new horizonsexecutionfocus

2 0 0 3 A N N UA L R E P O R T

dj Orthopedics, Inc. Leading the way in non-operative orthopedics

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2003 was a transforming year for dj Orthopedics. The company-wide performance

improvement program, initiated mid-2002, focused our product development and sales

strategy on our core rehabilitation market while simultaneously streamlining and

strengthening our operating performance. In 2003, with solid operating fundamentals

in place, dj Orthopedics precisely executed several well-defined growth initiatives,

driving record revenues in each of our four quarters. Today, the Company’s culture

exemplifies high performance, leading the way to new horizons in non-operative

orthopedic and spine markets.

L E A D I N G T H E WAY

leading the way 01

2003 AS REPORTED

DonJoy ®

$95.4 MM 48.2%

OfficeCare$25.6 MM

12.9%

International$25.1 MM

12.7%

RegentekTM

$4.0 MM2.0%

ProCare$47.9 MM

24.2%

2003 PRO FORMA

DonJoy39.7%

OfficeCare10.7%

International10.4% Regentek

$46.4 MM19.3%

ProCare19.9%

About dj Orthopedics, Inc.

dj Orthopedics is a global medical device company specializing in rehabilitation and regeneration products

for the non-operative segment of the orthopedic and spine markets. Our broad range of over 600 rehabilitation

products, including rigid knee braces, soft goods and pain management products, are used to prevent

injury, treat chronic conditions and aid in recovery after surgery or injury. Our regeneration products consist

of bone growth stimulation devices used to treat nonunion fractures and as an adjunct therapy after spinal

fusion surgery. We sell our products in the United States and in more than 30 other countries through networks

of agents, distributors and our direct sales force that market our products to orthopedic and spine surgeons,

podiatrists, orthotic and prosthetic centers, third-party distributors, hospitals, surgery centers, physical

therapists, athletic trainers and other healthcare professionals.

Financial Highlights2003‡ 2003u 2002‡ 2002 2001 2000 1999

Operating DataNet Revenues (millions) $ 240.4 $ 197.9 $ 221.6 $ 182.6 $ 169.2 $ 143.6 $ 116.4Gross Profit Margin 61.5% 56.6% 53.6% 47.5% 50.9% 51.9% 49.9%Net Income (Loss) (millions) $ 15.4 $ 12.1 $ (13.7) $ (15.2) $ 2.3† $ 5.2 $ 7.1Net Income (Loss) Per Share $ 0.82 $ 0.64 $ (0.77) $ (0.85) $ 0.21† N/A N/ABalance Sheet Data (millions)Cash N/A $ 19.1 N/A $ 32.1 $ 25.8 $ 4.1 $ 5.9Working capital N/A $ 62.2 N/A $ 67.3 $ 83.9 $ 38.7 $ 27.4Stockholder’s Equity (Deficit) N/A $ 117.3 N/A $ 100.9 $ 115.2 $ (63.6) $ (70.4)u 2003 actual results include operations from the Regentek acquisition, which closed November 26, 2003. ‡ Pro Forma results for 2003 and 2002 assume the Regentek acquisition occurred on January 1, 2003 and 2002, respectively.* Includes $25.5 million in pre-tax restructuring and other charges related to the Company’s 2002 Performance Improvement Program.† Net Income in 2001 excludes deferred tax benefit of $54.2 million.

**

Pro Forma Pro Forma

dj Orthopedics’ Regentek division, acquired

November 26, 2003, is expected to make a

strong contribution to the Company’s revenue

growth rate, gross profit margin and earn-

ings. On a pro forma basis, the acquisition

diversifies the Company’s pro forma revenue

mix, with the regeneration segment account-

ing for 19.3% of pro forma 2003 revenue.

With Regentek, the Company’s historical

2003 revenue increases from $197.9 million

as reported, to $240.4 million on a pro forma

basis. Regentek also expands the Company’s

gross profit margin from 56.6% as reported,

to 61.5% on a pro forma basis, and net earn-

ings per share from 64 cents as reported to

82 cents on a pro forma basis.

Pro forma financial information is provided as if dj Orthopedics’Regentek acquisition had occurred on January 1, 2003.

®

®

R E V E N U E M I X B Y R E P O R T I N G S E G M E N T

02 leading the way

The Company achieved record

cash flow from operations in

2003 of over $26 million enabling

a debt prepayment of $20 million

in the first quarter of 2003.

To Our Stakeholders:2003 was a successful and transforming year for dj Orthopedics. The performance improvement program

of 2002 focused our business strategy, reduced our operating costs and strengthened our management team.

In 2003, with a solid operational foundation in place generating positive returns, we set in motion a series

of initiatives designed to accelerate our revenue growth. We are pleased to say that the attentive focus and

deliberate execution of our strategy drove enhanced revenue growth rates in each of our business segments

and set new financial records for the Company. dj Orthopedics has never been stronger than it is today.

One of our most important achievements in 2003 was the acquisition

of the bone growth stimulation device business from OrthoLogic

Corp., which we now operate as our RegentekTM division. Regentek

places us in the high-growth, $417 million regeneration market,

with bone growth stimulation devices for nonunion fractures and

spinal fusions. These products are complementary to our existing

lines and carry higher gross margins than our historical business.

We believe Regentek has the most compelling bone growth stimu-

lation technology on the market today, providing enhanced patient

comfort, compliance and ultimately, better outcomes. Additionally,

we intend to leverage our extensive DonJoy® sales and distribution infrastructure for Regentek cross-selling

opportunities, permitting us to enjoy continued market leading growth rates in this segment.

Through enhanced organic growth and our recent acquisition, we have become one of the world’s largest

orthopedic companies and the only such company focused exclusively on the non-operative segments of the

orthopedic and spine markets. The non-operative rehabilitation and regeneration market segments include

products that assist in the prevention, treatment and rehabilitation of acute and chronic orthopedic and spine

conditions. According to Frost & Sullivan, our addressable opportunity for these markets is about $1.6 billion

in 2004, and will grow at about 5.4% per annum through 2008. With our pro forma 2003 revenue of

approximately $240 million, our share in this market is meaningful at approximately 15%, but clearly there

are many opportunities for further growth and expansion of our product lines. We believe that our broad

product range, leading market share positions, our strong brand name recognition and our reputation for

product quality, combined with the strength of our worldwide distribution infrastructure and manufacturing

capabilities, provide us with competitive advantages and will permit us to continue to achieve solid growth rates.

The Year in Review: Focus and Executiondj Orthopedics became a growth story in 2003. We focused on a series of growth initiatives within our

existing business and identified strategic new areas for expansion, with success coming from solid execution

of each of our initiatives.

Focus: New product development within our core rehabilitation markets

Execution: In total, we developed 21 new products in 2003 in the areas of cold therapy, and knee, shoulder,

foot and ankle braces. We introduced the ArcticFlowTM family of cold therapy products and in June 2003,

dj Orthopedics achieved record revenues in

each of its four quarters for 2003. The Company

also achieved record revenues in 2003 in each

of the its four reporting segments, DonJoy®,

ProCare®, OfficeCare® and International.

Excluding Regentek operations, EBITDA

(earnings before interest, taxes,

depreciation and amortization) in 2003

was the strongest in dj Ortho history at

$39.4 million, or 20.3% of net revenues.

On a pro forma basis, 2003 EBITDA was

$53.5 million, or 22.3% of net revenues.

Excluding Regentek sales,

dj Orthopedics reported its first

$50 million revenue quarter

in the fourth quarter of 2003.

2 0 0 3 C O R P O R AT E H I G H L I G H T S

c c c c

The Regentek acquisition

enters dj Orthopedics into the

high growth regeneration and

spine markets, accelerating

our Company’s revenue

growth rate and expanding

our gross profit margin.

$1.6 BILLION ADDRESSABLE MARKET (2004)

$417 MILLION REGENERATION MARKET (2004)

$1.2 BILLION REHABILITATION MARKET (2004)

Rehabilitation $1.2 B

Rigid Knee$268 MM

Soft KneeBraces &Supports$220 MM

UpperExtremity$187 MM

Ankle Braces& Supports

$222 MM

PainManagement

$104 MM

Fracture Boots

$90 MM Back Braces & Supports

$94 MM

Regeneration $417 MM

NonunionFracture$174 MM

Spine$243 MM

leading the way 03

The new Regentek™ division accelerated

the combined Company’s growth rate

from 6.2% historical in 2003 to 8.5%

on a pro forma basis.

The Company’s International business segment

grew net revenues over 23%, excluding positive

currency gains and the discontinuation of its

Australian subsidiary. dj Orthopedics sells its prod-

ucts in more than 30 countries around the world.

acquired DuraKold’s® product line of cold therapy ice wraps. Other important product introductions in

2003 included our innovation in anterior cruciate ligament (ACL) knee bracing, the patented DonJoy®

FourcePointTM knee ligament brace, which incorporates unique technology that increases resistance during

the last 35 degrees of knee extension to limit the amount of time the knee is in full extension where it is at

greater risk for ACL injuries. We also introduced the Tru-Pull® Advanced System, designed to relieve pain

associated with patellofemoral dysfunction, and the UltraSling® ERTM, the first soft shoulder brace designed

specifically to position the shoulder joint in external rotation to promote better healing following traumatic

shoulder dislocation or surgery. In early 2004, we launched our new DonJoy Pain Control Device, an

ambulatory infusion pump that provides continuous infusion of local anesthetic directly into a surgical

site for up to five days after surgery. The pain management market will continue to be a major focus for

us as we move forward.

Focus: New sales productivity initiatives to increase the penetration of these new products within their

markets and within our existing customer base

Execution: We have assembled a larger sales force that has, through its strong relationships within the

orthopedic community, established one of the most widely recognized brand franchises in non-operative

orthopedics. We recruited Lou Ruggiero as our new senior sales and marketing executive in 2003, and

gave him a mission to reshape and upgrade our sales management, and to position our domestic distribution

channels for growth. Under Lou, we are optimizing our domestic sales channels and marketing initiatives

for best-in-class product launches and sales performance.

Focus: Expanding our OfficeCare® channel

Execution: Our OfficeCare channel is a value-added, on-site inventory management service for select U.S.

orthopedic surgeons’ offices. Our service provides a broad range of soft goods for immediate delivery to

patients while in the office. dj Orthopedics then seeks reimbursement directly from the patient’s insurance

company, or other third-party payor or from the patient when self-pay is applicable. On a net basis, we added

23 new OfficeCare accounts in 2003, bringing our total OfficeCare locations to approximately 540 at year’s-

end. Combining new account growth with a mid-year price increase enabled us to deliver strong double-digit

growth rates in the second half of 2003, resulting in improved profitability in this important channel.

Focus: Earning new national contracts to maximize our sales through these important accounts

Execution: We believe large group purchasing organizations depend on market leaders such as dj Orthopedics

to provide a broad line of high-quality products to drive compliance within their networks. We were successful

with this endeavor in 2003, adding several new contracts including two of the industry’s largest, from

Broadlane, which became effective in May, and from Premier, which began in December.

Focus: International growth and expansion

Execution: Our subsidiaries in Germany, the UK and Canada exceeded our expectations and delivered strong

double-digit growth rates for the year. Our new, stronger distribution partner in Japan, Nippon-Sigmax,

also contributed to our international success in 2003. In October of 2003, we established our subsidiary

in France. In total, we achieved strong international growth of 11.9% for 2003, and after adjusting for the

c c

Our addressable

market opportunity will

be about $1.6 billion in

2004, and will grow at

about 5.4% per annum

through 2008. With our

pro forma 2003 revenue

of approximately $240

million, our share in

this market is mean-

ingful at approximately

15%, but clearly there

are many opportunities

for further growth

and expansion of

our product lines.

04 leading the way

unfavorable impact of discontinuing our Australian subsidiary at the end of 2002 as well as the favorable

benefit of currency translation, our local currency based international business grew just over 23% in 2003.

Focus: Pursue accretive, strategic acquisitions in higher growth markets

Execution: We made two strategic acquisitions in 2003. Mid-year, we acquired the product line of DuraKold®,

a manufacturer of cold therapy wraps, which dj Orthopedics distributed. We vertically integrated DuraKold’s

manufacturing processes into our facilities in Mexico resulting in a favorable contribution to our gross profit

margin and bottom-line profitability. RegentekTM represents another good example of the success of our

acquisition strategy. Regentek positions dj Orthopedics in the high-growth regeneration and spine markets with

leading technology and a strong sales presence, diversifying and strengthing the Company’s overall business.

Excellent Financial PerformanceFueled by our growth initiatives, we achieved record sales and our first-ever $50 million sales quarter in the

fourth quarter (excluding Regentek), with sales of $50.6 million. Average sales per day in the quarter grew

a strong 6.7% year over year for the consolidated Company and 7.7% for domestic sales. Including just one

month of Regentek sales, we reported total consolidated sales of $54.6 million in the fourth quarter, which

is 17% higher than the fourth quarter of last year. On a pro forma basis, as if the Regentek acquisition had

occurred on January 1, 2003, fourth quarter net revenues would have been $62.7million.

We also achieved record sales for the full 2003 year. Excluding Regentek sales, 2003 sales were a record

$194.0 million, 6.2% higher than the previous year, growing over 50% faster than Frost & Sullivan’s estimated

2003 rehabilitation market growth of 4.0%, reflecting our market-leading position and the strength of our

rehabilitation franchise. On a pro forma basis, full year 2003 net revenues would have been $240.4 million,

8.5% higher than the pro forma revenues for 2002 of $221.6 million, reflecting a pro forma growth rate

that is 37% higher than our historical growth rate. On a pro forma basis, Regentek was about 19% of our

total business for 2003 and with a faster growth rate, should become a larger part of our total revenue in

future periods.

dj Orthopedics also delivered record profitability in 2003. We reported earnings of 64 cents per share for the

full year, with one cent from the acquired Regentek business, including the impact of acquisition-related

purchase accounting adjustments. On a pro forma basis, our earnings would have been 82 cents per share

for the full year of 2003 – 28% higher than the earnings generated by our historical business. The pro forma

results, including Regentek, demonstrate the very meaningful accretion to both top-line growth and earnings

this acquisition will have on dj Orthopedics. Cash flow from operations continued to be a bright spot for

dj Orthopedics and at over $26 million, enabled us to prepay $20 million of debt in the first quarter of 2003.

Continued strong cash flow in 2004, combined with our successful stock offering in February 2004, will

provide us with another important opportunity to increase our earnings. In mid-June, we have an opportunity

to redeem $75 million of senior subordinated notes that carry a 125⁄8 % coupon. These notes originated

from our leveraged buyout from Smith & Nephew in 1999. We intend to use the $56.7 million in net

proceeds generated from the stock offering, plus cash on our balance sheet, to redeem the bonds in mid-

June, saving us approximately $10 million in annual interest expense.

The Company acquired the product line of

DuraKold©, a manufacturer of cold therapy

wraps. Vertical integration of DuraKold’s

manufacturing processes into the Company’s

award-winning facilities in Mexico resulted

in an improvement in overall gross profit

margin and bottom-line profitability.

dj Orthopedics’ domestic direct and indirect sales

force has grown to approximately 400 people for

DonJoy®, RegentekTM and ProCare® sales channels.

DePuy Spine has an exclusive sales arrangement

for Regentek’s SpinaLogic® product.

The Company devel-

oped 21 new products

in 2003 in the areas of

knee, shoulder, foot

and ankle and wrist.

dj Orthopedics collaborated

in a study at Duke University

and the University of North

Carolina to examine the use

of rigid knee bracing to prevent

ACL injuries in female athletes.

c c c c

While back pain is a

principal reason people

seek medical attention,only a small percentage

of those afflicted are

definitively diagnosed.

As a result, new, non-

operative and noninva-

sive spine solutions are

emerging. dj Orthopedics

is focused on this

opportunity.

2 0 0 3 C O R P O R AT E H I G H L I G H T S

New Horizons in 2004As we enter 2004, a larger, stronger and more capable business, we have set new goals for the Company:

c To further penetrate our existing customer base and leverage our domestic distribution channels to

provide cross-selling opportunities for our RegentekTM, DonJoy® and ProCare® products;

c To accelerate new product introductions in the fastest growing segments of our markets, including pain

management, spine and osteoarthritis bracing;

c To expand the number of profitable OfficeCare® accounts through greater penetration of larger

orthopedic practices;

c To further broaden our portfolio of national account contracts and increase our penetration of

existing accounts;

c To pursue selective strategic acquisitions; and

c To continue to expand the distribution of all our product lines, including bone growth stimulation,

in select international markets.

With the expectation that we will be successful with our growth initiatives, we will also expand our

worldclass manufacturing operations in Mexico in 2004. Continuous improvement in manufacturing to

drive down costs and working capital requirements is a hallmark value of the dj Orthopedics culture —

and a significant competitive advantage. Toward this end, we have entered a lease for a new 200,000 square

foot facility in Tijuana, Mexico, which will be available in late 2004. This facility will increase our production

capacity to meet the needs of our anticipated growth for the next several years, as well as permit us to

explore additional cost reducing vertical integration opportunities within our supply chain.

We have strengthened our operating metrics, the result of a relentless and ongoing focus on the details of our

business. We have increased our sales force and we have armed them with an exciting product portfolio that

is now more diversified than ever before. Through our 2002 and 2003 recruiting efforts and the Regentek

acquisition, we have a capable and experienced management

team as the stewards of our future growth. Combined,

these accomplishments have enabled us to deliver strong

performance in each quarter of 2003, reflecting a superb

team effort from our employees and distributor partners.

dj Orthopedics operating fundamentals have never been

stronger and our prospects never brighter. We appreciate

your continued support and look forward to our next report.

leading the way 05

dj Orthopedics recruited a new

senior sales and marketing executive,

Lou Ruggiero, who joined the Company

in 2003 with a mission to reshape the

Company’s domestic sales distribution

channels for higher growth.

OfficeCare® added a net of

23 new accounts for a total of

540 at year end. The Company

achieved record sales and

profitability in the OfficeCare

distribution channel in 2003.

The Company signed several major

supply contracts in 2003, including two

of the industry’s largest, an award from

Broadlane, which became effective in

May, and an award from Premier, which

began in December.

Les Cross

President & CEO

Vickie Capps

Senior Vice President,

Finance & CFO

c c cc DJO was the second

best performing stock

on the NYSE in 2003.

06 leading the way

During the 2003 NCAA football season,

the DonJoy® Defiance® custom carbon

fiber composite knee brace was worn

prophylactically to prevent player knee

injuries by 23 of the top 25 ranked teams.

In 2003, William Garrett, Jr., M.D., Ph.D., President of

the American Orthopedic Society for Sports Medicine,

demonstrated that DonJoy’s FourcePointTM resistance

hinge technology, kept knees more flexed during a

high-risk jumping activity. The knee is more likely

to sustain an injury to the ACL when it is less flexed.

R I G I D K N E E B R A C I N G P R O D U C T S

The Undisputed Leader in Functional Knee Bracing

dj Orthopedics designs, manufactures and markets a

broad range of rigid knee braces, including ligament

braces, post-operative braces and braces used to treat

osteoarthritis. We offer multiple solutions for a wide

range of needs, with braces designed to help prevent

knee injuries, stabilize the knee during rehabilitation

from surgery or injury, to provide added support

during activities, and to treat osteoarthritis of the

knee by redistributing the knee’s load. Our rigid

knee braces are worn by professional and collegiate

athletes, as well as people of all ability levels, from

those who compete in sports, to weekend warriors,

to the elderly.

Knee braces are generally prescribed by an orthopedic

physician or provided by athletic trainers to prevent

injuries. Our rigid knee braces are either customized

braces, utilizing carbon fiber frames, which are

custom-manufactured to fit a patient’s particular

measurements, or standard braces, which are available

“off the shelf ” in various sizes and can be easily

adjusted to fit the patient in the orthopedic

professional’s office.

We introduced our first rigid knee brace in 1980,

and in 1985 we introduced the first rigid knee brace

using our patented “Four Points of Leverage” system.

Since 1991, we have introduced ten new ligament

braces, including our flagship brace, Defiance, in

1992, six new post-operative knee braces and five

new osteoarthritic braces. Our rigid knee braces

have achieved leading market share, which we

attribute to our design innovation, strong brand

name recognition and product quality.

Research and Development

Our internal research and development program

is very active and is aimed at developing and

enhancing rigid knee bracing products, processes

and technologies. Our product engineers and

designers have substantial experience in developing

and designing products using advanced technologies,

processes and materials. For example, in early 2003

we launched our patent-pending FourcePointTM

hinge technology, which provides increasing resistance

in the last 35 degrees of knee extension to limit the

time the knee is in full extension, where it is at

greater risk for ACL injuries.

We have developed and maintain close relationships

with a number of widely recognized orthopedic sur-

geons and professionals who assist in product research,

development and marketing. These professionals

often become product proponents, speaking about

our products at medical seminars, assisting in the

training of other professionals in the use and fitting

of our products and providing us with feedback

on the industry’s acceptance of our new products.

RIGID KNEE BRACINGSoft Goods 41.1%

Bone Growth Stimulation 19.3%

Pain Mgmt.8%

Rigid Knee Bracing 31.6%

Soft Goods

Bone Growth Stimulation

Pain Mgmt.

Rigid Knee Bracing 31.6%

Soft Goods

Bone Growth Stimulation

Pain Mgmt.8.0%

Rigid Knee Bracing

Soft Goods

Bone Growth Stimulation 19.3%

Pain Mgmt.

Rigid Knee Bracing

Soft Goods 41.1%

Bone Growth Stimulation

Pain Mgmt.

Rigid Knee Bracing

L E A D I N G T H E WAY

c c

Our rigid knee braces

have achieved leading

market share, which we

attribute to our design

innovation, strong brand

name recognition and

product quality.

PRO FORMA 2003 PRODUCT MIX

Defiance® CREDIT: Robert Beck, Sports Illustrated

FIRST QUARTER

Diabetic Walker

FourcePoint TM

Montana® CCMI

TruPull® Advanced System

ProRom Ankle Walker

SECOND QUARTER

Fixed & ROM Air Walkers

Wrist Cold Pad

McGuire Cold Pad

Cross Patella Strap

Thumb-O-Prene

Shoulder Stabilizer SPA

THIRD QUARTER

ComfortFORMTM Back

ArcticFlowTM Cold Therapy

Shoulder Cold Pad

Stabilizing® Ankle

UltraSling® ERTM

Nextep Air Walker

FOURTH QUARTERContour with Air Walker MaxTraxTM Walker & MaxTrax ROM WalkerDurafo BootEuropean Retail Line

N E W P R O D U C T S I N 2 0 0 3

c c c c

Ligament braces are designed

to provide durable and stable

support for moderate to severe

knee ligament instabilities to help

patients regain range of motion

after knee surgery or injury.

Our line of customized ligament

braces can also be used to support

the normal functioning of the

knee to prevent injury.

Osteoarthritic braces are used

to treat patients suffering from

osteoarthritis. Our line of

customized and off-the-shelf

osteoarthritic braces is designed

to redistribute weight through

the knee, providing additional

stability and pain relief, and in

some cases may serve as a

cost-efficient alternative to

total knee replacement.

Post-operative braces are designed

to limit a patient’s range of motion,

from complete immobilization to a

protected range of motion after knee

surgery, to protect the repaired

ligaments and/or joints from stress

and strain that would slow or

prevent a healthy healing process.

Adjustable OA DefianceTMMontana2®

TROMTM

leading the way 07

08 leading the way

The Broadest Line of Soft Bracing and Supports

dj Orthopedics’ soft goods product line originally

consisted of simple neoprene braces for the knee,

thigh, elbow and ankle. Through an active product

development program, the Company now has over

400 soft goods products, including fracture boots,

shoulder and elbow braces, as well as a range of

products that offer immobilization and support

from head to toe, all sold under the Company’s

two well-known brands, DonJoy and ProCare.

Soft bracing products are generally constructed

from fabric or neoprene materials and are designed

to provide support, heat retention, compression and

immobilization for the knee, ankle, back and upper

extremities, including the shoulder, elbow, neck

and wrist. We currently offer products ranging from

simple neoprene knee sleeves to more advanced

products that incorporate materials and features

such as air-inflated cushions and metal alloy hinge

components. Some of our best-selling products

include ComfortFORMTM Wrist, a durable, lightweight

wrist support for sprains, strains and carpal tunnel syn-

drome, SurroundTM Ankle with Air, an ankle support

that minimizes ankle rotation, and the Reddie®

brace, a hinged neoprene brace for the knee. In

early 2003, we introduced a novel soft knee brace to

control patellofemoral dysfunction (PFD). Designed

by Dr. John Fulkerson, with patent pending, the

Tru-Pull® Advanced System treats PFD, one of the

leading causes of anterior knee pain, especially in

women. Non-retail sales of knee soft goods and

ankle braces and supports are the two largest segments

of the soft goods market.

Lower extremity fracture boots fit on a patient’s

foot and provide comfort and stability for ankle and

foot injuries ranging from ankle sprains and soft tissue

and stress fractures in the lower leg to stable fractures

of the ankle. Fracture boots are used as an alternative

to traditional casting. In 2003, we introduced a line

of fracture boots designed for patients suffering

from pre-ulcerative and ulcerative foot conditions,

primarily related to complications from diabetes.

We also developed our new line of MaxTrax walk-

ers, including standard

walkers, range-of-motion

(ROM) walkers and air

walkers that incorporate

inflatable air chambers

for proper compression

and a custom fit.

Shoulder and elbowbraces and slings

are designed for joint immobilization after surgery

and to allow for controlled motion. For example,

the UltraSling is a durable oversized sling, which

offers immobilization and support for mild shoulder

sprains and strains. In 2003, we introduced the

UltraSling ER, the first-of-its-kind soft shoulder

brace that externally rotates the injured shoulder

for improved healing.

SOFT GOODS

MaxTraxTM Air Walker

K N E E B R A C E S A N K L E B R A C E S PAT E L L O F E M O R A L W R I S T

Surround® Ankle with Air Tru-Pull® Advanced System ComfortFORMTM Wrist

Soft Goods 41.1%

Bone Growth Stimulation

Pain Mgmt.

Rigid Knee Bracing

L E A D I N G T H E WAY

With one of the most

comprehensive lines of

non-operative orthopedic

products, dj Orthopedics

signed several major

long-term supply contracts

in 2003 for its soft goods

products as well as for

its rigid bracing and pain

management products.

MaxTraxTM Walker

UltraSling® ERTM

S O F T G O O D S P R O D U C T S

PRO FORMA 2003 PRODUCT MIX

Innovation in Pain Management Products

dj Orthopedics’ portfolio of pain management

products includes cold therapy products to assist

in the reduction of pain and swelling after surgery

or injury, and ambulatory infusion pumps for the

continuous infusion of local anesthetic directly into

the surgical site for up to five days following surgery.

Cold therapy products are designed to help reduce

swelling, minimize the need for post-operative pain

medications and generally accelerate the rehabilitation

process. The IceMan product is a portable device

used after surgery or injury. The product consists

of a durable quiet pump and control system used

to circulate cold water from a reservoir to a pad

designed to fit the injured area, such as the ankle,

knee or shoulder. The IceMan product uses a

patented circulation system to provide constant

fluid flow rates, thereby minimizing temperature

fluctuations. We recently introduced a manual cold

therapy product line called ArcticFlowTM that uses a

simple, gravity-based means of applying cold therapy.

The Company’s DuraKold® line of products feature

a patented reusable ice wrap that remains pliable

after freezing, conforming to uneven surfaces of the

body to provide adjustable and uniform compres-

sion for the shoulder, lower back, arm and wrist,

or lower leg and ankle.

Ambulatory infusion pumps are designed to

reduce post-operative pain. Our DonJoy Pain

Control Device is a portable, disposable pump that

continuously delivers prescribed local anesthetic

directly into a surgical site over an extended period

of time to manage post-operative pain. This portable

device comes with a range of introducer needles and

catheters for easy insertion and connection during

surgery. Managing post-operative pain at the incision

site after surgery with an infusion pump often

reduces the amount of narcotic pain medication

required by patients, as well as the narcotic-related

side effects, while increasing patient mobility.

Greater ambulation contributes to faster recovery

and rehabilitation times and reduced hospital stays.

PAIN MANAGEMENT

Soft Goods

Bone Growth Stimulation

Pain Mgmt.

Soft Goods

Bone Growth Stimulation

Pain Mgmt.8.0%

Rigid Knee Bracing

Soft Goods

Bone Growth Stimulation 19.3%

Pain Mgmt.

Rigid Knee Bracing

Pain Mgmt.

L E A D I N G T H E WAY

20 404040 6060606060 80 10101000

30 5050505050 70707070 90 1110c

c

100

IceMan®

Pain Control Device

From motorized circulation devices to

reusable ice wraps, DonJoy® has a cold

therapy product to meet any application

from total joint replacement surgery and

arthroscopic surgery, to more common

injuries such as sprains and strains.

c “The Joint Commission on Accreditation of Healthcare Organization(JCAHO) now requires the United States’ 15,000 accredited healthcare facilities to make pain management a more integral part of their patient care programs. This factor, combined with theincreasing need to control health care costs through a shift to outpatient surgery and rehabilitation, positions the disposable pain pump market for enormous potential.”Frost & Sullivan, 2003.

c

“Doctors are trying a

variety of alternatives

to morphine and other

narcotic pain relief drugs,

including pumps...that

deliver local anesthesia

directly to a wound site.”

Wall Street Journal,January 20, 2004.

leading the way 09

PA I N M A N A G E M E N T P R O D U C T S

PRO FORMA 2003 PRODUCT MIX

10 leading the way

State-Of-The-Art Technology in BoneGrowth Stimulation Devices

In late 2003, dj Orthopedics acquired the bone

growth stimulation device business from OrthoLogic

Corp for $93 million in cash. This was a strategic

acquisition for the Company in that we gained a

vibrant business with state-of-the-art technology

and growing market share. This new division,

RegentekTM, became the Company’s fifth reportable

business segment.

In the U.S., it is estimated that as many as 5% of all

bone fractures, or some 300,000 yearly, do not heal.

These nonunions may be the result of compromised

healing stemming from diabetes, smoking, weight,

age or the severity and location of the fracture.

Bone healing is a complex process that requires the

interaction of three key ingredients: competent bone

forming cells, a suitable framework or matrix and the

presence of biological stimulants. Biological stimu-

lants, specifically growth factors, play an essential

role in the process of natural healing. They provide

the signaling cues to recruit, proliferate and differ-

entiate stem cells into osteoblasts, or bone forming

cells. Research has found that stimulation of these

stem cells using Combined Magnetic Field (CMF)

therapy, a noninvasive biophysical stimulant, promotes

healing by increasing growth factor levels, such as

insulin-like growth factor II, or IGF-II. Furthermore,

CMF has been clinically proven to improve the

probability of successful spinal fusion. CMF is

a proprietary, highly specific and low-energy

signal that stimulates the body’s natural bone-

healing process.

The Regentek OL1000 bone growth stimulation

products are used for the noninvasive treatment of

an established nonunion fracture in all major bones,

such as the tibia, femur and humerus. Regentek’s

SpinaLogic® bone growth stimulation device is used

as an adjunct therapy after primary lumbar spinal

fusion surgery for at-risk patients, to promote

healing at the fusion site.

Patients using bone growth stimulation devices

receive a prescription for the product from their

physician. After insurance approval, the patient

receives the device and starts therapy, typically at

home. The patient is instructed to wear the bone

growth stimulators for only 30 minutes each day,

a shorter period than some competing products,

which may require up to 24 hours of daily therapy.

dj Orthopedics believes the reduced treatment

time leads to increased patient compliance with

treatment protocol. The length of therapy with

Regentek’s products varies, but is typically

between 25 and 40 weeks.

BONE GROWTH STIMULATION

Frost & Sullivan estimates that the bone

growth stimulation market will grow at a

compound annual rate of approximately 12%

through 2008, reaching a market value

of approximately $640 million.

2003

100

source: Frost & Sullivan 2002

YEAR

RE

VE

NU

E (

$MIL

LIO

NS

)

Since 2000, the Regentek business

has grown at a compound annual

rate of 31%. Short daily treatments

combined with patient friendly

features, have enabled Regentek

to quickly gain market share.

B O N E G R O W T H S T I M U L AT I O N

Soft Goods

Bone Growth Stimulation

Pain Mgmt.8.0%

Bracing

Soft Goods

Bone Growth Stimulation 19.3%

Pain Mgmt.

Rigid Knee Bracing

Soft Goods 41.1%

Bone Growth Stimulation

Pain Mgmt.

Rigid Knee Bracing

L E A D I N G T H E WAY

“ Combined Magnetic

Field (CMF) treatment

of 30 minutes a day

increases the probability

of successful spine fusion.”

Spine, July 2002.

c c

200

300

400

500

2004 2005 2006 2007 2008

TOTAL SPINE

TOTAL FRACTURE

Bone Growth Stimulator Market Growth

2000

10

YEAR

RE

VE

NU

E (

$MIL

LIO

NS

)

2001 2002 2003

20

30

40

50

RegentekTM Growth

PRO FORMA 2003 PRODUCT MIX

OL1000TM

OL1000TM is an FDA approved device that comprises two magnetic field treatment

transducers, or coils, and a microprocessor-controlled signal generator. This unique system

has a micro-controller that tracks the patient’s daily treatment compliance. The OL1000

device is attached to the patient’s arm, leg, shoulder or other area where there is a

nonunion fracture to evenly distribute a magnetic field over the injured area. Because

of the even distribution of the fields, specific placement of the device over the nonunion

fracture is not as critical for product efficacy as it is for some competing products. It also

may be placed directly over a cast, unlike some competitive products.

Theoretical Model – Bone Growth Stimulation with CMF

Combined Magnetic Field technology is a scientifically based second generation magnetic field technology

that combines a low energy, static magnetic field with a low energy, alternating magnetic field. In vitro

studies suggest that 1) application of CMF to a fracture site 2) stimulates a human bone cell line and

thereby 3) causes an increase in secretion of IGF-II (a potent bone cell growth factor). An increase in

IGF-II secretion by bone cells at healing sites may lead to 4) the production of connective tissue and

ultimately 5) the enhancement of the healing process.

c

SpinaLogic® is an FDA approved,

portable, noninvasive, electromagnetic

bone growth stimulator. With

SpinaLogic, the patient belts the

device to the lumbar injury location

where it is designed to provide localized

magnetic field treatment to the fusion

site. Similar to the OL1000, SpinaLogic

contains a micro-controller that tracks

the patient’s daily treatment compliance

and can be checked by the surgeon

during follow-up visits.

leading the way 11

1 2 3 4 5

non-healing fracture healed fracture

We market our products in over 30 countries

outside the U.S., primarily in Europe as well as

Australia, Canada and Japan. International sales

are currently made through two distinct channels:

independent third-party distributors and through

dj Orthopedics’ wholly-owned foreign subsidiaries in

Germany, the United Kingdom, Canada and France.

These wholly-owned subsidiaries provide us with

more direct control of the sales process, enabling us

to accelerate the launch of new products and product

enhancements, while providing higher gross profit

margins on the products we sell.

L E A D I N G T H E WAY

2 0 0 3 M A N U FA C T U R I N G A C H I E V E M E N T S

dj Orthopedics reduced total labor costs by

approximately 35%, reduced material costs

by approximately 15% and improved cus-

tomer fill rates by approximately 45%. The

Company also doubled total inventory turns.

The Company implemented

Kan-Ban or “pull” material

replenishment systems, and

began the Six Sigma process

for performance improvement.

The Company vertically integrated several

processes that allows for one-piece pro-

duction flow from start to finish to capture

manufacturing margin:

DuraKold®

Injection Molding

Insourcing of China products

For the second year in a row,

dj Orthopedics’ Mexico facility was

named as one of the top 25 best

manufacturing facilities in North

America in Industry Week’s “Best

Plants” competition.

c c c c

Sales and Distribution Channels

dj Orthopedics has established an effective global sales and distribution network. The Company’s distribution channels,

DonJoy, ProCare, OfficeCare, Regentek and International, target orthopedic and spine surgeons, podiatrists, orthotic

and prosthetic centers, third-party distributors, hospitals, medical distributors, medical buying groups, athletic trainers

and a broad spectrum of other healthcare professionals. The strength of our relationships in these channels serves as a

formidable sales base to introduce new or enhanced products.

Through the OfficeCare sales channel,

dj Orthopedics maintains an inventory of

soft goods on hand at orthopedic practices

for immediate delivery to the patient. For

these products, we arrange billing to

the patient or third-party payor after the

product is provided to the patient. At the

end of 2003, the OfficeCare program was

located at over 540 physician offices

throughout the U.S.

Our Regentek division employs a dual channel sales approach.

The OL1000 is sold through a combination of approximately 40-

plus direct sales representatives and 25 regional sales agents

who employ over 60 independent commissioned sales repre-

sentatives who call on orthopedic surgeons and podiatrists in

private practice, hospitals and clinics, as well as general

orthopedic physicians via direct sales and marketing

efforts. SpinaLogic® is sold in the U.S. by Johnson

& Johnson’s DePuy Spine under a 10-year

exclusive sales agreement. SpinaLogic is

sold to orthopedic spine surgeons and

neurosurgeons who perform spine

procedures. Regentek sales are

managed by five Area Vice Presidents

who coordinate the marketing and

sales efforts for bone growth

stimulation products.

The DonJoy sales channel is responsible for sales of rigid knee braces,

pain management products and certain soft goods. These products are sold

by an independent, commissioned sales force, including 270 sales reps

employed by 40 independent sales agents who call on orthopedic

surgeons,podiatrists, orthotic and prosthetic centers, hospitals,

surgery centers, physical therapists, athletic trainers and

other healthcare professionals.

The ProCare channel employs approximately 30

direct and independent representatives that manage over

320 dealers focused on acute and primary care facilities.

Products consist primarily of soft goods sold through a network

of large, national medical products distributors such as Owens & Minor Inc.,

McKesson/HBOC, Allegiance Healthcare and Physician Sales and Service Inc.

Managed health care has brought about the formation of group purchasing

organizations for large healthcare providers and the national purchasing

contracts for these providers represent an important opportunity for

dj Orthopedics. Our contract portfolio includes AmeriNet Inc., U.S.

Government/Military hospitals, National Purchasing Alliance, Magnet,

Managed Healthcare Associates, Inc., Broadlane and Premier.

DonJoy39.7%

OfficeCare10.7%

International10.4%

Regentek 19.3%

ProCare 19.9%

12 leading the way

2 0 0 3 P R O F O R M A R E V E N U E M I X