increase in interest expense is entirely attributable to the interest expense associated with our 8.50% senior notes and line of credit. Interest expense in 2009 includes $2.8 million for our lease financing obligations, $2.6 million of interest payments due on our notes and $1.1 million of amortization of debt issuance costs.

Interest and Other Income

Interest and other income consist primarily of interest and dividend income generated from invested cash and short-term investments.

The $3.0 million decrease in interest and other income was primarily attributable to a $1.8 million dollar gain realized in 2009 on the sale of our investment in a private company which we had accounted for under the cost method, coupled with lower average cash and investment balances resulting from the repurchase of our common stock.

The $5.7 million decrease in interest and other income was primarily attributable to lower cash and investment balances resulting from the repurchase of our common stock, and a $1.6 million decrease in realized gains recognized as compared to the prior year. The decrease was offset by a $1.8 million dollar gain realized in 2009 on the sale of our investment in a private company which we accounted for under the cost method.

Interest and dividend income was approximately $2.7 million, $3.7 million and $9.2 million in 2010, 2009 and 2008, respectively. Interest and other income included gains of approximately $1.0 million, $1.5 million and $3.1 million on the sale of short-term investments in 2010, 2009 and 2008, respectively.

Provision for Income Taxes

In 2010, our effective tax rate differed from the federal statutory rate of 35% principally due to state income taxes of $15.6 million or 5.8% of income before income tax. This was partially offset by Federal and California research and development (“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.

In December 2010, the Tax Relief, Unemployment Insurance Reauthorization, and Job Creation Act of 2010 was signed into law. One of the major components of this legislation is the reinstatement of the Federal R&D Credit retroactively to January 1, 2010. As a result, we recorded a Federal R&D Credit of approximately $1.8 million as a discrete item in the fourth quarter of 2010.

In 2009, our effective tax rate differed from the federal statutory rate of 35% principally due to state income taxes of $10.4 million or 5.4% of income before income tax. This was partially offset by Federal and California R&D tax credits of $1.6 million. The increase in our effective tax rate was primarily attributable to a cumulative benefit recorded as a discrete item in the second quarter of 2008 for prior period R&D tax credits.

Liquidity and Capital Resources

Our primary source of liquidity has been cash generated from operations. Additionally, in November 2009, we issued $200 million of our 8.50% senior notes due in 2017. Our primary uses of cash include payroll, advertising and payments to consumer electronics partners, stock repurchases, acquisition and