<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, 1999
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
-----------------
7-ELEVEN, INC.
(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 CORPORATE ISSUERS:
409,961,233 shares of common stock, $.0001 par value (the issuer's
only class of common stock), were outstanding as of June 30, 1999.
<PAGE>
7-ELEVEN, INC.
INDEX
Page
No.
----
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
June 30, 1999 and December 31, 1998 1
Condensed Consolidated Statements of Earnings -
Three Months and Six Months Ended June 30, 1999 and 1998 2
Condensed Consolidated Statements of Cash Flows -
Six Months Ended June 30, 1999 and 1998 3
Notes to Condensed Consolidated Financial Statements 4
Independent Auditor's Report 7
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS 8
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 18
Part II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS 18
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K 19
SIGNATURES 20
Exhibit (15) - Letter re Unaudited Interim Financial Information Tab 1
Exhibit (27) - Financial Data Schedule *
*Submitted in electronic format only
(i)
<PAGE>
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
ASSETS
JUNE 30, DECEMBER 31,
1999 1998
----------- -----------
(Unaudited)
<S> <C> <C>
CURRENT ASSETS:
Cash and cash equivalents $ 34,294 $ 26,880
Accounts receivable 158,556 148,046
Inventories 104,694 101,045
Other current assets 151,268 162,631
----------- -----------
TOTAL CURRENT ASSETS 448,812 438,602
PROPERTY AND EQUIPMENT 1,811,352 1,652,932
OTHER ASSETS 312,185 324,310
----------- -----------
$ 2,572,349 $ 2,415,844
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable $ 159,399 $ 136,059
Accrued expenses and other liabilities 345,443 362,398
Commercial paper 39,466 18,348
Long-term debt due within one year 188,351 151,754
----------- -----------
TOTAL CURRENT LIABILITIES 732,659 668,559
DEFERRED CREDITS AND OTHER LIABILITIES 227,079 220,653
LONG-TERM DEBT 1,837,203 1,788,843
CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES 380,000 380,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value 41 41
Additional capital 625,651 625,574
Accumulated deficit (1,243,111) (1,278,009)
Accumulated other comprehensive earnings 12,827 10,183
------------ ------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT ) (604,592) (642,211)
------------ ------------
$ 2,572,349 $ 2,415,844
=========== ===========
See notes to condensed consolidated financial statements.
1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
THREE MONTHS SIX MONTHS
ENDED JUNE 30 ENDED JUNE 30
----------------------------- -------------------------
1999 1998 1999 1998
------------- ------------ ---------- ------------
<S> <C> <C> <C> <C>
REVENUES:
Merchandise sales (Including $134,227, $115,211,
$253,033, $216,253 in excise taxes) $ 1,585,206 $ 1,420,475 $ 2,946,956 $ 2,624,839
Gasoline sales (Including $161,056, $142,215,
$312,482, $270,416 in excise taxes) $ 503,303 $ 424,049 911,648 814,643
------------- ------------- ------------ ------------
Net sales 2,088,509 1,844,524 3,858,604 3,439,482
Other income 24,094 23,434 46,221 43,877
------------- ------------- ------------ ------------
2,112,603 1,867,958 3,904,825 3,483,359
COSTS AND EXPENSES:
Merchandise cost of goods sold 1,031,790 918,487 1,941,770 1,711,937
Gasoline cost of goods sold 443,233 380,319 797,798 727,408
------------ -------------- ----------- -----------
Total cost of goods sold 1,475,023 1,298,806 2,739,568 2,439,345
Operating, selling, general and administrative expenses 564,450 505,594 1,064,928 977,310
Interest expense, net 25,588 22,092 49,671 44,665
------------- ------------- ----------- -----------
2,065,061 1,826,492 3,854,167 3,461,320
------------- ------------- ----------- -----------
EARNINGS BEFORE INCOME TAXES AND EXTRAORDINARY GAIN 47,542 41,466 50,658 22,039
INCOME TAXES 18,817 15,629 20,050 8,307
------------- ------------- ----------- ----------
EARNINGS BEFORE EXTRAORDINARY GAIN 28,725 25,837 30,608 13,732
EXTRAORDINARY GAIN ON DEBT REDEMPTION (net of tax effect
Of $2,743 and $11,425) - - 4,290 17,871
------------- ------------- ---------- -----------
NET EARNINGS $ 28,725 $ 25,837 $ 34,898 $ 31,603
============= ============= =========== ============
EARNINGS BEFORE EXTRAORDINARY GAIN PER COMMON SHARE:
Basic $.07 $.06 $.08 $.04
Diluted .06 .06 .07 .03
EXTRAORDINARY GAIN ON DEBT REDEMPTION PER COMMON SHARE:
Basic $.00 $.00 $.01 $.04
Diluted .00 .00 .01 .04
NET EARNINGS PER COMMON SHARE:
Basic $.07 $.06 $.09 $.08
Diluted .06 .06 .08 .07
See notes to condensed consolidated financial statements.
2
</TABLE>
<Page
<TABLE>
<CAPTION>
7-ELEVEN, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
SIX MONTHS
ENDED JUNE 30
-------------------------------
1999 1998
------------- --------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings $ 34,898 $ 31,603
Adjustments to reconcile net earnings to net cash provided
by operating activities:
Extraordinary gain on debt redemption (4,290) (17,871)
Depreciation and amortization of property and equipment 92,120 85,744
Other amortization 9,980 9,535
Deferred income taxes 14,667 5,110
Noncash interest expense 806 454
Other noncash income (2,992) (1,024)
Net loss on property and equipment 1,268 89
(Increase) decrease in accounts receivable (12,692) 2,089
(Increase) decrease in inventories (3,649) 19,403
Increase in other assets (19,743) (11,125)
Increase in trade accounts payable and other liabilities 10,396 2,076
------------- -------------
NET CASH PROVIDED BY OPERATING ACTIVITIES 120,769 126,083
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment (226,740) (159,855)
Proceeds from sale of property and equipment 4,244 5,275
Acquisition of businesses, net of cash acquired - (31,146)
Other 8,806 2,118
------------- -------------
NET CASH USED IN INVESTING ACTIVITIES (213,690) (183,608)
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities 2,386,556 3,078,640
Payments under commercial paper and revolving credit facilities (2,212,537) (3,026,211)
Proceeds from issuance of long-term debt - 96,503
Principal payments under long-term debt agreements (72,780) (80,840)
Proceeds from issuance of convertible quarterly income debt securities - 15,000
Other (904) (4,476)
------------- -------------
NET CASH PROVIDED BY FINANCING ACTIVITIES 100,335 78,616
------------- -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,414 21,091
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 26,880 38,605
------------- -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 34,294 $ 59,696
============= =============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest $ (63,486) $ (48,291)
============= =============
Net income taxes paid $ (6,247) $ (2,927)
============= =============
Assets obtained by entering into capital leases $ 26,090 $ 16,985
============= =============
See notes to condensed consolidated financial statements.
3
</TABLE>
<PAGE>
7-ELEVEN, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Six Months Ended June 30, 1999
(Dollars in thousands, except per-share data)
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated balance sheet as of June 30, 1999, and the
condensed consolidated statements of earnings for the three-month and six-
month periods ended June 30, 1999 and 1998, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1999 and
1998, 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
30,1999, 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, 1998, 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, 1998, include
accounting policies and additional information pertinent to an
understanding of both the December 31, 1998, 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, 1999, and as
discussed in the following notes.
2. COMPREHENSIVE EARNINGS:
In January 1998, the Company adopted the provisions of Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which establishes standards for reporting comprehensive earnings
and its components in a full set of general-purpose financial statements.
The components of comprehensive earnings of the Company for the periods
presented are as follows:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
----------------- ----------------
1999 1998 1999 1998
------ -------- ------- ------
<S> <C> <C> <C> <C>
Net earnings $ 28,725 $ 25,837 $ 34,898 $ 31,603
Other comprehensive earnings, net of tax:
Unrealized gains on equity securities (745) 776 (196) 6,927
Foreign currency translation adjustments 1,794 (695) 2,840 (724)
--------- -------- -------- --------
Other comprehensive earnings $ 1,049 $ 81 $ 2,644 $ 6,203
--------- ------- -------- --------
Total comprehensive earnings $ 29,774 $ 25,918 $ 37,542 $ 37,806
========= ========= ========= ========
</TABLE>
4
<PAGE>
3. EARNINGS PER SHARE:
In December 1997, the Company adopted the provisions of SFAS No. 128,
"Earnings per Share," which requires the following reconciliation of the
numerators and the denominators of the basic and diluted per-share
computations for net earnings for the periods presented:
<TABLE>
<CAPTION>
Three Months Six Months
Ended June 30 Ended June 30
-------------------- ---------------
1999 1998 1999 1998
-------- -------- ------ ------
<S> <C> <C> <C> <C>
BASIC EPS COMPUTATION:
Earnings (Numerator):
Earnings before extraordinary gain available to
common shareholders $ 28,725 $ 25,837 $ 30,608 $ 13,732
Earnings on extraordinary gain available to
common shareholders - - 4,290 17,871
--------- --------- -------- ---------
Net earnings available to common shareholders $ 28,725 $ 25,837 $ 34,898 $ 31,603
========== ======== ======= =========
Shares (Denominator):
Weighted-average number of common shares outstanding 409,960(A) 409,923 409,950(A) 409,923
========== ======== ======== ========
BASIC EPS:
Earnings per common share before extraordinary gain $ .07 $ .06 $ .08 $ .04
Earnings per common share on extraordinary gain - - .01 .04
---------- --------- ------- -------
Net earnings per common share $ .07 $ .06 $ .09 $ .08
========== ========= ======== ========
DILUTED EPS COMPUTATION:
Earnings (Numerator):
Earnings before extraordinary gain available
to common shareholders $ 28,725 $ 25,837 $ 30,608 $ 13,732
Add interest on convertible quarterly
income debt securities, net of tax 2,626 2,706 5,252 5,053
---------- -------- --------- --------
Earnings before extraordinary gain available to
common shareholders plus assumed conversions 31,351 28,543 35,860 18,785
Earnings on extraordinary gain available to
common shareholders - - 4,290 17,871
--------- -------- -------- --------
Net earnings available to common shareholders
plus assumed conversions $ 31,351 $ 28,543 $ 40,150 $ 36,656
========= ========= ======== ========
Shares (Denominator):
Weighted-average number of common shares outstanding 409,960 409,923 409,950 409,923
Add effects of assumed conversions:
Exercise of stock options 573 113 287 56
Conversion of convertible quarterly income
debt securities 104,620 104,620 104,620 94,558
--------- --------- -------- --------
Weighted-average number of common shares outstanding
plus shares from assumed conversions 515,153 514,656 514,857 504,537
========= ======== ======== ========
DILUTED EPS :
Earnings per common share before extraordinary gain $ .06 $ .06 $ .07 $ .03
Earnings per common share on extraordinary gain - - .01 .04
--------- --------- ------- --------
Net earnings per common share $ .06 $ .06 $ .08 $ .07
========= ========= ======= ========
(A) The increase in the number of common shares outstanding is due to issuing stock to the
board of directors in lieu of cash compensation.
</TABLE>
5
<PAGE>
4. SFAS No. 133:
The Company is currently reviewing SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities." The statement establishes accounting
and reporting standards for derivative instruments, including certain
derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, the effective date of SFAS No. 133 was extended
for one year; consequently, the statement will now be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000, and earlier
application is encouraged. The Company has not yet determined when it will
adopt the provisions of this statement. The impact of the adoption of SFAS
No. 133 has not been determined at this time due to the Company's
continuing investigation of its financial instruments and the applicability
of SFAS No. 133 to them.
6
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors and Shareholders of
7-Eleven, Inc. (formerly The Southland Corporation)
We have reviewed the accompanying condensed consolidated balance sheet of
7-Eleven, Inc. and Subsidiaries as of June 30, 1999, and the related
condensed consolidated statements of earnings for the three-month and six-
month periods ended June 30, 1999 and 1998, and the condensed consolidated
statements of cash flows for the six-month periods ended June 30, 1999 and
1998. 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 7-Eleven, Inc.
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, 1998, and the
related consolidated statements of earnings, shareholders' equity
(deficit), and cash flows for the year then ended (not presented herein);
and in our report dated February 4, 1999, 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, 1998, is fairly stated, in all material respects,
in relation to the consolidated balance sheet from which it has been
derived.
PRICEWATERHOUSECOOPERS LLP
July 22, 1999
7
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Some of the matters discussed in this quarterly report contain
forward-looking statements regarding the Company's future business which
are subject to certain risks and uncertainties, including competitive
pressures, adverse economic conditions and government regulations. These
issues, and other factors, which may be identified from time to time in the
Company's reports filed with the SEC, could cause actual results to differ
materially from those indicated in the forward-looking statements.
RESULTS OF OPERATIONS
SUMMARY OF RESULTS OF OPERATIONS
The Company's reported net earnings for the second quarter and six
months were $28.7 million and $34.9 million, respectively, compared to net
earnings of $25.8 million and $31.6 million for the same periods in 1998.
Total revenue growth of over 12% for both periods was the primary reason
for the improved results.
Included in the year-to-date 1999 results is a $4.3 million after tax
extraordinary gain on the partial redemption of the Company's 5% First
Priority and 4.5% Series A Debentures ("5% and 4.5% Debentures"). The
year-to-date 1998 results include a $17.9 million (after tax) extraordinary
gain from the redemption of the Company's 12% Senior Subordinated
Debentures ("12% Debentures"), which was mostly offset by $14.9 million
(after tax) of costs associated with a lease termination, severance and
write-off of slow-moving inventory.
MANAGEMENT STRATEGIES
Since 1992, the Company has been committed to several key strategies
that it believes, over the long term, will provide further differentiation
from competitors and allow 7-Eleven to maintain its position as the premier
convenience retailer. These strategies include:
* Upgrading the Company's store base through developing or acquiring new
stores, continuing the upgrading of existing stores and closing
underachieving stores. In 1999, new store openings are expected to
significantly outpace closings, with the expansion occurring in existing
markets to support the Company's fresh food and combined-distribution
initiatives. Through June 30, 64 new stores have been opened, while 51
stores have closed, primarily due to lease expirations.
* A customer-driven approach to merchandising, which focuses on
providing the customer a selection of quality products at a good value.
* An everyday-fair-pricing strategy which provides consistent,
reasonable prices on all items.
* Daily delivery of high-quality ready-to-eat foods, along with other
time-sensitive or perishable items, through the use of combined
distribution centers, fresh-food commissaries and bakery facilities. These
facilities, which are generally third party operated, are designed to
provide fresher products, improve in-stock conditions and lower product
costs.
* The development of a retail information system which initially has
automated accounting and other store-level tasks. The current phase
involves the installation of point-of-sale registers with scanning
capabilities, as well as tools on the in-store processor to assist with
ordering and product assortment, and a hand-held unit for ordering product
from the sales floor.
8
<PAGE>
These enhancements will allow each store to manage inventory on an item-by-
item basis, forecast demand for fast-selling items and identify and
eliminate slow-selling items. At the end of June 1999, point-of-sale
registers had been installed in nearly 5,000 stores in either a live or
training mode.
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS REFER TO AN AVERAGE OF ALL
STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR.)
SALES
The Company recorded net sales of $2.09 billion for the second quarter
and $3.86 billion in the six months of 1999, compared to net sales of $1.84
billion and $3.44 billion during the same periods last year. The sales
increase is due to a combination of increased per-store sales and more
stores. Merchandise sales growth (U.S. same-store) was 8.7% during the
second quarter and 9.2% for the six-month period.
Through six months, regional per-store merchandise sales growth was
fairly consistent, with the Southwest Division and Central Division (Texas
and Colorado) leading the country with double-digit growth. Categories
contributing the most to growth were cigarettes, prepaid cards, ready-to-
drink (non-carbonated) beverages, frozen non-carbonated beverages and
coffee. Although a significant portion of the improvement is attributable
to the introduction of new products/services, manufacturer cost increases
(net of buy-downs) on cigarettes contributed an estimated 4% to year-to-
date per-store sales growth. As a direct result of new product offerings
or changing customer preferences, certain categories have had slight
declines in per-store sales. These categories include fountain/soft drinks
and newspapers/publications.
Gasoline sales dollars per-store increased 11.5% for the second
quarter and 4.5% for the first six months, compared to last year. The sales
increase for the second quarter was a combination of an 8 cents per gallon
increase in the retail price of gasoline, a 4.1% growth in per-store
gallonage and more stores selling gasoline. The increase in sales dollars
for the first six months was due to an increase of 5.4% in per-store
gallonage and more stores selling gasoline. For both the second quarter
and first six months, the per-store gallonage increase was primarily due to
newly developed stores, which have considerably higher volumes.
OTHER INCOME
Other Income of $24.1 million for the second quarter and $46.2 million
for year-to-date was $0.7 million and $2.3 million favorable to the same
periods in 1998, respectively. Approximately 80% of other income is
derived from royalty income from licensed operations, some of which could
be unfavorably impacted by fluctuating exchange rates. More than 70% of
the royalties are from area license agreements with Seven-Eleven Japan Co.,
Ltd. ("SEJ"). Though the dollar equivalent of the SEJ royalty income will
fluctuate with exchange rate movements, the Company has effectively hedged
this exposure by pledging the royalty income to make principal and interest
payments on its yen-denominated loans.
9
<PAGE>
<TABLE>
<CAPTION>
GROSS PROFITS
PERIODS ENDING JUNE 30, 1999
----------------------------
THREE MONTHS SIX MONTHS
------------ ----------
MERCHANDISE GASOLINE MERCHANDISE GASOLINE
----------- -------- ----------- --------
<S> <C> <C> <C> <C>
Gross Profit - DOLLARS IN MILLIONS $ 553.4 $ 60.1 $1,005.2 $ 113.9
Gross profit margin % (gasoline in cents per gallon) 34.9% 14.3 34.1% 13.8
INCREASE/(DECREASE) FROM PRIOR YEAR - ALL STORES
- ------------------------------------------------
Average per-store gross profit dollar change 7.1% 29.1% 6.6% 21.9%
Margin % point change (gasoline in cents per gallon) (.43) 2.76 (.67) 1.87
Average per-store sales (gasoline in gallons) 8.4% 4.1% 8.6% 5.4%
</TABLE>
Total merchandise gross profit dollars were $51.4 million higher in
the second quarter of 1999 and $92.3 million higher during the first six
months, than the comparable periods in 1998. For both periods, higher
average per-store merchandise sales were partially offset by a lower
margin. Although merchandise gross profit margin was unfavorably impacted
by the inflationary effects of several cigarette manufacturer cost
increases and an excise tax increase in California since last year, the
cigarette category did contribute higher gross profit dollars. Offsetting
a portion of the margin decline were increased sales in some higher margin
items, combined with the successful introduction of new high margin
products.
For the six months of 1999, gasoline gross profit increased $26.6
million over last year, with $16.3 million of the increase occurring in the
second quarter. The increases were due to increased margins, a greater
number of gasoline outlets and higher per-store gallon sales. The recent
worldwide reduction in crude oil production and several U.S. refinery
problems have contributed to lower margins towards the end of the second
quarter. It is difficult to predict what impact these events, combined
with the recent merger activity of large oil producers, will have upon the
market for the remainder of the year.
<TABLE>
<CAPTION>
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("OSG&A")
PERIODS ENDING JUNE 30, 1999
----------------------------
THREE MONTHS SIX MONTHS
------------ ----------
1999 1998 1999 1998
---- ---- ------ ------
<S> <C> <C> <C> <C>
Total OSG&A expenses - (dollars in millions) $564.5 $505.6 $1,064.9 $977.3
Ratio of OSG&A to sales 27.0% 27.4% 27.6% 28.4%
</TABLE>
Operating, selling, general and administrative expenses increased
$58.9 million and $87.6 million during the second quarter and first six
months of 1999, compared to the same periods in 1998, respectively. The
ratio of OSG&A expense to sales decreased 0.8 percentage points during the
first six months of 1999, over the same period in 1998. Part of the reason
for this decline was that there was nearly $19 million of charges for a
computer equipment lease termination and severance costs included in 1998's
OSG&A. After adjusting for these charges, the ratio of OSG&A expense to
sales declined 0.3 in 1999, when compared to the first six months of 1998.
The ratio also dropped 0.4 in 1999's second quarter, when compared to the
same period in 1998, but most of this decline is due to a higher retail
price of gasoline in 1999's second quarter.
Other factors impacting the increase in OSG&A expense for the first
six months of 1999 include incremental costs of nearly $28 million related
10
<PAGE>
to the franchisees' portion of improved gross profits and approximately $13
million associated with the Company's retail information system. In
addition, a portion of the increase in OSG&A expense resulted from costs
related to operating more stores and the Company's implementation of
various merchandising and other strategic initiatives. While the ratio of
OSG&A expense to sales will vary on a quarterly basis, management believes
this ratio will not significantly improve during the rollout phase of the
retail information system.
The Company is a defendant in two legal actions, which are referred to
as the 7-Eleven OFFF and Valente cases, filed by franchisees in 1993 and
1996, respectively, asserting various claims against the Company. A
nationwide settlement was negotiated and, in connection with the
settlement, these two cases have been combined on behalf of a class of all
persons who operated 7-Eleven convenience stores in the United States at
any time between January 1, 1987 and July 31, 1997, under franchise
agreements with the Company. Class members have overwhelmingly approved
the settlement, and the court presiding over the settlement process gave
its final approval of the settlement on April 24, 1998. The settlement
provides that former franchisees will share in a settlement fund and that
certain changes will be made to the franchise agreements with current
franchisees.
Notices of appeal of the order approving the settlement were filed on
behalf of three of the attorneys who represented the class, six former
franchisees and two current franchisees. One of these current franchisees
has dismissed his appeal. The settlement agreement will not become
effective until the appeals are resolved. However, the settlement
agreement provides that while the appeals are pending the Company will pay
certain maintenance and supply expenses relating to the cash registers and
retail information system equipment of current franchisees that are members
of the settlement class. If the settlement is overturned on appeal, the
Company has the right to require franchisees to repay the amounts that the
Company paid for these expenses while the appeals were pending. The
Company's payment of these expenses had no material impact on earnings for
1998 or 1999 and should have no material impact on future earnings. The
Company's accruals are sufficient to cover the total settlement costs,
including the payment due to former franchisees when the settlement becomes
effective.
In addition, the lawsuit entitled EMIL V. SPARANO, ET AL. V. THE
SOUTHLAND CORPORATION, ET AL., which was filed in the United States
District Court for the Northern District of Illinois in March, 1994, by
certain franchisees of 7-Eleven stores in Illinois, Pennsylvania, New
Jersey and Nevada, has now been terminated. On March 4, 1999, the judge
granted summary judgment in favor of the Company on the one class claim
that had remained, ruling that the Company made no misleading statements to
its franchisees as plaintiffs had alleged. Following the Company's victory
on all class claims, the named plaintiffs agreed to dismiss their
individual breach of contract claims that remained in the case, and this
matter is now concluded.
INTEREST EXPENSE, NET
Net interest expense increased $3.5 million during the second quarter
of 1999 and $5.0 million during the first six months, when compared to the
same periods in 1998. The Company expects net interest expense in 1999 to
increase approximately 12% over 1998 based on anticipated levels of debt
and interest rate projections. Factors increasing 1999 interest expense
include higher borrowings to finance new store development and other
initiatives, combined with the redemption of $65 million of the Company's
public debt securities in 1998 and early 1999, which had been accounted for
under SFAS No. 15 (see Extraordinary Gain).
11
<PAGE>
In accordance with SFAS No. 15, no interest expense is recognized on
the Company's public debt securities. These securities were recorded at an
amount equal to the future undiscounted cash payments, both principal and
interest, and accordingly, the cash interest payments are charged against
the recorded amount of such securities and are not treated as interest
expense. Accordingly, interest expense on debt used to redeem public debt
securities results in an increase in the Company's reported interest
expense.
As of June 30, 1999, approximately 48% of the Company's debt contains
floating rates that will be unfavorably impacted by rising interest rates.
The Company has entered into an interest rate swap agreement, which
effectively lowers the amount of debt exposed to floating rates from 48% to
36% (see Interest Rate Swap Agreement). The weighted-average interest rate
for such debt, including the impact of the interest rate swap agreement,
was 5.4% for the first six months of 1999 versus 5.8% for the same time
period in 1998.
INTEREST RATE SWAP AGREEMENT
In June 1998, the Company entered into an interest rate swap agreement
that fixed the interest rate on $250 million notional principal amount of
existing floating rate debt at 5.4% through June 2003. A major financial
institution, as counterparty to the agreement, agreed to pay the Company a
floating interest rate based on three-month LIBOR during the term of the
agreement in exchange for the Company paying a fixed interest rate. The
swap agreement granted the counterparty the option, upon expiration of the
initial swap term, of extending the agreement for an additional five years
at a fixed interest rate of 5.9%.
In February 1999, the Company amended the terms of the interest rate
swap agreement. The fixed rate was increased to 6.1% and the term of the
swap was extended to February 2004; the remaining terms of the swap
agreement were unchanged. In exchange for the increase in the fixed rate,
the five-year extension option held by the counterparty was terminated.
EXTRAORDINARY GAIN
During the first quarter of 1999, the Company redeemed a portion of
its 5% and 4.5% Debentures, resulting in an after tax gain of $4.3 million
from the retirement of future undiscounted interest payments as recorded
under SFAS No. 15, combined with purchasing the debentures below their face
value. In March 1998, redemption of the Company's 12% Debentures resulted
in a $17.9 million after-tax gain from the retirement of future
undiscounted interest payments. Both the 1998 and 1999 redemptions were
financed with proceeds from the issuance of $80 million of 4-1/2%
Convertible Quarterly Income Debt Securities due 2013, to Ito-Yokado Co.,
Ltd., and Seven-Eleven Japan Co., Ltd., the joint owners of IYG Holding
Company, which is the Company's majority shareholder.
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 $650
million commercial paper facility (guaranteed by Ito-Yokado Co., Ltd.); and
iii) short-term seasonal borrowings of up to $400 million (reduced by
outstanding letters of credit) under its revolving credit facility. The
Company believes that operating activities, coupled with available short-
term working capital facilities, will provide sufficient liquidity to fund
12
<PAGE>
current commitments for operating and capital expenditure programs, as well
as to service debt requirements. Actual capital expenditure funding will be
dependent on the level of cash flow generated from operating activities and
the funds available from financings.
In January 1999, the Company expanded the existing commercial paper
facility from $400 million to $650 million. The commercial paper is
unsecured but is fully and unconditionally guaranteed by Ito-Yokado Co.,
Ltd.
7-Eleven's credit agreement, established in February 1997, includes a
term loan with a balance of $141 million and a $400 million revolving
credit facility, which has a sublimit of $150 million for letters of credit
("Credit Agreement"). The Credit Agreement contains certain financial and
operating covenants requiring, among other things, the maintenance of
certain financial ratios, including interest and rent coverage, fixed-
charge coverage and senior indebtedness to net earnings before
extraordinary items and interest, taxes, depreciation and amortization
("EBITDA"). The covenant levels established by the Credit Agreement
generally require continuing improvement in the Company's financial
condition. In March 1999, the financial covenant levels required by these
instruments were amended prospectively in order to allow the Company
flexibility to continue its store growth strategy. In connection with this
amendment, the interest rate on borrowings was changed to a reserve-
adjusted Eurodollar rate plus .475% instead of the previous increment of
.225%.
For the period ended June 30, 1999, the Company was in compliance with
all of the covenants required under the Credit Agreement, including
compliance with the principal financial and operating covenants under the
Credit Agreement (calculated over the latest 12-month period) as follows:
REQUIREMENTS
--------------------
COVENANTS ACTUALS MINIMUM MAXIMUM
--------- ------- ------- -------
Interest and rent coverage * 2.07 to 1.0 1.90 to 1.0
Fixed charge coverage 1.67 to 1.0 1.50 to 1.0
Senior indebtedness to EBITDA 3.91 to 1.0 4.00 to 1.0
Total expenditure limit
(tested annually) $475 million
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
For the first six months ending June 30,1999, the Company repaid $72.8
million of debt, which included principal payments of $28.1 million for
quarterly installments due on the term loan, $22.2 million on the Company's
yen-denominated loan (secured by the royalty income stream from its area
licensee in Japan) and $8.9 million for SFAS No. 15 interest. Outstanding
balances at June 30, 1999 for commercial paper, revolver and term loan,
were $639.5 million, $205.0 million and $140.6 million, respectively. As
of June 30, 1999, outstanding letters of credit issued pursuant to the
Credit Agreement totaled $70.6 million.
CASH FROM OPERATING ACTIVITIES
Net cash provided by operating activities was $121 million for the
first six months of 1999, compared to $126 million during the same period
of 1998 (see Results of Operations section). The decline in cash flows
between the periods relates primarily to changes in working capital during
the first six months of 1999 stemming from three significant items as
follows: payment on a settlement of a previously accrued claim, an increase
in advances for retail information system equipment awaiting quarterly
funding under a master lease facility, and payment to a third party to
assume a previously self-insured disability obligation.
13
<PAGE>
CAPITAL EXPENDITURES
In the first six months of 1999, net cash used in investing activities
consisted primarily of payments of $226.7 million for the purchase of
property and equipment. The majority of the property and equipment capital
was used for new store development, continued implementation of the
Company's retail information system, remodeling stores, new equipment to
support merchandising initiatives, upgrading retail gasoline facilities,
replacing equipment and complying with environmental regulations.
The Company expects 1999 capital expenditures, excluding lease
commitments, to exceed $400 million. Capital expenditures are being used to
develop or acquire new stores, upgrade store facilities, further implement
the retail information system, replace equipment, upgrade gasoline
facilities and comply with environmental regulations. The amount of
expenditures during the year will be materially impacted by the proportion
of new store development funded through borrowings versus leases and the
speed at which new sites/acquisitions can be located, negotiated, permitted
and constructed.
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 it will spend nearly
$2 million in 1999 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 $15-20 million on
such capital improvements from 2000 through 2002.
ENVIRONMENTAL
In December 1988, the Company closed its chemical manufacturing
facility in New Jersey. The Company is required to conduct environmental
remediation at the facility, including groundwater monitoring and treatment
for a planned 15-year period. This remediation program has commenced with
the performance of certain engineering and design work. The Company has
recorded undiscounted liabilities representing its best estimates of the
clean-up costs of $8.4 million at June 30, 1999. In 1991, the Company and
the former owner of the facility entered into a settlement agreement
pursuant to which the former owner agreed to pay a substantial portion of
the clean-up costs. Based on the terms of the settlement agreement and the
financial resources of the former owner, the Company has a receivable
recorded of $4.9 million at June 30, 1999.
Additionally, the Company accrues for the anticipated future costs and
the related probable state reimbursement amounts for remediation activities
at its existing and previously operated gasoline sites where releases of
regulated substances have been detected. At June 30, 1999, the Company's
estimated undiscounted liability for these sites was $37.4 million. 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 remediation work. The Company anticipates that substantially all of the
future remediation costs for detected releases at these sites, as of June
30, 1999, will be incurred within the next four to five years.
14
<PAGE>
Under state reimbursement programs, the Company is eligible to receive
reimbursement for a portion of future remediation costs, as well as a
portion of remediation costs previously paid. Accordingly, at June 30,
1999, the Company has recorded a net receivable of $45.5 million for the
estimated probable state reimbursements. In assessing the probability of
state reimbursements, the Company takes into consideration each state's
fund balance, revenue sources, existing claim backlog, status of clean-up
activity and claim ranking systems. As a result of these assessments, the
recorded receivable amount is net of an allowance of $7.4 million. While
there is no assurance of the timing of the receipt of state reimbursement
funds, based on its experience, the Company expects to receive the majority
of state reimbursement funds, except from California, within one to three
years after payment of eligible remediation expenses, assuming that the
state administrative procedures for processing such reimbursements have
been fully developed. The Company estimates that it may take one to six
years to receive reimbursement funds from California. Therefore, the
portion of the recorded receivable amount that relates to remediation
activities, which have already been conducted, has been discounted at 5.6%
to reflect its present value. Thus, the recorded receivable amount is also
net of a discount of $5.2 million.
The estimated future assessment and remediation expenditures and
related state reimbursement amounts could change within the near future as
governmental requirements and state reimbursement programs continue to be
implemented or revised.
YEAR 2000
The Year 2000 issue ("Y2K") is the result of computer software
programs being coded to use two digits rather than four to define the
applicable year. Some of the Company's older computer programs that have
date-sensitive coding may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations, causing disruptions of operations.
The Company has approached the Y2K issue in six (6) phases. A Year
2000 Project Office Manager, together with a strong support organization,
has designed a Y2K work plan that is currently being implemented. The Y2K
work plan includes: (1) identifying and inventorying all Year 2000 tasks
and items; (2) assigning priorities to all tasks and items; (3)
remediation of information systems ("IS") applications code, testing and
reintegration to production, as well as testing all replaced systems
software and non-remediated applications; (4) contacting third-party
vendors to verify their compliance and perform selected interface tests
with major vendors; (5) determining the Company's Y2K responsibilities to
its franchisees, subsidiaries and affiliates; (6) establishing contingency
alternatives assuming worst-case scenarios.
The Company continues to progress in its completion of the various
tasks, as indicated by the chart below and identified in the Y2K work plan.
The Company believes it has identified and prioritized all major Y2K-
related items. Also, numerous non-IS, merchandise, equipment, financial
institution, insurance and public utility vendors have been contacted,
inquiring as to their readiness and the readiness of their respective
vendors. The Company has contacted all major vendors and is analyzing the
vendor responses to determine their compliance readiness and the response
is very favorable. Testing Y2K compliance with major vendors is underway
15
<PAGE>
and is expected to continue until year-end. In addition, the Company does
not have any direct Y2K responsibility for operations in foreign countries
(except Canada) and does not anticipate any material Y2K related impact
from foreign affiliates or licensees. Canadian operations upgrades are
included in the readiness statement at various phases where applicable. The
following reflects management's assessment of the Company's Year 2000 state
of readiness:
STATE OF READINESS AS OF JUNE 30, 1999
<TABLE>
<CAPTION>
ESTIMATED ESTIMATED
PHASE PERCENT COMPLETE COMPLETION DATE
- ----- ---------------- ---------------
<S> <C> <C>
INTERNAL IS SYSTEMS AND EQUIPMENT:
- ---------------------------------
Awareness 98% on-going
Assessment of changes required 98% on-going
Remediation of code 95% Sept. 1999
Testing 56% Oct. 1999
Analyze contingency plan requirements 50% Aug. 1999
Develop contingency plans and test 20% Nov. 1999
INTERNAL NON-IS SYSTEMS AND EQUIPMENT
- -------------------------------------
Awareness 98% on-going
Assessment of changes required 98% on-going
Remediation/replacement of applications 70% Oct. 1999
Testing 40% Oct. 1999
Contingency planning, development and test 35% Sept. 1999
SUPPLIERS, THIRD-PARTY PROVIDERS, OPERATIONS (7-11):
- ---------------------------------------------------
Awareness (identify companies) 98% on-going
Assessment and review of questionnaires 95% on-going
Risk assessment 95% on-going
Analyze contingency plan requirements 85% Aug. 1999
Develop contingency plans 40% Sept. 1999
Testing with vendors, operations personnel (field) 25% on-going
</TABLE>
The Company estimates that the cost of the Year 2000 Project will be
approximately $8 million, of which nearly $4 million will be capital costs.
The costs incurred to date are $5.1 million, which includes $2.5 million of
capital costs, with the remaining cost for outside consultants, software
and hardware applications to be funded through operating cash flow. The
Company anticipates it will incur the majority of the remaining costs by
the end of the third quarter. This estimate includes costs related to the
upgrade and/or replacement of computer software and hardware; costs of
remediated code testing and test result verification; and the reintegration
to production of all remediated applications. In addition, the costs
include the testing of applications and software currently certified as
Year 2000 compliant. The Company does not separately track the internal
costs incurred for the Y2K project, which are primarily the related payroll
costs for the IS and various user personnel participating in the project.
Due to the general uncertainty inherent in the Year 2000 process,
primarily due to issues surrounding the Y2K readiness of third-party
suppliers and vendors, a reasonable worst-case scenario is difficult to
determine at this time. The Company does not anticipate more than
temporary isolated disruptions attributed to Year 2000 issues to affect
either the Company or its primary vendors. The Company is concentrating on
16
<PAGE>
four critical business areas in order to identify, evaluate and determine
the scenarios requiring the development of contingency plans: (1)
merchandise ordering and receipt, (2) petroleum products ordering and
receipt, (3) human resource systems and (4) disbursement systems. To the
extent vendors are unable to deliver products due to their own Year 2000
issues, the Company believes it will generally have alternative sources for
comparable products and does not expect to experience any material business
disruptions. Although considered unlikely, the failure of public utility
companies to provide telephone and electrical service could have material
consequences. Contingency planning efforts and the development of
contingency plans are currently underway in all three major areas; IS, Non-
IS, vendor relationships and 7-Eleven field operations. The development of
contingency plans will increase as the interaction of the various plans are
identified and additional information becomes available and processed. The
various Company contingency plans are scheduled to be complete and tested
by November 1999.
The costs of the Y2K project and the date on which the Company plans
to complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future
events including the continued availability of certain resources, third-
party modification plans and other factors. As a result, there can be no
assurance that these forward-looking estimates will be achieved and the
actual costs and vendor compliance could differ materially from the
Company's current expectations, resulting in a material financial risk. In
addition, while the Company is making significant efforts in addressing all
anticipated Year 2000 risks within its control, this event is unprecedented
and consequently there can be no assurance that the Year 2000 issue will
not have a material adverse impact on the Company's operating results and
financial condition.
MARKET-SENSITIVE INSTRUMENTS AND RISK MANAGEMENT
The Company held a number of financial and derivative instruments at
June 30, 1999, which are sensitive to changes in interest rates, foreign
exchange rates and equity prices. The Company uses interest-rate swaps to
manage the primary market exposures associated with underlying liabilities
and anticipated transactions. The Company uses these instruments to reduce
risk by essentially creating offsetting market exposures. In addition, the
two yen-denominated loans serve to effectively hedge the Company's exposure
to yen-dollar currency fluctuations. The instruments held by the Company
are not leveraged and are held for purposes other than trading. There are
no material quantitative changes in market risk exposure at June 30, 1999,
when compared to December 31, 1998.
In the normal course of business, the Company also faces risks that
are either nonfinancial or nonquantifiable. Such risks principally include
country risk, credit risk and legal risk and are not represented in this
discussion.
SFAS NO. 133
The Company is currently reviewing SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." The statement establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. In June 1999, the effective date of SFAS No. 133 was extended
for one year; consequently, the statement will now be effective for all
fiscal quarters of fiscal years beginning after June 15, 2000, and earlier
application is encouraged. The Company has not yet determined when it will
17
<PAGE>
adopt the provisions of this statement. The impact of the adoption of SFAS
No. 133 has not been determined at this time due to the Company's
continuing investigation of its financial instruments and the applicability
of SFAS No. 133 to them.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
See "Management's Discussion and Analysis," above.
PART II
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
As previously reported, the Company and three of its former officers
and directors were defendants in a lawsuit entitled EMIL V. SPARANO, ET AL.
V. THE SOUTHLAND CORPORATION, ET AL., Case No. 94 C 2098, which was filed
in the United States District Court for the Northern District of Illinois
in March, 1994, by certain franchisees of 7-Eleven stores in Illinois,
Pennsylvania, New Jersey and Nevada. On March 4, 1999, the judge granted
summary judgment in favor of the Company on the one class claim that had
remained, ruling that the Company made no misleading statements to its
franchisees as the plaintiffs had alleged. Following the Company's victory
on all class claims, the named plaintiffs agreed to dismiss their
individual breach of contract claims that remained in the case, and this
matter is now terminated.
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 28, 1999, the Company held its annual meeting of
shareholders. Each of the thirteen nominated directors were elected
without contest. In addition, the shareholders ratified the approval of
PricewaterhouseCoopers LLP to be the Company's independent auditors for
1999, approved the adoption of the Company's Stock Compensation Plan for
Non-Employee Directors and approved the change of the Company's name to
"7-Eleven, Inc."
(a) The votes for and the votes withheld for each of the nominees
for director were as follows:
NOMINEE FOR WITHHELD
Masatoshi Ito 348,983,584 946,776
Toshifumi Suzuki 348,988,057 942,303
Clark J. Matthews, II 348,905,464 1,024,896
18
<PAGE>
Yoshitami Arai 348,874,221 1,056,139
Masaaki Asakura 348,878,720 1,051,640
Timothy N. Ashida 348,878,003 1,052,357
Jay W. Chai 348,805,693 1,124,667
Gary J. Fernandes 348,886,941 1,043,419
Masaaki Kamata 348,986,976 943,384
James W. Keyes 348,990,608 939,752
Kazuo Otsuka 348,987,809 942,551
Asher O. Pacholder 348,994,120 936,240
Nobutake Sato 348,989,376 940,984
(b) The votes for, against, abstaining and broker non-votes in
connection with the ratification of the appointment of
PricewaterhouseCoopers LLP to be the independent auditors of the Company
for 1999 were as follows:
349,769,677 shares were voted for; 69,639 shares were voted against;
91,044 shares abstained from voting; and no broker non-votes were received.
(c) The votes for, against, abstaining and broker non-votes in
connection with the approval of the Company's Stock Compensation Plan for
Non-Employee Directors were as follows:
348,461,037 shares were voted for; 1,064,139 shares were voted
against; 405,184 shares abstained from voting; and no broker non-votes were
received.
(d) The votes for, against, abstaining and broker non-votes in
connection with the approval of Articles of Amendment to the Company's
Second Restated Articles of Incorporation to change the Company's name to
7-Eleven, Inc. were as follows:
349,690,410 shares were voted for; 159,879 shares were voted against;
80,071 shares abstained from voting; and no broker non-votes were received.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.
(a) Exhibits:
Exhibit (15) - Letter re Unaudited Interim Financial Information
Exhibit (27) - Financial Data Schedule
Submitted in electronic format only.
(b) 8-K Reports:
During the second quarter of 1999, the Company filed no reports on
Form 8-K.
19
<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.
7-ELEVEN, INC.
-------------------
(Registrant)
Date: August 5, 1999 /s/ Clark J. Matthews II
--------------- -------------------------
(Officer)
Clark J. Matthews, II
President and Chief Executive Officer
Date: August 5, 1999 /s/ Donald E. Thomas
-------------- --------------------------
(Principal Accounting Officer)
Donald E. Thomas
Vice President and Controller
20
Exhibit 15
Securities and Exchange Commission
450 Fifth Street, Northwest
Washington, D.C. 20549
Attention: Document Control
Re: 7-Eleven, Inc. (formerly The Southland Corporation) Form 10-Q
We are aware that our report dated July 22, 1999, on our review of the
condensed consolidated balance sheet of 7-Eleven, Inc. and Subsidiaries as
of June 30, 1999, and the related condensed consolidated statements of
earnings for the three-month and six-month periods ended June 30, 1999 and
1998, and the condensed consolidated statements of cash flows for the six-
month periods ended June 30, 1999 and 1998, 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. 1 to Grant Stock Plan 33-25327
1995 Stock Incentive Plan 33-63617
Supplemental Executive Retirement Plan
for Eligible Employees 333-42731
Stock Compensation Plan for Non-Employee Directors 333-68491
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.
PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
August 2, 1999
Tab 1
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> JUN-30-1999
<CASH> 34,294
<SECURITIES> 0
<RECEIVABLES> 168,565
<ALLOWANCES> 10,009
<INVENTORY> 104,694
<CURRENT-ASSETS> 448,812
<PP&E> 3,347,339
<DEPRECIATION> 1,535,987
<TOTAL-ASSETS> 2,572,349
<CURRENT-LIABILITIES> 732,659
<BONDS> 2,217,203
<COMMON> 41
0
0
<OTHER-SE> (604,633)
<TOTAL-LIABILITY-AND-EQUITY> 2,572,349
<SALES> 3,858,604
<TOTAL-REVENUES> 3,904,825
<CGS> 2,739,568
<TOTAL-COSTS> 2,739,568
<OTHER-EXPENSES> 1,064,928
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 49,671
<INCOME-PRETAX> 50,658
<INCOME-TAX> 20,050
<INCOME-CONTINUING> 30,608
<DISCONTINUED> 0
<EXTRAORDINARY> 4,290
<CHANGES> 0
<NET-INCOME> 34,898
<EPS-BASIC> 0.09 <F1>
<EPS-DILUTED> 0.08 <F2>
<FN>
<F1> BASIC EPS FROM CONTINUING OPERATIONS (BEFORE EXTRAORDINARY ITEM) IS .08
<F2> DILUTED EPS FROM CONTINUING OPERATIONS (BEFORE EXTRAORDINARY ITEM) IS .07
</FN>
</TABLE>
