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dj Orthopedics Reports Second Quarter Earnings - Announces Regentek Integration BY JOHN MCCORMICK, AUGUST 2, 2004

dj Orthopedics, Inc. (NYSE: DJO) met analysts' $0.21 second quarter earnings expectations for the second quarter of 2004 after an adjustment for a bond redemption premium. 2Q:04 revenues for DJO were $63.2 million, 33.2% higher than last year's 2Q:03 (7.2% higher than last year's 2Q:03 pro forma, including the recent bone growth stimulator acquisition). Although revenue growth slightly underwhelmed analyst expectations, gross margins came in at a relatively strong 63.7%, versus 55.2% for last year. Higher than forecasted sales, marketing and G&A expenses ultimately kept earnings in line.

Revenue growth in the DonJoy and Regentek business segments were a little light. Regentek growth experienced some timing issues with shipments to stocking distributors. Although DonJoy was helped by new product launches, slower than expected sales of pain management products negatively impacted revenue growth. In other divisions, revenue was relatively robust with ProCare increasing 7.5% due to the recent addition of several large national GPO accounts. Revenues for OfficeCare increased due to new accounts and favorable pricing trends. A boost in UK and European revenues helped international sales.

The most significant news that CEO Les Cross announced on Tuesday was the restructuring of its Regentek operation. Regentek is the OrthoLogic bone growth stimulation business that DJO acquired at the end of 2003. Management plans on immediately integrating the Regentek sales reps into the DonJoy distribution channel and eventually doubling the number of Regentek reps (from about 45 to 90). Management was clear that this may cause a short term temporary pressure on 3Q revenues for the Company. The Company maintained its $260 million revenue guidance for 2004 due to a possible beneficial impact from the sales force integration seen as early as Q4 of this year. We note that DJO's Spinalogic distribution agreement with DePuy remains intact. In order to achieve cost synergies, DJO will be moving Regentek positions from their Tempe, AZ facilities to corporate HQ in Vista, CA. Currently the number of positions in Tempe (excluding the sales force) is about 90 - 100 people and about 40 - 50 of those positions should be filled back in Vista. The Company estimates as much as $3 million in annual pre-tax savings because of this move which should be completed by year's end. Severance and related expense charges are estimated to be in the $5 million area.

In addition, management noted that it is finalizing the build-out of its new Mexican 200,000 sq. ft. manufacturing facility and integration of manufacturing operations should begin in Q4 of this year. We note that there is always the risk that FDA documentation requirements could slow the transfer of bone growth stimulation product supply chain.

To make the hoped for sales increases, cost synergies and cost savings that management is talking about, things are certainly going to have to go right. To the Company's credit, management has had a good track record in restructuring its operations over the last 2 years.

With the completion of DJO's recent $75 million debt reduction, the Company has approximately $11 million in cash and $98 million in long term debt. For the first six months of 2004, EBITDA was $28 million.