<PAGE> 1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________ to __________
Commission File No. 0-15443
THERAGENICS CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 58-1528626
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification Number)
5203 Bristol Industrial Way
Buford, Georgia 30518
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (770) 271-0233
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [ ]
As of August 8, 2000 the number of shares of $.01 par value common stock
outstanding was 29,532,093.
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THERAGENICS CORPORATION
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page No.
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<S> <C>
PART I. FINANCIAL INFORMATION:
ITEM 1. FINANCIAL STATEMENTS (UNAUDITED)
Balance Sheets - December 31, 1999 and June 30, 2000 .............................. 3
Statements of Earnings for the three and six months ended
June 30, 1999 and 2000 ......................................................... 5
Statements of Cash Flows for the six months ended
June 30, 1999 and 2000 ......................................................... 6
Statement of Changes in Stockholders' Equity for the six
months ended June 30, 2000 ..................................................... 7
Notes to Financial Statements ..................................................... 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS ........................................... 11
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK ................................................................... 15
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS ............................................................. 15
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS ......................... 15
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .............................................. 16
SIGNATURES .................................................................................. 17
</TABLE>
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THERAGENICS CORPORATION
BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ ----------
<S> <C> <C>
CURRENT ASSETS
Cash and short-term investments $ 18,765 $ 18,363
Marketable Securities 15,137 22,355
Trade Accounts Receivable 7,333 5,395
Minimum payment receivable -- 5,444
Inventories 1,172 1,280
Deferred income tax asset 432 395
Prepaid expenses and other current assets 963 918
---------- ----------
TOTAL CURRENT ASSETS 43,802 54,150
PROPERTY AND EQUIPMENT
Buildings and improvements 20,453 26,125
Machinery and equipment 37,010 42,518
Office furniture and equipment 436 553
---------- ----------
57,899 69,196
Less accumulated depreciation and
amortization (10,676) (13,150)
---------- ----------
47,223 56,046
Land 848 832
Construction in progress 16,010 10,678
---------- ----------
TOTAL PROPERTY AND EQUIPMENT 64,081 67,556
OTHER ASSETS 160 146
---------- ----------
TOTAL ASSETS $ 108,043 $ 121,852
========== ==========
</TABLE>
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THERAGENICS CORPORATION
BALANCE SHEETS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIABILITIES & STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, June 30,
1999 2000
------------ --------
<S> <C> <C>
CURRENT LIABILITIES
Accounts Payable
Trade $ 783 $ 1,055
Construction 843 --
Accrued salaries, wages and payroll taxes 333 542
Income taxes payable 563 202
Deferred minimum payment -- 5,444
Other current liabilities 466 563
-------- --------
TOTAL CURRENT LIABILITIES 2,988 7,806
LONG TERM LIABILITIES
Deferred income taxes 3,900 4,618
Other 78 76
-------- --------
TOTAL LONG-TERM LIABILITIES 3,978 4,694
STOCKHOLDERS' EQUITY
Common stock, $.01 par value, 100,000
shares authorized; 29,514 and 29,528
issued and outstanding 295 295
Additional paid-in capital 59,600 59,781
Retained earnings 41,182 49,276
-------- --------
TOTAL STOCKHOLDERS' EQUITY 101,077 109,352
-------- --------
TOTAL LIABILITIES AND
STOCKHOLDERS' EQUITY $108,043 $121,852
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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THERAGENICS CORPORATION
STATEMENTS OF EARNINGS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
---------------------- ---------------------
1999 2000 1999 2000
-------- -------- ------- --------
<S> <C> <C> <C> <C>
REVENUE
Product sales - affiliate $ 11,066 $ 11,465 $ 20,172 $ 22,695
Product sales - non affiliates 30 34 63 58
Licensing Fees 25 25 50 50
-------- -------- -------- --------
Total revenue 11,121 11,524 20,285 22,803
COST OF SALES 3,187 3,475 6,567 6,777
-------- -------- -------- --------
GROSS PROFIT 7,934 8,049 13,718 16,026
OPERATING EXPENSES
Selling, general & administrative 1,761 1,642 3,168 3,464
Research & development 140 571 279 919
-------- -------- -------- --------
1,901 2,213 3,447 4,383
-------- -------- -------- --------
EARNINGS FROM OPERATIONS 6,033 5,836 10,271 11,643
OTHER INCOME (EXPENSE)
Interest income 365 443 642 898
Interest and financing costs (19) (37) (25) (74)
Other -- 13 3 10
-------- -------- -------- --------
346 419 620 834
-------- -------- -------- --------
EARNINGS BEFORE INCOME TAXES 6,379 6,255 10,891 12,477
Income tax expense 2,322 2,155 3,954 4,383
-------- -------- -------- --------
NET EARNINGS $ 4,057 $ 4,100 $ 6,937 $ 8,094
======== ======== ======== ========
NET EARNINGS PER COMMON
SHARE
Basic $ 0.14 $ 0.14 $ 0.24 $ 0.27
Diluted $ 0.14 $ 0.14 $ 0.23 $ 0.27
WEIGHTED AVERAGE SHARES
Basic 29,474 29,527 29,450 29,524
Diluted 29,867 30,021 29,866 30,157
</TABLE>
The accompanying notes are an integral part of these statements.
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THERAGENICS CORPORATION
STATEMENTS OF CASH FLOWS
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Six Months
Ended June 30,
----------------------
1999 2000
-------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Earnings $ 6,937 $ 8,094
Adjustments to reconcile net earnings to
net cash provided by operating activities
Deferred income taxes 590 755
Depreciation & amortization 1,770 2,497
Provision for reserves -- (181)
Stock-based compensation 138 94
Income tax benefit from options -- 23
Deferred rent 22 (2)
Changes in assets and liabilities:
Accounts Receivable 1,461 1,962
Inventories (81) 49
Prepaid expenses and other current assets (65) 45
Other assets 5 (9)
Trade accounts payable (14) 272
Accrued salaries, wages and payroll taxes (5) 209
Income taxes payable 900 (361)
Other current liabilities 123 97
-------- --------
Net cash provided by operating activities 11,781 13,544
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases and construction of property and equipment (6,404) (6,792)
Purchases and maturities of marketable securities (7,519) (7,218)
-------- --------
Net cash used by investing activities (13,923) (14,010)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from exercise of stock options and stock purchase plan 340 64
-------- --------
Net Cash provided by financing activities 340 64
NET DECREASE IN CASH AND
SHORT-TERM INVESTMENTS (1,802) (402)
CASH AND SHORT-TERM INVESTMENTS AT
BEGINNING OF PERIOD 19,542 18,765
-------- --------
CASH AND SHORT-TERM INVESTMENTS AT
END OF PERIOD $ 17,740 $ 18,363
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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THERAGENICS CORPORATION
STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(UNAUDITED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Common Stock
---------------------- Additional
Number of Par value paid-in Retained
shares $0.01 Capital earnings Total
--------- --------- ---------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1999 29,514 $ 295 $ 59,600 $ 41,182 $101,077
Exercise of stock options 8 -- 23 -- 23
Employee stock purchase plan 6 -- 41 -- 41
Stock-based compensation -- -- 94 -- 94
Tax effect from options -- -- 23 -- 23
Net earnings for the period -- -- -- 8,094 8,094
------ ------ -------- -------- --------
BALANCE, June 30, 2000 29,528 $ 295 $ 59,781 $ 49,276 $109,352
====== ====== ======== ======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
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THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS
JUNE 30, 2000
(UNAUDITED)
NOTE A - BASIS OF PRESENTATION
The interim financial statements included herein have been prepared by the
Company without audit. These statements reflect all adjustments which are, in
the opinion of management, necessary to present fairly the financial position,
results of operations, cash flows and changes in stockholders' equity for the
periods presented. All such adjustments are of a normal recurring nature.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted. The Company believes that the financial
statements and disclosures are adequate to make the information not misleading.
It is suggested that these financial statements and notes be read in conjunction
with the audited financial statements and notes for the year ended December 31,
1999, included in the Form 10-K filed by the Company.
NOTE B - CONSTRUCTION IN PROGRESS AND PURCHASE COMMITMENTS
The U.S. Department of Energy (DOE) has granted Theragenics access to unique DOE
technology for use in production of isotopes, including Pd-103 (the "DOE
Project"). This technology venture represents part of a DOE initiative to
redirect Cold War assets to peacetime use and cushion the economic impact of
U.S. Defense Department cutbacks. This project is expected to enable the Company
to significantly increase its production capacity and allow for the possibility
of expanded use of Pd-103 beyond treatment of prostate cancer to new medical
applications. The Company is constructing a facility in Oak Ridge, Tennessee to
house the equipment, infrastructure and work force necessary to support the
production of isotopes, including Pd-103, using this DOE technology. The Company
expects to invest approximately $25.0 million to $30.0 million through 2001 to
build this manufacturing and R&D facility. Construction costs of approximately
$7.5 million have been incurred on this project as of June 30, 2000, and are
included in construction in progress.
Construction in progress also includes payments made for manufacturing equipment
and facilities expansion at the Company's location in the Atlanta, Georgia area.
At June 30, 2000, the remaining purchase commitments for this expansion were not
significant.
NOTE C - LITIGATION
In January 1999, the Company and certain of its officers and directors were
named as defendants in certain securities actions, alleging violations of the
federal securities laws, including Sections 10(b), 20(a) and Rule 10b-5 of the
Securities and Exchange Act of 1934, as amended. These actions have been
consolidated into a single action pending in the U.S. District Court for the
Northern District of Georgia. The complaint, as amended, purports to represent a
class of investors who purchased or sold securities during the time period from
January 29, 1998 to January 11, 1999. The amended complaint generally alleges
that the defendants made certain
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THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000
(UNAUDITED)
NOTE C - LITIGATION - CONTINUED
misrepresentations and omissions in connection with the performance of the
Company during the class period and seeks unspecified damages. On May 14, 1999 a
stockholder of the Company filed a derivative complaint in the Delaware Court of
Chancery purportedly on behalf of the Company, alleging that certain directors
breached their fiduciary duties by engaging in the conduct that is alleged in
the consolidated federal class action complaint. The derivative action has been
stayed by the agreement of the parties. On September 3, 1999, the Company filed
a motion to dismiss the consolidated federal class action complaint on the
grounds that it failed to state a claim against the defendants. On July 19,
2000, the Court granted the Company's motion to dismiss, and granted the
plaintiffs leave to amend their complaint within 30 days. Management believes
these charges are without merit and intends to vigorously oppose the litigation;
however, given the nature and stage of the proceedings, the ultimate outcome of
the litigation cannot be determined at this time. Accordingly, no provision for
any liability that might result from this litigation has been made. The Company
maintains insurance for claims of this general nature.
In trade secret litigation filed against International Brachytherapy ("IBt"),
Theragenics has claimed ownership of certain cyclotron improvements incorporated
into the cyclotrons provided to IBt by the companies' common cyclotron vendor.
IBt is seeking indemnification from the cyclotron vendor against the Company's
claims. The cyclotron vendor has in turn filed for arbitration seeking
determination of ownership of the cyclotron improvements and certain other
information developed by Theragenics relating to the cyclotron technology. The
cyclotron vendor is also seeking indemnification for any amounts paid by the
vendor to IBt to defend against the trade secret claims of Theragenics, and
attorney fees in the arbitration. The cyclotron vendor is not seeking to prevent
the Company from using the cyclotrons or the related improvements or
information. The parties are in the process of conducting discovery and the
ultimate outcome of this uncertainty cannot be determined at this time.
Accordingly, no provision for any liability that might result from this
uncertainty has been made.
NOTE D - SALES AND MARKETING AGREEMENT
During the first half of 2000, Indigo Medical, Inc. (Indigo) did not meet the
contractual minimum purchase requirements under the terms of the Sales and
Marketing Agreement between the Company and Indigo (the "Agreement"). As
provided by the Agreement, the Company has invoiced Indigo for payments totaling
$5.4 million relating to the shortfall in the minimum purchase requirements.
Based on this demand for payment, Indigo has the option to exit the Agreement
and avoid liability for future purchase minimums. If Indigo exits the Agreement,
Indigo would have the option to continue selling TheraSeed(R) on a non-exclusive
basis for one additional year. The Company would be allowed to sell TheraSeed(R)
immediately to end customers at market pricing for its own account, and to
provide TheraSeed(R) to third party resellers.
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THERAGENICS CORPORATION
NOTES TO FINANCIAL STATEMENTS - CONTINUED
JUNE 30, 2000
(UNAUDITED)
NOTE D - SALES AND MARKETING AGREEMENT - CONTINUED
If Indigo does not elect to exit the Agreement within a specified time period
following the date of the invoice, Indigo would be obligated to purchase
minimums for the quarter ending September 30, 2000. In the event Indigo remains
in the Agreement under the existing terms for the remainder of 2000, sales plus
purchase commitments under the Agreement would exceed $12.8 million per quarter.
Year to date computations of purchase minimums override quarterly calculations;
therefore, if purchase minimum requirements were exceeded for the remainder of
2000, Indigo would be entitled to a refund for the excess purchase minimum
payment. Accordingly, the $5.4 million minimum payment invoice relating to the
first half of 2000 has been recorded as a deferred minimum payment. If Indigo
meets but does not exceed purchase minimum requirements for the remainder of
2000 or exits the Agreement within the allowed period, the $5.4 million will be
recorded as other income. If Indigo remains in the Agreement but does not meet
purchase minimums for the remainder of the year additional payments will be due
and recognized as other income.
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ITEM 2. MANAGEMENT'S' DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
Revenues for the quarter and six months ended June 30, 2000 increased
$403,000 or 3.6%, and $2.5 million, or 12.4%, respectively, over the comparable
1999 periods.
Gross profit as a percentage of revenue decreased to 69.8% for the
second quarter of 2000, from 71.3% for the second quarter of 1999. This decline
in gross profit margin was primarily a result of the increase in depreciation
expense for the additional cyclotrons that were ordered almost two years ago to
meet sales forecasts made at that time by Indigo Medical, Inc. The non-cash
depreciation charge for the quarter increased to $1.3 million from $893,000 for
the second quarter of 1999, reflecting the increase to 13 cyclotrons in
operation during the second quarter of 2000 from eight cyclotrons in the second
quarter of 1999. The increase in depreciation was partially offset by improved
efficiencies and automation in the Company's proprietary production processes,
and the utilization of certain manufacturing materials and resources in research
and development activities.
For the first half of 2000, gross profit as a percentage of revenue
increased to 70.3% from 67.7% for the first half of 1999. The increase in
depreciation expense during the first half of 2000 was offset by the increase in
revenue over the first half of 1999. The gross profit margin in 2000 was also
aided by the improved efficiencies and automation in the Company's proprietary
production processes, and the utilization of certain manufacturing materials and
resources in research and development activities.
Consistent with Theragenics' goal to have ample capacity for future
TheraSeed(R) demand as well as to support Pd-103 research and development
activities, three cyclotrons have been placed into service during the first half
of 2000 and one additional cyclotron is expected to be operational this year,
bringing the total number of cyclotrons in operation to fourteen. As additional
cyclotrons come on line, margins generally decline because each machine
represents excess capacity for a period while carrying its full component of
fixed costs, including depreciation. While the Company expects to continue its
efforts to improve the efficiencies in its proprietary production processes,
cost savings from additional improvements, if any, may not offset the cost
increases associated with additional cyclotrons. Accordingly, gross margins are
expected to decline to the extent that additional cyclotrons create capacity
more rapidly than the growth in demand for Pd-103 based products.
Selling, general and administrative ("SG&A") expenses for the second
quarter of 2000 decreased by $119,000, or 6.8% from the second quarter of 1999.
The decrease in the quarter over quarter period was primarily due to a decline
in legal and professional fees, partially offset by an increase in compensation
and benefits, and start up-costs related to the Company's construction project
in Oak Ridge, Tennessee. Additionally, because of the earlier date for the 2000
Annual Meeting of Shareholders, printing and distribution costs for the
Company's proxy statement and annual report occurred a quarter earlier in 2000
than in 1999, resulting in a year-over-year reduction in these expenses for the
second quarter of 2000.
SG&A expenses for the six months ended June 30, 2000 increased by
$296,000, or 9.3%, over the comparable 1999 period. This increase was primarily
due to an increase in compensation and benefits, and start-up costs related to
the Company's construction project in Oak Ridge, Tennessee, partially offset by
a reduction in legal and professional fees.
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Research and development (R&D) expenses increased to $571,000 in the
second quarter of 2000 from $140,000 in the second quarter of 1999. R&D expenses
also increased during the first half of the year, to $919,000 in 2000 from
$279,000 in 1999. The increase in R&D expenses was a result of the Company's R&D
initiatives, including activities associated with its agreement with the Atlanta
Cardiovascular Research Institute (see below), and development efforts to
improve the Company's proprietary production processes. The Company's research
and development initiatives, launched in the third quarter of 1999, are intended
to expand the application of Pd-103 to other oncological and non-oncological
uses, and explore options for using the Company's expertise and capabilities in
other areas. Management plans to continue to increase efforts in research and
development as its initiatives to diversify move forward and expects future R&D
expenditures to remain at or even significantly above recently experienced
levels. However, R&D spending is dependent on the complex scheduling of research
and development activities in progress as well as the pursuit of other
appropriate opportunities as they arise. For these reasons, no assurances can be
made as to spending amounts and R&D expenses may fluctuate significantly from
period to period.
As part of its R&D initiatives, the Company has an agreement with the
Atlanta Cardiovascular Research Institute (ACRI) to conduct a two-phase animal
study addressing the use of Pd-103 for the prevention of restenosis (the "ACRI
Agreement"). Restenosis is the reclosing of arteries that often occurs after
coronary angioplasties. The American Heart Association estimates that one-third
of the nearly 1 million angioplasties done in the United States each year fail
or restenosis within the first six months of the operation. In the first phase
of the study, which began in April 2000, the Company is delivering
catheter-based Pd-103 devices to ACRI for determination of whether the devices
can inhibit restenosis-like changes in pig coronary arteries after balloon
angioplasty and stent implantation, and to assess the long-term consequences of
this treatment model. The second phase of the study will have similar
objectives, except that the Company will be delivering stent-based Pd-103
devices to ACRI for use in the studies. The Company expects preliminary data
from the first phase of the study to be completed in the third quarter of 2000
and longer-term data to be available in early 2001.
Other income for the second quarter of 2000 increased to $419,000 from
$346,000 for the second quarter of 1999, and to $834,000 for the first half of
2000 from $620,000 for the first half of 1999. These increases were attributable
to additional funds being available for investment during the 2000 periods as a
result of cash generated from operations. Funds available for investment have
and will continue to be utilized for the Company's current and future expansion
programs and research and development activities. As funds are generated from
operations, and continue to be used for these programs and activities,
management expects other income to fluctuate accordingly.
The Company's effective income tax rate was approximately 35% for the
quarter and six months ended June 30, 2000, compared to 36% for the 1999
periods. This reduction is a result of the recognition of tax credits generated
by the Company's investments in its expansion projects and research activities
during 2000.
SALES AND MARKETING AGREEMENT WITH INDIGO MEDICAL, INC.
During the first half of 2000, Indigo Medical, Inc. (Indigo), a Johnson
& Johnson company, did not meet the contractual minimum purchase requirements
under the terms of the Sales and Marketing Agreement between the Company and
Indigo (the "Agreement"). As
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provided by the Agreement, the Company has invoiced Indigo for payments totaling
$5.4 million relating to the shortfall in the minimum purchase requirements.
Based on this demand for payment, Indigo has the option to exit the Agreement
and avoid the liability for future purchase minimums. If Indigo exits the
Agreement, Indigo would have the option to continue selling TheraSeed(R) on a
non-exclusive basis for one additional year. The Company would be allowed to
sell TheraSeed(R) immediately to end customers at market pricing for its own
account, and to provide TheraSeed(R) to third party resellers. Theragenics
anticipates no interruption in service or product delivery if Indigo exits the
Agreement, although a transition in sales and marketing activities could
adversely affect near term results.
If Indigo does not elect to exit the Agreement within a specified time
period following the date of the invoice, Indigo would be obligated to purchase
minimums for the quarter ending September 30, 2000. In the event Indigo remains
in the Agreement under the existing terms for the remainder of 2000, sales plus
purchase commitments under the Agreement would exceed $12.8 million per quarter.
Year to date computations of purchase minimums override quarterly calculations;
therefore, if purchase minimum requirements were exceeded for the remainder of
2000, Indigo would be entitled to a refund for the excess purchase minimum
payment. Accordingly, the $5.4 million minimum payment invoice relating to the
first half of 2000 has been recorded as a deferred minimum payment. If Indigo
meets but does not exceed purchase minimum requirements for the remainder of
2000 or exits the Agreement within the allowed period, the $5.4 million will be
recorded as other income, resulting in an increase in net earnings of
approximately $3.5 million, or $0.11 per share, for the year. If Indigo remains
in the Agreement but does not meet purchase minimums for the remainder of the
year additional payments will be due and recognized as other income.
LIQUIDITY AND CAPITAL RESOURCES
The Company had cash, short-term investments and marketable securities
of $40.7 million at June 30, 2000, compared to $33.9 million at December 31,
1999. Marketable securities consist primarily of high-credit quality municipal
obligations, in accordance with the Company's investment policies. The increase
in cash, short-term investments and marketable securities was a result of cash
generated by operations, partially offset by capital expenditures. Working
capital was $46.3 million at June 30, 2000, compared to $40.8 million at
December 31, 1999. The Company also has an Unsecured Credit Agreement with a
financial institution that provides for maximum borrowings of $40.0 million
under two lines of credit, and an additional uncommitted $10.0 million line of
credit. No borrowings were outstanding under the Unsecured Credit Agreement as
of June 30, 2000.
The $13.5 million in cash generated from operations was the Company's
principal source of cash during the first half of 2000. Cash generated from
operations consists of net earnings plus non-cash expenses such as depreciation,
amortization and deferred income tax expense. Depreciation and amortization for
the first half of 2000 was $2.5 million, compared to $1.8 million for the first
half of 1999.
The Company's primary use of cash in the first half of 2000 related to
capital spending to increase manufacturing capacity and totaled $6.8 million
during the period. These expenditures related primarily to the addition of
cyclotrons and supporting facilities, the Company's new headquarters facility
and the Company's DOE Project (see below).
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As of June 30, 2000, thirteen cyclotrons were fully operational. One
additional cyclotron and supporting facilities are expected to become
operational during the second half of 2000. Remaining costs to complete the
cyclotron and supporting facilities are not expected to be significant.
The U.S. Department of Energy (DOE) has granted Theragenics access to
unique DOE technology for use in production of isotopes, including Pd-103 (the
"DOE Project"). This technology venture represents part of a DOE initiative to
redirect Cold War assets to peacetime use and cushion the economic impact of
U.S. Defense Department cutbacks. The Company expects that the use of this
technology will significantly increase its capacity and allow for the
possibility of expanded use of Pd-103 beyond treatment of prostate cancer to new
medical applications. The Company also believes that the DOE Project may allow
it to explore options for applying this technology to other uses, though there
are no assurances that this will be achieved. The Company is constructing a
facility in Oak Ridge, Tennessee to house the equipment, infrastructure and work
force necessary to support the production of isotopes, including Pd-103, using
this DOE technology. Construction costs of approximately $7.5 million have been
incurred on the DOE Project through June 30, 2000. The Company expects to invest
an additional $17.5 million - $22.5 million through 2001 to complete this
manufacturing and R&D facility.
As part of the DOE Project, the Company has leased land in the Oak Ridge,
Tennessee area and equipment previously used by the government to produce
isotopes. As a result of the sensitive nature of the equipment, the specialized
technology involved and the restrictions on access to unique DOE-operated
facilities, the Company has contracted with the DOE's primary contractor for the
Oak Ridge government installation to handle certain technical and operational
services that are critical to the project, including moving, reassembling and
recommissioning equipment currently in storage, designing and fabricating new
parts and modifications to the equipment and DOE facilities; and operating and
providing ongoing access to the DOE facilities. The success of the project is
dependent on the continued cooperation of the DOE and its primary contractor,
which could be adversely affected by future changes in governmental program
priorities and funding. If the equipment cannot be moved and recommissioned
successfully, if there are problems with the operation or modification of the
DOE-operated facilities, or if unforeseen challenges arise, the project may not
be successful or the costs or timeliness associated with the project could
exceed current estimates.
In addition to using cash to fund ongoing capital expansion projects
in 2000, the Company expects to continue its R&D activities. The ACRI Agreement
commenced in April 2000, and other R&D activities are also occurring (see
"Results of Operations", above). The Company expects that R&D expense spending
may total up to 5% of revenue in 2000, depending on whether appropriate R&D
opportunities arise.
Cash provided by financing activities was $64,000 in the first half of
2000, consisting of cash proceeds from the exercise of stock options and the
Company's Employee Stock Purchase Plan.
The Company believes that current cash and investment balances, cash
from future operations and credit facilities, will be sufficient to meet its
currently anticipated working capital and capital expenditure requirements. In
the event additional financing becomes necessary, management may choose to raise
those funds through other means of financing as appropriate.
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FORWARD LOOKING AND CAUTIONARY STATEMENTS
This document contains certain forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995 including,
without limitation, statements regarding sales and marketing efforts, the future
status of the Indigo Sales and Marketing Agreement, potential impacts of a
transition out of the Indigo Agreement, potential impacts of Indigo remaining in
the Agreement, future cost of sales, R&D efforts and expenses, SG&A expenses,
expansion plans, the DOE Project, the development of new technologies, processes
and products, adverse changes in governmental program priorities and budgetary
funding by the relevant governmental authorities, potential costs and delays in
the startup and refinement of technology and related equipment, potential
equipment failure, inability to obtain, construct or install necessary parts or
modifications to production equipment or facilities, and the sufficiency of the
Company's liquidity and capital resources. From time to time, the Company may
also make other forward-looking statements relating to such matters as well as
anticipated financial performance, business prospects, technological
developments, research and development activities and similar matters. These
forward-looking statements are subject to certain risks, uncertainties and other
factors which could cause actual results to differ materially from those
anticipated, including risks associated with the management of growth, research
and development activities, effectiveness and execution of marketing and sales
programs, acceptance and efficacy of Pd-103 for other applications, government
regulation of the therapeutic radiological pharmaceutical and device business,
dependence on health care professionals, introduction and/or availability of
competitive products by others, third party reimbursement, physician training
and Indigo's and Johnson & Johnson's decisions regarding the continuation of the
Agreement with the Company as well as possible negotiations concerning these
matters.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
See Note C to the Company's financial statements included in Item 1 of this
report, which is incorporated by reference hereby.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITIES HOLDERS
(a) The annual meeting of shareholders was held on May 19, 2000.
(b) Otis W. Brawley, M.D. was reelected to the board of directors and
will serve for a three-year term. Dr. Brawley received 25,387,994 votes
for his election with 637,081 withholding authority.
(c) The Theragenics Corporation 2000 Stock Incentive Plan was approved
by a vote of 22,656,323 shares for, 3,239,496 shares against and
129,256 shares abstaining.
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(d) The appointment of Grant Thornton LLP as independent accountants
for the Company for the fiscal year ending December 31, 2000 was
approved by a vote of 25,646,081 shares for, 312,479 shares against and
66,515 shares abstaining.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) The following exhibit is filed as a part of this report;
Exhibit 27 Financial Data Schedule (for SEC use only)
(b) No reports on Form 8-K were filed during the quarter ended June 30,
2000.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
REGISTRANT:
THERAGENICS CORPORATION
By:/s/ M. Christine Jacobs
--------------------------------
M. Christine Jacobs
Chief Executive Officer
/s/ Bruce W. Smith
--------------------------------------------
Bruce W. Smith
Treasurer and Chief Financial Officer
Dated: August 8, 2000
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