of 2013, the period in which the legislation, including the reinstatement, was enacted.

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 R&D 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.

Liquidity and Capital Resources

Cash, cash equivalents and short-term investments were $748.1 million and $797.8 million at December 31, 2012 and 2011, respectively. Our primary uses of cash include the acquisition and licensing of content, content delivery expenses, marketing and payroll related expenses. We expect to continue to make significant investments to license streaming content both domestically and internationally and expect to obtain more original programs in 2013. These investments will impact our liquidity and we expect to have negative operating cash flows and/or use of cash in future periods.



On January 29, 2013 we announced the pricing of an offering of $500 million aggregate principal amount of 5.375% senior notes due 2021 (the "5.375% Notes"). We expect the sale of the 5.375% Notes to close on February 1, 2013 and we intend to use approximately $225 million of the net proceeds to redeem our 8.50% Notes. Although we currently anticipate that the remaining proceeds from the 5.375% Notes together with our available funds will be sufficient to meet our cash needs for the foreseeable future, we may be required or choose to obtain additional financing. Our ability to obtain additional financing will depend on, among other things, our development efforts, business plans, operating performance, current and projected compliance with our debt covenants, and the condition of the capital markets at the time we seek financing. We may not be able to obtain such financing on terms acceptable to us or at all. If we raise additional funds through the issuance of equity, equity-linked or debt securities, those securities may have rights, preferences or privileges senior to the rights of our common stock, and our stockholders may experience dilution.

In November 2011, we issued $200.0 million of senior convertible notes (the "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. We intend to exercise our option to cause the conversion of the Convertible Notes into shares of our common stock if the specified conditions are satisfied, including that the daily volume weighted average price of our common stock is equal or greater than $111.54 for at least 50 trading days during a 65 trading day period prior to the conversion date.

In