<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 September 30,1998

                                      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 CORPORATE ISSUERS:

     409,922,935 shares of common stock, $.0001 par value (the issuer's only 
class of common stock), were outstanding as of September 30, 1998.



<PAGE>
                          THE SOUTHLAND CORPORATION
                                    INDEX


                                                                        Page
                                                                         No.
                                                                        ----

Part I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS:

     Condensed Consolidated Balance Sheets -
       September 30, 1998 and December 31, 1997.......................    1

     Condensed Consolidated Statements of Earnings -
       Three Months and Nine Months Ended September 30, 1998 and 1997.    2

     Condensed Consolidated Statements of Cash Flows -
       Nine Months Ended September 30, 1998 and 1997..................    3

     Notes to Condensed Consolidated Financial Statements ............    4

     Report of Independent Accountants................................    8

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...................................    9

ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK....  18

Part II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS ...........................................   19

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>

                             THE SOUTHLAND CORPORATION AND SUBSIDIARIES
                               CONDENSED CONSOLIDATED BALANCE SHEETS
                            (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)

                                             ASSETS

                                                                  SEPTEMBER 30, DECEMBER 31,
                                                                      1998         1997
                                                                  -----------   -----------
                                                                  (Unaudited)

<S>                                                               <C>           <C>
CURRENT ASSETS:
   Cash and cash equivalents                                      $    42,313   $    38,605
   Accounts receivable                                                128,815       126,495
   Inventories                                                        115,941       125,396
   Other current assets                                               156,918        96,145
                                                                  -----------   -----------
     TOTAL CURRENT ASSETS                                             443,987       386,641
PROPERTY AND EQUIPMENT                                              1,573,399     1,416,687
OTHER ASSETS                                                          311,455       286,753
                                                                  -----------   -----------
                                                                  $ 2,328,841   $ 2,090,081
                                                                  ===========   ===========


                          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Trade accounts payable                                         $   212,831   $   196,799
   Accrued expenses and other liabilities                             301,601       275,267
   Commercial paper                                                    28,044        48,744
   Long-term debt due within one year                                 289,317       208,839
                                                                  -----------   -----------
     TOTAL CURRENT LIABILITIES                                        831,793       729,649
DEFERRED CREDITS AND OTHER LIABILITIES                                208,848       187,414
LONG-TERM DEBT                                                      1,562,915     1,594,545
CONVERTIBLE QUARTERLY INCOME DEBT SECURITIES                          380,000       300,000
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY (DEFICIT):
   Common stock, $.0001 par value                                          41            41
   Additional capital                                                 625,574       625,574
   Accumulated deficit                                             (1,284,884)   (1,352,058)
   Accumulated other comprehensive income                               4,554         4,916
                                                                  ------------  ------------
     TOTAL SHAREHOLDERS' EQUITY (DEFICIT)                            (654,715)     (721,527)
                                                                  ------------  ------------
                                                                  $ 2,328,841   $ 2,090,081
                                                                  ===========   ===========









                  See notes to condensed consolidated financial statements.




                                                 1

</TABLE>




<PAGE>
<TABLE>
<CAPTION>


                               THE SOUTHLAND CORPORATION AND SUBSIDIARIES 
                              CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS 
                              (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA) 

                                             (UNAUDITED) 
 
                                                       THREE MONTHS                 NINE MONTHS 
                                                      ENDED SEPTEMBER 30,         ENDED SEPTEMBER 30, 
                                                ---------------------------     ----------------------- 
                                                      1998           1997           1998          1997 
                                                -------------   -----------     ----------   ----------- 
<S>                                             <C>            <C>            <C>            <C> 
REVENUES: 
     Net sales (Including $280,926, $256,235, 
        $767,595 and $725,358 in excise taxes)  $ 2,000,298    $ 1,873,936    $ 5,439,780    $ 5,260,319 
     Other income                                    23,577         22,850         67,454         66,578 
                                                ------------   ------------   ------------   ------------ 
                                                  2,023,875      1,896,786      5,507,234      5,326,897 
COSTS AND EXPENSES: 
     Cost of goods sold                           1,395,289      1,321,793      3,834,634      3,736,076
     Operating, selling, general and 
         administrative expenses                    548,537        497,202      1,525,847      1,415,620 
     Interest expense, net                           22,962         22,158         67,628         67,872 
                                                ------------   ------------   ------------   ------------ 
                                                  1,966,788      1,841,153      5,428,109      5,219,568 
                                                ------------   ------------   ------------   ------------ 
EARNINGS BEFORE INCOME TAXES AND                                                                         
     EXTRAORDINARY GAIN                              57,087         55,633         79,125        107,329 

INCOME TAXES                                         21,516         22,162         29,822         42,706 
                                                ------------   ------------   ------------   ------------ 
EARNINGS BEFORE EXTRAORDINARY GAIN              $    35,571    $    33,471    $    49,303    $    64,623 
                                                                                                          
EXTRAORDINARY GAIN ON DEBT REDEMPTION (net
     of tax effect of $11,425)                         -              -            17,871            -
                                                ------------   ------------   -------------   ------------
NET EARNINGS                                    $    35,571    $    33,471    $    67,174    $    64,623
                                                ============   ============   ============   =============




 
EARNINGS BEFORE EXTRAORDINARY GAIN PER COMMON SHARE: 
     Basic                                              $.09           $.08           $.12           $.16 
     Diluted                                             .07            .07            .11            .15 
EXTRAORDINARY GAIN ON DEBT REDEMPTION PER COMMON SHARE:
     Basic                                              $.00           $.00           $.04           $.00
     Diluted                                             .00            .00            .04            .00
NET EARNINGS PER COMMON SHARE:
     Basic                                              $.09           $.08           $.16           $.16
     Diluted                                             .07            .07            .15            .15
 
 
                        See notes to condensed consolidated financial statements. 
 
                                                        2
</TABLE> 

<PAGE>
<TABLE>
<CAPTION>
                                     THE SOUTHLAND CORPORATION AND SUBSIDIARIES
                                   CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                               (DOLLARS IN THOUSANDS)

                                                   (UNAUDITED)
                                                                                          NINE MONTHS
                                                                                       ENDED SEPTEMBER 30,
                                                                                -------------------------------
                                                                                     1998              1997
                                                                                -------------    --------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net earnings                                                                $     67,174    $     64,623
    Adjustments to reconcile net earnings to net cash provided
        by operating activities:
        Extraordinary gain on debt redemption                                        (17,871)             -
        Depreciation and amortization of property and equipment                      130,320          132,436
        Other amortization                                                            14,594           14,270
        Deferred income taxes                                                         15,273           36,396
        Noncash interest expense                                                       1,086            2,210
        Other noncash expense (income)                                                 5,265            (867)
        Net loss (gain) on property and equipment                                      2,775            (331)
        (Increase) decrease in accounts receivable                                    (1,021)          23,749
        Decrease (increase) in inventories                                            20,445           (2,744)
        Increase in other assets                                                     (15,875)         (20,647)
        Increase (decrease) in trade accounts payable and other liabilities            7,678          (54,115)
                                                                                -------------    -------------
                  NET CASH PROVIDED BY OPERATING ACTIVITIES                          229,843          194,980
                                                                                -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Payments for purchase of property and equipment                                 (254,207)        (148,705)
    Proceeds from sale of property and equipment                                       6,527           12,583
    Increase in restricted cash                                                      (43,213)             -
    Acquisition of businesses, net of cash acquired                                  (31,472)             -
    Other                                                                              3,361            2,939
                                                                                -------------    -------------
                  NET CASH USED IN INVESTING ACTIVITIES                             (319,004)        (133,183)
                                                                                -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from commercial paper and revolving credit facilities                 5,040,984        4,034,465
    Payments under commercial paper and revolving credit facilities               (4,985,231)      (4,038,178)
    Proceeds from issuance of long-term debt                                          96,503          225,000
    Principal payments under long-term debt agreements                              (134,869)        (273,046)
    Proceeds from issuance of Convertible Quarterly Income Debt Securities            80,000              -
    Other                                                                             (4,518)            (520)
                                                                                -------------    -------------
                  NET CASH PROVIDED BY (USED IN) FINANCING ACTIVITIES                 92,869          (52,279)
                                                                                -------------    -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS                                              3,708            9,518
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR                                        38,605           36,494
                                                                                -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      $     42,313     $     46,012
                                                                                =============    =============

RELATED DISCLOSURES FOR CASH FLOW REPORTING:

    Interest paid, excluding SFAS No.15 Interest                                $    (74,718)    $    (71,708)
                                                                                =============    =============
    Net income taxes paid                                                       $     (8,509)    $     (5,858)
                                                                                =============    =============
    Assets obtained by entering into capital leases                             $     27,108     $     13,781
                                                                                =============    =============


                                  See notes to condensed consolidated financial statements.

</TABLE>



                                                        3

<PAGE>

               THE SOUTHLAND CORPORATION AND SUBSIDIARIES

           NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                  NINE MONTHS ENDED SEPTEMBER 30, 1998
              (DOLLARS IN THOUSANDS, EXCEPT PER-SHARE DATA)

                             (UNAUDITED)

1.   BASIS OF PRESENTATION:

The condensed consolidated balance sheet as of September 30, 1998, and the 
condensed consolidated statements of earnings for the three-month and nine-
month periods ended September 30, 1998 and 1997,and the condensed 
consolidated statements of cash flows for the nine-month periods ended 
September 30, 1998 and 1997, have been prepared by the Company without 
audit.  In the opinion of management, all adjustments necessary to present 
fairly the financial position at September 30, 1998, 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, 1997, 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, 1997, include 
accounting policies and additional information pertinent to an 
understanding of both the December 31, 1997, balance sheet and the interim 
financial statements.  The information has not changed except as a result 
of normal transactions in the nine months ended September 30, 1998, and as 
discussed in the following notes.

2.   COMPREHENSIVE INCOME:

In January 1998, the Company adopted the provisions of Statement of 
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive 
Income," which is required for fiscal years beginning after 
December 15, 1997.  SFAS No. 130 establishes standards for reporting 
comprehensive income and its components in a full set of general-purpose 
financial statements.  The components of accumulated other comprehensive 
income, net of tax, of the Company are as follows:
<TABLE>
<CAPTION>
                                                       September 30,    December 31,
                                                           1998           1997
                                                       -----------      ------------
<S>                                                    <C>              <C>
Unrealized gain on equity securities                   $   10,957       $    9,192
Foreign currency translation adjustments                   (6,403)          (4,276)
                                                       -----------      ------------
Accumulated other comprehensive income                 $    4,554      $    4,916
                                                       ===========      ============
</TABLE>

The components of comprehensive income of the Company for the three-month 
and nine-month periods ended September 30, 1998 and 1997, are as follows:
<TABLE>
<CAPTION>
                                                          Three Months            Nine Months
                                                        Ended September 30,    Ended September 30
                                                        ------------------    --------------------
                                                         1998       1997         1998       1997
                                                        ------    --------     --------  ---------
<S>                                                     <C>       <C>          <C>       <C>
Net earnings                                            $ 35,571  $ 33,471     $ 67,174   $ 64,623
Other comprehensive income (expense), net of tax:
   Unrealized gains on equity securities                  (5,162)    1,509        1,765        (63)
   Foreign currency translation adjustments               (1,403)       57       (2,127)       (56)
                                                         --------  --------     --------   --------
         Other comprehensive income (expense)             (6,565)    1,566         (362)      (119)
                                                         --------  --------     --------   --------
Comprehensive income                                    $ 29,006  $ 35,037     $ 66,812    $ 64,504
                                                        ========= =========     ========   ========
</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          Nine Months
                                                                          Ended September 30,   Ended September 30,
                                                                         --------------------   ------------------
                                                                           1998       1997        1998       1997
                                                                         --------    --------    --------  ---------
<S>                                                                      <C>         <C>         <C>       <C>      
BASIC EPS COMPUTATION:
  Earnings (Numerator):
   Earnings before extraordinary gain available to common shareholders   $   35,571    $ 33,471   $ 49,303  $ 64,623
   Earnings on extraordinary gain available to common shareholders              -          -        17,871       -
                                                                         -----------   --------   --------  ---------
   Net earnings available to common shareholders                         $   35,571    $ 33,471   $ 67,174  $ 64,623
                                                                         ==========   =========   ========  =========
 Shares (Denominator):
   Weighted average number of common shares outstanding                     409,923     409,923    409,923    409,923
                                                                         ==========   =========   ========  =========
BASIC EPS:
  Earnings per common share before extraordinary gain                     $    .09     $   .08    $   .12   $   .16
  Earnings per common share on extraordinary gain                                -          -         .04        -
                                                                          ----------   ---------   -------  --------
  Net earnings per common share                                           $    .09     $   .08    $   .16   $   .16
                                                                          ==========   =========  ========  ========

DILUTED EPS COMPUTATION:
  Earnings (Numerator):
   Earnings before extraordinary gain available to common shareholders   $   35,571    $ 33,471   $ 49,303  $ 64,623
   Add interest on Convertible Quarterly Income Debt Securities,
         net of tax                                                           2,708       2,066      7,761     6,201
                                                                         ----------     --------  --------  ---------
   Earnings before extraordinary gain available to common shareholders
         plus assumed conversions                                            38,279      35,537     57,064    70,824

   Earnings on extraordinary gain available to common shareholders              -           -       17,871       -
                                                                           ---------     --------  --------   -------
   Net earnings available to common shareholders plus assumed
         conversions                                                     $   38,279    $ 35,537   $ 74,935  $ 70,824
                                                                          ==========    ========  ========  =========
  Shares (Denominator):
   Weighted average number of common shares outstanding                     409,923      409,923   409,923   409,923
   Add effects of assumed conversions:
         Conversion of Convertible Quarterly Income Debt Securities         104,620       72,112    97,912    72,112
         Exercise of stock options                                              153          -          89       227
                                                                          ---------    ---------   --------   --------
   Weighted average number of common shares outstanding plus shares
         from assumed conversions                                           514,696     482,035    507,924   482,262
                                                                           =========    ========   ========  ========
DILUTED EPS :
   Earnings per common share before extraordinary gain                   $    .07      $  .07     $   .11   $   .15
   Earnings per common share on extraordinary gain                             -           -          .04        -
                                                                           ---------   ---------   -------   --------
   Net earnings per common share                                         $    .07      $  .07     $   .15   $   .15
                                                                          ===========   =========   =======  =========

</TABLE>


                                          5

<PAGE>

4.   ACQUISITIONS:

On May 4, 1998, the Company purchased 100% of the common stock of Christy's 
Market, Inc., a Massachusetts company that operates 132 convenience stores 
in the New England area.  On May 12, 1998, the Company purchased the assets 
of 20 'red D mart' convenience stores in the South Bend, Indiana, area from 
MDK Corporation of Goshen, Indiana.  

These acquisitions were accounted for under the purchase method of 
accounting and, accordingly, the results of operations of the acquired 
businesses have been included in the accompanying consolidated financial 
statements from their dates of acquisition.  Pro forma information is not 
provided as the impact of the acquisitions does not have a material effect 
on the Company's results of operations, cash flows or financial position.

The following preliminary information is provided as supplemental cash flow 
disclosure for the acquisitions of businesses as reported in the Condensed 
Consolidated Statements of Cash Flows for the nine months ended 
September 30, 1998:

               Fair value of assets acquired              $  69,007
               Fair value of liabilities assumed             36,243
                                                          ---------
               Cash paid                                     32,764
               Less cash acquired                             1,292
                                                          ---------
               Net cash paid for acquisitions             $  31,472
                                                          =========

5.   FINANCIAL INSTRUMENTS:

YEN LOAN - On April 30, 1998, funding occurred on a yen-denominated loan 
for 12.5 billion yen or $96.5 million of proceeds.  The loan has an 
interest rate of 2.325% and will be repaid from the Seven-Eleven Japan area 
license royalty income beginning in 2001, after the existing yen loan has 
been retired.  Both principal and interest of the loan are nonrecourse to 
the Company.  The proceeds included exercising a put option at the strike 
price of 129.53 yen per dollar.  The purchase of this put option was 
financed by the Company by selling a call option at a strike price of 
125.08 yen per dollar with the same yen amount and maturity as the put 
option, thereby committing the Company to exchange at a rate of 125.08.  
The call option was marked to market and, as a result, income of 
$1.5 million was recognized during the first quarter of 1998. The call 
option expired unexercised on April 28, 1998.  Proceeds of the loan will be 
used for general corporate purposes.

INTEREST RATE SWAP AGREEMENT - The Company is using derivative financial 
instruments to reduce its exposure to market risk resulting from interest 
rates.  On June 26, 1998, the Company entered into an interest rate swap 
agreement that fixes the interest rate at 5.395% on $250 million notional 
principal amount of floating rate debt until June 26, 2003.  A major 
financial institution, as counterparty to the agreement, will pay the 
Company a floating interest rate based on three-month LIBOR during the term 
of the agreement in exchange for the Company paying the fixed interest 
rate.  Interest payments commenced September 28, 1998, and will be made 
quarterly by both parties.  The Company is at risk of loss from this swap 
agreement in the event of nonperformance by the counterparty.

Upon expiration of the initial swap term, the agreement is extendible for  
an additional five years at the option of the counterparty.  If such 
election is made, the Company will pay a fixed interest rate of 5.87% for 
the period after the original termination date.  This option component of 
the agreement is recognized at fair value and is marked to market.  Due to 
declining interest rates throughout the quarter, the Company recognized 
$3.2 million of expense related to the option component.  However, with 
respect to its unhedged floating rate debt, the Company experienced a 
positive economic benefit from the declining interest rates during the 
quarter.

                                    6

<PAGE>

SFAS NO. 133 - The Company is currently reviewing SFAS No. 133, "Accounting 
for Derivative and Similar Financial Instruments and for Hedging 
Activities."  The statement establishes accounting and reporting standards 
for derivative instruments, including certain derivative instruments 
embedded in other contracts, and for hedging activities.  SFAS No. 133 
becomes effective for all fiscal quarters of fiscal years beginning after 
June 15, 1999, and earlier application is permitted as of the beginning of 
any fiscal quarter subsequent to June 15, 1998.  The Company intends to 
adopt the provisions of this statement as of January 1, 2000, but does not 
anticipate that its adoption will have a material effect on the Company's 
earnings, with the exception of the impact of the interest rate swap 
agreement noted above.

                                     7

<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 September 30, 1998, and 
the related condensed consolidated statements of earnings for the three-
month and nine-month periods ended September 30, 1998 and 1997, and the 
condensed consolidated statements of cash flows for the nine-month periods 
ended September 30, 1998 and 1997.  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, 1997, 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 5, 1998,(except as to items 2 and 3 in 
Note 17, for which the date is March 12, 1998) 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, 1997, is fairly stated, in all material respects, 
in relation to the consolidated balance sheet from which it has been 
derived.



PRICEWATERHOUSECOOPERS LLP
Dallas, Texas
October 22, 1998


                                      8


<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 third quarter and nine 
months were $35.6 million and $67.2 million, respectively, compared to net 
earnings of $33.5 million and $64.6 million for the same periods in 1997.  
The increase in third quarter earnings resulted from growth in gross 
profits, offset by higher store labor and incremental costs associated with 
the further implementation of several strategic initiatives.  The year-to-
date results included a $17.9 million (after tax) extraordinary gain from 
the redemption of the Company's 12% Senior Subordinated Debentures ("12% 
Debentures"), which was substantially offset by $14.9 million (after tax) 
of costs in the first quarter 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 1998, new store openings will significantly 
outpace closings, with the expansion occurring in existing markets to 
support the Company's fresh food and combined-distribution initiatives.

*    A customer-driven approach to merchandising, which focuses on 
providing the customer an expanded selection of quality products at a good 
value.

*    An everyday-fair-pricing strategy which provides consistent, 
reasonable prices on all items.

*    Daily delivery of time-sensitive or perishable items, along with high-
quality, ready-to-eat foods, 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 and 
ordering capabilities.



(EXCEPT WHERE NOTED, ALL PER-STORE NUMBERS REFER TO AN AVERAGE OF ALL 
STORES RATHER THAN ONLY STORES OPEN MORE THAN ONE YEAR.)

                                  9



<PAGE>

SALES

     The Company recorded net sales of $2.00 billion for the third quarter 
and $5.44 billion for the nine months, compared to $1.87 billion and $5.26 
billion during the same periods in 1997. Despite a decline in gasoline 
sales for the quarter, due to significantly lower retail prices, total 
sales increased as a result of the Company's acquisition of 152 stores in 
May, combined with growth in same-store merchandise sales.  Results of 
merchandise sales growth per store were as follows:

                                         PERIODS ENDING SEPTEMBER 30, 1998
                                         ----------------------------------
INCREASE (DECREASE) FROM PRIOR YEAR          THREE MONTHS      NINE MONTHS
-----------------------------------          ------------      -----------
U.S. same-store sales                              7.2%             5.2%  
U.S. same-store real growth; excluding inflation   5.0%             3.3% 
7-Eleven inflation                                 2.1%             1.8%

     Third quarter same-store merchandise sales increase of 7.2% was the 
largest such increase this decade and continues a trend of strong same-
store growth over the last five quarters. 

     Regionally, per-store merchandise sales growth for the quarter was 
consistent throughout the U.S., as well as with Canadian stores in Canadian 
currency.  Categories that contributed the most to the quarter results were 
noncarbonated beverages, cigarettes and Slurpee.  CAFE COOLER, a frozen 
noncarbonated drink introduced in the spring, provided substantial 
incremental growth in per-store sales.  CIGARETTE SALES increased primarily 
due to price increases in response to manufacturer-led cost increases, 
which have had an unfavorable impact on margin.  SLURPEE AND NONCARBONATED 
DRINK sales are up substantially, partially due to the introduction of new 
products, flavors and packaging. 
 
     Gasoline sales dollars per store declined 11.6% for the third quarter 
and 10.7% for the nine months, compared to last year.  The decline in 
gasoline sales dollars resulted from lower average retail prices, which 
dropped 19 and 18 cents per gallon during the quarter and nine months, 
respectively.  Although sales dollars decreased, average per-store gallon 
sales increased 4.2% during the third quarter primarily due to newly 
developed stores, which have considerably higher volumes. 

OTHER INCOME
     
     Other Income of $23.6 million for the third quarter and $67.5 million 
for the year was $0.7 million and $0.9 million higher than the same periods 
in 1997, respectively.  Approximately 80% of other income is derived from 
royalty income of licensed operations, some of which could be unfavorably 
impacted by fluctuating exchange rates.  Over 70% of the Company's 
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 hedged this 
exposure by designating the royalty income to repay principal and interest 
payments on its yen-denominated loans (see Liquidity & Capital Resources).  



                                   10


<PAGE>


<TABLE>
<CAPTION>

GROSS PROFITS
                                                          PERIODS ENDING SEPTEMBER 30, 1998
                                                          -----------------------------------
                                                          THREE MONTHS          NINE MONTHS
                                                         -------------          -------------
                                                    MERCHANDISE GASOLINE  MERCHANDISE GASOLINE
                                                    ----------- --------  ----------- -------
<S>                                                 <C>         <C>       <C>         <C>
Gross Profit - DOLLARS IN MILLIONS                  $  546.2    $  58.9   $ 1,459.1   $ 146.1
INCREASE/(DECREASE) FROM PRIOR YEAR - ALL STORES    
------------------------------------------------
Average per-store gross profit dollar change            3.9%      17.5%     2.9%        6.1%
Margin point change (gasoline in cents per gallon)     (.79)      1.63     (.69)        .32
Average per-store sales (gasoline in gallons)           6.2%       4.2%     5.0%        3.4%

</TABLE>

     Merchandise gross profit dollars increased in both the third quarter 
($40.3 million) and nine months ($66.4 million) when compared to the same 
periods in 1997.  Higher average per-store merchandise sales were partially 
offset by a lower merchandise margin.  Merchandise margin has been reduced 
as a result of product cost increases and continuing refinement of the 
everyday-fair-pricing policy to better reflect market conditions.  
Merchandise margin was also impacted by introductory costs associated with 
new product offerings, combined with the further roll-out of our fresh food 
initiatives into four new markets.  

     During the third quarter, gasoline gross profits increased $12.5 
million, with the nine months higher by $14.5 million when compared to the 
same periods in 1997.  Improved margins, combined with the per-store gallon 
sales increase and more gasoline outlets, contributed to the improvement in 
the third quarter.
 
OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("OSG&A") 

                                    PERIODS ENDING SEPTEMBER 30, 1998
                                    ----------------------------------
                              THREE MONTHS               NINE MONTHS
                             ----------------         ----------------
                             1998        1997         1998       1997
                             ----        ----         ----      ------
Total OSG&A expenses        $548.5      $497.2      $1,525.8  $1,415.6
Ratio of OSG&A to sales       27.4%       26.5%         28.0%     26.9%

     Operating, selling, general and administrative expenses increased 
$51.3 million and $110.2 million, respectively, during the third quarter 
and nine months, compared to the same periods in 1997. The ratio of OSG&A 
expenses to sales increased .9 and 1.1 percentage points during the quarter 
and nine months, respectively.  Contributing to the higher ratios were 
first quarter expenses of $19 million relating to severance costs and 
termination of a computer equipment lease, combined with the retail price 
of gasoline being 18 cents per gallon lower for the nine months.  Excluding 
the first quarter items and adjusting for comparable gasoline prices, the 
ratio of OSG&A to sales was unchanged and slightly favorable, for the 
quarter and nine months, respectively compared to 1997.

     In addition to the items discussed above, a portion of the increase in 
OSG&A expenses resulted from the Company's implementation of its retail 
information system and other strategic initiatives, as well as from higher 
store labor, all of which were partially offset by lower insurance 
expenses.   Expenses associated with the Company's retail information 
system were approximately $7 million higher than during the first nine 
months of last year.  While the ratio of OSG&A expenses to sales will vary 
on a quarterly basis, management believes this ratio will not improve 
during the rollout phase of the retail information system.

                                   11


<PAGE>

     The Company continues to review the functions necessary to enable its 
stores to respond faster and more cost efficiently to rapidly changing 
customer needs and preferences. In conjunction with this review, management 
continues to realign and reduce personnel in order to eliminate 
non-essential costs, while devoting resources to the implementation of its 
retail information system and other strategic initiatives (see Management 
Strategies).  In the first quarter of 1998, an accrual of $7.1 million was 
made representing severance benefits for more than 150 management and 
administrative employees to be terminated.  The benefit from these 
reductions on an annualized basis approximates the first quarter charge, 
with the majority of the benefit carrying forward to future years.

     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, which could be more than two 
years.  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 
will have no material impact on 1998 earnings, and the Company's accruals 
are sufficient to cover the total settlement costs, including the payment 
due to former franchisees when the settlement becomes effective.

INTEREST EXPENSE, NET

     Net interest expense increased $0.8 million during the third quarter 
of 1998, compared to the same period in 1997, but decreased $0.2 million 
from 1997 during the first nine months.  The decrease from the first nine 
months of 1997 was primarily due to the write-off of deferred costs 
associated with the Company's refinancing of its credit agreement in 
February 1997.
 
     Approximately 38% of the Company's debt contains floating rates that 
will be unfavorably impacted by rising interest rates.  As of June 1998, 
over one-third of the Company's floating rate debt exposure to rising 
interest rates has been eliminated as a result of an interest rate swap 
agreement (see Interest Rate Swap Agreement).  The weighted-average 
interest rate for such debt, including the impact of the interest rate swap 
agreement, was 5.7% for the third quarter of 1998 and 5.8% for the first 
nine months, while the rate in 1997 was 5.8% for both the third quarter and 
first nine months.  The Company expects net interest expense in 1998 to 
remain relatively flat, based upon anticipated levels of debt and interest 
rate projections.  Factors increasing 1998 interest expense include higher 
borrowings to finance new store development and the redemption of the 
Company's 12% Debentures.  With regard to the 12% Debentures, no interest 
expense was recorded in the Consolidated Statements of Earnings in 

                                  12


<PAGE>

accordance with SFAS No. 15, "Accounting by Debtors and Creditors for 
Troubled Debt Restructuring" (see Liquidity and Capital Resources).  Items 
that will decrease 1998 interest expense include a lower interest rate on 
the existing yen-denominated loan (see Liquidity and Capital Resources) and 
the new 2.325% yen-denominated loan (which will reduce short-term 
borrowings).  The interest rate on the existing yen-denominated loan was 
reset in March of 1998, resulting in a rate reduction of 315 basis points.

     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.

INTEREST RATE SWAP AGREEMENT

     In June 1998, the Company entered into an interest rate swap agreement 
that fixes the interest rate on $250 million notional principal amount of 
existing floating rate debt at 5.395%, through June 2003.  A major 
financial institution, as counterparty to the agreement, will 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.  
Interest payments by both parties commenced in September 1998, and will be 
made quarterly.  The impact on net interest expense for the third quarter 
was nominally favorable as a result of this agreement.

     Upon expiration of the initial swap term, the counterparty has the 
option of extending the agreement for an additional five years at a fixed 
interest rate of 5.87%.  This option component of the agreement is 
recognized at fair value and is marked to market.  Due to declining 
interest rates in the third quarter, the Company recognized $3.2 million of 
OSG&A expense related to the option component.

EXTRAORDINARY GAIN

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 as recorded under SFAS No. 15.  The cash 
outlay of the Company was $22.5 million, which was financed through the 
issuance of 4-1/2% Convertible Quarterly Income Debt Securities ("1998 
Convertible Debt") due 2013.  The securities were issued to Ito-Yokado Co., 
Ltd. and Seven-Eleven Japan Co., Ltd., the joint owners of IYG Holding 
Company, 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 $400 
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 
current commitments for operating and capital expenditure programs, as well 
as to service debt requirements.  Actual capital expenditures funding will 
be dependent on the level of cash flow generated from operating activities 
and the funds available from financings.

                                  13


<PAGE>

In April 1998, the Company entered into a financing agreement for 
12.5 billion yen, or $96.5 million, monetizing its future yen royalty 
stream.  The financing, which bears interest at 2.325%, is secured by a 
pledge (secondary to the existing yen loan) of the future royalty payments 
from Seven-Eleven Japan associated with the Company's Japanese 7-Eleven 
trademarks.  Payment of principal and interest on the debt is non-recourse
to the Company and will commence when the existing yen denominated loan is 
paid in full, which is currently estimated to be in 2001.  It is 
anticipated that this loan will be fully repaid in 2006.

In February 1998, the Company issued $80 million of 1998 
Convertible Debt, which is subordinated to all existing debt except the 
1995 Convertible Quarterly Income Debt Securities due 2010, which have the 
same priority ranking. The debt has a 15-year life, no amortization and an 
interest rate of 4.5%.  The instrument gives the Company the right to defer 
interest payments thereon for up to 20 consecutive quarters.  The debt 
mandatorily converts into 32,508,432 shares of the Company's common stock 
if the Company's stock achieves certain levels after the third anniversary 
of issuance.  A portion of the proceeds from the 1998 Convertible Debt was 
used to redeem the Company's 12% Debentures at par.
 
     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 May 1998, 
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 addition, a maximum amount of annual capital 
expenditures was established, which does permit the levels of capital 
spending within the Company's strategic plans. 

     For the period ended September 30, 1998, 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    1.80 to 1.0
   Fixed charge coverage          1.77 to 1.0    1.50 to 1.0
   Senior indebtedness to EBITDA  3.50 to 1.0                  4.10 to 1.0
   Capital expenditure limit 
         (tested annually)                                     $425 million

    * INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS NOT RECORDED
        IN INTEREST EXPENSE.

     During the first nine months of 1998, the Company repaid $134.9 
million of debt of which $22.6 million related to the redemption of the 
Company's 12% Debentures and $10.9 million was for debt assumed in the 
Christy's acquisition (see Capital Expenditures - Acquisitions).  The 
remaining principal reduction of $101.4 million included $42.2 million for 
quarterly installments due on the Term Loan, $30.2 million for principal 
payments on the Company's yen-denominated loan (secured by the royalty 
income stream from SEJ) and $9.9 million for SFAS No. 15 interest.  
Outstanding balances at September 30, 1998, for commercial paper, Term Loan 
and Revolver, were $378.0 million, $182.8 million and $140.0 million, 
respectively.  As of September 30, 1998, outstanding letters of credit 
issued pursuant to the credit agreement totaled $75.0 million.


                                14



<PAGE>

CASH FROM OPERATING ACTIVITIES

     Net cash provided by operating activities was $229.8 million for the 
nine months of 1998, an increase of $34.9 million from the same period of 
1997 (see Results of Operations section).

CAPITAL EXPENDITURES

     In the first nine months, net cash used in investing activities 
consisted primarily of payments of $254.2 million for property and 
equipment and $31.5 million for acquisitions (see Capital Expenditures - 
Acquisitions).  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 1998 capital expenditures, excluding lease 
commitments, to exceed $375 million. Capital expenditures are being used to 
develop or acquire new stores, upgrade store facilities, further implement 
a 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 working capital versus leases and the speed at 
which new sites/acquisitions can be located, negotiated, permitted and 
constructed.


CAPITAL EXPENDITURES - ACQUISITIONS

     In May 1998, the Company purchased all of the capital stock of 
Christy's Market, Inc., of Brockton, Mass, thereby acquiring 132 Christy's 
Market convenience stores, located in the New England area. Also in May 
1998, the Company purchased the assets of 20 'red D mart' convenience 
stores in the South Bend, Indiana, area from MDK Corporation of Goshen, 
Indiana.

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 $10 million in 1998 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 $25 million on such capital improvements from 1999 through 2001.

ENVIRONMENTAL

     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 submitted a clean-up plan 
to the New Jersey Department of Environmental Protection (the "State"), 
which provides for active remediation of the site for approximately a 
three-to-five-year period, as well as continued groundwater monitoring and 
treatment for a projected 15-year period.  The projected 15-year clean-up 
period represents a reduction from the previously reported 20-year period 
and is a result of revised estimates as determined by an independent 

                                  15


<PAGE>

environmental management company in the first quarter of 1997. These 
revised estimates, which generally resulted from the conditional approval 
of the Company's plan, reduced both the estimated time and the estimated 
costs to complete the project.  While conditional approval was received on 
its clean-up plan, the Company must supply additional information to the 
State before the plan can be finalized. The Company has recorded 
undiscounted liabilities representing its best estimates of the clean-up 
costs of $9.3 million at September 30, 1998.  In 1991, the Company and the 
former owner of the facility executed a final settlement 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 $5.4 million 
at September 30, 1998.

     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 September 30, 1998, the 
Company's estimated undiscounted liability for these sites was 
$35.4 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 September 30, 1998 will be incurred within 
the next five years.

     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 September 
30, 1998, the Company has recorded a net receivable of $44.7 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 $9.7 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 seven 
years to receive reimbursement funds from California.  Therefore, the 
portion of the recorded receivable amount that relates to sites where 
remediation activities have been conducted have been discounted at 4.1% to 
reflect their present value.  Thus, the recorded receivable amount is also 
net of a discount of $4.7 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.

ENVIRONMENTAL - ACQUISITIONS

Both the 'red D mart' and Christy's Market acquisitions include 
retail gasoline outlets that are subject to certain environmental 
regulations.  Under the terms of the acquisition agreements, the sellers 
are responsible for ensuring compliance with all applicable environmental 
regulations existing as of the closing date.  In addition, the acquisition 
agreements provide that the sellers will remain responsible for the expense 
of any future environmental cleanup resulting from existing conditions at 
the sites, which is required under applicable legal requirements  (see 
Capital Expenditures - Acquisitions).

                                    16


<PAGE>

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 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 items;  (2) 
assigning priorities to all 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.

     The Company is progressing favorably in its completion of the various 
tasks and target dates identified in the Y2K work plan.  The Company 
believes it has identified and prioritized all major Y2K related items.  In 
addition, 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.  Follow-up 
efforts are underway where the initial response from a vendor was 
uncertain.  Testing compliance with major vendors is now being planned.  In 
addition, the company has completed certain IS related items such as 
automated remediation of noncompliant software code and is progressing with 
the manual remediation according to an established schedule.  Testing and 
test verification, post remediation and time dimensional testing is taking 
place as remediation is completed.  The testing of compliant applications 
such as the retail information system, financial systems and a gasoline 
billing system are currently being planned.  The exchange of information 
has taken place with area licensees and operating subsidiaries and will 
continue.  The Company expects to complete all scheduled preparation of the 
planned Year 2000 tasks before the end of 1999.

     The Company estimates that the total cost of the Year 2000 Project will
be approximately $6 to $7 million, of which about $3 million will be capital
costs. The remaining portion, of which approximately $500,000 has already
been incurred, will be expensed.  These costs are being funded through 
operating cash flow.  This estimate includes costs related to the upgrade
and/or replacement of computer software and hardware, costs of remediated
code testing, verification of test results and the reintegration to
production of all remediated applications.  In addition, the costs include
the testing of applications and software certified as Year 2000 compliant.  

     Due to the general uncertainty inherent in the Year 2000 process, 
resulting in part from the incertitude surrounding the Y2K readiness of 
third-party suppliers and vendors, the Company is unable to determine a 
reasonable worst case scenario at this time.  Although currently considered 
unlikely, failure of the Company's primary merchandise vendors to receive 
orders and deliver merchandise or the failure of public utility companies 
to provide telephone and electrical services are the Company's primary 
areas of concern.  The development of contingency plans for non-IS and IS 
related vendors and issues is scheduled for the first quarter of 1999 after 
the Company has received and evaluated responses from all its major 
vendors.  These contingency plans are scheduled to be complete by June 
1999.

                                 17


<PAGE>

     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.







ITEM 3.   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

     Not Required.











                                       18


<PAGE>

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 (15) - Letter re Unaudited Interim Financial
                              Information.  Letter of
                              PricewaterhouseCoopers LLP Independent
                              Accountants.

           2.  Exhibit (27) - Financial Data Schedule.
                                Submitted in electronic format only.

      (b)  8-K Reports:

           During the third quarter of 1998, 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.

                                              THE SOUTHLAND CORPORATION
                                                   (Registrant)



Date:   October 23, 1998              /s/  Clark J. Matthews II
                                      -------------------------
                                     (Officer)
                                      Clark J. Matthews, II
                                      President and Chief Executive Officer


Date:   October 23, 1998             /s/  Donald E. Thomas
                                     --------------------------
                                    (Principal Accounting Officer)
                                     Donald E. Thomas
                                     Vice President and Controller



                                   20