##### 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 March 26, 2006
 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.)
 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
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer  þ
 o þ




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##### 



STATER BROS. HOLDINGS INC.
March 26, 2006
 INDEX
 PagePART I FINANCIAL INFORMATIONItem 1. Financial StatementsConsolidated Balance Sheets as of September 25, 2005 and
March 26, 2006 (Unaudited)
    
    
    3Consolidated Statements of Income (Unaudited)
for the 13 weeks ended March 27, 2005 and March 26, 2006
    
    
    5Consolidated Statements of Income (Unaudited) for the 26 weeks ended
March 27, 2005 and March 26, 2006
    
    
    6Consolidated Statements of Cash Flows (Unaudited) for the 26 weeks
ended March 27, 2005 and March 26, 2006
    
    7Consolidated Statements of Stockholders Deficit as of September 25, 2005
and March 26, 2006 (Unaudited)
    
    
    8Notes to Consolidated Financial Statements (Unaudited)
    
    
    9Item 2. Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3. Quantitative and Qualitative Disclosure about Market Risk
    
    
    24Item 4. Controls and Procedures
    
    
    24PART II OTHER INFORMATIONItem 1. Legal Proceedings
    
    
    25Item 1A. Risk Factors
    
    
    25Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    26Item 3. Defaults Upon Senior Securities
    
    
    26Item 4. Submission of Matters to a Vote of Security Holders
    
    
    26Item 5. Other Information
    
    
    26Item 6. Exhibits
    
    
    26SIGNATURES
    
    
    27EX-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. 25,
    
    
    Mar. 26,2005
    
    
    2006(Unaudited)Current assetsCash and cash equivalents
    
    $
    263,397
    
    
    $
    207,342Restricted cash
    
    
    29,000
    
    
    
    31,000Receivables
    
    
    42,556
    
    
    
    40,163Income tax receivables
    
    
    2,450
    
    
    
    6,199Inventories
    
    
    185,302
    
    
    
    194,141Prepaid expenses
    
    
    8,663
    
    
    
    10,469Deferred income taxes
    
    
    22,459
    
    
    
    22,317Total current assets
    
    
    553,827
    
    
    
    511,631Property and equipmentLand
    
    
    89,518
    
    
    
    95,316Buildings and improvements
    
    
    297,228
    
    
    
    315,960Store fixtures and equipment
    
    
    376,239
    
    
    
    390,892Property subject to capital leases
    
    
    25,903
    
    
    
    25,836788,888
    
    
    
    828,004Less accumulated depreciation and amortization
    
    
    320,951
    
    
    
    341,469467,937
    
    
    
    486,535Deferred debt issuance costs, net
    
    
    19,011
    
    
    
    17,482Goodwill
    
    
    2,894
    
    
    
    2,894Deferred income taxes, long-term
    
    
    5,302
    
    
    
    6,013Other assets
    
    
    6,398
    
    
    
    6,31633,605
    
    
    
    32,705Total assets
    
    $
    1,055,369
    
    
    $
    1,030,871
  3




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS DEFICIT
 Sept. 25,
    
    
    Mar. 26,2005
    
    
    2006(Unaudited)Current liabilitiesAccounts payable
    
    $
    144,298
    
    
    $
    133,446Accrued payroll and related expenses
    
    
    59,951
    
    
    
    55,928Other accrued liabilities
    
    
    69,249
    
    
    
    65,292Current portion of capital lease obligations
    
    
    1,190
    
    
    
    1,215Total current liabilities
    
    
    274,688
    
    
    
    255,881Long-term debt
    
    
    700,000
    
    
    
    700,000Capital lease obligations, less current portion
    
    
    8,292
    
    
    
    7,747Long-term portion of self-insurance reserves
    
    
    37,427
    
    
    
    37,798Long-term deferred benefits
    
    
    44,312
    
    
    
    48,391Other long-term liabilities
    
    
    4,045
    
    
    
    3,691Total liabilities
    
    
    1,068,764
    
    
    
    1,053,508Commitments 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 in 2005; 36,895 in 2006
    
    
    
    
    
    
    Additional paid-in capital
    
    
    9,740
    
    
    
    9,382Retained deficit
    
    
    (23,135
    )
    
    
    (32,019
    )Total stockholders deficit
    
    
    (13,395
    )
    
    
    (22,637
    )Total liabilities and stockholders deficit
    
    $
    1,055,369
    
    
    $
    1,030,871
  4




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 13 Weeks EndedMar. 27,
    
    
    Mar. 26,2005
    
    
    2006Sales
    
    $
    842,852
    
    
    $
    863,545Cost of goods sold
    
    
    624,610
    
    
    
    631,033Gross profit
    
    
    218,242
    
    
    
    232,512Operating expensesSelling, general and administrative expenses
    
    
    189,336
    
    
    
    198,011Depreciation and amortization
    
    
    9,648
    
    
    
    11,059Total operating expenses
    
    
    198,984
    
    
    
    209,070Operating profit
    
    
    19,258
    
    
    
    23,442Interest income
    
    
    1,469
    
    
    
    2,378Interest expense
    
    
    (14,578
    )
    
    
    (14,964
    )Other expenses, net
    
    
    (184
    )
    
    
    (617
    )Income before income taxes
    
    
    5,965
    
    
    
    10,239Income taxes
    
    
    2,365
    
    
    
    4,063Net income
    
    $
    3,600
    
    
    $
    6,176Earnings per share
    
    $
    93.99
    
    
    $
    164.95Average common shares outstanding
    
    
    38,301
    
    
    
    37,442Shares outstanding at end of period
    
    
    38,301
    
    
    
    36,895
  5




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF INCOME
 26 Weeks EndedMar. 27,
    
    
    Mar. 26,2005
    
    
    2006Sales
    
    $
    1,681,917
    
    
    $
    1,730,554Cost of goods sold
    
    
    1,246,666
    
    
    
    1,271,327Gross profit
    
    
    435,251
    
    
    
    459,227Operating expensesSelling, general and administrative expenses
    
    
    378,496
    
    
    
    396,776Depreciation and amortization
    
    
    19,097
    
    
    
    21,417Total operating expenses
    
    
    397,593
    
    
    
    418,193Operating profit
    
    
    37,658
    
    
    
    41,034Interest income
    
    
    2,661
    
    
    
    4,888Interest expense
    
    
    (28,674
    )
    
    
    (29,540
    )Other expenses, net
    
    
    (299
    )
    
    
    (693
    )Income before income taxes
    
    
    11,346
    
    
    
    15,689Income taxes
    
    
    4,483
    
    
    
    6,181Net income
    
    $
    6,863
    
    
    $
    9,508Earnings per share
    
    $
    179.19
    
    
    $
    251.06Average common shares outstanding
    
    
    38,301
    
    
    
    37,871Shares outstanding at end of period
    
    
    38,301
    
    
    
    36,895
  6




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF CASH FLOWS
 26 Weeks EndedMar. 27,
    
    
    Mar. 26,2005
    
    
    2006Operating activities:Net income
    
    $
    6,863
    
    
    $
    9,508Adjustments to reconcile net income to net cash
provided by operating activities:Depreciation and amortization
    
    
    25,226
    
    
    
    27,354Deferred income taxes
    
    
    (3,016
    )
    
    
    (569
    )Loss on disposals of assets
    
    
    388
    
    
    
    1,024Changes in operating assets and liabilities:Increase in restricted cash
    
    
    (9,000
    )
    
    
    (2,000
    )(Increase) decrease in receivables
    
    
    (2,382
    )
    
    
    2,393Increase in income tax receivables
    
    
    (7,532
    )
    
    
    (3,749
    )Increase in inventories
    
    
    (3,171
    )
    
    
    (8,839
    )Increase in prepaid expenses
    
    
    (2,263
    )
    
    
    (1,806
    )Decrease in other assets
    
    
    1,459
    
    
    
    1,586Decrease in accounts payable
    
    
    (10,633
    )
    
    
    (10,852
    )Increase (decrease) in other accrued liabilities
    
    
    2,354
    
    
    
    (7,609
    )Increase in long-term reserves and liabilities
    
    
    2,342
    
    
    
    3,725Net cash provided by operating activities
    
    
    635
    
    
    
    10,166Investing activities:Purchase of property and equipment
    
    
    (55,606
    )
    
    
    (47,289
    )Proceeds from sale of property and equipment
    
    
    36
    
    
    
    331Net cash used in investing activities
    
    
    (55,570
    )
    
    
    (46,958
    )Financing activities:Principal payments on capital lease obligations
    
    
    (653
    )
    
    
    (513
    )Stock redemption
    
    
    
    
    
    
    (18,750
    )Net cash used in financing activities
    
    
    (653
    )
    
    
    (19,263
    )Net decrease in cash and cash equivalents
    
    
    (55,588
    )
    
    
    (56,055
    )Cash and cash equivalents at beginning of period
    
    
    301,947
    
    
    
    263,397Cash and cash equivalents at end of period
    
    $
    246,359
    
    
    $
    207,342Interest paid
    
    $
    26,917
    
    
    $
    28,825Income taxes paid
    
    $
    15,165
    
    
    $
    10,500
  7




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
 Class A
    
    
    AdditionalCommon
    
    
    Common
    
    
    Paid-in
    
    
    RetainedStock
    
    
    Stock
    
    
    Capital
    
    
    Deficit
    
    
    TotalBalances at September 25, 2005
    
    $
    
    
    
    $
    
    
    
    $
    9,740
    
    
    $
    (23,135
    )
    
    $
    (13,395
    )Net income for 26 weeks
ended March 26, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,508
    
    
    
    9,508Stock redemption
    
    
    
    
    
    
    
    
    
    
    (358
    )
    
    
    (18,392
    )
    
    
    (18,750
    )Balances at March 26, 2006
    
    $
    
    
    
    $
    
    
    
    $
    9,382
    
    
    $
    (32,019
    )
    
    $
    (22,637
    )
  8




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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   MARCH 26, 2006
 Note 1  Basis of Presentation
    Note 2
 Recent Accounting Pronouncements
  Note 3  Use of Estimates
  Note 4
 Restricted Cash
  9




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   MARCH 26, 2006
 Note 5  Retirement Plans
   13 Weeks Ended
    
    
    26 Weeks EndedMar. 27,
    
    
    Mar. 26,
    
    
    Mar. 27,
    
    
    Mar. 26,2005
    
    
    2006
    
    
    2005
    
    
    2006(in thousands)
    
    
    (in thousands)Service cost  benefits earned during
the period
    
    $
    604
    
    
    $
    716
    
    
    $
    1,207
    
    
    $
    1,432Interest cost on projected benefit
obligation
    
    
    696
    
    
    
    739
    
    
    
    1,391
    
    
    
    1,477Actual return on assets
    
    
    (394
    )
    
    
    (425
    )
    
    
    (779
    )
    
    
    (850
    )Recognized gains or losses
    
    
    192
    
    
    
    261
    
    
    
    384
    
    
    
    523Prior service cost recognized
    
    
    
    
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )Net periodic pension cost
    
    $
    1,098
    
    
    $
    1,291
    
    
    $
    2,202
    
    
    $
    2,581Assumptions used for accounting were:Discount rate
    
    
    6.00
    %
    
    
    5.50
    %
    
    
    6.00
    %
    
    
    5.50
    %Rate of increase in compensation levels
    
    
    4.00
    %
    
    
    3.00
    %
    
    
    4.00
    %
    
    
    3.00
    %Expected long-term rate of return on
assets
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    5.00
    %
 Note 6
 Subsidiary Guarantee
   10




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   MARCH 26, 2006
 Note 7
 Stock Redemption
  Note 8
 Phantom Stock Plan
  Note 9
 Corporate Office and Distribution Facilities
  11




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS   MARCH 26, 2006
 Note 9
 Corporate Office and Distribution Facilities (contd.)
  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
  Goodwill
  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.)
 Advertising Allowances
   Employee Benefit Plans
    14




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##### Table of Contents



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 Weeks
    
    Twenty-six Weeks2005
    
    2006
    
    2005
    
    2006Sales
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %
    
    
    100.00
    %Gross profit
    
    
    25.89
    
    
    
    26.93
    
    
    
    25.88
    
    
    
    26.54Operating expensesSelling, general and
administrative expenses
    
    
    22.46
    
    
    
    22.93
    
    
    
    22.50
    
    
    
    22.93Depreciation and amortization
    
    
    1.15
    
    
    
    1.29
    
    
    
    1.14
    
    
    
    1.24Operating profit
    
    
    2.28
    
    
    
    2.71
    
    
    
    2.24
    
    
    
    2.37Interest income
    
    
    0.17
    
    
    
    0.28
    
    
    
    0.16
    
    
    
    0.28Interest expense
    
    
    (1.73
    )
    
    
    (1.73
    )
    
    
    (1.70
    )
    
    
    (1.71
    )Other expenses, net
    
    
    (0.01
    )
    
    
    (0.07
    )
    
    
    (0.03
    )
    
    
    (0.03
    )Income before income taxes
    
    
    0.71
    %
    
    
    1.19
    %
    
    
    0.67
    %
    
    
    0.91
    %
 15




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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.)
     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 (contd.)
       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.)
     LIQUIDITY AND CAPITAL RESOURCES
    18




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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.)
 Tabular
Disclosure of Contractual Cash Obligations and Other
Commitments
  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
    
    
    63,490
    
    
    
    14,922
    
    
    
    29,885
    
    
    
    18,683
    
    
    
    238,490
    
    
    
    14,922
    
    
    
    29,885
    
    
    
    193,683
    
    
    
    Capital lease obligations(2)Principal
    
    
    8,962
    
    
    
    1,215
    
    
    
    2,021
    
    
    
    2,708
    
    
    
    3,018Interest
    
    
    5,726
    
    
    
    1,321
    
    
    
    2,204
    
    
    
    1,509
    
    
    
    69214,688
    
    
    
    2,536
    
    
    
    4,225
    
    
    
    4,217
    
    
    
    3,710Operating leases(2)
    
    
    266,115
    
    
    
    36,755
    
    
    
    56,383
    
    
    
    36,584
    
    
    
    136,393Total contractual cash obligations
    
    $
    1,321,558
    
    
    $
    96,869
    
    
    $
    175,806
    
    
    $
    319,797
    
    
    $
    729,086Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (3)
    
    $
    57,040
    
    
    $
    57,040
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    $
    57,040
    
    
    $
    57,040
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (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 March 26,
2006 was 8.41%. Notes continued on next page
 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.)
 Tabular Disclosure of Contractual Cash Obligations and Other Commitments (contd.)
 (2)
 (3)
      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.)
 The Credit Facilities
      21




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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.)
 The Credit Facilities (contd.)
       Labor Relations
  22




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##### Table of Contents



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.
  23




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MARCH 26, 2006
 PART I   FINANCIAL INFORMATION (contd.)
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
  24




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MARCH 26, 2006
 
 PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   
 Item 1A. RISK FACTORS
    25




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##### Table of Contents



STATER BROS. HOLDINGS INC.
MARCH 26, 2006
 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 to18 U.S.C. Section 1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002.
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##### Table of Contents



STATER BROS. HOLDINGS INC.
 
   Date: May 10, 2006
    
    /s/
    
    Jack H. BrownJack H. BrownChairman of the Board, President,and Chief Executive Officer(Principal Executive Officer)Date: May 10, 2006
    
    /s/
    
    Phillip J. SmithPhillip J. SmithExecutive Vice Presidentand Chief Financial Officer(Principal Financial Officer)
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