FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________________
(MARK ONE)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBERS 0-676 AND 0-16626
___________________
THE SOUTHLAND CORPORATION
(Exact name of registrant as specified in its charter)
TEXAS 75-1085131
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2711 NORTH HASKELL AVE., DALLAS, TEXAS 75204-2906
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code, 214/828-7011
_________________
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No __
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS:
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court. Yes X No __
APPLICABLE ONLY TO CORPORATE ISSUERS:
409,922,935 shares of common stock, $.0001 par value (the issuer's only
class of common stock), were outstanding as of March 31, 1996.
THE SOUTHLAND CORPORATION
INDEX
PAGE
NO.
----
Part I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS:
Condensed Consolidated Balance Sheets -
March 31, 1996 and December 31,1995 ...................... 1
Condensed Consolidated Statements of Earnings -
Three Months Ended March 31, 1996 and 1995 ................. 2
Condensed Consolidated Statements of Cash Flows -
Three Months Ended March 31, 1996 and 1995 ................ 3
Notes 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 ................................... 11
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K .................... 11
SIGNATURES............................................................ 12
Exhibit (11) - Statement re Computation of Per-Share Earnings....... Tab 1
Exhibit (15) - Letter re Unaudited Interim Financial Information.... Tab 2
Exhibit (27) - Financial Data Schedule.............................. *
*Submitted in electronic format only
(i)
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
ASSETS
MARCH 31, DECEMBER 31,
1996 1995
--------------- ---------------
(UNAUDITED)
CURRENT ASSETS:
Cash and cash equivalents. . . . . . . . $ 84,331 $ 43,047
Accounts and notes receivable . . . . . . 104,107 107,224
Inventories . . . . . . . . . . . . 105,279 102,020
Other current assets . . . . . . . . . 106,547 103,816
--------------- ---------------
TOTAL CURRENT ASSETS . . . . . . . . 400,264 356,107
PROPERTY AND EQUIPMENT. . . . . . . . . . 1,337,842 1,335,783
OTHER ASSETS . . . . . . . . . . . . . 381,572 389,227
--------------- ---------------
$ 2,119,678 $ 2,081,117
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Trade accounts payable . . . . . . . . $ 199,910 $ 195,154
Accrued expenses and other liabilities . . . 333,471 329,429
Commercial paper. . . . . . . . . . . 87,064 50,198
Long-term debt due within one year . . . . 168,396 145,346
--------------- ---------------
TOTAL CURRENT LIABILITIES . . . . . . 788,841 720,127
DEFERRED CREDITS AND OTHER LIABILITIES . . . . 230,495 236,545
LONG-TERM DEBT . . . . . . . . . . . . 1,675,080 1,705,237
CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES . . 300,000 300,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
Common stock, $.0001 par value . . . . . . 41 41
Additional capital . . . . . . . . . . 625,574 625,574
Accumulated deficit . . . . . . . . . (1,500,353) (1,506,407)
--------------- ---------------
TOTAL SHAREHOLDERS' EQUITY (DEFICIT ) . . (874,738) (880,792)
--------------- ---------------
$ 2,119,678 $ 2,081,117
=============== ===============
See notes to condensed consolidated financial statements.
1
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
----------------------------
1996 1995
------------ ------------
REVENUES:
Net sales (Including $232,481 and $233,982 in excise taxes). $ 1,562,614 $ 1,544,779
Other income . . . . . . . . . . . . . . . . 17,021 16,749
------------ ------------
1,579,635 1,561,528
COSTS AND EXPENSES:
Cost of goods sold . . . . . . . . . . . . . . 1,120,568 1,095,542
Operating, selling, general and administrative expenses . . 426,851 442,001
Interest expense, net . . . . . . . . . . . . . 23,068 22,897
------------ ------------
1,570,487 1,560,440
------------ ------------
EARNINGS BEFORE INCOME TAXES. . . . . . . . . . . . . 9,148 1,088
INCOME TAXES . . . . . . . . . . . . . . . . . . 3,659 2,050
------------ ------------
NET EARNINGS (LOSS). . . . . . . . . . . . . . . . $ 5,489 $ (962)
============ ============
NET EARNINGS (LOSS) PER COMMON SHARE (Primary and Fully Diluted). $.02 $ -
===== =====
See notes to condensed consolidated financial statements.
2
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS)
(UNAUDITED)
THREE MONTHS
ENDED MARCH 31,
---------------------------
1996 1995
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net earnings (loss) . . . . . . . . . . . . . . . . . . $ 5,489 $ (962)
Adjustments to reconcile net earnings (loss) to net cash
provided by operating activities:
Depreciation and amortization of property and equipment. . . . . 39,746 34,857
Other amortization . . . . . . . . . . . . . . . . . 4,757 4,534
Deferred income taxes . . . . . . . . . . . . . . . . (1,209) 272
Noncash interest expense . . . . . . . . . . . . . . . 459 738
Other noncash income . . . . . . . . . . . . . . . . (88) (224)
Net loss on property and equipment. . . . . . . . . . . . 756 660
Decrease in accounts and notes receivable . . . . . . . . . 5,952 9,895
Increase in inventories . . . . . . . . . . . . . . . (3,259) (15)
(Increase) decrease in other assets . . . . . . . . . . . (449) 398
Increase (decrease) in trade accounts payable and other liabilities. 4,024 (46,352)
------------- ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES. . . . . . . 56,178 3,801
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Payments for purchase of property and equipment. . . . . . . . . (45,246) (37,899)
Proceeds from sale of property and equipment. . . . . . . . . . 2,448 2,820
Other. . . . . . . . . . . . . . . . . . . . . . . (904) 528
------------- ------------
NET CASH USED IN INVESTING ACTIVITIES . . . . . . . . (43,702) (34,551)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from commercial paper and revolving credit facilities. . . . 823,488 1,085,171
Payments under commercial paper and revolving credit facilities . . . (765,987) (1,076,930)
Principal payments under long-term debt agreements. . . . . . . . (28,693) (8,213)
Other. . . . . . . . . . . . . . . . . . . . . . . - (657)
------------- ------------
NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES . . . 28,808 (629)
------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS . . . . . . . . 41,284 (31,379)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR . . . . . . . . . . 43,047 59,288
------------- ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD . . . . . . . . . . . $ 84,331 $ 27,909
============= ============
RELATED DISCLOSURES FOR CASH FLOW REPORTING:
Interest paid, excluding SFAS No.15 Interest. . . . . . . . . . $ (25,455) $ (21,839)
============= ============
Net income taxes refunded (paid). . . . . . . . . . . . . . $ 1,181 $ (3,717)
============= ============
See notes to condensed consolidated financial statements.
3
THE SOUTHLAND CORPORATION AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE MONTHS ENDED MARCH 31, 1996
(UNAUDITED)
1. BASIS OF PRESENTATION:
The condensed consolidated balance sheet as of March 31, 1996, and the
condensed consolidated statements of earnings and cash flows for the three-month
periods ended March 31, 1996 and 1995, have been prepared by the Company without
audit. In the opinion of management, all adjustments (which included only
normal, recurring adjustments) necessary to present fairly the financial
position at March 31, 1996, 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, 1995, 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, 1995, include accounting
policies and additional information pertinent to an understanding of both the
December 31, 1995, balance sheet and the interim financial statements. The
information has not changed except as a result of normal transactions in
the three months ended March 31, 1996.
2. IMPAIRMENT OF LONG-LIVED ASSETS:
As of January 1996, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 121, "Accounting for the Impairment of Long-Lived
Assets." SFAS No. 121 establishes accounting standards for the impairment of
long-lived assets to be held and used and for long-lived assets to be disposed
of. The adoption of SFAS No. 121 did not have a material effect on the
Company's earnings.
4
REPORT OF INDEPENDENT ACCOUNTANTS
-----------------------------------------------------
To the Board of Directors and Shareholders of
The Southland Corporation
We have reviewed the accompanying condensed consolidated balance sheet of
The Southland Corporation and Subsidiaries as of March 31, 1996, and the
related condensed consolidated statements of earnings and cash flows for
the three-month periods ended March 31, 1996 and 1995. 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, 1995, 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 14, 1996, 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,
1995, 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
April 22, 1996
5
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS - THREE MONTHS ENDED MARCH 31, 1996
Summary of Results of Operations
- ---------------------------------
The Company's net earnings for the first quarter of 1996 totalled $5.5
million ($.02 per share) compared to a net loss of $1.0 million (-$.00 per
share) for the same period in 1995. This improvement was primarily due to
reduced operating, selling, general and administrative expenses.
(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS REFER TO AN AVERAGE OF ALL STORES
RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR)
Management Strategies
- ---------------------
Since 1992, the Company has been committed to several key strategies
that it believes, over the long term, will provide further differentiation and
allow 7-Eleven to maintain its position as the premier convenience retailer.
These strategies include:
- Continued upgrades to the Company's store base by remodeling existing
stores, closing underperforming stores and developing new sites.
- A customer-driven approach to merchandising which focuses on providing
the customer an expanded selection of quality products at a good value.
- Everyday-fair-pricing strategy which provides consistent, reasonable
prices on all items.
- Daily delivery of fresh perishable items and high-quality, ready-to-
eat foods providing fresher products, improved in-stock conditions and
lower product costs.
- Implementation of a retail automation system has initially automated
accounting and other store-level tasks. When fully complete, the
system will provide each store, as well as suppliers and distributors,
with on-line information to make improved ordering decisions.
The Company believes these strategies have contributed to successful
results as evidenced by nine consecutive quarters of same-store merchandise
sales growth and thirteen consecutive quarters of increased merchandise gross
profits per store.
Sales
- -----
The Company recorded net sales of $1.56 billion for the three months
ended March 31, 1996, compared to sales of $1.54 billion during the same period
in 1995, even with an average of 171 fewer stores (31 with gas) as a result of
closures (see Management Strategies). The first quarter of 1996 produced U.S.
same-store (stores open more than one year) merchandise sales increase of 2.7%
(1.5% excluding the additional day in 1996 for leap year). After adjusting for
first quarter inflation of 2.1%, same-store merchandise sales real growth was
0.6% (-.5% excluding the additional day).
6
Gasoline sales dollars per store increased 3.6% for the first quarter
of 1996, due to per-store gallonage improvement of 2.0% and an average increase
in sales price of 1.8 cents per gallon.
Gross Profits
- --------------
Three Months Ended March 31, 1996
---------------------------------
Merchandise Gasoline
----------- ----------
Gross Profit - dollars in millions $ 401.6 $ 40.4
INCREASE/(DECREASE) FROM PRIOR YEAR
- ------------------------------------
Average per store gross profit dollar change 3.0% (12.7)%
Margin point change (gasoline in cents per gallon) (.35) (1.98)
Average per store sales (gasoline in gallons) 4.1% 2.0%
Merchandise gross profit was $.5 million lower in the first quarter of
1996 when compared to the same period in 1995. Per-store sales growth for the
first quarter was not enough to offset the effects of an average of 171 fewer
stores and the drop in margin.
During the first quarter of 1996, merchandise margins declined
slightly compared to the same period in 1995. This decline was the result of
several factors, including rising product costs that were not entirely passed
on to the consumer and initial introductory costs associated with new, fresh-
food products. Management is actively working to reduce product costs in an
effort to maintain a merchandise margin level consistent with last year.
During the first three months of 1996, gasoline gross profits declined
$6.6 million from the same time period in 1995 due to lower margins. Gasoline
results during the quarter were affected by difficult market conditions that
kept wholesale costs rising throughout the period. Unusually low industry
crude oil and gasoline inventory levels caused product costs to rise. Such
lower inventories can be attributed to unusually severe winter weather in the
Northeast and to uncertainty over the future outcome of the Iraq oil embargo.
Operating, Selling, General and Administrative Expenses ("OSG&A")
- ------------------------------------------------------------------
Operating, selling, general and administrative expenses decreased
$15.2 million in the first quarter of 1996 compared to the same period in 1995.
The majority of the decrease in OSG&A expenses resulted from cost savings
realized from reductions in force, lower insurance and benefit costs, and the
effect of having fewer stores (see Management Strategies). The ratio of OSG&A
expenses to sales was 27.3% in the first three months of 1996, a decrease of
1.3 percentage points from the same period in 1995. While the ratio will vary
on a quarterly basis, management expects some of this improvement over prior
year results to continue through the remainder of the year.
Interest Expense, Net
- ---------------------
In November 1995, the Company consummated a $216.7 million tender
offer to purchase a portion ($263.3 million face value) of its public debt
securities (see Liquidity and Capital Resources - Financing Activities). The
7
purchase was financed by the issuance of $300 million of 4.5% Convertible
Quarterly Income Debt Securities due 2010 ("Convertible Debt"). The annual
interest expense of $13.7 million from issuing the Convertible Debt will not be
offset by a corresponding reduction in interest expense for the retired
debentures, because the retired debentures were accounted for pursuant to
Statement of Financial Accounting Standards No. 15 ("SFAS No. 15"). SFAS No.
15 provides that future interest payments on the Company's currently
outstanding public debt securities be recorded as debt on the balance sheet and
charged against such balances when paid rather than being recorded as interest
expense in the income statement.
The Company's first quarter 1996 net interest expense was flat,
increasing only $.2 million over 1995. Despite the incremental interest
expense from the Convertible Debt, the Company expects total interest expense
to remain relatively flat for the remainder of the year, due to the expectation
of lower floating rates and debt balances coupled with lower short-term
borrowings from use of the Convertible Debt proceeds not used in the tender
offer.
Approximately 36% of the Company's debt contains floating rates, which
had a weighted average interest rate of 6.07% for the first quarter of 1996
versus 6.78% for the same time period in 1995. In the first quarter of 1996,
the Company reduced its exposure to short-term fluctuations in rates on a
substantial portion of its floating rate bank debt by selecting six month and
one year LIBOR maturities at current favorable rates rather than the shorter
terms it has selected in the past.
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 operating activities coupled with
available short-term working capital facilities will provide sufficient
liquidity to fund current operating and capital expenditure programs, as well
as to service debt requirements.
On November 22, 1995, the Company completed a tender offer for 40% of
the face value of both its 5% First Priority Senior Subordinated Debentures due
December 15, 2003 ($180.6 million) and 4 1/2% Second Priority Senior
Subordinated Debentures-Series A ($82.7 million) due June 15, 2004
(collectively, the "Debentures"). Under the terms of the offer the final
clearing prices were $840 and $786 for the 5% and 4 1/2% Debentures,
respectively, per $1,000 face amount, resulting in a cash outlay by the Company
of $216.7 million.
To finance the purchase of the Debentures, the Company issued $300
million in Convertible Debt 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. The remaining proceeds of $83.3 million were made
available for general corporate purposes. The Convertible Debt is subordinated
to all existing debt, has a 15 year term with no amortization and is
convertible into the Company's common shares at $4.16 per share.
8
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 March 31, 1996, the Company was in compliance
with all of the covenants required under the Credit Agreement, including
compliance with the principal financial and operating covenants (calculated
over the latest 12 month period) as follows:
Requirements:
--------------------------------
Covenants Actuals Minimum Maximum
- --------- ------- --------- ---------
Interest coverage * 2.90 to 1.0 2.70 to 1.0
Fixed charge coverage 1.01 to 1.0 1.00 to 1.0
Senior indebtedness to EBITDA 3.51 to 1.0 4.10 to 1.0
* INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.
During the first three months, the Company repaid $28.7 million of
debt, which included the $18.8 million scheduled quarterly installment under
the Credit Agreement. Outstanding balances at March 31, 1996, for the
commercial paper, the Term Loan and the Revolver were $387.1 million, $281.3
million and $25.0 million, respectively. As of March 31, 1996, outstanding
letters of credit issued pursuant to the Credit Agreement totaled $80.1
million.
Cash From Operating Activities
- ------------------------------
Net cash provided by operating activities was $56.2 million for the
first quarter of 1996, an increase of $52.4 million over the same period in
1995. The majority of this improvement was caused by the timing of payments of
trade payables and other liabilities, combined with the improved performance
previously discussed in the Results of Operations section.
Capital Expenditures
- --------------------
In the first three months, net cash used in investing activities
consisted primarily of payments of $45.2 million for property 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 to spend approximately $200 million on capital in
1996, excluding lease commitments. The exact amount spent will depend upon the
level of EBITDA generated relative to fixed charge coverage requirements under
the Credit Agreement. Capital expenditures will be used to complete remodels
started in 1995; to remodel about 1,100 additional stores; for development or
acquisition of new stores; to replace equipment; to upgrade gasoline facilities
and to comply with environmental regulations. While the Company will look at
the economics of each new site, it anticipates that it will finance new store
construction primarily through leases containing initial terms of 15-20 years
with typical option renewal periods.
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
approximately $12 million in 1996 on capital improvements required to comply
9
with environmental regulations relating to USTs, as well as above-ground vapor
recovery equipment at store locations and approximately an additional $22
million on such capital improvements from 1997 through 1999.
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 March
31, 1996, the Company has an accrued liability of $59.1 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.
Under state reimbursement programs the Company is eligible to receive
reimbursement for a portion of future costs, as well as a portion of costs
previously paid. At March 31, 1996, the Company has recorded a gross
receivable of $69.7 million (a net receivable of $57.0 million after an
allowance of $12.7 million) for the estimated probable state reimbursement.
There is no assurance of the timing of the receipt of state reimbursement
funds; however, based on its experience, the Company expects to receive the
majority of 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 in the future as governmental
requirements and state reimbursement programs continue to be implemented or
revised.
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 $37.6 million at March 31, 1996. Of this
amount, $31.2 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 $21.9 million at March 31, 1996,
representing the former owner's portion of the clean-up costs.
None of the amounts related to environmental liabilities have been
discounted.
10
PART II.
OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS.
There are no reportable suits or proceedings pending or threatened
against the Company other than as previously reported.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
1. Exhibit (11) -- Statement re Computation of Per-Share Earnings.
2. Exhibit (15) -- Letter re Unaudited Interim Financial
Information.
Letter of Coopers & Lybrand, Independent
Accountants.
3. Exhibit (27) -- Financial Data Schedule.
Submitted in electronic format only.
(b) 8-K Reports:
During the first quarter of 1996, the Company filed no reports on Form 8-K.
11
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: May 1, 1996 /s/ Clark J. Matthews, II
---------------------------
(Officer)
Clark J. Matthews, II
President and Chief Executive
Officer
Date: May 1, 1996 /s/ Donald E. Thomas
----------------------------
(Principal Accounting Officer)
Donald E. Thomas
Controller
12