million during 1999 as compared to 1998. This increase is attributable to two primary factors. First, the Company's cash, cash equivalents, and short-term investments increased $926 million or 40% during 1999 resulting in an increase in interest income during 1999 of $44 million. Second, interest expense declined $15 million during 1999, primarily as a result of the conversion of approximately $661 million of the Company's convertible subordinated notes to common stock during the third quarter of 1999. During 1998, the Company experienced a $27 million increase in interest income net of interest expense, the result of higher cash and investment balances and lower average short-term borrowings, offset by decreased foreign exchange gains and increased other expense.

GAINS FROM SALES OF INVESTMENT

As of September 26, 1997, the Company owned 42.3% of the outstanding stock of ARM Holdings plc (ARM), a privately held company in the United Kingdom involved in the design of high performance microprocessors and related technology. The Company had accounted for this investment using the equity method through September 25, 1998. On April 17, 1998, ARM completed an initial public offering of its stock on the London Stock Exchange and the NASDAQ National Market. The Company sold 18.9% of its shares in the offering for a gain before foreign taxes of approximately $24 million, which was recognized as other income. Foreign tax recognized on this gain was approximately $7 million.

At the time an equity method investee sells existing or newly issued common stock to unrelated parties in excess of its book value, the equity method requires the net book value of the investment be adjusted to reflect the investor's share of the change in the investee's shareholders' equity resulting from the sale. It is the Company's policy to record an adjustment reflecting its share of the change in the investee's shareholders' equity resulting from such a sale as a gain or loss in other income. Consequently, the Company also recognized in the third quarter of 1998 other income of approximately $16 million to reflect its remaining 25.9% ownership interest in the increased net book value of ARM following its initial public offering. As of September 25, 1998, the carrying value of the Company's investment in ARM carried in other assets in the consolidated balance sheet was approximately $22 million. On October 14, 1998, the Company sold 11.6 million shares (split adjusted) of ARM stock. As a result of this sale, the Company's ownership interest in ARM fell to 19.7%. Consequently, beginning in the first quarter of fiscal 1999, the Company ceased accounting for its remaining investment in ARM using the equity method and categorized its remaining shares as available-for-sale requiring the shares be carried at fair value, with unrealized gains and losses net of taxes reported as a component of accumulated other comprehensive income.

During fiscal 1999, the Company sold approximately 32.6 million shares (split adjusted) of ARM stock for net proceeds of approximately $245 million, recorded a gain before taxes of approximately $230 million, and recognized related income tax of