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ArthroCare Reports Third Quarter 2011 Financial Results

INCOME FROM OPERATIONS

Income from operations for the third quarter of 2011 was $4.4 million compared to $11.5 million for the same period in 2010. Income from operations for the third quarter of 2011 included approximately $11.2 million of higher operating expenses than in the third quarter of 2010 associated with the investigation and restatement related costs, as well as exit and other costs associated with the relocation of the Company’s Sunnyvale operations to Austin, Texas.

In the third quarter of 2011, the Company reported investigation and restatement related costs of $6.0 million as a result of higher legal costs in connection with the ongoing shareholder class action, Department of Justice investigation, and legal fees associated with indemnification agreements for certain former executives of the Company. In the third quarter of 2010, the Company reported a net recovery of $0.1 million as insurance recoveries in the third quarter of 2010 exceeded investigation and restatement costs incurred in that period.

In the third quarter of 2011, the Company incurred exit costs related to the closure and relocation of its Sunnyvale, California facilities and operations of approximately $2.8 million. The Company also incurred an additional $2.3 million in operating expenses not classified as exit costs that related to accelerated amortization of leasehold costs and additional rent expense, relocation, recruiting, training, and overlapping employee cost associated with the relocation of the Sunnyvale operations to Austin, Texas.

Research and development (R&D) cost incurred during the quarter ended September 30, 2011 decreased $1.2 million compared to the same period in 2010 as a higher proportion of the Company’s engineering activities were associated with the manufacturing process, resulting in increased allocation of R&D costs to inventory and cost of goods sold.

NET INCOME AVAILABLE TO COMMON STOCKHOLDERS

Net income available to common stockholders was $1.6 million or $0.05 per diluted share in the third quarter of 2011, compared to $8.4 million, or $0.25 per diluted share, in the third quarter of 2010.

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