##### Table of Contents



UNITED STATES
  SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)[X]   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended December 30, 2001

OR

[   ]    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition from ____ to ____

Commission file number 001-13222

STATER BROS. HOLDINGS INC.(Exact name of registrant as specified in its charter)

|                                                                               |  |                                             
|------------------------------------------------------------------------------ |  | --------------------------------------------
|Delaware                                                                       |  | 33-0350671                                  
|                                                                               |  |                                             
|(State or other jurisdiction
        of incorporation or
        organization) |  | (I.R.S. Employer Identification
        No.)
|                                                                               |  |                                             
|21700 Barton Road
        Colton, California                                   |  | 92324                                       
|                                                                               |  |                                             
|(Address of principal executive
        offices)                               |  | (Zip Code)                                  
|Registrants telephone
        number, including area code                     |  | (909) 783-5000                              

Not Applicable

---

(Former name, former address and former fiscal
  year, if changed since last report.)


| |                                                                                                                                                                                                                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | 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 [   ]

As of February 1, 2002, there were issued and outstanding
38,301 shares of the registrants Class A Common Stock.

1



---

TABLE OF CONTENTS



|                               |                                                                                               |                                            |  |  |  |  |  | 
|------------------------------ | --------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I  FINANCIAL INFORMATION
|                               | Item 1. FINANCIAL STATEMENTS                                                                 
|                               |                                                                                               | CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME         
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION   
|                               | Item 1. LEGAL PROCEEDINGS                                                                    
|                               | Item 2. CHANGES IN SECURITIES                                                                
|                               | Item 3. DEFAULTS UPON SENIOR SECURITIES.                                                     
|                               | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                               | Item 5. OTHER INFORMATION                                                                    
|                               | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|Signatures                    
|EXHIBIT 10.26                 
|EXHIBIT 10.27                 
|EXHIBIT 10.28                 
|EXHIBIT 10.29                 
|EXHIBIT 11                    



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 30, 2001

INDEX

|                  |  |                                                                                                                                       |  |     
|----------------- |  | ------------------------------------------------------------------------------------------------------------------------------------- |  | ----
|                  |  |                                                                                                                                       |  | Page
|                  |  |                                                                                                                                       |  |     
|PART
          I  |  | FINANCIAL
          INFORMATION (Unaudited)                                                                                           |  |     
|                  |  |                                                                                                                                       |  |     
|Item 1.           |  | Financial
          Statements                                                                                                        |  |     
|                  |  | Consolidated
          Balance Sheets (Unaudited) as of September 30, 2001 
          and December 30, 2001                           |  | 3   
|                  |  | Consolidated
          Statements of Income (Unaudited) for the 13 weeks ended 
          December 24, 2000 and December 30, 2001     |  | 5   
|                  |  | Consolidated
          Statements of Cash Flows (Unaudited) for the 13 weeks ended 
          December 24, 2000 and December 30, 2001 |  | 6   
|                  |  | Notes
          to Consolidated Financial Statements (Unaudited)                                                                      |  | 7   
|Item 2.           |  | Managements
          Discussion and Analysis of Financial 
          Condition and Results of Operations                            |  | 9   
|Item 3.           |  | Quantitative
          and Qualitative Disclosure About Market Risk                                                                   |  | 16  
|                  |  |                                                                                                                                       |  |     
|PART
          II |  | OTHER
          INFORMATION                                                                                                           |  |     
|                  |  |                                                                                                                                       |  |     
|Item 1.           |  | Legal
          Proceedings                                                                                                           |  | 17  
|Item 2.           |  | Changes
          in Securities                                                                                                       |  | 17  
|Item 3.           |  | Defaults
          Upon Senior Securities                                                                                             |  | 17  
|Item 4.           |  | Submission
          of Matters to a Vote of Security Holders                                                                         |  | 17  
|Item 5.           |  | Other
          Information                                                                                                           |  | 17  
|Item 6.           |  | Exhibits
          and Reports on Form 8-K                                                                                            |  | 17  
|                  |  |                                                                                                                                       |  |     
|SIGNATURES        |  |                                                                                                                                       |  | 19  

2



---



##### Table of Contents






PART I  FINANCIAL INFORMATION




Item 1. FINANCIAL STATEMENTS

STATER BROS. HOLDINGS INC.




CONSOLIDATED BALANCE
SHEETS

(Unaudited)
(In thousands)

ASSETS

|                                       |                                                |   |           |         |          |   |         |         | 
|-------------------------------------- | ---------------------------------------------- | - | --------- | ------- | -------- | - | ------- | ------- | 
|                                       |                                                |   | Sept. 30, |         | Dec. 30,
|                                       |                                                |   | 2001      |         | 2001    
|                                       |                                                |   |           |         |         
|Current Assets                         |                                                |   |           |         |          |   |         |        
|                                       | Cash and cash equivalents                      |   | $         | 101,636 |          |   | $       | 108,404 | 
|                                       | Receivables                                    |   |           | 29,894  |          |   |         | 33,346  | 
|                                       | Income tax receivables                         |   |           | 358     |          |   |         |        | 
|                                       | Inventories                                    |   |           | 170,189 |          |   |         | 169,310 | 
|                                       | Prepaid expenses                               |   |           | 6,743   |          |   |         | 8,342   | 
|                                       | Deferred income taxes                          |   |           | 6,634   |          |   |         | 6,634   | 
|                                       | Properties held for sale                       |   |           | 3,840   |          |   |         | 3,834   | 
|                                       |                                                |   |           |         |          |   |         |        
|Total current assets                   |                                                |   | 319,294   |         |          |   | 329,870 |        
|Investment in unconsolidated affiliate |                                                |   | 12,666    |         |          |   | 13,314  |        
|Property and equipment                 |                                                |   |           |         |          |   |         |        
|                                       | Land                                           |   |           | 47,574  |          |   |         | 47,574  | 
|                                       | Buildings and improvements                     |   |           | 181,641 |          |   |         | 184,645 | 
|                                       | Store fixtures and equipment                   |   |           | 190,581 |          |   |         | 198,214 | 
|                                       | Property subject to capital leases             |   |           | 24,670  |          |   |         | 24,670  | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 444,466   |         |          |   | 455,103 |        
|                                       | Less accumulated depreciation and amortization |   |           | 169,979 |          |   |         | 175,067 | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 274,487   |         |          |   | 280,036 |        
|Deferred income taxes                  |                                                |   | 4,897     |         |          |   | 4,897   |        
|Deferred debt issuance costs, net      |                                                |   | 12,042    |         |          |   | 11,422  |        
|Other assets                           |                                                |   | 5,908     |         |          |   | 6,553   |        
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 22,847    |         |          |   | 22,872  |        
|Total assets                           |                                                | $ | 629,294   |         |          | $ | 646,092 |        
|                                       |                                                |   |           |         |          |   |         |        

See accompanying notes to unaudited consolidated financial statements.

3



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS(Continued)
(Unaudited)
(In thousands, except share amounts)LIABILITIES AND STOCKHOLDERS DEFICIT

|                                                       |                                              |                                        |         |           |   |          |         |         |   | 
|------------------------------------------------------ | -------------------------------------------- | -------------------------------------- | ------- | --------- | - | -------- | ------- | ------- | - | 
|                                                       |                                              |                                        |         | Sept. 30, |   | Dec. 30,
|                                                       |                                              |                                        |         | 2001      |   | 2001    
|                                                       |                                              |                                        |         |           |   |         
|Current Liabilities                                    |                                              |                                        |         |           |   |          |         |        
|                                                       | Accounts payable                             |                                        | $       | 107,485   |   |          | $       | 103,053 |  
|                                                       | Accrued payroll and related expenses         |                                        |         | 41,737    |   |          |         | 39,454  |  
|                                                       | Accrued income taxes                         |                                        |         |          |   |          |         | 2,708   |  
|                                                       | Other accrued liabilities                    |                                        |         | 44,340    |   |          |         | 60,384  |  
|                                                       | Current portion of capital lease obligations |                                        |         | 1,435     |   |          |         | 1,313   |  
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total current liabilities                              |                                              |                                        | 194,997 |           |   |          | 206,912 |        
|Long-term debt                                         |                                              |                                        | 439,000 |           |   |          | 439,000 |        
|Capital lease obligations, less current portion        |                                              |                                        | 12,098  |           |   |          | 11,807  |        
|Long-term portion of self-insurance and other reserves |                                              |                                        | 15,852  |           |   |          | 15,852  |        
|Other long-term liabilities                            |                                              |                                        | 8,756   |           |   |          | 9,998   |        
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total liabilities                                      |                                              |                                        | 670,703 |           |   |          | 683,569 |        
|Stockholders deficit                                  |                                              |                                        |         |           |   |          |         |        
|                                                       | Common Stock, $.01 par value:                |                                        |         |           |   |          |         |         |  
|                                                       |                                              | Authorized shares - 100,000            |         |           |   |          |         |         |   | 
|                                                       |                                              | Issued and outstanding shares - 0      |         |           |  |          |         |         |  | 
|                                                       | Class A Common Stock, $.01 par value:        |                                        |         |           |   |          |         |         |  
|                                                       |                                              | Authorized shares - 100,000            |         |           |   |          |         |         |   | 
|                                                       |                                              | Issued and outstanding shares - 50,000 |         |           | 1 |          |         |         | 1 | 
|                                                       | Additional paid-in capital                   |                                        |         | 12,715    |   |          |         | 12,715  |  
|                                                       | Retained deficit                             |                                        |         | (54,125   | ) |          |         | (50,193 | )
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total stockholders deficit                            |                                              |                                        | (41,409 | )         |   |          | (37,477 | )      
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total liabilities and stockholders deficit            |                                              | $                                      | 629,294 |           |   | $        | 646,092 |        
|                                                       |                                              |                                        |         |           |   |          |         |        

See accompanying notes to unaudited consolidated financial statements.

4



---



##### Table of Contents



STATER BROS. HOLDINGS INC.




CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and share amounts)

|                                                           |                                                        |   |                |         |          |   |         |         | 
|---------------------------------------------------------- | ------------------------------------------------------ | - | -------------- | ------- | -------- | - | ------- | ------- | 
|                                                           |                                                        |   | 13 Weeks Ended
|                                                           |                                                        |   |               
|                                                           |                                                        |   | Dec. 24,       |         | Dec. 30,
|                                                           |                                                        |   | 2000           |         | 2001    
|                                                           |                                                        |   |                |         |         
|Sales                                                      |                                                        | $ | 624,849        |         |          | $ | 662,587 |        
|Cost of
          goods sold                               |                                                        |   | 466,957        |         |          |   | 486,424 |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Gross
          profit                                     |                                                        |   | 157,892        |         |          |   | 176,163 |        
|Operating
          expenses:                              |                                                        |   |                |         |          |   |         |        
|                                                           | Selling,
          general and administrative expenses |   |                | 136,532 |          |   |         | 149,936 | 
|                                                           | Depreciation
          and amortization                |   |                | 6,928   |          |   |         | 7,504   | 
|                                                           |                                                        |   |                |         |          |   |         |        
|Total
          operating expenses                         |                                                        |   | 143,460        |         |          |   | 157,440 |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Operating
          profit                                 |                                                        |   | 14,432         |         |          |   | 18,723  |        
|Interest
          income                                  |                                                        |   | 980            |         |          |   | 704     |        
|Interest
          expense                                 |                                                        |   | (12,888        | )       |          |   | (12,796 | )      
|Equity
          in earnings from unconsolidated affiliate |                                                        |   | 482            |         |          |   | 648     |        
|Other
          income (loss)  net                        |                                                        |   | 83             |         |          |   | (614    | )      
|                                                           |                                                        |   |                |         |          |   |         |        
|Income
          before income taxes                       |                                                        |   | 3,089          |         |          |   | 6,665   |        
|Income
          taxes                                     |                                                        |   | 1,267          |         |          |   | 2,733   |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Net income                                                 |                                                        | $ | 1,822          |         |          | $ | 3,932   |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Earnings
          per share                               |                                                        | $ | 36.44          |         |          | $ | 78.64   |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Average
          common shares outstanding                |                                                        |   | 50,000         |         |          |   | 50,000  |        
|                                                           |                                                        |   |                |         |          |   |         |        
|Shares
          outstanding at end of period              |                                                        |   | 50,000         |         |          |   | 50,000  |        
|                                                           |                                                        |   |                |         |          |   |         |        

See accompanying notes to unaudited consolidated financial statements.

5



---



##### Table of Contents



STATER BROS. HOLDINGS INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |       |        |  
|----------------------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------- | ------ | -------------- | ------ | -------- | ------- | ----- | ------ | -
|                                                                                                      |                                                                  |                                                                                                       |        | 13 Weeks Ended
|                                                                                                      |                                                                  |                                                                                                       |        |               
|                                                                                                      |                                                                  |                                                                                                       |        | Dec. 24,       |        | Dec. 30,
|                                                                                                      |                                                                  |                                                                                                       |        | 2000           |        | 2001    
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |         
|Operating activities:                                                                                 |                                                                  |                                                                                                       |        |                |        |          |         |      
|Net income                                                                                            |                                                                  | $                                                                                                     | 1,822  |                |        | $        | 3,932   |      
|Adjustments
          to reconcile net income to net cash provided by
          operating activities: |                                                                  |                                                                                                       |        |                |        |          |         |      
|                                                                                                      | Depreciation and amortization                                    |                                                                                                       |        | 6,928          |        |          |         | 7,504 |       
|                                                                                                      | Provision for deferred income taxes                              |                                                                                                       |        | 1,265          |        |          |         |      |       
|                                                                                                      | (Gain) loss on disposals of assets                               |                                                                                                       |        | (83            | )      |          |         | 614   |       
|                                                                                                      | Net undistributed gain in investment in unconsolidated affiliate |                                                                                                       |        | (482           | )      |          |         | (648  | )     
|                                                                                                      | Changes in operating assets and liabilities:                     |                                                                                                       |        |                |        |          |         |       |       
|                                                                                                      |                                                                  | Decrease in lease guarantee escrow                                                                    |        |                | 13,180 |          |         |       |       |  
|                                                                                                      |                                                                  | Increase in receivables                                                                               |        |                | (6,182 | )        |         |       | (3,452 | )
|                                                                                                      |                                                                  | Decrease in income tax receivables                                                                    |        |                | 263    |          |         |       | 358    |  
|                                                                                                      |                                                                  | (Increase) decrease in inventories                                                                    |        |                | (9,147 | )        |         |       | 879    |  
|                                                                                                      |                                                                  | Increase in prepaid expenses                                                                          |        |                | (2,439 | )        |         |       | (1,603 | )
|                                                                                                      |                                                                  | (Increase) decrease in other assets                                                                   |        |                | 31     |          |         |       | (25    | )
|                                                                                                      |                                                                  | Increase (decrease) in accounts payable                                                               |        |                | 985    |          |         |       | (4,432 | )
|                                                                                                      |                                                                  | Increase in accrued income taxes                                                                      |        |                |       |          |         |       | 2,708  |  
|                                                                                                      |                                                                  | Increase
          in accrued liabilities and long-term 
          portion of self-insurance reserves |        |                | 12,784 |          |         |       | 15,003 |  
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Net cash provided by operating activities                                                             |                                                                  |                                                                                                       | 18,925 |                |        |          | 20,838  |      
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Investing activities:                                                                                 |                                                                  |                                                                                                       |        |                |        |          |         |      
|Purchase of property and equipment                                                                    |                                                                  |                                                                                                       | (8,118 | )              |        |          | (13,674 | )    
|Proceeds
          from sale of property and equipment and properties
          held for sale         |                                                                  |                                                                                                       | 206    |                |        |          | 17      |      
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Net cash used in investing activities                                                                 |                                                                  |                                                                                                       | (7,912 | )              |        |          | (13,657 | )    
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Financing activities:                                                                                 |                                                                  |                                                                                                       |        |                |        |          |         |      
|Principal payments on capital lease obligations                                                       |                                                                  |                                                                                                       | (667   | )              |        |          | (413    | )    
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Net cash used in financing activities                                                                 |                                                                  |                                                                                                       | (667   | )              |        |          | (413    | )    
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Net increase in cash and cash equivalents                                                             |                                                                  |                                                                                                       | 10,346 |                |        |          | 6,768   |      
|Cash and cash equivalents at beginning of period                                                      |                                                                  |                                                                                                       | 62,631 |                |        |          | 101,636 |      
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Cash and cash equivalents at end of period                                                            |                                                                  | $                                                                                                     | 72,977 |                |        | $        | 108,404 |      
|                                                                                                      |                                                                  |                                                                                                       |        |                |        |          |         |      
|Interest paid                                                                                         |                                                                  | $                                                                                                     | 626    |                |        | $        | 537     |      
|Income taxes paid                                                                                     |                                                                  | $                                                                                                     | 2      |                |        | $        | 1,713   |      

See accompanying notes to unaudited consolidated financial statements.

6



---



##### Table of Contents



STATER BROS. HOLDINGS INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)DECEMBER 30, 2001

Note 1  Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated
financial statements contain all normal recurring adjustments necessary to
present fairly the financial position of Stater Bros. Holdings Inc. (the
Company) and its subsidiaries as of September 30, 2001 and December 30, 2001
and the results of its operations and cash flows for the thirteen weeks ended
December 24, 2000 and December 30, 2001. These consolidated financial statements
should be read in conjunction with the audited financial statements and notes
thereto included in the Companys latest annual report filed on Form 10-K. The
operating results for the thirteen weeks ended December 30, 2001 are not
necessarily indicative of the results of operations for a full year.

Note 2  Income Taxes

The provision for income taxes for the thirteen weeks ended December 24,
2000 and December 30, 2001 consists of the following:

|                     |  |                |       |               |  |   |       | 
|-------------------- |  | -------------- | ----- | ------------- |  | - | ----- | 
|                     |  | 13 Weeks Ended
|                     |  |               
|                     |  | Dec. 24, 2000  |       | Dec. 30, 2001
|                     |  |                |       |              
|                     |  | (In thousands)
|Federal income taxes |  | $              | 994   |               |  | $ | 2,144 | 
|State income taxes   |  |                | 273   |               |  |   | 589   | 
|                     |  |                |       |               |  |   |       | 
|                     |  | $              | 1,267 |               |  | $ | 2,733 | 
|                     |  |                |       |               |  |   |       | 

Note 3  Unconsolidated Affiliate

The Company owns 50% of Santee Dairies LLC. Through its wholly owned
subsidiary, Santee Dairies, Inc. (Santee), it operates a fluid milk processing
plant located in City of Industry, California, and the Company is not the
controlling stockholder. Accordingly, the Company accounts for its investment in
Santee Dairies LLC using the equity method of accounting and recognized income
of $482,000 and $648,000 for the thirteen weeks ended December 24, 2000 and
December 30, 2001, respectively. The Company is a significant customer of Santee
which supplies the Company with a substantial portion of its fluid milk and
dairy products.

Summary of unaudited financial information for Santee Dairies LLC is as follows:

|                        |  |                |        |               |  |   |        | 
|----------------------- |  | -------------- | ------ | ------------- |  | - | ------ | 
|                        |  | 13 Weeks Ended
|                        |  |               
|                        |  | Dec. 24, 2000  |        | Dec. 30, 2001
|                        |  |                |        |              
|                        |  | (In thousands)
|Current assets          |  | $              | 21,107 |               |  | $ | 23,508 | 
|Non-current assets      |  |                | 98,848 |               |  |   | 94,432 | 
|Current liabilities     |  |                | 25,953 |               |  |   | 24,872 | 
|Non-current liabilities |  |                | 70,733 |               |  |   | 66,277 | 
|Shareholders equity    |  |                | 23,269 |               |  |   | 26,791 | 
|                       
|Sales                   |  |                | 47,143 |               |  |   | 49,306 | 
|Gross profit            |  |                | 7,475  |               |  |   | 8,136  | 
|Net income              |  | $              | 1,106  |               |  | $ | 1,295  | 

7



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)DECEMBER 30, 2001

Note 4  Use of Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that effect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Note 5  Subsequent Events

Subsequent to quarter end, the Company obtained consent of the holders of
its 10.75% Senior Notes due 2006 to make a distribution and payment to
stockholders consisting of $25.0 million cash and its subordinated note in the
principal amount of $20.0 million. On January 22, 2002, the Company redeemed
11,699 shares of Stater Bros. Holdings Inc. stock previously held by La Cadena
Investments and made a cash payment of $20.0 million and executed a $20.0
million subordinated note due March 31, 2007 to a former partner of La Cadena
Investments. The subordinated note bears interest at a rate of 5.0% per annum,
payable semi-annually. On February 1, 2002, the Company paid a $4.5 million
dividend to La Cadena Investments. Fees for consent of the holders of its 10.75%
Senior Notes and fees and expenses of the transaction, including a $500,000
financial advisory service fee to La Cadena Investments, were approximately $4.9
million.

Subsequent to December 30, 2001, the Company redeemed $250,000 of its
10.75% Senior Notes due 2006. The Notes were restricted and unregistered. The
Notes were redeemed for $250,000 plus accrued interest.

8



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 30, 2001

PART I  FINANCIAL INFORMATION (contd.)




Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | OWNERSHIP OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | La Cadena Investments is the sole shareholder of the Company and holds all of the shares of the Companys Class A Common Stock which are
entitled to 1.1 votes per share. La Cadena Investments is a California General Partnership whose partners include Jack H. Brown, Chairman
of the Board, President and Chief Executive Officer of the Company and two other members of senior management of the Company. Jack H.
Brown has a majority interest in La Cadena and is the managing general partner with the power to vote the shares of the Company held by La
Cadena.                                                                                                                                                                                                                                                                                                  
|
| | ACQUISITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | On May 7, 1999, Stater Bros. entered into an agreement with Albertsons, Inc. (Albertsons) to purchase 43 supermarkets and one future
store site in Stater Bros. existing and contiguous market areas. The stores were formerly operated by Albertsons or Lucky Stores and
were divested in connection with the merger of Albertsons and American Store Company, the parent of Lucky Stores. The purchase price was
$94.4 million for land, buildings and equipment, $39.6 million for inventories on hand at closing, and the assumption of $13.3 million of
capitalized lease obligations. The supermarkets were acquired sequentially over a twenty-four day period which began on August 9, 1999.
Each acquired store was reopened under the Stater Bros. name within two days of its acquisition and was fully integrated into the Stater
Bros. operating systems.
|
| | LEASE GUARANTEE ESCROW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | As of September 24, 2000, a portion of the Companys lease obligations were guaranteed by Petrolane Incorporated (Petrolane) or its
successor. The leases guaranteed by Petrolane had initial terms of 20 years and expired in 2003. Lease payments for the properties
subject to the Petrolane guarantees were approximately $10.0 million per year. Under the terms of the agreement related to the Companys
acquisition of Stater Bros. Markets from Petrolane in 1983, as amended in 1985, Stater Bros. Markets was required to make annual deposits
into a lease guarantee escrow account. In addition, 10 shares of Stater Bros. Markets $11.00 Cumulative Redeemable Preferred Stock due in
2003 were held by Petrolane in connection with the lease guarantees.                                                                                                   
|
| | During the first quarter of fiscal 2001, Stater Bros. Markets redeemed all 10 outstanding shares of its $11.00 Cumulative Redeemable
Preferred Stock due 2003 from Texas Eastern Corporation, Petrolanes assignee of such preferred stock. The Petrolane lease guarantees
were terminated in exchange for a $400,000 fee and a letter of credit was issued in favor of Texas Eastern to secure a portion of the
remaining lease payments through 2003. As part of these transactions, the lease guarantee escrow account was terminated and the $13.2
million in such account was released to Stater Bros. Markets. All of the store leases that had been guaranteed by Petrolane were extended
for an additional five years following expiration of their respective initial terms in 2003.                                                                                

9



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | RESULTS OF OPERATIONS                                                                                                                                                   
|
| | The following table sets forth certain income statement components expressed as a percent of sales for the thirteen weeks ended December
24, 2000 and December 30, 2001.

|                                                 |                                              |  |                |       |               |  |        |       | 
|------------------------------------------------ | -------------------------------------------- |  | -------------- | ----- | ------------- |  | ------ | ----- | 
|                                                 |                                              |  | 13 Weeks Ended
|                                                 |                                              |  |               
|                                                 |                                              |  | Dec. 24, 2000  |       | Dec. 30, 2001
|                                                 |                                              |  |                |       |              
|Sales                                            |                                              |  | 100.00         | %     |               |  | 100.00 | %    
|Gross profit                                     |                                              |  | 25.27          |       |               |  | 26.59  |      
|Operating expenses:                              |                                              |  |                |       |               |  |        |      
|                                                 | Selling, general and administrative
expenses |  |                | 21.85 |               |  |        | 22.63 | 
|                                                 | Depreciation and amortization                |  |                | 1.11  |               |  |        | 1.13  | 
|Operating profit                                 |                                              |  | 2.31           |       |               |  | 2.83   |      
|Interest income                                  |                                              |  | 0.16           |       |               |  | 0.11   |      
|Interest expense                                 |                                              |  | (2.06          | )     |               |  | (1.93  | )    
|Equity in earnings from unconsolidated affiliate |                                              |  | 0.08           |       |               |  | 0.10   |      
|Other income (loss)  (net)                      |                                              |  |               |       |               |  | (0.10  | )    
|Income before income taxes                       |                                              |  | 0.49           | %     |               |  | 1.01   | %    

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Total sales for the thirteen weeks ended December 30, 2001, the first quarter of fiscal 2002, increased 6.0% and amounted to $662.6
million compared to $624.8 million for the same period in the prior year. The increase in total sales in the first quarter of fiscal 2002
was due primarily to continued favorable customer response to the Companys marketing plan which emphasizes high quality, large product
selections and customer service. Like store sales increased 6.0% for the thirteen-week period ended December 30, 2001. The Company
operated 155 supermarkets at December 30, 2001 and December 24, 2000.
|
| | Gross profit for the thirteen weeks ended December 30, 2001, amounted to $176.2 million or 26.59% of sales compared to $157.9 million or
25.27% of sales in the same period of the prior year. The increase in the first quarter of fiscal 2002 gross profit, as a percent of
sales, was due primarily to an increase in the sale of higher margin items and the effect of price increases, implemented in the second
half of fiscal 2001, to offset higher utility costs.                                                                                                                                                    
|
| | Operating expenses include selling, general and administrative expenses and depreciation and amortization. For the thirteen weeks ended
December 30, 2001, selling, general and administrative expenses amounted to $149.9 million or 22.63% of sales compared to $136.5 million
or 21.85% of sales for the thirteen weeks ended December 24, 2000. The increase in selling, general and administration expenses, as a
percentage of sales, in the first quarter of fiscal 2002 was due primarily to an increase in payroll related expenses and utility costs,
as a percentage of sales, compared to fiscal 2001.            

10



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | RESULTS OF OPERATIONS (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| | Depreciation and amortization expenses amounted to $7.5 million for the thirteen weeks ended December 30, 2001 and amounted to $6.9
million for the like period of the prior year. The increase in depreciation and amortization expense in fiscal 2002 was primarily due to
an increase in fixed assets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Operating profit for the thirteen weeks ended December 30, 2001 amounted to $18.7 million or 2.83% of sales compared to $14.4 million or
2.31% of sales for the thirteen weeks ended December 24, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Interest expense amounted to $12.8 million for the thirteen weeks ended December 30, 2001 compared to $12.9 million for the thirteen weeks
ended December 24, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | The Companys equity in earnings from unconsolidated affiliate, amounted to $648,000 for the first quarter of fiscal 2002 compared to
$482,000 in the first quarter of the prior year. The increase in earnings in the first quarter of 2002 over the first quarter of 2001,
was due to increased volume and improved efficiencies by Santee Dairies, LLC.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| | Income before income taxes amounted to $6.7 million for the thirteen weeks ended December 30, 2001 compared to $3.1 million for the
thirteen weeks ended December 24, 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| | Net income for the thirteen week first quarter ended December 30, 2001, amounted to $3.9 million compared to $1.8 million for the thirteen
week first quarter of the prior year.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| | LIQUIDITY AND CAPITAL RESOURCES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Company historically has funded its daily cash flow requirements through funds provided by operations and through borrowings from
short-term revolving credit facilities. The Companys credit agreement, as amended, became effective August 6, 1999 and expires in March
2003, and consists of a revolving loan facility for working capital of $50.0 million and a letter of credit facility with a maximum
availability of $25.0 million. The credit agreement was amended December 13, 2001 to include a $15.0 million letter of credit sublimit.
As of December 30, 2001, the Company had $30.2 million of outstanding letters of credit and had $44.8 million available under the
revolving loan facility. The letter of credit facility is maintained pursuant to the Companys workers compensation and general
liability self-insurance requirements and as security for current rent obligations.

11



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                              
| | -----------------------------------------------------------------------------------------------------------------------------
| | LIQUIDITY AND CAPITAL RESOURCES (contd.)                                                                                     
|
| | The following table sets forth the Companys contractual cash obligations and commercial commitments as of December 30, 2001.

|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|----------------------------------- |  | ------------------------------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------ | ------- |  |  | - | ------- | ----- |  | - | ------- | 
|                                    |  | Contractual Cash Obligations (In thousands)
|                                    |  |                                            
|                                    |  |                                             |         |        |  | Less than |        |           |  |        |         |  |  |   |         | After
|                                    |  | Total                                       |         | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Yrs.
|                                    |  |                                             |         |        |  |           |        |           |  |       
|10.75% Senior Notes due August 2006 |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|Principal                           |  | $                                           | 439,000 |        |  | $         |       |           |  | $      |        |  |  | $ | 439,000 |       |  | $ |        | 
|Interest                            |  |                                             | 235,963 |        |  |           | 47,193 |           |  |        | 94,385  |  |  |   | 94,385  |       |  |   |        | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|                                    |  |                                             | 674,963 |        |  |           | 47,193 |           |  |        | 94,385  |  |  |   | 533,385 |       |  |   |        | 
|Capital Lease Obligations (1)       |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|Principal                           |  |                                             | 13,120  |        |  |           | 1,313  |           |  |        | 2,130   |  |  |   | 1,765   |       |  |   | 7,912   | 
|Interest                            |  |                                             | 13,089  |        |  |           | 2,025  |           |  |        | 3,532   |  |  |   | 2,821   |       |  |   | 4,711   | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|                                    |  |                                             | 26,209  |        |  |           | 3,338  |           |  |        | 5,662   |  |  |   | 4,586   |       |  |   | 12,623  | 
|Operating Leases(1)                 |  |                                             | 209,413 |        |  |           | 29,123 |           |  |        | 48,087  |  |  |   | 37,685  |       |  |   | 94,518  | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 
|Total Contractual Cash Obligations  |  | $                                           | 910,585 |        |  | $         | 79,654 |           |  | $      | 148,134 |  |  | $ | 575,656 |       |  | $ | 107,141 | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |         |       |  |   |         | 

|                                   |  |                                             |        |        |  |           |        |           |  |        |   |  |  |   |   |       |  |   |   | 
|---------------------------------- |  | ------------------------------------------- | ------ | ------ |  | --------- | ------ | --------- |  | ------ | - |  |  | - | - | ----- |  | - | - | 
|                                   |  | Other Commercial Commitments (In thousands)
|                                   |  |                                            
|                                   |  |                                             |        |        |  | Less than |        |           |  |        |   |  |  |   |   | After
|                                   |  | Total                                       |        | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Yrs.
|                                   |  |                                             |        |        |  |           |        |           |  |       
|Standby Letters of Credit(2)       |  | $                                           | 30,185 |        |  | $         | 30,185 |           |  | $      |  |  |  | $ |  |       |  | $ |  | 
|                                   |  |                                             |        |        |  |           |        |           |  |        |   |  |  |   |   |       |  |   |   | 
|Total Other Commercial Commitments |  | $                                           | 30,185 |        |  | $         | 30,185 |           |  | $      |  |  |  | $ |  |       |  | $ |  | 
|                                   |  |                                             |        |        |  |           |        |           |  |        |   |  |  |   |   |       |  |   |   | 

| |                                                                                                                                                                                                                                                                                 
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | (1) The Company leases the majority of its retail stores, offices and warehouse and distribution facilities. Certain leases provide for
additional rents based on sales. Primary lease terms range from 10 to 99 years and substantially all leases provide for renewal options.
|
| | (2) Standby letters of credit are committed as security for workers compensation obligations and as security for current rent obligations.
Outstanding letters of credit expire between June 30, 2002 and October 1, 2002.                                                     

12



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | LIQUIDITY AND CAPITAL RESOURCES (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| | Working capital amounted to $123.0 million at December 30, 2001 and $124.3 million at September 30, 2001, and the Companys current ratios
were 1.59:1, and 1.64:1, respectively. Fluctuations in working capital and current ratios are not unusual in the industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| | The net cash provided by operating activities in the thirteen weeks ended December 30, 2001 amounted to $20.8 million compared to $18.9
million for the thirteen weeks ended December 24, 2000. Fluctuations in net cash provided by operating activities are not unusual in the
industry. Cash provided by operating activities in fiscal 2002 consisted of a $15.0 million increase in accrued liabilities and
self-insurance reserves, $7.5 million from depreciation offset by a decrease of $4.4 million in accounts payable and a $3.5 million
increase in accounts receivable. Cash provided by operating activities of $18.9 million in fiscal 2001 consisted of $13.2 million
reduction in lease guarantee escrow and increases in accrued liabilities and self-insurance reserves of $12.8 million offset by increases
in receivables of $6.2 million and increases in inventory of $9.1 million.                                                          
|
| | Net cash used by investing activities for the thirteen weeks ended December 30, 2001, amounted to $13.7 million, compared to $7.9 million
for the thirteen weeks ended December 24, 2000. The difference in net cash used by investing activities between the comparable periods is
due to the Companys capital expenditures during these periods, net of proceeds from asset dispositions. Capital expenditures amounted to
$13.7 million in the first quarter of fiscal 2002 compared to $8.1 million in the first quarter of fiscal 2001.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | Net cash used by financing activities amounted to $413,000 and $667,000 for the thirteen weeks ended December 30, 2001, and December 24,
2000, respectively, and consisted of payments on the Companys capitalized lease obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Subsequent to quarter end, the Company obtained consent of the holders of its 10.75% Senior Notes due 2006 to make a distribution and
payment to stockholders consisting of $25.0 million cash and its subordinated note in the principal amount of $20.0 million. On January
22, 2002, the Company redeemed 11,699 shares of Stater Bros. Holdings Inc. stock previously held by La Cadena Investments and made a cash
payment of $20.0 million and executed a $20.0 million subordinated note due March 31, 2007 to a former partner of La Cadena Investments.
The subordinated note bears interest at a rate of 5.0% per annum, payable semi-annually. On February 1, 2002, the Company paid a $4.5
million dividend to La Cadena Investments. Fees for consent of the holders of its 10.75% Senior Notes and fees and expenses of the
transaction, including a $500,000 financial advisory service fee to La Cadena Investments, were approximately $4.9 million.

13



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| | Stater Bros. principal operating subsidiary, Stater Bros. Markets, signed a credit facility with Bank of America N.A. on August 6, 1999.
The credit facility, as amended December 13, 2001, provides for (i) a $50.0 million three-year revolving loan facility and (ii) a $25.0
million three-year letter of credit facility and (iii) a Revolving Loan Commitment L/C Sublimit which is defined as an amount equal to
the lessor of (a) the Revolving Loan Commitment and (b) $15,000,000. The Revolving Loan Commitment L/C Sublimit is part of, and not in
addition to, the Revolving Loan Commitment. Borrowings under the revolving loan facility are unsecured and expected to be used for
certain working capital and corporate purposes. Letters of credit under the letter of credit facility are expected to be used to support
the purchase of inventory, obligations incurred in connection with the construction of stores, workers compensation insurance obligations
and security for current rent obligations. The availability of the loans and letters of credit are subject to certain sublimits and other
borrowing restrictions.
|
| | Indebtedness of Stater Bros. Markets under the credit facility is guaranteed by Stater Bros. Development, Inc., a subsidiary of the
Company, and any subsidiaries that Stater Bros. Markets or Stater Bros. Development, Inc. acquires or forms after the date of the credit
facility.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| | Loans under the credit facility bear interest at a rate based upon either (i) the Base Rate
(defined as the higher of (a) the federal funds rate plus 0.50%
and (b) the rate of
interest publicly announced by Bank of America as its reference
rate), plus 1.00%, or (ii) the
Offshore Rate (defined as the average British Bankers
Association Interest Settlement Rate for deposits in dollars, adjusted
for the maximum reserve requirement for Eurocurrency
funding), plus 2.25%. For Offshore Rate Loans, the Offshore Rate will
be applied in consecutive interest periods of the earlier of
(a) the maturity date of the loan or (b) periods, as
selected by Stater Bros. Markets, of one, two, three or six months.                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| | The revolving loan facility, as amended
January 18, 2002, will cease to be available and will be payable
in full on March 31, 2003. Letters under the credit facility can
be issued until March 31, 2003 and all letters of credit must
expire no later than March 31, 2004. The loans under the
revolving loan facility must be repaid for a period of ten
consecutive days semi-annually.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Loans under the revolving loan facility may be repaid and re-borrowed.
The loans under the revolving loan facility may be prepaid at any
time without penalty, subject to certain minimums and payment of any breakage and
re-deployment costs in the case of loans based on the
offshore rate. The commitments under the credit facility may be reduced by Stater Bros. Markets.
Stater Bros. Markets is required
to pay a commitment fee equal to 0.25% per annum on the actual daily unused portion of the
revolving loan facility and the letter of
credit facility, payable quarterly in arrears. Outstanding letters of
credit facility are subject to a fee of 1.50% per annum on the face amount of such letters of
credit, payable quarterly in arrears. The Company will be required to pay standard fees charged
by Bank of America with respect to the issuance, negotiation, and amendment of
commercial letter of credit issued under the letter of credit facility.                                                                                                                                                                        

14



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Credit Facilities (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | Availability of the loans and letters of credit under the credit facility is subject to a monthly borrowing base test based on inventory.
The credit facility requires Stater Bros. Markets to meet certain financial tests, including minimum net worth and minimum EBITDA tests.
The credit facility contains covenants which, among other things, will limit indebtedness, liens, guarantee obligations, mergers,
consolidations, liquidations and dissolutions, asset sales, leases, investments, loans and advances, transactions with affiliates, sale
and leasebacks, other matters customarily restricted in such agreements and modifications to the holding company status of Stater Bros.
Markets.
|
| | The credit facility also contains covenants that apply to Stater Bros. Holdings Inc., and Stater Bros. Holdings Inc. is a party to the
credit facility for purposes of these covenants. These covenants, among other things, limit dividends and other payments in respect of
Stater Bros. Holdings Inc.s capital stock, prepayments and redemptions of the exchange notes and other debt, and limit indebtedness,
investments, loans and advances by Stater Bros. Holdings Inc. The credit facility requires Stater Bros. Holdings Inc. and Stater Bros.
Markets to comply with certain covenants intended to ensure that their legal identities remain separate.                                          
|
| | The credit facility contains customary events of default, including payment defaults; material inaccuracies in representations and
warranties; covenant defaults; cross-defaults to certain other indebtedness; certain bankruptcy events; certain ERISA events; judgments;
defaults; invalidity of any guaranty; failure of Jack H. Brown to be Chairman of the Board and Chief Executive Officer of Stater Bros.
Markets; and change of control.                                                                                                                                                                                                                                                           
|
| | As of December 30, 2001, for purposes of the credit facility with Bank of America, Stater Bros. Markets was in compliance with all
restrictive covenants and exceeded the minimum net worth covenant by approximately $113.2 million and exceeded minimum inventory coverage
by approximately $44.4 million. The minimum EBITDA (as defined) covenant measurement period begins (as amended) in the quarter ending
June 25, 2000, and requires an annualized minimum EBITDA, as amended January 18, 2002, of $85.0 million. As of December 30, 2001, Stater
Bros. Markets exceeded minimum annualized EBITDA by approximately $13.9 million.                                                                 
|
| | As of December 30, 2001, for the purposes of the credit facility with Bank of America, Stater Bros. Holdings Inc. was in compliance with
all restrictive covenants.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| | Labor Relations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| | The Company and other major supermarket employers in Southern California negotiated a four-year contract, beginning October 1999 and
expiring in October 2003, with the United Food and Commercial Workers Union. The Companys collective bargaining agreement with the
International Brotherhood of Teamsters was renewed in 1998 and expires in September 2002. Management believes it has good relations with
its employees.                                                                                                                                                                                                                                                                             

15



---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

| |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | EFFECT OF INFLATION AND COMPETITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| | The Companys performance is affected by inflation. In recent years the impact of inflation on the operations of the Company has been
moderate. As inflation has increased expenses, the Company has recovered, to the extent permitted by competition, the increase in
expenses by increasing prices over time. However, the economic and competitive environment in Southern California continues to challenge
the Company to become more cost efficient as its ability to recover increases in expenses through price increases is diminished. The
future results of operations of the Company will depend upon the ability of the Company to adapt to the current economic environment as
well as the current competitive conditions.                                                                                                                                                                                                                                                                                            
|
| | The Company conducts business in one industry segment, the operation of retail food supermarkets, which offer for sale to the public most
merchandise typically found in supermarkets. The supermarket industry is highly competitive and is characterized by low profit margins.
The Companys primary competitors include Vons, Albertsons, Ralphs, and a number of independent supermarket operators. Competitive
factors typically include the price, quality and selection of products offered for sale, customer service, and the convenience and
location of retail facilities. The Company monitors competitive activity and Senior Management regularly reviews the Companys marketing
and business strategy and periodically adjusts them to adapt to changes in the Companys primary trading area.                                                                                                                                                                                                                     
|
| | Cautionary Statement for Purposes of Safe Harbor Provisions of the Private Securities Litigation Reform Act of 1995.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| | The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward-looking statements. Certain information
contained in the Companys filings with the Securities and Exchange Commission (as well as information included in oral statements or
other written statements made or to be made by the Company) includes statements that are forward-looking, such as statements relating to
plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect
results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by or on
behalf of the Company. These risks and uncertainties include, but are not limited to, those relating to domestic economic conditions,
seasonal and weather fluctuations, expansion and other activities of competitors, changes in federal or state laws and the administration
of such laws and the general condition of the economy.




Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

| |                
| | ---------------
| | Not Applicable.

16



---



##### Table of Contents






PART II  OTHER INFORMATION




Item 1. LEGAL PROCEEDINGS

| |                                                                                                                                                                                                                                                                                                                                                         
| | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Various legal actions and claims are pending against the Company in the ordinary course of business. In the opinion of management and its
general legal counsel, the ultimate resolution of such pending legal actions and claims will not have a material adverse effect on the
Companys consolidated financial position or its results of operations.
|
| | For a description of legal proceedings, please refer to the footnote entitled Litigation Matters contained in the Notes to Consolidated
Financial Statements section of the Companys Form 10-K for the fiscal year ended September 30, 2001.                                                                                                         




Item 2. CHANGES IN SECURITIES

| |     
| | ----
| | None




Item 3. DEFAULTS UPON SENIOR SECURITIES.

| |     
| | ----
| | None




Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

| |     
| | ----
| | None




Item 5. OTHER INFORMATION

| |                                                                                                                                                                                                            
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Subsequent to December 30, 2001, the Company redeemed $250,000 of its 10.75% Senior Notes due 2006. The Notes were restricted and
unregistered. The Notes were redeemed for $250,000 plus accrued interest.




Item 6. EXHIBITS AND REPORTS ON FORM 8-K

| |             
| | ------------
| | (a) Exhibits

| |                         
| | ------------------------
| | Exhibits are as follows:

|            |  |                                                                                                                                                                                                            
|----------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                                                
|            |  |                                                                                                                                                                                                            
|10.26       |  | First Amendment dated September 15,
        2000 to the Credit Agreement dated as of August 6, 1999 by and among
        Stater Bros. Markets, Stater Bros. Holdings Inc. and Bank of America,
        N.A.
|10.27       |  | Second Amendment dated December 13,
        2001 to the Credit Agreement dated as of August 6, 1999 by and among
        Stater Bros. Markets, Stater Bros. Holdings Inc. and Bank of America,
        N.A.
|10.28       |  | Third Amendment dated January 18,
        2002 to the Credit Agreement dated as of August 6, 1999 by and among
        Stater Bros. Markets, Stater Bros. Holdings Inc. and Bank of America,
        N.A.  

17



---



##### Table of Contents



Item 6. EXHIBITS AND REPORTS ON FORM 8-K (contd.)

| |                       
| | ----------------------
| | (a) Exhibits (contd.)

|      |                                                                                                                                                                              |                                                                                                                                                                       
|----- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.29 |                                                                                                                                                                              | Subordinated Note for $20,000,000
        dated January 22, 2002 between the Company and H. Harrison Lightfoot
        with an interest rate of 5% due March 31, 2007.
|11    |                                                                                                                                                                              | Calculation of Earnings Per
        Common Share.                                                                                                                     
|      |                                                                                                                                                                              |                                                                                                                                                                       
|      | Copies of Exhibits
        listed herein can be obtained by writing and requesting such Exhibits
        from: Corporate Secretary, P. O. Box 150, Colton, California 92324.

| |                        
| | -----------------------
| | (b) Reports on Form 8-K

| |     
| | ----
| | None

18



---



##### Table of Contents



STATER BROS. HOLDINGS INC.




Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant
has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.

|                        |  |                                                                                                                                   
|----------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------
|                        |  | /s/        Jack
        H. Brown                                                                                                  
|                        |  |                                                                                                                                   
|Date: February 12, 2002 |  | Jack H. Brown
        Chairman of the Board, President, 
        and Chief Executive Officer
        (Principal Executive Officer)
|                        |  |                                                                                                                                   
|                        |  |                                                                                                                                   
|                        |  | /s/        Phillip
        J. Smith                                                                                               
|                        |  |                                                                                                                                   
|Date: February 12, 2002 |  | Phillip J. Smith 
        Senior Vice President and 
        Chief Financial Officer
        (Chief Accounting Officer)           

19