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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Commission File Numbers 0-676 and 0-16626
THE SOUTHLAND CORPORATION
(Exact name of registrant as specified in its charter)
Texas 75-1085131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 North Haskell Ave., Dallas, Texas 75204-2906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code, 214/828-7011
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days. Yes X No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No
APPLICABLE ONLY TO CORPORATE ISSUERS:
409,922,935 shares of common stock, $.0001 par value (the issuer's only
class of common stock), were outstanding as of March 31, 1994.
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THE SOUTHLAND CORPORATION
INDEX
Page
No.
Part I. FINANCIAL INFORMATION
Item 1. Financial Statements:
Condensed Consolidated Balance Sheets -
March 31, 1994 and December 31, 1993 ............ 1
Condensed Consolidated Statements of Operations -
Three Months Ended March 31, 1994 and 1993 ...... 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1994 and 1993 ...... 3
Note to Condensed Consolidated Financial Statements 4
Report of Independent Accountants ................. 5
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations ............................... 6
Part II. OTHER INFORMATION
Item 1. Legal Proceedings ................................ 10
Item 6. Exhibits and Reports on Form 8-K ................. 11
SIGNATURES ....................................................... 12
Exhibit (11) - Statement re Computation of Per-Share Earnings
........................................................... Tab 1
Exhibit (15) - Letter re Unaudited Interim Financial Information
........................................................... Tab 2
(i)
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THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<TABLE>
<CAPTION>
ASSETS
MARCH 31, DECEMBER 31,
1994 1993
------------- -------------
<S> <C> <C>
(Unaudited)
CURRENT ASSETS:
Cash and cash equivalents........................................... $ 11,429 $ 13,486
Accounts and notes receivable....................................... 90,561 90,934
Inventories......................................................... 105,297 109,363
Other current assets................................................ 37,225 31,954
------------- -------------
TOTAL CURRENT ASSETS............................................ 244,512 245,737
PROPERTY, PLANT AND EQUIPMENT.......................................... 1,321,225 1,337,586
OTHER ASSETS........................................................... 405,723 415,422
------------- -------------
$ 1,971,460 $ 1,998,745
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable.............................................. $ 183,599 $ 196,026
Accrued expenses and other liabilities.............................. 327,297 347,563
Commercial paper.................................................... 48,132 41,220
Long-term debt due within one year.................................. 214,779 149,503
------------- -------------
TOTAL CURRENT LIABILITIES....................................... 773,807 734,312
DEFERRED CREDITS AND OTHER LIABILITIES................................. 240,023 242,426
LONG-TERM DEBT......................................................... 2,214,944 2,270,357
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value...................................... 41 41
Additional capital.................................................. 625,574 625,574
Accumulated deficit................................................. (1,882,929) (1,873,965)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT)............................ (1,257,314) (1,248,350)
------------- -------------
$ 1,971,460 $ 1,998,745
============= =============
</TABLE>
See note to condensed consolidated financial statements.
1
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THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
--------------------------
1994 1993
----------- -----------
<S> <C> <C>
REVENUES:
Net sales (including $235,083 and $228,018 in excise taxes)........ $1,511,977 $1,582,324
Other income....................................................... 16,909 15,837
----------- -----------
1,528,886 1,598,161
COST OF GOODS SOLD AND EXPENSES:
Cost of goods sold................................................. 1,184,294 1,232,245
Selling, general and administrative expenses....................... 322,172 353,637
Interest expense................................................... 25,852 23,130
Contributions to Employees' Savings and Profit Sharing Plan........ 3,249 3,331
----------- -----------
1,535,567 1,612,343
----------- -----------
LOSS BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE..... (6,681) (14,182)
INCOME TAXES............................................................ 1,450 1,700
----------- -----------
LOSS BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE...................... (8,131) (15,882)
CUMULATIVE EFFECT OF ACCOUNTING CHANGE FOR POSTEMPLOYMENT BENEFITS...... - (16,537)
----------- -----------
NET LOSS................................................................ $ (8,131) $ (32,419)
=========== ===========
LOSS PER COMMON SHARE (Primary and Fully Diluted):
Before cumulative effect of accounting change..................... $(.02) $(.04)
Cumulative effect of accounting change............................ - (.04)
------ ------
Net loss.......................................................... $(.02) $(.08)
====== ======
</TABLE>
See note to condensed consolidated financial statements.
2
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THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED MARCH 31,
---------------------------
1994 1993
------------ ------------
<C> <C>
<S>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss....................................................................... $ (8,131) $ (32,419)
Adjustments to reconcile net loss to net cash provided by operating
activities:
Cumulative effect of accounting change for postemployment benefits......... - 16,537
Depreciation and amortization of property, plant and equipment............. 35,535 33,192
Other amortization......................................................... 4,757 4,890
Noncash interest expense................................................... 2,295 2,075
Other noncash expense...................................................... 440 458
Net (gain) loss on property, plant and equipment........................... (3,881) 1,121
Decrease in accounts and notes receivable.................................. 6,028 27,614
Decrease in inventories.................................................... 4,066 7,073
(Increase) decrease in other assets........................................ (4,065) 705
Decrease in trade accounts payable and other liabilities................... (27,686) (11,252)
------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 9,358 49,994
------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant and equipment......................... (34,530) (23,869)
Proceeds from sale of property, plant and equipment............................ 3,651 8,596
Net currency exchange principal transactions................................... (4,662) (3,928)
Payments on notes from sales of real estate.................................... 482 364
Cash received from other investments........................................... 17 304
Cash provided by distribution and food center assets........................... 481 4,134
Proceeds from sale of distribution and food center assets...................... 6,305 22,707
------------ ------------
NET CASH (USED IN) PROVIDED BY INVESTING ACTIVITIES.............. (28,256) 8,308
------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities................. 1,091,346 1,003,282
Payments under commercial paper and revolving credit facilities................ (1,053,099) (997,897)
Principal payments under long-term debt agreements............................. (21,406) (35,520)
------------ ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES.............. 16,841 (30,135)
------------ ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS............................... (2,057) 28,167
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR..................................... 13,486 1,804
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD......................................... $ 11,429 $ 29,971
============ ============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS 15 Interest...................................... $ (22,937) $ (23,005)
============ ============
Net income taxes paid.......................................................... $ (367) $ (394)
============ ============
</TABLE>
See note to condensed consolidated financial statements.
3
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THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1994
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated balance sheet as of March 31, 1994, and the
condensed consolidated statements of operations and cash flows for the three-
month periods ended March 31, 1994 and 1993, have been prepared by the Company
without audit. In the opinion of management, all adjustments (which included
only normal, recurring adjustments) necessary to present fairly the financial
position at March 31, 1994, and the results of operations and cash flows for
all periods presented, have been made. The results of operations for the
interim periods are not necessarily indicative of the operating results for
the full year.
The condensed consolidated balance sheet as of December 31, 1993, is derived
from the audited financial statements but does not include all disclosures
required by generally accepted accounting principles. The notes accompanying
the consolidated financial statements in the Company's Annual Report on Form
10-K for the year ended December 31, 1993, include accounting policies and
additional information pertinent to an understanding of both the December 31,
1993, balance sheet and the interim financial statements. The information has
not changed except as a result of normal transactions in the three months ended
March 31, 1994.
4
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Report of Independent Accountants
To the Board of Directors and Shareholders of
The Southland Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
The Southland Corporation and Subsidiaries as of March 31, 1994, the related
condensed consolidated statements of operations and cash flows for the
three-month periods ended March 31, 1994 and 1993. These financial statements
are the responsibility of the company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
financial information consists principally of applying analytical procedures
to financial data and making inquiries of persons responsible for financial
and accounting matters. It is substantially less in scope than an audit
conducted in accordance with generally accepted auditing standards, the
objective of which is the expression of an opinion regarding the financial
statements taken as a whole. Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that
should be made to the accompanying financial statements of The Southland
Corporation and Subsidiaries for them to be in conformity with generally
accepted accounting principles.
We have previously audited, in accordance with generally accepted auditing
standards, the consolidated balance sheet as of December 31, 1993, and the
related consolidated statements of operations, shareholders' equity (deficit),
and cash flows for the year then ended (not presented herein); and in our
report dated February 22, 1994, which included an explanatory paragraph
describing the change in method of accounting for postemployment benefits in
1993, we expressed an unqualified opinion on those consolidated financial
statements. In our opinion, the information set forth in the accompanying
condensed consolidated balance sheet as of December 31, 1993, is fairly
stated, in all material respects, in relation to the consolidated balance
sheet from which it has been derived.
COOPERS & LYBRAND
Dallas, Texas
April 21, 1994
5
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MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Introduction
The Company's net loss for the first quarter of 1994 was $8.1 million
(-$.02 per share) compared to a net loss of $32.4 million (-$.08 per share)
for the same period in 1993. The 1993 results included a $16.5 million
charge for the cumulative effect of an accounting change for postemployment
benefits as required by Statement of Financial Accounting Standards ("SFAS")
No. 112.
Liquidity and Capital Resources
On August 30, 1993, the Company redeemed its 12% Notes due on December
15, 1996 ("the 12% Notes"), which had an outstanding face value of $250.6
million, and refinanced them with working capital and an additional $150
million term loan under the existing senior bank credit agreement (the
"Credit Agreement").
As a result of the refinancing, at current interest rates, the Company
expects to save up to $16 million in 1994 cash interest payments. However,
since interest on the additional term loan is not subject to SFAS No. 15
treatment, it will be expensed and, therefore, at current interest rates, the
Company's reported interest expense for 1994 will increase by an estimated
$15 million.
The Company believes that it will have adequate liquidity going forward,
from its $400 million commercial paper facility (guaranteed by Ito-Yokado
Co., Ltd.) and from its revolving credit facility under the Credit Agreement
("the Revolver"), which, respectively, had outstanding balances of $398.1
million and $45.0 million on March 31, 1994, and from its operating cash
flow. The Company's cash availability from the Revolver is limited to $25
million until $375 million of commercial paper is outstanding, and thereafter
to the lesser of $150 million or the difference between $275 million and the
amount of letters of credit outstanding. As of March 31, 1994, outstanding
letters of credit totaled $116.4 million.
The Credit Agreement contains numerous financial and operating covenants
requiring, among other things, the attainment of certain levels of EBITDA
(defined in the Credit Agreement as earnings before interest income and
expense, income taxes, depreciation and amortization, the monetized royalty
income from the Company's area licensee in Japan, certain other unusual
income and expense items and certain other noncash items). In addition, the
covenants require the maintenance of certain financial ratios, including cash
interest coverage, fixed charge coverage, total debt to EBITDA and senior
indebtedness to subordinated indebtedness. The covenant levels established
by the Credit Agreement generally require continuing improvement in the
Company's financial condition.
For the period ended March 31, 1994, the Company was in compliance with
all of the covenants required under the Credit Agreement. The Company
complied with the principal financial covenants, which are calculated over
the latest 12-month period as follows: cash interest coverage (including the
effect of the SFAS No. 15 interest payments) was 2.10 to 1.00, higher than
the 1.65-to-1.00 minimum; fixed charge coverage was 1.44 to 1.00, higher than
the 0.97-to-1.00 minimum; total debt to EBITDA was 8.94 to 1.00, lower than
the 12.28-to-1.00 maximum; senior indebtedness to subordinated indebtedness
was 1.36 to 1.00, lower than the 1.58-to-1.00 maximum; and EBITDA was $272.7
million, higher than the $237.0 million minimum.
6
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Cash Flows from Operating Activities
During 1994, net cash provided by operating activities was $9.4 million,
which includes a $27.7 million decrease in trade accounts payable and other
liabilities primarily due to the timing of payments.
Cash Flows from Investing Activities
During 1994, net cash used in investing activities consisted primarily of
payments of $34.5 million for property, plant and equipment, the majority of
which was used for remodeling stores, upgrading retail gasoline facilities,
replacing equipment and enhancing underground storage tanks. The Company
expects 1994 capital expenditures to be approximately $185 million, primarily
to complete remodels started in 1993 and to remodel at least 1,000 additional
stores. The 1994 average-per-store capital expenditures and associated
upfront expenses are being reduced compared to 1993 levels to focus
remodeling activity on features that are most noticeable to customers and
have the most immediate and positive impact on store performance, such as
lighting and security, food service equipment, necessary maintenance and
consistent image. Reducing the extent of the remodels will also mitigate the
need to close stores while construction is under way, which significantly
slowed the merchandise sales recovery and growth at stores that were closed
during remodeling in 1993.
The Company anticipates that it will spend approximately $18 million in
1994 on capital improvements required to comply with environmental
regulations relating to gasoline storage tank systems at store locations and
approximately an additional $17 million on such capital improvements from
1995 through 1997.
Additionally, the Company accrues for the anticipated future costs of
environmental clean-up activities (consisting of contamination assessment and
remediation) relating to detected releases of regulated substances at its
existing and previously operated sites at which gasoline was sold (including
store sites and other facilities that have been sold by the Company). The
Company expects that it will be required to spend approximately $56 million
during the next five years to undertake such activities. This estimate is
based on the Company's prior experience with gasoline sites and its analysis
of such factors as the age of the tanks, location of tank sites and
experience with contractors who perform contamination assessment and remedial
work. However, the Company is eligible to receive reimbursement for a large
portion of these assessment and remediation costs under state reimbursement
programs.
At March 31, 1994, the Company's recorded liability for sites where
releases have been detected was $55,805,000. The Company has recorded a
receivable of $54,813,000 (net of an allowance of $14,629,000) for the
estimated probable state reimbursements in connection with such releases.
The estimated future assessment and remediation expenditures and related
state reimbursement amounts could change as governmental requirements and
state reimbursement programs change in future years.
The Company anticipates that substantially all of the future assessment
and remediation costs for sites with detected releases of regulated
substances at March 31, 1994, will be incurred within the next five years.
There is no assurance of the timing of the receipt of state reimbursement
funds. However, based on its experience, the Company expects to receive
state reimbursement funds within one to three years after incurring eligible
assessment and remediation expenses, assuming that the state administrative
procedures for processing such reimbursements have been fully developed.
7
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In December 1988, the Company closed its chemical manufacturing facility
in New Jersey. As a result, the Company is required to conduct environmental
remediation at the facility and has accrued a liability for this purpose.
The Company has submitted a clean-up plan to the New Jersey Department of
Environmental Protection and Energy (the "State"), which provides for
remediation at the site as well as continued groundwater monitoring for a
number of years. While the Company has received initial comments from the
State, a final clean-up plan has not been determined. At March 31, 1994, the
Company's recorded liability is $38,513,000, its best estimate of the
clean-up and monitoring costs. In 1991, the Company entered into a
settlement agreement with a large chemical company that formerly owned the
chemical manufacturing facility. Under the settlement agreement, the former
owner agreed to pay a substantial portion of the clean-up costs described
above. The Company has recorded a receivable of $22,592,000 at March 31,
1994, representing the former owner's portion of the accrued clean-up costs.
None of the amounts related to environmental liabilities have been
discounted.
On March 31, 1994, the Company sold its distribution center in Tyler,
Texas. The Company has subleased its distribution center in Champaign,
Illinois, and has contracted to sell it to the sublessee at the end of 1994.
This will be the last divestiture related to the Company's distribution
operations.
Cash Flows from Financing Activities
During 1994, the Company repaid $21.4 million on certain secured
indebtedness, which included $9.8 million on the senior term loan under the
Credit Agreement (the "Term Loan").
Results of Operations-Three Months Ended March 31, 1994
The Company recorded net sales of $1.51 billion for the three months
ended March 31, 1994, compared to net sales of $1.58 billion during the same
period in 1993. The decline is primarily due to approximately 360 fewer
convenience stores in 1994 and cigarette price reductions on certain premium
brands associated with manufacturers' cost reductions. Same-store (stores
open more than one year) merchandise sales increased .2% for the first
quarter of 1994, while 7-Eleven experienced a decline in its merchandise
inflation rate of 1.9%, resulting in real growth in sales of 2.2%. This is
the first quarter of positive same-store sales growth since the third quarter
of 1991. The improvement reflects the positive effects of the Company's
decision to close approximately 360 low-volume stores since the first quarter
of 1993, as well as the benefits of its new merchandise and store remodeling
strategies.
Gasoline sales per store increased 6.1% for the first quarter of 1994 due
to per-store volume improvement of 11.2%, reflecting favorable market
conditions as well as the impact of several successful business strategies:
ongoing remodeling to enhance the appeal and convenience of the Company's gas
facilities; promoting the high quality of 7-Eleven's CITGO-brand gasoline;
managing gasoline prices, inventories and product mix on a by-store basis;
and the closing of low-volume locations.
Other income of $16.9 million in 1994 consisted primarily of royalties
from area licensees, principally Seven-Eleven Japan Co., Ltd.
Consolidated gross profits were $327.7 million for the first three months
of 1994, $22.4 million below the same period in 1993, reflecting lower
merchandise gross profits because of fewer stores. Merchandise gross profits
per store for the quarter were up 1.0% over 1993 levels because of the
increase in merchandise sales per store, which was partially offset by a
8
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slight decline in margins. The margin decline reflected the Company's
ongoing implementation of everyday fair pricing, as well as 7-Eleven stores
cycling against their first full year of margin gains from reduced product
costs. Merchandise gross profit per store has consistently improved over
prior year results for the last five quarters. Gross profit on retail
gasoline sales was 13.9 cents per gallon for the first quarter of 1994, an
increase of .7 cents compared to the same period in 1993 due to favorable
market conditions and the positive impact of capital expenditure programs.
As a result of the gasoline sales and margin improvement, per-store gasoline
gross profits for the first quarter of 1994 were 16.8% higher than in 1993.
(Except where noted, all per-store numbers above refer to an average of all
stores rather than only stores open a year or more).
Since 1992, the Company has adopted a more customer-driven approach to
merchandising, intended to greatly expand and improve the quality and variety
of 7-Eleven's product selection through improved ordering, consistently
phasing out slow-selling items and aggressively introducing new products in
the early stages of their life cycle. The new merchandising process was
begun in 1992, its usage was expanded in 1993, and the Company expects to
improve its implementation further in 1994. Since 1992, this new process has
resulted in improved sales and profits in those stores that are applying it
to a significant number of major product categories. In addition, in 1994,
many 7-Eleven stores have continued to implement everyday fair pricing, which
minimizes discounting and promotions and instead charges a competitive
everyday fair price on all items, and the Company has continued to recommend
to its franchisees the adoption of these strategies. Going forward, 7-Eleven
plans to migrate toward lower retail prices as the Company achieves lower
product costs through strategic alliances with its suppliers.
In addition, the Company has taken several other steps in 1994 that,
together with 7-Eleven's everyday-fair-pricing strategy, have contributed to
the increased per-store merchandise sales in the first quarter. These steps
include continued closure of low-volume stores and a more efficient remodel
process that limits store downtime.
Selling, general and administrative expenses ("SG&A") decreased $31.5
million in the first quarter of 1994 compared to the same period in 1993.
Most of this decrease in SG&A expense resulted from cost savings realized
from the reductions in force that began late in 1992 and continued in 1993
and the effect of having approximately 360 fewer stores in the first quarter
of 1994. The ratio of SG&A expenses to sales was 21.3% in the first quarter
of 1994, a decrease of 1.04 percentage points from 1993 levels.
As expected, the Company's total interest expense increased $2.7 million
for the quarter compared to the same period in 1993, primarily due to the
refinancing of the 12% Notes (see Liquidity and Capital Resources section).
The weighted average interest rate on the Company's floating rate debt was
4.67% for the first quarter of 1994. The Company does not believe that the
current rise in interest rates will have a material negative impact on its
net profitability, since on March 31, 1994, approximately 30% of its debt as
reported on its balance sheet carried floating rates.
As a result of the operating improvements described above, the Company
recorded a net loss of $8.1 million for the first quarter of 1994 compared to
a loss of $32.4 million during the same period in 1993. The 1993 results
included a $16.5 million charge for the cumulative effect of an accounting
change for postemployment benefits as required by SFAS #112. The loss per
common share for the first quarter of 1994, both primary and fully diluted,
was $.02.
The Company believes that continued improvement and implementation of the
7-Eleven business concept, including its more customer-focused merchandising
programs, a more efficient remodel process, and reductions in overhead
expense, is improving its ability to compete more effectively and will
contribute to improved results for 7-Eleven in 1994.
9
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OTHER INFORMATION
Item 1. Legal Proceedings.
On April 6, 1994, The Southland Corporation ("Southland," or the "Company")
received notice of the filing of a lawsuit entitled Emil V. Sparano, Judith
Curley, Robert Strauss, Patrick J. McCarthy, Lana K. York, Morris S.
Greenstein, Bruce R. Smok, Robert Wasson and Joseph P. Lurquin, on behalf of
themselves and all others similarly situated, Plaintiffs, v. The Southland
Corporation, a Texas Corporation, IYG Holding Company, a Delaware Corporation,
Ito-Yokado, Ltd., a foreign corporation, Seven-Eleven Japan Co., Ltd., a
foreign corporation, John P. Thompson, Jere W. Thompson, Joe C. (a/k/a
"Jodie") Thompson, Jr., Clark J. Mathews, II, Walton Grayson, III, John H.
Rodgers, and Frank Gangi, Defendants, Case No. 946-2098, in the U.S. District
Court for the Northern District of Illinois. The plaintiffs, nine current or
former 7-Eleven franchisees, seek to represent a class, purportedly consisting
of all persons or entities who purchased or owned one or more 7-Eleven
convenience store franchises since 1987.
Of the named defendants, Clark J. Matthews, II and John H. Rodgers are
current officers of the Company, and Mr. Matthews is also a director; Walton
Grayson, III and Frank Gangi are former officers of the Company, and Mr.
Grayson is also a former director; John P. Thompson and Jere W. Thompson have
been directors both prior to, and at all times since, 1987; Joe C. Thompson,
Jr. is a former director of the Company (hereafter John P. Thompson, Jere W.
Thompson and Joe C. Thompson, Jr., collectively, the "Thompsons"); IYG Holding
Company ("IYG") holds approximately 64% of the shares of the Company and is a
jointly owned subsidiary of Ito-Yokado Co., Ltd. ("Ito-Yokado") and
Seven-Eleven Japan Co., Ltd. ("Seven-Eleven Japan").
The Complaint alleges ten causes of action, as follows: that Southland
breached the terms of the 7-Eleven Store Franchise Agreement, breached a
fiduciary duty owed to franchisees and breached an implied covenant of good
faith and fair dealing in the franchise agreement; that each of the individual
defendants breached a fiduciary duty, a duty of competence, loyalty and due
care with regard to the management of the joint business of Southland and the
franchisees' convenience stores, and permitted a fraudulent conveyance of the
Company's assets, as a result of the leveraged buy-out of the Company in 1987
by JT Acquisition Corporation (an affiliate of the Thompsons); that IYG,
Ito-Yokado and Seven-Eleven Japan breached a fiduciary duty owed to the
franchisees beginning with the acquisition of Southland by IYG in 1991
following the Company's bankruptcy reorganization under Chapter 11 of the U.S.
Bankruptcy Code; that all defendants fraudulently converted and
misappropriated, for their own purposes, funds that should have been used to
support franchisees and their franchise operations; that the Thompsons
breached a duty of loyalty and engaged in improper self-dealing by virtue of
the leveraged buy-out and restructuring of the Company; and that a
constructive trust should be imposed requiring all defendants to return funds
to the plaintiffs.
The Complaint seeks compensatory damages in excess of one billion dollars,
other compensatory, consequential and punitive damages, interest, costs and
attorneys' fees. Southland believes all of the claims are without merit and
will vigorously defend against the suit.
10
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Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
1. Exhibit (11) -- Statement re Computation of Per-Share Earnings.
2. Exhibit (15) -- Letter re Unaudited Interim Financial Information.
Letter of Coopers & Lybrand, Independent Accountants.
(b) 8-K Reports:
During the first quarter of 1994, the Company filed no reports on Form 8-K.
11
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
THE SOUTHLAND CORPORATION
(Registrant)
Date: April 29, 1994 /s/ CLARK J. MATTHEWS, II
(Officer)
Clark J. Matthews, II
President and Chief Executive
Officer
Date: April 29, 1994 /s/ VERNON P. LOTMAN
(Principal Accounting Officer)
Vernon P. Lotman
Vice President and Controller
11
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EXHIBIT 11
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
CALCULATION OF EARNINGS (LOSS) PER COMMON SHARE
<TABLE>
<CAPTION>
Three Months
Ended March 31,
-----------------------
1994 1993
---------- ----------
<C> <C>
<S>
Loss before cumulative effect of accounting change................. $ (8,131) $ (15,882)
Cumulative effect of accounting change............................. - (16,537)
---------- ----------
Net loss for earnings (loss) per-share calculation................. $ (8,131) $ (32,419)
========== ==========
Average number of common shares outstanding........................ 409,923 409,992
========== ==========
Loss per common share (Primary and Fully Diluted):
Before cumulative effect of accounting change................... $(.02) $(.04)
Cumulative effect of accounting change.......................... - (.04)
------ ------
Net loss........................................................ $(.02) $(.08)
====== ======
</TABLE>
Tab 1
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EXHIBIT 15
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, D.C. 20549
Attention: Document Control
RE: The Southland Corporation Form 10-Q
We are aware that our report dated April 21, 1994 on our review of the
condensed consolidated balance sheet of The Southland Corporation and
Subsidiaries as of March 31, 1994, and the condensed consolidated statements
of operations and cash flows for the three-month period then ended, included
in this Form 10-Q, is incorporated by reference in the following registration
statements:
Registration
No.
On Form S-8 for:
Post-Effective Amendment No. 3 to The Southland
Corporation Equity Participation Plan 33-23312
Post-Effective Amendment No. 1 to The Southland
Corporation Grant Stock Plan 33-25327
Pursuant to Rule 436(c) under the Securities Act of 1933, this report should
not be considered a part of the registration statement prepared or certified
by us within the meaning of Sections 7 and 11 of that Act.
Dallas, Texas
April 28, 1994
