DJO Incorporated, (NYSE:DJO), a global provider of products and
services that promote musculoskeletal and vascular health, today
announced financial results for the third quarter of 2006, ended
September 30, 2006. Third Quarter Results Net revenues for the
third quarter of 2006 were a record $113.2 million, reflecting an
increase of 56.9 percent, compared with net revenues of $72.1
million in the third quarter of 2005. The third quarter of 2006
included revenue contributions from the Company�s 2006 acquisitions
of Aircast and Axmed. Third quarter revenue also included the
benefit of a change in shipping terms for certain Aircast products
from Aircast�s historical terms of FOB destination to DJO�s policy
of FOB shipping point. Additionally in the third quarter, DJO
cleared certain backorders that existed at the end of the second
quarter of 2006 due to the impact of integration activities taking
place at that time. Together, these two items contributed
approximately $1.9 million of revenue in the third quarter. The
third quarters of 2006 and 2005 each included 63 shipping days.
Non-GAAP net income for the third quarter of 2006 was $9.0 million,
or $0.38 per share, compared to non-GAAP net income of $7.8
million, or $0.34 per share, for the third quarter of 2005. As of
January 1, 2006, the Company adopted Statement of Financial
Accounting Standards No. 123(R), Share-Based Payment, resulting in
the recognition of stock-based compensation expense beginning
January 1, 2006. Non-GAAP results for the third quarter of 2006
exclude the after tax impact of this stock-based compensation
expense and certain costs and expenses related to acquisitions and
the Company�s move into its new corporate headquarters, which
occurred during the third quarter. Non-GAAP results for the third
quarter of 2005 exclude the after tax impact of a write-off of
previously deferred expenses related to discontinued acquisitions.
GAAP net income for the third quarter of 2006 was $4.4 million, or
$0.18 per share, as compared to GAAP net income of $7.5 million, or
$0.33 per share, for the third quarter of 2005. As previously
discussed by the Company, the acquisition of Aircast has had a
short-term dilutive impact on the Company�s financial results due
to the impact of purchase accounting amortization expense and
interest expense related to the acquisition financing being in
excess of the pre-integration profit contribution from the Aircast
business. The Company said it continues to expect the acquisition
to be highly accretive to earnings in 2007, based on expected cost
reduction synergies to be achieved through the integration of the
acquired business into DJO. Nine Month Results Net revenues for the
first nine months of 2006 were $302.3 million, reflecting an
increase of 43.1 percent, compared with net revenues of $211.2
million for the first nine months of 2005. The first nine months of
2006 and 2005 included 191 and 192 shipping days, respectively.
Non-GAAP net income for the first nine months of 2006 was $23.5
million, or $1.01 per share, compared with non-GAAP net income of
$21.3 million, or $0.94 per share, for the first nine months of
2005. Non-GAAP results for the first nine months of 2006 exclude
the after tax impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain costs and expenses related to acquisitions, an
arbitration that concluded in the second quarter of 2006, the
Company�s move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions. Non-GAAP results for the first nine months of 2005
exclude the after tax impact of the write-off of previously
deferred expenses related to discontinued acquisitions. GAAP net
income for the first nine months of 2006 was $11.6 million, or
$0.50 per share, compared to GAAP net income of $21.1 million, or
$0.93 per share, for the first nine months of 2005. �We are very
pleased to report another strong quarter with record revenues
exceeding our expectations. Our revenue growth continues to be
driven by outstanding sales productivity across our existing
business segments and by contributions from our acquisitions,� said
Les Cross, president and CEO. �While our total revenue growth has
clearly been enhanced by our acquisitions, our core business is
performing extremely well. At the bottom line, our strong revenue
levels, combined with the results of good progress with the
integration of Aircast, permitted us to show significant sequential
improvement in our non-GAAP operating margins and earnings per
share from the second quarter of 2006. �Within our Domestic
Rehabilitation business, each of our DonJoy�, ProCare� and
OfficeCare� sales channels posted solid growth rates over the prior
year. We also reached a milestone in our OfficeCare channel by
exceeding 1,000 total accounts in the quarter. As expected, growth
of Aircast products is beginning to accelerate under DJO�s
leadership, with more feet on the street selling the products. We
are pleased to see opportunities for Aircast sales synergies start
to materialize as Aircast products were recently added to three
large, multi-year GPO supply contracts and several smaller
contracts. �Our Regeneration segment also delivered another strong
quarter, with revenue growing at 15.9% over the third quarter of
2005 and both our OL1000TM and SpinaLogic� product lines growing in
double-digits. Revenue growth was particularly strong for our
SpinaLogic product line in the third quarter, at 22% over the prior
year. �Revenue growth in our International segment of nearly 200%
reflects contributions from both 2006 acquisitions, as well as
continued progress against our growth strategies of product line
and geographical expansion. We are very pleased with the progress
we have made with the Aircast integration outside of the U.S. and
with an expanded international sales force carrying Aircast, Axmed
and DJO products, we are beginning to realize revenue synergies
from the acquisitions. �We are also pleased to report a significant
improvement in our operating results in the third quarter. Our
gross profit for the third quarter was reduced by charges related
to stock-based compensation expense (approximately $0.3 million)
and costs and expenses related to our acquisitions and our move
into the Company�s new corporate headquarters in Vista, California
(approximately $1.9 million). Our non-GAAP consolidated gross
profit margin before those items, aggregating approximately $2.2
million, was 62.4% of revenues in the third quarter, reflecting a
slight improvement from the second quarter. As we have discussed,
most of the manufacturing integration, which is expected to improve
our gross profit and gross profit margin, will occur during the
fourth quarter. �The third quarter marked an improvement in our
non-GAAP operating expenses as a percentage of revenues due to our
increased revenue levels and progress made with the integration of
the Aircast SG&A functions. Accordingly, our non-GAAP operating
income margin improved sequentially from the second quarter of this
year by 250 basis points to 18.4%. Due to reduced integration
related costs, our GAAP operating income margin also improved.
Total GAAP operating expenses included charges related to
stock-based compensation expense (approximately $2.4 million) and
costs and expenses related to acquisitions and to the Company�s
move into its new corporate headquarters (approximately $1.1
million). These charges aggregated approximately $3.5 million. �Net
interest and other expense for the third quarter of 2006 was $6.7
million, which was reduced by a net foreign currency transaction
gain of $0.4 million. This amount also includes a non-cash charge
of $0.9 million to write-off abandoned leasehold improvements and
other assets in connection with the move of our corporate
headquarters. Our non-GAAP net interest and other expense, before
this non-cash charge, was $5.8 million. �The total after-tax impact
on our third quarter 2006 earnings from stock-based compensation
expense was $2.3 million, or approximately $0.10 per share. The
total after-tax impact on our third quarter 2006 earnings from
other costs and expenses not deemed to be reflective of the
Company�s ongoing operations was also $2.3 million, or
approximately $0.10 per share. �We generated good cash flow in the
third quarter, which permitted us to repay approximately $15
million of debt during the quarter. As a good start to cash flow
for the fourth quarter, we completed the sale of the Aircast
Summit, NJ headquarters facility in October, netting us cash of
approximately $4.2 million. �Completing the integration of the
Aircast business remains a priority for us in the fourth quarter.
We are now in the final phase, which includes relocating all the
Aircast manufacturing operations from New Jersey to Mexico. To
date, we have moved approximately half of the Aircast manufacturing
volume to Mexico. �With a strong third quarter behind us, we have
increased our 2006 full year revenue expectations. We are now
targeting 2006 revenues to be between $409 million and $412
million. For the fourth quarter, which will be our shortest quarter
of the year with only 61 shipping days, we are targeting total net
revenues of between $107 million and $110 million. We continue to
expect the Aircast integration to be completed by the end of this
year, providing DJO with annualized cost reduction synergies of
between $18 million and $20 million in 2007.� Recent Business
Highlights: DJO Incorporated successfully commenced Aircast
customer service operations in August at its new distribution
center in Indianapolis, Indiana. This new 110,000 square foot
facility is the primary distribution hub for all Aircast products
and Aircast customer service activities. It also supports
distribution for DJO�s DonJoy and OfficeCare channels. The
expansion of the Company�s facilities in Mexico was completed on
schedule in early September, providing the additional capacity to
relocate all remaining Aircast manufacturing from New Jersey to
Mexico during the fourth quarter of 2006. The Company renewed or
signed three major supply contracts during the third quarter. These
contracts include a new sole-source supply agreement with Consorta,
Inc. that includes all Aircast, DonJoy and ProCare branded bracing
and soft goods products and vascular systems products for a
three-year term. DJO also renewed its three-year supply contracts
with both Broadlane, Inc. and Premier Purchasing Partners, to
supply its full line of Aircast, DonJoy and ProCare rigid and soft
bracing products and cold therapy systems. The Company also signed
several other contracts during the quarter, including a new
three-year supply contract with Amerinet Choice for pain management
products, including cold therapy, two new government regional
supply contracts for bracing and soft goods and two government
supply contract renewals for vascular systems products. The Company
announced a sponsorship agreement with Carson Palmer, NFL
quarterback for the Cincinnati Bengals, who is now wearing DJO�s
custom DonJoy Defiance� knee brace. As part of the sponsorship
agreement, Carson Palmer will be featured in DJO�s award-winning
�Faces of DonJoy� print advertising campaign. The Company completed
the move to its new world headquarters in Vista, California in
August. In September, DJO was named to the Deloitte & Touche
�Technology Fast 50� list of San Diego�s fastest growing companies.
DJO received the �Competitive Strategy Leadership� award from Frost
& Sullivan. Conference Call Information DJO Incorporated has
scheduled an investor conference call to discuss this announcement
beginning at 1:00 PM, Eastern Time today, November 2, 2006.
Individuals interested in listening to the conference call may do
so by dialing 706-634-0177, using the reservation code 9000426. A
telephone replay will be available for 48 hours following the
conclusion of the call by dialing 706-645-9291 and using the above
reservation code. The live conference call also will be available
via the Internet at www.djortho.com, and a recording of the call
will be available on the Company�s website. About DJO Incorporated
DJO Incorporated is a global provider of solutions for
musculoskeletal and vascular health, specializing in rehabilitation
and regeneration products for the non-operative orthopedic, spine
and vascular markets. Marketed under the Aircast�, DonJoy� and
ProCare� brands, the Company�s broad range of over 700
rehabilitation products, including rigid knee braces, soft goods
and pain management products, are used in the prevention of injury,
in the treatment of chronic conditions and for recovery after
surgery or injury. The Company�s regeneration products consist of
bone growth stimulation devices that are used to treat nonunion
fractures and as an adjunct therapy after spinal fusion surgery.
The Company�s vascular systems products help prevent deep vein
thrombosis and pulmonary embolism that can occur after orthopedic
and other surgeries. Together, these products provide solutions
throughout the patient�s continuum of care. The Company sells its
products in the United States and in more than 60 other countries
through networks of agents, distributors and its own direct sales
force. Customers include orthopedic, podiatric and spine surgeons,
orthotic and prosthetic centers, third-party distributors,
hospitals, surgery centers, physical therapists, athletic trainers,
other healthcare professionals and individual and team athletes.
For additional information on the Company, please visit
www.djortho.com. Safe Harbor Statement This press release contains
forward-looking statements within the meaning of Section 27A of the
Securities Act of 1933 and Section 21E of the Securities Exchange
Act of 1934. Such statements relate to, among other things, the
Company�s revenue and earnings estimates for the fourth quarter of
2006 and for the full fiscal year 2006, the Company�s belief that
the Aircast integration will be completed by the end of 2006 and
the expected cost synergies from this integration. The words
�believe,� �should,� �expect,� �intend,� �estimate� and
�anticipate,� variations of such words and similar expressions
identify forward-looking statements, but their absence does not
mean that a statement is not a forward-looking statement. These
forward-looking statements are based on the Company�s current
expectations and are subject to a number of risks, uncertainties
and assumptions. The Company�undertakes no obligation to update any
forward-looking statements, whether as a result of new information,
future events or otherwise. Among the important factors that could
cause actual results to differ significantly from those expressed
or implied by such forward-looking statements are risks relating to
the successful execution of the Company�s business strategies
relative to its Domestic Rehabilitation, Regeneration and
International businesses; the successful integration of the sales
and distribution operations of Aircast; the successful and timely
integration of Aircast�s manufacturing and distribution operations
into the Company�s existing operations in Mexico and Indianapolis;
the successful and timely integration of Aircast�s administrative
functions into the Company�s Vista headquarters; the successful
combination of the Company�s and Aircast�s respective operations in
several countries in Europe; the continued growth of the markets
the Company addresses; the impact of potential reductions in
reimbursement levels by Medicare and other governmental and
commercial payors; the Company�s ability to successfully develop,
license or acquire, and timely introduce and market new products or
product enhancements; the Company�s dependence on orthopedic
professionals, agents and distributors for marketing its products;
risks relating to the Company�s international operations; resources
needed and risks involved in complying with government regulations
and in developing and protecting intellectual property; and the
effects of healthcare reform, managed care and buying groups on
prices of the Company�s products. Other risk factors are detailed
in the Company�s Quarterly Report on Form 10-Q for the quarterly
period ended July 1, 2006, filed on August 9, 2006, with the
Securities and Exchange Commission. DJO Incorporated Unaudited
Condensed Consolidated Statements of Income (In thousands, except
per share data and number of operating days) � Three Months Ended
September 30, 2006 � � October 1, 2005 � Net revenues $ 113,205� $
72,133� Costs of goods sold (A),(B) 44,770� � � 26,501� Gross
profit 68,435� 45,632� Operating expenses: Sales and marketing
(A),(B) 33,274� 21,286� General and administrative (A),(B) 12,980�
7,679� Research and development (A),(B) 2,517� 1,486� Amortization
of acquired intangibles 4,510� � � 1,255� Total operating expenses
53,281� � � 31,706� Income from operations 15,154� 13,926� Interest
expense and other, net (B) (6,697) � � (1,366) Income before income
taxes 8,457� 12,560� Provision for income taxes (4,098) � � (5,024)
Net income $ 4,359� � � $ 7,536� Net income per share: Basic $
0.19� � � $ 0.34� Diluted $ 0.18� � � $ 0.33� Non-GAAP diluted net
income per share (excluding the impact of stock-based compensation
expense, certain other charges and expenses related to acquisitions
and the Company�s move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions) $0.38� � � $0.34� Weighted average shares outstanding
used to calculate per share information: Basic 22,968� � � 21,845�
Diluted 23,598� � � 22,761� Number of operating days 63� 63� (A)
Includes stock-based compensation expense, as follows (C): Costs of
goods sold $ 308� $ -� Sales and marketing 1,222� -� General and
administrative 1,015� -� Research and development 140� � � -� $
2,685� � � $ -� (B) Includes certain other charges and expenses
related to acquisitions and the Company�s move into its new
corporate headquarters and the write-off of previously deferred
expenses related to discontinued acquisitions as follows (C): Costs
of goods sold $ 1,872� $ -� Sales and marketing 589� -� General and
administrative 370� -� Research and development 117� -� Interest
expense and other, net 852� � � 362� $ 3,800� � � $ 362� � (C) See
reconciliation of non-GAAP financial measures in table at end of
press release. DJO Incorporated Unaudited Condensed Consolidated
Statements of Income (In thousands, except per share data and
number of operating days) � Nine Months Ended September 30, 2006 �
� October 1, 2005 � Net revenues $ 302,293� $ 211,210� Costs of
goods sold (A),(B) 119,391� � � 77,295� Gross profit 182,902�
133,915� Operating expenses: Sales and marketing (A),(B) 92,251�
64,058� General and administrative (A),(B) 35,614� 22,179� Research
and development (A),(B) 6,682� 4,749� Amortization of acquired
intangibles 10,651� � � 3,560� Total operating expenses 145,198� �
� 94,546� Income from operations 37,704� 39,369� Interest expense
and other, net (B) (16,282) � � (4,266) Income before income taxes
21,422� 35,103� Provision for income taxes (9,790) � � (14,041) Net
income $ 11,632� � � $ 21,062� Net income per share: Basic $ 0.51�
� � $ 0.97� Diluted $ 0.50� � � $ 0.93� Non-GAAP diluted net income
per share (excluding the impact of stock-based compensation
expense, purchase accounting adjustments to write up acquired
inventories to fair value, certain other charges and expenses
related to acquisitions, costs related to an arbitration concluded
in second quarter 2006 and the Company�s move into its new
corporate headquarters and the write-off of previously deferred
expenses related to discontinued acquisitions) $1.01� � � $0.94�
Weighted average shares outstanding used to calculate per share
information: Basic 22,620� � � 21,722� Diluted 23,330� � � 22,613�
Number of operating days 191� 192� (A) Includes stock-based
compensation expense, as follows (C): Costs of goods sold $ 688� $
-� Sales and marketing 3,175� -� General and administrative 2,545�
-� Research and development 385� � � -� $ 6,793� � � $ -� (B)
Includes purchase accounting adjustments to write up acquired
inventories to fair value, certain other charges and expenses
related to acquisitions, costs related to an arbitration concluded
in second quarter 2006 and the Company�s move into its new
corporate headquarters and the write-off of previously deferred
expenses related to discontinued acquisitions, as follows (C):
Costs of goods sold $ 4,995� $ -� Sales and marketing 1,036� -�
General and administrative 1,527� -� Research and development 124�
-� Interest expense and other, net 3,290� � � 362� $ 10,972� � � $
362� � (C) See reconciliation of non-GAAP financial measures in
table at end of press release. DJO Incorporated Unaudited Condensed
Consolidated Balance Sheets (In thousands) � September 30, December
31, Assets 2006� � � 2005� Current assets: Cash and cash
equivalents $ 3,657� $ 1,107� Accounts receivable, net 92,286�
62,068� Inventories, net 41,123� 24,228� Deferred tax asset, net,
current portion 7,678� 7,066� Prepaid expenses and other current
assets 12,638� � � 4,387� Total current assets 157,382� 98,856�
Property, plant and equipment, net 39,751� 15,396� Goodwill,
intangible assets and other assets 454,608� 157,975� Deferred tax
asset, net 14,545� � � 32,437� Total assets $ 666,286� � � $
304,664� � Liabilities and stockholders� equity Current
liabilities: Accounts payable and other accrued liabilities $
70,275� $ 31,095� Long-term debt, current portion 3,500� � � 5,000�
Total current liabilities 73,775� 36,095� Long-term debt, less
current portion 330,750� 42,500� Accrued pension 332� -� Other
long-term accrued liabilities 4,439� -� Total stockholders� equity
256,990� � � 226,069� Total liabilities and stockholders� equity $
666,286� � � $ 304,664� DJO Incorporated Unaudited Segment
Information (In thousands, except number of operating days) � Three
Months Ended � Revenues per Day Three Months Ended Sept. 30, Oct.
1, Sept. 30, Oct. 1, 2006� � 2005� � 2006� � 2005� Net revenues:
Domestic Rehabilitation $ 74,640� $ 50,793� $ 1,185� $ 806�
Regeneration 15,767� 13,600� 250� 216� International 22,798� �
7,740� � 362� � 123� Consolidated net revenues 113,205� � 72,133� �
$ 1,797� � $1,145� � Gross profit: Domestic Rehabilitation 39,410�
28,519� Regeneration 14,452� 12,275� International 14,573� � 4,838�
Consolidated gross profit (1) 68,435� � 45,632� � Income from
operations: Domestic Rehabilitation 11,714� 11,483� Regeneration
3,215� 3,616� International 4,592� � 1,715� Income from operations
of reportable segments (2) 19,521� 16,814� Expenses not allocated
to segments (3) (4,367) � (2,888) Consolidated income from
operations $ 15,154� � $ 13,926� Number of operating days 63� 63�
(1) GAAP consolidated gross profit for the three months ended
September 30, 2006, includes: � Domestic Rehabilitation �
Regeneration � International GAAP gross profit $ 39,410� $ 14,452�
$ 14,573� Stock-based compensation expense 280� 16� 12� Purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges and expenses related to
acquisitions and the Company�s move into its new corporate
headquarters 1,848� � 8� � 16� Non-GAAP gross profit (excluding the
impact of stock-based compensation expense and certain other
charges related to acquisitions and the Company�s move into its new
corporate headquarters) $41,538� � $14,476� � $14,601� � (2) GAAP
income from operations for reportable segments for the three months
ended September 30, 2006, includes: � Domestic Rehabilitation �
Regeneration � International GAAP income from operations of
reportable segments $ 11,714� $ 3,215� $ 4,592� Stock-based
compensation expense 1,253� 457� 200� Purchase accounting
adjustments to write up acquired inventories to fair value and
certain other charges and expenses related to acquisitions and the
Company�s move into its new corporate headquarters 2,483� � 74� �
337� Non-GAAP income from operations of reportable segments
(excluding the impact of stock-based compensation expense and
certain other charges related to acquisitions and the Company�s
move into its new corporate headquarters) $15,450� � $3,746� �
$5,129� (3) Expenses not allocated to segments for the three months
ended September 30, 2006 include $0.8 million of stock-based
compensation expense. DJO Incorporated Unaudited Segment
Information (In thousands, except number of operating days) � Nine
Months Ended Revenues per Day Nine Months Ended Sept. 30, Oct. 1,
Sept. 30, Oct. 1, 2006� � 2005� � 2006� � 2005� Net revenues:
Domestic Rehabilitation $196,506� $145,391� $ 1,029� $ 757�
Regeneration 47,953� 40,712� 251� 212� International 57,834� �
25,107� � 303� � 131� Consolidated net revenues 302,293� � 211,210�
� $ 1,583� � $1,100� � Gross profit: Domestic Rehabilitation
103,462� 81,257� Regeneration 44,237� 36,232� International 35,203�
� 16,426� Consolidated gross profit (1) 182,902� � 133,915� �
Income from operations: Domestic Rehabilitation 30,991� 30,519�
Regeneration 10,636� 10,815� International 8,913� � 6,560� Income
from operations of reportable segments (2) 50,540� 47,894� Expenses
not allocated to segments (3) (12,836) � (8,525) Consolidated
income from operations $ 37,704� � $ 39,369� � Number of operating
days 191� 192� (1) GAAP consolidated gross profit for the nine
months ended September 30, 2006, includes: � Domestic
Rehabilitation � Regeneration � International GAAP gross profit $
103,462� $ 44,237� $ 35,203� Stock-based compensation expense 544�
26� 118� Purchase accounting adjustments to write up acquired
inventories to fair value and certain other charges and expenses
related to acquisitions and the Company�s move into its new
corporate headquarters 3,392� � 8� � 1,595� Non-GAAP gross profit
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges related to acquisitions and the
Company�s move into its new corporate headquarters) $107,398� �
$44,271� � $36,916� � (2) GAAP income from operations for
reportable segments for the nine months ended September 30, 2006,
includes: � Domestic Rehabilitation � Regeneration � International
GAAP income from operations of reportable segments $ 30,991� $
10,636� $ 8,913� Stock-based compensation expense 2,947� 1,281�
651� Purchase accounting adjustments to write up acquired
inventories to fair value and certain other charges and expenses
related to acquisitions and the Company�s move into its new
corporate headquarters 4,416� � 74� � 2,407� Non-GAAP income from
operations of reportable segments (excluding the impact of
stock-based compensation expense, purchase accounting adjustments
to write up acquired inventories to fair value and certain other
charges related to acquisitions and the Company�s move into its new
corporate headquarters) $38,354� � $11,991� � $11,971� � (3)
Expenses not allocated to segments for the nine months ended
September 30, 2006 include $1.9 million of stock-based compensation
expense and $0.7 million of costs related to an arbitration
concluded in second quarter 2006. DJO Incorporated Unaudited
Reconciliation of Non-GAAP Financial Measures (In thousands, except
per share data) � In managing its business, the Company makes use
of certain non-GAAP financial measures in evaluating the Company�s
results of operations. � The Company initially adopted SFAS No.
123R on January 1, 2006 using the modified prospective method,
which resulted in stock-based compensation expense being recognized
during the three and nine months ended September 30, 2006 without
corresponding expense in the three and nine months ended October 1,
2005. In addition, the events giving rise to purchase accounting
adjustments to write up acquired inventories to fair value, certain
other charges and expenses related to acquisitions, costs related
to an arbitration concluded in second quarter 2006 and the
Company�s move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions are not associated with the Company�s normal operating
business. � The Company believes disclosure of non-GAAP earnings
has economic substance because the excluded expenses represent
non-cash expenditures, or relate to transactions that are variable
in nature between reporting periods. � The Company believes that
presenting diluted earnings per share, excluding the impact of
stock-based compensation expense, purchase accounting adjustments
to write up acquired inventories to fair value, certain other
charges and expenses related to acquisitions, costs related to an
arbitration concluded in second quarter and the write-off of
previously deferred expenses related to discontinued acquisitions,
is an additional measure of performance that investors can use to
compare operating results between reporting periods. Management of
the Company uses non-GAAP information internally in planning,
forecasting and evaluating the Company�s results of operations in
the current period and in comparing it to past periods. The Company
also uses these non-GAAP measures in evaluating management
performance for compensation purposes. The Company believes that
this information also provides investors better insight in
evaluating the Company�s earnings performance from core operations
and provides consistency in financial reporting. � The measure,
�Non-GAAP gross profit� is reconciled with GAAP gross profit in the
table below: � Three Months Ended � Nine Months Ended Sept. 30,
2006 � Oct. 1, 2005 � Sept. 30, 2006 � Oct. 1, 2005 � GAAP gross
profit $ 68,435� $ 45,632� $ 182,902� $ 133,915� Stock-based
compensation expense 308� -� 688� -� Purchase accounting
adjustments to write up acquired inventories to fair value and
certain other charges and expenses related to acquisitions 1,685�
-� 4,808� -� Expenses related to the Company�s move into its new
corporate headquarters 187� � -� � 187� � -� Non-GAAP gross profit
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain other charges related to acquisitions and expenses
related to the Company�s move into its new corporate headquarters)
$70,615� � $45,632� � $188,585� � $133,915� DJO Incorporated
Unaudited Reconciliation of Non-GAAP Financial Measures continued
(In thousands, except per share data) � The measure, �Non-GAAP
operating income� is reconciled with GAAP operating income in the
table below: � Three Months Ended � Nine Months Ended Sept. 30,
2006 � Oct. 1, 2005 � Sept. 30, 2006 � Oct. 1, 2005 � GAAP
operating income $ 15,154� $ 13,926� $ 37,704� $ 39,369�
Stock-based compensation expense 2,685� -� 6,793� -� Purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges and expenses related to
acquisitions 2,412� -� 6,415� -� Costs related to an arbitration
concluded in second quarter 2006 -� -� 731� -� Costs and expenses
related to the Company�s move into its new corporate headquarters
536� � -� � 536� � -� Non-GAAP operating income (excluding the
impact of stock-based compensation expense, purchase accounting
adjustments to write up acquired inventories to fair value, certain
other charges related to acquisitions and costs related to an
arbitration concluded in second quarter 2006 and expenses related
to the Company�s move into its new corporate headquarters) $20,787�
� $13,926� � $52,179� � $39,369� � The measure, �Non-GAAP net
income� is reconciled with GAAP net income in the table below: �
Three Months Ended � Nine Months Ended Sept. 30, 2006 � Oct. 1,
2005 � Sept. 30, 2006 � Oct. 1, 2005 � GAAP net income $ 4,359� $
7,536� $ 11,632� $ 21,062� Stock-based compensation expense, net of
tax 2,326� -� 5,296� -� Purchase accounting adjustments to write up
acquired inventories to fair value and certain other charges and
expenses related to acquisitions, net of tax 1,449� -� 5,273� -�
Costs related to an arbitration concluded in second quarter 2006,
net of tax -� -� 441� -� Costs and expenses related to the
Company�s move into its new corporate headquarters 833� -� 833� -�
Write-off of previously deferred expenses related to discontinued
acquisitions, net of tax -� � 217� � 55� � 217� Non-GAAP net income
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain other charges related to acquisitions, costs related
to an arbitration concluded in second quarter 2006, expenses
related to the Company�s move into its new corporate headquarters
and the write-off of previously deferred expenses related to
discontinued acquisitions) $8,967� � $7,753� � $23,530� � $21,279�
DJO Incorporated Unaudited Reconciliation of Non-GAAP Financial
Measures continued (In thousands, except per share data) � The
measure, �Non-GAAP diluted net income per share� is reconciled with
GAAP net income in the table below: � Three Months Ended � Nine
Months Ended Sept. 30, 2006 � Oct. 1, 2005 � Sept. 30, 2006 � Oct.
1, 2005 � GAAP diluted net income per share $ 0.18� $ 0.33� $ 0.50�
$ 0.93� Stock-based compensation expense, net per share 0.10� -�
0.23� -� Purchase accounting adjustments to write up acquired
inventories to fair value and certain other charges and expenses
related to acquisitions, net per share 0.07� -� 0.23� -� Costs
related to an arbitration concluded in second quarter 2006, net per
share -� -� 0.02� -� Costs and expenses related to the Company�s
move into its new corporate headquarters, net per share 0.03� -�
0.03� -� Write-off of previously deferred expenses related to
discontinued acquisitions, net per share -� � 0.01� � -� � 0.01�
Non-GAAP net income (excluding the impact of stock-based
compensation expense, purchase accounting adjustments to write up
acquired inventories to fair value, certain other charges related
to acquisitions, costs related to an arbitration concluded in
second quarter 2006, expenses related to the Company�s move into
its new corporate headquarters and the write-off of previously
deferred expenses related to discontinued acquisitions) $0.38� �
$0.34� � $1.01� � $0.94� DJO Incorporated, (NYSE:DJO), a global
provider of products and services that promote musculoskeletal and
vascular health, today announced financial results for the third
quarter of 2006, ended September 30, 2006. Third Quarter Results
Net revenues for the third quarter of 2006 were a record $113.2
million, reflecting an increase of 56.9 percent, compared with net
revenues of $72.1 million in the third quarter of 2005. The third
quarter of 2006 included revenue contributions from the Company's
2006 acquisitions of Aircast and Axmed. Third quarter revenue also
included the benefit of a change in shipping terms for certain
Aircast products from Aircast's historical terms of FOB destination
to DJO's policy of FOB shipping point. Additionally in the third
quarter, DJO cleared certain backorders that existed at the end of
the second quarter of 2006 due to the impact of integration
activities taking place at that time. Together, these two items
contributed approximately $1.9 million of revenue in the third
quarter. The third quarters of 2006 and 2005 each included 63
shipping days. Non-GAAP net income for the third quarter of 2006
was $9.0 million, or $0.38 per share, compared to non-GAAP net
income of $7.8 million, or $0.34 per share, for the third quarter
of 2005. As of January 1, 2006, the Company adopted Statement of
Financial Accounting Standards No. 123(R), Share-Based Payment,
resulting in the recognition of stock-based compensation expense
beginning January 1, 2006. Non-GAAP results for the third quarter
of 2006 exclude the after tax impact of this stock-based
compensation expense and certain costs and expenses related to
acquisitions and the Company's move into its new corporate
headquarters, which occurred during the third quarter. Non-GAAP
results for the third quarter of 2005 exclude the after tax impact
of a write-off of previously deferred expenses related to
discontinued acquisitions. GAAP net income for the third quarter of
2006 was $4.4 million, or $0.18 per share, as compared to GAAP net
income of $7.5 million, or $0.33 per share, for the third quarter
of 2005. As previously discussed by the Company, the acquisition of
Aircast has had a short-term dilutive impact on the Company's
financial results due to the impact of purchase accounting
amortization expense and interest expense related to the
acquisition financing being in excess of the pre-integration profit
contribution from the Aircast business. The Company said it
continues to expect the acquisition to be highly accretive to
earnings in 2007, based on expected cost reduction synergies to be
achieved through the integration of the acquired business into DJO.
Nine Month Results Net revenues for the first nine months of 2006
were $302.3 million, reflecting an increase of 43.1 percent,
compared with net revenues of $211.2 million for the first nine
months of 2005. The first nine months of 2006 and 2005 included 191
and 192 shipping days, respectively. Non-GAAP net income for the
first nine months of 2006 was $23.5 million, or $1.01 per share,
compared with non-GAAP net income of $21.3 million, or $0.94 per
share, for the first nine months of 2005. Non-GAAP results for the
first nine months of 2006 exclude the after tax impact of
stock-based compensation expense, purchase accounting adjustments
to write up acquired inventories to fair value, certain costs and
expenses related to acquisitions, an arbitration that concluded in
the second quarter of 2006, the Company's move into its new
corporate headquarters and the write-off of previously deferred
expenses related to discontinued acquisitions. Non-GAAP results for
the first nine months of 2005 exclude the after tax impact of the
write-off of previously deferred expenses related to discontinued
acquisitions. GAAP net income for the first nine months of 2006 was
$11.6 million, or $0.50 per share, compared to GAAP net income of
$21.1 million, or $0.93 per share, for the first nine months of
2005. "We are very pleased to report another strong quarter with
record revenues exceeding our expectations. Our revenue growth
continues to be driven by outstanding sales productivity across our
existing business segments and by contributions from our
acquisitions," said Les Cross, president and CEO. "While our total
revenue growth has clearly been enhanced by our acquisitions, our
core business is performing extremely well. At the bottom line, our
strong revenue levels, combined with the results of good progress
with the integration of Aircast, permitted us to show significant
sequential improvement in our non-GAAP operating margins and
earnings per share from the second quarter of 2006. "Within our
Domestic Rehabilitation business, each of our DonJoy(R), ProCare(R)
and OfficeCare(R) sales channels posted solid growth rates over the
prior year. We also reached a milestone in our OfficeCare channel
by exceeding 1,000 total accounts in the quarter. As expected,
growth of Aircast products is beginning to accelerate under DJO's
leadership, with more feet on the street selling the products. We
are pleased to see opportunities for Aircast sales synergies start
to materialize as Aircast products were recently added to three
large, multi-year GPO supply contracts and several smaller
contracts. "Our Regeneration segment also delivered another strong
quarter, with revenue growing at 15.9% over the third quarter of
2005 and both our OL1000(TM) and SpinaLogic(R) product lines
growing in double-digits. Revenue growth was particularly strong
for our SpinaLogic product line in the third quarter, at 22% over
the prior year. "Revenue growth in our International segment of
nearly 200% reflects contributions from both 2006 acquisitions, as
well as continued progress against our growth strategies of product
line and geographical expansion. We are very pleased with the
progress we have made with the Aircast integration outside of the
U.S. and with an expanded international sales force carrying
Aircast, Axmed and DJO products, we are beginning to realize
revenue synergies from the acquisitions. "We are also pleased to
report a significant improvement in our operating results in the
third quarter. Our gross profit for the third quarter was reduced
by charges related to stock-based compensation expense
(approximately $0.3 million) and costs and expenses related to our
acquisitions and our move into the Company's new corporate
headquarters in Vista, California (approximately $1.9 million). Our
non-GAAP consolidated gross profit margin before those items,
aggregating approximately $2.2 million, was 62.4% of revenues in
the third quarter, reflecting a slight improvement from the second
quarter. As we have discussed, most of the manufacturing
integration, which is expected to improve our gross profit and
gross profit margin, will occur during the fourth quarter. "The
third quarter marked an improvement in our non-GAAP operating
expenses as a percentage of revenues due to our increased revenue
levels and progress made with the integration of the Aircast
SG&A functions. Accordingly, our non-GAAP operating income
margin improved sequentially from the second quarter of this year
by 250 basis points to 18.4%. Due to reduced integration related
costs, our GAAP operating income margin also improved. Total GAAP
operating expenses included charges related to stock-based
compensation expense (approximately $2.4 million) and costs and
expenses related to acquisitions and to the Company's move into its
new corporate headquarters (approximately $1.1 million). These
charges aggregated approximately $3.5 million. "Net interest and
other expense for the third quarter of 2006 was $6.7 million, which
was reduced by a net foreign currency transaction gain of $0.4
million. This amount also includes a non-cash charge of $0.9
million to write-off abandoned leasehold improvements and other
assets in connection with the move of our corporate headquarters.
Our non-GAAP net interest and other expense, before this non-cash
charge, was $5.8 million. "The total after-tax impact on our third
quarter 2006 earnings from stock-based compensation expense was
$2.3 million, or approximately $0.10 per share. The total after-tax
impact on our third quarter 2006 earnings from other costs and
expenses not deemed to be reflective of the Company's ongoing
operations was also $2.3 million, or approximately $0.10 per share.
"We generated good cash flow in the third quarter, which permitted
us to repay approximately $15 million of debt during the quarter.
As a good start to cash flow for the fourth quarter, we completed
the sale of the Aircast Summit, NJ headquarters facility in
October, netting us cash of approximately $4.2 million. "Completing
the integration of the Aircast business remains a priority for us
in the fourth quarter. We are now in the final phase, which
includes relocating all the Aircast manufacturing operations from
New Jersey to Mexico. To date, we have moved approximately half of
the Aircast manufacturing volume to Mexico. "With a strong third
quarter behind us, we have increased our 2006 full year revenue
expectations. We are now targeting 2006 revenues to be between $409
million and $412 million. For the fourth quarter, which will be our
shortest quarter of the year with only 61 shipping days, we are
targeting total net revenues of between $107 million and $110
million. We continue to expect the Aircast integration to be
completed by the end of this year, providing DJO with annualized
cost reduction synergies of between $18 million and $20 million in
2007." Recent Business Highlights: -- DJO Incorporated successfully
commenced Aircast customer service operations in August at its new
distribution center in Indianapolis, Indiana. This new 110,000
square foot facility is the primary distribution hub for all
Aircast products and Aircast customer service activities. It also
supports distribution for DJO's DonJoy and OfficeCare channels. --
The expansion of the Company's facilities in Mexico was completed
on schedule in early September, providing the additional capacity
to relocate all remaining Aircast manufacturing from New Jersey to
Mexico during the fourth quarter of 2006. -- The Company renewed or
signed three major supply contracts during the third quarter. These
contracts include a new sole-source supply agreement with Consorta,
Inc. that includes all Aircast, DonJoy and ProCare branded bracing
and soft goods products and vascular systems products for a
three-year term. DJO also renewed its three-year supply contracts
with both Broadlane, Inc. and Premier Purchasing Partners, to
supply its full line of Aircast, DonJoy and ProCare rigid and soft
bracing products and cold therapy systems. The Company also signed
several other contracts during the quarter, including a new
three-year supply contract with Amerinet Choice for pain management
products, including cold therapy, two new government regional
supply contracts for bracing and soft goods and two government
supply contract renewals for vascular systems products. -- The
Company announced a sponsorship agreement with Carson Palmer, NFL
quarterback for the Cincinnati Bengals, who is now wearing DJO's
custom DonJoy Defiance(R) knee brace. As part of the sponsorship
agreement, Carson Palmer will be featured in DJO's award-winning
"Faces of DonJoy" print advertising campaign. -- The Company
completed the move to its new world headquarters in Vista,
California in August. -- In September, DJO was named to the
Deloitte & Touche "Technology Fast 50" list of San Diego's
fastest growing companies. -- DJO received the "Competitive
Strategy Leadership" award from Frost & Sullivan. Conference
Call Information DJO Incorporated has scheduled an investor
conference call to discuss this announcement beginning at 1:00 PM,
Eastern Time today, November 2, 2006. Individuals interested in
listening to the conference call may do so by dialing 706-634-0177,
using the reservation code 9000426. A telephone replay will be
available for 48 hours following the conclusion of the call by
dialing 706-645-9291 and using the above reservation code. The live
conference call also will be available via the Internet at
www.djortho.com, and a recording of the call will be available on
the Company's website. About DJO Incorporated DJO Incorporated is a
global provider of solutions for musculoskeletal and vascular
health, specializing in rehabilitation and regeneration products
for the non-operative orthopedic, spine and vascular markets.
Marketed under the Aircast(R), DonJoy(R) and ProCare(R) brands, the
Company's broad range of over 700 rehabilitation products,
including rigid knee braces, soft goods and pain management
products, are used in the prevention of injury, in the treatment of
chronic conditions and for recovery after surgery or injury. The
Company's regeneration products consist of bone growth stimulation
devices that are used to treat nonunion fractures and as an adjunct
therapy after spinal fusion surgery. The Company's vascular systems
products help prevent deep vein thrombosis and pulmonary embolism
that can occur after orthopedic and other surgeries. Together,
these products provide solutions throughout the patient's continuum
of care. The Company sells its products in the United States and in
more than 60 other countries through networks of agents,
distributors and its own direct sales force. Customers include
orthopedic, podiatric and spine surgeons, orthotic and prosthetic
centers, third-party distributors, hospitals, surgery centers,
physical therapists, athletic trainers, other healthcare
professionals and individual and team athletes. For additional
information on the Company, please visit www.djortho.com. Safe
Harbor Statement This press release contains forward-looking
statements within the meaning of Section 27A of the Securities Act
of 1933 and Section 21E of the Securities Exchange Act of 1934.
Such statements relate to, among other things, the Company's
revenue and earnings estimates for the fourth quarter of 2006 and
for the full fiscal year 2006, the Company's belief that the
Aircast integration will be completed by the end of 2006 and the
expected cost synergies from this integration. The words "believe,"
"should," "expect," "intend," "estimate" and "anticipate,"
variations of such words and similar expressions identify
forward-looking statements, but their absence does not mean that a
statement is not a forward-looking statement. These forward-looking
statements are based on the Company's current expectations and are
subject to a number of risks, uncertainties and assumptions. The
Company undertakes no obligation to update any forward-looking
statements, whether as a result of new information, future events
or otherwise. Among the important factors that could cause actual
results to differ significantly from those expressed or implied by
such forward-looking statements are risks relating to the
successful execution of the Company's business strategies relative
to its Domestic Rehabilitation, Regeneration and International
businesses; the successful integration of the sales and
distribution operations of Aircast; the successful and timely
integration of Aircast's manufacturing and distribution operations
into the Company's existing operations in Mexico and Indianapolis;
the successful and timely integration of Aircast's administrative
functions into the Company's Vista headquarters; the successful
combination of the Company's and Aircast's respective operations in
several countries in Europe; the continued growth of the markets
the Company addresses; the impact of potential reductions in
reimbursement levels by Medicare and other governmental and
commercial payors; the Company's ability to successfully develop,
license or acquire, and timely introduce and market new products or
product enhancements; the Company's dependence on orthopedic
professionals, agents and distributors for marketing its products;
risks relating to the Company's international operations; resources
needed and risks involved in complying with government regulations
and in developing and protecting intellectual property; and the
effects of healthcare reform, managed care and buying groups on
prices of the Company's products. Other risk factors are detailed
in the Company's Quarterly Report on Form 10-Q for the quarterly
period ended July 1, 2006, filed on August 9, 2006, with the
Securities and Exchange Commission. -0- *T DJO Incorporated
Unaudited Condensed Consolidated Statements of Income (In
thousands, except per share data and number of operating days)
Three Months Ended ------------------------- September 30, October
1, 2006 2005 ------------------------- Net revenues $113,205
$72,133 Costs of goods sold (A),(B) 44,770 26,501
------------------------- Gross profit 68,435 45,632 Operating
expenses: Sales and marketing (A),(B) 33,274 21,286 General and
administrative (A),(B) 12,980 7,679 Research and development
(A),(B) 2,517 1,486 Amortization of acquired intangibles 4,510
1,255 ------------------------- Total operating expenses 53,281
31,706 ------------------------- Income from operations 15,154
13,926 Interest expense and other, net (B) (6,697) (1,366)
------------------------- Income before income taxes 8,457 12,560
Provision for income taxes (4,098) (5,024)
------------------------- Net income $4,359 $7,536
------------------------- Net income per share: Basic $0.19 $0.34
------------------------- Diluted $0.18 $0.33
------------------------- Non-GAAP diluted net income per share
(excluding the impact of stock-based compensation expense, certain
other charges and expenses related to acquisitions and the
Company's move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions) $0.38 $0.34 ========================= Weighted
average shares outstanding used to calculate per share information:
Basic 22,968 21,845 ========================= Diluted 23,598 22,761
========================= Number of operating days 63 63 (A)
Includes stock-based compensation expense, as follows (C): Costs of
goods sold $308 $- Sales and marketing 1,222 - General and
administrative 1,015 - Research and development 140 -
------------------------- $2,685 $- ========================= (B)
Includes certain other charges and expenses related to acquisitions
and the Company's move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions as follows (C): Costs of goods sold $1,872 $- Sales
and marketing 589 - General and administrative 370 - Research and
development 117 - Interest expense and other, net 852 362
------------------------- $3,800 $362 ========================= (C)
See reconciliation of non-GAAP financial measures in table at end
of press release. *T -0- *T DJO Incorporated Unaudited Condensed
Consolidated Statements of Income (In thousands, except per share
data and number of operating days) Nine Months Ended
------------------------- September 30, October 1, 2006 2005
------------------------- Net revenues $302,293 $211,210 Costs of
goods sold (A),(B) 119,391 77,295 ------------------------- Gross
profit 182,902 133,915 Operating expenses: Sales and marketing
(A),(B) 92,251 64,058 General and administrative (A),(B) 35,614
22,179 Research and development (A),(B) 6,682 4,749 Amortization of
acquired intangibles 10,651 3,560 ------------------------- Total
operating expenses 145,198 94,546 ------------------------- Income
from operations 37,704 39,369 Interest expense and other, net (B)
(16,282) (4,266) ------------------------- Income before income
taxes 21,422 35,103 Provision for income taxes (9,790) (14,041)
------------------------- Net income $11,632 $21,062
========================= Net income per share: Basic $0.51 $0.97
========================= Diluted $0.50 $0.93
========================= Non-GAAP diluted net income per share
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain other charges and expenses related to acquisitions,
costs related to an arbitration concluded in second quarter 2006
and the Company's move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions) $1.01 $0.94 ========================= Weighted
average shares outstanding used to calculate per share information:
Basic 22,620 21,722 ========================= Diluted 23,330 22,613
========================= Number of operating days 191 192 (A)
Includes stock-based compensation expense, as follows (C): Costs of
goods sold $688 $- Sales and marketing 3,175 - General and
administrative 2,545 - Research and development 385 -
------------------------- $6,793 $- ========================= (B)
Includes purchase accounting adjustments to write up acquired
inventories to fair value, certain other charges and expenses
related to acquisitions, costs related to an arbitration concluded
in second quarter 2006 and the Company's move into its new
corporate headquarters and the write-off of previously deferred
expenses related to discontinued acquisitions, as follows (C):
Costs of goods sold $4,995 $- Sales and marketing 1,036 - General
and administrative 1,527 - Research and development 124 - Interest
expense and other, net 3,290 362 ------------------------- $10,972
$362 ========================= (C) See reconciliation of non-GAAP
financial measures in table at end of press release. *T -0- *T DJO
Incorporated Unaudited Condensed Consolidated Balance Sheets (In
thousands) September 30, December 31, Assets 2006 2005
--------------------------- Current assets: Cash and cash
equivalents $3,657 $1,107 Accounts receivable, net 92,286 62,068
Inventories, net 41,123 24,228 Deferred tax asset, net, current
portion 7,678 7,066 Prepaid expenses and other current assets
12,638 4,387 --------------------------- Total current assets
157,382 98,856 Property, plant and equipment, net 39,751 15,396
Goodwill, intangible assets and other assets 454,608 157,975
Deferred tax asset, net 14,545 32,437 ---------------------------
Total assets $666,286 $304,664 ===========================
Liabilities and stockholders' equity Current liabilities: Accounts
payable and other accrued liabilities $70,275 $31,095 Long-term
debt, current portion 3,500 5,000 --------------------------- Total
current liabilities 73,775 36,095 Long-term debt, less current
portion 330,750 42,500 Accrued pension 332 - Other long-term
accrued liabilities 4,439 - Total stockholders' equity 256,990
226,069 --------------------------- Total liabilities and
stockholders' equity $666,286 $304,664 ===========================
*T -0- *T DJO Incorporated Unaudited Segment Information (In
thousands, except number of operating days) Revenues per Day Three
Months Ended Three Months Ended
------------------------------------- Sept. 30, Oct. 1, Sept. 30,
Oct. 1, 2006 2005 2006 2005 -------------------------------------
Net revenues: Domestic Rehabilitation $74,640 $50,793 $1,185 $806
Regeneration 15,767 13,600 250 216 International 22,798 7,740 362
123 ------------------------------------- Consolidated net revenues
113,205 72,133 $1,797 $1,145 -------------------------------------
Gross profit: Domestic Rehabilitation 39,410 28,519 Regeneration
14,452 12,275 International 14,573 4,838 ------------------
Consolidated gross profit (1) 68,435 45,632 ------------------
Income from operations: Domestic Rehabilitation 11,714 11,483
Regeneration 3,215 3,616 International 4,592 1,715
------------------ Income from operations of reportable segments
(2) 19,521 16,814 Expenses not allocated to segments (3) (4,367)
(2,888) ------------------ Consolidated income from operations
$15,154 $13,926 ================== Number of operating days 63 63
*T -0- *T (1) GAAP consolidated gross profit for the three months
ended September 30, 2006, includes: Domestic Rehabilitation
Regeneration International
------------------------------------------ GAAP gross profit
$39,410 $14,452 $14,573 Stock-based compensation expense 280 16 12
Purchase accounting adjustments to write up acquired inventories to
fair value and certain other charges and expenses related to
acquisitions and the Company's move into its new corporate
headquarters 1,848 8 16 ------------------------------------------
Non-GAAP gross profit (excluding the impact of stock-based
compensation expense and certain other charges related to
acquisitions and the Company's move into its new corporate
headquarters) $41,538 $14,476 $14,601
========================================== (2) GAAP income from
operations for reportable segments for the three months ended
September 30, 2006, includes: Domestic Rehabilitation Regeneration
International ------------------------------------------ GAAP
income from operations of reportable segments $11,714 $3,215 $4,592
Stock-based compensation expense 1,253 457 200 Purchase accounting
adjustments to write up acquired inventories to fair value and
certain other charges and expenses related to acquisitions and the
Company's move into its new corporate headquarters 2,483 74 337
------------------------------------------ Non-GAAP income from
operations of reportable segments (excluding the impact of
stock-based compensation expense and certain other charges related
to acquisitions and the Company's move into its new corporate
headquarters) $15,450 $3,746 $5,129
========================================== (3) Expenses not
allocated to segments for the three months ended September 30, 2006
include $0.8 million of stock-based compensation expense. *T -0- *T
DJO Incorporated Unaudited Segment Information (In thousands,
except number of operating days) Revenues per Day Nine Months Ended
Nine Months Ended ------------------- ----------------- Sept. 30,
Oct. 1, Sept. 30, Oct. 1, 2006 2005 2006 2005
------------------------------------- Net revenues: Domestic
Rehabilitation $196,506 $145,391 $1,029 $757 Regeneration 47,953
40,712 251 212 International 57,834 25,107 303 131
------------------------------------- Consolidated net revenues
302,293 211,210 $1,583 $1,100 -------------------------------------
Gross profit: Domestic Rehabilitation 103,462 81,257 Regeneration
44,237 36,232 International 35,203 16,426 -------------------
Consolidated gross profit (1) 182,902 133,915 -------------------
Income from operations: Domestic Rehabilitation 30,991 30,519
Regeneration 10,636 10,815 International 8,913 6,560
------------------- Income from operations of reportable segments
(2) 50,540 47,894 Expenses not allocated to segments (3) (12,836)
(8,525) ------------------- Consolidated income from operations
$37,704 $39,369 =================== Number of operating days 191
192 *T -0- *T (1) GAAP consolidated gross profit for the nine
months ended September 30, 2006, includes: Domestic Rehabilitation
Regeneration International
------------------------------------------ GAAP gross profit
$103,462 $44,237 $35,203 Stock-based compensation expense 544 26
118 Purchase accounting adjustments to write up acquired
inventories to fair value and certain other charges and expenses
related to acquisitions and the Company's move into its new
corporate headquarters 3,392 8 1,595
------------------------------------------ Non-GAAP gross profit
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges related to acquisitions and the
Company's move into its new corporate headquarters) $107,398
$44,271 $36,916 ========================================== (2) GAAP
income from operations for reportable segments for the nine months
ended September 30, 2006, includes: Domestic Rehabilitation
Regeneration International
------------------------------------------ GAAP income from
operations of reportable segments $30,991 $10,636 $8,913
Stock-based compensation expense 2,947 1,281 651 Purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges and expenses related to
acquisitions and the Company's move into its new corporate
headquarters 4,416 74 2,407
------------------------------------------ Non-GAAP income from
operations of reportable segments (excluding the impact of
stock-based compensation expense, purchase accounting adjustments
to write up acquired inventories to fair value and certain other
charges related to acquisitions and the Company's move into its new
corporate headquarters) $38,354 $11,991 $11,971
========================================== (3) Expenses not
allocated to segments for the nine months ended September 30, 2006
include $1.9 million of stock-based compensation expense and $0.7
million of costs related to an arbitration concluded in second
quarter 2006. *T -0- *T DJO Incorporated Unaudited Reconciliation
of Non-GAAP Financial Measures (In thousands, except per share
data) In managing its business, the Company makes use of certain
non-GAAP financial measures in evaluating the Company's results of
operations. The Company initially adopted SFAS No. 123R on January
1, 2006 using the modified prospective method, which resulted in
stock-based compensation expense being recognized during the three
and nine months ended September 30, 2006 without corresponding
expense in the three and nine months ended October 1, 2005. In
addition, the events giving rise to purchase accounting adjustments
to write up acquired inventories to fair value, certain other
charges and expenses related to acquisitions, costs related to an
arbitration concluded in second quarter 2006 and the Company's move
into its new corporate headquarters and the write-off of previously
deferred expenses related to discontinued acquisitions are not
associated with the Company's normal operating business. The
Company believes disclosure of non-GAAP earnings has economic
substance because the excluded expenses represent non-cash
expenditures, or relate to transactions that are variable in nature
between reporting periods. The Company believes that presenting
diluted earnings per share, excluding the impact of stock-based
compensation expense, purchase accounting adjustments to write up
acquired inventories to fair value, certain other charges and
expenses related to acquisitions, costs related to an arbitration
concluded in second quarter and the write-off of previously
deferred expenses related to discontinued acquisitions, is an
additional measure of performance that investors can use to compare
operating results between reporting periods. Management of the
Company uses non-GAAP information internally in planning,
forecasting and evaluating the Company's results of operations in
the current period and in comparing it to past periods. The Company
also uses these non-GAAP measures in evaluating management
performance for compensation purposes. The Company believes that
this information also provides investors better insight in
evaluating the Company's earnings performance from core operations
and provides consistency in financial reporting. The measure,
"Non-GAAP gross profit" is reconciled with GAAP gross profit in the
table below: Three Months Ended Nine Months Ended
----------------------------------------- Sept. 30, Oct. 1, Sept.
30, Oct. 1, 2006 2005 2006 2005
----------------------------------------- GAAP gross profit $68,435
$45,632 $182,902 $133,915 Stock-based compensation expense 308 -
688 - Purchase accounting adjustments to write up acquired
inventories to fair value and certain other charges and expenses
related to acquisitions 1,685 - 4,808 - Expenses related to the
Company's move into its new corporate headquarters 187 - 187 -
----------------------------------------- Non-GAAP gross profit
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain other charges related to acquisitions and expenses
related to the Company's move into its new corporate headquarters)
$70,615 $45,632 $188,585 $133,915
========================================= *T -0- *T DJO
Incorporated Unaudited Reconciliation of Non-GAAP Financial
Measures continued (In thousands, except per share data) The
measure, "Non-GAAP operating income" is reconciled with GAAP
operating income in the table below: Three Months Ended Nine Months
Ended --------------------------------------- Sept. 30, Oct. 1,
Sept. 30, Oct. 1, 2006 2005 2006 2005
--------------------------------------- GAAP operating income
$15,154 $13,926 $37,704 $39,369 Stock-based compensation expense
2,685 - 6,793 - Purchase accounting adjustments to write up
acquired inventories to fair value and certain other charges and
expenses related to acquisitions 2,412 - 6,415 - Costs related to
an arbitration concluded in second quarter 2006 - - 731 - Costs and
expenses related to the Company's move into its new corporate
headquarters 536 - 536 - ---------------------------------------
Non-GAAP operating income (excluding the impact of stock-based
compensation expense, purchase accounting adjustments to write up
acquired inventories to fair value, certain other charges related
to acquisitions and costs related to an arbitration concluded in
second quarter 2006 and expenses related to the Company's move into
its new corporate headquarters) $20,787 $13,926 $52,179 $39,369
======================================= The measure, "Non-GAAP net
income" is reconciled with GAAP net income in the table below:
Three Months Ended Nine Months Ended
--------------------------------------- Sept. 30, Oct. 1, Sept. 30,
Oct. 1, 2006 2005 2006 2005 ---------------------------------------
GAAP net income $4,359 $7,536 $11,632 $21,062 Stock-based
compensation expense, net of tax 2,326 - 5,296 - Purchase
accounting adjustments to write up acquired inventories to fair
value and certain other charges and expenses related to
acquisitions, net of tax 1,449 - 5,273 - Costs related to an
arbitration concluded in second quarter 2006, net of tax - - 441 -
Costs and expenses related to the Company's move into its new
corporate headquarters 833 - 833 - Write-off of previously deferred
expenses related to discontinued acquisitions, net of tax - 217 55
217 --------------------------------------- Non-GAAP net income
(excluding the impact of stock-based compensation expense, purchase
accounting adjustments to write up acquired inventories to fair
value, certain other charges related to acquisitions, costs related
to an arbitration concluded in second quarter 2006, expenses
related to the Company's move into its new corporate headquarters
and the write-off of previously deferred expenses related to
discontinued acquisitions) $8,967 $7,753 $23,530 $21,279
======================================= *T -0- *T DJO Incorporated
Unaudited Reconciliation of Non-GAAP Financial Measures continued
(In thousands, except per share data) The measure, "Non-GAAP
diluted net income per share" is reconciled with GAAP net income in
the table below: Three Months Ended Nine Months Ended
------------------------------------ Sept. 30, Oct. 1, Sept. 30,
Oct. 1, 2006 2005 2006 2005 ------------------------------------
GAAP diluted net income per share $0.18 $0.33 $0.50 $0.93
Stock-based compensation expense, net per share 0.10 - 0.23 -
Purchase accounting adjustments to write up acquired inventories to
fair value and certain other charges and expenses related to
acquisitions, net per share 0.07 - 0.23 - Costs related to an
arbitration concluded in second quarter 2006, net per share - -
0.02 - Costs and expenses related to the Company's move into its
new corporate headquarters, net per share 0.03 - 0.03 - Write-off
of previously deferred expenses related to discontinued
acquisitions, net per share - 0.01 - 0.01
------------------------------------ Non-GAAP net income (excluding
the impact of stock-based compensation expense, purchase accounting
adjustments to write up acquired inventories to fair value, certain
other charges related to acquisitions, costs related to an
arbitration concluded in second quarter 2006, expenses related to
the Company's move into its new corporate headquarters and the
write-off of previously deferred expenses related to discontinued
acquisitions) $0.38 $0.34 $1.01 $0.94
==================================== *T
Grafico Azioni DJ Orthopedics (NYSE:DJO)
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Grafico Azioni DJ Orthopedics (NYSE:DJO)
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