# Management's Discussion and Analysis

## The Summary of Operations

### Gross Income: Sales vs. Rentals and Services (in millions of dollars)

| Year | Sales | Rentals and Services |
|------|-------|----------------------|
| 1974 | $12,500 | $12,500 |
| 1975 | $15,000 | $15,000 |
| 1976 | $17,500 | $17,500 |
| 1977 | $20,000 | $20,000 |
| 1978 | $22,500 | $22,500 |

### 1978 vs. 1977

Gross income from worldwide sales, rentals, and services was $21,076 million, or 16.2% higher than 1977. Total data processing gross income increased by 15.6% to $17,074 million, and accounted for the largest part of the growth in 1978. However, total office products gross income of $3,390 million, reflects a higher rate of growth, an increase of 20.1%. Total gross income from U.S. operations was $10,036 million, an increase of 11.4%, while non-U.S. operations amounted to $11,040 million, a 21.0% increase. Although the rates of increase for non-U.S. operations are greater than for U.S. operations, a large part of the difference in growth rates is attributable to the effects of currency fluctuations.

Gross income from sales increased by 23.5% in 1978. Data processing sales increased by 24.5% to $6,366 million. Purchases of data processing equipment, which are included in this total, amounted to $5,840 million, a 26.9% increase over 1977. Purchases of the newer large processors accounted for a significant portion of the increase. Gross income from data processing equipment purchases in non-U.S. operations slightly exceeded that of U.S. operations. Gross income from office products sales increased by 23.9% worldwide.

Gross income from rentals and services increased by 11.6% in 1978. Gross income from data processing rentals and services, which increased by 10.9% to $10,708 million, includes equipment rentals and services, which increased by 6.2% to $8,616 million. Gross income from other data processing rentals and services, including maintenance of purchased equipment, increased at a substantially greater rate and continues to reflect the worldwide high level of data processing equipment purchases in recent years. Gross income from office products rentals and services increased by 16.1% worldwide.

Cost of sales in 1978 increased 25.8%, compared to the increase of 23.5% in related gross income. Cost of sales of data processing equipment increased at a rate higher than the related gross income. Among the factors contributing to this were changes in the mix of products sold, and higher costs associated with initial shipments of newer products, as well as the effects of price reductions. Cost of sales of office products increased at a slightly lower rate than the related gross income.

Cost of rentals and services increased by 14.9%, compared to the increase of 11.6%

### Net Earnings and Cash Dividends Paid (in millions of dollars)

| Year | Net Earnings | Cash Dividends Paid |
|------|--------------|---------------------|
| 1974 | $1,400       | $1,400              |
| 1975 | $1,500       | $1,500              |
| 1976 | $1,600       | $1,600              |
| 1977 | $1,700       | $1,700              |
| 1978 | $1,800       | $1,800              |

### Total Capital Expenditures and Rental Machines (in millions of dollars)

| Year | Total Capital Expenditures | Rental Machines |
|------|----------------------------|-----------------|
| 1974 | $2,700                     | $2,700          |
| 1975 | $2,500                     | $2,500          |
| 1976 | $2,800                     | $2,800          |
| 1977 | $3,100                     | $3,100          |
| 1978 | $3,600                     | $3,600          |

32 IBM Annual Report 1978