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The Seven-Up Company 1976 Annual Report

Form 10-K Availability Shareholders may receive without charge, upon written request to the Secretary of the Company, a copy of its Form 10-K Annual Report, including the financial_ statements and schedules _ thereto, required to-be filed with the Securities and Exchange Conimissi _on. Copies of the exhibits to the report will be provided upon the payment of a fee of five cents for each page copied. It is -.-- -- - estimated that the exhibits to the Form 10-K will contain twelve pages: Notice of Annual Meeting --The Annual Meeting of Shareholders will be held at 10 a.m. on Monday, April 11, 1977, at the world headquarters of the Company, 121 South Meramec Avenue, St. Louis, Missouri. All shareholders are invited to attend. -

in 19 `UNdoing it' , t~ -- UlVdoingThe Seven-Up Company's 1976 annual report=wrappez~represents more than Just an_ uriusua~ ethe of getting inside the subleci _ It is d ainc~ic~ fbn of the ~arymarf.eting - strategy_ior 7UP the United States for "UNdo it!„ . T 'U_Ndo it!" capitalizes on eight years of successful 7UP market identification as The Uncola. It carries a two-fold nripssage: encouraging sof# drink consurn.ers fq- abari~ion fhe routme san}eness ©~ theii;~c~la-cor3sumption liabz~s and cfferincr a fresh, versatile alternative-7UP! The concept, directed toward multiple-brand t drink users, will be extended in 1977 through a&Tertising, promotion, merchandising, display, paCkaging, public relations and all phases of 7UP contac.t with consumers. Movin 7 Ahead Metrically =_-~~ ror i>':ze secona consecunve year, i ne ;Deven-up Company annual _report measures 20 by 30 centimet~~rs instead,of the standard_8 1/2 by 11 inches, symbolic of 7UP leadership in "metrifying" soft drink packaging in the United States, Seven-Up introduced its metric program in 1975, replacing conventional 16- and 32-ounce packages with half-liter (16.9-ounce) and liter (33.8-ounce) bottles, positioning 7UP and Sugar Free 7UP as the first internationally marketed soft drinks available in metric sizes in the nation, Printscent" fragrance Printscent lemon fragrance, an aromatic example of The Seven-Up Company's broadening product line, again has been made a part of this year's annual report. The pages of the Company's 1976 publication have been treated with this subtle, natural fragrance, one of many Printscent fragrances produced for commercial use by the Company's Warner-Jenkfnson subsidiary. Contents Financial Hi hlights . - g ~ Letter to Shareholders -- ........... ...... - 6 Soft Dios . . ' . Food Ct~~ors and FJdStors 1 Q_ .. t . Lemon Products.11 Finrrnrir^rl Ac1ricIAr 1 7 Consolidated Balance Sheets . _ . . . . ........... 20 - Consolidated Statements of Income .......... 22: . Consolidated Stctt-rrien#s otChanges in Finanlial Position : } _ ............... 2~~-- Consolidated Statements of Stockholders' Equity. . ...... ._ _- . -= ............................. _ - - 24 Notes to Consolidated_ Financial Statements..-. 25 Accountants' Report. . .......... 27 Seven Year Statistical Summary.............. 28 Board of Directors ........................... 30 Corporate Officers ........................... 31 Foreign and Domestic Subsidiaries ........... 32 Transfer Agents and Registrars ............... . 33

t,omparatzve Financial Highlights 1976 1975 Percent Change Net Sales ....................................... $233,282,664 $213,622,918 + 9.2 Income Before Income Taxes ..................... 47,145,005 39,844,463 + 18.3 Net Income .................................... 24,751,005 20,340,463 +21.7 Percent of sales .............................. 10.6% 9.5% Earnings on Common Stock ....................... 24,535,725 20,010,273 +22.6 Per Share of Common Stock Net income* ................................ $2.28 $1.88 +21,3 Dividends .................................. 1.13 .75 +50.7 Book value ................................. 9.14 7.93 + 15. 3 Total Dividends Paid Preferred stock .............................. 215,280 215,280 Convertible preferred stock ................... 114,910 Common stock .............................. 12,106,244 7,949,106 Common Shareholders' Equity .................... 97,963,436 84,865,423 Working Capital ................................ 60,601,600 51,779,101 Capital Expenditures ............................ 8,449,923 6,839,430 Depreciation and Amortization .................... 3,263,252 2,899,639 Long-Term Debt-less current maturities ............ 942,603 2,129,352 Net Investment in Property, Plant and Equipment ..... 37,581,529 32,739,830 Number of Shareholder Accounts .................. 5,565 5,854 Average Number of Common Shares Outstanding .:. 10,741,116 10,636,841 Number of Employees at December 31 Serving U.S. markets .......................... 1,132 1,127 Serving Canadian markets .................... 303 290 Serving international markets ................. 187 178 1,622 1,595 r•a ~ ca ~ [u ~ ,.~. * Based on weighted average number of shares outstanding during the year ca co

To Our Shareholders: The Seven Up Company in 1976 again achieved record net sales and net income in each quarter and for the year. Consolidated net sales reached $233,282,664, a 9.2 percent increase over the $213,622,918 of 1975. Consolidated net income for the year was $24,751,005, an increase of 21.6 percent over the $20,340,463 achieved the previous year. After payments of preferred dividends, earnings per share of common stock were $2.28, in contrast with $1.88 in 1975, a 21.3 percent improvement. During 1976, cash dividend payments on cpmmon stock were $1.13, compared to 75 cents 2 1975. In November, the quarterly common d~;.dend payment was increased from 21 cents to 3G cents. In addition, an extra dividend of 20 cents per share was made, a reflection of the exx::eptional sales and earnings achievement during, .1976, The payment of the extra dividend is not to be interpreted as a basic change in dividend policy for future years. The November increase will produce an annual dividend rate of $1.20. When the Company went public in 1967, the annual dividend rate was 12 cents per common share. The consistent, targeted growth of the Company in the 1970's is highlighted by the fact that since the beginning of the decade sales have increased by an annual average of 13 percent, net income by 14 percent, earnings per share by 17 percent and dividends by 23 percent. Reflective of the improved economic environment, the soft drink industry in the United States exhibited renewed vitality in 1976, compared with the lethargic results of 1974 and 1975. The total 7UP brand (regular 7UP, Sugar Free 7UP and Fountain 7UP) shared in this industry growth, Unit sales of regular 7UP, although up modestly, were off from the industry pace, Sugar Free 7UP sales continued to increase sharply-continuing a trend established in February 1974, when the brand was introduced. In October, an entirely new soft drink marketing program and a completely restruc- tured organization for the 7UP marketing operation in the U. S. were unveiled in San Francisco at a national sales meeting of over 1,000 7UP Developers (bottlers). A key objective of the program is to increase the U. S, market share and the sales growth of regular 7UP. The new "UNdo it" marketing strategy is a direct outgrowth of the highly successful marketing program for "The Uncola" begun in 1968. It is aimed directly at soft drink consumers who drink colas, The "UNdo it" message will be an integral part of all elements of the new marketing program-advertising, sales promotion, merchandising, etc. 7UP Developer reaction to the new marketing program has been enthusiastic and, while it is still too early to measure the results of the campaign, it already has produced some encouraging signs. While professional awards for advertising do not necessarily make sales, it is gratifying to have the readers of The Gallagher Report vote "UNdo it" the outstanding advertising campaign of 1976. As a major national advertiser, The Seven-Up Company recognizes its responsibility to do everything possible to merit consumer confidence and loyalty. To insure that 7UP and Sugar Free 7UP advertising reflects positively on the public image of your Company and its products, Seven- Up management has adopted a policy not to knowingly support television programs or magazines that feature violence or exploit sex. This policy has been communicated to our advertising agency. Sales of finished soft drink products (bottled, canned and bulk) by Seven-Up Services to 7UP Developers increased in 1976 as Developers supplemented their mix of needed 7UP and Sugar Free 7UP packages. Sales were also influenced positively by aggressive Developer participation in the special Bicentennial can promotion. Seven-Up performance in international markets showed gratifying improvement in 1976. Seven-Up International, Inc. achieved increased unit sales volume despite unsettled conditions in several Central and South American markets where sales declined. During 1976, 7UP was introduced in twelve new territories including the important markets of London, England; Sydney, Australia; and M&1aga, Spain. Seven-Up Canada Limited reached record unit extract sales in 1976. This was achieved even though the Company was subjected to intensive competitive factors and uncertainties resulting from pending restrictive packaging legislation in the province of Ontario, Nevertheless, 7UP continues to be Number I in food stores in British Columbia and is pushing hard for Number 2 in Quebec, where an estimated 40 percent of all of the soft drinks in Canada are consumed. Warner-Jenkinson Company achieved record

-i o Uur bohareholders: (continued) sales and profits in 1976. Significantly higher food color sales were of major importance in these results, since dollar and unit sales of food flavors were below 1975 levels. In the food flavor business Warner-Jenkinson gained major customers with highly specialized flavor needs that could be fulfilled by few, if any, other flavor producers. Prospects for further break- throughs in the development of new flavor products brighten the outlook for Warner-Jenkinson. The January 28, 1977, announcement of the Warner-Jenkinson agreement with Dynapol of Palo Alto, California, to collaborate in the development of polymer food colors is evidence of your Company's continued commitment to research and development. Under the terms of this agreement, Warner- Jenkinson's share of the expenses for the research and development and toxicological testing of the food dyes and their lake pigments will be on the basis of one million dollars annually for three years subject to earlier termination under certain circumstances. Following anticipated FDA approval, Warner-Jenkinson will participate in marketing these new colorants. Polymer food colors are viewed as a major breakthrough in food additives because they are not metabolized, The colors are of a larger molecular size and, as such, are not absorbed in the alimentary canal and do not pass into the blood stream, Depressed crop conditions impacted some- what on the Company's lemon products business in 1976. Ventura Coastal Corporation continued to operate profitably, but not at the record pace of a year ago, In the meantime, there has been extensive ranch development to provide more abundant crops of lemons in future years. Prospects for 1977 are improved and the lemon products group is expected to enjoy a year on a par with 1975. Golden Crown Citrus Corporation, which produces reconstituted lemon and lime juices, showed marked sales improvement in 1976. A portion of this improvement is attributable to the successful introduction of a lemonade- flavored powdered soft drink mix in selected markets, Golden Crown is expected to continue strengthening your Company's position in the lemon products industry. An important corporate objective in 1976 has been to continue the development and refinement of our organizational structure. In March, John R. Kidwell was appointed senior vice president and director of marketing. Mr, Kidwell, president of Seven-Up Canada Limited from 1970 through 1976, has outstanding experience in ctll facets `of the soft drink business. In Canada, he distinguished himself as a capable, versatile executive with excellent qualifications for directing and implementing the Company's marketing programs. He has held various positions in St. Louis and in Canada since joining the firm in 1965, Colin B. Scarfe, previously vice president and general manager of Seven-Up Montreal, succeeded Mr. Kidwell as president of the Toronto-based Seven-Up Canada Limited. Mr. Scarfe brings to his new assignment an excep- tional record of proven performance. In September, Michael Baker was appointFid vice president and director of market develcrp- ment, reporting to Mr. Kidwell. He had been director of marketing for Seven-Up Canada Limited. July 1, Ben H. Wells stepped down as chief executive officer of The Seven-Up Company. William E. Winter, who had been president and chief operating officer since 1974, assumed the position of president and chief executive officer, Mr. Wells continues to serve as chairman of the board, is chairman of the Executive Committee, and represents the Company in many key trade, civic and philanthropic involvements. Mr. Wells, who joined the Company in 1938, became chief executive officer in 1965. He was elected chairman in 1974. Mr. Winter joined Seven-Up in 1946 and has served in a number of executive positions over the years. In September 1976, 250,000 shares of common stock were sold to the public on a secondary offering basis. All of the shares were from the estate of Graves Gladney, late son of a founder of the Company. None of the proceeds accrued to The Seven-Up Company. There has been a decided spirit of coopera- tion toward achievement of mutual objectives between the Company and the nationwide network of 7UP Developers. During the year, key committees of the Association of 7UP Developers worked closely with Company marketing, legal and public affairs personnel. Established in 1974, the Association has represented its constituents well. It has helped solidfy Company-Developer relationships, while enhancing Developer input and participation in important considerations involved in development of the total 7UP business. L048iB9fb0

Ben H. Wells Management's main objective for 1977 and beyond is to maintain the solid sales and profit growth trends of the total corporation while assuring the restoration of the sales volume and market share of regular 7UP in the U. S. to its historic growth rates, During 1976, your Board of Directors approved a long-range growth strategy and plans that include increasing volume through existing businesses, new product development and acquisition of new businesses. Increased volume will be achieved by growth in unit sales, improved share in existing markets, and the introduction of Company products into new international markets, Long-range development of new products, new brands and new flavors is planned. We will also continue to seek out companies for acquisition that meet approved criteria and whose product lines reflect favorably on 7UP quality. 1976 has demanded our best. 1977 will demand that and even more, In 1977 we expect that first and second quarter comparisons with the same periods of the previous year may be substandard because of an exceptionally strong first six months in 1976, We are highly optimistic about 1977 as a whole, however, and also the years to come.... Just as the 7UP success of the past has been the result of a strong, enthusiastic 7UP Developer organization supported by the efforts and dedication of all the people of The Seven-Up Company, we believe the success of our future will be achieved in the same manner. Sincerely, Ben H. Wells Chairman of the Board William E. Winter President and Chief Executive Officer February 17, 1977 Willican E. Winter

Soft Drinks Today, 7UP is the largest-selling lemon-lime flavored soft drink, the third-largest selling soft drink brand in the United States and Canada, and is a major factor in many foreign markets. Aggressive brand development has been the key to 7UP growth. This aggressiveness has been characterized by innovation, flexibility and the support of a quality network of 7UP Developers (bottlers). This has resulted in the 7UP brand in all of its forms ... regular, sugar-free and fountain 7UP ... showing record sales growth in 1976. This was due to the strong performance of 7UP in many U.S., Canadian and international markets and the sharply higher sales of Sugar Free 7UP and Fountain 7UP in the United States. The 7UP brand is currently marketed through 473 7UP Developers in the United States, 80 in Canada and 191 in 81 nations overseas. Seven-Up United States By far the most important development domestically in 1976 was the reorganization and restructuring of the 7UP marketing organization, followed by the October introduction of a new, comprehensive marketing and advertising program for 7UP, The reorganization followed the appointment of John R. Kidwell, formerly president of Seven-Up Canada Limited, as senior vice president and director of marketing. Prefaced by a compre- hensive analysis of the marketplace, the marketing department was subdivided into five units with distinct, clearly defined functions and responsibilities-each headed by experienced persons who report to the director of marketing. The five new operating units are Market Develop- ment, Marketing Services, Marketing Research, Sales and Fountain Sales. The new marketing strategy for 7UP, "UNdo it," is a direct unmistakable extension of the highly successful program for "The Uncolall" first introduced in 1968. It is aimed principally at soft drink users who consume multiple soft drink brands, including 7UP regularly and irregularly. Built upon a solid foundation of marketing research and thoroughly pretested for consumer impact, the "UNdo it" strategy is designed to make the consumer conscious of his cola-drinking habit, encouraging him to "UNdo it" in favor of 7UP. While attacking the cola consumption habit, the new "UNdo it" advertising message also provides a reason for change, communicating that 7UP is a soft drink with unique taste and adaptability to all consumption occasions. The "UNdo it" campaign was launched nationally in October with a dynamic introductory thrust that reached an estimated 95 percent of the principal target audience more than six times on the average during the introductory period. 6

Gompletely distinct marketing plans have been developed for each of the three segments of the soft drink business in which The Seven-Up Company participates-regular 7UP, Sugar Free 7UP and Fountain 7UP. This philosophy acknowledges that 7UP and Sugar Free 7UP have separate target consumers. It also acknowledges that despite the extraordin- ary growth of Sugar Free 7UP, many consumers have yet to taste the brand. For this reason, the new "Taste More Taste" marketing concept has been created for Sugar Free 7UP. It was presented to 7UP Developers in early January 1977, In support of the "Taste More Taste" marketing rationale, a nationwide consumer sampling program will be conducted in supermarkets between April and September, aimed at acquainting more than 6.6 million consumers with the superior taste characteristics of Sugar Free 7UP, Spot television media plans will support the program, In another marketing area, the Company will embark on a more intensively competitive series of planned price-off sales promotions during the four key consumption periods of 1977, 7UP in metric-sized packages increased in availability during 1976. Since April 1975, when 7UP and Sugar Free 7UP became the first U.S. soft drinks to be bottled in liter and half-liter sizes, 7UP and Sugar Free 7UP metric packages have been introduced in 100 domestic markets including nearly the entire State of Indiana, The brands are now available in metric form to nearly 65 million consumers. 7UP and Sugar Free 7UP were also the first U.S. soft drinks in the non- returnable, two-liter bottle which was introduced simultaneously by 17 7UP Developers throughout the Greater Boston market in February 1976, Metric packaging has generated a significant amount of favorable national publicity for the 7UP brand. However, its principal benefit is in the added value it represents to consumers. The half- liter (16.8 ounces), liter (33.8 ounces) and two- liter (67.6 ounces) bottles are sold in most participating markets at the same price as competing brands in conventional pint, quart and half-gallon containers which contain less beverage. Sugar Free Fountain 7UP was available in 3,300 of the 3,500 McDonald's restaurants coast to coast by the end of 1976, up from 2,800 stores at year-end 1975. This accounted for over 100 million servings during 1976. In addition, Sugar Free Fountain 7UP was approved for sale by the Burger Chef system in 1976 as well as by many other leading regional fast-food organizations. On a related, but broader front, the Company has retained a leading management consulting firm to study all aspects of the bulk soft drink business from both the 7UP Developer and the national perspective to map plans for future strategic direction and development of this increasingly important segment of the soft drink market. In 1976, 7UP participated for the third year in

sott Dnnks (continuecL) the Jerry Lewis Muscular Dystrophy campaign as a late surrimer national sales promotion. More than $442,000 was contributed to muscular dystrophy on behalf of The Seven-Up Company and participating 7UP Developers. Seven-Up Services, Inc. The mission of Seven-Up Services, Inc, is to provide and supplement production of canned and bottled 7UP products for those 7UP Developers who are unable to produce them within their own plant facilities. Through the facilities of Seven-Up Services, all 7UP Developers are assured access to the wide range of 7UP packages required to serve their respective markets. Seven-Up Services produces "finished" 7UP products-in cans and bottles and also fountain syrups-through a network of nearly three dozen independent production centers, nationwide. One of the important factors enabling Seven-Up Services to achieve record unit sales in 1976 was successful participation in The Seven-Up Company's unique national Bicentennial can promotion. Special 7UP cans with a patriotic motif were produced, representing each state in the union. When consumers acquired cans of all 50 states, their collection could be arranged in pyramid fashion to form the likeness of Uncle Sam, During the year, Seven-Up Services also gave strong support to the introduction of the new two-liter, non-returnable bottles in several major markets, again helping Developers broaden their packaging mix with these larger-size containers. Seven-Up Bottling Company of Phoenix The Seven-Up Bottling Company of Phoenix, Arizona, posted an increase in unit sales of 7UP products in 1976. The gain was led by substantial growth of the new liter-size package, first introduced in Phoenix in 1975. Sugar Free 7UP, now in its third full year of distribution in the Phoenix market, continued to show significant increases. During the first quarter of 1977, the Seven-Up Bottling Company of Phoenix, the only Company- owned bottling operation in the U.S., will begin production in its modern, new bottling and canning plant in southeast Phoenix. Designed to accommodate future expansion at minimum cost, the all-metal building is located on an eight-acre, landscaped tract in a newly developed industrial park area. The structure has 80,000 square feet of production and warehouse space, four times more than the plant it replaces. Highly functional and fullly-automated, the plant is equipped with all-new machinery, including a high-speed 60-valve bottle filler capable of producing 1,050 12-liter-bottle cases per hour. Production on the 40-valve canning line is scheduled for 1,400 24-can cases per hour. Overall, the new bottling/canning complex 8