**1977 vs. 1976**

Gross income from worldwide sales, rentals and services was $18,133 million, or 11.2% higher than 1976. This increase was predominantly from data processing equipment sales, rentals and services, which amounted to $14,765 million, a 10.1% increase over 1976. Office products equipment sales, rentals and services also reflected continued growth, with gross income of $2,824 million, an increase of 17.8% over 1976. In 1977, total gross income from U.S. operations was $9,008 million, an increase of 10.5% over 1976 while non-U.S. operations amounted to $9,125 million, an 11.9% increase.

Gross income from sales increased 19.0% in 1977, principally from record worldwide outright purchases of data processing equipment. Such purchase activity in the U.S. continued to be higher than that of non-U.S. operations, however, the latter has experienced slightly higher rates of increases than the U.S. in recent years. Sales of office products equipment were also a factor in the increase and grew at favorable rates. Sales in other product areas increased at more moderate rates.

Gross income from rentals and services increased 6.7% in 1977. The relatively low 1977 increase continues to reflect the heavy worldwide purchase activity of data processing equipment in the past two years. While data processing rentals and services comprised the major part of the increase, office products rentals and services reflected a higher rate of increase.

Cost of sales in 1977 increased by 15.1% worldwide, as compared to the increase of 19.0% in related gross income. Cost of sales of data processing equipment increased at a somewhat higher rate than related gross income, due in part to change in the mix of products sold, as well as the costs of supporting new installations. Office products equipment cost to gross income relationship improved in 1977.

Cost of rentals and services increased worldwide by 4.6%, and overall, compared favorably with the increase of 6.7% in related gross income. Cost of rentals and services for data processing equipment increased at a lesser rate than related gross income. This improvement was somewhat offset by office products rentals and services, which experienced some normally high product introduction costs.

Selling, development and engineering, and general and administrative expenses increased 12.0% in 1977. This increase was in line with the growth in the business, and reflects higher costs of employee compensation and benefits, and a continued buildup of resources to meet increased business demands.

A foreign currency exchange gain of $28 million, consisting principally of unrealized gains from the translation of foreign currency assets and liabilities, was included in 1977 net earnings. Interest on debt continued its downtrend, as debt was further reduced in 1977, showing a worldwide reduction of 10.2% compared to 1976 expense.

Other income, principally interest on marketable securities, decreased by $63 million in 1978. The decrease was due to a lower average portfolio of marketable securities and the effect of revaluing certain securities at the lower of cost or market, partially offset by higher interest rates. U.S. Federal and non-U.S. income taxes were 46.3% of earnings before such taxes in 1978 and 46.6% in 1977.

Worldwide net earnings were $3,111 million, an increase of 14.4% over 1977. Earnings from U.S. operations were $1,551 million, a 4.0% increase. Non-U.S. earnings were $1,560 million, a 271% increase. As previously mentioned, a large part of the difference in growth rates is attributable to the effects of currency fluctuations.