Fourth-quarter and fiscal year 2009 results announced by DJO Incorporated

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DJO Incorporated (“DJO” or the “Company”), a global provider of medical device solutions for musculoskeletal health, vascular health and pain management, today announced financial results for its operating subsidiary, DJO Finance LLC (“DJOFL”), for the fourth quarter and fiscal year ended December 31, 2009. ReAble Therapeutics, Inc. (“ReAble”) acquired DJO Incorporated (“DJO Opco”) in a transaction completed on November 20, 2007 (the “DJO Merger”). Following completion of the DJO Merger, ReAble changed its name to DJO Incorporated. The Company sold its Empi Therapy Solutions (“ETS”) catalog business in June 2009. The ETS business, a non-core part of the Company’s Empi business unit, consisted primarily of the resale of non-DJO branded rehabilitation equipment and supplies and generated annual revenue of approximately $30 million. Results of the ETS business for periods prior to the date of sale have been presented as discontinued operations. Certain prior period amounts have been reclassified to conform with this presentation.

“We are pleased to have finished a somewhat challenging year on a strong note, with both net sales and Adjusted EBITDA results for the fourth quarter establishing new Company records at $257.2 million and $73.2 million, respectively.”

Fourth Quarter Results

DJOFL achieved net sales from continuing operations for the fourth quarter of 2009 of $257.2 million, reflecting growth of 7.3 percent over net sales of $239.6 million for the fourth quarter of 2008. On the basis of constant currency, excluding a $6.1 million favorable impact from changes in foreign exchange rates from rates in effect in the fourth quarter of 2008, sales in the fourth quarter of 2009 grew 4.8 percent over sales in the fourth quarter of 2008. The fourth quarter of 2009 included approximately 65 shipping days, while the comparable 2008 period included 64 shipping days.

For the fourth quarter of 2009, DJOFL reported a net loss of $11.7 million, compared to a net loss of $38.4 million for the fourth quarter of 2008. The results for the current and prior year fourth quarter periods were impacted by significant non-recurring charges and other adjustments related to the DJO Merger and certain other smaller acquisitions.

The Company defines Adjusted EBITDA as net income (loss) plus loss (income) from discontinued operations, interest expense, net, provision (benefit) for income taxes, and depreciation and amortization, further adjusted for certain non-cash items, non-recurring items and other adjustment items, including the addition of certain future cost savings expected to be achieved related to the DJO Merger and other recent acquisitions, all as permitted in calculating covenant compliance under the Company’s senior secured credit facility and the indentures governing its 10.875% senior notes and its 11.75% senior subordinated notes. A reconciliation between net loss and Adjusted EBITDA is included in the attached financial tables.

Adjusted EBITDA for the fourth quarter of 2009, before future cost savings related to the DJO Merger and other recent acquisitions, was $73.2 million, or 28.5 percent of net sales, growing approximately 33.7 percent, compared to Adjusted EBITDA, before future cost savings, of $54.7 million, or 22.8 percent of net sales, for the fourth quarter of 2008. The year-over-year improvement is primarily attributable to incremental cost savings realized from integration activities in connection with the DJO Merger and other cost savings initiatives, and the benefit of favorable changes in foreign currency exchange rates, which increased Adjusted EBITDA for the fourth quarter of 2009 by approximately $1.8 million, compared to what it would have been had rates in effect in the fourth quarter of 2008 remained in effect.

Cash flow from operations was $73.0 million in the fourth quarter of 2009 before cash interest paid of $67.7 million, but after funding cash payments of $5.2 million for non-recurring charges in connection with restructuring and integration activities related to the DJO Merger and other recent acquisitions. The Company had cash balances of $44.6 million at December 31, 2009 and available liquidity of $100 million under its revolving line of credit.

Full Year 2009 Results

For the full year 2009, net revenues from continuing operations were $946.1 million, approximately even with net revenues from continuing operations of $948.5 million for the full year 2008. Sales for the full year 2009 were reduced by approximately $13.9 million due to unfavorable changes in foreign currency exchange rates from the rates in effect for the full year 2008. On the basis of constant currency, sales for the full year 2009 increased 1.2 percent over sales for the full year 2008.

For the full year 2009, DJOFL reported a net loss of $50.4 million, compared to a net loss of $97.8 million for the full year of 2008. The results for the current and prior year were impacted by significant non-recurring charges and other adjustments related to the DJO Merger and certain other smaller acquisitions.

Adjusted EBITDA for the full year 2009, before future cost savings, was $250.4 million, or 26.5 percent of net sales, increasing 17.7 percent compared to $212.7 million, or 22.4 percent of net sales, for the full year 2008. On the basis of constant currency, Adjusted EBITDA for the full year 2009 increased 20.4 percent over Adjusted EBITDA for the full year 2008. After including future cost savings to be achieved related to the DJO Merger and other recent acquisitions of $3.6 million and net 2009 pre-closing EBITDA of $1.4 million related to acquisitions and immaterial product line divestitures completed in 2009, Adjusted EBITDA for the full year 2009 was $255.4 million, or 27.0 percent of net sales.

“In spite of one of the worst recessions in history, 2009 was a good year for DJO,” said Les Cross, president and chief executive officer. “We achieved positive growth in net sales for the year on a constant currency basis. We are very pleased to report that Adjusted EBITDA levels grew over 20% in constant currency in 2009, in spite of modest sales growth. We also achieved a number of milestones in 2009, including the completion of most of our merger-related cost-savings initiatives, the sale of a non-core business to strengthen margins and sales focus in the EMPI business, the launch of key new products in several markets, the signing of several GPO contracts key to our Bracing & Supports business and the acquisition of three small international distributors to help us further expand margins and penetrate our international markets. We also significantly improved our liquidity and leverage ratios in 2009. We ended the year with cash and available capacity under our revolving line of credit aggregating approximately $144.6 million, up 36% from liquidity of $106.5 million at the end of 2008. We successfully reduced our working capital in 2009 and improved both our days sales outstanding in accounts receivable and our inventory turns. Our ratios of net senior secured debt and net total debt to Adjusted EBITDA improved to 3.9 and 6.9, respectively, by the end of 2009. Additionally, on January 20, 2010, we successfully issued an additional $100 million of 107/8% senior unsecured notes due 2014, the proceeds of which were used to prepay amounts outstanding under our senior secured credit facilities, further reducing our senior secured leverage and adding additional flexibility to our capital structure. On behalf of the DJO management team and our Board of Directors, I would like to extend our appreciation to all DJO employees for a job well done in 2009 under difficult market conditions.

“We are pleased to have finished a somewhat challenging year on a strong note, with both net sales and Adjusted EBITDA results for the fourth quarter establishing new Company records at $257.2 million and $73.2 million, respectively.

“Sales growth on a constant currency basis of almost 5% in the fourth quarter, compared to the fourth quarter of 2008, marked our best quarterly result for 2009 and was driven by steadily improving sales throughout 2009 across all of our business units. Additionally, Adjusted EBITDA levels finished the year at 28.5% of net sales in the fourth quarter, expanding 390 basis points over the fourth quarter of last year and 100 basis points sequentially from the third quarter of 2009. Adjusted EBITDA growth continues to be driven by the cost savings initiatives we have completed since the DJO Merger closed, combined with improving sales and a more favorable foreign currency exchange environment.

“Fourth quarter sales from our Domestic Rehabilitation segment, which includes our Bracing and Supports, Empi, Regeneration and Chattanooga businesses, grew 3.2% compared to the fourth quarter of 2008, and also by almost 3% sequentially from the third quarter of 2009 on a sales per day basis.

“Sales in our Domestic Surgical Implant segment grew 7.6% over the fourth quarter of 2008, led by strong sales of our Reverse Shoulder Prosthesis.

“Fourth quarter sales within our International segment were also strong, growing by more than 19%, compared to the fourth quarter of 2008. Favorable changes in foreign currency exchange rates contributed $6.1 million in the fourth quarter of 2009. Excluding the impact of foreign exchange, sales in our International segment increased by 8.7% compared to the fourth quarter of 2008, including the benefit of our small Australian and Canadian acquisitions that closed in February and August 2009, respectively.

“Looking ahead, we expect 2010 to be an exciting year for DJO. We believe that the industry drivers that influence our businesses will continue to gradually improve and that our growth rates will therefore continue to trend favorably. To complement these improving market conditions, Andrew Holman, who recently joined us as Executive Vice President, Sales and Marketing for our U.S. commercial businesses, brings new thinking to our domestic sales and marketing organization to drive the Company’s vision of commercial excellence. To that end, we believe the time is now ripe to make certain necessary investments in our sales and marketing organization intended to accelerate our growth. The cumulative benefits of our cost savings initiatives will permit us to increase certain spending for growth initiatives in 2010 and still deliver strong year over year growth in Adjusted EBITDA. Our 2010 reported results will also likely be impacted by changes in foreign currency exchange rates. Foreign currency exchange was an unfavorable headwind for most of 2009, but was a positive contributor in the fourth quarter. Recent volatility in certain exchange rates such as the Euro make it difficult to predict the effect foreign currency exchange rate changes will have on our results in 2010.

“The first quarter will be our longest quarter of 2010, with approximately 65 shipping days, or four additional days compared to the first quarter of 2009. For the second through fourth quarters of 2010, the number of shipping days will be 64, 63 and 61, respectively. As is usual in the first quarter of each year, we will incur seasonally higher sales and marketing expenses related to the timing of several national sales meetings and large industry events, such as the annual meeting of the American Academy of Orthopaedic Surgeons. Accordingly, while we expect to report solid year-over-year growth in both revenue and Adjusted EBITDA in the first quarter, our first quarter Adjusted EBITDA and Adjusted EBITDA margin will likely reflect sequential declines from the fourth quarter of 2009.”

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