The growth in sales was driven by Cardiac Rhythm Management (“CRM”) and Neuromodulation revenue and the benefit of a full quarter of Orthopaedic operations ($8 million) as compared to the first quarter 2008. Partially offsetting these increases were lower Electrochem revenue due to a slow-down in the energy markets and approximately $3 million of foreign currency impact on our Orthopaedic sales. Organic constant currency growth for the quarter was approximately 10%.
Cost of sales as a percentage of revenue for the quarter was 68.4%, compared to 78.1% for the first quarter 2008. This improvement was driven by higher production volume as well as the impact of consolidation initiatives completed over the past year. Additionally, first quarter 2008 cost of sales included $6.4 million, or 5.3% of sales, of acquisition related inventory step-up amortization.
The company’s selling, general and administrative expenses as a percentage of sales decreased 160 basis points to 13.4% compared to the first quarter 2008. This improvement reflects the various cost cutting and integration initiatives implemented over the last twelve months.
Net research, development and engineering costs (“RD&E”) for the 2009 first quarter were $7.9 million which, as expected, were lower as a percentage of sales versus first quarter 2008 due to the realignment of these operations in 2008. We expect RD&E to increase as a percentage of sales for the remainder of 2009 as we continue to invest resources in the development of new technologies in order to provide solutions to our customers and ultimately drive long-term growth.
As a result of the above, operating income stated in accordance with generally accepted accounting principles (“GAAP”) for the first quarter of 2009 was $14.8 million, compared to a loss of $4.1 million in 2008. Similarly, adjusted operating income was $17.6 million in the first quarter 2009, compared to $5.6 million for the first quarter 2008. Adjusted amounts exclude the impact of acquisition-related charges (in-process research and development (“IPR&D”), inventory step-up amortization), as well as facility consolidation, manufacturing transfer, and system integration expenses. (See Table A for reconciliations of adjusted amounts to GAAP).
The effective tax rate for the first quarter 2009 was 31.5%, compared to 39.6% for the same period in 2008. The 2009 first quarter effective tax rate includes the favorable impact of a Swiss tax holiday and federal research and development tax credits. Additionally, the 2008 first quarter effective rate included the impact of $2.2 million of IPR&D, which was not deductible for tax purposes. The effective tax rate for 2009 is expected to be approximately 32%.
“We delivered strong operating margins this quarter, which is attributable to various cost cutting and consolidation initiatives and implementation of the Greatbatch operating model across all of our business lines. In addition, we continued to make progress with the on-going consolidation of our Blaine and Exton facilities, and have accelerated the Teterboro consolidation into our Raynham facility for more efficient capacity utilization,” commented Thomas J. Mazza, Senior Vice President & Chief Financial Officer. “Despite the uncertainty in the macroeconomic environment, we remain confident in our ability to deliver solid revenue and operating performance throughout 2009 while continuing to invest in new technologies to support our long term growth initiatives and increase value for our shareholders.”
