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