<PAGE>
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 June 30, 1995
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 June 30, 1995.
<PAGE>
THE SOUTHLAND CORPORATION
INDEX
PAGE
NO.
----
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
June 30, 1995 and December 31, 1994 ................................... 1
Condensed Consolidated Statements of Operations -
Three Months and Six Months Ended June 30, 1995 and 1994 .............. 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1995 and 1994 ............................... 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 ............................................... 12
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS ............. 12
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K ................................ 13
SIGNATURES ............................................................... 14
Exhibit (11) - Statement re Computation of Per-Share Earnings ............ Tab 1
Exhibit (15) - Letter re Unaudited Interim Financial Information ......... Tab 2
Exhibit (27) - Financial Data Schedule.................................... *
*Submitted in electronic format only
(i)
<PAGE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
<CAPTION>
ASSETS
JUNE 30, DECEMBER 31,
1995 1994
------------- -------------
<S> <C> <C>
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . . . . . . . . . $ 22,339 $ 59,288
Accounts and notes receivable . . . . . . . . . . . . . . 109,399 102,230
Inventories . . . . . . . . . . . . . . . . . . . . 108,883 101,468
Other current assets . . . . . . . . . . . . . . . . . 38,131 40,411
------------- -------------
TOTAL CURRENT ASSETS . . . . . . . . . . . . . . . . 278,752 303,397
PROPERTY, PLANT AND EQUIPMENT . . . . . . . . . . . . . . . 1,323,235 1,314,499
OTHER ASSETS . . . . . . . . . . . . . . . . . . . . . 367,122 382,698
------------- -------------
$ 1,969,109 $ 2,000,594
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable. . . . . . . . . . . . . . . . . $ 204,382 $ 203,315
Accrued expenses and other liabilities . . . . . . . . . . . 296,642 316,183
Commercial paper. . . . . . . . . . . . . . . . . . . 43,806 41,322
Long-term debt due within one year. . . . . . . . . . . . . 159,460 123,989
------------- -------------
TOTAL CURRENT LIABILITIES . . . . . . . . . . . . . . 704,290 684,809
DEFERRED CREDITS AND OTHER LIABILITIES . . . . . . . . . . . . 238,596 245,807
LONG-TERM DEBT . . . . . . . . . . . . . . . . . . . . 2,150,092 2,227,209
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value . . . . . . . . . . . . . . 41 41
Additional capital . . . . . . . . . . . . . . . . . . 625,574 625,574
Accumulated deficit. . . . . . . . . . . . . . . . . . (1,749,484) (1,782,846)
------------- -------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT ) . . . . . . . . . . (1,123,869) (1,157,231)
------------- -------------
$ 1,969,109 $ 2,000,594
============= =============
See note to condensed consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
<CAPTION>
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
----------------------------- -----------------------------
1995 1994 1995 1994
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Net sales (including $253,836, $252,683,
$487,818 and $487,766 in excise taxes) . . $ 1,750,265 $ 1,720,410 $ 3,295,044 $ 3,232,387
Other income . . . . . . . . . . . . 22,822 18,263 42,113 35,172
------------- ------------- ------------- -------------
1,773,087 1,738,673 3,337,157 3,267,559
COST OF GOODS SOLD AND EXPENSES:
Cost of goods sold . . . . . . . . . . 1,350,070 1,319,734 2,553,184 2,499,205
Selling, general and administrative expenses . 348,203 351,264 678,192 678,259
Interest expense. . . . . . . . . . . 25,676 26,003 52,409 51,855
Contributions to Employees' Savings and
Profit Sharing Plan . . . . . . . . . 3,351 3,544 6,497 6,793
------------- ------------- ------------- -------------
1,727,300 1,700,545 3,290,282 3,236,112
------------- ------------- ------------- -------------
EARNINGS BEFORE INCOME TAXES . . . . . . . . 45,787 38,128 46,875 31,447
INCOME TAXES. . . . . . . . . . . . . . 9,029 6,495 11,079 7,945
------------- ------------- ------------- -------------
NET EARNINGS. . . . . . . . . . . . . . $ 36,758 $ 31,633 $ 35,796 $ 23,502
============= ============= ============= =============
NET EARNINGS PER COMMON SHARE
(Primary and Fully Diluted) . . . . . . . $ .09 $ .08 $ .09 $ .06
====== ====== ====== ======
See note to condensed consolidated financial statements.
2
</TABLE>
<PAGE>
<TABLE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
------------------------------
1995 1994
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings. . . . . . . . . . . . . . . . . . . . . . . . $ 35,796 $ 23,502
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization of property, plant and equipment. . . . . . 71,001 71,909
Other amortization . . . . . . . . . . . . . . . . . . . . 9,366 9,513
Deferred income taxes . . . . . . . . . . . . . . . . . . . 272 -
Noncash interest expense . . . . . . . . . . . . . . . . . . 1,117 4,362
Other noncash income. . . . . . . . . . . . . . . . . . . . (747) (260)
Net gain on property, plant and equipment. . . . . . . . . . . . . (5,633) (5,124)
Increase in accounts and notes receivable. . . . . . . . . . . . . (3,691) (2,532)
Increase in inventories. . . . . . . . . . . . . . . . . . . (7,415) (3,119)
Decrease in other assets . . . . . . . . . . . . . . . . . . 1,810 25,187
(Decrease) increase in trade accounts payable and other liabilities . . . . (20,353) 2,600
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES . . . . . . . . . 81,523 126,038
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property, plant and equipment. . . . . . . . . . (87,517) (73,008)
Proceeds from sale of property, plant and equipment. . . . . . . . . . . 7,003 8,825
Other . . . . . . . . . . . . . . . . . . . . . . . . . . 828 1,089
Net currency exchange principal transactions . . . . . . . . . . . . . - (5,133)
Cash utilized by distribution and food center assets . . . . . . . . . . - (1,328)
Proceeds from sale of distribution and food center assets. . . . . . . . . - 6,305
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES. . . . . . . . . . . (79,686) (63,250)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities . . . . . . . 1,989,926 2,165,261
Payments under commercial paper and revolving credit facilities. . . . . . . (1,992,775) (2,171,208)
Principal payments under long-term debt agreements . . . . . . . . . . . (35,150) (65,473)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . (787) -
------------- -------------
NET CASH USED IN FINANCING ACTIVITIES. . . . . . . . . . . (38,786) (71,420)
------------- -------------
NET DECREASE IN CASH AND CASH EQUIVALENTS . . . . . . . . . . . . . . . (36,949) (8,632)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR. . . . . . . . . . . . . . 59,288 13,486
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . . . . . $ 22,339 $ 4,854
============= =============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest . . . . . . . . . . . . . $ (47,256) $ (47,554)
============= =============
Net income taxes paid. . . . . . . . . . . . . . . . . . . . . $ (20,155) $ (3,680)
============= =============
See note to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTE TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
SIX MONTHS ENDED JUNE 30, 1995
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated balance sheet as of June 30, 1995, and the
condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 1995 and 1994, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1995 and
1994, 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 June 30, 1995, 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, 1994, 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, 1994, include accounting policies and
additional information pertinent to an understanding of both the December 31,
1994, balance sheet and the interim financial statements. The information has
not changed except as a result of normal transactions in the six months ended
June 30, 1995.
4
<PAGE>
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 June 30, 1995, the related
condensed consolidated statements of operations for the three-month and
six-month periods ended June 30, 1995 and 1994, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1995 and
1994. 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, 1994, 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 23, 1995, which included an explanatory paragraph
describing the change in method of accounting for postemployment benefits and
for income taxes 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, 1994, is fairly stated, in all material respects, in relation to
the consolidated balance sheet from which it has been derived.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
July 31, 1995
5
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - SECOND QUARTER AND YEAR-TO-DATE, 1995
SUMMARY OF RESULTS OF OPERATIONS
The Company's net earnings for the second quarter and first six
months of 1995 were $36.8 million ($.09 per share) and $35.8 million
($.09 per share), respectively, compared to net earnings of $31.6 million
($.08 per share) and $23.5 million ($.06 per share) for the same periods
in 1994. The most significant factors in this improvement are increases
in other revenues and gasoline gross profits. The 1995 results for the
second quarter and first six months include the receipt of $4.7 million
(net of expenses) relating to outstanding litigation, while the 1994
results, for the same time periods, include a $4.5 million recovery on a
1992 insurance claim.
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS BELOW REFER TO AN AVERAGE OF ALL
STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR.)
<TABLE>
SALES
<S> <C> <C>
Same-store sales .8% 1.5%
Same-store real growth; excluding inflation (1.5%) (.6%)
7-Eleven inflation 2.4% 2.2%
</TABLE>
While same-store merchandise sales (excluding inflation or
deflation) have increased over prior year levels for the previous five
quarters, during the second quarter they declined 1.5%. This decline is
a result of the overall slowing of the economy that retailers have been
experiencing and also due to unseasonably cool and wet conditions on
the west coast.
Gasoline sales dollars per store increased 10.7% for the second
quarter and 10.4% for the first six months of 1995 due to an average
increase in sales price of 10.6 and 9.0 cents per gallon, respectively,
combined with per-store gallonage improvement of 1.2% and 2.1% for
the quarter and the six months, respectively.
6
<PAGE>
OTHER INCOME
Other income of $22.8 million for the quarter and $42.1 million for
the first six months of 1995 are $4.6 million and $6.9 million higher than
the same periods in 1994, respectively. The improvement is primarily
the result of increased royalty income and interest income.
KEY MANAGEMENT STRATEGIES
The Company is committed to several key strategies that it
believes, over the long term, will further differentiate it from its
competitors and allow 7-Eleven to maintain its position as the premier
convenience store chain in the industry. These strategies include:
- Strengthening the Company's store base through an
extensive remodeling plan and the pruning of
underachieving stores.
- A customer-driven approach to merchandising which focuses
on providing an expanded selection of quality products at a
good value to satisfy the ever-changing preferences of our
customers.
- Everyday-fair-pricing to provide consistent prices on all items
by reducing reliance on discounting of some products and
lowering prices on others.
- Daily delivery of fresh, perishable items and ready-to-eat
foods that provides fresher products, improved in-stock
conditions and lower product costs.
- Implementation of a retail automation system with an initial
phase involving automating accounting and other store-level
tasks and future phases which will provide each store and its
suppliers with information to make better decisions in
anticipating customer needs.
GROSS PROFITS
Consolidated gross profits were $400.2 million for the quarter and
$741.9 million for the first six months of 1995, a decrease of $.5 million
and an increase of $8.7 million, respectively, from the same periods in
1994. The following chart highlights the percent change in merchandise
gross profit per store and the components thereof:
<TABLE>
<CAPTION>
PERIODS ENDING JUNE 30, 1995
----------------------------
INCREASE/(DECREASE) FROM PRIOR YEAR THREE MONTHS SIX MONTHS
- ----------------------------------- ------------ ----------
<S> <C> <C>
Average per store gross profit dollar change 2.6% 3.5%
Margin percentage point change .08 .25
Same-store sales .8% 1.5%
</TABLE>
As a result of an average of 187 fewer stores, total merchandise
gross profit declined during the second quarter. The 2.6% per-store
growth, however, represents the tenth consecutive quarter of
improvement over comparable quarter results. Contributing to the
second quarter per-store improvement was the high margin financial
services category, which continues to have considerable sales growth.
The Company believes that for the remainder of the year merchandise
margin will approximate last year.
7
<PAGE>
Gasoline gross profits per store were 6.1% higher, compared to
the preceding year, for both the second quarter and first six months of
1995. This improvement was primarily due to higher cents-per-gallon
gross profit and to a lesser extent from the increase in gallons sold.
Gasoline gross profits were 12.9 and 13.6 cents per gallon for the
quarter and six months, respectively, an increase of .6 cents and .5
cents compared to the same periods in 1994. This increase is
attributed to favorable market conditions, the positive impact of capital
expenditure programs and the continued improvement in by-store
management of gasoline merchandising strategies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("SG&A")
<TABLE>
<CAPTION>
THREE MONTHS SIX MONTHS
(DOLLARS IN MILLIONS) ENDED JUNE 30 ENDED JUNE 30
------------- -------------
1995 1994 1995 1994
---- ---- ---- ----
<S> <C> <C> <C> <C>
Total selling, general and administrative expenses $348.2 $351.3 $678.2 $678.3
Ratio of SG&A to sales 19.9% 20.4% 20.6% 21.0%
</TABLE>
For the first two quarters of 1994, SG&A increased from
previously reported amounts, with a corresponding decrease in cost of
goods sold, due to the expense reclassification noted in the December
31, 1994 Management's Discussion and Analysis of Financial Condition
and Results of Operations.
INTEREST EXPENSE
The Company's total interest expense in the second quarter and
first six months of 1995 decreased $.3 million and increased $.6 million
over the same periods in 1994, respectively. The weighted average
interest rate on the Company's floating rate debt was 6.83% for the
second quarter and 6.80% for the first six months of 1995 versus 5.18%
and 4.92% for the same periods in 1994, respectively. Since 32% of
the Company's debt contains floating rates that are unfavorably
impacted by rising interest rates, cash interest expense is expected to
increase in 1995. However, total interest expense is expected to
decline when compared to 1994, due to the effects of the refinancings
noted below and the write-off of $3.0 million of deferred loan costs as a
result of refinancing the Company's bank debt in December 1994.
On December 21, 1994, the Company refinanced its bank debt
under the senior bank credit agreement ("Credit Agreement") and
obtained, among other things, a reduction in its borrowing spreads. As
a result of this refinancing, the Company expects to save approximately
$7 million in interest expense in 1995 over what it would have incurred
under the previous terms of the facility. In February 1995, the Company
extended the repayment of the debt relating to its headquarters facilities
(Cityplace) at a lower interest rate, which will result in approximately
$2.8 million of cash interest savings in 1995 (see Liquidity and Capital
Resources - Financing Activities).
8
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
The majority of the Company's working capital is provided from
three sources: i) cash flows generated from its operating activities, ii) a
$400 million commercial paper facility (guaranteed by Ito-Yokado Co.,
Ltd.), and iii) short-term seasonal borrowings of up to $150 million under
its revolving credit facility. The Company believes that its operating
activities coupled with its available short-term working capital facilities
will provide sufficient liquidity for it to fund its current operating and
capital expenditure programs as well as to service debt requirements.
FINANCING ACTIVITIES
In December 1994, the Company amended its Credit Agreement,
refinancing its old term loans ($281.7 million) and revolving credit
facility, with a new term loan ("Term Loan") and new revolving credit
facility. The term of the new revolving credit facility extends through
December 31, 1999 and contains both a revolving loan ("Revolver") and
letter of credit subfacility; these two facilities each have a maximum limit
of $150 million. The Term Loan ($300 million) has scheduled quarterly
repayments of $18.75 million commencing March 31, 1996 through
December 31, 1999. Interest on the Revolver and Term Loan is
generally based on a variable rate equal to the administrative agent
bank's base rate or, at the Company's option, at a rate equal to the
Eurodollar rate plus .975% per year (see Results of Operations -
Interest Expense).
The Credit Agreement contains certain financial and operating
covenants requiring, among other things, the maintenance of certain
financial ratios, including interest coverage, fixed charge coverage and
senior indebtedness to earnings before interest, taxes, depreciation,
and amortization ("EBITDA"). The covenant levels established by the
Credit Agreement generally require continuing improvement in the
Company's financial condition.
For the period ended June 30, 1995, the Company was in
compliance with all of the covenants required under the Credit
Agreement. The Company complied with the principal financial and
operating covenants, which are calculated over the latest 12-month
period, as follows:
<TABLE>
<CAPTION>
REQUIREMENTS:
-------------------------
COVENANTS ACTUALS MINIMUM MAXIMUM
- --------- ------- ------- -------
<S> <C> <C> <C>
Interest coverage * 2.66 to 1.0 2.35 to 1.0
Fixed charge coverage .94 to 1.0 .65 to 1.0
Senior indebtedness to EBITDA 4.09 to 1.0 4.85 to 1.0
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
</TABLE>
During the first six months of 1995, the Company repaid $35.2
million of debt of which $17.6 million was for SFAS No. 15 interest.
Outstanding balances on June 30, 1995 for the commercial paper, the
Revolver and the Term Loan were $393.8 million, $43.0 million and
$300.0 million, respectively. As of June 30, 1995, outstanding letters of
credit issued pursuant to the Credit Agreement totaled $111.4 million.
As a result of an agreement reached in conjunction with the
Company's bankruptcy proceedings in 1990, on February 15, 1995, the
9
<PAGE>
7-7/8% Cityplace notes, issued by Cityplace Center East Corporation
("CCEC"), a wholly owned subsidiary of the Company, were repaid
under a drawing of a letter of credit issued by The Sanwa Bank, Ltd.
Under such agreement, the term of maturity of the indebtedness of
CCEC resulting from such draw has been extended by ten years to
March 1, 2005. New terms include monthly payments of principal and
interest over the ten-year period, based upon a 25-year amortization at
7-1/2%, with the remaining principal due upon maturity.
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $81.5 million for the
first six months of 1995. Impacting the level of operating cash flows
was a $13.4 million payment related to an IRS examination. Such
payment had no material effect on 1995 earnings.
CAPITAL EXPENDITURES
In the first six months, net cash used in investing activities
consisted primarily of payments of $87.5 million for property, plant and
equipment, the majority of which was used for remodeling stores,
upgrading retail gasoline facilities, replacing equipment and complying
with environmental regulations. The Company expects 1995 capital
expenditures to be approximately $195 million, primarily to complete
remodels started in 1994 and to remodel about 1,400 additional stores.
The Company is also expected to use approximately 10% of its capital
expenditures in 1995 on the retail automation project (see Key
Management Strategies).
Through June 30, 1995, approximately 3,400 stores have been
remodeled. The remodels are focusing on the 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.
CAPITAL EXPENDITURES - GASOLINE EQUIPMENT
The Company incurs ongoing costs to comply with federal, state
and local environmental laws and regulations primarily relating to
underground storage tank ("UST") systems. The Company anticipates
that it will spend approximately $15 million in 1995 on capital
improvements required to comply with environmental regulations
relating to USTs as well as above-ground vapor recovery equipment at
store locations and approximately an additional $29 million on such
capital improvements from 1996 through 1998.
ENVIRONMENTAL COMPLIANCE - STORES
The Company accrues for the anticipated future costs of
environmental clean-up activities (consisting of environmental
assessment and remediation) relating to detected releases of regulated
substances at its existing and previously owned or operated sites at
which gasoline has been sold (including store sites and other facilities
that have been sold by the Company). At June 30, 1995, the Company
has an accrued liability of $61.9 million for such activities and
anticipates that substantially all such expenditures will be incurred
within the next five years. This estimate is based on the Company's
prior experience with gasoline sites and its consideration of such factors
as the age of the tanks, location of tank sites and experience with
contractors who perform environmental assessment and remedial work.
10
<PAGE>
The Company is eligible to receive reimbursement for a large
portion of these costs under state reimbursement programs and, at
June 30, 1995, has recorded a gross receivable of $75.6 million (a net
receivable of $55.3 million after an allowance of $20.3 million) for the
estimated probable state reimbursement of paid and accrued
assessment and remediation expenses. 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 four years after payment of eligible assessment and
remediation expenses, assuming that the state administrative
procedures for processing such reimbursements have been fully
developed.
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.
ENVIRONMENTAL COMPLIANCE - CHEMICAL PLANT
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. As required, the Company has
submitted a clean-up plan to the New Jersey Department of
Environmental Protection (the "State"), which provides for remediation
of the site for approximately a three-to-five year period, as well as
continued groundwater treatment for a projected 20-year period. While
the Company has received initial comments from the State, the clean-
up plan has not been finalized. The Company has recorded liabilities
representing its best estimates of the clean-up costs of $38.3 million at
June 30, 1995. Of this amount, $32.0 million was included in deferred
credits and other liabilities and the remainder in accrued expenses and
other liabilities. In 1991, the Company entered into a settlement
agreement with a large chemical company that formerly owned the
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 $22.4 million at June 30, 1995,
representing the former owner's portion of the clean-up costs.
None of the amounts related to environmental liabilities have been
discounted.
11
<PAGE>
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, the Company filed a lawsuit in the U.S.
District Court for the Northern District of Texas against Occidental Petroleum
Corporation and OXY Oil & Gas USA, Inc. ("OXY") to enforce certain contractual
indemnification provisions relating to environmental clean-up expenses incurred
by the Company at locations acquired in 1983 from OXY. During the second
quarter of 1995, the Company and OXY agreed to submit the matter to binding
arbitration, and, pursuant to the agreement, the Company received $4.7 million
(net of expenses) from OXY. Arbitration is expected to commence in September
and be concluded by year-end.
On June 21, 1995, a lawsuit was filed in the 116th Judicial District
Court, Dallas County, Texas, against the Company by T&L Property Service,
an affiliate of Tal-Tex, Inc., which is a water supply company located near
Round Rock, Texas ("Tal-Tex"). The complaint was amended to include Tal-Tex,
Mervin Lind and Terry Tuttle, principals of both Tal-Tex and T&L Property
Service, and two individuals who reside in or near Round Rock on behalf of
themselves and a purported class of similarly situated residents, alleging
personal injuries and property damage as the result of a release of petroleum
that occurred at a 7-Eleven store located in Round Rock. The litigation is in
the early stages, and the Company is unable to assess at this time the validity
of the claims asserted. The Company intends to vigorously defend against the
plaintiffs' allegations in this matter.
There are no other reportable suits or proceedings pending or, to the
knowledge of the Company, threatened against or affecting the Company, other
than as previously reported.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
On April 26, 1995, the Company held its annual meeting of shareholders.
Each of the fourteen nominated directors were elected without contest. In
addition, the shareholders ratified the approval of Coopers & Lybrand L.L.P. to
be the Company's independent auditors for 1995. These were the only two
matters voted on at the meeting.
The votes for and the votes withheld for each of the nominees for
director were as follows:
NOMINEE FOR WITHHELD
[S] [C] [C]
Masatoshi Ito 355,716,324 84,631
Toshifumi Suzuki 355,716,227 84,728
Clark J. Matthews, II 355,260,066 540,889
Yoshitami Arai 355,716,955 84,000
Timothy N. Ashida 355,717,620 83,335
Jay W. Chai 355,717,454 83,501
Gary J. Fernandes 355,717,578 83,377
Masaaki Kamata 355,716,510 84,445
Kazuo Otsuka 355,718,350 82,605
Asher O. Pacholder 355,709,931 91,024
Nobutake Sato 355,717,620 83,335
Tatsuhiro Sekine 355,708,649 92,306
Jere W. Thompson 355,227,412 573,543
John P. Thompson 355,227,318 573,637
12
<PAGE>
The votes for, against, abstaining and broker non-votes in connection
with the ratification of the appointment of Coopers & Lybrand L.L.P. to be the
independent auditors of the Company for 1995 were as follows:
355,724,197 shares were voted for; 55,654 shares were voted against;
21,104 shares abstained from voting; and no broker non-votes were received.
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 L.L.P.,
Independent Accountants.
3. Exhibit (27) -- Financial Data Schedule.
Submitted in electronic format only.
(b) 8-K Reports:
During the second quarter of 1995, the Company filed no reports on Form 8-K.
13
<PAGE>
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: August 2, 1995 /s/ Clark J. Matthews, II
-----------------------------
(Officer)
Clark J. Matthews, II
President and Chief Executive
Officer
Date: August 2, 1995 /s/ Donald E. Thomas
------------------------------
(Principal Accounting Officer)
Donald E. Thomas
Controller
14
<PAGE>
<TABLE>
EXHIBIT 11
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF PER-SHARE EARNINGS
(IN THOUSANDS, EXCEPT PER-SHARE DATA)
<CAPTION>
CALCULATION OF EARNINGS PER COMMON SHARE
THREE MONTHS SIX MONTHS
ENDED JUNE 30, ENDED JUNE 30,
------------------------- -------------------------
1995 1994 1995 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Net earnings for earnings per-share calculation. . $ 36,758 $ 31,633 $ 35,796 $ 23,502
=========== =========== =========== ===========
Average number of common shares outstanding . . . 409,923 409,923 409,923 409,923
=========== =========== =========== ===========
Net earnings per common share (Primary and
Fully Diluted) . . . . . . . . . . . $ .09 $ .08 $ .09 $ .06
====== ====== ====== ======
Tab 1
</TABLE>
<PAGE>
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 July 31, 1995 on our review of the condensed
consolidated balance sheet of The Southland Corporation and Subsidiaries as of
June 30, 1995, the related condensed consolidated statements of operations for
the three-month and six-month periods ended June 30, 1995 and 1994, and the
condensed consolidated statements of cash flows for the six-month periods
ended June 30, 1995 and 1994, 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.
COOPERS & LYBRAND L.L.P.
Dallas, Texas
August 2, 1995
Tab 2
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 22,339
<SECURITIES> 0
<RECEIVABLES> 115,870
<ALLOWANCES> 6,471
<INVENTORY> 108,883
<CURRENT-ASSETS> 278,752
<PP&E> 2,412,738
<DEPRECIATION> 1,089,503
<TOTAL-ASSETS> 1,969,109
<CURRENT-LIABILITIES> 704,290
<BONDS> 2,150,092
<COMMON> 41
0
0
<OTHER-SE> (1,123,910)
<TOTAL-LIABILITY-AND-EQUITY> 1,969,109
<SALES> 3,295,044
<TOTAL-REVENUES> 3,337,157
<CGS> 2,553,184
<TOTAL-COSTS> 2,553,184
<OTHER-EXPENSES> 684,689
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 52,409
<INCOME-PRETAX> 46,875
<INCOME-TAX> 11,079
<INCOME-CONTINUING> 35,796
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 35,796
<EPS-PRIMARY> .09
<EPS-DILUTED> .09
</TABLE>
