towards packet-based technologies, but was larger than anticipated due to a large carrier customer that initiated a significant  acceleration of their installed inventory reuse program. As a percentage of sales, cost of sales increased from 42.2% in 2011 to 49.0% in 2012. The increase was primarily attributable  to lower gross margins related to the acquired NSN BBA business, lower cost absorption due to the lower production volumes,  customer price movements to achieve market share position and higher warranty costs. Carrier Networks cost of sales increased from 42.4% of sales in 2011 to 49.7% of sales in 2012. The increase in Carrier Networks cost of sales as a percentage of sales was primarily attributable to lower gross margins related to the acquired NSN BBA business, lower cost absorption due to the lower production volumes, customer price movements to achieve market share position and higher warranty costs. Enterprise Networks cost of sales increased from 41.4% of sales in 2011 to 46.1% of sales in 2012. The increase in Enterprise Networks cost of sales as a percentage of sales was primarily attributable to lower cost absorption due to the lower production volumes and customer price movements to achieve market share position. An important part of our strategy is to reduce the product cost of each succeeding product generation and then to lower  the product’s price based on the cost savings achieved. This may cause variations in our gross profit percentage due to timing  differences between the recognition of cost reductions and the lowering of product selling prices. Selling, general and administrative expenses increased 7.7% from $124.9 million in 2011 to $134.5 million in 2012. Selling, general and administrative expenses include personnel costs for administration, finance, information systems, human resources, sales and marketing, and general management, as well as rent, utilities, legal and accounting expenses, bad debt  expense, advertising, promotional material, trade show expenses, and related travel costs. The increase in selling, general and administrative expenses is primarily related to increases in staffing and fringe benefit costs due to increased headcount,  professional services, legal services and amortization of acquired intangible assets. These increases were primarily related to the NSN BBA business, which was acquired on May 4, 2012, and Bluesocket Inc., which was acquired on August 4, 2011. Selling, general and administrative expenses as a percentage of sales increased from 17.4% for the year ended December  31, 2011 to 21.7% for the year ended December 31, 2012. Selling, general and administrative expenses as a percentage of sales  will generally fluctuate whenever there is a significant fluctuation in revenues for the periods being compared.  Research and development expenses increased 25.6% from $100.3 million in 2011 to $126.0 million in 2012. The increase in research and development expense is primarily related to increases in staffing and fringe benefit costs due to increased  headcount, including expenses and increased headcount related to the NSN BBA business acquired on May 4, 2012 and Bluesocket, Inc., which was acquired on August 4, 2011, amortization of acquired intangible assets related to both acquisitions,  and increases in independent contractor expense and office lease expense related to the NSN BBA business. Research and development expenses as a percentage of sales increased from 14.0% for the year ended December 31, 2011  to 20.3% for the year ended December 31, 2012. Research and development expenses as a percentage of sales will fluctuate  whenever there are incremental product development activities or a significant fluctuation in revenues for the periods being compared. We expect to continue to incur research and development expenses in connection with our new and existing products and our expansion into international markets. We continually evaluate new product opportunities and engage in intensive  research and product development efforts which provide for new product development, enhancement of existing products and product cost reductions. We may incur significant research and development expenses prior to the receipt of revenues  from a major new product group. Interest and dividend income remained consistent at $7.6 million in 2011 and $7.7 million in 2012, as we had no substantial  change in interest-bearing investment balances or interest rates. Interest expense remained consistent at $2.4 million in 2011 and $2.3 million in 2012, as we had no substantial change in our  fixed rate borrowing. See “Liquidity and Capital Resources” below for additional information. Interest Expense Interest and Dividend Income Research and Development Expenses Selling, General and Administrative Expenses Cost of Sales Financial Results 27