Tobacco Documents Online

SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10Q Quarterly Report Under Section 13 or 15 (d) of the Securities Exchange Act of 1934 • For quarter ended March 31, 1978 Commission file number 0-2992-2 6 THE SEVEN-UP COMPANY (Exact name of registrant as specified in its charter) STATE OF MISSOURI 43-0513480 „ (State or other jurisdiction of ( I. R. S. Employer incorporation or organization) Identification Number 121 S. Meramec, St. Louis, Missouri 63105 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code , (314) 889-7777 NOT APPLICABLE ~_ '" (former name, former address and former fiscal year, if changed since last report) Indicate by check mark whether the registrant (1) has filed all reports required to by filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months and (2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate the number of shares outstanding of each of the issuer's. classes of common stock as of the close of the period covered by this report. 10, 724, 851 Shares of Common Stock, Par Value $1.00

PART I FINANCIAL INFORMATION THE SEVEN-UP COMPANY AND SUBSIDIARIES STATEMENT OF CONSOLIDATED INCOME (In thousands of dollars, except Per Share data) (Unaudited) Three Months Ended March 31 1978 1977 Net sales $ 60,271 $ 50,416 Cost of products sold 29,878 24,863 30,393 25,553 Selling and admiriistrative expenses 20,004 17,184 10,389 8,369 Other charges (cred its ): Interest expense 139 37 Other deductions, net of other income (799) (579) (660) (542) INCOME BEFORE INCOME TAXES 11,049 8,911 Income taxes 5,278 4,047 NET INCOME 5,771 $ 4,864 Net income per common share: (Exhibit I) $0. 53 $0. 45 Dividends per common share $0. 35 $0. 30 Average shares outstanding 10,739 10,738

I TH$ SEVEN-UP COMPANY AND- SUBSIDIARIES CONSOLIDATED BALANCE SHEET (In Thousands of Dollars) (Unaudited) March 31 March 31 ASSETS 1978 1977 LIABILITIES & STOCKHOLDERS' EQUITY 1978 1977 Current Assets Current Liabilities Cash $ 13,723 $ 9,707 Notes payable to foreign banks $ 1,998 $ 2,302 Short-term investments 22,534 29,704 Accounts payable 9,874 9,366 Receivables: Employee compensation 2,264 1,785 Notes and accounts 23,398 19,991 Accrued advertising 10,513 7,761 Allowance for doubtful accounts (220) (289) Other accrued liabilities 3,425 2,101 Total receivables 23,178 19,702 Income taxes 6,333 6,308 Inventories: Current portion of long-term debt 419 352 Finished products 16,880 12;606 Total current liabilities 34, 826 29,975 Extract & raw materials 17,515 16,454 Total inventories 34, 395 29, 060 Prepaid expenses & other current assets 2,679 2,861 Total current assets 96,509 91,034 Other Assets 2,498 2,628 Other Liabilities Property, Plant & Equipment Long-term debt less portion classified as current liability 703 842 Land 6,537 6,464 Deferred income taxes 2,390 2,539 Orchards 2,113 2,146 3,093 3,381 Buildings and improvements 19,254 15,626 Machinery and equipment 31,044 24,512 Orchards under development 1,752 1,446 Construction in progress 3,498 4,639 Allowances for depreciation (19, 557) (16, 459) 44,641 38,374 Stockholders' Equity Intangible Assets 67c Cumulative Preferred Stock 3,076 3,076 Trademarks and formulas 1,250 1,271 Common Stock 10,725 10,720 Cost in excess of net assets of Additional capital 11,389 11,277 subsidiaries acquired, less Retained earnings 90,265 77,688 accumulated amortization -- Note D 8,476 2.R10 115,455 102,761 9,726 4 081 t+ZI?63I8t0z , $153, 374 $136,117 $153, 374 $136,117

THE SEVEN-UP COMPANY AND SUBSIDIARIES STATEMENT OF CHANGES IN FINANCIAL POSITION (in thousands of dollars) (unaudixed) Three Months ended March 31 1978 1977 FUNDS PROVIDED - Net income for the quarter $ 5,771 $ 4,864 Depreciation and amortization 1,001 851 Provision for deferred income tax (cr,edit) 410 (224) From operations 7,182 5,491 Proceeds from exercise of Common Stock Options 47 10 Disposal of property, plant and equipment 82 344 7,311 5,845 FUNDS USED - I Cash dividends 3,800 3,270 Additions to property, plant and equipment 3,466 1,975 Cost In excess of tangible assets - acquisition of Subsidiary (Note D) 5,776 - Reduction (increase) of long-term debt (15) 101 Retirement of 5,120 shares of 6% Cumulative Preferred Stock - 391 Other - net 164 (89) Total funds used 13,191 5,648 Increase (decrease) in net working capital $(5, 880) $ 197 ~ CHANGES IN COMPONENTS OF WORKING CAPITAL Increase (Decrease) Cash $(10; 876) $ (686) Receivables 2,910 1,554 Inventories 7,240 3,005 Prepaid expense & other current assets 44 314 Notes payable 191 (1,814) Accounts payable and accrued liabilities (2,280) (268) Income taxes (2, 94.8) (1,911) Current portion of long-term debt (161) 3 Increase (decrease) in net working capit al $_ (5, 880) $ 197

Notes to Financial Statements: Note A - Basis of Presentation The accompanying unaudited consolidated financial statements have been prepared in accordance with the instructions to Form 10-Q and, therefore, do not include all information and footnotes necessary for a fair presentation of financial position, results of operations, and changes in financial position in conformity with generally accepted accounting principles. Although unaudited, the accompanying statements, in the opinion of management, reflect all adjust- ments (which include only normal recurring accruals) necessary to present fairly the information set forth therein. Advertising and promotion costs are accrued and assigned to interim periods based upon the relationship of anticipated annual costs to expected annual, sales. Note B - Net Income Per Share Net income per share of Common Stock is based on the weighted average number of shares outstanding during each year adjusted for dilutive stock options. Recognition is given to the dividend requirements of the 67c Cumulative Preferred Stock in determining net income perr share of Common Stock. Note C - Operating Results for the Twelve Months Ended March 31, Sales and net income for twelve-month period ended March 31, in thousands of dollars: 1978 1977 Sales $260, 853 $234, 669 Net Income 26,696 24,717 Net income per common share $2.46 $2.28 Note D - Acquisition In February, 1978, the Company purchased the outstanding common stock of Oregon Freeze Dry Foods, Inc. for cash of approximately $10, 000, 000. The operations of Oregon Freeze Dry Foods, Inc. are included in the financial statements from date of acquisition. The transaction has been accounted for on the purchase method. The.cost in excess of book value has been included in the balance sheet as Intangible Assets. The amount is subject to reallocation to Property, Plant and Equipment pending the results of an appraisal of the related assets. Oregon Freeze Dry Foods, Inc. is engaged in producing a broad line of freeze dried and convenience foods. Had Oregon Freeze Dry Foods, Inc. been included in the consolidated statements of the Company for the entire three months ended March 31, 1977 and 1978, the proforma results would have been as follows: Three Months Ended March 31, (expressed in thousands, except income per share) 1978 1977 Net sales f~3 $ 62,015 $ 53 434 a Net income , ~ 5,830 4 938 co , I , ~ Income Ivor share of Common Stock $0. 54 $0. 45 ~ 0 -.ri- v a,

Note E - Contingencies At March 31, 1978, the Company was involved in several matters of litigation, none of which, in the opinion of management, will have a material effect upon the conduct of its operations or upon the consolidated financial position of the Company. (refer to Part II, Other Information, of this document)

MANAGEMENTS' DISCUSSION AND ANALYSIS OF OPERATIONS Between First Quarter 1978 and Fourth Quarter 1977 Sales for the first quarter 1978 were $60, 271, 221 as compared with $55, 779, 683 in the fourth quarter 1977, an increase of 8.1 percent. Sales normally decline seasonally between these quarters. Approximately 41.4 percent of the increase was attributable to the inclusion of the operations of recently acquired Oregon Freeze Dry Foods, Inc. The remaining 58.6 percent of the increase was principally due to the sharp increase in unit sales. Gross profit on sales was $30, 393, 552 or 50.4 percent as compared with $28, 423, 436 or 51.0 percent. The dollar increase is a result of increased unit sales and the inclusion of Oregon Freeze Dry Foods, Inc. The difference in gross profit percentage reflects sales mix distribution between the relative importance of high and low margin product classification. Selling, general and administrative expenses were $20, 004, 395 in the first quarter 1978 compared to $18, 950, 391 in the fourth quarter 1977. This was an increase of $1, 054, 004 or 5.6 percent. The increase is principally due to increased personnel and related employment cost plus planned increases in marketing support. First quarter net other income was $659, 348 compared to $504, 671 for the fourth quarter 1977, an increase of $154, 677. The fourth quarter 1977 reflected a write-off in Canada of Sugar Free 7UP containers, made obsolete by the saccharin ban, as well as a non-recurring inventory adjustment of a foreign subsidiary. Adjustments for translation and foreign exchange transactions were not material in either quarter. Comparison of First Quarter 1978 with First Quarter 1977 Consol idated net sales for the current quarter were $60, 271, 221 and increased 19. 55 percent• over the $50, 416, 083 for the same quarter last year. Increased dollar sales reflected the sharp increase in unit sales. The recent acquisition of Oregon Freeze Dry Foods, Inc. accounted for 18. 9 percent of the increase. Selling prices increased moderately on finished goods and lemon products in the beverage segment. Net income for the current three-month period was $5, 770, 703 or 9.6 percent of sales. This compared with $4, 864, 263 or 9.7 percent of sales in 1977. After payment of preferred dividends, earnings per share were 53 cents in 1978 and 45 cents in 1977. Gross profit on sales in the first quarter 1977 was 50.4 percent or $30, 393, 552. In the previous year, gross profit on sales was 50.7 percerit or $25, 553, 301. Operating expenses were $20, 00-1, 395 conipared to $17, 184, 255, an increase of 16.41 percent. This increase was a result of increased personnel and employment costs and an Increase in marketing support. Net other income was $659,348 in 1978 compared to $541,727 in 1977. This increase is primarily a result of high yields on funds invested and increased royalty income. Adjustments for translation and foreign exchange transactions were not material in either quarter. For the first quarter 1978, the Company's tax provision was 47.8 percent of pre-tax income. The tax provision for the same period last year was unusually low due to investment tax credits realized on completed 1977 projects and capital gains from the sale of Canadian properties. These comnicnts should he read in conjunction with the Quarterly Report to Share- holders, Exhibit III attaelu•d hereto. -7-

OTHER FINANCIAL INFORMATION None REVIEW BY INDEPENDENT PUBLIC ACCOUNTANTS At our request, the Company's independent accountants, Ernst & Ernst, have performed a limited review of the accompanying financial statements for the three months ended March 31, 1978 and March 31, 1977. Their review was performed in accordance with the standards for such limited reviews established by the American Institute of Certified Public Accountants. No adjustments or additional disclosures were suggested by Ernst & Ernst as a result of their review. The Accountants' Report commenting on their limited review is included herein as an exhibit. EXHIBITS 1. Statement setting forth the computation of per share earnings furnished in accordance w ith Instruction 4 (g). 2. Letter from independent public accountants furnished pursuant to Instruction 7. 3. Quarterly Report to Shareholders.

EXHIBIT I To Part I, Financial Information Computation of L'arnings Per Share The Seven-Up Company and Subsidiaries Three Months Ended March 31, Average shares outstanding Net effect of dilutive stock options - based on the treasury stock method using average market price Total Net income applicable to Common Stock: (In thousands of dollars) Net income Less Preferred dividends 6% Cumulative Preferred Stock -9- 1978 1977 10, 723, 834 10, 719, 668 15,196 19,051 10, 739, 030 10, 738, 719 $5, 771 $4, 864 (46) _ (54) $5,725 $4,810 $0.53 $0.45

PART I EXHIBIT 2 . Report on Review by Independent Accountants Ernst &Ernst 10 Broadway • St. Louis. Missouri 63102 • Phone 314/231 -7700 Shareholders and Board of Directors The Seven-Up Company St. Louis, Missouri We have made a limited review, in accordance with standards established by the American Institute of Certified Public Accountants, of the con- solidated balance sheet of The Seven-Up Company and subsidiaries as of March 31, 1978 and 1977, and the related statements of consolidated income and changes in financial position for the three month periods then ended. Since we did not make an audit, we express no opinion on the financial statements referred to above. To comply with the re- quirements of the Securities and Exchange Conmzission, we confirm the Company's representations concerning proposed adjustments and dis- closures included in the accompanying Form 10-Q for the period ended March 31, 1978, in accordance with the related instruction 7. St. Louis, Missouri April 28, 1978