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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 June 30, 2002

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

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(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 July 31, 2002, there were issued and outstanding
38,301 shares of the registrants Class A Common Stock.



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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 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 AND REPORTS ON FORM 8-K                                                     
|Signatures                           



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STATER BROS. HOLDINGS INC.
JUNE 30, 2002

INDEX

|           |  |                                                                                                          |  |      |    | 
|---------- |  | -------------------------------------------------------------------------------------------------------- |  | ---- | -- | 
|           |  |                                                                                                          |  | Page
|           |  |                                                                                                          |  |     
|PART       |  | FINANCIAL INFORMATION (Unaudited)                                                                        |  |      |    | 
|          
|Item 1.    |  | Financial Statements                                                                                     |  |      |    | 
|          
|           |  | Consolidated Balance Sheets (Unaudited) as of September 30, 2001
and June 30, 2002                       |  |      | 3  | 
|          
|           |  | Consolidated Statements of Income (Unaudited) for the 39 weeks ended
June 24, 2001 and June 30, 2002     |  |      | 5  | 
|          
|           |  | Consolidated Statements of Income (Unaudited) for the 13 weeks ended
June 24, 2001 and June 30, 2002     |  |      | 6  | 
|          
|           |  | Consolidated Statements of Cash Flows (Unaudited) for the 39 weeks ended
June 24, 2001 and June 30, 2002 |  |      | 7  | 
|          
|           |  | Notes to Consolidated Financial Statements (Unaudited)                                                   |  |      | 8  | 
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                    |  |      | 11 | 
|          
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                                                |  |      | 20 | 
|          
|PART II    |  | OTHER INFORMATION                                                                                        |  |      |    | 
|          
|Item 1.    |  | Legal Proceedings                                                                                        |  |      | 21 | 
|          
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                |  |      | 21 | 
|          
|Item 3.    |  | Defaults Upon Senior Securities                                                                          |  |      | 21 | 
|          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                      |  |      | 21 | 
|          
|Item 5.    |  | Other Information                                                                                        |  |      | 21 | 
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                         |  |      | 21 | 
|          
|SIGNATURES |  |                                                                                                          |  |      | 22 | 

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PART I  FINANCIAL INFORMATION




Item 1.   FINANCIAL STATEMENTS




STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

ASSETS

|                                       |                                                |   |           |         |          |   |         |         | 
|-------------------------------------- | ---------------------------------------------- | - | --------- | ------- | -------- | - | ------- | ------- | 
|                                       |                                                |   | Sept. 30, |         | June 30,
|                                       |                                                |   | 2001      |         | 2002    
|                                       |                                                |   |           |         |         
|Current assets                         |                                                |   |           |         |          |   |         |        
|                                       | Cash and cash equivalents                      |   | $         | 101,636 |          |   | $       | 91,531  | 
|                                       | Receivables                                    |   |           | 29,894  |          |   |         | 33,359  | 
|                                       | Income tax receivables                         |   |           | 358     |          |   |         | 1,263   | 
|                                       | Inventories                                    |   |           | 170,189 |          |   |         | 174,238 | 
|                                       | Prepaid expenses                               |   |           | 6,743   |          |   |         | 7,626   | 
|                                       | Deferred income taxes                          |   |           | 6,634   |          |   |         | 2,208   | 
|                                       | Properties held for sale                       |   |           | 3,840   |          |   |         | 3,823   | 
|                                       |                                                |   |           |         |          |   |         |        
|Total current assets                   |                                                |   | 319,294   |         |          |   | 314,048 |        
|Investment in unconsolidated affiliate |                                                |   | 12,666    |         |          |   | 15,221  |        
|Property and equipment                 |                                                |   |           |         |          |   |         |        
|                                       | Land                                           |   |           | 47,574  |          |   |         | 47,574  | 
|                                       | Buildings and improvements                     |   |           | 181,641 |          |   |         | 188,339 | 
|                                       | Store fixtures and equipment                   |   |           | 190,581 |          |   |         | 206,683 | 
|                                       | Property subject to capital leases             |   |           | 24,670  |          |   |         | 24,670  | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 444,466   |         |          |   | 467,266 |        
|                                       | Less accumulated depreciation and amortization |   |           | 169,979 |          |   |         | 186,441 | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 274,487   |         |          |   | 280,825 |        
|Deferred income taxes                  |                                                |   | 4,897     |         |          |   | 11,136  |        
|Deferred debt issuance costs, net      |                                                |   | 12,042    |         |          |   | 14,798  |        
|Other assets                           |                                                |   | 5,908     |         |          |   | 6,564   |        
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 22,847    |         |          |   | 32,498  |        
|Total assets                           |                                                | $ | 629,294   |         |          | $ | 642,592 |        
|                                       |                                                |   |           |         |          |   |         |        

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS(Continued)
(Unaudited)
(In thousands, except share amounts)

LIABILITIES AND STOCKHOLDERS DEFICIT

|                                                       |                                                                                                                                                     |   |         |           |   |          |         |         |   | 
|------------------------------------------------------ | --------------------------------------------------------------------------------------------------------------------------------------------------- | - | ------- | --------- | - | -------- | ------- | ------- | - | 
|                                                       |                                                                                                                                                     |   |         | Sept. 30, |   | June 30,
|                                                       |                                                                                                                                                     |   |         | 2001      |   | 2002    
|                                                       |                                                                                                                                                     |   |         |           |   |         
|Current liabilities                                    |                                                                                                                                                     |   |         |           |   |          |         |        
|                                                       | Accounts payable                                                                                                                                    |   | $       | 107,485   |   |          | $       | 114,296 |  
|                                                       | Accrued payroll and related expenses                                                                                                                |   |         | 41,737    |   |          |         | 42,590  |  
|                                                       | Other accrued liabilities                                                                                                                           |   |         | 44,340    |   |          |         | 53,933  |  
|                                                       | Current portion of capital lease obligations                                                                                                        |   |         | 1,435     |   |          |         | 1,190   |  
|                                                       |                                                                                                                                                     |   |         |           |   |          |         |        
|Total current liabilities                              |                                                                                                                                                     |   | 194,997 |           |   |          | 212,009 |        
|Long-term debt                                         |                                                                                                                                                     |   | 439,000 |           |   |          | 458,750 |        
|Capital lease obligations, less current portion        |                                                                                                                                                     |   | 12,098  |           |   |          | 11,239  |        
|Long-term portion of self-insurance and other reserves |                                                                                                                                                     |   | 15,852  |           |   |          | 21,537  |        
|Other long-term liabilities                            |                                                                                                                                                     |   | 8,756   |           |   |          | 13,830  |        
|                                                       |                                                                                                                                                     |   |         |           |   |          |         |        
|Total liabilities                                      |                                                                                                                                                     |   | 670,703 |           |   |          | 717,365 |        
|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 at Sept. 30, 2001,
38,301 at June 30, 2002 |   |         | 1         |   |          |         |        |  
|                                                       | Additional paid-in capital                                                                                                                          |   |         | 12,715    |   |          |         | 9,740   |  
|                                                       | Retained deficit                                                                                                                                    |   |         | (54,125   | ) |          |         | (84,513 | )
|                                                       |                                                                                                                                                     |   |         |           |   |          |         |        
|Total stockholders deficit                            |                                                                                                                                                     |   | (41,409 | )         |   |          | (74,773 | )      
|                                                       |                                                                                                                                                     |   |         |           |   |          |         |        
|Total liabilities and stockholders deficit            |                                                                                                                                                     | $ | 629,294 |           |   | $        | 642,592 |        
|                                                       |                                                                                                                                                     |   |         |           |   |          |         |        

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and share amounts)

|                                                 |                                              |   |                |         |          |   |           |         | 
|------------------------------------------------ | -------------------------------------------- | - | -------------- | ------- | -------- | - | --------- | ------- | 
|                                                 |                                              |   | 39 Weeks Ended
|                                                 |                                              |   |               
|                                                 |                                              |   | June 24,       |         | June 30,
|                                                 |                                              |   | 2001           |         | 2002    
|                                                 |                                              |   |                |         |         
|Sales                                            |                                              | $ | 1,877,079      |         |          | $ | 1,989,579 |        
|Cost of goods sold                               |                                              |   | 1,397,398      |         |          |   | 1,463,461 |        
|                                                 |                                              |   |                |         |          |   |           |        
|Gross profit                                     |                                              |   | 479,681        |         |          |   | 526,118   |        
|Operating expenses:                              |                                              |   |                |         |          |   |           |        
|                                                 | Selling, general and administrative expenses |   |                | 414,528 |          |   |           | 447,052 | 
|                                                 | Depreciation and amortization                |   |                | 21,102  |          |   |           | 23,160  | 
|                                                 |                                              |   |                |         |          |   |           |        
|Total operating expenses                         |                                              |   | 435,630        |         |          |   | 470,212   |        
|                                                 |                                              |   |                |         |          |   |           |        
|Operating profit                                 |                                              |   | 44,051         |         |          |   | 55,906    |        
|Interest income                                  |                                              |   | 2,597          |         |          |   | 1,345     |        
|Interest expense                                 |                                              |   | (38,506        | )       |          |   | (39,441   | )      
|Equity in earnings from unconsolidated affiliate |                                              |   | 1,173          |         |          |   | 2,555     |        
|Other loss  net                                 |                                              |   | (75            | )       |          |   | (1,488    | )      
|                                                 |                                              |   |                |         |          |   |           |        
|Income before income taxes                       |                                              |   | 9,240          |         |          |   | 18,877    |        
|Income taxes                                     |                                              |   | 3,789          |         |          |   | 7,740     |        
|                                                 |                                              |   |                |         |          |   |           |        
|Net income                                       |                                              | $ | 5,451          |         |          | $ | 11,137    |        
|                                                 |                                              |   |                |         |          |   |           |        
|Earnings per share                               |                                              | $ | 109.02         |         |          | $ | 257.88    |        
|                                                 |                                              |   |                |         |          |   |           |        
|Average common shares outstanding                |                                              |   | 50,000         |         |          |   | 43,186    |        
|                                                 |                                              |   |                |         |          |   |           |        
|Shares outstanding at end of period              |                                              |   | 50,000         |         |          |   | 38,301    |        
|                                                 |                                              |   |                |         |          |   |           |        

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
(In thousands, except per share and share amounts)

|                                                 |                                              |   |                |         |          |   |         |         | 
|------------------------------------------------ | -------------------------------------------- | - | -------------- | ------- | -------- | - | ------- | ------- | 
|                                                 |                                              |   | 13 Weeks Ended
|                                                 |                                              |   |               
|                                                 |                                              |   | June 24,       |         | June 30,
|                                                 |                                              |   | 2001           |         | 2002    
|                                                 |                                              |   |                |         |         
|Sales                                            |                                              | $ | 639,925        |         |          | $ | 672,779 |        
|Cost of goods sold                               |                                              |   | 473,806        |         |          |   | 495,637 |        
|                                                 |                                              |   |                |         |          |   |         |        
|Gross profit                                     |                                              |   | 166,119        |         |          |   | 177,142 |        
|Operating expenses:                              |                                              |   |                |         |          |   |         |        
|                                                 | Selling, general and administrative expenses |   |                | 142,986 |          |   |         | 151,459 | 
|                                                 | Depreciation and amortization                |   |                | 7,194   |          |   |         | 7,976   | 
|                                                 |                                              |   |                |         |          |   |         |        
|Total operating expenses                         |                                              |   | 150,180        |         |          |   | 159,435 |        
|                                                 |                                              |   |                |         |          |   |         |        
|Operating profit                                 |                                              |   | 15,939         |         |          |   | 17,707  |        
|Interest income                                  |                                              |   | 693            |         |          |   | 319     |        
|Interest expense                                 |                                              |   | (12,847        | )       |          |   | (13,444 | )      
|Equity in earnings from unconsolidated affiliate |                                              |   | 215            |         |          |   | 532     |        
|Other loss  net                                 |                                              |   | (154           | )       |          |   | (179    | )      
|                                                 |                                              |   |                |         |          |   |         |        
|Income before income taxes                       |                                              |   | 3,846          |         |          |   | 4,935   |        
|Income taxes                                     |                                              |   | 1,577          |         |          |   | 2,024   |        
|                                                 |                                              |   |                |         |          |   |         |        
|Net income                                       |                                              | $ | 2,269          |         |          | $ | 2,911   |        
|                                                 |                                              |   |                |         |          |   |         |        
|Earnings per share                               |                                              | $ | 45.38          |         |          | $ | 76.00   |        
|                                                 |                                              |   |                |         |          |   |         |        
|Average common shares outstanding                |                                              |   | 50,000         |         |          |   | 38,301  |        
|                                                 |                                              |   |                |         |          |   |         |        
|Shares outstanding at end of period              |                                              |   | 50,000         |         |          |   | 38,301  |        
|                                                 |                                              |   |                |         |          |   |         |        

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(In thousands)

|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |        |        |  
|--------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------- | -------------- | ------ | -------- | ------- | ------ | ------ | -
|                                                                                  |                                                                  |                                                                                  |         | 39 Weeks Ended
|                                                                                  |                                                                  |                                                                                  |         |               
|                                                                                  |                                                                  |                                                                                  |         | June 24,       |        | June 30,
|                                                                                  |                                                                  |                                                                                  |         | 2001           |        | 2002    
|                                                                                  |                                                                  |                                                                                  |         |                |        |         
|Operating activities:                                                             |                                                                  |                                                                                  |         |                |        |          |         |       
|Net income                                                                        |                                                                  | $                                                                                | 5,451   |                |        | $        | 11,137  |       
|Adjustments to reconcile net income to net cash provided
by operating activities: |                                                                  |                                                                                  |         |                |        |          |         |       
|                                                                                  | Depreciation and amortization                                    |                                                                                  |         | 21,102         |        |          |         | 23,160 |       
|                                                                                  | Provision for deferred income taxes                              |                                                                                  |         | 3,784          |        |          |         | (1,813 | )     
|                                                                                  | Loss on disposals of assets                                      |                                                                                  |         | 75             |        |          |         | 1,489  |       
|                                                                                  | Net undistributed gain in investment in unconsolidated affiliate |                                                                                  |         | (1,173         | )      |          |         | (2,555 | )     
|                                                                                  | Changes in operating assets and liabilities:                     |                                                                                  |         |                |        |          |         |        |       
|                                                                                  |                                                                  | Decrease in lease guarantee escrow                                               |         |                | 13,180 |          |         |        |       |  
|                                                                                  |                                                                  | Increase in receivables                                                          |         |                | (5,828 | )        |         |        | (3,465 | )
|                                                                                  |                                                                  | (Increase) decrease in income tax receivables                                    |         |                | 263    |          |         |        | (905   | )
|                                                                                  |                                                                  | (Increase) decrease in inventories                                               |         |                | 335    |          |         |        | (4,049 | )
|                                                                                  |                                                                  | Increase in prepaid expenses                                                     |         |                | (1,363 | )        |         |        | (898   | )
|                                                                                  |                                                                  | Decrease in other assets                                                         |         |                | 1,983  |          |         |        | 1,621  |  
|                                                                                  |                                                                  | Increase (decrease) in accounts payable                                          |         |                | (1,049 | )        |         |        | 6,811  |  
|                                                                                  |                                                                  | Increase in accrued liabilities and long-term
portion of self-insurance reserves |         |                | 23,614 |          |         |        | 21,205 |  
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash provided by operating activities                                         |                                                                  |                                                                                  | 60,374  |                |        |          | 51,738  |       
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Investing activities:                                                             |                                                                  |                                                                                  |         |                |        |          |         |       
|Purchase of property and equipment                                                |                                                                  |                                                                                  | (25,199 | )              |        |          | (31,032 | )     
|Proceeds from sale of property and equipment and properties
held for sale         |                                                                  |                                                                                  | 230     |                |        |          | 76      |       
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash used in investing activities                                             |                                                                  |                                                                                  | (24,969 | )              |        |          | (30,956 | )     
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Financing activities:                                                             |                                                                  |                                                                                  |         |                |        |          |         |       
|Debt issuance cost                                                                |                                                                  |                                                                                  |        |                |        |          | (5,033  | )     
|Stock redemption                                                                  |                                                                  |                                                                                  |        |                |        |          | (20,000 | )     
|Dividends paid                                                                    |                                                                  |                                                                                  |        |                |        |          | (4,500  | )     
|Principal payments on long-term debt                                              |                                                                  |                                                                                  | (5,048  | )              |        |          | (250    | )     
|Principal payments on capital lease obligations                                   |                                                                  |                                                                                  | (1,625  | )              |        |          | (1,104  | )     
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash used in financing activities                                             |                                                                  |                                                                                  | (6,673  | )              |        |          | (30,887 | )     
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Net increase (decrease) in cash and cash equivalents                              |                                                                  |                                                                                  | 28,732  |                |        |          | (10,105 | )     
|Cash and cash equivalents at beginning of period                                  |                                                                  |                                                                                  | 62,631  |                |        |          | 101,636 |       
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Cash and cash equivalents at end of period                                        |                                                                  | $                                                                                | 91,363  |                |        | $        | 91,531  |       
|                                                                                  |                                                                  |                                                                                  |         |                |        |          |         |       
|Interest paid                                                                     |                                                                  | $                                                                                | 25,691  |                |        | $        | 25,351  |       
|Income taxes paid                                                                 |                                                                  | $                                                                                | 5       |                |        | $        | 10,459  |       

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2002

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 June 30, 2002 and
the results of its operations and cash flows for the thirty-nine and thirteen
weeks ended June 24, 2001 and June 30, 2002. These consolidated financial
statements should be read in conjunction with the audited consolidated
financial statements and notes thereto included in the Companys latest annual
report filed on Form 10-K. The operating results for the thirty-nine and
thirteen weeks ended June 30, 2002 are not necessarily indicative of the
results of operations for a full year.

Note 2  Income Taxes

The provision for income taxes for the thirty-nine weeks ended June 24,
2001 and June 30, 2002 consists of the following:

|                   |  |                |       |               |  |   |        |  
|------------------ |  | -------------- | ----- | ------------- |  | - | ------ | -
|                   |  | 39 Weeks Ended
|                   |  |               
|                   |  | June 24, 2001  |       | June 30, 2002
|                   |  |                |       |              
|                   |  | (In thousands)
|Current            |  |                |       |               |  |   |        |  
|Federal            |  | $              | 2,972 |               |  | $ | 7,155  |  
|State              |  |                | 817   |               |  |   | 2,398  |  
|                   |  |                |       |               |  |   |        |  
|                   |  |                | 3,789 |               |  |   | 9,553  |  
|Deferred           |  |                |       |               |  |   |        |  
|Federal            |  |                |      |               |  |   | (1,084 | )
|State              |  |                |      |               |  |   | (729   | )
|                   |  |                |       |               |  |   |        |  
|                   |  |                |      |               |  |   | (1,813 | )
|                   |  |                |       |               |  |   |        |  
|Income tax expense |  | $              | 3,789 |               |  | $ | 7,740  |  
|                   |  |                |       |               |  |   |        |  

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 $1.2 million and $2.6 million for the thirty-nine weeks
ended June 24, 2001 and June 30, 2002, respectively. The Company is a
significant customer of Santee, which supplies the Company with a substantial
portion of its fluid milk and dairy products.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2002

Note 3  Unconsolidated Affiliate (contd.)

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

|                        |  |                |         |               |  |   |         | 
|----------------------- |  | -------------- | ------- | ------------- |  | - | ------- | 
|                        |  | 39 Weeks Ended
|                        |  |               
|                        |  | June 24, 2001  |         | June 30, 2002
|                        |  |                |         |              
|                        |  | (In thousands)
|Current assets          |  | $              | 23,578  |               |  | $ | 23,214  | 
|Non-current assets      |  |                | 96,208  |               |  |   | 92,388  | 
|Current liabilities     |  |                | 26,621  |               |  |   | 21,331  | 
|Non-current liabilities |  |                | 68,492  |               |  |   | 63,666  | 
|Shareholders equity    |  |                | 24,673  |               |  |   | 30,605  | 
|                       
|Sales                   |  |                | 140,785 |               |  |   | 138,614 | 
|Gross profit            |  |                | 22,565  |               |  |   | 38,510  | 
|Net income              |  | $              | 2,345   |               |  | $ | 5,109   | 

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  Stock Redemption

During the second quarter of fiscal 2002, 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 in cash and a subordinated
note in the principal amount of $20.0 million. On January 22, 2002, the
Company redeemed 11,699 shares of the Companys 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 $5.0 million.

Note 6  Redemption of Notes

During the second quarter of fiscal 2002, 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.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 30, 2002

Note 7  New Accounting Pronouncement

Effective January 1, 2002, the Company adopted the provisions of Financial
Accounting Standards Board Statement No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets(FAS 144), which supersedes prior accounting
standards concerning the financial accounting and reporting for the impairment
or the disposal of long-lived assets and for the disposition of a segment of a
business. The adoption of FAS 144 did not have an effect on the Companys
results of operations or financial condition and is effective for fiscal years
beginning after December 15, 2001.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS 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

The Companys discussion and analysis of financial condition and
results of operations are based upon the Companys unaudited
consolidated financial statements prepared in accordance with
accounting principles generally accepted in the United States. The
preparation of the financial statements requires the use of estimates
and judgements on the part of management. The Company based its
estimates on the Companys historical experience combined with
managements understanding of current facts and circumstances. The
Company believes that the following critical accounting policies are
the most important to the Companys financial statement presentation
and require the most difficult, subjective and complex judgements on
the part of management.

Vendor Rebates and Allowances

The Company receives certain rebates and allowances (allowances)
from its vendors. The Company recognizes these allowances as a
reduction in cost of goods sold as the allowances are earned. These
allowances are earned by purchasing specified amounts of product or
promoting certain products. The Company records a liability for funds
that have been received but not yet earned.

Self-Insurance

The Company is primarily self-insured, subject to certain retention
levels, for workers compensation, automobile and general liability
costs. The Company records its self-insurance liability based on the
claims filed and an estimate of claims incurred but not yet reported.
The estimates used by management are based on the Companys historical
experiences as well as current facts and circumstances. The Company
uses third party actuarial analysis in making its estimates.
Actuarial projections and the Companys estimate of ultimate losses
are subject to a high degree of variability. The variability in the
projections and estimates are subject to, but not limited to, such
factors as judicial and administrative rulings, legislative actions,
and changes in medical costs. The Companys projections anticipate no
change in the workers compensation benefits structure. In recent
years, the Company and employers within the State of California as a
whole have seen significant increases in the development severity of
workers compensation claims. While the Company has factored these
increases into its estimates of ultimate loss, no assurance can be
given that future events will not require a change in these estimates.
The Company discounts its workers compensation, automobile and
general liability insurance reserves at a discount rate of
approximately 7.5%.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market. Management believes that its inventory turns and inventory
controls are sufficient and that reserves are not needed for excess,
obsolete or discontinued inventory.

11



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##### Table of Contents



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

CRITICAL ACCOUNTING POLICIES (contd.)

Properties Held for Sale

Properties held for sale are stated at the lower of cost or estimated
net realizable value and consist of land, buildings and equipment.

Investment in Affiliate

The Company owns 50% of Santee Dairies, LLC. The Company is not the
controlling stockholder and accordingly accounts for its investment
using the equity method of accounting.

Deferred Debt Issuance Costs

Direct costs incurred as a result of financing transactions are
capitalized and amortized to expense over the terms of the applicable
debt agreements.

Deferred Taxes

Although there can be no assurances as to future taxable income of the
Company, the Company believes that its expectations of future taxable
income, when combined with the income taxes paid in prior years, will
be adequate to realize its deferred tax assets.

Phantom Stock Plan

It is the Companys policy to expense phantom stock options to the
extent that they vest and appreciate during the accounting period.

Environmental Matters

The Company recognizes environmental remediation costs as they are
incurred. The Company believes that any future remediation costs will
not have a material adverse effect on the financial condition or
results of operations of the Company.

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 a former member of senior management of the Company. Jack
H. Brown has a majority interest in La Cadena Investments and is the
managing general partner with the power to vote the shares of the
Company held by La Cadena Investments.

ACQUISITION

On May 7, 1999, Stater Bros. Markets entered into an agreement with
Albertsons, Inc. (Albertsons) to purchase 43 supermarkets and one
future store site in Stater Bros. Markets 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. Markets name within two days of its acquisition and
was fully integrated into the Stater Bros. Markets operating systems.

12



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##### Table of Contents



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

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 were to expire 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
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.

RESULTS OF OPERATIONS

The following table sets forth certain income statement components
expressed as a percent of sales for the thirteen and thirty-nine weeks
ended June 30, 2002 and June 24, 2001.

|                                   |                                              |  |                |       |                   |  |        |       |      |  |        |       |  |  |        |       | 
|---------------------------------- | -------------------------------------------- |  | -------------- | ----- | ----------------- |  | ------ | ----- | ---- |  | ------ | ----- |  |  | ------ | ----- | 
|                                   |                                              |  | Thirteen Weeks |       | Thirty-Nine Weeks
|                                   |                                              |  |                |       |                  
|                                   |                                              |  | 2002           |       | 2001              |  | 2002   |       | 2001
|                                   |                                              |  |                |       |                   |  |        |       |     
|Sales                              |                                              |  | 100.00         | %     |                   |  | 100.00 | %     |      |  | 100.00 | %     |  |  | 100.00 | %    
|Gross profit                       |                                              |  | 26.33          |       |                   |  | 25.96  |       |      |  | 26.44  |       |  |  | 25.55  |      
|Operating expenses:                |                                              |  |                |       |                   |  |        |       |      |  |        |       |  |  |        |      
|                                   | Selling, general and
administrative expenses |  |                | 22.51 |                   |  |        | 22.35 |      |  |        | 22.47 |  |  |        | 22.08 | 
|                                   | Depreciation and amortization                |  |                | 1.19  |                   |  |        | 1.12  |      |  |        | 1.16  |  |  |        | 1.12  | 
|Operating profit                   |                                              |  | 2.63           |       |                   |  | 2.49   |       |      |  | 2.81   |       |  |  | 2.35   |      
|Interest income                    |                                              |  | 0.05           |       |                   |  | 0.11   |       |      |  | 0.07   |       |  |  | 0.14   |      
|Interest expense                   |                                              |  | (2.00          | )     |                   |  | (2.01  | )     |      |  | (1.98  | )     |  |  | (2.05  | )    
|Equity in unconsolidated affiliate |                                              |  | 0.08           |       |                   |  | 0.03   |       |      |  | 0.13   |       |  |  | 0.06   |      
|Other loss  (net)                 |                                              |  | (0.03          | )     |                   |  | (0.02  | )     |      |  | (0.08  | )     |  |  | (0.01  | )    
|Net income before income taxes     |                                              |  | 0.73           | %     |                   |  | 0.60   | %     |      |  | 0.95   | %     |  |  | 0.49   | %    

13



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##### Table of Contents



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

RESULTS OF OPERATIONS (contd.)

Total sales for the thirteen weeks ended June 30, 2002, the third
quarter of fiscal 2002, increased 5.13% and amounted to $672.8 million
compared to $639.9 million for the same period in the prior year.
Total sales for the thirty-nine weeks ended June 30, 2002, increased
5.99% and amounted to $1.990 billion compared to $1.877 billion for
the same period in the prior year. The increase in total sales in the
third quarter of fiscal 2002 and fiscal year to date of 2002 was due
primarily to favorable customer response to the Companys marketing
plan, which emphasizes high quality, large product selections and
customer service. Like store sales increased 4.59% and 5.81% for the
thirteen-week and thirty-nine week periods ended June 30, 2002,
respectively. During the third quarter of fiscal 2002, the Company
opened a new store located in Chino Hills, California. The Company
operated 156 supermarkets at June 30, 2002 and 155 supermarkets at
June 24, 2001.

Gross profit for the thirteen weeks ended June 30, 2002, amounted to
$177.1 million or 26.33% of sales compared to $166.1 million or 25.96%
of sales in the same period of the prior year. Gross profit for the
thirty-nine weeks ended June 30, 2002, amounted to $526.1 million or
26.44% of sales compared to $479.7 million or 25.55% of sales in the
same period of the prior year. The increase in gross profit, as a
percentage of sales, in both the third quarter of 2002 and the fiscal
year to date of 2002, was due primarily to an increase in the sales 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 June 30, 2002, selling, general and administrative expenses
amounted to $151.5 million or 22.51% of sales compared to $143.0
million or 22.35% of sales for the thirteen weeks ended June 24, 2001.
For the thirty-nine weeks ended June 30, 2002, selling, general and
administrative expenses amounted to $447.1 million or 22.47% of sales
compared to $414.5 million or 22.08% of sales for the thirty-nine
weeks ended June 24, 2001. The increase in selling, general and
administrative expenses as a percentage of sales during the third
quarter of fiscal 2002 and for the year to date of fiscal 2002, was
due primarily to increases in payroll related expenses.

Depreciation and amortization expenses amounted to $8.0 million and
$23.2 million for the third quarter and year to date periods ended
June 30, 2002, respectively. Depreciation and amortization expenses
amounted to $7.2 million and $21.1 million for the quarter and year to
date periods 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 third quarter of 2002 amounted to $17.7
million or 2.63% of sales compared to $15.9 million or 2.49% of sales
for the third quarter of 2001. Operating profit for the fiscal year to
date of 2002 amounted to $55.9 million or 2.81% of sales compared to
$44.1 million or 2.35% of sales for the fiscal year to date of 2001.

Interest expense amounted to $13.4 million for the third quarter of
2002 compared to $12.8 million for the third quarter of 2001. For the
fiscal year to date of 2002 and 2001, interest expense amounted to
$39.4 million and $38.5 million, respectively. The increase in
interest expense over the prior year was primarily due to the issuance
of a $20.0 million subordinated note in connection with the redemption
of the Companys stock.

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##### Table of Contents



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

RESULTS OF OPERATIONS (contd.)

The Companys equity in earnings from unconsolidated affiliate,
amounted to $532,000 for the third quarter of fiscal 2002 compared to
$215,000 in the third quarter of the prior year. For the fiscal year
to date periods of 2002 and 2001, the Companys equity in earnings
from unconsolidated affiliate amounted to $2.6 million and $1.2
million, respectively. The difference in equity in earnings from
unconsolidated affiliate for the fiscal quarter 2002 over 2001 was due
to increased margins at the affiliate. The increase in the year to
date fiscal 2002 versus fiscal 2001 is due primarily to the
revaluation, by the affiliate, of deferred tax benefits arising from
past net operating losses.

Income before income taxes amounted to $4.9
million and $3.8 million for the third quarter of 2002 and 2001,
respectively. Income before income taxes amounted to $18.9 million
and $9.2 million for the year to date periods of 2002 and 2001,
respectively.

Net income for the third quarter amounted to $2.9
million and $2.3 million for 2002 and 2001, respectively. Net income
for the fiscal year to date periods amounted to $11.1 million and
$5.5 million for 2002 and 2001, respectively.

LIQUIDITY AND CAPITAL RESOURCES

The Company has historically
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 June 30,
2002, the Company had $30.2 million of outstanding letters of credit
and had $44.8 million available under the revolving loan facility. As
of June 30, 2002, and for the thirty-nine weeks then ended, the
Company had no outstanding balances and had not drawn down on 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.

15



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##### 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 June 30, 2002.

|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|------------------------------------- |  | ------------------------------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------- | ------- |  |  | - | ------- | ----- |  | - | ------- | 
|                                      |  | Contractual Cash Obligations (In thousands)
|                                      |  |                                            
|                                      |  |                                             |         |        |  | Less than |        |           |  |         |         |  |  |   |         | After
|                                      |  | Total                                       |         | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Years
|                                      |  |                                             |         |        |  |           |        |           |  |        
|10.75% Senior Notes due August 2006   |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|Principal                             |  | $                                           | 438,750 |        |  | $         |       |           |  | $       |        |  |  | $ | 438,750 |       |  | $ |        | 
|Interest                              |  |                                             | 212,125 |        |  |           | 47,139 |           |  |         | 94,278  |  |  |   | 70,708  |       |  |   |        | 
|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|                                      |  |                                             | 650,875 |        |  |           | 47,139 |           |  |         | 94,278  |  |  |   | 509,458 |       |  |   |        | 
|5.0% Subordinated Note due March 2007 |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|Principal                             |  |                                             | 20,000  |        |  |           |       |           |  |         |        |  |  |   | 20,000  |       |  |   |        | 
|Interest                              |  |                                             | 5,000   |        |  |           | 1,000  |           |  |         | 2,000   |  |  |   | 2,000   |       |  |   |        | 
|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|                                      |  |                                             | 25,000  |        |  |           | 1,000  |           |  |         | 2,000   |  |  |   | 22,000  |       |  |   |        | 
|Capital
Lease Obligations(1)          |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|Principal                             |  |                                             | 12,429  |        |  |           | 1,190  |           |  |         | 2,039   |  |  |   | 1,730   |       |  |   | 7,470   | 
|Interest                              |  |                                             | 12,052  |        |  |           | 1,937  |           |  |         | 3,343   |  |  |   | 2,679   |       |  |   | 4,093   | 
|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|                                      |  |                                             | 24,481  |        |  |           | 3,127  |           |  |         | 5,382   |  |  |   | 4,409   |       |  |   | 11,563  | 
|Operating
Leases(1)                   |  |                                             | 223,721 |        |  |           | 30,061 |           |  |         | 51,481  |  |  |   | 43,747  |       |  |   | 98,432  | 
|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 
|Total Contractual Cash Obligations    |  | $                                           | 924,077 |        |  | $         | 81,327 |           |  | $       | 153,141 |  |  | $ | 579,614 |       |  | $ | 109,995 | 
|                                      |  |                                             |         |        |  |           |        |           |  |         |         |  |  |   |         |       |  |   |         | 

|                                   |  |                                             |        |        |  |           |        |           |  |         |   |  |  |   |   |       |  |   |   | 
|---------------------------------- |  | ------------------------------------------- | ------ | ------ |  | --------- | ------ | --------- |  | ------- | - |  |  | - | - | ----- |  | - | - | 
|                                   |  | Other Commercial Commitments (In thousands)
|                                   |  |                                            
|                                   |  |                                             |        |        |  | Less than |        |           |  |         |   |  |  |   |   | After
|                                   |  | Total                                       |        | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Years
|                                   |  |                                             |        |        |  |           |        |           |  |        
|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,
warehouses 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 October 1, 2002 and
December 31, 2002.                                               

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##### 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 $102.0 million at June 30, 2002 and $124.3
million at September 30, 2001, and the Companys current ratios were
1.48:1, and 1.64:1, respectively. Fluctuations in working capital and
current ratios are not unusual in the industry.

Net cash provided by operating activities in the thirty-nine weeks
ended June 30, 2002 amounted to $51.7 million compared to $60.4
million for the thirty-nine weeks ended June 24, 2001. Fluctuations
in net cash provided by operating activities is not unusual in the
industry. Cash provided by operating activities in fiscal 2002 of
$51.7 million consisted of depreciation of $23.2 million, an increase
in accrued liabilities and self-insurance reserves of $21.2 million
and an increase of $6.8 million in accounts payable offset by an
increase in inventories of $4.0 million, an increase in receivables of
$3.5 million and an increase in deferred income taxes of $1.8 million.
Cash provided by operating activities in fiscal 2001 of $60.4 million
consisted of an increase in accrued liabilities and self-insurance
reserves of $23.6 million, depreciation of $21.1 million, a decrease
in lease guarantee escrow of $13.2 million, a decrease in deferred
income taxes of $3.8 million and a decrease in other assets of $2.0
million offset by an increase in accounts receivable of $5.8 million.

Net cash used in investing activities for the thirty-nine weeks ended
June 30, 2002, amounted to $31.0 million compared to $25.0 million for
the thirty-nine weeks ended June 24, 2001. The difference in net cash
used in investing activities between the comparable periods is due to
the Companys capital expenditures during such periods, net of
proceeds from asset disposals. Capital expenditures amounted to $31.0
million in the fiscal year to date of 2002 compared to $25.2 million
in the fiscal year to date of 2001.

Net cash used by financing activities amounted to $30.9 million and
$6.7 million for the thirty-nine weeks ended June 30, 2002 and June
24, 2001, respectively. The $30.9 million cash used in financing
activities in fiscal 2002 included the redemption of 11,699 shares of
the Companys stock previously held by La Cadena Investments, for
$20.0 million in cash and the issuance of a $20.0 million subordinated
note, which bears interest at a rate of 5.0% per annum, payable
semi-annually; $4.5 million for the payment of a dividend to La Cadena
Investments; and fees of approximately $5.0 million for the 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. The Company redeemed $250,000 of its 10.75%
Senior Notes due 2006 for $250,000 plus accrued interest. These Notes
were restricted and unregistered. The remaining financing activities
in the current and prior year were for principal payment of long-term
debt and payments on capital lease obligations.

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

LIQUIDITY AND CAPITAL RESOURCES (contd.)

The Credit Facilities

The Companys 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 31,
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 lesser 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 of credit 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 will be
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 under the 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 letters of credit issued
under the letter of credit facility.

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

LIQUIDITY AND CAPITAL RESOURCES (contd.)

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 the Company.

The credit facility also contains covenants that apply to the Company
and the Company 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 the Companys capital stock,
prepayments and redemptions of the exchange notes and other debt, and
limit indebtedness, investments, loans and advances by the Company.

The credit facility requires the Company 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;
judgment; 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 June 30, 2002, for
purposes of the credit facility with Bank of America, the Company was
in compliance with all restrictive covenants and exceeded the minimum
net worth covenant by approximately $66.6 million and exceeded minimum
inventory coverage by approximately $44.4 million. The minimum EBITDA
(as defined) covenant measurement period began (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 June 30,
2002, Stater Bros. Markets exceeded minimum annualized EBITDA by
approximately $22.2 million.

As of June 30, 2002, for purposes of the credit facility with Bank of
America, the Company 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.

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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.

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STATER BROS. HOLDINGS INC.
JUNE 30, 2002




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 AND USE OF PROCEEDS

None




Item 3.   DEFAULTS UPON SENIOR SECURITIES

None




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

None




Item 5.   OTHER INFORMATION

None




Item 6.   EXHIBITS AND REPORTS ON FORM 8-K



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

None



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

None

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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.

| |  |                       |  |                                                                                                                                             
| |  | --------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------
| |  | Date: August 13, 2002 |  | /s/                   Jack
H.
BrownJack H. Brown
Chairman of the Board, President,
and Chief Executive Officer
(Principal Executive Officer)
|
|
| |  | Date: August 13, 2002 |  | /s/                   Phillip J. SmithPhillip J. Smith
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)         

22