<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, 1997

                                      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, 1997.



<PAGE>
                          THE SOUTHLAND CORPORATION
                                    INDEX


                                                                        Page
                                                                         No.
                                                                        ----

Part I.  FINANCIAL INFORMATION

ITEM 1.  FINANCIAL STATEMENTS:

     Condensed Consolidated Balance Sheets -
       September 30, 1997 and December 31, 1996.......................    1

     Condensed Consolidated Statements of Earnings -
       Three Months and Nine Months Ended September 30, 1997 and 1996.    2

     Condensed Consolidated Statements of Cash Flows -
       Nine Months Ended September 30, 1997 and 1996..................    3

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

     Report of Independent Accountants................................    6


ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
          AND RESULTS OF OPERATIONS...................................    7

Part II.  OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS ...........................................   13

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.............................   14

SIGNATURES............................................................   15

Exhibit (11) - Statement re Computation of Per-Share Earnings.........Tab 1

Exhibit (15) - Letter re Unaudited Interim Financial Information......Tab 2

Exhibit (27) - Financial Data Schedule................................   *

*Submitted in electronic format only


                                    (i)



<PAGE>
<TABLE>
<CAPTION>

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

                                             ASSETS

                                                                SEPTEMBER 30,   DECEMBER 31,
                                                                    1997            1996
                                                                ------------    -----------
                                                                 (Unaudited)

<S>                                                             <C>             <C>
CURRENT ASSETS:
   Cash and cash equivalents.  .  .  .  .  .  .  .  .  .  .  .  $    46,012     $    36,494
   Accounts and notes receivable  .  .  .  .  .  .  .  .  .  .       96,491         109,413
   Inventories  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .      111,794         109,050
   Other current assets  .  .  .  .  .  .  .  .  .  .  .  .  .      114,724          95,943
                                                                -----------     -----------
     TOTAL CURRENT ASSETS.  .  .  .  .  .  .  .  .  .  .  .  .      369,021         350,900
PROPERTY AND EQUIPMENT.  .  .  .  .  .  .  .  .  .  .  .  .  .    1,366,872       1,349,839
OTHER ASSETS .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .      295,892         338,409
                                                                -----------     -----------
                                                                $ 2,031,785     $ 2,039,148
                                                                ===========     ===========


                          LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)

CURRENT LIABILITIES:
   Trade accounts payable.  .  .  .  .  .  .  .  .  .  .  .  .  $   193,989     $   211,060
   Accrued expenses and other liabilities  .  .  .  .  .  .  .      296,008         297,246
   Commercial paper.  .  .  .  .  .  .  .  .  .  .  .  .  .  .       42,863          98,055
   Long-term debt due within one year.  .  .  .  .  .  .  .  .      122,877          68,571
                                                                -----------     -----------
     TOTAL CURRENT LIABILITIES .  .  .  .  .  .  .  .  .  .  .      655,737         674,932
DEFERRED CREDITS AND OTHER LIABILITIES  .  .  .  .  .  .  .  .      198,523         214,343
LONG-TERM DEBT  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .    1,601,977       1,638,828
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.  .  .  .  .  .  .  .  .  .  .  .  .  .   (1,350,067)     (1,414,570)
                                                                ------------    ------------
     TOTAL SHAREHOLDERS' EQUITY (DEFICIT) .  .  .  .  .  .  .     (724,452)       (788,955)
                                                                ------------    ------------
                                                                $ 2,031,785     $ 2,039,148
                                                                ===========     ===========









                     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, 
                                                ---------------------------   --------------------------- 
                                                    1997           1996           1997           1996 
                                                ------------   ------------   ------------   ------------ 
<S>                                             <C>            <C>            <C>            <C> 
REVENUES: 
     Net sales (Including $256,235, $256,833, 
        $725,358 and $728,897 in excise taxes)  $ 1,873,936    $ 1,839,870    $ 5,260,319    $ 5,194,220 
     Other income .  .  .  .  .  .  .  .  .  .       22,850         22,821         66,578         64,040 
                                                ------------   ------------   ------------   ------------ 
                                                  1,896,786      1,862,691      5,326,897      5,258,260 
COSTS AND EXPENSES: 
     Cost of goods sold .  .  .  .  .  .  .  .    1,321,793      1,298,437      3,736,076      3,685,445 
     Operating, selling, general and 
         administrative expenses .  .  .  .  .      497,202        479,314      1,415,620      1,381,886
     Interest expense, net .  .  .  .  .  .  .       22,158         22,130         67,872         68,326 
                                                ------------   ------------   ------------   ------------ 
                                                  1,841,153      1,799,881      5,219,568      5,135,657 
                                                ------------   ------------   ------------   ------------ 
EARNINGS BEFORE INCOME TAXES  .  .  .  .  .  .       55,633         62,810        107,329        122,603 
INCOME TAXES.  .  .  .  .  .  .  .  .  .  .  .       22,162         25,124         42,706         49,041 
                                                ------------   ------------   ------------   ------------ 
NET EARNINGS.  .  .  .  .  .  .  .  .  .  .  .  $    33,471    $    37,686    $    64,623    $    73,562 
                                                ============   ============   ============   ============ 
 
NET EARNINGS PER COMMON SHARE 
    (Primary and Fully Diluted)  .  .  .  .  .         $.07           $.08           $.15           $.17 
                                                       =====          =====          =====          ===== 
 
 
 
 
                        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,
                                                                                -------------------------------
                                                                                     1997              1996
                                                                                -------------    --------------
<S>                                                                             <C>              <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
    Net earnings .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  $     64,623     $     73,562
    Adjustments to reconcile net earnings to net cash provided
        by operating activities:
        Depreciation and amortization of property and equipment  .  .  .  .  .       132,436          122,870
        Other amortization.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .        14,270           14,270
        Deferred income taxes.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .        36,396           19,748
        Noncash interest expense.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .         2,210            1,332
        Other noncash (income) expense.  .  .  .  .  .  .  .  .  .  .  .  .  .          (867)             144
        Net (gain) loss on property and equipment .  .  .  .  .  .  .  .  .  .          (331)              54
        Decrease in accounts and notes receivable .  .  .  .  .  .  .  .  .  .        23,749           18,263
        (Increase) decrease in inventories  .  .  .  .  .  .  .  .  .  .  .  .        (2,744)             601
        Increase in other assets.  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .       (20,647)          (3,166)
        Decrease in trade accounts payable and other liabilities .  .  .  .  .       (54,115)         (12,353)
                                                                                -------------    -------------
                  NET CASH PROVIDED BY OPERATING ACTIVITIES.  .  .  .  .  .  .       194,980          235,325
                                                                                -------------    -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
    Payments for purchase of property and equipment  .  .  .  .  .  .  .  .  .      (148,705)        (137,371)
    Proceeds from sale of property and equipment  .  .  .  .  .  .  .  .  .  .        12,583           12,214
    Other  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .         2,939            2,938
                                                                                -------------    -------------
                  NET CASH USED IN INVESTING ACTIVITIES .  .  .  .  .  .  .  .      (133,183)        (122,219)
                                                                                -------------    -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
    Proceeds from commercial paper and revolving credit facilities  .  .  .  .     4,034,465        3,012,509
    Payments under commercial paper and revolving credit facilities .  .  .  .    (4,038,178)      (3,004,127)
    Principal payments under long-term debt agreements  .  .  .  .  .  .  .  .       (48,046)        (118,104)
    Other  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .          (520)            -
                                                                                -------------    -------------
                  NET CASH USED IN FINANCING ACTIVITIES .  .  .  .  .  .  .  .       (52,279)        (109,722)
                                                                                -------------    -------------
NET INCREASE IN CASH AND CASH EQUIVALENTS.  .  .  .  .  .  .  .  .  .  .  .  .         9,518            3,384
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR .  .  .  .  .  .  .  .  .  .  .        36,494           43,047
                                                                                -------------    -------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD  .  .  .  .  .  .  .  .  .  .  .  .  $     46,012     $     46,431
                                                                                =============    =============

RELATED DISCLOSURES FOR CASH FLOW REPORTING:

    Interest paid, excluding SFAS No.15 Interest  .  .  .  .  .  .  .  .  .  .  $    (71,708)    $    (77,622)
                                                                                =============    =============
    Net income taxes paid .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  .  $     (5,858)    $    (15,485)
                                                                                =============    =============


                                  See notes to condensed consolidated financial statements.


                                                                3
</TABLE>




<PAGE>

                    THE SOUTHLAND CORPORATION AND SUBSIDIARIES

                NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                       NINE MONTHS ENDED SEPTEMBER 30, 1997

                                (UNAUDITED)

1. BASIS OF PRESENTATION:

     The condensed consolidated balance sheet as of September 30, 1997, and 
the condensed consolidated statements of earnings for the three-month and 
nine-month periods ended September 30, 1997 and 1996, and the condensed 
consolidated statements of cash flows for the nine-month periods ended 
September  30, 1997 and 1996, 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 September 30, 1997, 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, 1996, 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, 1996, include accounting 
policies and additional information pertinent to an understanding of both the 
December 31, 1996, 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, 1997.

2. EARNINGS PER SHARE:

     The Company will adopt Statement of Financial Accounting Standards 
("SFAS") No. 128, "Earnings per Share," in December 1997.  SFAS No. 128 
establishes simplified accounting standards for computing earnings per share 
and makes them comparable to international earnings per share standards.  The 
table below reflects both the current earnings per share amount and the pro 
forma earnings per share amount assuming adoption of SFAS No. 128.


                                      Three Months          Nine Months  
                                   Ended September 30,   Ended September 30, 
                                   -------------------   -------------------
                                      1997     1996         1997     1996
                                     ------   ------       ------   ------

Per Statement of Earnings:       
   Primary and Fully Diluted          $.07    $.08          $.15    $.17 

Pro Forma:       
   Basic                              $.08    $.09          $.16    $.18 
   Diluted                            $.07    $.08          $.15    $.17 




                                                      


<PAGE>

3. COMPREHENSIVE INCOME:

     The Company is currently reviewing Statement of Financial Accounting 
Standards ("SFAS") No. 130, "Reporting Comprehensive Income."  The statement 
establishes standards for reporting comprehensive income and its components 
in a full set of general-purpose financial statements.  SFAS No. 130 becomes 
effective for fiscal years beginning after December 15, 1997, and early 
adoption is permitted.  The Company has not yet determined when it will adopt 
the provisions of this statement.





                                                      5



<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, 1997, the related 
condensed consolidated statements of earnings for the three-month and nine-
month periods ended September 30, 1997 and 1996, and the condensed 
consolidated statements of cash flows for the nine-month periods ended 
September 30, 1997 and 1996.  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, 1996, and 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 18, 1997, 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, 1996, 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
October 24, 1997


                                      6



<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 net earnings for the third quarter and first nine months 
of 1997 were $33.5 million ($.07 per share) and $64.6 million ($.15 per 
share), respectively, compared to net earnings of $37.7 million ($.08 per 
share) and $73.6 million ($.17 per share) for the same periods in 1996.  The 
decline in net earnings for the third quarter of 1997, compared to the prior 
year, was due to more favorable gasoline market conditions in 1996, combined 
with the incremental costs associated with the further implementation of 
several strategic initiatives in 1997.

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 to remodel and update existing stores and closing
     underachieving stores.  During 1997, the Company expects to have net
     store growth for the first time in ten years.  During the first nine
     months of 1997, 30 new stores opened.  By year end, the Company expects
     to have opened a total of approximately 70-85 new stores, with another
     25-30 under construction.
*    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 fresh perishable items and 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.  Since
     September, 1996, the Company has expanded into five new areas in 
     support of this initiative, with additional areas planned for the
     remainder of 1997 and 1998.
*    The development of a retail information system that has helped to
     automate accounting and other store-level tasks. The current phase,
     with the pilot program started in September, involves the installation 
     of point-of-sale registers with scanning and a proprietary ordering
     system.
                                       7


<PAGE>

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

SALES
     The Company recorded net sales of $1.87 billion for the third quarter 
and $5.26 billion in the first nine months of 1997, compared to net sales of 
$1.84 billion and $5.19 billion during the same periods last year.  The 
third quarter increase was due to merchandise sales growth.  Categories 
contributing to the Company's largest U.S. same-store real growth since 1994 
were SLURPEE, services, tobacco, coffee, fresh bakery, and noncarbonated 
beverages.  Merchandise sales growth per store was as follows:

                                           PERIODS ENDING SEPTEMBER 30, 1997
                                           ---------------------------------
INCREASE (DECREASE) FROM PRIOR YEAR           Three Months      Nine Months
-----------------------------------           ------------      -----------
U.S. same-store sales                               2.2%              1.0%*
U.S. same-store real growth; excluding inflation    1.3%             (0.1)%*
7-Eleven inflation                                  0.9%              1.1%
     *  THE FACT THAT 1996 WAS A LEAP YEAR NEGATIVELY IMPACTS THE
        CURRENT YEAR-TO-DATE GROWTH RESULTS BY APPROXIMATELY 34 BASIS
        POINTS.  THE YEAR-TO-DATE INCREASE IN U.S. SAME-STORES SALES,
        EXCLUDING THE LEAP YEAR IMPACT WOULD BE 1.4%, WITH THE U.S. 
        SAME-STORE REAL GROWTH BEING 0.2%.

     Gasoline sales dollars per store decreased 1.2% for the third quarter 
due to slight declines in both the average retail sales price and per-store 
gasoline gallons sold.

<TABLE>
<CAPTION>

GROSS PROFITS
                                                          Periods Ending September 30, 1997
                                                          ---------------------------------
                                                          Three Months         Nine Months
                                                          ------------         -----------
                                                    Merchandise Gasoline  Merchandise Gasoline
                                                    ----------- --------  ----------- --------
<S>                                                 <C>         <C>       <C>         <C>
Gross Profit - DOLLARS IN MILLIONS                  $  505.8    $  46.3   $ 1,392.6    $ 131.6
INCREASE/(DECREASE) FROM PRIOR YEAR - ALL STORES    
------------------------------------------------
Average per-store gross profit dollar change            3.7%      (14.2)%     2.3%     (11.3)%
Margin point change (gasoline in cents per gallon)      .38       (2.09)      .26       (1.42)
Average per-store sales (gasoline in gallons)           2.6%       (0.1)%     1.6%      (1.3)%
</TABLE>

     Total merchandise gross profit dollars were $17.8 million higher in the 
third quarter and $30.8 million higher for the nine months, when compared to 
the same periods in 1996.  The favorable third quarter results are due to 
improved average per-store sales growth and strong merchandise margins.  The 
increase in merchandise margin during the third quarter and first nine 
months, compared to last year, was primarily due to improvements in product 
costs and increased sales of high margin services and products like SLURPEE, 
coffee and noncarbonated beverages.

     During the third quarter and first nine months of 1997, gasoline gross 
profits decreased $7.1 million and $15.3 million, respectively, over the 
same periods in 1996.  The third quarter decline was primarily due to lower 
margin (in cents per gallon), as gallon sales per store were virtually flat.  
The lower margin was primarily the result of two factors, the aggressive 
retail tactics of some competitors, and higher gas costs.  The higher gas 
costs, which trended up for much of the quarter, were brought on by further 
tightening in industry inventory levels.  Although retail prices trended up 
during the third quarter, they were slightly below last year's averages for 
the quarter.

                                      8


<PAGE>

OPERATING, SELLING, GENERAL AND ADMINISTRATIVE EXPENSES ("OSG&A") 

                                        Periods Ending September 30, 1997
                                        ---------------------------------
                                  Three Months                Nine Months
                                ----------------           --------------
                                1997        1996           1997     1996
                                ----        ----          ------   ------
Total OSG&A expenses           $497.2      $479.3        $1,415.6  $1,381.9
Ratio of OSG&A to sales          26.5%       26.1%           26.9%     26.6%

     Operating, selling, general and administrative expenses increased $17.9 
million during the third quarter of 1997, compared to the same period in 
1996 and $33.7 million for the first nine months of 1997 compared to 1996.  
A portion of the increase in OSG&A expenses resulted from costs associated 
with the Company's implementation of its retail information system 
(approximately $10 million more in the first nine months of 1997) and other 
strategic initiatives (see Management Strategies).  Other factors that have 
pushed up the ratio of OSG&A expenses to sales for both the quarter and the 
year are higher wages associated with tighter labor markets, a favorable 
insurance adjustment in the third quarter of 1996 (as a result of positive 
claims experience) and lower gasoline prices over the last two quarters.  
While this ratio will vary on a quarterly basis, management believes it will 
continue to be slightly less favorable during the roll-out phase of the 
retail information system.

     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 and office facilities, 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).

INTEREST EXPENSE, NET

     Net interest expense for the third quarter has been virtually flat, 
when compared with 1996, while decreasing $0.5 million during the first nine 
months of 1997.  Approximately 35% of the Company's debt contains floating 
rates that would be unfavorably impacted by rising interest rates.  The 
weighted average interest rate for such debt was 5.8% for the third quarter 
and 5.8% for the first nine months of 1997 versus 5.7% and 5.9% for the same 
time periods in 1996.  The Company expects net interest expense in 1997 to 
remain relatively flat due to higher borrowings to finance new store 
development, offset by increased capitalized interest and a .6% reduction in 
the cost of borrowing that the Company negotiated with the lenders in its 
new, unsecured bank debt credit agreement ("New Credit Agreement") (see 
Liquidity and Capital Resources).


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 


                                    9


<PAGE>

facilities, will provide sufficient liquidity to fund current operating and 
capital expenditure programs, as well as to service debt requirements.

     In February 1997, the Company entered into a New Credit Agreement, 
refinancing its old term loan ($225 million), revolving credit facility and 
letters of credit ($150 million each), all of which were scheduled to mature 
on December 31, 1999, with a new term loan facility ("Term Loan") and 
revolving credit facility. The Term Loan ($225 million) has scheduled 
quarterly repayments of $14.1 million commencing March 31, 1998 through 
December 31, 2001. The new revolving credit facility ($400 million) expires 
February 2002 and allows for revolving borrowings ("Revolver"), and for 
issuance of letters of credit not to exceed $150 million. Interest on the 
Term Loan and Revolver is based on a variable rate equal to the 
administrative agent bank's base rate or, at the Company's option, a rate 
equal to a reserve-adjusted Eurodollar rate plus .225% for drawn amounts. 
The new agreement requires letter of credit fees to be paid quarterly at 
 .325% on the outstanding amount. In addition, a facility fee of .15%  is 
payable quarterly on the total amount available under the New Credit 
Agreement, as such amount is reduced from time to time. The cost of 
borrowings and letters of credit under the New Credit Agreement represents a 
decrease of .6% and .45%, respectively, from the prior secured senior bank 
debt credit agreement.  All rates and fees quoted are on a per annum basis.

     In April 1997, the Company entered into a Master Lease Facility ("MLF") 
of $115 million, which will be the primary financing for a complete 
integrated point-of-sale system that is scheduled to be rolled out over the 
subsequent six quarters (see Management Strategies).  The lease payment on 
the MLF will be based on a variable rate equal to the Eurodollar rate plus a 
blended all-inclusive spread of .46% per year.  The MLF has a three-year 
noncancellable term with semiannual options to renew for up to an additional 
two years.  Based upon current roll-out schedules, it is anticipated that 
the commitment under the MLF will be fully utilized by the end of 1998. 

     The New Credit Agreement and the MLF contain 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 earnings before interest, taxes, 
depreciation and amortization ("EBITDA").  The covenant levels established 
by the New Credit Agreement and the MLF generally require continuing 
improvement in the Company's financial condition.

     For the period ended September 30, 1997, the Company was in compliance 
with all of the covenants required under the New 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 and rent coverage *   2.13 to 1.0    2.00 to 1.0
     Fixed charge coverage          1.21 to 1.0    0.65 to 1.0
     Senior indebtedness to EBITDA  3.07 to 1.0                  3.40 to 1.0

       * INCLUDES EFFECTS OF THE SFAS NO. 15 INTEREST PAYMENTS.

     During the first nine months of 1997, the Company repaid $48.0 million 
of debt, which included $24.8 million for principal payments on the 
Company's yen-denominated loan 

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<PAGE>

(secured by the royalty income stream from its area licensee in Japan) and 
$11.2 million for SFAS No. 15 interest.  Outstanding balances at September 
30 1997, for the commercial paper, the Term Loan and the Revolver, were 
$392.9 million, $225.0 million and $0.0 million, respectively.  As of 
September 30, 1997, outstanding letters of credit issued pursuant to the New 
Credit Agreement totaled $69.0 million.

CASH FROM OPERATING ACTIVITIES

     Net cash provided by operating activities was $94.6 million for the 
third quarter and $195.0 million for the first nine months of 1997, an 
increase of $10.7 million for the quarter and a decrease of $40.3 million 
for the year, compared to 1996. (See Results of Operations section)

CAPITAL EXPENDITURES

     In the first nine months of 1997, net cash used in investing activities 
consisted primarily of payments of $148.7 million for property and 
equipment.  The majority of this capital was used for implementation of the 
Company's retail information system, new store development, remodeling 
stores, upgrading retail gasoline facilities, replacing equipment and 
complying with environmental regulations.

     The Company expects 1997 capital expenditures, excluding lease 
commitments, to be approximately $265 million.  Capital expenditures are 
being used to develop or acquire new stores, further implement the retail 
information system, replace equipment, upgrade store and gasoline facilities 
and comply with environmental regulations.  The amount of expenditures made 
during the year will be materially impacted by the Company's ability to find 
and acquire new stores that fit its growth strategy and the portion of new 
store development that is funded through working capital versus leases.  
Most leases for  newly constructed stores will contain 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 $15 million in 1997 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 
$20 million on such capital improvements from 1998 through 2000.

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 remediation of the site for approximately a three-to-
five-year period, as well as continued groundwater treatment for a projected 
20-year period. The Company has received conditional approval of its clean-
up plan.  The Company has recorded undiscounted liabilities representing its 
best estimates of the clean-up costs of $13.7 million at September 30, 1997.  
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

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<PAGE>

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 
recorded a receivable of $7.9 million at September 30, 1997.

     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, 1997, the 
Company's estimated undiscounted liability for these sites was 
$34.4 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, 1997, 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, as of September 
30, 1997, the Company has a net receivable of $46.3 million recorded 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 $6.8 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 eight years 
to receive reimbursement funds from California.  Therefore, the portion of 
the recorded receivable amounts that relate to sites where remediation 
activities have been completed have been discounted at 5.8% to reflect their 
present value.  Thus, the recorded receivable amount is also net of a 
discount of $6.6 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.


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<PAGE>

PART II.

                              OTHER INFORMATION

ITEM 1.  LEGAL PROCEEDINGS.

T & L PROPERTY SERVICE (TAL-TEX)

     As previously reported, on June 21, 1995, a lawsuit was filed in Dallas 
County, Texas against the Company by T&L Property Service, an affiliate of 
Tal-Tex, Inc. ("Tal-Tex").  Tal-Tex is a water supply company located near 
Round Rock, Texas.  The Complaint was subsequently amended to include claims 
by Tal-Tex and its principals and claims by certain individuals who reside 
in or near Round Rock on behalf of themselves and a purported class of 
similarly situated residents, alleging personal injuries and property 
damages as a result of a release of petroleum from underground storage tanks 
at a 7-ELEVEN store in Round Rock, Texas that was discovered in July 1993 
(the "Release").  In March, 1996, the individual claims of the Tal -Tex 
entities were severed from the purported class action and, as previously 
reported, the lawsuit involving the class claims was voluntarily dismissed 
by the plaintiffs and refiled as TONKAWA SPRINGS HOMEOWNERS ASSOCIATION ET 
AL. V. THE SOUTHLAND CORPORATION,  Cause No. 97-021-C277, in the 277th 
Judicial District Court for Williamson County, Texas, and then voluntarily 
dismissed on May 8, 1997.

     Prior to trial of the lawsuit involving the individual claims of the 
Tal-Tex entities, the parties entered into a settlement agreement, effective 
August 25, 1997, resolving all issues in connection with the Release.  Under 
the terms of the settlement, the plaintiffs released their claims against 
Southland in exchange for payment of an agreed settlement amount.  The 
Company has no further obligations to the Tal-Tex entities in connection 
with the Release, unless the Texas Natural Resource Conservation Commission 
(i) subsequently orders Tal-Tex to shut down its water supply wells due to a 
new finding of contamination and (ii) determines that such contamination was 
a direct result of the Release that was discovered in 1993.

ARTURO M. VASQUEZ ET AL. V. THE SOUTHLAND CORPORATION ET AL.

     As previously reported, a suit was filed in 1995 against the Company 
styled ARTURO M. VASQUEZ ET AL. V. THE SOUTHLAND CORPORATION ET AL. which 
asserted claims on behalf of a purported class of persons whose properties 
had allegedly been damaged by petroleum releases at approximately 150 former 
or current 7-Eleven locations in Texas.  In late 1996, the plaintiffs 
withdrew all class claims and proceeded with individual claims that were 
allegedly associated with a single 7-Eleven store in Bryan, Texas.  Prior to 
the commencement of trial of the lawsuit, the parties entered into a 
settlement agreement, effective as of September 8, 1997, resolving all 
issues between them.

     There are no other reportable suits or proceedings pending or 
threatened against the Company, other than as previously reported.

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<PAGE>

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

     (a)     Exhibits:

          1.     Exhibit (11) -- Statement re Computation of Per-Share
                                 Earnings.

          2.     Exhibit (15) -- Letter re Unaudited Interim Financial
                                 Information.  Letter of Coopers & Lybrand
                                 L.L.P., Independent Accountants.

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

     (b)     8-K Reports:

During the third quarter of 1997, the Company filed no reports on Form 8-K.

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<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 31, 1997                      /s/     Clark J. Matthews, II
       ----------------                      -----------------------------
                                            (Officer)
                                            Clark J. Matthews, II
                                            President and Chief Executive
                                              Officer


Date:  October 31, 1997                      /s/     Don Thomas
       ----------------                      ------------------------------
                                             (Principal Accounting Officer)
                                             Donald E. Thomas
                                             Vice President and Controller

                                       15