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SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1977 Commission File No. 0-2992 THE SEVEN-UP COMPANY Exact name o registrant as speci ied i.n its charter MISSOURI 43-0513480 (State o Incorporation) (IRS Employer I enti s.cation No.) 121 South Meramec St. Louis, Missouri 63105 . A ress of principal executive o ices) (Z.ip oC de) Registrant's telephone number, including area code (314) 889-7777 Securities registered pursuant to Section 12(b) of the Act: Name of each exchange Title of each class on which registered (NOT APPLICABLE) Securities registered pursuant to Section 12(g) of the Act: Common Stock -- $1.00 Par Value (Title o class Indicate by check mark whether the registrant (1) has filed all reports required to be 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 the filing requirements for at least 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. _ _ __- -_ - - - -~_ Class Outstanding at Decembe"r-31, 1977 Common Stock, $1.00 Par Value 10,722,501

-2- PART I ITEM 1., (a) Business: GENERAL The Seven-Up Company together with its subsidiaries ("Company") is basically engaged in two business segments: beverages and food flavor and colors. The beverage segment is engaged in the manufacture and sale of extract to independently owned franchised 7UP Developers (bottlers) in United States, Canadian and international markets. The beverage segment also supplies finished soft drink products manufactured by independent contract canners to some Developers for resale and provides all Developers with marketing, advertising, management and financial ser- vices. In addition, this segment includes two bottling plant operat:ions and the manufacture and sale of frozen concentrate for lemonade, re- constituted lemon and lime juice and powdered soft drink mixes. 7UP, the principal finished product of the beverage segment, is the third largest selling soft drink in the United States and Canada and is a major factor in many foreign markets for soft drinks. The food flavor and color segment of The Seven-Up Company includes the manufacture of food flavors and colors for sale to various producers of foods and pharmaceuticals. It also includes the manufacture ar.;i sale of cake decorating colors and gourmet flavor specialty products. In each of the two product groups (beverages and food flavors and colors) competition is intense. The Company's major competitors have substantially greater sales and financial resources. From time to time, raw materials essential in the manufacture of products in these groups are difficult to acquire. The Company attempts to protect itself against such problems by maintaining adequate inventories.

-3- BEVERAGE SEGMENT General. In the United States, the Company manufacturers and sells extracts for soft drinks,.principally 7UP, to approximately 473 franchised developers (bottlers) in all 50 states. Through indepen- dent contracts, the Company is also engaged in the manufacture and sale of canned and bottled 7UP and Sugar Free 7UP and fountain syrup for 7UP and Sugar Free 7UP to many of its franchised bottlers and to the United States Government primarily for consumption by its foreign- based armed forces. The Company's franchised developers (bottlers) sell 7UP and Sugar Free 7UP to retailers in bottles, cans and pre-mix tanks for resale principally in food stores, drive-in and other restaurants, soda fountains, bars and other retail establishments. Retail sales of 7UP and Sugar Free 7UP are also made through vending machines, some of which are owned by franchised developers (bottlers) and some of which are owned or leased by their customers. In addition, the Company's franchised developers (bottlers) sell 7UP fountain syrup to retailers for resale in soda fountains, vending machines and bulk dispensers. The only domestic manufacturing facility owned by the Company for the manufacture of bottled soft drinks for sale to retailers is in Phoenix, Arizona. In March 1977, Seven-Up Bottling Company of Phoenix commenced production in its modern new bottling and canning plant which includes approximately 80,000 square feet of production and warehouse space and is designed to accommodate future expansion at minimal cost. The soft drink business is seasonal in character. Sales of soft drinks are higher during the warm summer months and during the Thanksgi.ving-- New Year's holiday season.

-4- International. The Company manufactures 7UP and Diet 7UP ex- tracts in Canada for sale to approximately 75 franchised developers (bottlers) operating throughout all the provinces. Sales in Canada account for approximately 9% and 11% of the Company's net sales in 1977 and 1976, respectively. The Company also operates one bottling plant and related facilities in Ontario through which it sells 7UP and Diet 7UP directly to retailers. The Company sells 7UP extract to approximately 195 franchised devel- opers (bottlers) in 85 foreign countries other than Canada. Sales in foreign countries other than Canada accounted for approximatd~ly 7% and 6% of the Company's net sales for 1977 and 1976, respectively. The products sold in these foreign countries are manufactured in Argentina, Brazil, Great Britain, Ireland, Japan, Mexico and the Republic of South Africa. In addition, during 1977, approximatd!ly 3% of the Company's net sales was exported from the United States. Marketing and Other Services. The Company provides a broad range of marketing services to its franchised developers (bottlers) in the United States, including advertising, sales and management training, vending machine sales and engineering assistance, special events and promotion plans and convention planning. The Company believes such services are essential to the successful merchandising of its soft drinks. The retail sale of 7UP and Sugar Free 7UP is actively promoted in the United States by the Company through national and local television, radio, billboard and newspaper advertising, promotional events, and point-of-purchase displays. Local campaigns are planned and financed cooperatively with the Company's franchised bottlers. Many of the packaging, sales promotion and point-of-purchase display graphics are designed and created by the Company. Its adver- tising agencies are principally responsible for television and radio advertising of 7UP and Sugar Free 7UP. Expenditures for advertising

-5- a and promotional programs constituted approximately 59% and 61% of the Company's total selling, administrative and general expenses in 1977 and 1976, respectively. The Company provides specialized marketing and management services to its franchised bottlers in its international markets. The Company maintains a trained technical staff of approximately 12 persons which develops quality control and sanitary standards for the Company's franchised bottlers. Competition. The soft drink beverage industry is highly competitive. The Company's brands compete with other extensively advertised soft drink beverages and also with lesser known soft drinks of regional and local'bottlers, as well as private brand soft drinks. The Company's major product, 7UP, ranks third in retail sales in the United States and Canadian markets. Two of the Company's competitors have substan- tially greater sales and resources than the Company. In the so-called "cold drink" market, serviced by cup and bottle vending machines, fountains and other on-premise dispensers, the Company's two major competitors account for a large proportion of vending machine installations. Soft drinks similar to 7UP have been extensively marketed through vending machines. Since 1973 the Company has increased its efforts in the "cold drink" market with particular emphasis on the marketing of fountain syrup. Vending Equipment Sales. In conjunction with its soft drink business, the Company sells to its domestic and Canadian franchised developers (bottlers) vending equipment, purchased from various manufacturers, as part of a continuous program to increase distribution through coin-operated machines and soda fountain dispensers. Sales are generally made on an installment basis, with payment extending over a period of

-6- up to five years. These sales accounted for less than 1% of the Company's net sales in both 1977 and 1976. Lemon Products. Ventura Coastal Corporation ("Ventura"), a wholly owned subsidiary, is engaged in the business of processing and packaging frozen concentrate for lemonade, lemon oil (a principal ingredient in the production of 7UP Extract) and the growing, processing and selling of fresh lemons and lemon products. Ventura sales account for appro- ximately 14.0% and 12.2% of the Company's net sales in 1977 and 1976, respectively. Ventura sells the principal portion of its frozen lemonade concentrate under numerous "brand names" to large grocery chains. Ventura competes with numerous domestic processors and packers of fresh lemons and lemon products in California and Arizona, many of which are larger than Ventura and control a greater amount of lemon producing acreage. Ventura's principal competitor for the processing and sale of fresh fruit sells approximately 85% of the lemons pro- duced in the United States. Ventura, which supplies approximately 40% of the domestically produced frozen concentrate for lemonade, is in competition with numerous domestic producers of this product. Golden Crown Citrus Corporation ("Golden Crown"), an affiliate of Ventura Coastal Corporation, is a leading producer of reconstituted lemon and lime juice. In 1977, Golden Crown commenced marketing nationally its lemonade flavored powdered mix and four other flavored powdered mixes, covering nearly 65% of the potential domestic market.

-7- FOOD FLAVORS AND COLORS Through its subsidiary, Warner-Jenkinson Company ("W-J"), the Com- pany manufactures food flavors and colors ("FD&C colors") for sale to various producers of foods and pharmaceuticals. W-J produces more than 1,000 different flavors by the blending of various ingredients purchased from importers and distributors or directly from domestic and foreign regional cooperatives. Food colors, which constitute substantially all the FD&C colors sold by W-J, are made from chemical processing of synthetic organic chemicals and are marketed as primary colors or 400 different blends. The FD&C colors are subject to gov- ernmantal regulation in the form of certification by the Federal Food and Drug Administration. W-J markets its products to various pro- ducers of beverages, foods, and pharmaceuticals, using its own sales force of approximately 14 persons and through five distributors in Mexico. W-J has a majority ownership interest in a Mexican subsidiary engaged principally in the manufacture of FD&C colors. W-J owns a domestic perfume and fragrance manufacturer which accounts for less than 1% of the Company's net sales for 1977 and 1976. The FD&C color and food flavor markets are highly competitive in the Unitect States. W-1T has five principal competitors in the FD&C color market. There are several hundred competitors selling food flavors. FD&C.colars are produced from basic chemicals purchased from independent sources. W-J has in the.past experienced some difficulty irt acquiring certain raw materials. See "Raw Materials and Other Supglies•. W-J' s new Elyde Park food color plant completed its first full year of operation in 1377. This nevr masufacturing facility, consisting of 125,000 square feet, increases W-J's food dye and lake pigment pro- duction capacity by 75%.

-8- RAW MATERIALS AND OTHER SUPPLIES Beverages The principal materials used by the Company in the manfuacture of 7UP extract are essential oils of lemon and lime and ethyl alcohol blended in a highly concentrated form. In 1977, approximately 68% of the lemon oil used by W-J was purchased from one large cooperative. In addition, sugar, citric acid, sodium citrate, carbonated water and packaging materials are required for the manufacture of the Company's finished soft drink products. The principal materials used by Ventura in the production of lemon products, primarily frozen concentrate for lemonade, are fresh or concentrated lemon juice, lemon oil flavor, sugar solids or sweeteners, such as corn syrup and packaging materials. Ventura's lemon source is presently California, where in 1977, Ventura attained the largest lemon harvest in history. Supplies of fruit in 1976 were adversely affected by inclement weather and other adverse conditions. Ventura is generally dependent on other citrus growers for approximately 75% of its lemon supply. (Next Page -9-)

Fuel shortages could pose a problem in the future for the Company's franchised developers who deliver by truck. However, the Company does not know of any significant problems experienced to date by its franchised developers in obtaining adequate fuel supplies. The Company has not experienced any serious disruption of service because of insufficient fuel supplies. See Government Regulations for a discussion relating to the Food and Drug Administration announcement of March 9, 1977 on the prohibition of utilizing saccharin in foods and beverages. Food Flavors and Colors The principal materials used by W-J in the manufacture of food colors are benzene and naphthalene derivatives. From time to time these materials may be in short supply. However in 1976 and 1977 supplies were adequate to meet the requirements of W-J. At times of short supply, W-J has in the past always maintained adequate inventories for continuing operations. Except as otherwise indicated under Business - Food Flavors and Colors above, the principal raw materials and other supplies used by the Com- pany are available from a number of different sources. EMPLOYEES The Company had at December 31, 1977, 1,621 employees, including 1,183 in the United States, 231 in Canada and 207 in other countries. Of the Company's employees, less than 5% are represented by unions.

-10- A11 employees of the Company and of four of its domestic subsidiaries (approximately 525 salaried and hourly employees) participate in profit sharing plans, under which substantially all of the contribu- tions are made by the employers. Most of the Company's employees in the United States and Canada are covered by pension plans. The Company also has a comprehensive employee security program, including life and disability insurance, major medical care and hospitalization for employees and their dependents and other employee benefits. Most of the costs of these benefits is borne by the Company. See Note E to Consolidated Financial Statements. In 1976, the Company made cer- tain amendments to their domestic pension plans to conform to the Employee Retirement Income Security Act of 1974. These amendments did not significantly change pension costs or unfunded vested benefits. TRADEMARKS The Company's principal trademarks include 7UP, SEVEN-UP, THE UNCOLA and HOWDY, all of which are registered in the United States and Canada, and one or more of which are registered in certain other countries. The Company is the sole owner of these trademarks. GOVERNMENT REGULATION Production and distribution of a number of the Company's products are subject to the Federal Food, Drug and Cosmetic Act and to vaLious other Federal and State statutes regulating safety and labelling of products. On March 9, 1977, the Food and Drug Administration announced that it intended to prohibit the use of saccharin in foods and beverages. Saccharin is the non-nutritive sweetener used in Sugar Free 7UP and virtually all other dietary soft drinks.