Consolidated gross margin for the quarter ended December 31, 2012 improved 7.5% to $22.4 million, as compared to $20.8 million for the prior year comparable period. Gross margin percentage did however decline to 28.0% of sales as compared to 29.9% in the prior year comparative period, principally due to the previously mentioned raw material cost increases, product mix and start-up costs relating to the new Virginia manufacturing facility. Operating (Selling, R&D, and General and Administrative) expenses at $7.4 million were up approximately 3.0% from the prior year comparable quarter, however, declined as a percentage of sales to 9.2% from 10.3%, as we continue to prudently exercise tight controls over these expenses. Our effective tax rate for the three months ended December 31, 2012 and 2011 was 34.5% and 31.0%, respectively. This increase in the effective tax rate is primarily attributable to a change in apportionment relating to state income taxes and the expiration/lack of renewal of the 2012 U.S. R&D tax credit.
The Company continues to maintain and grow a solid financial structure. Diligent working capital controls, particularly effective inventory and accounts receivable management, contribute strongly to the business performance. The $181.7 million of net working capital on December 31, 2012 included a cash balance of $144.7 million, up from $114.8 million at December 31, 2011, and reflects the early pay-down of the Italian long-term debt, the early $6.5 million payment in December of our 2012 dividend to shareholders and $13.9 million of capital expense funding, predominantly for the new Virginia site.
Commenting further, Dino A. Rossi, Chairman, CEO and President of Balchem said, "These record fourth quarter achievements are a reflection of strong underlying focus on generating sales growth in our core business segments, and the value of our diversified portfolio. As noted previously, certain quarterly fluctuations of any particular segment or product line will occur, like softness in our FPN domestic food encapsulates, human choline, and ANH Specialties, which were neatly offset by steady growth in ARC and double-digit growth in the ANH industrial grade products. Staying focused on macro-economic market trends and responsive to cautious near-term actions by our customers is critically important during these economically challenging times. Development efforts of pipeline products and prospects continue. We remain focused on operating expense management, new production (Virginia) and supply chain capabilities, including but not limited to logistics and currency, to deliver cost competitive solutions to our customers. Our balance sheet has continued to strengthen, as we continue to seek out strategic acquisitions or partnership ventures to complement the noted organic growth."