Total operating expenses for fiscal 2012 were 10.6 percent of net sales compared to 11.0 percent of net sales for fiscal 2011. The decline in total operating expenses, as a percentage of net sales, was mainly attributable to the recording of goodwill impairment of $5.7 million, a $1.7 million increase in the projected earn-out payments related to the acquisition of Orchard Valley Harvest, Inc. and a $2.0 million increase to a litigation accrual, which were offset in part by a $1.1 million settlement benefit, all of which occurred in fiscal 2011. These items did not recur in fiscal 2012. Total operating expenses for fiscal 2012 included increases in incentive compensation, advertising and marketing expenses, which were offset in part by reductions in shipping and broker commission expenses.
Interest expense declined to $1.4 million for the fourth quarter of fiscal 2012 from $1.7 million for the fourth quarter of fiscal 2011. Interest expense declined to $5.4 million for fiscal 2012 from $6.4 million for fiscal 2011. The declines in interest expense in the quarterly and yearly comparisons were primarily attributable to lower average borrowing levels and lower average interest rates on short-term borrowings.
The value of total inventories on hand at the end of the fourth quarter of fiscal 2012 increased by $17.4 million or 13.5 percent when compared to the value of total inventories on hand at the end of the fourth quarter of fiscal 2011. The increase in total inventory value was attributable to increased quantities of raw pecans and almonds on hand. The weighted average cost per pound of raw nut input stocks on hand at the end of the fourth quarter of fiscal 2012 increased by 3.5 percent over the weighted average cost at the end of the fourth quarter of fiscal 2011. The increase in the weighted average cost per pound in the quarterly comparison was attributable to increased acquisition costs, especially for peanuts and walnuts. The weighted average cost per pound of finished goods on hand increased by 7.7 percent, and the pounds of finished goods on hand decreased by 10.8 percent at year-end fiscal 2012 compared to year-end fiscal 2011.
“For fiscal 2012, we reported record net sales and a substantial improvement in net income over fiscal 2011,” said Jeffrey T. Sanfilippo, chief executive officer in a prepared statement. “The improvement in operating results was attributable primarily to the continued efforts we made during the 2012 fiscal year to align our selling prices with acquisition costs for tree nuts and peanuts,” Sanfilippo explained. “Market prices for most tree nuts and peanuts stabilized in the second half of fiscal 2012 but remained at historically high levels. These high prices have had an unfavorable impact on our sales volume and on sales volume for the entire nut category,” Sanfilippo noted. “We anticipate that market prices will fall for cashews and peanuts in fiscal 2013, which should allow our customers and us to return to focusing on growing sales volume for these nuts through increased collaborative marketing and merchandising activities. We are also encouraged that, according to the most recently released market data, our company’s Fisher brand has shown a significant market share increase in the baking nut category,” concluded Sanfilippo.