Theragenics Corp. (TGX, Financial) filed Quarterly Report for the period ended 2009-10-04.
Theragenics Corporation, a medical isotope and cancer treatment producer, is a leader in the production and sales of implantable radiation devices used in the treatment of cancer. The company produces and sells TheraSeed, based on the radioactive isotope palladium 103. TheraSeed is used primarily in the treatment of early stage prostate cancer. In the treatment, TheraSeeds are implanted into the prostate in a one-time, minimally invasive procedure. Theragenics Corp. has a market cap of $45.2 million; its shares were traded at around $1.35 with a P/E ratio of 15 and P/S ratio of 0.7.
Operating income in our surgical products segment was $623,000 in the third quarter of 2009 compared to $202,000 in the third quarter of 2008. For the year to date periods, operating income was $1.5 million in 2009 compared to $1.7 million in 2008. A number of factors affected the comparability between the 2009 and 2008 periods. In the third quarter of 2009, our gross profit (revenue less cost of sales) was 41% of revenue, compared to 38% in 2008. For the nine-month period, our gross profit was 40% of sales in 2009 compared to 44% in 2008. In the 2008 periods our gross profit was reduced by $590,000 of non-cash charges related to the third quarter acquisition of NeedleTech. These charges did not recur in the 2009 periods. However, our product and sales channel mix changed subsequent to the NeedleTech acquisition, with a larger proportion of sales being made to OEM customers. These sales typically carry lower gross profit as a percentage of sales than sales to our distributors and our direct sales. We also experienced pricing pressures in the 2009 periods, which we believe were at least in part caused by the general macroeconomic uncertainties. Going forward, we expect our gross profit as a percentage of sales will continue to be affected by changes in our product and sales channel mix, and by continued pricing pressures.
Operating income in our surgical products business in 2009 was also affected by increased investments in our research and development (“R&D”) program. R&D expenses increased $159,000 in the third quarter of 2009 and $1.1 million for the first nine months of 2009 over the comparable 2008 periods. Our R&D program was launched in the second half of 2008. This R&D program is focused 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, and not on products that require lengthy and expensive clinical trials. We have recently been reassessing the projects in our R&D program, in an effort to focus on opportunities with a more immediate impact. We believe that opportunities to support programs for our customers may be more attractive for us than developing new products. We expect to continue to invest in infrastructure and R&D during 2009 as investments are made to support anticipated future growth and to develop products to address growth opportunities in our surgical products business. Looking forward, our quarterly results are expected to be affected by the timing of these investments. Also affecting comparability between the 2009 and 2008 periods is the allocation of our corporate costs. We now allocate corporate costs based on the relative revenue of each of our two business segments. Because our surgical products segment comprised more of our consolidated revenue in the 2009 periods, primarily due to the inclusion of NeedleTech in our consolidated results, corporate costs allocated to our surgical products segment increased by $125,000 in the third quarter and $1.0 million in the first nine months of the year, compared to the 2008 periods. Finally, we recorded amortization expense related to our tradenames intangible assets totaling $81,000 in the third quarter of 2009 and $243,000 in the first nine months of 2009. We did not record any amortization in the comparable 2008 periods. Amortization of our tradenames intangible assets resulted from our reassessment of their useful lives during impairment testing at December 31, 2008. Total amortization expense from tradename amortization is expected to be $324,000 for the full year in 2009.
Operating income in our brachytherapy business was $972,000 in the third quarter of 2009 compared to $933,000 in 2008. For the year to date period, operating income was $3.4 million in 2009 compared to $4.2 million in 2008. Manufacturing related expenses in our brachytherapy business tend to be relatively fixed in nature. Accordingly, even modest declines in revenue have a negative impact on operating income. Gross margins and operating income in our brachytherapy seed business are expected to continue to be highly dependent on sales levels due to this high fixed cost component. Selling, general and administrative expenses (“SG&A”) decreased in the 2009 periods, including the elimination of carrying costs for our former Oak Ridge facility, which was sold in July 2008. There was also a reduction in advertising in the third quarter of 2009 due to the timing of advertisements. The nine-month 2008 period also included a $142,000 benefit from the sale of our Oak Ridge facility. No such benefit was realized in the 2009 periods. Finally, operating income in our brachytherapy business also benefited from a reduction in the allocation of corporate costs in the 2009 periods. We now allocate corporate costs based on the relative revenue of each of our two business segments. Because our brachytherapy revenue comprised less of our consolidated revenue in 2009, mainly due to the inclusion of NeedleTech in our consolidated results, corporate costs allocated to our brachytherapy business declined $92,000 in the third quarter and $468,000 in the first nine months of the year, compared to the 2008 periods.
Interest income decreased to $6,000 in the third quarter of 2009 from $173,000 in the third quarter of 2008 and to $23,000 in the first nine months of 2009 from $929,000 in the first nine months of 2008 due to significantly lower yields on our investment portfolio. In the 2008 periods we had significant investments in auction rate securities. These investments provided relatively higher returns than we are currently experiencing, but these investments also turned out to be illiquid and very risky. The auction rate security market continues to be relatively illiquid and riskier than expected. We liquidated our auction rate securities in late 2008 and early 2009 at full value and without incurring any losses to principal. However, due to the uncertainties and risks inherent in the current investment and credit markets, our investment portfolio in 2009 is much more conservatively invested than it was last year. All of our investments are currently held in banks, U.S. Treasury Bills or highly rated money market accounts. Looking forward, we may invest our funds in higher yielding investments if those investments meet the conservative criteria established by our investment policies and the macroeconomic outlook becomes clearer. Funds available for investment have and will continue to be utilized for our current and future expansion programs, for strategic opportunities for growth and diversification, and for installment payments on the Term Loan. As funds continue to be used for these purposes, and as interest rates continue to change, we expect interest income to fluctuate accordingly.
Interest expense increased to $362,000 in the third quarter of 2009 from $241,000 in the third quarter of 2008 and increased to $647,000 in the first nine months of 2009 from $518,000 in the first nine months of 2008. The increased interest expense in the 2009 periods was a result of higher outstanding borrowings in the 2009 periods due to borrowings made for the NeedleTech acquisition. Somewhat offsetting the increased borrowings was a lower effective interest rate during most of the first nine months of 2009. Our weighted average effective interest rate was 3.1% at October 4, 2009. In addition, fair value adjustments related to our interest rate swaps are included in interest expense. Such fair value adjustments totaled unrealized losses of $84,000 in the third quarter and $74,000 in the year to date period.
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Theragenics Corporation, a medical isotope and cancer treatment producer, is a leader in the production and sales of implantable radiation devices used in the treatment of cancer. The company produces and sells TheraSeed, based on the radioactive isotope palladium 103. TheraSeed is used primarily in the treatment of early stage prostate cancer. In the treatment, TheraSeeds are implanted into the prostate in a one-time, minimally invasive procedure. Theragenics Corp. has a market cap of $45.2 million; its shares were traded at around $1.35 with a P/E ratio of 15 and P/S ratio of 0.7.
Highlight of Business Operations:
In May 2009, we executed an Amended and Restated Credit Agreement (the “Credit Agreement”) with a financial institution. The Credit Agreement provides for up to $30 million of borrowings under a revolving credit facility (the “Revolver”) and a $10 million term loan (the “Term Loan”). The Revolver matures on October 31, 2012 with interest payable at the London Interbank Offered Rate (“LIBOR”) plus 2.25%. Maximum borrowings under the Revolver can be increased to $40 million with the prior approval of the financial institution under an accordion feature. The Term Loan is payable in equal monthly installments over 36 months, which commenced July 1, 2009 (totaling $3.3 million annually), plus interest at LIBOR plus 1.75%. We also entered into interest rate swap agreements to hedge our interest rate risk. We entered into a floating to fixed rate swap with respect to the outstanding principal amount of the Term Loan, at a fixed interest rate of 3.27%, and a separate floating to fixed rate swap with respect to $6 million of the principal amount outstanding under the Revolver, at a fixed interest rate of 4.26%. This new Credit Agreement replaces the credit agreement that would have matured in October 2009. See “Credit Agreement” under “Liquidity and Capital Resources” below for additional information.Operating income in our surgical products segment was $623,000 in the third quarter of 2009 compared to $202,000 in the third quarter of 2008. For the year to date periods, operating income was $1.5 million in 2009 compared to $1.7 million in 2008. A number of factors affected the comparability between the 2009 and 2008 periods. In the third quarter of 2009, our gross profit (revenue less cost of sales) was 41% of revenue, compared to 38% in 2008. For the nine-month period, our gross profit was 40% of sales in 2009 compared to 44% in 2008. In the 2008 periods our gross profit was reduced by $590,000 of non-cash charges related to the third quarter acquisition of NeedleTech. These charges did not recur in the 2009 periods. However, our product and sales channel mix changed subsequent to the NeedleTech acquisition, with a larger proportion of sales being made to OEM customers. These sales typically carry lower gross profit as a percentage of sales than sales to our distributors and our direct sales. We also experienced pricing pressures in the 2009 periods, which we believe were at least in part caused by the general macroeconomic uncertainties. Going forward, we expect our gross profit as a percentage of sales will continue to be affected by changes in our product and sales channel mix, and by continued pricing pressures.
Operating income in our surgical products business in 2009 was also affected by increased investments in our research and development (“R&D”) program. R&D expenses increased $159,000 in the third quarter of 2009 and $1.1 million for the first nine months of 2009 over the comparable 2008 periods. Our R&D program was launched in the second half of 2008. This R&D program is focused 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, and not on products that require lengthy and expensive clinical trials. We have recently been reassessing the projects in our R&D program, in an effort to focus on opportunities with a more immediate impact. We believe that opportunities to support programs for our customers may be more attractive for us than developing new products. We expect to continue to invest in infrastructure and R&D during 2009 as investments are made to support anticipated future growth and to develop products to address growth opportunities in our surgical products business. Looking forward, our quarterly results are expected to be affected by the timing of these investments. Also affecting comparability between the 2009 and 2008 periods is the allocation of our corporate costs. We now allocate corporate costs based on the relative revenue of each of our two business segments. Because our surgical products segment comprised more of our consolidated revenue in the 2009 periods, primarily due to the inclusion of NeedleTech in our consolidated results, corporate costs allocated to our surgical products segment increased by $125,000 in the third quarter and $1.0 million in the first nine months of the year, compared to the 2008 periods. Finally, we recorded amortization expense related to our tradenames intangible assets totaling $81,000 in the third quarter of 2009 and $243,000 in the first nine months of 2009. We did not record any amortization in the comparable 2008 periods. Amortization of our tradenames intangible assets resulted from our reassessment of their useful lives during impairment testing at December 31, 2008. Total amortization expense from tradename amortization is expected to be $324,000 for the full year in 2009.
Operating income in our brachytherapy business was $972,000 in the third quarter of 2009 compared to $933,000 in 2008. For the year to date period, operating income was $3.4 million in 2009 compared to $4.2 million in 2008. Manufacturing related expenses in our brachytherapy business tend to be relatively fixed in nature. Accordingly, even modest declines in revenue have a negative impact on operating income. Gross margins and operating income in our brachytherapy seed business are expected to continue to be highly dependent on sales levels due to this high fixed cost component. Selling, general and administrative expenses (“SG&A”) decreased in the 2009 periods, including the elimination of carrying costs for our former Oak Ridge facility, which was sold in July 2008. There was also a reduction in advertising in the third quarter of 2009 due to the timing of advertisements. The nine-month 2008 period also included a $142,000 benefit from the sale of our Oak Ridge facility. No such benefit was realized in the 2009 periods. Finally, operating income in our brachytherapy business also benefited from a reduction in the allocation of corporate costs in the 2009 periods. We now allocate corporate costs based on the relative revenue of each of our two business segments. Because our brachytherapy revenue comprised less of our consolidated revenue in 2009, mainly due to the inclusion of NeedleTech in our consolidated results, corporate costs allocated to our brachytherapy business declined $92,000 in the third quarter and $468,000 in the first nine months of the year, compared to the 2008 periods.
Interest income decreased to $6,000 in the third quarter of 2009 from $173,000 in the third quarter of 2008 and to $23,000 in the first nine months of 2009 from $929,000 in the first nine months of 2008 due to significantly lower yields on our investment portfolio. In the 2008 periods we had significant investments in auction rate securities. These investments provided relatively higher returns than we are currently experiencing, but these investments also turned out to be illiquid and very risky. The auction rate security market continues to be relatively illiquid and riskier than expected. We liquidated our auction rate securities in late 2008 and early 2009 at full value and without incurring any losses to principal. However, due to the uncertainties and risks inherent in the current investment and credit markets, our investment portfolio in 2009 is much more conservatively invested than it was last year. All of our investments are currently held in banks, U.S. Treasury Bills or highly rated money market accounts. Looking forward, we may invest our funds in higher yielding investments if those investments meet the conservative criteria established by our investment policies and the macroeconomic outlook becomes clearer. Funds available for investment have and will continue to be utilized for our current and future expansion programs, for strategic opportunities for growth and diversification, and for installment payments on the Term Loan. As funds continue to be used for these purposes, and as interest rates continue to change, we expect interest income to fluctuate accordingly.
Interest expense increased to $362,000 in the third quarter of 2009 from $241,000 in the third quarter of 2008 and increased to $647,000 in the first nine months of 2009 from $518,000 in the first nine months of 2008. The increased interest expense in the 2009 periods was a result of higher outstanding borrowings in the 2009 periods due to borrowings made for the NeedleTech acquisition. Somewhat offsetting the increased borrowings was a lower effective interest rate during most of the first nine months of 2009. Our weighted average effective interest rate was 3.1% at October 4, 2009. In addition, fair value adjustments related to our interest rate swaps are included in interest expense. Such fair value adjustments totaled unrealized losses of $84,000 in the third quarter and $74,000 in the year to date period.
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