##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
 For the quarterly period ended December 28, 2008
 OR
 o
    
    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.
  Delaware
    
    33-0350671(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)301 S. Tippecanoe AvenueSan Bernardino, California
    
    92408(Address of principal executive offices)
    
    (Zip Code)
 (909) 733-5000
  (Former name, former address and former fiscal year, if changed since last report.)
 þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer   þ
(Do not check if a smaller reporting company)
    
    Smaller Reporting Company o
 o þ




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##### 



STATER BROS. HOLDINGS INC.  December 28, 2008
 INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 28, 2008 and
December 28, 2008 (Unaudited)
    
    
    3Consolidated Statements of Income (Unaudited) for the 13 weeks ended
December 30, 2007 and December 28, 2008
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks
ended December 30, 2007 and December 28, 2008
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    23Item 4. Controls and Procedures
    
    
    23PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    24Item 1A. Risk Factors
    
    
    24Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3. Defaults Upon Senior Securities
    
    
    25Item 4. Submission of Matters to a Vote of Security Holders
    
    
    25Item 5. Other Information
    
    
    25Item 6. Exhibits
    
    
    25SIGNATURES
    
    
    26EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED BALANCE SHEETS
  ASSETS
 Sept. 28,
    
    
    Dec. 28,2008
    
    
    2008(Unaudited)Current assetsCash and cash equivalents
    
    $
    144,942
    
    
    $
    122,503Restricted cash
    
    
    5,621
    
    
    
    3,121Receivables, net of allowance of $2,671 and $2,740
    
    
    52,357
    
    
    
    55,874Income tax receivables
    
    
    4,636
    
    
    
    5,622Inventories
    
    
    233,719
    
    
    
    242,186Prepaid expenses
    
    
    9,311
    
    
    
    10,122Deferred income taxes
    
    
    26,863
    
    
    
    24,063Total current assets
    
    
    477,449
    
    
    
    463,491Property and equipmentLand
    
    
    111,899
    
    
    
    111,899Buildings and improvements
    
    
    572,496
    
    
    
    584,805Store fixtures and equipment
    
    
    448,178
    
    
    
    452,232Property subject to capital leases
    
    
    10,061
    
    
    
    10,0611,142,634
    
    
    
    1,158,997Less accumulated depreciation and amortization
    
    
    410,308
    
    
    
    423,461732,326
    
    
    
    735,536Deferred income taxes, long-term
    
    
    21,178
    
    
    
    22,631Deferred debt issuance costs, net
    
    
    14,478
    
    
    
    13,675Long-term receivable
    
    
    22,228
    
    
    
    22,228Goodwill
    
    
    2,894
    
    
    
    2,894Other assets
    
    
    6,322
    
    
    
    6,31567,100
    
    
    
    67,743Total assets
    
    $
    1,276,875
    
    
    $
    1,266,770
  3




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS EQUITY
 Sept. 28,
    
    
    Dec. 28,2008
    
    
    2008(Unaudited)Current liabilitiesAccounts payable
    
    $
    167,647
    
    
    $
    172,747Accrued payroll and related expenses
    
    
    62,223
    
    
    
    56,670Other accrued liabilities
    
    
    77,088
    
    
    
    57,067Current portion of capital lease obligations
    
    
    1,162
    
    
    
    1,206Total current liabilities
    
    
    308,120
    
    
    
    287,690Long-term debt
    
    
    810,000
    
    
    
    810,000Capital lease obligations, less current portion
    
    
    5,124
    
    
    
    4,805Long-term portion of self-insurance and other reserves
    
    
    35,164
    
    
    
    40,916Long-term deferred benefits
    
    
    66,340
    
    
    
    67,542Other long-term liabilities
    
    
    11,621
    
    
    
    11,770Total liabilities
    
    
    1,236,369
    
    
    
    1,222,723Commitment and ContingenciesStockholders equityCommon 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 - 35,152
    
    
    
    
    
    
    Additional paid-in capital
    
    
    8,939
    
    
    
    8,939Accumulated other comprehensive loss
    
    
    (5,200
    )
    
    
    (5,200
    )Retained earnings
    
    
    36,767
    
    
    
    40,308Total stockholders equity
    
    
    40,506
    
    
    
    44,047Total liabilities and stockholders equity
    
    $
    1,276,875
    
    
    $
    1,266,770
  4




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
   13 Weeks EndedDec. 30,
    
    
    Dec. 28,2007
    
    
    2008Sales
    
    $
    943,030
    
    
    $
    959,253Cost of goods sold
    
    
    698,601
    
    
    
    712,391Gross profit
    
    
    244,429
    
    
    
    246,862Operating expensesSelling, general and administrative expenses
    
    
    204,318
    
    
    
    211,004Depreciation and amortization
    
    
    12,908
    
    
    
    13,360Total operating expenses
    
    
    217,226
    
    
    
    224,364Operating profit
    
    
    27,203
    
    
    
    22,498Interest income
    
    
    2,391
    
    
    
    205Interest expense
    
    
    (13,581
    )
    
    
    (17,100
    )Other income, net
    
    
    1,875
    
    
    
    149Income before income taxes
    
    
    17,888
    
    
    
    5,752Income taxes
    
    
    7,137
    
    
    
    2,211Net income
    
    $
    10,751
    
    
    $
    3,541Earnings per average common shares outstanding
    
    $
    300.56
    
    
    $
    100.73Average common shares outstanding
    
    
    35,770
    
    
    
    35,152Shares outstanding at end of period
    
    
    35,770
    
    
    
    35,152
  5




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   13 Weeks EndedDec. 30,
    
    
    Dec. 28,2007
    
    
    2008Operating activities:Net income
    
    $
    10,751
    
    
    $
    3,541Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    16,107
    
    
    
    17,660Amortization of debt issuance costs
    
    
    802
    
    
    
    803(Increase) decrease in deferred income taxes
    
    
    (1,116
    )
    
    
    1,347Gain on disposals of assets
    
    
    (1,828
    )
    
    
    (104
    )Changes in operating assets and liabilities:Decrease in restricted cash
    
    
    2,500
    
    
    
    2,500Increase in receivables
    
    
    (7,427
    )
    
    
    (3,517
    )Increase in income tax receivable
    
    
    
    
    
    
    (986
    )Increase in inventories
    
    
    (10,802
    )
    
    
    (8,467
    )(Increase) decrease in prepaid expenses
    
    
    1,455
    
    
    
    (6,761
    )Decrease in other assets
    
    
    16
    
    
    
    7Increase (decrease) in accounts payable
    
    
    (2,999
    )
    
    
    5,100Increase in accrued income taxes
    
    
    2,839
    
    
    
    Decrease in other accrued liabilities
    
    
    (31,859
    )
    
    
    (25,574
    )Increase in long-term reserves
    
    
    6,942
    
    
    
    7,103Net cash used in operating activities
    
    
    (14,619
    )
    
    
    (7,348
    )Financing activities:Principal payments on capital lease obligations
    
    
    (239
    )
    
    
    (275
    )Net cash used in financing activities
    
    
    (239
    )
    
    
    (275
    )Investing activities:(Increase) decrease in store construction reimbursement
    
    
    (2,246
    )
    
    
    5,950Purchase of property and equipment
    
    
    (52,625
    )
    
    
    (20,955
    )Proceeds from sale of property and equipment
    
    
    2,140
    
    
    
    189Net cash used in investing activities
    
    
    (52,731
    )
    
    
    (14,816
    )Net decrease in cash and cash equivalents
    
    
    (67,589
    )
    
    
    (22,439
    )Cash and cash equivalents at beginning of period
    
    
    277,062
    
    
    
    144,942Cash and cash equivalents at end of period
    
    $
    209,473
    
    
    $
    122,503Interest paid
    
    $
    32,489
    
    
    $
    32,633Income taxes paid
    
    $
    5,500
    
    
    $
    1,850
  6




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
 DECEMBER 28, 2008
 Note 1  Basis of Presentation
    Note 2  Principles of Consolidation
  Note 3  Recent Accounting Pronouncements
   7




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 28, 2008
 Note 3  Recent Accounting Pronouncements (contd.)
  Note 4  Use of Estimates
  Note 5  Restricted Cash
  Note 6  Income Taxes
     8




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 28, 2008
 Note 7 Retirement Plans
   Dec. 30,
    
    
    Dec. 28,2007
    
    
    2008(in thousands)Expected return on assets
    
    $
    (769
    )
    
    $
    (806
    )Service cost
    
    
    658
    
    
    
    580Interest cost
    
    
    876
    
    
    
    972Amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Amortization of recognized losses
    
    
    146
    
    
    
    50Net pension expense
    
    $
    910
    
    
    $
    795Actuarial assumptions used to determine
net pension expense were:Discount rate
    
    
    6.25
    %
    
    
    7.50
    %Rate of increase in compensation levels
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on assets
    
    
    6.50
    %
    
    
    6.50
    %
  9




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 28, 2008
 Note 8 Segment Information
  Retail
    
    
    All Other
    
    
    Total(in thousands)Quarter ended December 30, 2007Sales to external customers
    
    $
    912,972
    
    
    $
    30,058
    
    
    $
    943,030Intersegment sales
    
    $
    
    
    
    $
    26,951
    
    
    $
    26,951Operating profit
    
    $
    26,562
    
    
    $
    641
    
    
    $
    27,203Net income (loss)
    
    $
    17,458
    
    
    $
    (6,707
    )
    
    $
    10,751Total assets
    
    $
    1,602,623
    
    
    $
    (346,910
    )
    
    $
    1,255,713Quarter ended December 28, 2008Sales to external customers
    
    $
    930,643
    
    
    $
    28,610
    
    
    $
    959,253Intersegment sales
    
    $
    
    
    
    $
    23,616
    
    
    $
    23,616Operating profit (loss)
    
    $
    22,812
    
    
    $
    (314
    )
    
    $
    22,498Net income (loss)
    
    $
    13,427
    
    
    $
    (9,886
    )
    
    $
    3,541Total assets
    
    $
    1,681,913
    
    
    $
    (415,143
    )
    
    $
    1,266,770
 Note 9 Subsidiary Guarantee
   10




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 28, 2008
 Note 10 Credit Facilities
 Markets Credit Facility
      11




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 28, 2008
 Note 10 Credit Facilities (contd.)
 Santees Revolver
        Note 11 Litigation Matters
  12




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PART I  FINANCIAL INFORMATION (contd.)
 
 Item 2.
    
    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES
  Self-Insurance Reserves
  Employee Benefit Plans
   13




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES (contd.)
 Employee Benefit Plans (contd.)
  Long-Lived Assets
   Income Taxes
  Goodwill
  14




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES (contd.)
 Facility Closing Costs
  Advertising Allowances
   Gift Cards
  Significant Accounting Policies
  15




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OWNERSHIP OF THE COMPANY
  EXECUTIVE OVERVIEW
      16




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 Sales and Cost of Goods Sold
 Fiscal Period Ended
    
    ChangeDec. 30,
    
    Dec. 28,
    
    2009 to 2008(in thousands)
    
    2007
    
    2008
    
    Dollar
    
    %Sales
    
    $
    943,030
    
    
    $
    959,253
    
    
    $
    16,223
    
    
    
    1.72
    %Gross Profit
    
    $
    244,429
    
    
    $
    246,862
    
    
    $
    2,433
    
    
    
    1.00
    %as a % of sales
    
    
    25.92
    %
    
    
    25.73
    %
 Sales
  Like Store Sales
     17




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS (contd.)
 Gross Profit
  Operating Expenses and Operating Profit
 Fiscal Period Ended
    
    ChangeDec. 30,
    
    Dec. 28,
    
    2009 to 2008(in thousands)
    
    2007
    
    2008
    
    Dollar
    
    %Operating Expenses:Selling, general and
administrative expenses
    
    $
    204,318
    
    
    $
    211,004
    
    
    $
    6,686
    
    
    
    3.27
    %as a % of sales
    
    
    21.67
    %
    
    
    21.99
    %Depreciation and amortization
    
    $
    12,908
    
    
    $
    13,360
    
    
    $
    452
    
    
    
    3.50
    %as a % of sales
    
    
    1.37
    %
    
    
    1.39
    %Operating profit
    
    $
    27,203
    
    
    $
    22,498
    
    
    $
    (4,705
    )
    
    
    (17.30
    )%as a % of sales
    
    
    2.88
    %
    
    
    2.35
    %
 Selling, General and Administrative Expenses
   Depreciation and Amortization
  18




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS (contd.)
 Interest Income
  Interest Expense
  Other Income, Net
  Income Before Income Taxes
  Income Taxes
  Net Income
  LIQUIDITY AND CAPITAL RESOURCES
   19




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
  Contractual Cash Obligations(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years8.125% Senior Notes due June 2012Principal
    
    $
    525,000
    
    
    $
    
    
    
    $
    
    
    
    $
    525,000
    
    
    $
    Interest
    
    
    149,297
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    21,328
    
    
    
    674,297
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    546,328
    
    
    
    7.75% Senior Notes due April 2015Principal
    
    
    285,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285,000Interest
    
    
    143,569
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    33,131428,569
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    318,131Capital lease obligations (1)Principal
    
    
    6,011
    
    
    
    1,206
    
    
    
    3,028
    
    
    
    1,650
    
    
    
    127Interest
    
    
    2,444
    
    
    
    904
    
    
    
    1,176
    
    
    
    359
    
    
    
    58,455
    
    
    
    2,110
    
    
    
    4,204
    
    
    
    2,009
    
    
    
    132Operating leases (1)
    
    
    347,586
    
    
    
    35,137
    
    
    
    63,970
    
    
    
    51,321
    
    
    
    197,158Total contractual cash obligations
    
    $
    1,458,907
    
    
    $
    101,991
    
    
    $
    197,662
    
    
    $
    643,833
    
    
    $
    515,421Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (2)
    
    
    49,762
    
    
    $
    49,762
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    
    49,762
    
    
    $
    49,762
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    We lease the majority of our retail stores. Certain of our operating
leases provide for minimum annual payments that change over the primary term of the lease. For
purposes of contractual cash obligations shown here, contractual step increases or decreases
are shown in the period they are due. Certain leases
provide for additional rents based on sales. Primary lease terms range from 3 to 55 years and
substantially all leases provide for renewal options.(2)
    
    Standby letters of credit are committed as security for workers compensation
obligations. Outstanding letters of credit expire between September 2009 and February 2010. 20




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
      Labor Relations
  21




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RECENT ACCOUNTING PRONOUNCEMENTS
    CAUTIONARY STATEMENT FOR PURPOSES OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995.
  22




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##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 28, 2008
 PART I  FINANCIAL INFORMATION (contd.)
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  23




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##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 28, 2008
 
 PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   
 Item 1A. RISK FACTORS
    24




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STATER BROS. HOLDINGS INC.
 DECEMBER 28, 2008
 
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
  31.1
    
    Certification of Principal Executive Officer pursuant to Section 302
(a) of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302
(a) of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 25




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STATER BROS. HOLDINGS INC.
 
   Date: February 11, 2009
    /s/ Jack H. BrownJack H. BrownChairman
of the Board, President,
     and Chief Executive Officer
     (Principal Executive Officer) Date: February 11, 2009
    /s/ Phillip J. SmithPhillip J. SmithExecutive
Vice President
     and Chief Financial Officer
     (Principal Financial Officer) 26