Investment in research and development in 1999 increased to $254 million, or 7.4% of revenues, including the $49 million charge for purchased in-process research and development related to current year acquisitions. In 1998, we recorded a charge of $30 million for purchased in-process research and development associated with the MDD acquisition. Excluding the effect of purchased in-process research and development in both years, investment in research and development was 6% of revenues, or an increase of 9% over 1998. This increase includes additional funding directed toward the development of advanced protection devices and new diagnostic platforms.

Operating income in 1999 was $445 million, compared to last year’s $405 million. Excluding the impact of special and other charges and purchased in-process research and development charges, operating income would have been 17.4% of revenues in 1999. Operating income of $405 million in 1998 also included certain charges, as discussed above.

Net interest expense of $72 million in 1999 was $16 million higher than in 1998, primarily due to additional borrowings to fund acquisitions.

“Other (expense) income, net” in 1999 was $1 million of net expense, compared to $8 million of net expense in 1998, primarily due to lower foreign exchange losses, gains on the sale of assets, as well as settlements in 1999.

The effective tax rate in 1999 was 26.0%, compared to 30.6% in 1998. The decrease is principally due to a $7 million favorable tax judgment in Brazil and a favorable mix in income among tax jurisdictions, partially offset by the lack of a tax benefit associated with a larger purchased in-process research and development charge recorded in 1999 as compared to 1998.

Net income in 1999 was $276 million, compared to $237 million in 1998. Diluted earnings per share in 1999 were $1.04, compared to $.90 in 1998. Excluding the special and other charges and purchased in-process research and development charges, diluted earnings per share in 1999 were $1.49. Diluted earnings per share of $.90 in 1998 also included certain charges, as discussed above.

We selectively use financial instruments to manage the impact of foreign exchange rate and interest rate fluctuations on earnings. The counterparties to these contracts are highly-rated financial institutions, and we do not have significant exposure to any one counterparty. We do not enter into financial instruments for trading or speculative purposes.

Our foreign currency exposure is primarily in Western Europe, Asia Pacific, Japan, Brazil and Mexico. Foreign exchange risk arises when we enter into transactions in nonhyperinflationary countries, generally on an intercompany basis, that are denominated in currencies other than the functional currency. During 1999 and 1998, we hedged substantially all of our foreign exchange exposures primarily through the use of forward contracts and currency options. These derivative instruments typically have average maturities of less than six months. Gains or losses on these derivative instruments are largely offset by the gains or losses on the underlying hedged transactions. Therefore, with respect to derivative instruments outstanding at September 30, 1999 and 1998, a 10% appreciation or depreciation of the U.S. dollar from the September 30, 1999 and 1998 market rates would not have a material effect on our earnings.

Our primary interest rate exposure results from changes in short-term U.S. dollar interest rates. In an effort to manage interest rate exposures, we strive to achieve an acceptable balance between fixed and floating rate debt and may enter into interest rate swaps to help maintain that balance. Based on our overall interest rate exposure at September 30, 1999 and 1998, a change of 10% in interest rates would not have a material effect on our earnings or cash flows over a one-year period. An increase of 10% in interest rates would decrease the fair value of our long-term debt and interest rate swaps at September 30, 1999 and 1998 by approximately $54 million and $48 million, respectively. A 10% decrease in interest rates would increase the fair value of our long-term debt and interest rate swaps at September 30, 1999 and 1998 by approximately $61 million and $54 million, respectively.

We manufacture products in Brazil for sale in that country and for export. In addition, we import products from affiliates for distribution within Brazil. Effective January 1, 1998, we no longer considered our Brazilian business to be operating in a highly inflationary economy as defined by Statement of Financial Accounting Standard (“SFAS”) No. 52 “Foreign Currency Translation.” Over the course of 1999, the Brazilian Real devalued by 62%. We were able to offset the foreign exchange transaction impact of the devaluation by hedging our exposure with foreign exchange forward contracts and options. Consequently, the impact of the devaluation on our earnings was minimal. We also manufacture in Mexico and import various products from affiliates for sale in Mexico. In past years, the Mexican economy had experienced periods of high inflation, recession and currency instability. More recently, Mexico’s economy and currency have shown signs of stabilizing. Effective January 1, 1999, we no longer considered our Mexican business to be operating in a highly inflationary economy as defined by SFAS No. 52.