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THE SEVEN-UP COMPANY 1977ANNUAL REPORT

"Back To Basics" for 1978 "Back to basics," a return to proven 7UP marketing methods, was an important part of the message to 7UP Developers in the United States during a series of October regional marketing conferences in 1977. The design of The Seven-Up Company's 1977 annual report reflects that principle, utilizing an understated, nostalgic approach in the portrayal of Seven-Up products and uses. Commissioned to provide original artwork for the annual report was Walter Spitzmiller, St. Louis-born artist currently working in New York. His medium is oil on Gesso. His message is "back to basics"- the key to The Seven-Up Company marketing thrust in 1978. Reproduced for the annual report, Mr. Spitzmiller's original artwork has become the property of The Seven-Up Company and will be displayed at the Company's World Headquarters in St. Louis, Missouri. Metric Report For the third consecutive year, The Seven-Up Company annual report has been produced in metric measure, 20 by 30 centimeters, instead of the standard 81/z by 11 inches. In 1975, Seven-Up introduced its metrification program of half-liter (16.9 -ounce), liter (33.8 -ounce) and two-liter (67.6- ounce) bottles. 7UP and Sugar Free 7UP were the first internationally marketed soft drinks made available in metric sizes in the United States. Printscent=' Fragrance Printscent lemon fragrance is one of many aromas and fragrances produced for commercial use by Warner-Jenkinson Company, a Seven-Up subsidiary. The pages of the Company's 1977 annual report have been treated with this subtle, enduring and natural fragrance -representative of The Seven-Up Company's broadening markets and product lines. Form 1 O-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 Commission. 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 ten pages. Notice of Annual Meeting The Annual Meeting of Shareholders will be held at 10 a.m. on Monday, April 10, 1978, at the World Headquarters of the Company, 121 South Meramec Avenue, St. Louis, Missouri. All shareholders are invited to attend. t

H. C. GRIGG (1905-1977) H.C. Grigg, Chairman Emeritus of the Board of The Seven-Up Company and son of its co-founder and first president, died on Monday, October 24, 1977, following a prolonged illness. Mr. Grigg, known to friends and colleagues simply as "Ham," was a major force in the growth of The Seven-Up Company. Between 1929 and his retirement in 1972, Mr. Grigg served as advertising manager, general manager, president and board chairman of the company co-founded in 1920 by his father, C.L. Grigg. His death has saddened the thousands of 7UPpers and soft drink industry associates who knew "Ham" and who were privileged to work with him during his long and distinguished career. As a soft drink executive, Mr. Grigg had a simple method of untying the knots of many critical business decisions. "What is best for 7UP?" he would ask, and the decision would become clear. In this spirit, the Board of Directors wishes to dedicate the 1977 annual report of The Seven-Up Company to the memory of H. C. Grigg. 2 Contents Financial Highlights 3 Letter to Shareholders 6 Beverages 14 Food Flavors and Colors 16 Financial Review 24 Consolidated Balance Sheets 26 Consolidated Statements of Income 27 Consolidated Statements of Changes in 28 Financial Position Consolidated Statements of Shareholders' 29 Equity Notes to Consolidated Financial Statements 32 Report of Ernst & Ernst, 33 Independent Auditors The Seven-Up Company Directors and Officers 34 Seven-Year Statistical Summary 36 Foreign and Domestic Subsidiaries .~ 37 Transfer Agents and Registrars eo ~ ~ ta ~ c:y

lne oeven-up Uompany anu auosiaiarnes a COMPARATIVE FINANCIAL HIGHLIGHTS 1977 1976 Percent Change Net Sales .... . ............... . . ................. $250,998,056 $233,282,664 + 7.6 Income Before Income Taxes .................... 47,209,284 47,145,005 + 0.1 Net Income .................................... 25,789,284 24,751,005 + 4.2 Percent of sales .............................. 10.3% 10.6% Earnings on Common Stock ..................... . 25,597,044 24,535,725 + 4.3 Per Share of Common Stock Net income* ................................. __ $ 2.38 $2.28 + 4.4 Dividends .................................. 1.25 1.13 + 10.6 Book value ................................. 10.29 9.14 + 12.6 Total Dividends Paid Preferred stock ............................. 192,240 215,280 Common stock .............................. 13,400,766 12,106,244 Common Shareholders' Equity ................... 110,357,419 97,963,436 Working Capital ................................ . 67,561,927 60,601,600 Capital Expenditures ........................... 9,864,627 8,449,923 Depreciation and Amortization .................. 3,683,304 3,263,252 Long-Term Debt-less current maturities ......... 688,481 942,603 Net Investment in Property, Plant and Equipment .. 42,200,035 37,581,529 Number of Shareholder Accounts ................ 5,824 5,565 Average Number of Common Shares Outstanding .. 10,745,100 10,741,116 Number of Employees at December 31 Serving U.S. markets ......................... 1,183 1,132 Serving Canadian markets .................... 231 303 Serving international markets ................ 207 187 1,621 1,622 *Based on weighted average number of shares outstanding during the year 2

TO OUR SHAREHOLDERS: 1977 was another year of record sales and net income for The Seven-Up Company. This was the 11th consecutive year of record growth since the Company went public in 1967. For the 12-month period ending December 31, 1977, the Company achieved consolidated net sales in excess of $250 million. This is the first time in the history of The Seven-Up Company that sales topped the quarter-billion dollar mark. Consolidated net sales for 1977 were $250,998,056, a 7.6 percent increase over 1976 consolidated net sales of $233,282,664. Consolidated net income for the year was $25,789,284, an increase of 4.2 percent, compared with 1976 consolidated net income of $24,751,005. After payment of preferred dividends, 1977 earnings per share of common stock were $2.38, a 4.4 percent increase over 1976 earnings of $2.28 per share. Cash dividend payments on common stock during the year totalled $1.25, compared with $1.13 in 1976. In November, the quarterly dividend payable on common stock was increased from 30 to 35 cents per share. Current quarterly dividends are at an annual rate of $1.40. A dividend of 12 cents was paid in 1967 and dividends have been increased every year. Our principal objective for 1977 was to maintain the Company's solid sales and profit base. That objective was met. Additionally, significant progress was achieved within the Company's long-range growth plans, particularly through unit sales growth and improved market share in existing markets, but also through the investigation of new products and markets and the introduction of Seven-Up products into new international markets. Fueled by an improved economic environment, unseasonably warm summer weather and a program of highly successful promotional activities, soft drink extract sales in the United States showed modest gains for the year. The total 7UP brand (regular, sugar- free and fountain) contributed to this growth trend. During 1977, Seven-Up Enterprises achieved record unit sales of finished soft drink products, meeting a heavy demand for both canned soft drinks and family-size packages, especially the two-liter convenience bottle. During the period of uncertainty concerning saccharin and Sugar Free 7UP, Seven-Up Enterprises provided a number of 7UP Developers (bottlers) with a significant volume of sugar-free packaged goods. 7UP performance in international markets in 1977 was again marked by record sales volumes. Seven-Up International, Inc. exceeded objectives for the year and introduced 7UP in ten new international markets. During 1977, the 1976 introduction of 7UP in London was extended to include distribution into all of the United Kingdom. Seven-Up Canada Limited, despite a con- tinuation of heavy price competition and restrictive packaging legislative setbacks, again reported record sales. 7UP continues to lead the soft drink market in the Province of British Columbia, occupies the number two position in Manitoba-Saskatchewan and has achieved a significant market share increase in Toronto, Canada's most populous metro- politan market. On October 1, a government ban on saccharin was implemented, resulting in withdrawal of Sugar Free 7UP from Canadian markets. Diet 7UP, a newly formulated calorie- reduced soft drink, was successfully introduced in August in all Canadian markets. Aided by the second largest lemon harvest in history, Ventura Coastal Corporation achieved record sales and income levels for 1977. Particularly strong growth was reported in Ventura Coastal sales of lemon oil and frozen concentrate for lemonade. During the year, a 20,000-square-foot frozen storage warehouse was completed at the Ventura Coastal complex. This new facility will result in significant savings in outside storage and freight costs. Golden Crown Citrus Corporation, which produces reconstituted lemon and lime juices, achieved significant increases in sales volume during 1977. Part of this success was attribut- able to the successful introduction of Golden Crown's expanded line of flavored soft drink mixes, beginning with the powdered lemonade mix introduced in 1976 but strengthened in 1977 by the addition of cherry, grape, orange and tropical fruit punch flavors. 3

Warner-Jenkinson Company, producers of food flavors and colors, continued to operate profitably but did not experience the high levels of net income reported in 1976. Problems within the industry, impacting on Warner- Jenkinson during 1977, included extreme price competition coupled with low margins, rising costs and a growing concern over flavor and color additives. The 1977 announcement of the Warner- Jenkinson agreement with Dynapol of Palo Alto, California, to participate in the develop- ment of non-absorbable food colors, is evidence of the Company's commitment to the food flavor and color market for the future. During 1977, Warner-Jenkinson also continued to participate in industry safety testing programs. In September, The Seven-Up Company and Oregon Freeze Dry Foods, Inc., of Albany, Oregon, signed a letter of intent for the acquisition of Oregon Freeze Dry Foods by the Company. A definitive merger agreement was completed in November, and full share- holder approval of the acquisition was secured on February 15, 1978. Oregon Freeze Dry Foods produces a broad product line of freeze-dried and convenience foods including complete meals for industrial, geriatric, military and outdoor/sporting goods markets. The acquisition is representative of the Company's efforts to expand and broaden both markets and products, where consistent with corporate goals and Seven-Up quality standards. The Company's overall research and development was increased sharply in 1977. Research and development expenditures reduced 1977 earnings by approximately 6 cents per share over 1976. Dr. B. C. Cole, vice president and technical director, was named senior vice president, corporate technical director. Dr. John Bujake, formerly research and development director for a major U.S. food processor, has joined the Company in the newly created position of director, research and development. Clark W. Russell has been assigned to the new position of director, business development. These actions reflect your management's objectives and plans to improve existing product lines and expand the product "mix" for the future. 4 Three new directors were elected at a meeting of the board of directors held January 25, 1978. Elected to the board were Robert A. Malin, senior vice president and director, The First Boston Corporation, New York, New York, Robert C. West, chairman and president, Sverdrup Corporation, St. Louis, Missouri; and Ted C. Wetterau, president and chairman, Wetterau Incorporated, St. Louis, Missouri. At this same meeting, the board accepted the resignations of Messrs. Maurice R. Chambers, Fred L. Kuhlmann and Fred W. Wenzel. These resignations were voluntarily submitted and resulted from a decision made by the board of directors of Anheuser-Busch, Inc. to develop and test market a new beverage product which might be in competition with soft drinks. It is the understanding of The Seven-Up Company that the proposed new product will not fall directly into the lemon- lime beverage segment. Chambers, Kuhlmann and Wenzel are also members of the Anheuser- Busch board. Despite a high degree of price competition, restrictive government regulations concerning packaging and threatened regulations in product formulation, The Seven-Up Company in 1977 achieved increased sales, market expansion and net income growth. The Company's success was the result of strong performance by the operating heads of subsidiary companies. It was also the result of continued development of a strong, working relationship with the 7UP Developer organization, and a reorganized marketing department, restructured and restaffed to produce a more professional, more disciplined approach to Seven-Up market- ing in the U.S. The year just past required our best efforts in terms of energetic marketing and 7UP Developer support. Our success throughout 1977 is evidence that we have the necessary combination of products and people to continue that success. During 1978, the Company expects to con- tinue to solidify its sales and profit growth trends while moving to reinforce the sales volumes and market share positions historically held by 7UP in the United States. 2C}48189243

The next year, then, will be one of challenge and opportunity. It will require continued emphasis on the basic marketing strengths of the Seven-Up business. It will require a con- tinuation of the strong support historically provided by the 7UP Developer organization. It will require constant attention to domestic and international economic environments and to opportunities which present themselves in the form of expanded product lines and expanded market penetration. Our outlook for 1978 is one of confidence in ourselves, our products, and the energy and dedication of you, our shareholders, 7UP Developers, and all of the people of The Seven-Up Company. Sincerely, bvvv H.IJA Ben H. Wells Chairman of the Board William E. Winter President and Chief Executive Officer February 21, 1978 Top William E. Winter Bottom Ben H. Wells 5

BEVERAGES Soft Drinks Marketing of the 7UP brand (regular, sugar- free and fountain) was directed in 1977 toward key market segments and designed to take advantage of traditional high soft drink consumption periods. The strong, effective support of 7UP Developers made possible aggressive programs of brand development with particular emphasis on a return to the basics of soft drink marketing. 7UP continued as the third largest-selling soft drink and the largest-selling lemon-lime flavored soft drink in the United States and Canada. During 1977, 7UP built on its position as a major factor in many international markets. The 7UP brand is marketed currently by 473 7UP Developers in the United States, 75 in Canada and 195 in 85 nations overseas. Seven-Up United States The first full-year performance of a restructured marketing department, initiated in 1976 by John R. Kidwell, senior vice president and director of marketing, was of key importance to the Company's U.S. soft drink operations in 1977. Internally, the marketing department was reorganized to bring a greater degree of professionalism to the marketing function. Externally, a vigorous thrust was launched toward new media and advertising programs and the development of a strengthened relationship between 7UP Developers and the Company. During a series of regional meetings held in October, 7UP Developers were presented with 1978 plans for stronger support of 7UP at the local market level and for increased exposure nationally via a precedent-setting new media program. Brand development funds were established for 7UP and Fountain 7UP. The objective is to increase local flexibility and facilitate 7UP Developer planning during periods of peak market or seasonal demand. Similarly, a promotional fund was established to benefit marketing efforts behind Sugar Free 7UP. This new plan for brand support, like other elements of the overall marketing plan announced in October, was the result in part of improved communications with 7UP Developers. It particularly reflected responsible input from the Marketing Committee of the Association of 7UP Developers. Also announced during the October meetings was a media plan described as a "first" in the industry. The plan was designed to provide more national television support for 7UP and features a co-operative funding approach to network television. The new program will bring several strong advantages to the 7UP marketing effort-the most important being significant cost efficiency. The purchase locally by individual markets of the same prime time would require nearly double the advertising investment. Additionally, the program will assure less commercial clutter, increased product protection and competitive separation, improved program environment and control of commercial placement, and the opportunity for "in-program" scheduling in lieu of the less effective "station break" message placement. A new creative advertising strategy for 7UP was also introduced to 7UP Developers during the October meetings. An extension of the "UNdo it!" concept launched in 1976, the new "message" was formulated with an important shift in execution. It takes advantage of the high level of consumer awareness established by "UNdo it!" and extends that concept to communicate a "call to action" on the part of the soft drink consumer. During 1977, a study of all aspects of the fountain soft drink market was completed by a management consulting firm retained by the Company. The study, conducted to identify opportunities and to map directions for the continued growth of Fountain 7UP, resulted in the establishment of a National Account Program to serve national fountain soft drink 6

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BEVERAGES (continued) Soft Drinks accounts. It also resulted in increased and improved local promotional activities to support local and regional fountain outlets. A major 1978 Fountain 7UP promotional effort for fast food outlets will be based on a drinking glass premium featuring the "Ziggy" character of newspaper cartoons and greeting cards. In 1977, 7UP Developers and The Seven-Up Company participated for the fourth year in the Muscular Dystrophy Association campaign. Highlighting this continued commitment to MDA was the appointment of William R. Howell, general manager of the Seven-Up Bottling Company of Denver, Colorado, as national chairman for the Company's 1978 MDA campaign. Mr. Howell will represent the 7UP Developer organizations at all MDA activities, including the annual Jerry Lewis Labor Day Telethon. He will also participate in planning activities with MDA officials on the national level. Seven-Up Enterprises The mission of Seven-Up Enterprises is to provide 7UP canned or bottled products for those 7UP Developers who are unable to meet consumer demand from their own production facilities. All 7UP Developers are therefore assured a continuing, ample supply of 7UP products with which to serve their franchise territories. Seven-Up Enterprises reported record sales in 1977. Through its network of nearly three dozen production centers nationwide, it assisted 7UP Developers in meeting the heavy demand for 7UP in a variety of packages, particularly cans and the two-liter, non-returnable bottle. Additionally, during the initial period of uncertainty surrounding the proposed saccharin ban, Seven-Up Enterprises was successful in maintaining needed supplies of Sugar Free 7UP packaged goods to Developers. In 1977, Seven-Up Enterprises continued to supply 7UP and Sugar Free 7UP for consumption by U.S. military personnel stationed overseas. Seven-Up Bottling Company of Phoenix In March, the Seven-Up Bottling Company of Phoenix, the only Company-owned bottling operation in the U.S., brought its new bottling and canning complex on stream and moved to full production. The plant, located in southeast Phoenix, includes 80,000 square feet of production and warehouse space and is designed to accom- modate future expansion at minimal cost. Sales of 7UP and Sugar Free 7UP in liter packages, together with the more than 20 percent sales growth of 7UP and Sugar Free 7UP in cans, enabled the Phoenix 7UP operation to post record volume and dollar sales for the year. Phoenix introduced 7UP and Sugar Free 7UP in 8-ounce aluminum cans in November. The introduction is planned to meet increasing consumer demand for 7UP in a "single serving" can package. With the new facility fully operational, the Seven-Up Bottling Company of Phoenix is now capable of producing 7UP in cans for its own use as well as for other 7UP Developers in Arizona and Nevada. The increased production capabilities of the new installation also place it in an excellent position to meet future demands of one of the fastest-growing soft drink markets in the nation, the 1.3 million consumers in the Greater Phoenix Area. Seven-Up Canada Limited In 1977, the Franchise Division of Seven-Up Canada Limited achieved record sales volume for 7UP. The strong 7UP performance resulted in the recapturing of market share levels achieved prior to the 1976 77 Canadian soft drink price war. The 7UP market share in Canada has traditionally been higher than in the U.S. Seven-Up Canada's 1977 performance included the highest volume of 7UP Extract sales ever recorded. That performance also reflected six consecutive survey periods during which both volume and market share increases were reported. ' 8

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BEVERAGES (continued) Soft Drinks 7UP remained the largest-selling soft drink in food stores in the Province of British Columbia and the second largest-selling brand in the Manitoba and Saskatchewan markets. A dramatic share-of-market increase was recorded in the Province of Manitoba. Two important goals for Seven-Up Canada in 1977 were: first, the rebuilding of an effective marketing team within the Franchise Division following the transfer of several key executives to Seven-Up U.S.A.; and, second, the reorganiza- tion of the Company-owned Bottling Division. Under the previous organization, the Bottling Division had served the entire Toronto area and southwest Ontario, utilizing a distribution network of six warehouses. In 1977, five independent distributors were appointed to serve the outlying areas of southwest Ontario, permitting the Bottling Division to concentrate on the underdeveloped but high-potential Toronto market. A 25 percent sales increase in southwest Ontario and a 20 percent sales increase in metropolitan Toronto are indicative of the effectiveness of the new organization. The area served by the Toronto bottling operation showed significant market share increases. _ For the first time, the advertising programs of Seven-Up Canada included separate French language promotions for the Province of Quebec. The Quebecois slogan "Hop la vie!"- "Up with Life"-was used as a pun on 7UP to motivate Quebec consumers to continue purchasing and enjoying 7UP at their histori- cally high levels of consumption. On October 1, the government ban on the use of saccharin in Canada was put into effect, necessitating the withdrawal of Sugar Free 7UP from all Canadian markets. Leading the industry, Seven-Up Canada launched on August 29 a reformulated, calorie-reduced soft drink called Diet 7UP, containing less than half the calories of 7UP. The new brand, which utilizes Isomerose 900"' (a sugar derived from corn), has achieved the number two position in the diet segment of the market. Despite the potential for additional govern- ment legislation, both in terms of packaging and product regulation, management expects to maintain the overall momentum of 7UP sales in Canada and to achieve even higher volume and market share levels. Seven-Up International, Inc. Seven-Up International, Inc. achieved record sales for the year. Increased sales performance was further influenced positively by favorable currency translation rates in several overseas markets. Vigorous volume increases for 7UP were achieved in Latin America, the Middle East and Asia. Europe, while experiencing an unfavorably cool summer, saw 7UP solidify its share position in most markets. The introduction of 7UP in 1976 in London was expanded during 1977 to include all of the United Kingdom-England, Scotland and Wales. 7UP was also introduced in the Isle of Madeira; Grand Cayman Isles; Tunis, Tunisia; Puebla, Toluca and Pachuca, Mexico; Frederikstad, Norway; and, Windhoek in Southwest Africa. In Holland, Sugar Free 7UP became the first international brand to enter the diet soft drink field. It quickly established its acceptance in the Dutch market and added brand share to the already strong position 7UP enjoys in that country. Seven-Up International has sharply increased its sales revenue and profit base in the past five years, and anticipates accelerated growth in overseas markets in 1978 and the years ahead. 10

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BEVERAGES (continued) Lemon Products Ventura Coastal Corporation Ventura Coastal Corporation posted record sales and earnings in 1977, contributing significantly to corporate profitability for the year. The subsidiary, which is a leading U.S. producer of frozen concentrate for lemonade, experienced particularly high sales growth in lemonade concentrate and also in lemon oil, a principal ingredient in the production of 7UP Extract. Three factors were instrumental to Ventura Coastal's exceptionally good performance for 1977: increased lemon production, expanded fruit processing capacity, and a significant increase in business from new customers. Ventura Coastal's second largest lemon harvest in history, up approximately 40 percent over 1976, was helped by normal, good growing weather. Also, trees planted in 1973 and 1974 began to mature, with fruit yields contributing noticeably to the total lemon harvest for the year. Lemon crop predictions for 1978 indicate a similarly successful harvest. Seven new private label brands of frozen concentrate for lemonade were added during the year, and 1977 marked the first full year for supplying the frozen lemonade requirements of two major supermarket chains. Ventura Coastal presently produces 71 brands of frozen concentrate for lemonade. Phase I of the $2 million expansion begun in 1976 has been completed, doubling the Company's fruit processing capacity. The installation of additional juice extractors and expansion of facilities for production of frozen concentrate for lemonade now enables Ventura Coastal to process 600 tons of fresh fruit daily, as compared with 280 tons previously. The new $1 million frozen storage ware- house adjacent to existing production and warehouse facilities will be completed in late spring, 1978. This new 20,000-square-foot warehouse will nearly double present capacity for storage of frozen concentrate for lemonade, and will result in significant savings in outside storage and freight costs later in 1978 and 1979. Golden Crown Citrus Corporation Led by the successful introduction of a full line of flavored soft drink mixes, Golden Crown Citrus Corporation of Evanston, Illinois, reported a significant increase in volume sales for 1977. Golden Crown became an affiliate of Ventura Coastal Corp. in 1974 and is a leading producer of reconstituted lemon and lime juice, operating production facilities in Evanston and Bridgeton, N.J. In 1976, Golden Crown successfully intro- duced a lemonade-flavored powdered soft drink mix on a test market basis in selected cities. Based on the results of that testing, the lemonade-flavored powdered mix and a full line of other flavors - cherry, grape, orange and tropical punch-were marketed nationally in 1977. Concentrating its efforts on producing a superior product at competitive prices, Golden Crown expanded distribution of its soft drink mixes from a single flavor in four markets to five flavors in more than 40 markets nationwide in 1977-covering nearly 65 percent of the potential domestic market in the first full year of distribution. To meet the demand for Golden Crown products on the West Coast, especially reconsti- tuted lemon and lime juice, a bottling facility within the Ventura Coastal production complex was opened in December 1977. The expansion facilitates distribution of Golden Crown products on the West Coast and in adjoining western states. 12

FOOD FLAVORS & COLORS Warner-Jenkinson Company The Warner-Jenkinson Company is a leading producer of food flavors and colors. As a group, Warner-Jenkinson companies in the U.S. experienced moderate sales growth in 1977. Flavor and food color dollar sales showed good gains, exceeding the record performance of 1976. Lemon flavor by-product sales, however, declined substantially. Declining margins in food colors, significant increases in cost of materials and processing operations, and the sharp decline in margins of lemon flavor by-products had a material impact on operations. In addition, costs for retesting the safety of certified food colors, as required by the government, increased operating expenses significantly. The Company's new 125,000-square-foot Hyde Park food color plant in St. Louis completed its first full year of operation in 1977. This new manufacturing facility increases the Company's food dye and lake pigment production capacity by 75 percent. Warner-Jenkinson East, Inc. In May 1977, Warner-Jenkinson East combined the fragrance and flavor production operations of the Manhattan and Brooklyn facilities into a new, single installation in Carlstadt, New Jersey. This new building complex now serves also as a sales and distribution center for flavors and food colors. Consolidating these multiple functions in one location provides more efficient adminis- tration of Warner-Jenkinson's fragrance and flavor units and provides greatly improved service to East Coast customers. Warner-Jenkinson of California Warner-Jenkinson of California set record sales for the Specialty Product Division's lines of Chefmastee- cake decorating colors and Flavor Milil~ brand gourmet flavors in 1977. Operating at consistently high efficiency levels throughout the year, the Santa Ana manufac- turing and distribution center also produces and markets Warner-Jenkinson's Red Sea1'91 lines of food flavors and colors throughout the Western U.S. Warner-Jenkinson S.A. de C.V. Record sales and shipments of food colors were achieved by Warner-.Jenkinson S.A. de C.V. for the third consecutive year. The affiliate, which maintains offices in Mexico City and manufacturing facilities in Lerma, markets and distributes food colors to customers in Mexico and Central and South America. 14

FINANCIAL REVIEW Business Description The Seven-Up Company is basically engaged in two business segments; beverages and food flavors 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 services. In addition, this segment includes two bottling plant operations and the manufacture and sale of frozen concentrate for lemonade, reconstituted lemon and lime juice and powdered soft drink mixes. 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 and 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. Major competitors normally 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 maintain- ing adequate inventories. Management's Discussion and Analysis of Operations In 1977, consolidated sales of The Seven-Up Company reached record levels of $250,998,056. This is an increase of 7.6 percent over 1976 sales of $233,282,664. Although net dollar sales increased in 1977 at more modest rates than in previous years, sales during the last five years have increased at an annual rate of 13.6 percent. This rate is within the long-range sales growth plan of the Company. For an extended period in 1977, the controversy in the U.S. over the sale of saccharin-based products, as well as the actual ban in Canada, unfavorably influenced total consolidated dollar sales. Also in 1977, average selling prices of Company products were generally below 19761evels, with product unit sales increasing at rates in excess of dollar sales. The distribution of net sales by business segment for the current and previous two years has been: Net Sales Percent Percent 1977 1976 Change 1975 Change s (000) (000) 1977/1976 (000) 1976/1975 B v ra g e e e Soft drinks ................... . ............ Lemon products .... . .... . ............. , _-. Total Beverages ......... . ....... . ... . . > .. Food Flavors and Colors ........ . .......... . .-.- Total ....................-:..:._....:: $193,677 $184,134 + 5.2 $171,290 + 7.5 35,163 28,394 + 23.8 - 26,906 + 5.5 - 228,840 212,528 + 7.7 198,196 + 7.2 22,158 20 755 + 6.8 15 427 + 34 5 , - , . $250,998 $233,283 + 7.6 $213,623 + 9.2 In 1977, total beverage dollar sales increased 7.7 percent over the previous year. In the U.S., consolidated unit sales of both 7UP and Sugar Free 7UP soft drink extracts increased modestly to set new records. In the U.S. unit sales trends for the last six months improved with the resumption of marketing support of Sugar Free 7UP. Soft drink extract unit sales in international and Canadian markets, despite the October 15 Canadian ban of saccharin, grew at rates higher than those in the U.S. In international markets, extract unit sales in the important Argentine market were below 19761evels. However, sales in Mexico were significantly higher than a year ago. Unit sales of finished soft drink products grew at a rate in excess of that experienced by soft drink extracts. For 1977, 7UP Developers in the United States reported to the Company the following distribution of sales by package type based on equivalent 8-ounce cases. Percent of Total Case Sales 1977 Cans ............................:....:.::.. . :..:...:.:. :...:c...r. 30.9 Non-returnable Bottles .. . ..... ..-............... . ........ . . ..<. . . , 24.6 Subtotal ............... ....... -_.................. .:...... ,,.:.::. - 55.5 Returnable Bottles .... . ................. ........... . . . . . . . .. . 32.3 Bulk Sales ................. ............ ....... ....... ..................... . 12.2 100.0 1976 28.3 25.7 54.0 34.5 11.5 100.0 16

Unit sales of lemon products, primarily frozen concentrate for lemonade, reconstituted lemon juice and lemon oil were up sharply. Also, sales of fresh fruit processed for resale reached record levels. The Golden Crown expanded line of flavored powdered soft drink mixes contributed to increased dollar sales. Lower food flavor unit sales were offset by significantly higher food color and specialty product sales. Dollar sales did not reflect the growth of unit sales because of lower selling prices. The distribution of income before taxes by business segment for the last three years has been: Income Before Taxes Percent Percent 1977 1976 Change 1975 Change (000) (000) 1977/1976 (000) 1976/1975 Beverages ......... ....... ..._........ ,,..$48,464 $46,152 + 5,0 $41,579 + 11.0 Food flavors and colors - From operations .................... ........ 1,327 1,717 - 22.7 433 + 296.5 Long-term research project ....... . . . ........ (1,000) 327 1,717 - 81.0 433 + 296.5 Total operating profit. . ........... _ . -48,791 47,869 + 1.9 42,012 + 13.9 Corporate expenses ........ .......... ........ (3,360) (3,109) + 8.1 (2,834) + 9.7 Interest income-net . . . ............... ....... :. . : 2,009 1,908 + 5.3 1,770 + 7.8 Currency-gains (losses) . ............ _ .... - (231) 477 (1,104) Income before income taxes ........ .... . _ . $47,209 $47,145 + 0.1 $39,844 + 18.3 The profit contribution to income before tax of the beverage segment increased 5.0 percent over 1976. Lower selling prices in finished soft drinks and frozen concentrate for lemonade reduced the rate of dollar sales increase for this segment. Also, a shift in the sales mix between finished goods and soft drink extract modestly reduced the profitability ratios for the group to 21.2 percent of sales in 1977, ~compared to 21.7 percent in 1976. The profitability of the food flavors and colors segment was 22.7 percent below 1976. Competitive pricing of food colors and the absorption of increased costs reduced profit margins. The profitability of this segment as a percent of sales was 6.0 percent in 1977 (excluding long- term research project), versus 8.3 percent in 1976. For 1977, this segment included the first year research expenditures of $1,000,000 (five cents per share) related to the development of non-absorbable food colors. In summary, the contribution of the two business segments to consolidated sales and operating income for 1977 and prior years has been: 1977 1976 1975 1974 1973 Net sales (expressed in thousands of dollars) Beverages .............. ................ -. $228,840 $212,528 $198,196 $172,749 $134,471 Food flavors and colors ................... 22,158 20,755 15,427 18,131 12,277 Total Sales .......................... . ... $250,998 $233,283 $213,623 $190,880 $146,748 Operating profit Beverages ................ ........... :.. $ 48,464 $ 46,152 s 41,579 $ 30,017 $ 26,505 Food flavors and colors From operations ................... .., 1,327 1,717 433 2,850 1,695 Long-term research project ......... . . . . (1,000) 327 1.717 433 2,850 1,695 Total Operating Profit ........ . . . . . .... s 48,791 s 47,869 s 42.012 $ 32,867 $ 28.200 TOTAL CORPORATE NET SALES (Millions of Dollars) 1973 1974 1975 1976 1977 146.7 190.9 213.6 233.3 251.0 17

FINANCIAL REVIEW (continued) Quarterly Review Highlights The consolidated sales for The Seven-Up Company and its subsidiaries by fiscal quarters were: Net Sales 1977 Percent Change 1976 Percent Change 1975 Percent Change (000) 1977/1976 (000) 1976/1975 (000) 1975/1974 First Quarter. . . . . . . . . . . . . . . . . . S 50,416 + 2.8 s 49,030 +17.8 $ 41,617 + 25.4 Second Quarter . ............ 74,800 + 10.4 __ 67,783 7,783 + 11.9 60,574 _ + 15.7 Six Months ................... 125,216 + 7.2 116,813 + 14.3 102,191 + 19.5 Third Quarter . . . . ..... . . . . . _ _-, 70,002 ~ 8.7 64,374 + 4.3 61,734 + 7.3 Nine Months.................. 195,218 + 7.7 181,187 + 10.5 163,925 + 14.6 Fourth Quarter . . .... . ...... . . 55,780 + 7.1 52,096 + 4.8 49,698 + 3.9 Year ........................ $250,998 + 7.6 $233,283 + 9.2 $213,623 + 11.9 First Quarter (January-March) Consolidated sales of $50,416,083 increased 2.8 percent over the same quarter of the previous year. The first quarter of 1976 had been favorably influenced by advanced shipments of soft drink extracts made in anticipation of a transportation strike. Net income for the first quarter was $4,864,263, modestly below the comparable 1976 quarter of $4,898,163. Earnings per share for the quarter were 45 cents in both 1977 and 1976. Soft drink U.S. extract unit sales declined comparatively in the first quarter. However, if the prior year's sales are adjusted for the abnormal advanced shipments, the current quarter exceeded both the plan and previous years. Canadian soft drink unit sales were up significantly for the period. In international markets, unit sales were below year-ago levels, influenced unfavorably by the important Argentine and Mexican markets. Unit sales of Sugar Free 7UP Extract were below year-ago levels in both U.S. and Canadian markets, as Developers adjusted inventory levels in anticipation of the proposed saccharin ban. Unit sales of lemon products from Ventura Coastal Corporation, frozen concentrate for lemonade as well as fresh fruit, were sharply higher for the quarter. Average selling prices were below 19761evels. In addition, Golden Crown Citrus Corporation expanded its powdered soft drink product line to include additional flavors and introduced them nationally to the grocery trade. First quarter food flavor dollar and unit sales were below previous year's results. Sales of food colors in 1977 equalled peak 1976 levels, when Red #40 sales accelerated to fill the market void created by the ban of Red #2. Net other income in 1977 reflected a gain on the sale of Canadian real estate which was no longer required after the distribution system of the Toronto bottling division was restructured. Adjustments for translation and foreign exchange transactions were not material in the first quarters of 1977 and 1976. Second Quarter (April-June) For the three-month period ended June 30, 1977, consolidated net sales were $74,799,707, an increase of 10.4 percent over 1976 second quarter sales of $67,783,687. Consolidated dollar sales for the month of June and the second quarter 1977 were the largest in the history of the Company. Net income for the quarter was $7,995,162 in 1977, compared with $7,340,212 in 1976, an increase of 8.9 percent. Earnings per share were 74 cents, compared with 68 cents in 1976. Unit sales of 7UP Extract increased significantly in both the U.S. and Canadian markets over the second quarter of 1976. Extract sales in international markets were up sharply. Unit sales of Sugar Free 7UP Extract increased in U.S. markets during the second quarter but declined significantly in Canadian markets in anticipation of the announced saccharin ban. Unit and dollar sales of frozen concentrate for lemonade were up sharply for the period and made a record contribution to total corporate sales. Unit sales of flavored soft drink powdered mixes, introduced in the first quarter 1977, continued to gain consumer acceptance. Unit sales of food color and specialty products in the second quarter of 1977 were significantly higher than 1976. Average selling prices and sales margins were below year-ago levels as a result of competitive pricing. For the quarter, food flavor sales were below year-ago levels. Net other income for the quarter was below that reported in 1976, primarily as a result of lower interest and royalty payments. 18

Third Quarter (July-September) Dollar sales for the third quarter 1977 were $70,002,583, an increase of 8.7 percent over 1976 sales of $64,374,469. Third quarter 1977 sales were the largest ever reported for that three- month period and were favorably influenced by the warm weather in July and August. Net income of $7,378,468 was also a third quarter record, increasing 7.9 percent over the $6,840,745 earned in 1976. U.S. soft drink extract sales were up significantly. Canadian unit sales increased more modestly, with less favorable weather and the "phasing out" of saccharin-based Sugar Free 7UP. Diet 7UP, a new product with 50% fewer calories than 7UP, was introduced into the Canadian market in August. International extract sales continued to accelerate and reflected a sharp increase over 1976 sales, with improved trends in Mexican and Asian markets. Sales in Argentina continued to be below 1976 results. Case sales of finished soft drinks were at record levels. However, lower average selling prices produced more modest gains in dollar sales compared with 1976. Lemon product unit sales, primarily frozen concentrate for lemonade, made record sales and net income contribution to this quarter. Dollar sales of food flavor and color products were modestly above 1976 results, but lower selling prices in food colors reduced 1977 net income sharply from the comparable 1976 quarter. Lower food flavor and color unit sales for the 1977 quarter were offset by significantly higher specialty product unit sales. Net other income was $587,471, as compared with $903,845 in 1976. For 1977, third quarter earnings were 68 cents, with immaterial currency and translation adjustments. In 1976, earnings were 63 cents for the quarter, including a currency gain of 3 cents resulting from the Mexican peso adjustment. Fourth Quarter (October- December) For the three months ended December 31, 1977, consolidated sales were $55,779,683, increasing 7.1 percent over 1976 sales of $52,094,823. _ Net income for the quarter was $5,551,391, a decline of 2.1 percent from fourth quarter 1976 net income of $5,671,885. Quarterly earnings per share in 1977 were 51 cents versus 52 cents in the previous year. Consolidated soft drink extract unit sales fell modestly below the record 1976 fourth quarter, although unit sales of Sugar Free 7UP were up significantly over the previous year. Unit case and dollar sales of finished soft drink products were sharply higher than in 1976. The resulting change in sales mix reduced consolidated gross profit on sales below normal levels for this quarter. _ Operating expenses increased 6.8 percent to $18,950,391, compared with $17,745,090 in 1976. Marketing support expenditures for the important holiday selling season were increased during the quarter. Net other income for the quarter declined from $735,100 in 1976 to $504,671 in 1977. Net interest income and royalties were higher in 1977 than in the previous year. However, the 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, reduced other income below year- ago levels._ The net effect of adjustments for currency translation and foreign exchange transac- tions was not material in the last quarter of 1977. In 1976, currency losses decreased fourth quarter earnings by about 1 cent. Fourth quarter 1977 sales and net income results did not meet management's objectives for the quarter. COMPARISON OF HOW THE DOLLAR WAS SPENT 1976 1977 50.2 51.4 18.6 18.1 5.9 5.6 5.1 6.1 9.6 8.5 5.3 5.4 5.3 4.9 Cost of products sold I Marketing services Payroll All other expense, net Taxes Paid to shareholders Reinvested in the business $1.00 $1.00 19

L LIC .7CVC1i-U~J L.ViatPCU.y cuau vu-.uiu-.,...+ FINANCIAL REVIEW (continued) Operating Results Consolidated gross profit on sales was 48.6 percent, a decline from 49.8 percent in 1976. In 1977, average selling prices were below 1976 levels, although some higher prices were experienced in the latter months of the year. Competitive pricing pressures, reducing normal profit margins on food color unit sales, existed throughout the year. Consolidated gross profit was also affected by the relatively higher contribution to consolidated sales of beverage finished products, which have lower sales margins. Finished beverage sales were 52.7 percent of total sales in 1977 versus 52.1 percent in 1976. Gross profit on sales was $121,958,445 in 1977 and $116,116,432 in 1976, an increase of 5 percent. Selling, general and administrative costs were $76,814,537 in 1977 and $71,482,245 in 1976. Total operating expenses increased 7.5 percent over 1976, comparable with the increase in dollar sales, and were 30.6 percent of sales for both years. Expenditures for marketing services, which include advertising and promotional programs, increased 5 percent to a record level of $45,328,529 or 18.1 percent of sales. This compared with $43,306,814 or 18.6 percent in 1976. Actual expenditures for marketing support funds in 1977 were below management's original plan because of the proposed ban on saccharin in March 1977. Between March and June, advertising programs were curtailed due to the existing uncertainty about saccharin. However, in July 1977, full marketing support efforts were resumed in U.S. markets. In August, Diet 7UP, a Canadian replacement product for Sugar Free 7UP, was introduced with appropriate new marketing support. Consequently, for the last six months, marketing support expenditures were at higher levels than in the first six-month period. For the year, promotional programs accelerated at higher rates of increase than dollars allocated to media advertising. Total selling and administrative payroll, excluding fringe benefits, was equal to 5.6 cents of the sales dollar in 1977, compared with 5.9 cents in 1976. Total employment costs, including salaries, wages and fringe benefits, increased only $571,189 or 1.2 percent. This modest increase in employment costs reflected primarily the change in the distribution system in the Canadian subsidiary which reduced the number of employees in Canada by more than 70 people. Increases in research and development expenses were up sharply, exceeding 1976 expenses by $1,186,866. Also accelerating at abnormally high rates in 1977 were increased charges for outside warehousing, freight, travel and entertainment. These costs exceeded 1976 expenditures by $817,471. Estimated annual sales productivity of personnel employed at year-end was $154,800, compared with $143,800 in 1976. Individual sales productivity of personnel employed in each of the companies increased over year-ago levels. Consolidated operating profit was $45,143,908 or 18.0 percent of sales, compared with $44,634,187 or 19.1 percent of sales in 1976. While operating profit increased only modestly for the year, the 1977 ratio to sales has been exceeded in only two years since the Company became public in 1967. Interest income (net of interest expense) increased to $2,009,198 from the $1,907,738 earned in 1976. Foreign interest expense increased sharply as a result of higher levels of local borrowings for currency hedging purposes. Domestic net interest income increased sharply with a larger amount of funds available for investment. Yields on short-term U.S. investments were modestly below 1976 levels. Miscellaneous other income totaled $1,322,932, compared with $1,611,117 in 1976. These amounts are principally composed of revenues from royalties, rentals, sales of assets and currency gains. Offsetting other income are miscellaneous deductions totaling $1,266,754, compared with $1,008,037 in 1976. Such miscellaneous deductions include certain non- recurring expenses as well as currency losses. Higher miscellaneous charges reflected primarily non-recurring termination charges in Canada relating to changes in the distribution system as well as the write-off of Sugar Free 7UP containers made obsolete by the saccharin ban. In 1977, translation and currency losses, net of tax, decreased net income $224,189 or approximately 2.1 cents per share. This compared with a currency gain in 1976 or $297,607, approximately 2.8 cents per share. Income Taxes Income taxes for 1977 were $21,420,000 or 45.4 percent of pre-tax income, compared to $22,394,000 or 47.5 percent of pre-tax income in 1976. The lower effective income tax rate in 1977 is a result of income earned in foreign countries which have low income tax rates, investmeni tax credit on capital expenditures and tax-free interest on government investments. 20

Earnings After preferred dividends of $192,240, consolidated earnings per share were $2.38 compared with $2.28 in 1976, an increase of 4.4 percent. The 1977 increase in net income per share is explained as follows: Increased sales ............................... . .......... ................. .: $1.65 Adjusted by other factors Increased cost of sales ............ ......... ....:-:-....-........... r.........: -- 51.11 Increased marketing support ........................... .-:-. : _- . . . : : ._ _ _ . . : . : . . . .19 Increased research and development ............ 11 ......_.~.-.,_ ......... ....------- ._. . . . . .....:.......:..._., .... .05 Increased employment costs .......................... . Increased travel, telephone and entertainment ...... . ...... ........... - . .04 .-. . .~ . • ° Increased freight and warehousing . ..... . ............... ._,. . . : : ........... . . . . ~ 04 Increased other operating expenses....... .............~_,.. ....... .07 Increased net other income ............... ............ :.......... ...._:-. ( .02) Decreased taxes on income . . .... . . . . . . . ......... ....... ..... : ( .09) 1.50 Increase in net income per share before currency gains and losses . . . . . . .................. , . . .15 Difference in currency gains and losses 1977 2.1c loss, 1976 2.8c gain . . . . . . . . . . . . . ........... . ( .05) Increase in net income per share ............. _ . . ~t=.,....._ . . :z~: . . . . . . . .......... . : . .-. _.... $ .10 Net income per share by quarter for the current and previous two years were: 1977 1976 1975 First Quarter .......................... ....................... .--~ $ - .45 ~ .45 S .29 Second Quarter ................................. , .74 .68 .48 Third Quarter ............................. ._ . .-. .:. _-~. . . . ' --. : . . : .68 .63 .63 Fourth Quarter ................................. .......... ..... : . .51 .52 .48 $2.38 ~2.28 T1.88 After preferred dividends, net income per share by company unit was: Percent Change 1977/1976 + 8.8 + 7.9 - 1.9 + 4.4 1977 1976 1975 The Seven-Up Co. and Soft Drink Subsidiaries ... . ....... -- . .-- .. . . . . . . . .... . 52.19 ~2.02 51.70 Ventura Coastal and Subsidiary .................... --._. .-.: , : ._. . _..._ . . . : . . : _. _ . .09 .05 .09 Warner-Jenkinson and Subsidiaries ............. . . . . . .:. . . . . . . ... . . . . . : ..: . . . .10 .21 .09 s2.38 s2.28 $1.88 Dividends Dividends paid in 1977 to holders of both common and preferred shares amounted to $13,593,006, compared with $12,321,524 in 1976, an increase of 10.3 percent. In December 1977, the Dividend Policy Committee recommended, and the Board of Directors approved, increasing the quarterly dividend from 30 cents to 35 cents. The new quarterly rate is at an annual rate of $1.40 per share of common. Since 1967, when the Company became publicly owned and the annual dividend was 12 cents, shareholders have received an annual increase in dividends. The distribution of Common Stock dividends by quarter was: 1977 1976 1975 First Quarter .......... - - ........- :.................... -....__. ~............... $0.30 $0.21 $0.18 Second Quarter .................... .............. ........::..,....:...:...... 0.30 0.21 0.18 Third Quarter . ......... . .............. :_...... . r : . : . 0.30 0.21 0.18 Fourth Quarter ... . ................ =- . . ............. .t .-.-.-.-. . . . : ........... -- 0.35 0.30 0.21 December Extra Dividend ........................... -. . _ : . -: . . _ . . _ . . . . : . : . . - 0.20 - s1.25 s1.13 $0.75 NET INCOME (Millions of Dollars) 1973 14.1 1974 16.6 1975 20.3 1976 24.8 1977 25.8 21

FINANCIAL REVIEW (continued) The 1977 dividends paid on Common Stock represent 52.5 percent of net income per share, compared with 49.6 percent in 1976. Based upon the closing bid price December 31, 1977, and the current s1.40 rate, the dividend yield on Seven-Up Common Stock was 5.2 percent. Market Price Common Stock In 1977, the market price of Seven-Up Common Stock quoted by NASDAQ on the Over-the- Counter market declined more than the market value of other common stocks in the soft drink industry. A significant portion of the market value decline occurred in the first quarter of 1977 with the announcement by U.S. and Canadian authorities of the proposal to ban the use of saccharin in soft drinks. Products sold by the Company containing saccharin represented more than 15 percent of consolidated sales in each of the last two fiscal years. On March 31, 1977, the closing bid price was $28.00 with the closing bid price December 31, 1977, being $26.75. At December 31, 1976 and 1975 the closing bid price was $31.75 and $32.50. The high and low bid prices by quarters were: First Quarter .......... ........ ........ .....- ------ ..,, Second Quarter ........ ....... ._...................... ... Third Quarter . . . . . . . .. ... . .......................... .°°--.~ . . . . . . Fourth Quarter ............ 1977 1976 1975 $32i/z-s26 $41 -$32'/4 $31'/4-$ 143/4 281I4- 233'4 37'/4- 32'/4 36 - 291'z 29 - 243/4 383/4- 333/4 35'/4- 25~14 283/4- 25% 35 - 29Y4 35'/4- 28 Balance Sheets On December 31, 1977, total assets were $145,729,497, compared with $131,242,300 the previous year. Current assets as of the close of the 1977 fiscal year were $97,190,059, with current liabilities amounting to $29,628,132. On December 31, 1976, current assets were $86,845,565, with current liabilities of $26,243,965. Net working capital, the difference between current assets and current liabilities, at year-end was $67,561,927 in 1977 and $60,601,600 in 1976. The ratio of current assets to current liabilities was 3.3 on December 31 in both years. Trade accounts receivable expanded in line with increased dollar sales volume and at year- end represented less than 30 days sales. Inventories on December 31, 1977, were up modestly from year-earlier levels and are considered adequate to support current sales levels. Inventory turnover for the year increased to 4.9 in 1977, compared with 4.7 in 1976. Short-term investments earned $2,344,685 before taxes in 1977, compared with $2,196,870 in 1976. Of the total interest earned in 1977, $543,657 originated from countries outside of the U.S., decreasing from the $754,588 earned in 1976. In the U.S., short-term investments were made in commercial paper, certificates of deposit and tax-free municipal bonds. Capital Expenditures Capital expenditures for property, plant, equipment and orchard development totaled $9,864,627 in 1977, up from $8,449,923 in 1976. Major expenditures included in 1977 were: • The enlargement of frozen storage and fruit processing capacity at Ventura Coastal Corporation as well as the continuation of the development of Company-owned citrus orchards; • The acquisition of returnable soft drink containers to support increased volume and to replace packaging made obsolete by government regulations; • The completion of the 275-car parking garage at The Seven-Up Company World Headquarters in St. Louis; • The completion of the new bottling plant and canning line for the Company-owned Seven-Up Bottling of Phoenix, Inc.; • The continued expansion of food color manufacturing facilities at Warner-Jenkinson Co., St. Louis. The carry-over of projects started in 1977, plus 1978 capital projects to be submitted to the Board of Directors, would indicate a requirement of approximately $12,800,000 for 1978. In addition, the acquisition of Oregon Freeze Dry Foods, Inc. will require an expenditure of approximately $10,000,000. It is possible that the projected expenditures for capital and acquisi- tion projects will be increased by projects not currently included in 1978 plans. No external financing should be required during 1978. Employees On December 31, 1977, employees of The Seven-Up Company and its subsidiaries totaled 1,621, compared with 1,622 one year earlier. During the year, employment in the finished goods soft drink section was reduced by more than 70 people with the change in distribution in Canadian operations. Employment increased 22

in lemon products with the expansion of plant facilities. Also, personnel iilereaseti in both the U.S. and international soft drink marketing support functions. Total employment costs in 1977 for salaries, wages and benefit programs were in excess of $26,100,000. Employee benefits offered by the Company, which are largely Company-paid, include life insurance coverage, health and accident benefits, retirement benefits, profit-sharing and incentive awards, as well as educational tuition grants. In 1977, Company-sponsored fringe benefits were approximately 36 percent of payroll. International Investments The Company sells products in Canada and 85 nations overseas. In accordance with F.A.S.B. statement #14, the Company is presenting expanded data by geographic area, as required (See footnote C in the Notes to the Consolidated Financial Statements). Data appearing in previously published material is not comparable with this information. Consolidated Canadian dollar sales, 8.8 percent of total, and operating profit declined sharply for the year. This decline reflected the costs of the changes in distribution of finished soft drink products to outlying regions in the Toronto area, as well as non-recurring costs in the write-off of Sugar Free 7UP containers. Sugar Free 7UP in Canada was replaced with Diet 7UP on August 29, 1977, with appropriate new product marketing support expenditures. Company dollar sales of soft drink extract and food flavor and color products to other countries were up sharply and equalled 7.2 percent of consolidated sales. Operating profits increased to record levels with expansion into new markets. On December 31, 1977, approximately 20 percent of total corporate assets were invested in non-domestic companies, primarily Canada, Ireland and Mexico. Of the Company's total personnel employed on December 31, 1977, more than 27 percent were employed in serving markets outside of the United States. Losses from translation and foreign exchange, net of taxes, decreased 1977 net income $224,189 or 2.1 cents per share. These losses were primarily associated with the weakened Canadian dollar. Income in 1976 had been increased $297,607 or 2.8 cents per share primarily as a result of gains on the devaluation of the Mexican peso. The Company is not in a position to forecast the magnitude or potential exposure of international currency fluctuations. Every effort is made to minimize this business risk and cost in the expansion into international markets. Research and Development Expenditures Expenditures for research and development in 1977 were sharply increased from previously reported levels. This increase was of such magnitude as to reduce earnings per share approxi- mately 6 cents. The most significant portion of the increase represents Warner-Jenkinson's continuing participation in the development of non-absorbable food colors. These products are undergoing long-term safety tests necessary to obtain marketing approval from the Food and Drug Adminis- tration. Evaluation of these new food colors by major food companies continues to confirm their viability in food products. We remain optimistic that polymer food colors will be important future products to be marketed by Warner-Jenkinson. In addition to the development of polymer food colors, Warner-Jenkinson is engaged with other manufacturers in the retesting of all food, drug and cosmetic colors. A newly staffed Company research and development effort was initiated in 1977. A prime objective of this centralized activity is the improvement of existing product lines and the expansion into new product areas. It will also coordinate and support research and development efforts at the subsidiary company level. EARNINGS AND DIVIDENDS PER SHARE Based on weighted average shares outstanding during the year 1973 .4325 1.30 1974 --- ~- .61 1.54 -<`1975 :.75 1 88 _~-- _ --- . 1976 ~~ 1.13 2.28 1977 1.25 2.38 Dividends Per Share Earnings Per Share 23

CONSOLIDATED BALANCE SHEETS December 31 ASSETS Current Assets 1977 1976 Cash ................................................. $ 4,517,193 $ 5,461,895 Short-term investments -at cost and accrued interest (approximates market) ............................... 42,616,063 34,588,971 Receivables Trade and other accounts ............................ 18,854,551 16,840,070 Installment contracts (equipment pledged as collateral) including estimated installments due after one year- 1977, $1,025,000; 1976, $967,000 ................... 1,612,876 1,628,553 Allowances for doubtful accounts ..................... (200,000) (275,000) 20,267,427 18,193,623 Inventories - Note A Finished products ................................... 13,066,718 12,029,210 Extract and raw materials ............................ 14,087,680 14,024,769 27,154,398 26,053,979 Prepaid expenses and other current assets ................ 2,634,978 2,547,097 Total Current Assets 97,190,059 86,845,565 Other Assets .............................................. 2,330,482 2,670,932 Property, Plant and Equipment - on the basis of cost - Note A Land .................................................. 6,407,295 6,526,401 Orchards .............................................. 2,112,703 1,989,048 Buildings and improvements ............................ 18,866,331 15,739,082 Machinery and equipment ............................... 29,289,476 23,942,119 Orchards under development .... . ....................... 1,705,912 1,534,665 Construction in progress (estimated cost to complete $1,940,000) ................................ 2,449,849 3,782,285 Allowances for depreciation ............................. (18,631,531) (15,932,071) 42,200,035 37,581,529 Intangibles - Note A Trademarks-at cost .................................... 916,534 917,434 Formulas and cost in excess of net assets of subsidiaries acquired-at cost, less accumulated amortization ($357,554) .............. 3,092,387 3,226,840 4,008,921 4,144,274 $145,729,497 $131,242,300 See notes to consolidated financial statements 24

LIABILITIES AND SHAREHOLDERS' EgUITY 1977 1976 Current Liabilities Notes payable to foreign banks . . ........................ $ 2,188,738 S 488,506 Accounts payable ............................ . . . ....... 8,653,138 7,932,519 Employee compensation ................................ 2,260,881 1,980,952 Accrued advertising .................................... 9,949,134 8,774,180 Other accrued liabilities .............. . ................. . 2,932,459 2,316,902 Income taxes ................. . . ....................... 3,384,860 4,396,451 Current portion of long-term debt ........................ 258,922 354,455 Zlotal Current Liabilities 29,628,132 26,243,965 Other Liabilities Long-term debt, less portion classified as current Iiability-Note D ...................................... 688,481 942,603 Deferred income taxes-Note A .......................... . . 1,979,465 2,504,296 2,667,946 3,446,899 Commitments and Contingencies-Notes H and I Shareholders' Equity-Note B 6% Cumulative Preferred Stock ........... . ............... _.3,076,000 3,588,000 Common Stock ......................................... .10,722,501 10,719,501 Additional capital . . . . . . . . . ........ . ............. . ...... ._11,344,980 11,150,275 Retained earnings ........ . .................. , . . . . ... , , . 88,289,938 76,093,660 113,433,419 101,551,436 $145,729,497 $131,242,300 25

CONSOLIDATED STATEMENTS OF INCOME Year Ended December 31 1977 1976 Net sales ................................................. $250,998,056 $233,282,664 Cost of products sold . . . . . . . . _ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129,039,611 117,166,232 121,958,445 116,116,432 Selling, administrative and general expenses . . . . . . . . . . . . . . . . . 76,814,537 71,482,245 45,143,908 44,634,187 Other income Interest earned ........................................ 2,344,685 2,196,870 Miscellaneous ......................................... 1,322,932 1,611,117 3,667,617 3,807,987 48,811,525 48,442,174 Other deductions Interest expense ....................................... 335,487 289,132 Miscellaneous . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,266,754 1,008,037 1,602,241 1,297,169 Income Before Income Taxes 47,209,284 47,145,005 Income taxes-Note G . . . . . . . . . . . . . . . . .. . . . . . . . . . . . . . . . . . . . . 21,420,000 22,394,000 Net Income $ 25,789,284 $ 24,751,005 Net income per share of Common Stock- Note A . . . . . . . . . . . . . . $2.38 $2.28 See notes to consolidated financial statements 26

The Seven-Up Company ana ~uosicuanes CONSOLlDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Year Ended December 31 19:; 1976 Funds Provided .. Net income for the year .... . ............................ $25,7`~ 284 $24 751 005 Provision for depreciation and amortization ............... . 3,6.~3.304 , , 3,263,252 Provision for deferred income taxes ...................... (524.831) 1,908,165 Funds Provided From Operations 28,9•.I -,757 29,922,422 Proceeds from foreign long-term borrowings . . . . . . . . . : . • . . 295,085 Proceeds from exercise of Common Stock options ......... 63.600 627,325 Disposals of property, plant and equipment ............... 1,671.280 414,921 Total Funds Provided 30,6L•22,637 31,259,753 Funds Used Additions to property, plant and equipment ............... 9,861.627 8,449,923 Reduction of long-term debt .... . ........................ 254.122 1,481,834 Retirement of 6% Cumulative Preferred Stock .............. 3:) 1,339 ..... Cash dividends ............................. ....... 13,3'03,006 12,321,524 Other-net ............................................ (3t411,784) 183,973 Total Funds Used 23,73<,310 22,437,254 Increase in Working Capital $ 6,fltil),327 $ 8,822,499 Changes in Components of Working Capital- Increase(Decrease) Cash and short-term investments ........................ $ 7,0NZ,390 $ (3,539,033) Receivables .............................................. 2,07;1,804 1,006,408 Inventories ............................................. 1,100.419 2,053,869 Prepaid expenses and other current assets ................ 87,881 729,492 Notes payable .......................................... (1,70O,232) 7,152,927 Accounts payable and current liabilities .................. (2,74)1,059) 183,830 Income taxes .......................................... 1,011.591 1,066,739 Current portion of long-term debt ........................ _ 95,533 168,267 Increase in Working Capital $ 6,4)t;0,327 $ 8,822,499 See notes to consolidated financial statements 27

1 tl.; -..v -1t-up wuLPa.uy tulu ouu5iuialic~ CONSOLIDATED STATEMENTS OF SHAREHOLDERS' E6ZUITY Year Ended December 31 1977 1976 6% Cnmulative Preferred Stock-Note B Balance at beginning of year ............................. ~ 3,588,000 $ 3,588,000 Retirement of 5,120 shares .............................. (512,000) Balance at End of Year $ 3,076,000 $ 3,588,000 Common Stock-Note B Balance at beginning of year ............................. $10,719,501 $10,695,451 Shares sold under stock option plan ...................... 3,000 24,050 Balance at End of Year $10,722,501 $10,719,501 Additional Capital Balance at beginning of year ............................. $11,150,275 $10,505,793 Excess of proceeds over par value of Common Stock sold under stock option plan ......................... 60,600 603,275 Tax benefits arising from Common Stock options .......... 13,444 41,207 Excess of par value over cost of 6% Cumulative Preferred Stock retired ............................... 120,661 Balance at End of Year $11,344,980 $11,150,275 Retained Earnings Balance at beginning of year ............................. $76,093,660 $63,664,179 Net income for the year ................................. 25,789,284 24,751,005 Dividends paid 6% Cumulative Preferred Stock- $6.00 a share .......... (192,240) (215,280) Common Stock- $1.25 a share in 1977 and $1.13 a share in 1976 ............................. (13,400,766) (12,106,244) Balance at End of Year $88,289,938 $76,093,660 rs ~ 4z- ~ ~ See notes to consolidated financial statements [o ~ ~ -4 28

I The Seven-Up Company and Subsidianes NOTES TO CONSOLIDATED FINANCIAL STATEMENTS Note A-Pri.nciples of Reporting and Accounting Consolidation: The consolidated financial statements include the accounts of The Seven-Up Company and all subsidiaries. All significant intercompany accounts and transactions are eliminated. Iiiventories: Inventories are valued at the lower of cost or market. Cost is determined principally under the first-in, first-out (FIFO) and average cost methods except for sugar inventories for which cost is determined on the last-in, first-out (LIFO) method. Property, Plant and Equipment: Depreciation of property, plant and equipment is provided on the basis of their estimated useful lives, generally at annual rates as follows: building and improvements 2-10%, machinery and equipment 5-33%. Depreciation rates are principally applied on the straight-line method. Costs associated with orchard development are deferred until economic production has commenced (normally after four to five years) at which time they are amortized over the produc- tive life of the orchard or the remaining term of leased premises. These costs include rentals, real estate taxes, interest, depreciation and other costs applicable to orchard development. Expenditures for maintenance and repairs are charged to costs or expenses; renewals and improvements are capitalized. At the time of retirement or other disposition of properties, the asset and related allowance accounts are relieved of the amounts included therein and the resulting profit or loss is included in income. Intangible Assets: Cost in excess of net assets acquired arising from acquisition of companies before December 31, 1970, is not being amortized because, in the opinion of management, there has been no diminution in value. Intangible assets arising from subsequent acquisitions are being amortized on the straight-line method, generally over a period of forty years (unamortized amount at December 31, 1977- $1,404,168). Trademarks are not being amortized because, in the opinion of management, there has been no decrease in value. Pension Plans: Prior service costs of the Company's pension plans are being amortized over approximately 10-25 years. Income Taxes: Investment tax credits, approximately $413,000 in 1977 and $365,000 in 1976, are recorded as a reduction of the current provision for federal income taxes. Deferred income taxes are provided for certain items, principally depreciation, which are recognized for financial statement purposes in years different from the year in which such items are recognized for income tax purposes. 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 and dividends on preferred stock. Note B - Capital Stock Information relating to the Company's capital stock at December 31, 1977 and 1976 is presented below: Shares Outstanding 6% Cumulative Preferred Stock, $100 par value Authorized 1977 1976 (callable at par) ... . .................................. ._--, .... >- 35,888 30,760 35,880 Class A Preferred Stock, without par value .... . . . . .:,. _. .._. - .-.. . . , ; _ 325,000 -0- -0- Common Stock, $1 par value ...... . . ............. ............ . ._.24,000,000 10,722,501 10,719,501 Under a stock option plan, certain employees, including directors and officers, hold five-year options to purchase shares of Common Stock of the Company. Options become exercisable one year after the date granted. Following is a summary of transactions under the plan for the two years ended December 31, 1977: Number of Shares Option Price Options outstanding at January 1, 1976 ..................... ._......... - 116,850 $19.88- $35.44 Exercised .......... ......... : . ......... : ....... (24,050) 19.88- 35.44 Terminated ........ -. . ............. .. ............ -. . . . , , . .-. . =_. (250) 19.88- 35.44 Options outstanding at December 31, 1976 ..................... ....... ...~_ 92,550 19.88- 35.44 Granted ........ . ... .......... ,~.......... ~. _..._..:::... 148,700 24.88 Exercised ... . .. . . ......... ............ :._-_ - _- - - : ...:....,_. . (3,000) 19.88- 33.12 Terminated ........ ................. .......... .,_.__.....::....__....._. (17.100) 35.44 Options outstanding at December 31, 1977 ........... .. : . . . . . . , _ . ...... , - 221,150 $19.88- $33.12 29

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) At December 31, 1977, options for 72,450 shares are exercisable at $19.88 to $33.12 per share and 6,000 shares of Common Stock are reserved for future options. No charges or credits are made to income with respect to stock options. Note C -Foreign Operations Sales, operating profit and identifiable assets by geographic area (expressed in thousands of dollars) are as follows: United Other 1977 States Canada Countries Eliminations Consolidated Sales to unaffiliated customers . . ........ . $210,789 $22,106 $18,103 $ $250,998 Transfers between geographic areas ............. ......... _....._..... 1,984 16 (2,000) Total Sales ................,-........ s212,773 $22,106 $18,119 $(2,000) $250,998 Operating profit, including allocation of foreign currency gains and losses ....................... $ 44,923 $ 1,569 $ 2,068 $ 48,560 Identifiable assets ......... . ....... .. . . . . . . 116,452 17,932 11,345 145,729 1976 Sales to unaffiliated customers ............ . $193,613 $25,616 $14,054 $ $233,283 Transfers between geographic areas ................................ 724 16 (740) Total Sales ............................ $194,337 $25,616 $14,070 $ (740) $233,283 Operating profit, including allocation of foreign currency gains and losses .................,.... 5 43,850 $ 3,308 s 1,188 $ 48,346 Identifiable assets ....................... 104,641 15,933 10,668 131,242 Total sales by geographic area include both sales to unaffiliated customers and transfers between geographic areas. Such transfers are accounted for principally at a price comparable to normal, unaffiliated customer sales. United States operations sales include $8,281,000 and $7,928,000 for export in 1977 and 1976, respectively. Net current assets, total assets and total liabilities, applicable to foreign business, are approximately $12,200,000, $31,000,000 and $8,400,000, respectively at December 31, 1977. The amount of undistributed earnings considered to be indefinitely reinvested in foreign operations (principally in Canada and Ireland) is approximately $15,600,000. Provision for income taxes on earnings to be distributed in the future has been made in the financial statements. Note D - LongTerm Debt Long-term debt, after reduction for current maturities, is comprised of various notes and contracts payable bearing interest ranging principally from 5% to 7%. Maturities during the next five years are as follows: 1978-$258,922; 1979-$153,833; 1980-s153,833; 1981-5153,835; 1982-$92,300. Note E-Pension and Profit Sharing Plans The Company has pension plans covering substantially all employees, including certain employees in foreign countries. The total pension expense was $1,059,000 in 1977 and $1,050,000 in 1976. The Company's policy is to fund pension costs accrued. At the dates of the 1977 actuarial valuations,vested benefits in one of the plans exceeded fund assets by $240,000; in all other plans assets exceeded vested benefits. The unfunded past service liability was approximately $1,250,000. In addition, employees of certain domestic companies participate in the Company's profit- sharing trust fund. The companies provided $700,000 in 1977 and $692,000 in 1976 in contributions to the fund. 0 Note F-Business Segments 4~k ~ ... The Company operates in two principal businesses: beverages and food flavors and colors. ~ The Company's beverage segment includes the manufacture and sale of soft drink extracts, ~ canned and bottled soft drinks, fountain syrups, processing, packaging and sale of frozen t•1 a- -0 30

lemonade concentrate and other products associated with the processing of lemons. The Company s food flavors and colors segment includes the manufacture and sale of food flavors, food colors, and specialty food products related to these food flavors and colors. Segment operating profit is total operating revenues less operating expenses, excluding general corporate expenses, gains and losses on foreign currency exchange and translations (principally associated with the beverage segment) and interest. Identifiable assets by segment include assets directly identified with those segments and an allocable share of jointly used assets. Corporate assets consist primarily of short-term investments and corporate properties. Year Ended December 31 1977 1976 Net Sales (expressed in thousands) Beverages .............................................................. $228,840 $212,528 Food flavors and colors ........ . ....... . ................ . .......... , ... 22,158 20,755 3250,998 $233,283 Operating Profit - ° - Beverages ................. .................. :.....::......... ....:... Food flavors and colors $ 48,464 $ 46,152 From operations ................ . .......... ... . . _-:_. ............. 1,327 1,717 Long-term research project ................ ...._ ............. -.,-........... (1,000) 327 1,717 Total operating profit .... ................................. ..:..... .- 48,791 47,869 Corporate expenses ................ .......-...:._...._.......:.-:.. (3,360) (3,109) Interest income-net ... . ................. . . . . . ._.__ . . . . _ ; , , _ __ , ......... , , 2,009 1,908 Foreign currencies gains (losses) ........ . . . . . ... . ....... ........... . . (231) 477 Income before income taxes. . . ......... . . . . . ....... .......... $ 47,209 $ 47,145 Identifiable Assets Beverages ........ ........................................ ......__..........,. $ 88,470 $ 83,898 Food flavors and colors ................ .................... ,;......... ..... 19,327 17,216 107,797 101,114 General corporate assets ...... . . . ........... . ............ ........ 37,932 30,128 5145,729 $131,242 Depreciation and Amortization Beverages .......... . ... . . . .............. . ...... .~_. . . . : . .-._._. :-: , . : . . . .- $ 2,824 $ 2,544 Food flavors and colors ...... .. ...... . .............. . ... ... . . ........ . ..... Capital Expenditures 646 516 Beverages ........... .......................................... ::.. $ 8,402 s 6 787 Food flavors and colors ........ .............. .......... ,............... 847 , 1,205 The reported segment information necessarily includes allocations of the cost of assets and expenditures shared by the Company's segments. Although management believes such allocations are reasonable, the assets and operating profit do not necessarily reflect how such data might appear if the segments were operated as separate businesses. Note G -Income Taxes The composition of the income tax provision is presented below: Year Ended December 31 Current 1977 1976 Federal and state ...................... . ....... ,$20,197,427 $18,355,237 Foreign ........ ....................... ......... .......... .:_....._ - 1,747,404 2,130,598 Deferred ........ . . . . . ........................ .--_..__. . , ..__:-._. .. . . , . ._, . . (524,831) 1,908,165 $21,420,000 $22,394,000 The Company's 1977 effective income tax rate (45.4%) varies from the statutory federal income tax rate (48%) primarily as a result of income earned in foreign countries which have different statutory income tax rates, investment tax credits on capital expenditures and tax- free interest on government investments. Note H -Commitments and Contingencies Commitments: The Company is participating in a long-term research project in the development of polymer food colors. The Company has agreed, subject to certain conditions, to provide $3,000,000 over a period of three years, of which $1,000,000 was charged to operations in 1977. The Company's other research and development activities totalled about $650,000 in 1977 and $450,000 in 1976. The Company has guaranteed borrowings of a foreign bottler in the amount of $828,000 at December 31, 1977. The Company has obtained a security interest in land, buildings, equipment and other assets with an appraised value in excess of the related guarantees. 31

iuc ~cvcia v~. ~..Vn,.y ,..,.. . .. ,. ,.. . ~ NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued) In connection with the acquisition of a business in 1974, the Company agreed to pay, as additional consideration, an amount not to exceed $1,750,000 based upon net income of the business through December 31, 1979. Any intangible asset which may result from such contingent payments will be amortized over periods then estimated to be benefited. Rental expense, principally for office space, orchards and equipment are less than 1% of consolidated net sales. Future lease commitments are not material. Contingencies: At December 31, 1977, 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. Note I-Acquisition of Oregon Freeze Dry Foods, Inc. On February 16, 1978, the Company entered into an agreement to purchase all of the outstanding common stock of Oregon Freeze Dry Foods, Inc. for cash of approximately $ 10,000,000. Oregon Freeze Dry Foods is engaged in producing a broad line of freeze dried and convenience foods. The acquisition will be accounted for on the purchase method. For the year ended December 31, 1977, unaudited sales and net income of Oregon Freeze Dry Foods, Inc. were $11,631,673 and $692,629, respectively. Note J-Summary of Quarterly Results of Operations (Unaudited) The following is a summary of unaudited quarterly results of operations for the years ended December 31, 1977 and 1976 (in thousands of dollars, except per share data): Quarter Ended 1977 Mar-31 Jun-30 Sep-30 Dec-31 Net sales .................. .......... -........ ,.,..,,,,,,,,,. $50,416 $74,800 $70,002 $55,780 Gross profit ..................... ............... ............. 25,553 34,794 33,187 28,423 Net income .................................................. 4,864 7,995 7,378 5,551 Net income per common share ..................... .. ......... .45 .74 .68 .51 1976 Net sales .......................... ........ _ ..,.,.......... $49,030 $67,783 $64,374 $52,096 Gross profit ................................................. 26,095 31,005 30,841 28,175 Net income ................. ................................ 4,898 7,340 6,841 5,672 Net income per common share ............. ._ _,. . . . . ........... .45 .68 .63 .52 Report of Ernst & Ernst, Independent Auditors Shareholders and Board of Directors The Seven-Up Company St. Louis, Missouri We have examined the consolidated balance sheets of The Seven-Up Company and subsidiaries as of December 31, 1977 and 1976, and the related consolidated statements of income, changes in financial position and shareholders' equity for the years then ended. Our examinations were made in accordance with generally accepted auditing standards and, accordingly, included such tests of the accounting records and such other auditing procedures as we considered necessary in the circumstances. In our opinion, the financial statements referred to above present fairly the consolidated financial position of The Seven-Up Company and subsidiaries at December 31, 1977 and 1976, and the consolidated results of their operations and changes in their financial position for the years then ended, in conformity with generally accepted accounting principles applied on a consistent basis. St. Louis Missouri ~ , ~ February 10 1978 except for ~ , , «.. Note I-Acquisition of Oregon Freeze Dry Foods, Inc., as to which the date is ~ ~ ~ f3 February 16, 1978. ~ ~ 32

THE SEVEN-UP COMPANY DIRECTORS AND OFFICERS Board of Directors Ben H. Wells Chairman of the board, The Seven-Up Company William E. Winter President and chief executive officer, The Seven-Up Company Paul H. Young, Jr. Executive vice president and treasurer, The Seven-Up Company Dr. B. C. Cole Senior vice president, corporate technical director, The Seven-Up Company Maurice R. Chambers Chairman of the executive committee and member of the board, Interco, Inc., a manufacturer and retailer of consumer products Fred L. Kuhlmann Executive vice president and member of the board, Anheuser-Busch, Inc., a manufacturer of beer, baker's yeast and corn products Garret F. Meyer, Sr. Chairman of the board, Warner-Jenkinson Company, a manufacturer of food flavors and colors David H. Morey Retired chairman of the board and chief executive officer, The Boatmen's National Bank of St. Louis, a national bank and trust company Harold E. Thayer Chairman of the board and chief executive officer, Mallinckrodt, Inc., a manufacturer of chemicals and pharmaceuticals Fred W. Wenzel Chairman of the board and chief executive officer, Kellwood Company, a manufacturer of wearing apparel and recreational equipment Corporate Officers B en H. Wells Chairman of the board William E. Winter President and chief executive officer Paul H. Young, Jr. Executive vice president and treasurer Michael Baker Vice president, director of market development J. Stewart Bakula Vice president and general counsel Dr. B. C. Cole Senior vice president, corporate technical director David M. Haffner Vice president, director of market development, packaged goods John R. Kidwell Senior vice president, director of marketing Robert W. Simpson Vice president and secretary William A. Fagot Assistant treasurer Committees Executive Committee: Messrs. Wells (Chairman), Winter, Young Dividend Policy Committee: Messrs. Thayer (Chairman), Morey, Wenzel, Kuhlmann Executive Compensation Committee: Messrs. Wenzel (Chairman), Chambers, Thayer Audit Committee: Messrs. Morey (Chairman), Wenzel, Winter Stock Option Committee: Messrs. Wenzel (Chairman), Chambers, Thayer 33

Lai~, va..r..a. vt. vv...t.......) ........ ...~.....,............, SEVEN-YEAR STATISTICAL SUMMARY 1971-1977 Year Ended December 31 1977 1976 Net Sales ......................................... Cost of Products Sold ............................. $250,998,056 129,039,611 $233,282,664 117,166,232 Gross Profit ..................................... Selling, Administrative and General Expenses ....... 121,958,445 76,814,537 116,116,432 71,482,245 Operating Profit ............... . ......... -. ........ 45,143,908 44,634,187 Net Miscellaneous Income (deductions) ............. 2,065,376 2,510,818 Income Before Income Taxes ....................... Federal, State and Foreign Income Taxes ............ 47,209,284 21,420,000 - 47,145,005 22,394,000 Net Income ...................................... $ 25,789,284 S 24,751,005 Net Income as a Percent of Sales ................... 10.3% 10.6% Per Share of Common Stock NetIncomeT .................................. $ 2.38 $ 2.28 Dividends* .................................... 1.25 1.13 Book Value* ................................... 10.29 9.14 Market Price Range (OTC) Common (high-low bid price)* ......................... 321Jz -23314 41-293%a Depreciation and Amortization ..................... 3,683,304 3,263,252 Capital Expenditures ............................. 9,864,627 8,449,923 Working Capital-Current assets ................... $ 97,190,059 $ 86,845,565 Current liabilities ................ 29,628,132 26,243,965 Total Working Capital ............. 67,561,927 60,601,600 Current ratio .................... 3.3 to 1 3.3 to 1 Other Assets -Land, building and equipment ..... 42,200,035 37,581,529 Miscellaneous investments ....... 2,330,482 2,670,932 Intangibles ...................... 4,008,921 4,144,274 Total Other Assets ............... 48,539,438 44,396,735 Total ............................ $116,101,365 $104,998,335 Capitalization and Reserves - Long-term debt .................. $ 688,481 _ $ 942,603 Other liabilities ................. 1,979,465 2,504,296 6% Cumulative Preferred Stock .... 3,076,000 3,588,000 $5.71 Convertible Class A Preferred Stock ........................ Common shareholders' equity ..... 110,357,419 97,963,436 Total ........................... $116,101,365 $104,998,335 Return on common equity- at end of year ....................... 23.2% 25.0% Average shares of Common Stock outstandingt ................. 10,745,100 10,741,116 t Based on weighted average number of shares outstanding during each year, adjusted to reflect shares issuable upon exercise of stock options and for stock split in 1972 * Adjusted for two-for-one stock split in 1972 34

1975 1974 1973 1972 1971 $213,622,918 112,421,231 $190,879,628 110,046,723 $146,748,362 75,783,214 $132,519,867 69,722,488 $124,379,262 66,247,562 101,201,687 80,832,905 70,965,148 62,797,379 58,131,700 61,263,716 51,212,637 45,164,104 40,153,791 36,550,453 39,937,971 29,620,268 25,801,044 22,643,588 21,581,247 (93,508) 2,456,835 1,304,302 606,197 661,145 39,844,463 32,077,103 27,105,346 23,249,785 22,242,392 19,504,000 15,489,000 13,023,000 11,205, 265 10,914, 386 s 20,340,463 $ 16,588,103 $ 14,082,346 $ 12,044,520 $ 11,328,006 9.5% $1.88 .75 7.93 8.7% $1.54 .61 6.45 9.6% $1.30 .4325 5.50 9.1% $1.10 .416 4.62 9.1% $1.03 .40 3.72 36-143/4 303/4 -101/2 373/4 -213/4 50?/s -333/s 361/8 -263/4 2,899,639 2,347,569 1,750,273 1,339,384 1,129,534 6,839,430 6,819,836 7,506,958 3,086,443 2,565,297 $ 86,594,829 $ 67,331,096 $ 58,761,951 $ 52,329,788 ~ 45,845,959 34,815,728 24,933,460 20,054,165 17,711,046 15,944,106 51,779,101 42,397,636 38,707,786 34,618,742 29,901,853 2.5 to 1 2.7 to 1 2.9 to 1 3.0 to 1 2.9 to 1 32,739,830 29,101,568 24,626,482 19,310,765 17,155,484 2,454,842 2,953,990 1,800,626 2,298,733 1,930,319 4,205,133 4,295,836 4,388,420 3,539,410 2,499,686 39,399,805 36,351,394 30,815,528 25,148,908 21,585,489 $ 91,178,906 $ 78,749,030 $ 69,523,314 $ 59,767,650 $ 51,487,342 $ 2,129,352 $ 2,652,860 $ 3,140,984 $ 2,447,818 $ 1,735,063 596,131 389,399 442,043 379,122 364,788 3,588,000 3,588,000 3,588,000 3,588,000 3,588,000 4,615,100 4,860,600 5,079,900 7,307,900 84,865,423 67,503,671 57,491,687 48,272,810 38,491,591 $ 91,178,906 $ 78,749,030 $ 69,523,314 $59,767,650 $ 51,487,342 23.6% 23.9% 23.6% 23.7% 27.8% 10,636,841 10,467,739 10,457,812 10,378,538 10,345,034 All data have been restated on a pooling of interests basis to include the acquisition of Ventura Coastal Corporation in 1973. - 35

PRINCIPAL SUBSIDIARIES OF THE SEVEN-UP COMPANY I Seven-Up Enterprises, Division of Seven-Up U.S.A., Inc. (canning, services and equipment sales division) 121 South Meramec Avenue St. Louis, Missouri Arnold F. Larson, Vice president and general manager Seven-Up Canada Limited 12 Cranfield Road Toronto, Ontario, Canada Colin B. Scarfe, President Bottling Division 6525 Viscount Road Malton, Ontario, Canada David M. Jackson, General manager Seven-Up International, Inc. 121 South Meramec Avenue St. Louis, Missouri Charles B. Thies, President Seven-Up Andino S.A. Seven-Up Argentina, S.A.I.C. Seven-Up Asia, Inc. Seven-Up Do Brasil S.A. Extractos de Bebidas e Conexos Seven-Up Great Britain, Inc. Seven-Up Ireland Limited Seven-Up Mexicana S.A. Seven-Up Nederland B.V. Seven-Up Southern Hemisphere, Inc. Seven-Up Taiwan Ltd. SPI Extract Corporation Warner-Jenkinson Company 2526 Baldwin Street St. Louis, Missouri O.W. Hickel, Jr., President Warner,Jenkinson Company of California 17500 Gillette Avenue Santa Ana, California D.K. Wright, President Warner,Jenkinson, S.A. de C.V. Hacienda de la Gavia, 35 Echegaray Naucalpan Estado de Mexico Mexico B.R. Erdmann, President Warner,lenkinson East, Inc. 40 Broad Street Carlstadt, New Jersey John O. Everson, General manager Seven-Up Bottling of Phoenix, Inc. 3830 East Wier Avenue Phoenix, Arizona John C. Furnas, President and general manager Ventura Coastal Corporation 2325 Vista Del Mar Drive Ventura, California Frank J. Leforgeais, President Golden Crown Citrus Corporation 2113 Greenleaf Street Evanston, Illinois Paul Hansfield, President 36

Transfer Agents The Boatmen's National Bank of St. Louis 300 North Broadway St. Louis, Missouri 63102 The Chase Manhattan Bank 1 Chase Manhattan P1aza. New York, New York 10015 Registrars Bankers Trust Company 280 Park Avenue New York, New York 10017 St. Louis Union Trust Company 510 Locust Street St. Louis, Missouri 63101 37

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