History

DJO Incorporated's beginnings are tied to professional sports. The company was founded in the Carlsbad, California garage of Philadelphia Eagles football player Mark Nordquist in 1978. Nordquist, who wrapped an old inner tube around his unstable knee for support, teamed up with two of his friends to explore the possibilities of neoprene. The first products for the company - then named simply DonJoy after two of the men's wives, Donna and Joy, were "knee sleeves" constructed from old neoprene wetsuits. This innovative concept attracted interest and the company soon embarked on a research and engineering program that would advance the world of bracing.

The introduction of the Defiance and Legend functional knee braces put DonJoy on the map. Defiance, designed for active adult and adolescent patients with moderate to severe knee ligament instabilities, became the company's flagship product. By completely customizing the product to suit the patient's individual needs and providing a low profile, lightweight brace with a lifetime guarantee, top athletes could be confident in returning to their sport of choice. The Legend, meanwhile, became the top ‘patient-ready’ brace for active adults and adolescents. These key products served as a foundation that helped DonJoy tap its full potential as an orthopedic products provider.

In 1987, DonJoy was purchased by Smith & Nephew Inc. and ProCare was acquired in 1995. The following year, DJO Incorporated's OfficeCare soft goods inventory and billing system began assisting orthopedic practitioners by handling all paper work, stock monitoring, order fulfillment and billing for a variety of orthopedic products from top manufacturers. New braces and trademarked billing system enhanced the market and fueled the company's desire to grow.

The unification of the DonJoy and ProCare product lines within one 270,000 square foot facility in Vista, California, brought about the concentration of research energies and turned 1998 into a banner year. Then known as the Bracing and Support Systems division of Smith and Nephew, the company launched four top-of-the-line knee braces: Defiance, the number one selling functional knee brace, was further improved with increased durability and a wide range of new colors and unique patterns. Opal catered to the functional and aesthetic needs of the osteoarthritis patient and TROM, with its total range of motion, was designed exclusively for rehabilitative purposes. The Drytex product line was extended that same year to include four new wraparound products and a sized ankle sleeve.

In 1999, Chase Capital Partners (CCP), Fairfield Chase Medical Partners and senior management acquired the company. Shortly after the acquisition, the company changed its name to DJO Incorporated the first of many steps designed to aggressively expand and reposition the company within the sports medicine industry.

As always, DJO Incorporated is committed to building both opportunities for growth and relationships. Based on the company's reputation as a dominating force in the orthopedics industry with a history of outfitting world-class athletes, DJO Incorporated was selected as the official medical supplier and exclusive knee brace provider for the U.S. Ski and Snowboard Teams.
DJO Incorporated continues to look to the future, broadening its product offerings to include a wide array of solutions for the sports medicine industry to Never Stop Getting Better.

Overview

We are a global medical device company specializing in rehabilitation and regeneration products for the non-operative orthopedic and spine markets.  We believe that we have a leading market share in the non-operative orthopedic and spine markets that we target.  From 2004 to 2005, our consolidated revenues grew 11.8% to $286.2 million.

Marketed under the DonJoy and ProCare brands, our broad range of over 600 rehabilitation products, including rigid knee braces, soft goods and pain management products, are used to prevent injury, to treat chronic conditions and to aid in recovery after surgery or injury.  Our regeneration products consist of bone growth stimulation devices that are 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 50 other countries through networks of agents, distributors and our direct sales force that market our products to orthopedic and spine surgeons, podiatrists, orthopedic and prosthetic centers, third-party distributors, hospitals, surgery centers, physical therapists, athletic trainers and other healthcare professionals.  We believe that we have one of the largest distribution networks for non-operative orthopedic products.  We believe that this distribution network, along with our recognized brand names, reputation for quality, innovation and customer service, and our strong relationships with orthopedic professionals have contributed to our leading market position.

We were incorporated in Delaware in August 2001.  We are the successor to DonJoy, Inc., a business started in 1978 in Carlsbad, California.  In 1987, DonJoy was acquired by Smith & Nephew, Inc. and on June 30, 1999, DonJoy consummated a recapitalization pursuant to which J.P. Morgan DJ Partners, LLC obtained a controlling interest in DonJoy from Smith & Nephew.  Concurrently with the completion of our initial public offering on November 20, 2001, DonJoy merged with us through a series of transactions. Our headquarters are located at 1430 Decision Street, Vista, California 92081.  Our telephone number is (800) 336-5690.  Our website address is www.djortho.com. 

We file annual reports, such as this Form 10-K, as well as quarterly reports on Form 10-Q and current reports on Form    8-K, with the United States (U.S.) Securities and Exchange Commission (SEC).  We make these reports available free of charge on our website under the investor relations page.  These reports can be accessed the same day they are filed with the SEC.  All such reports were made available in this fashion during 2005.
4TITUDE®, Defiance®, DJO's®, DonJoy®, FourcePoint™, IceMan®, OfficeCare®, ProCare®, SpinaLogic®, UltraSling®, LegendTM, UltraSling ERTM, Knee GuaranteeTM, OL1000TM, OL1000 SCTM, DonJoy Pain Control DeviceTM, VelocityTM and ArcticFlowTM, are certain of our registered trademarks and trademarks for which we have applications pending or common law rights.  All other brand names, trademarks and service marks appearing in this annual report are the property of their respective holders.

Segments

Prior to 2005, we disclosed the following reportable segments, which, except for Regeneration, were based on our sales channels: DonJoy, ProCare, OfficeCare, Regeneration and International. Effective 2005, we have aggregated the DonJoy, ProCare and OfficeCare segments into one new segment, Domestic Rehabilitation. In accordance with the aggregation criteria in SFAS No. 131, Disclosure about Segments of an Enterprise and Related Information, the historical segments have been aggregated due to changes in our management and compensation structure that focus on the results of Domestic Rehabilitation, taken as a whole, rather than on its separate components. The segment data for all prior periods have been restated (aggregated) to conform to the new segmentation. The following are our current reportable segments.

• Domestic Rehabilitation consists of the sale of our rehabilitation products (rigid knee braces, soft goods and pain management products) in the United States through three sales channels, DonJoy, ProCare and OfficeCare.
  
  Through the DonJoy sales channel, we sell our rehabilitation products utilizing a few of our direct sales representatives and a network of approximately 300 independent commissioned sales representatives who are employed by approximately 45 independent sales agents. These sales representatives are primarily dedicated to the sale of our products to orthopedic surgeons, podiatrists, orthopedic and prosthetic centers, hospitals, surgery centers, physical therapists, athletic trainers and other healthcare professionals. Because certain of the DonJoy product lines require customer education on the application and use of the product, our sales representatives are technical specialists who receive extensive training both from us and the agent and use their expertise to help fit the patient with the product and assist the orthopedic professional in choosing the appropriate product to meet the patient’s needs. After a product order is received by a sales representative, we generally ship the product directly to the orthopedic professional and pay a sales commission to the agent. These commissions are reflected in sales and marketing expense in our consolidated statements of income.
  
  Through the ProCare sales channel, which is comprised of approximately 37 direct and independent representatives that manage over 310 dealers focused on primary and acute facilities, we sell our rehabilitation products to national third-party distributors, other regional medical supply dealers and medical product buying groups, generally at a discount from list prices. The majority of these products are soft goods which require little or no patient education. The distributors and dealers generally resell these products to large hospital chains, hospital buying groups, primary care networks and orthopedic physicians for use by the patients.
  
  Through the OfficeCare sales channel, we maintain an inventory of rehabilitation products (mostly soft goods) on hand at orthopedic practices for immediate distribution to the patient. For these products, we arrange billing to the patient or third-party payor after the product is provided to the patient. As of July 2, 2005, the OfficeCare program was located at over 800 physician offices throughout the United States. We have contracts with over 800 third-party payors.
  
  
• Regeneration consists of the sale of our bone growth stimulation products in the United States. Our OL1000 product is sold through a combination of the DonJoy channel direct sales representatives and over 100 additional sales representatives dedicated to selling our OL1000 product, of which approximately 45 are employed by us. The SpinaLogic product is also included in this segment and was, until the end of 2004, sold by DePuy Spine in the U.S. under an exclusive sales agreement. In January 2005, we amended the agreement with DePuy to divide the U.S. into territories in which DePuy Spine has exclusive sales rights and non-exclusive territories in which we are permitted to engage in our own sales efforts or retain another sales agent. These products are sold either directly to the patient or to independent distributors. We arrange billing to the third-party payors or patients, for products sold directly to the patient.
  
  
• International consists of the sale of our products in foreign countries through wholly-owned subsidiaries or independent distributors. We sell our products in over 40 foreign countries, primarily in Europe, Canada, Australia and Japan.

Last Updated: 10/16/2007