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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    quarterly report pursuant to section13 or15(d) of the securities exchange act of 1934
 For the quarterly period ended December 25, 2005
 OR
 o
    
    transition report pursuant to section13 or15(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
    
    (I.R.S. Employer Identification No.)organization)
 21700 Barton RoadColton, California
    
    92324(Address of principal executive offices)
    
    (Zip Code)
 Registrants telephone number, including area code
    
    (909) 783-5000
 Not Applicable
 þ o
  o o þ
 o þ




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##### Table of Contents



STATER BROS. HOLDINGS INC.  December 25, 2005
 INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 25, 2005 and
December 25, 2005 (Unaudited)
    
    
    3Consolidated Statements of Income (Unaudited) for the 13 weeks ended
December 26, 2004 and December 25, 2005
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks
ended December 26, 2004 and December 25, 2005
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    11Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    21Item 4.
    
    Controls and Procedures
    
    
    21PART II
    
    OTHER INFORMATIONItem 1.
    

Legal Proceedings
    
    
    22Item 1a.
    
    Risk Factors
    
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    23Item 3.
    
    Defaults Upon Senior Securities
    
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    23Item 5.
    
    Other Information
    
    
    23Item 6.
    
    Exhibits
    
    
    23SIGNATURES
    
    
    
    
    24Exhibit 31.1Exhibit 31.2Exhibit 32.1
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PART I
 FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED BALANCE SHEETS
  ASSETS
 Sept. 25,
    
    
    Dec. 25,2005
    
    
    2005(Unaudited)Current assetsCash and cash equivalents
    
    $
    263,397
    
    
    $
    219,560Restricted cash
    
    
    29,000
    
    
    
    31,600Receivables
    
    
    42,556
    
    
    
    45,288Income tax receivables
    
    
    2,450
    
    
    
    2,098Inventories
    
    
    185,302
    
    
    
    209,076Prepaid expenses
    
    
    8,663
    
    
    
    11,203Deferred income taxes
    
    
    22,459
    
    
    
    21,137Total current assets
    
    
    553,827
    
    
    
    539,962Property and equipmentLand
    
    
    89,518
    
    
    
    89,974Buildings and improvements
    
    
    297,228
    
    
    
    307,234Store fixtures and equipment
    
    
    376,239
    
    
    
    385,647Property subject to capital leases
    
    
    25,903
    
    
    
    25,824788,888
    
    
    
    808,679Less accumulated depreciation and amortization
    
    
    320,951
    
    
    
    332,626467,937
    
    
    
    476,053Deferred debt issuance costs, net
    
    
    19,011
    
    
    
    18,250Goodwill
    
    
    2,894
    
    
    
    2,894Deferred income taxes, long-term
    
    
    5,302
    
    
    
    4,857Other assets
    
    
    6,398
    
    
    
    6,35133,605
    
    
    
    32,352Total assets
    
    $
    1,055,369
    
    
    $
    1,048,367
  3




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STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS DEFICIT
 Sept. 25,
    
    
    Dec. 25,2005
    
    
    2005(Unaudited)Current liabilitiesAccounts payable
    
    $
    144,298
    
    
    $
    152,938Accrued payroll and related expenses
    
    
    59,951
    
    
    
    56,106Other accrued liabilities
    
    
    71,234
    
    
    
    55,001Current portion of capital lease obligations
    
    
    1,190
    
    
    
    1,226Total current liabilities
    
    
    276,673
    
    
    
    265,271Long-term debt
    
    
    700,000
    
    
    
    700,000Capital lease obligations, less current portion
    
    
    8,292
    
    
    
    7,972Long-term portion of self-insurance and other reserves
    
    
    35,442
    
    
    
    34,928Other long-term liabilities
    
    
    48,357
    
    
    
    50,259Total liabilities
    
    
    1,068,764
    
    
    
    1,058,430Commitment and ContingenciesStockholders deficitCommon Stock, $.01 par value:Authorized
shares  100,000Issued and
outstanding shares  0
    
    
    
    
    
    
    Class A Common Stock, $.01 par value:Authorized shares   100,000Issued and
outstanding shares  38,301
    
    
    
    
    
    
    Additional paid-in capital
    
    
    9,740
    
    
    
    9,740Retained deficit
    
    
    (23,135
    )
    
    
    (19,803
    )Total stockholders deficit
    
    
    (13,395
    )
    
    
    (10,063
    )Total liabilities and stockholders deficit
    
    $
    1,055,369
    
    
    $
    1,048,367
  4




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STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
   13 Weeks EndedDec. 26,
    
    
    Dec. 25,2004
    
    
    2005Sales
    
    $
    839,065
    
    
    $
    867,009Cost of goods sold
    
    
    622,056
    
    
    
    640,294Gross profit
    
    
    217,009
    
    
    
    226,715Operating expensesSelling, general and administrative expenses
    
    
    189,160
    
    
    
    198,765Depreciation and amortization
    
    
    9,449
    
    
    
    10,358Total operating expenses
    
    
    198,609
    
    
    
    209,123Operating profit
    
    
    18,400
    
    
    
    17,592Interest income
    
    
    1,192
    
    
    
    2,510Interest expense
    
    
    (14,096
    )
    
    
    (14,576
    )Other expenses, net
    
    
    (115
    )
    
    
    (76
    )Income before income taxes
    
    
    5,381
    
    
    
    5,450Income taxes
    
    
    2,118
    
    
    
    2,118Net income
    
    $
    3,263
    
    
    $
    3,332Earnings per share
    
    $
    85.19
    
    
    $
    87.00Average common shares outstanding
    
    
    38,301
    
    
    
    38,301Shares outstanding at end of period
    
    
    38,301
    
    
    
    38,301
  5




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STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
   13 Weeks EndedDec. 26,
    
    
    Dec. 25,2004
    
    
    2005Operating activities:Net income
    
    $
    3,263
    
    
    $
    3,332Adjustments to reconcile net income to net cash
used in operating activities:Depreciation and amortization
    
    
    12,516
    
    
    
    13,310Deferred income taxes
    
    
    (1,211
    )
    
    
    1,767Loss on disposals of assets
    
    
    160
    
    
    
    116Changes in operating assets and liabilities:Increase in restricted cash
    
    
    (9,000
    )
    
    
    (2,600
    )Increase in receivables
    
    
    (6,157
    )
    
    
    (2,732
    )Decrease in income tax receivables
    
    
    
    
    
    
    352Increase in inventories
    
    
    (14,213
    )
    
    
    (23,774
    )Increase in prepaid expenses
    
    
    (4,311
    )
    
    
    (2,540
    )Decrease in other assets
    
    
    599
    
    
    
    790Increase (decrease) in accounts payable
    
    
    (2,033
    )
    
    
    8,640Increase in accrued income taxes
    
    
    2,136
    
    
    
    Decrease in accrued liabilities, long-term portion
of self-insurance reserves and other liabilities
    
    
    (9,542
    )
    
    
    (18,690
    )Net cash used in operating activities
    
    
    (27,793
    )
    
    
    (22,029
    )Investing activities:Purchase of property and equipment
    
    
    (28,584
    )
    
    
    (21,530
    )Proceeds from sale of property and equipment
    
    
    2
    
    
    
    6Net cash used in investing activities
    
    
    (28,582
    )
    
    
    (21,524
    )Financing activities:Principal payments on capital lease obligations
    
    
    (325
    )
    
    
    (284
    )Net cash used in financing activities
    
    
    (325
    )
    
    
    (284
    )Net decrease in cash and cash equivalents
    
    
    (56,700
    )
    
    
    (43,837
    )Cash and cash equivalents at beginning of period
    
    
    301,947
    
    
    
    263,397Cash and cash equivalents at end of period
    
    $
    245,247
    
    
    $
    219,560Interest paid
    
    $
    23,888
    
    
    $
    24,958Income taxes paid
    
    $
    1,265
    
    
    $
    
  6




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STATER BROS. HOLDINGS INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
  DECEMBER 25, 2005
 Note 1  Basis of Presentation
    Note 2
 Recent Accounting Pronouncements
  Note 3  Use of Estimates
  Note 4
 Restricted Cash
  Note 5  Retirement Plans
  7




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   DECEMBER 25, 2005
 Note 5  Retirement Plans (contd.)
  13 Weeks EndedDec. 26,
    
    
    Dec. 25,2004
    
    
    2005(in thousands)Service cost  benefits earned during
the period
    
    $
    603
    
    
    $
    716Interest cost on projected benefit
obligation
    
    
    695
    
    
    
    738Actual return on assets
    
    
    (385
    )
    
    
    (425
    )Net amortization and deferral
    
    
    (1
    )
    
    
    Recognized gains or losses
    
    
    192
    
    
    
    262Prior service cost recognized
    
    
    
    
    
    
    (1
    )Net periodic pension cost
    
    $
    1,104
    
    
    $
    1,290Assumptions used for accounting were:Discount rate
    
    
    6.00
    %
    
    
    5.50
    %Rate of increase in compensation levels
    
    
    4.00
    %
    
    
    3.00
    %Expected long-term rate of return on
assets
    
    
    5.00
    %
    
    
    5.00
    %
 Note 6
 Subsidiary Guarantee
   8




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   DECEMBER 25, 2005
 Note 7
 Corporate Office and Distribution Facilities
   9




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   DECEMBER 25, 2005
 Note 8
 Subsequent Events
  10




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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
  Goodwill
  11




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES (contd.)
 Advertising Allowances
   Employee Benefit Plans
    12




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 Significant Accounting Policies
  OWNERSHIP OF THE COMPANY
  RESULTS OF OPERATIONS
  Thirteen Weeks2005
    
    
    2006Sales
    
    
    100.00
    %
    
    
    100.00
    %Gross profit
    
    
    25.86
    
    
    
    26.15Operating expenses:Selling, general and
administrative expenses
    
    
    22.54
    
    
    
    22.93Depreciation and amortization
    
    
    1.13
    
    
    
    1.19Operating profit
    
    
    2.19
    
    
    
    2.03Interest income
    
    
    0.14
    
    
    
    0.29Interest expense
    
    
    (1.68
    )
    
    
    (1.68
    )Other expenses, net
    
    
    (0.01
    )
    
    
    (0.01
    )Income before income taxes
    
    
    0.64
    %
    
    
    0.63
    %
 13




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS (contd.)
       14




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS (contd.)
     LIQUIDITY AND CAPITAL RESOURCES
    15




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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
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    525,000Interest
    
    
    277,265
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    85,313
    
    
    
    63,983802,265
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    85,313
    
    
    
    588,983Floating Rate Senior Notes due June
2010(1)Principal
    
    $
    175,000
    
    
    $
    
    
    
    $
    
    
    
    $
    175,000
    
    
    $
    Interest
    
    
    63,825
    
    
    
    14,179
    
    
    
    28,397
    
    
    
    21,249
    
    
    
    238,825
    
    
    
    14,179
    
    
    
    28,397
    
    
    
    196,249
    
    
    
    Capital lease obligations (2)Principal
    
    $
    9,198
    
    
    $
    1,226
    
    
    $
    1,991
    
    
    $
    2,581
    
    
    $
    3,400Interest
    
    
    6,072
    
    
    
    1,360
    
    
    
    2,271
    
    
    
    1,608
    
    
    
    83315,270
    
    
    
    2,586
    
    
    
    4,262
    
    
    
    4,189
    
    
    
    4,233Operating leases (2)
    
    
    272,805
    
    
    
    36,768
    
    
    
    59,475
    
    
    
    37,104
    
    
    
    139,458Total contractual cash obligations
    
    $
    1,329,165
    
    
    $
    96,189
    
    
    $
    177,447
    
    
    $
    322,855
    
    
    $
    732,674Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (3)
    
    $
    49,040
    
    
    $
    49,040
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    $
    49,040
    
    
    $
    49,040
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    Interest on the Floating Rate Notes is based on the Three-month
LIBOR plus 3.50% and is set quarterly based on the Three-month LIBOR rate for the second
London Banking Day preceding each interest period. The floating interest rate at December 25,
2005 was 7.99%. Notes continued on next page
 16




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
 Contractual Cash Obligations (contd.)
 (2)
    
    The Company leases the majority of its retail stores, offices,
warehouses and distribution facilities. 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.(3)
    
    Standby letters of credit are committed as security for workers
compensation obligations. Outstanding letters of credit expire between December 2005 and
October 2006.     17




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
 The Credit Facilities
      18




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
 The Credit Facilities (contd.)
       Labor Relations
  19




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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.
  20




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STATER BROS. HOLDINGS INC.
DECEMBER 25, 2005
 PART  I
 FINANCIAL INFORMATION  (contd.)
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
  21




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STATER BROS. HOLDINGS INC.
DECEMBER 25, 2005
 
 PART II  OTHER INFORMATION
 
 Item 1.
LEGAL PROCEEDINGS
   
 Item 1a. RISK FACTORS
    22




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STATER BROS. HOLDINGS INC.
DECEMBER 25, 2005
 PART II  OTHER INFORMATION (contd.)
 
 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
 (a)
    

    
    Exhibits31.1
    
    
    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.
 23




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STATER BROS. HOLDINGS INC.
 
   Date: February 8, 2006
    
    /s/     Jack H. BrownJack H. BrownChairman of the Board, President,and Chief Executive Officer(Principal Executive Officer)Date: February 8, 2006
    
    /s/      Phillip J. SmithPhillip J. SmithSenior Vice Presidentand Chief Financial Officer(Principal Financial Officer)
 24