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ArthroCare Reports Second Quarter 2012 Financial Results

Other product sales increased $0.5 million in the second quarter of 2012 compared to the same quarter of 2011.

Across all product areas International product sales increased $0.4 million, or 1.5 percent in the second quarter of 2012 as compared to the same quarter of 2011. Had the same foreign currency rates been in effect in the quarter ended June 30, 2012 as were in effect in the second quarter in 2011, the U.S. dollar reported value of product sales would have been higher by $1.8 million for this quarter.

Management believes percentage sales growth in constant currency is an important metric for evaluating our operations because the impact of changing foreign currency exchange rates may not provide an accurate baseline for analyzing trends in our business. Percentage sales growth in constant currency is calculated by translating current year sales at prior year average foreign currency exchange rates. Constant currency is a non-GAAP measure and it should not be considered as a substitute for measures prepared in accordance with GAAP.

GROSS PRODUCT MARGIN

Gross product margin was 68.7 percent for the second quarter of 2012 compared to 70.2 percent for the second quarter of 2011. The decrease in gross product margin in this quarter is due to lower reported product sales from International markets due to the weakening euro, British pound and Australian dollar against the U.S. dollar. Gross product margin was also lower due to the increasing proportion of Ambient® products to overall Sports Medicine Coblation® product sales. Ambient products have a lower yield and higher production cost compared to non-Ambient products.

INCOME FROM OPERATIONS

Income from operations for the second quarter of 2012 was $17.9 million compared to $15.0 million for the same period in 2011. Operating margin for the second quarter of 2012 was 19.6 percent compared to 16.4 percent for the same period in 2011.

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