. Share-based compensation costs are recognized as expense over the requisite service period of each award, which is generally equal to the vesting period.

16. Research and Development Costs

Research and development (R&D) costs are expensed as incurred.

17. Advertising

Advertising costs are expensed as incurred and totaled approximately $504,000, $799,000 and $1,365,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

18. Software Capitalization

Internally used software, whether purchased or developed, is capitalized and amortized using the straight-line method over an estimated useful life of five to seven years. Capitalized software costs are included in machinery and equipment. We capitalize certain costs associated with internal-use software, such as the payroll costs of employees devoting time to the projects and external direct costs for materials and services. Costs associated with internal-use software are expensed during the design phase until the point at which the project has reached the application development stage. Subsequent additions, modifications or upgrades to internal-use software are capitalized only to the extent that they allow the software to perform a task it previously did not perform. Software maintenance and training costs are expensed in the period in which they are incurred. Capitalized costs related to internally used software, including payroll costs and external direct costs, totaled approximately $1.3 million, $1.5 million, and $1.4 million for the years ended December 31, 2011, 2010, and 2009, respectively.

19. Recently Issued Accounting Standard

In June 2011, the Financial Accounting Standards Board (“FASB”) issued an accounting standards update that eliminates the current option to present the components of other comprehensive income as part of the statement of changes in shareholders’ equity. Under this statement, we can elect to present the total of comprehensive income, the components of net income, and the components of other comprehensive income in a single continuous statement of comprehensive income or in two separate but consecutive statements. This statement will be effective for us in our first quarter 2012 Form 10-Q and will be applied retrospectively to all prior periods presented.

20. Reclassifications

We reclassified certain prior year amounts to conform to the current year presentation. These reclassifications did not affect the total consolidated amounts previously reported.

F-11

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE C – PROPERTY AND EQUIPMENT

Property and equipment is summarized as follows (in thousands):

	December 31,
	2011		2010
Buildings and improvements	$	29,251	$	29,230
Machinery and equipment		48,170		45,842
Office furniture and equipment		1,251		1,209
Land improvements		992		992
		79,664		77,273
Less accumulated depreciation		47,837		43,770
		31,827		33,503
Land		1,368		1,373
Construction in progress		1,324		1,846

Property and equipment, net	$	34,519	$	36,722

Construction in progress consists primarily of costs capitalized for the development of enterprise resource planning software for our internal use. Depreciation expense related to property and equipment charged to operations was approximately $4,148,000, $3,834,000 and $3,446,000 for 2011, 2010 and 2009, respectively. We capitalized $39,000, $113,000, and $37,000 of interest expense in 2011, 2010, and 2009, respectively, during the construction of our major capital projects.

NOTE D – FINANCIAL INSTRUMENTS

Interest Rate Swaps

We are exposed to certain risks relating to our ongoing business operations. Since 2009 we have managed 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. Our interest rate swaps are intended to convert a portion of our floating rate debt to a fixed rate. We do not use interest rate swap agreements for speculative or 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 consolidated balance sheet. We enter into interest rate swaps that are designed to hedge our interest rate risk but are not designated as “hedging instruments”, as defined under guidance issued by the FASB. Changes in the fair value of these instruments are recognized as adjustments to interest expense in our consolidated statements 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 two years ended December 31, 2011 is as follows (in thousands):

Balance, December 31, 2009	$	14,333
Matured contracts		(3,333	)
Balance, December 31, 2010	$	11,000
Matured contracts		(3,333	)
Balance, December 31, 2011	$	7,667

The location and fair value of our derivative financial instruments not designated as hedging instruments in our consolidated balance sheets were as follows (in thousands):

			December 31,
Type	Maturity	Balance Sheet Location	2011		2010
Interest rate swaps	June 2012	Other current liabilities	$	57		—
Interest rate swaps	June 2012	Other long-term liabilities	$	—	$	187

F-12

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

The following table includes information about gains and losses recognized on our derivative financial instruments not designated as hedging instruments in our consolidated statements of earnings (in thousands):

								Location of
	Year Ended December 31,							(Gain) Loss
								Recognized in
	2011			2010		2009		Income
Periodic settlements	$	145		$	192	$	112	Interest expense
Change in fair value	$	(130	)	$	107	$	80	Interest expense

Cash, Cash Equivalents and Marketable Securities

The carrying value of our cash and cash equivalents approximates fair value due to the relatively short period to maturity of the instruments. Marketable securities, which consisted primarily of high-credit quality corporate and municipal obligations, were classified as available-for-sale and were reported at fair value based upon quoted market prices with unrealized gains or losses excluded from earnings and included in other comprehensive earnings (loss), net of applicable taxes. The cost of marketable securities sold is determined using the specific identification method. We evaluate individual securities to determine whether a decline in fair value below the amortized cost basis is other-than-temporary. We consider, among other factors, the length of the time and the extent to which the market value has been less than cost, the financial condition and near-term prospects of the issuer, including any specific events which may influence the operations of the issuer and our intent and ability to retain our investment in the issuer for a period of time sufficient to allow for any anticipated recovery in market value. Declines in value that are other-than-temporary are charged to earnings.

Available-for-sale securities consisted of the following (in thousands):

	December 31,
	2011							2010
	Amortized Cost		Gross Unrealized Gain (Loss)			Estimated Fair Value		Amortized Cost		Gross Unrealized Gain (Loss)			Estimated Fair Value
US Treasury and other US government securities	$	4,308	$	6		$	4,314	$	4,373	$	4		$	4,377
State and municipal securities		689		4			693		1,014		(3	)		1,011
Corporate and other securities		6,654		(36	)		6,618		5,542		19			5,561
Total	$	11,651	$	(26	)	$	11,625	$	10,929	$	20		$	10,949

The estimated fair value of marketable securities by contractual maturity at December 31, 2011 is as follows (in thousands):

Due in one year or less	$	6,218
Due after one year through five years		5,407
Total	$	11,625

Financial Instruments Measured at Fair Value on a Recurring Basis

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. In accordance with guidance issued by the FASB, we use a three-level fair value hierarchy to prioritize the inputs used to measure fair value. The hierarchy maximizes the use of observable inputs and minimizes 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.

F-13

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

•	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 (liabilities) measured at fair value on a recurring basis:

	Quoted Prices in Active Markets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)		Total
December 31, 2011
Money market funds	$	8,483	$	—		$	—	$	8,483
Marketable securities		11,625		—			—		11,625
Total assets	$	20,108	$	—		$	—	$	20,108

Interest rate swaps	$	—	$	(57	)	$	—	$	(57	)

December 31, 2010
Money market funds	$	8,053	$	—		$	—	$	8,053
Marketable securities		10,949		—			—		10,949
Total assets	$	19,002	$	—		$	—	$	19,002

Interest rate swaps	$	—	$	(187	)	$	—	$	(187	)

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, among other things, discounted cash flows based upon current market expectations about future amounts, yield curves, and mid-market pricing. Accordingly, we classify our interest rate swap agreements as Level 2. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ 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 estimate that the carrying value of our borrowings approximates fair value at December 31, 2011.

Other Fair Value Measurements

There were no nonfinancial assets or nonfinancial liabilities measured at fair value at December 31, 2011 or 2010.

Concentrations

We are potentially subject to financial instrument concentration of credit risk through our cash and cash equivalents, marketable securities and trade accounts receivable. To mitigate these risks, we have policies, which require minimum credit ratings, and restrict the amount of credit exposure with any one counterparty for short-term investments and marketable securities. We maintain our cash and cash equivalents with a limited number of financial institutions. We periodically evaluate the credit standing of these financial institutions. Trade accounts receivable are subject to risks related to the medical device industry generally, and the wound closure, vascular access, specialty needle and prostate cancer treatment markets specifically. These industries are in turn largely dependent upon the health care market generally, which can be affected by, among other things, innovation and advances in treatments and procedures, insurance and government reimbursement policies, preferences of physicians and other health care providers, demographics and patient requirements, and government regulation. The significant portion of our trade accounts receivable is with customers based in the United States. We have certain customers which comprise ten percent or more of our trade accounts receivable and net revenue. See Note N.

F-14

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE E - INTANGIBLE ASSETS

Intangible assets include the following (in thousands):

	December 31, 2011				December 31, 2010
	Gross Carrying Amount		Accum Amort	Net Book Value	Gross Carrying Amount		Accum Amort	Net Book Value		Weighted Average Life

Customer relationships	$	16,268	10,019	6,249	$	16,268	7,854		8,414	8 years
Tradenames		3,240	972	2,268		3,240	648		2,592	10 years
Non-compete agreements		3,543	3,244	299		3,543	3,056		487	5 years
Developed technology		1,260	691	569		1,260	576		684	12 years
Loan fees and other		260	186	74		260	118		142	5 years
	$	24,571	15,112	9,459	$	24,571	12,252		12,319

At December 31, 2011, the weighted average life of intangible assets subject to amortization was 8 years.

As of December 31, 2011, future approximate aggregate amortization expense for intangible assets subject to amortization is as follows (in thousands):

Year Ending December 31,
2012	$	2,815
2013		2,664
2014		1,672
2015		1,029
2016		390
Beyond		889
	$	9,459

NOTE F - ASSET RETIREMENT OBLIGATIONS

We provide for retirement obligations relating to future decommissioning costs associated with certain of our equipment and buildings. The liability is recorded at present value by discounting our estimated future cash flows associated with future decommissioning activities using our estimated credit-adjusted borrowing rate. The asset retirement obligation has been recorded in the accompanying consolidated balance sheets and will be adjusted to fair value over the estimated useful lives of the assets as an accretion expense. Changes in estimated future cash flows are adjusted in the period of change.

The following summarizes activity in our asset retirement obligation liability (in thousands):

	Year ended
	2011		2010
Asset retirement obligation at beginning of period	$	749	$	696
Accretion expense		58		53
Asset retirement obligation at end of period	$	807	$	749

F-15

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE G - 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 $946,000, representing decommission funding required by the Georgia Department of Natural Resources, were outstanding under the Credit Agreement as of December 31, 2011. The Term Loan is payable in thirty-six equal monthly installments of principal plus interest at LIBOR plus 1.75%, commencing July 1, 2009 through June 1, 2012. 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, as amended, as of December 31, 2011.

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 December 31, 2011 was 3.0%.

NOTE H - INCOME TAXES

The income tax provision consisted of the following (in thousands):

	Year ended December 31,
	2011			2010			2009
Current
Federal	$	1,965		$	1,901		$	1,276
State		275			239			140
		2,240			2,140			1,416
Deferred
Federal		(299	)		(691	)		340
State		(213	)		(234	)		152
Change in allowance		174			18			(71	)
		(338	)		(907	)		421
Income tax expense	$	1,902		$	1,233		$	1,837

F-16

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Our temporary differences are summarized as follows (in thousands):

	December 31,
	2011			2010
Deferred tax assets:
Goodwill and intangible assets	$	1,669		$	1,251
Inventories		451			408
Non-deductible accruals and allowances		1,428			1,185
Net operating loss carryforwards		180			209
Asset retirement obligation		299			276
Share-based compensation		207			143
Tax credit carryforwards		205			140
Capital loss carryforwards		121			136
Other		76			192
Gross deferred tax assets		4,636			3,940
Deferred tax liabilities:
Property and equipment		(3,311	)		(3,137	)
Other		—			(7	)
Gross deferred tax liabilities		(3,311	)		(3,144	)

Valuation allowance		(340	)		(166	)

Net deferred tax asset	$	985		$	630

The net deferred tax asset is classified in our accompanying consolidated balance sheets as follows (in thousands):

	December 31,
	2011			2010
Current deferred tax asset	$	2,028		$	1,843
Long-term deferred tax liability		(1,043	)		(1,213	)
Net deferred tax asset (liability)	$	985		$	630

Activity in the valuation allowance for deferred tax assets is as follows (amounts in thousands):

	Year ended December 31,
	2011		2010	2009
Valuation allowance, beginning of period	$	166	148	$	219
Increase in allowance		174	18		—
Release of allowance		—	—		(71	)
Valuation allowance, end of period	$	340	166	$	148

We periodically evaluate the recoverability of the deferred tax assets and recognize the tax benefit only if reassessment demonstrates that they are realizable. At such time, if it is determined that it is more likely than not that the deferred tax assets are realizable, the valuation allowance is adjusted. The remaining allowance at December 31, 2011 relates primarily to certain capital loss carryforwards and certain state net operating loss carryforwards for which we believe it is more likely than not that the benefit will not be realized.

F-17

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

A reconciliation of the statutory federal income tax rate and our effective tax rate follows:

	Year ended December 31,
	2011			2010			2009
Tax expense at applicable federal rates		34.0	%		34.0	%		34.0	%
State tax, net of federal tax effect		2.6			2.8			2.9
Non-deductible share-based compensation		2.2			3.0			3.0
Non-deductible lobbying expenses		.3			1.1			1.7
Non-deductible compensation (162m)		2.3			2.4			—
Valuation allowance		3.5			—			—
Domestic production deduction		(4.2	)		(5.0	)		(1.8	)
Federal tax credits		(1.1	)		(2.0	)		(2.2	)
State investment tax credit		(2.0	)		(1.4	)		—
Other		.7			2.4			(0.2	)
Effective tax expense		38.3	%		37.3	%		37.4	%

Substantially all our state net operating loss carryforwards expire in 2025.

We account for investment tax credits under the flow-though method, which results in the recognition of the credit as a reduction of income taxes in the year in which the credit arises. We have state investment tax credit carryforwards of $205,000, which expires in 2020.

We have evaluated our tax positions for the tax years ended December 31, 2008, 2009 and 2010, the tax years that remain subject to examination by major tax jurisdictions as of December 31, 2011. With few exceptions, we are no longer subject to U.S. federal, state and local, or income tax examinations by tax authorities for years prior to 2008. We have concluded that there are no significant uncertain tax positions requiring recognition in our consolidated financial statements.

NOTE I - COMMITMENTS AND CONTINGENCIES

Licensing Agreements

We hold a worldwide exclusive license from the University of Missouri for the use of technology patented by the University used in our TheraSphere® product. Royalties to the University of Missouri are no longer due from us under this licensing agreement. We do reimburse the University for certain administrative fees associated with the patents related to the technology.

We have granted certain of our geographical rights under the licensing agreement with the University of Missouri to Nordion Inc., a Canadian company that is a producer, marketer and supplier of radioisotope products and related equipment. Under the Nordion agreement, we are entitled to licensing fees for each geographic area in which Nordion receives new drug approval. We are also entitled to a percentage of revenues earned by Nordion as royalties under the agreement. Royalties from this agreement are recorded as license and fee income in the accompanying consolidated statements of earnings.

In May 2008, we entered into an exclusive license agreement for the rights to certain intellectual property related to an expandable brachytherapy delivery system developed by us. The term of the agreement is through the expiration of the last of the patents licensed under the agreement, which is currently July 2025. The term may be altered if such patents are found to be invalid. The agreement provides for a minimal non-refundable initial license fee and non-refundable continuing royalties based upon sales subject to certain minimums. Royalties from this agreement are recorded as license and fee income in the accompanying consolidated statements of earnings. Minimum annual royalties are based on the contract year, which ends each May, and are $450,000 for the contract year ended May 31, 2012, and $1 million annually thereafter through July 2025.

The minimum royalties are subject to increase under certain circumstances. The licensee has the right to terminate the agreement without penalty until May 2012 if the product is found to be technically or commercially impracticable, as defined in the agreement. After May 2012, the licensee can terminate the agreement for any reason upon payment of the minimum annual royalties due for that contract year, plus a termination fee of $1 million. In the event the licensee terminates the agreement for any reason, the initial license fee and all royalties previously paid are non-refundable and all rights granted by the license terminate. The licensee can assign its rights to the agreement upon payment of an assignment fee.

F-18

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Lease Commitments and Obligations

We lease equipment and production, warehouse, office and other space under non-cancelable leases that expire at various dates through August 2016. Approximate minimum lease payments under the leases are as follows: 2012, $443,000; 2013, $206,000; 2014, $26,000; 2015, $7,000; and 2016, $5,000.

Rent expense was approximately $578,000, $819,000 and $976,000 for the years ended December 31, 2011, 2010 and 2009, respectively.

Litigation and Claims

From time to time we may be a party to claims that arise in the ordinary course of business, none of which, in our view, is expected to have a material adverse effect on our consolidated financial position or our results of operations.

NOTE J – SHARE-BASED COMPENSATION AND SHAREHOLDERS’ EQUITY

We provide share-based compensation under equity incentive plans approved by stockholders, which provide for the granting of stock options, restricted stock and other equity incentives. As of December 31, 2011 there were 710,032 shares remaining available for issuance under our equity incentive plans. We issue new shares from our authorized but unissued share pool.

Stock Options

Stock options granted to date have had an exercise price at least equal to 100% of market value of the underlying common stock on the date granted. These options expire ten years from the date of grant and become exercisable over a three to five-year vesting period.

The following is a summary of activity in stock options outstanding during the year ended December 31, 2011 (shares in thousands):

	Shares			Weighted average exercise price		Weighted average remaining contractual life (yrs)		Aggregate intrinsic value
Outstanding, beginning of period		1,258		$	3.27
Granted		424			1.71
Exercised		—			—
Forfeited		(2	)		3.95
Expired		(10	)		5.38
Outstanding, end of period		1,670		$	2.86		6.2	$	273
Exercisable at end of period		832		$	4.13		4.0	$	116

A summary of grant date fair values and intrinsic values follows (in thousands, except per share amounts):

	Year ended December 31,
	2011		2010		2009
Weighted average grant date fair value of options granted	$	1.15	$	0.96	$	0.58
Total intrinsic value of options exercised	$	N/A	$	N/A	$	N/A
Total fair value of options vested	$	282	$	196	$	195

The fair values were estimated using the Black-Scholes options-pricing model with the following weighted average assumptions:

	2011			2010			2009
Expected dividend yield		0.0	%		0.0	%		0.0	%
Expected stock price volatility		62.8	%		63.4	%		60.7	%
Risk-free interest rate		3.0	%		3.3	%		2.7	%
Expected life of option (years)		8.0			8.0			7.0

F-19

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

We recognize compensation expense for 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 $368,000, $272,000 and $184,000 for the year ended December 31, 2011, 2010 and 2009, respectively. As of December 31, 2011, there was approximately $356,000 of unrecognized compensation cost related to non-vested stock options, which is expected to be recognized over a weighted average period of approximately two years.

We may issue restricted stock to employees, directors and others. Non-vested restricted stock is included in our outstanding common shares. Restrictions limit the sale or transfer of the shares until vested. Vesting of restricted stock is time-based over a three to four-year period. A summary of activity in non-vested restricted stock awards for the year ended December 31, 2011 follows (shares in thousands):

Non-vested Restricted Stock	Shares			Weighted average grant date fair value
Non-vested at January 1, 2011		364		$	1.76
Granted		298			1.76
Vested		(131	)		2.20
Forfeited		—			—
Non-vested at December 31, 2011		531		$	1.65

Fair value of restricted shares granted to employees and directors is based on the fair value of the underlying common stock at the grant date. The fair value of the restricted shares granted to non-employees is remeasured each period until they are vested based on the fair value of the underlying common stock. Compensation cost related to the restricted shares is based on the grant date fair value of the common stock granted and is recorded over the requisite service period of three to four years. The weighted average per share grant date fair value of restricted shares issued was $1.76, $1.43, and $.94 in 2011, 2010, and 2009, respectively. Compensation expense related to the restricted stock totaled approximately $379,000, $257,000, and $262,000 in 2011, 2010 and 2009, respectively. As of December 31, 2011, there was approximately $371,000 of unrecognized compensation cost related to the restricted shares, which is expected to be recognized over a weighted average period of approximately two years.

Employee Stock Purchase Plan

The Theragenics Corporation Employee Stock Purchase Plan (the “ESPP”) allows eligible employees the right to purchase common stock on a quarterly basis at the lower of 85% of the market price at the beginning or end of each quarterly offering period. Compensation cost related to the ESPP totaled approximately $12,000, $4,000 and $4,000 in 2011, 2010 and 2009, respectively. 250,000 shares of Common Stock are authorized under our current ESPP, and 186,100 shares remained available for issuance under the ESPP at December 31, 2011.

Shareholder Rights Plan

We have a Shareholder Rights Plan (the “Rights Plan”), which contains provisions designed to protect our shareholders in the event of an unsolicited takeover attempt. It is not intended to prevent a takeover on terms that are favorable and fair to all shareholders and will not interfere with a merger approved by the Board of Directors. Pursuant to the Rights Plan each share of our Common Stock contains a share purchase right (a “Right”), which expires in February 2017 and does not become exercisable unless a group acquires or announces a tender or exchange offer for 20% or more of our outstanding Common Stock. Upon a triggering event, each Right that is not held by the 20% or more shareholders will entitle its holder to purchase additional shares of Common Stock at a substantial discount to the then current market prices.

NOTE K – 401(K) SAVINGS PLANS

We sponsor a 401(k) defined contribution retirement savings plan for our employees. Matching contributions were made in Company stock in 2011. Prior to 2011, we sponsored more than one 401(k) defined contribution retirement savings plans for our employees, and matching contributions were made in stock or in cash in 2010 and 2009. Matching contributions are charged to operating expenses and totaled approximately $297,000, $222,000 and $325,000 in 2011, 2010, and 2009, respectively.

F-20

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE L – EARNINGS PER SHARE

Earnings per common share was computed as follows (in thousands, except per share data):

	Year ended December 31,
	2011		2010		2009
Net earnings	$	3,064		2,070	$	3,075

Weighted average common shares outstanding		33,414		33,259		33,145
Incremental common shares issuable from stock options and awards		406		226		124
Weighted average common shares outstanding assuming dilution		33,820		33,485		33,269

Basic earnings per share	$	0.09		0.06	$	0.09
Diluted earnings per share	$	0.09		0.06	$	0.09

Diluted earnings per share does not include the effect of certain stock options and awards as their impact would be anti-dilutive. Approximately 1,077,000, 1,011,000 and 864,000 stock options and awards for the years ended December 31, 2011, 2010 and 2009, respectively, were not included in the computation of diluted earnings per share for those years because their effect would be anti-dilutive.

NOTE M - SEGMENT REPORTING

We are a medical device company serving the surgical product and cancer treatment markets, operating in two business segments. Our surgical products segment consists of wound closure, vascular access, and specialty needle products. Our brachytherapy seed business produces, markets, and distributes “seeds” primarily in the minimally invasive treatment of localized prostate cancer. Our brachytherapy product line includes our palladium-103 TheraSeed® device and our iodine-125 based devices, all of which are used primarily in the minimally invasive treatment of localized prostate cancer and services.

The following tables provide certain information for these segments (in thousands):

	Year ended December 31,
	2011			2010			2009
Revenue
Surgical products	$	59,409			59,027		$	53,660
Brachytherapy seed		24,077			23,752			24,966
Intersegment eliminations		(756	)		(595	)		(300	)
	$	82,730			82,184		$	78,326

Earnings from operations
Surgical products	$	607			215		$	1,664
Brachytherapy seed		4,923			3,685			4,081
Intersegment eliminations		(34	)		(14	)		4
	$	5,496			3,886		$	5,749

Capital expenditures,
Surgical products	$	1,780			8,316		$	3,934
Brachytherapy seed		246			749			1,046
	$	2,026			9,065		$	4,980

Depreciation and amortization
Surgical products	$	4,536			4,686		$	4,851
Brachytherapy seed		2,689			2,521			2,076
	$	7,225			7,207		$	6,927

F-21

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

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. Corporate expenses are allocated based upon the relative revenue for each segment.

Segment information related to significant assets follows (in thousands):

	December 31,
	2011			2010
Identifiable assets
Surgical products	$	72,475		$	71,944
Brachytherapy seed		60,791			63,699
Corporate investment in subsidiaries		111,439			111,439
Intersegment eliminations		(128,887	)		(131,895	)
	$	115,818		$	115,187

Intangible assets
Surgical products	$	9,404		$	12,198
Brachytherapy seed		55			121
	$	9,459		$	12,319

Segment information for capital expenditures and identifiable assets for periods prior to 2011 have been reclassed to be consistent with the manner in which the 2011 corporate assets were classified.

Information regarding revenue by geographic regions follows (in thousands):

	Year ended December 31,
	2011		2010		2009
Product sales
United States	$	70,836	$	71,853	$	69,330
Europe		7,663		7,544		6,140
Other foreign countries		1,955		1,286		1,681
		80,454		80,683		77,151
License and fee income
United States		953		603		507
Canada		1,323		898		668
		2,276		1,501		1,175

	$	82,730	$	82,184	$	78,326

Foreign sales are attributed to countries based on location of the customer. The license fees attributed to Canada are with Nordion, a Canadian based company, for the license of our TheraSphere® product. Almost all other foreign sales are related to the surgical products segment. All of our long-lived assets are located within the United States.

NOTE N - DISTRIBUTION AGREEMENTS AND MAJOR CUSTOMERS

Our brachytherapy seed business sells our TheraSeed® device directly to healthcare providers and to third-party distributors. Under our third-party distribution agreements, we are the exclusive palladium-103 seed supplier for the treatment of prostate cancer for each distributor, and each distributor has the non-exclusive right to sell TheraSeed® in the U.S. and Canada. Certain agreements also provide distributors with rights to distribute TheraSeed® for the treatment of solid localized tumors other than in the prostate and with rights to distribute to certain locations outside of North America. Such applications (non-prostate and outside of North America) have not been material. Our principal non-exclusive distribution agreement is with C. R. Bard (“Bard”). Our agreement with Bard provides 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, 2013 and will be automatically extended for one additional year unless either party gives notice of its intent not to extend by December 31, 2012. Sales to Bard under the Bard agreement represented approximately 28%, 33% and 44% of brachytherapy segment revenue in 2011, 2010, and 2009, respectively. Our surgical products segment also sells to Bard. Total consolidated sales to Bard, including sales in our brachytherapy seed segment and our surgical products segment, represented approximately 10%, 11% and 16% of consolidated revenue in 2011, 2010, and 2009, respectively. Accounts receivable from Bard represented approximately 19% of brachytherapy accounts receivable at both December 31, 2011 and 2010 and 6% and 10% of consolidated accounts receivable at December 31, 2011 and 2010, respectively.

F-22

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

Core Oncology (“Core”) became an additional non-exclusive distributor of TheraSeed® in January 2010. In February 2011, we terminated our agreement with Core due to Core’s failure to satisfy its financial obligation to us in accordance with the contractual terms of the agreement. Core had been attempting to become current with amounts due to us. However, litigation filed against Core by a third party in January 2011 created what we viewed as an unacceptable level of uncertainty surrounding Core’s ability to satisfy their financial obligations to us for both current and ongoing sales. Subsequent to termination of the agreement, we continued to supply TheraSeed® to Core on a prepaid basis. Sales to Core in our brachytherapy segment totaled approximately 8% and 14% of total brachytherapy seed segment revenue for in 2011 and 2010, respectively. In the latter half of 2011, certain customers who previously purchased TheraSeed® through Core began purchasing either from us on a direct basis or through one of our other TheraSeed® distributors. On February 2012, we acquired Core's prostate brachytherapy customer base. See Note R. Brachytherapy accounts receivable due from Core at December 31, 2011 and 2010 totaled $1.8 million and $1.7 million, respectively (consolidated accounts receivable due from Core totaled $2.2 million and $2.1 million at December 31, 2011, and 2010, respectively). An allowance for doubtful accounts has been established for all unpaid amounts due from Core at December 31, 2011 and 2010.

NOTE O – NON-OPERATING INCOME/(EXPENSE)

Other non-operating income/(expense) consists of the following (in thousands):

	Year Ended December 31,
	2011		2010			2009
Litigation settlement	$	—	$	200		$	—
Gain (loss) on marketable securities		2		(2	)		(2	)
Other		3		96			5
Total other	$	5		294		$	3

NOTE P - RELATED PARTY TRANSACTIONS

During 2010 and 2009, we utilized the services of a real estate firm whose principal owner is related to one of our executive officers. Payments of $131,000 and $99,000 were made to this firm during 2010 and 2009 for construction and real estate consulting services. No such payments were made in 2011.

NOTE Q - QUARTERLY FINANCIAL DATA (UNAUDITED)

The following summarizes certain quarterly results of operations (in thousands, except per share data):

Year ended December 31, 2011:	Quarter ended
	March 31		June 30		September 30		December 31
Net revenue	$	20,253	$	21,536	$	21,062	$	19,879
Gross profit		7,967		8,708		8,769		7,213
Net earnings		458		1,185		1,141		280
Net earnings per common share
Basic	$	0.01	$	0.04	$	0.03	$	0.01
Diluted	$	0.01	$	0.04	$	0.03	$	0.01

Year ended December 31, 2010:	Quarter ended
	March 31		June 30		September 30		December 31
Net revenue	$	20,318	$	20,777	$	20,412	$	20,677
Gross profit		7,847		8,824		8,493		7,865
Net earnings		144		782		771		373
Net earnings per common share
Basic	$	0.00	$	0.02	$	0.02	$	0.01
Diluted	$	0.00	$	0.02	$	0.02	$	0.01

F-23

Theragenics Corporation and Subsidiaries

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED

NOTE R – SUBSEQUENT EVENT

Acquisition of Core Oncology’s Prostate Brachytherapy Customer Base

On February 17, 2012, we acquired Core Oncology’s prostate brachytherapy customer base. This transaction is expected to substantially increase our share of the iodine-125 segment of the prostate brachytherapy market. In addition to the customer base, we also acquired certain packaging technologies. We did not acquire Core’s facilities, manufacturing equipment or processes, or Core’s employees. The total earn-out based purchase price is expected to be approximately $7.5 million to $10.5 million. We paid $3.8 million in cash as a prepayment of a portion of the earn-out at closing and will make six quarterly earn-out payments thereafter, beginning in June 2012.

F-24

Report of Independent Registered Public Accounting Firm on Schedule

To the Board of Directors and

Shareholders of Theragenics Corporation

We have audited in accordance with the standards of the Public Company Accounting Oversight Board (United States) the consolidated financial statements of Theragenics Corporation and subsidiaries for each of the three years in the period ended December 31, 2011, as referred to in our report dated February 28, 2012, which is included in the annual report to security holders and included in Part II of this form. Our audits were conducted for the purpose of forming an opinion on the basic consolidated financial statements taken as a whole. Schedule II is presented for purposes of additional analysis and is not a required part of the basic consolidated financial statements. The information in Schedule II has been subjected to the auditing procedures applied in the audit of the basic consolidated financial statements and, in our opinion, the information is fairly stated in all material respects in relation to the basic consolidated financial statements taken as a whole.

/s/ DIXON HUGHES GOODMAN LLP

Atlanta, Georgia

March 6, 2012

S-1

Theragenics Corporation and Subsidiaries

SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS

For each of the three years in the period ended December 31, 2011

(Amounts in thousands)

Column A - Description	Column B		Column C - Additions				Column D			Column E
	Balance at beginning of period		(1) Charged to costs and expenses		(2) Charged to other accounts		Deductions			Balance at end of period

Year ended December 31, 2011
Allowance for doubtful accounts receivable	$	2,413	$	348	$	—	$	4	(c)	$	2,757

Allowance for obsolete inventory	$	569	$	89	$	—	$	41	(d)	$	617

Year ended December 31, 2010
Allowance for doubtful accounts receivable	$	384	$	2,060	$	—	$	31	(c)	$	2,413
								18	(a)
Allowance for obsolete inventory	$	670	$	—	$	—	$	83	(d)	$	569

Year ended December 31, 2009
								5	(b)
Allowance for doubtful accounts receivable	$	481	$	—	$	—	$	92	(c)	$	384
Allowance for obsolete inventory	$	747	$	251	$	—	$	328	(d)	$	670

(a) - reduction in allowance for obsolete inventory amounts

(b) – reduction in allowance for doubtful accounts receivable amounts

(d) - disposal of inventory

S-2

Delaware		58-1528626
(State of incorporation)		(I.R.S. Employer Identification Number)

5203 Bristol Industrial Way
Buford, Georgia		30518
(Address of principal executive offices)		(Zip Code)

				Name of each exchange on
	Title of each class			which registered

	Common stock, $.01 par value,			New York Stock Exchange
	Together with associated
	Common Stock Purchase Rights

		Page
	PART I
Item 1.	Business	I-1
Item 1A.	Risk Factors	I-12
Item 1B.	Unresolved Staff Comments	I-21
Item 2.	Properties	I-21
Item 3.	Legal Proceedings	I-21
Item 4.	Mine Safety Disclosures	I-21

	PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	II-1
Item 6.	Selected Financial Data	II-2
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	II-3
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	II-16
Item 8.	Financial Statements and Supplementary Data	II-17
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure	II-17
Item 9A.	Controls and Procedures	II-17
Item 9B.	Other Information	II-18

	PART III
Item 10.	Directors, Executive Officers and Corporate Governance	III-1
Item 11.	Executive Compensation	III-1
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	III-1
Item 13.	Certain Relationships and Related Transactions, Director Independence	III-1
Item 14.	Principal Accounting Fees and Services	III-1

	PART IV
Item 15.	Exhibits and Financial Statement Schedules	IV-1

	Signatures	IV-5