claim and determined it to be immaterial and that a potential loss was not probable. Accordingly, no amount had been accrued prior to the mediation and settlement.

Interest Expense

Interest expense consists of the interest on our lease financing obligations and the interest on our 8.50% senior notes including the amortization of debt issuance costs. Starting in the fourth quarter of 2011, interest expense includes the amortization of debt issuance costs on our Convertible Notes issued in November 2011. Also, in the fourth quarter of 2009, we expensed the debt issuance costs related to our line of credit.

Interest expense was relatively flat as compared to the prior year. Interest expense in 2011 includes $2.1 million for our lease financing obligations, $17.0 million of interest payments due on our 8.50% senior notes and $0.6 million of amortization of debt issuance costs.

The $13.2 million increase in interest expense is primarily attributable to the interest expense associated with our 8.50% senior notes. Interest expense in 2010 includes $2.3 million for our lease financing obligations, $17.0 million of interest payments due on our 8.50% senior notes and $0.5 million of amortization of debt issuance costs.

Provision for Income Taxes

In 2011, our effective tax rate differed from the federal statutory rate of 35% primarily due to state income taxes of $15.0 million or 4.2% of income before income tax. This was partially offset by the expiration of a statute of limitations for years 1997 through 2007 resulting in a discrete benefit of $3.5 million in the third quarter of 2011 and Federal and California research and development (“R&D”) tax credits of $5.1 million. The decrease in our effective tax rate for the year ended December 31, 2011 as compared to the year ended December 31, 2010 was attributable to the discrete benefit of $3.5 million, higher R&D tax credits and a lower effective tax rate for California.

In 2010, our effective tax rate differed from the federal statutory rate of 35% primarily due to state income taxes of $15.6 million or 5.8% of income before income tax. This was partially offset by R&D tax credits of $3.3 million. Our effective tax rate for the year ended December 31, 2010 was relatively flat as compared to our effective tax rate for the year ended December 31, 2009.

Liquidity and Capital Resources

Our primary source of liquidity has been cash generated from operations. Additionally, in November 2011, we issued $200.0 million of our Convertible Notes and raised an additional $200.0 million through a public offering of common stock. The Convertible Notes consist of $200.0 million aggregate principal amount due on December 1, 2018 and do not bear interest. In November 2009, we issued $200 million of our 8.50% senior notes due November 15, 2017 (the “8.50% Notes”). Interest on the 8.50% Notes is payable semi-annually at a rate of 8.50% per annum on May 15 and November 15 of each year, commencing on May 15, 2010. (See Note 4 of Item 8, Financial Statements and Supplementary Data for additional information.)

Our primary uses of cash included the acquisition and licensing of content, content delivery expenses,