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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 December 28, 2003

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

Not Applicable




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


Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13
or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter
period that the registrant was required to file such reports), and (2)
has been subject to such filing
requirements for the past
90 days.              Yes [X] No [  ]

Indicate by check mark whether the registrant is an accelerated filer
(as defined in Rule 12b-2 of the Act).

Yes [  ] No [X]

As of February 11, 2004, 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                            
|                               | Item 4. CONTROLS AND PROCEDURES                                                              
|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                    
|EXHIBIT 31.1                  
|EXHIBIT 31.2                  
|EXHIBIT 32.1                  



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STATER BROS. HOLDINGS INC.
DECEMBER 28, 2003

INDEX

|           |  |                                                                                       |  |                                                                                                                  |    |      |   | 
|---------- |  | ------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------------------------------------------------- | -- | ---- | - | 
|           |  |                                                                                       |  |                                                                                                                  |    | Page
|           |  |                                                                                       |  |                                                                                                                  |    |     
|PART I     |  | FINANCIAL INFORMATION (Unaudited)                                                     |  |                                                                                                                  |    |     
|Item 1.    |  | Financial Statements                                                                  |  |                                                                                                                  |    |     
|           |  |                                                                                       |  | Consolidated Balance Sheets (Unaudited) as of September 28, 2003
and December 28, 2003                           |    |      | 3 | 
|           |  |                                                                                       |  | Consolidated Statements of Income (Unaudited) for the 13 weeks ended
December 29, 2002 and December 28, 2003     |    |      | 5 | 
|           |  |                                                                                       |  | Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks ended
December 29, 2002 and December 28, 2003 |    |      | 6 | 
|           |  |                                                                                       |  | Notes to Consolidated Financial Statements (Unaudited)                                                           |    |      | 7 | 
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |                                                                                                                  | 9  |     
|Item 3.    |  | Quantitative and Qualitative Disclosure about Market Risk                             |  |                                                                                                                  | 20 |     
|Item 4.    |  | Controls and Procedures                                                               |  |                                                                                                                  | 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. 28, |         | Dec. 28,
|                                       |                                                |   | 2003      |         | 2003    
|                                       |                                                |   |           |         |         
|Current Assets                         |                                                |   |           |         |          |   |         |        
|                                       | Cash and cash equivalents                      |   | $         | 111,152 |          |   | $       | 235,904 | 
|                                       | Restricted cash                                |   |           |        |          |   |         | 20,000  | 
|                                       | Receivables                                    |   |           | 23,217  |          |   |         | 30,410  | 
|                                       | Income tax receivables                         |   |           | 4,354   |          |   |         |        | 
|                                       | Inventories                                    |   |           | 172,267 |          |   |         | 185,268 | 
|                                       | Prepaid expenses                               |   |           | 6,962   |          |   |         | 9,933   | 
|                                       | Deferred income taxes                          |   |           | 14,793  |          |   |         | 14,793  | 
|                                       |                                                |   |           |         |          |   |         |        
|Total current assets                   |                                                |   | 332,745   |         |          |   | 496,308 |        
|Investment in unconsolidated affiliate |                                                |   | 16,910    |         |          |   | 17,536  |        
|Property and equipment                 |                                                |   |           |         |          |   |         |        
|                                       | Land                                           |   |           | 50,930  |          |   |         | 50,930  | 
|                                       | Buildings and improvements                     |   |           | 200,349 |          |   |         | 201,526 | 
|                                       | Store fixtures and equipment                   |   |           | 242,562 |          |   |         | 251,288 | 
|                                       | Property subject to capital leases             |   |           | 24,670  |          |   |         | 24,670  | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 518,511   |         |          |   | 528,414 |        
|                                       | Less accumulated depreciation and amortization |   |           | 216,366 |          |   |         | 220,542 | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 302,145   |         |          |   | 307,872 |        
|Deferred debt issuance costs, net      |                                                |   | 10,486    |         |          |   | 9,624   |        
|Other assets                           |                                                |   | 5,540     |         |          |   | 5,547   |        
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 16,026    |         |          |   | 15,171  |        
|                                       |                                                |   |           |         |          |   |         |        
|Total assets                           |                                                | $ | 667,826   |         |          | $ | 836,887 |        
|                                       |                                                |   |           |         |          |   |         |        

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. 28, |   | Dec. 28,
|                                                       |                                              |                                        |         | 2003      |   | 2003    
|                                                       |                                              |                                        |         |           |   |         
|Current Liabilities                                    |                                              |                                        |         |           |   |          |         |        
|                                                       | Accounts payable                             |                                        | $       | 112,458   |   |          | $       | 181,377 |  
|                                                       | Accrued payroll and related expenses         |                                        |         | 44,362    |   |          |         | 64,316  |  
|                                                       | Income taxes payable                         |                                        |         |          |   |          |         | 19,196  |  
|                                                       | Other accrued liabilities                    |                                        |         | 50,352    |   |          |         | 57,071  |  
|                                                       | Current portion of capital lease obligations |                                        |         | 1,056     |   |          |         | 1,042   |  
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total current liabilities                              |                                              |                                        | 208,228 |           |   |          | 323,002 |        
|Deferred income taxes                                  |                                              |                                        | 6,708   |           |   |          | 6,458   |        
|Long-term debt                                         |                                              |                                        | 458,750 |           |   |          | 458,750 |        
|Capital lease obligations, less current portion        |                                              |                                        | 9,926   |           |   |          | 9,678   |        
|Long-term portion of self-insurance and other reserves |                                              |                                        | 27,941  |           |   |          | 37,325  |        
|Other long-term liabilities                            |                                              |                                        | 20,267  |           |   |          | 31,025  |        
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total liabilities                                      |                                              |                                        | 731,820 |           |   |          | 866,238 |        
|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 - 38,301 |         |           |  |          |         |         |  | 
|                                                       | Additional paid-in capital                   |                                        |         | 9,740     |   |          |         | 9,740   |  
|                                                       | Retained deficit                             |                                        |         | (73,734   | ) |          |         | (39,091 | )
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total stockholders deficit                            |                                              |                                        | (63,994 | )         |   |          | (29,351 | )      
|                                                       |                                              |                                        |         |           |   |          |         |        
|Total liabilities and stockholders deficit            |                                              | $                                      | 667,826 |           |   | $        | 836,887 |        
|                                                       |                                              |                                        |         |           |   |          |         |        

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
|                                               |                                              |   |               
|                                               |                                              |   | Dec. 29,       |         | Dec. 28,
|                                               |                                              |   | 2002           |         | 2003    
|                                               |                                              |   |                |         |         
|Sales                                          |                                              | $ | 681,509        |         |          | $ | 1,026,553 |        
|Cost of goods sold                             |                                              |   | 497,353        |         |          |   | 721,671   |        
|                                               |                                              |   |                |         |          |   |           |        
|Gross profit                                   |                                              |   | 184,156        |         |          |   | 304,882   |        
|Operating expenses:                            |                                              |   |                |         |          |   |           |        
|                                               | Selling, general and administrative expenses |   |                | 160,399 |          |   |           | 226,894 | 
|                                               | Depreciation and amortization                |   |                | 6,328   |          |   |           | 7,426   | 
|                                               |                                              |   |                |         |          |   |           |        
|Total operating expenses                       |                                              |   | 166,727        |         |          |   | 234,320   |        
|                                               |                                              |   |                |         |          |   |           |        
|Operating profit                               |                                              |   | 17,429         |         |          |   | 70,562    |        
|Interest income                                |                                              |   | 272            |         |          |   | 384       |        
|Interest expense                               |                                              |   | (13,258        | )       |          |   | (13,176   | )      
|Equity in income from unconsolidated affiliate |                                              |   | 746            |         |          |   | 626       |        
|Other expenses - net                           |                                              |   | (389           | )       |          |   | (453      | )      
|                                               |                                              |   |                |         |          |   |           |        
|Income before income taxes                     |                                              |   | 4,800          |         |          |   | 57,943    |        
|Income taxes                                   |                                              |   | 1,873          |         |          |   | 23,300    |        
|                                               |                                              |   |                |         |          |   |           |        
|Net income                                     |                                              | $ | 2,927          |         |          | $ | 34,643    |        
|                                               |                                              |   |                |         |          |   |           |        
|Earnings per common share                      |                                              | $ | 76.42          |         |          | $ | 904.49    |        
|                                               |                                              |   |                |         |          |   |           |        
|Average common shares outstanding              |                                              |   | 38,301         |         |          |   | 38,301    |        
|                                               |                                              |   |                |         |          |   |           |        
|Common shares outstanding at end of period     |                                              |   | 38,301         |         |          |   | 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)

|                                                                                  |                                                |                                                                                  |         |                |       |          |         |       |         |  
|--------------------------------------------------------------------------------- | ---------------------------------------------- | -------------------------------------------------------------------------------- | ------- | -------------- | ----- | -------- | ------- | ----- | ------- | -
|                                                                                  |                                                |                                                                                  |         | 13 Weeks Ended
|                                                                                  |                                                |                                                                                  |         |               
|                                                                                  |                                                |                                                                                  |         | Dec. 29,       |       | Dec. 28,
|                                                                                  |                                                |                                                                                  |         | 2002           |       | 2003    
|                                                                                  |                                                |                                                                                  |         |                |       |         
|Operating activities:                                                             |                                                |                                                                                  |         |                |       |          |         |      
|Net income                                                                        |                                                | $                                                                                | 2,927   |                |       | $        | 34,643  |      
|Adjustments to reconcile net income to net cash provided by
operating activities: |                                                |                                                                                  |         |                |       |          |         |      
|                                                                                  | Depreciation and amortization                  |                                                                                  |         | 8,164          |       |          |         | 9,075 |        
|                                                                                  | Loss on disposals of assets                    |                                                                                  |         | 388            |       |          |         | 453   |        
|                                                                                  | Equity in income from unconsolidated affiliate |                                                                                  |         | (746           | )     |          |         | (626  | )      
|                                                                                  | Changes in operating assets and liabilities:   |                                                                                  |         |                |       |          |         |       |        
|                                                                                  |                                                | Increase in restricted cash                                                      |         |                |      |          |         |       | (20,000 | )
|                                                                                  |                                                | (Increase) decrease in receivables                                               |         |                | 846   |          |         |       | (7,193  | )
|                                                                                  |                                                | Decrease in income tax receivables                                               |         |                | 1,873 |          |         |       | 4,354   |  
|                                                                                  |                                                | (Increase) decrease in inventories                                               |         |                | 7,317 |          |         |       | (13,001 | )
|                                                                                  |                                                | Increase in prepaid expenses                                                     |         |                | (983  | )        |         |       | (2,971  | )
|                                                                                  |                                                | Decrease in other assets                                                         |         |                | 81    |          |         |       | 855     |  
|                                                                                  |                                                | Increase (decrease) in accounts payable                                          |         |                | (377  | )        |         |       | 68,919  |  
|                                                                                  |                                                | Increase in income taxes payable                                                 |         |                |      |          |         |       | 18,946  |  
|                                                                                  |                                                | Increase in accrued liabilities and long-term
portion of self-insurance reserves |         |                | 9,267 |          |         |       | 46,815  |  
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Net cash provided by operating activities                                         |                                                |                                                                                  | 28,757  |                |       |          | 140,269 |      
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Investing activities:                                                             |                                                |                                                                                  |         |                |       |          |         |      
|Purchase of property and equipment                                                |                                                |                                                                                  | (11,020 | )              |       |          | (15,267 | )    
|Proceeds from sale of property and equipment                                      |                                                |                                                                                  | 26      |                |       |          | 12      |      
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Net cash used in investing activities                                             |                                                |                                                                                  | (10,994 | )              |       |          | (15,255 | )    
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Financing activities:                                                             |                                                |                                                                                  |         |                |       |          |         |      
|Principal payments on capital lease obligations                                   |                                                |                                                                                  | (291    | )              |       |          | (262    | )    
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Net cash used in financing activities                                             |                                                |                                                                                  | (291    | )              |       |          | (262    | )    
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Net increase in cash and cash equivalents                                         |                                                |                                                                                  | 17,472  |                |       |          | 124,752 |      
|Cash and cash equivalents at beginning of period                                  |                                                |                                                                                  | 81,043  |                |       |          | 111,152 |      
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Cash and cash equivalents at end of period                                        |                                                | $                                                                                | 98,515  |                |       | $        | 235,904 |      
|                                                                                  |                                                |                                                                                  |         |                |       |          |         |      
|Interest paid                                                                     |                                                | $                                                                                | 489     |                |       | $        | 950     |      
|Income taxes paid                                                                 |                                                | $                                                                                |        |                |       | $        |        |      

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)DECEMBER 28, 2003

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 28, 2003 and December 28, 2003
and the results of its operations and cash flows for the thirteen weeks ended
December 29, 2002 and December 28, 2003. These consolidated financial
statements should be read in conjunction with the audited financial statements
and notes thereto included in the Companys latest annual report filed on Form
10-K. The operating results for the thirteen weeks ended December 28, 2003 are
not necessarily indicative of the results of operations for a full year.

Note 2 - Income Taxes

The provision for income taxes for the thirteen weeks ended December 29,
2002 and December 28, 2003 consists of the following:

|                     |  |                |       |               |  |   |        | 
|-------------------- |  | -------------- | ----- | ------------- |  | - | ------ | 
|                     |  | 13 Weeks Ended
|                     |  |               
|                     |  | Dec. 29, 2002  |       | Dec. 28, 2003
|                     |  |                |       |              
|                     |  | (In thousands)
|Federal income taxes |  | $              | 1,448 |               |  | $ | 18,172 | 
|State income taxes   |  |                | 425   |               |  |   | 5,128  | 
|                     |  |                |       |               |  |   |        | 
|                     |  | $              | 1,873 |               |  | $ | 23,300 | 
|                     |  |                |       |               |  |   |        | 

Note 3 - Unconsolidated Affiliate

As of December 28, 2003, the Company owned 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.
The Company was not the controlling stockholder. Accordingly, the Company
accounted for its investment in Santee using the equity method of accounting
and recognized income of $746,000 and $626,000 for the thirteen weeks ended
December 29, 2002 and December 28, 2003, respectively. Subsequent to December
28, 2003, the Company entered into an agreement that transferred control of
Santee to the Company (see Note 7). The Company is a significant customer of
Santee which supplies the Company with a substantial portion of its fluid milk
and dairy products.

Summary of unaudited financial information for Santee is as follows:

|                        |  |                |        |                |  |   |        | 
|----------------------- |  | -------------- | ------ | -------------- |  | - | ------ | 
|                        |  | 13 Weeks Ended |        | 14 Weeks Ended
|                        |  |                |        |               
|                        |  | Dec. 29, 2002  |        | Jan. 3, 2004  
|                        |  |                |        |               
|                        |  | (In thousands)
|Current assets          |  | $              | 23,633 |                |  | $ | 26,404 | 
|Non-current assets      |  |                | 91,411 |                |  |   | 88,523 | 
|Current liabilities     |  |                | 21,880 |                |  |   | 25,923 | 
|Non-current liabilities |  |                | 60,350 |                |  |   | 54,053 | 
|Shareholders equity    |  |                | 32,814 |                |  |   | 34,951 | 
|                        |  |                |        |                |  |   |        | 
|Sales                   |  |                | 44,862 |                |  |   | 62,928 | 
|Gross profit            |  |                | 7,976  |                |  |   | 8,396  | 
|Net income              |  | $              | 1,491  |                |  | $ | 1,251  | 

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)DECEMBER 28, 2003

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  Reclassifications

Certain amounts in the prior period have been reclassified to conform to
the current year period financial statements presentation.

Note 6  Restricted Cash

Restricted cash represents cash that has been contractually set aside as
collateral for certain workers compensation and general liability
self-insurance reserves. Interest earned on the restricted cash is controlled
by the Company and is included in cash and cash equivalents.

Note 7  Subsequent Event

On January 29, 2004, a final settlement agreement (the Settlement
Agreement) was executed in an action initiated in July of 2002 by Stater Bros.
Markets (Markets), a wholly-owned subsidiary the Company, on its own
behalf and derivatively on behalf of Santee in the Superior Court of
California, County of Los Angeles, against Hughes Markets, Inc. (Hughes),
Ralphs Grocery Company (Ralphs), Fred Meyer, Inc., and the Kroger Company
(Defendants), alleging among other things breaches of their Product Purchase
Agreement with Santee and failure to make certain capital contributions for
Santees dairy facility in the City of Industry, California. In July of 2003,
Defendants filed a cross-complaint against Markets, Santee and others seeking
among other things Declaratory Relief for interpretation of the requirements of
the Product Purchase Agreements and for damages against Markets, Santee and
certain directors of Santee for the adoption of the Milk Incentive Program and
payments to Markets under that program and other claims for damages.

Under the Settlement Agreement, Defendants paid to Markets the sum of one
million five hundred fifty thousand dollars ($1,550,000), the Hughes Product
Purchase Agreement was terminated, and Ralphs will continue to purchase certain
products from Santee in specified quantities through July 31, 2007. In
addition, Hughes relinquished to Markets all of its rights, title, and interest
in Santee Dairies, LLC, which had been jointly owned by Hughes and Markets
since 1986.

Santee Dairies, LLC will be dissolved and in subsequent periods, Santees
financial position and results of operations will be consolidated with that of
the Companys.

As of the date of the Settlement Agreement, Santee had $53,500,000 of
9.36% Senior Secured Notes due 2008 (Santee Notes) with various institutional
investors. In the event of a change in control of Santee, the Santee Notes
required the payment of principal, accrued interest
and a make-whole payment. Subsequent to the Settlement Agreement, Markets
loaned $55,000,000 to Santee and Santee made payments to the holders of the
Santee Notes to retire the Santee Notes.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 28, 2003

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.
|
| |  | Revenue Recognition                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company recognizes revenue from the sale of its products at the
point of sale to the customer. Sales are recognized net of any
discounts given to the customer.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Cost of Goods Sold                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|
| |  | Included in cost of goods sold are direct product purchase costs, all
in-bound freight costs, all direct receiving and inspection costs, all
quality assurance costs, all warehousing costs and all costs
associated with transporting goods from the Companys warehouses to
its stores, net of earned vendor rebates and allowances. The Company
recognizes, as a reduction to cost of goods sold, certain rebates and
allowances (allowances) from its vendors as the allowances are
earned. Allowances are earned by promoting certain products or by
purchasing specified amounts of product. The Company records a
liability for allowance funds that have been received but not yet
earned.                                                                         
|
| |  | Selling, General and Administrative Expenses                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Included in selling, general and administrative expenses are all store
operation costs which includes all store labor costs associated with
receiving, displaying and selling the Companys products at the store
level; all advertising costs, net in fiscal 2004 of the portion of
co-operative advertising allowances directly related to the fair value
of the advertising and net of all co-operative advertising allowances
in the prior years; certain salary, wages and administrative costs
associated with the purchasing of the Companys products and all
security, management information services, accounting and corporate
management costs.                                                                                                                  

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



| |  | Selling, General and Administrative Expenses(contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Within the supermarket industry, there are a wide range of differences
in the disclosure of costs related to the purchasing and distribution
of products sold. Some companies include all of their costs in
selling, general and administrative expenses. As noted under Cost of
Goods Sold, the Company includes all purchasing and distribution
costs to deliver the product for sale to its stores in cost of goods
sold, except for certain salary, wages and administrative costs
associated with the purchasing of its products.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Vendor Rebates and Allowances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The Company receives certain allowances from its vendors that relate
to the purchase and promotion of certain products. All allowances,
except for advertising allowances described under Advertising
Allowance, are recognized as a reduction in cost of goods sold as the
performance is completed and inventory sold. Allowances, such as
slotting fees, which are tied to the promotion of certain products,
are recognized as reductions in cost of goods sold as the Company
meets the required performance criteria. Allowances that are based
upon purchase or sales volumes are recognized as reductions in cost of
goods sold as the products are sold. The Company receives lump-sum
payments from vendors for the promotion or purchase of products over
multi-year periods. The Company records a liability for unearned
allowances and recognizes, as a reduction in cost of goods sold, these
allowances over time as the criteria of these contracts are met.                                                                                           
|
| |  | Advertising Allowances                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | The Company receives co-operative advertising allowances from vendors
for advertising specific vendor products over specific periods of
time. The Company recognizes the portion of
co-operative advertising allowances directly related to the fair value
of the advertising as a reduction in advertising costs. A significant
portion of the Companys advertising expenditures is in the form of
twice weekly print advertisements. The Company distributes its print
ads through inserts in local newspapers, in direct mailers and as
handouts distributed in its stores. The Company analyzes, on a
monthly basis, the direct out-of-pocket costs for printing and
distributing its print ads. Using the number of ads in a typical
twice weekly advertisement, the actual direct cost of an individual
advertisement is determined. The cost determined is deemed to be the
fair value of advertising. The amount of co-operative advertising
allowances in excess of the direct fair value of the advertising is
recognized as a reduction in cost of goods sold.
|
| |  | Advertising                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Companys advertising costs, net of vendor allowances for
co-operative advertising, are recognized in the period the advertising
is incurred and are included in selling, general and administrative
expenses.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        

10



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##### Table of Contents



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



| |  | Leases                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Certain of the Companys operating leases provide for minimum annual
payments that change over the life of the lease. The aggregate
minimum annual payments are expensed on a straight-line basis over the
minimum lease term. The Company recognizes a liability for minimum
step rents when the amount of straight-line rent expense exceeds the
actual lease payment and it reduces the step rent liability when the
actual lease payment exceeds the amount of straight-line rent expense.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Self-Insurance Reserves                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | The Company is primarily self-insured, subject to certain retention
levels for workers compensation, automobile and general liability
costs. The Company is covered by umbrella insurance policies for
catastrophic events. 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
compensation benefits structure. In recent years, the Company and
employers within the State of California as a whole have seen
significant increases in the 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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | Investment in Affiliate                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|
| |  | As of December 28, 2003 the Company owned 50% of Santee Dairies, LLC.
The Company was not the controlling stockholder and accordingly
accounted for its investment using the equity method of accounting.
Subsequent to December 28, 2003, the Company entered into an agreement
that transferred control of Santee to the Company. Accordingly, in
subsequent periods, Santees financial position and results of
operations will be consolidated with that of the Companys.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|
| |  | Deferred Debt Issuance Costs                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Direct costs incurred as a result of financing transactions are
capitalized and amortized to expense over the term of the applicable
debt agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|
| |  | Deferred Income 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 units to the
extent that they vest and appreciate during the accounting period.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         

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##### Table of Contents



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



| |  | OWNERSHIP OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | La Cadena Investments (La Cadena) is the sole shareholder of the
Company and holds all of the shares of the Companys Class A Common
Stock. La Cadena 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 and is the managing general partner with the power to vote
the shares of the Company held by La Cadena.
|
| |  | RESULTS OF OPERATIONS                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The following table sets forth certain income statement components
expressed as a percent of sales for the thirteen weeks ended December
29, 2002 and December 28, 2003.                                                                                                                                                                                                                                                                                                                                                         

|                                               |                                              |  |                |       |               |  |        |       | 
|---------------------------------------------- | -------------------------------------------- |  | -------------- | ----- | ------------- |  | ------ | ----- | 
|                                               |                                              |  | 13 Weeks Ended
|                                               |                                              |  |               
|                                               |                                              |  | Dec. 29, 2002  |       | Dec. 28, 2003
|                                               |                                              |  |                |       |              
|Sales                                          |                                              |  | 100.00         | %     |               |  | 100.00 | %    
|Gross profit                                   |                                              |  | 27.02          |       |               |  | 29.70  |      
|Operating expenses:                            |                                              |  |                |       |               |  |        |      
|                                               | Selling, general and administrative
expenses |  |                | 23.53 |               |  |        | 22.11 | 
|                                               | Depreciation and amortization                |  |                | 0.93  |               |  |        | 0.72  | 
|Operating profit                               |                                              |  | 2.56           |       |               |  | 6.87   |      
|Interest income                                |                                              |  | 0.04           |       |               |  | 0.04   |      
|Interest expense                               |                                              |  | (1.95          | )     |               |  | (1.28  | )    
|Equity in income from unconsolidated affiliate |                                              |  | 0.11           |       |               |  | 0.06   |      
|Other expenses - net                           |                                              |  | (0.06          | )     |               |  | (0.05  | )    
|Income before income taxes                     |                                              |  | 0.70           | %     |               |  | 5.64   | %    



| |  | Throughout Managements discussion and analysis of financial condition
and results of operations for the first quarter of fiscal 2004
compared to the first quarter of fiscal 2003, is the pervasive and
over-riding impact of the current labor dispute, as described below,
on the Companys financial condition and results of operations.                                                                                                                                                                                                                                                                                                                                                                                                                                       
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys collective bargaining agreement with the United Food and
Commercial Workers (UFCW) expired in October 2003. The UFCW had the
same collective bargaining agreement with the Company that it had with
the Companys three major competitors, Vons, Albertsons and Ralphs.
On April 14, 2003, the Company signed an agreement with the UFCW that
extended the expiring collective bargaining agreement until a new
collective bargaining agreement is negotiated and stated that the
Company would accept the same contract terms that the UFCW negotiates
with Vons, Albertsons and Ralphs. In return, the UFCW agreed not to
strike the Company. The Company is not a party to the current
contract negotiations between the UFCW and Vons, Albertsons and
Ralphs.
|
| |  | On October 11, 2003, the UFCW declared a strike against Vons; in turn,
Albertsons and Ralphs locked out all of their UFCW employees (the labor
dispute). Initially the UFCW placed picket lines at all Vons, Albertsons and
Ralphs stores in Southern California. Subsequently, the UFCW removed the
picket lines at most of the Ralphs stores.                                                                                                                                                                                                                                                                                                                                                                                                                                 

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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 OPERATION (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Many of the former Vons, Albertsons and Ralphs customers have chosen
to honor the picket lines and have taken their business to Stater
Bros. Markets and other grocery retailers. The labor dispute has had
both a significant and material effect on the Companys sales volume,
results of operations and financial position. Eleven of thirteen
weeks in the first quarter of fiscal 2004 were affected by the strike.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The increased sales volume has had a positive effect on results of
operations as the Company has been able to realize some economics of
scale from the increased sales volume. As a result, cost of goods
sold, labor and other operating expenses, as a percentage of sales,
have decreased in the first quarter of fiscal 2004 compared to the
first quarter of fiscal 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | While the effect of the labor dispute was favorable to the Companys
first quarter 2004 operating results and financial position, no
estimate can be given as to the length of the labor dispute nor its
continued impact on the Company. Also, the financial impact of any
new bargaining agreement with the UFCW on the Companys labor and
benefit costs, the possible retention of new customers after the labor
dispute concludes, the cost to return to normalized operations and the
impact of competitive pressures after the conclusion of the labor
dispute are unknown and cannot be projected with any degree of
certainty. The impact of these factors may involve significant risk and
uncertainties that could materially impact the Companys future
financial performance and financial position.                                                                                                              
|
| |  | Total sales for the thirteen weeks ended December 28, 2003, the first
quarter of fiscal 2004, increased 50.6% and amounted to $1.027 billion
compared to $681.5 million for the same period in the prior year. The
increase in total sales in the first quarter of fiscal 2004 was
primarily due to the increased volume related to the current labor
dispute. Like store sales are calculated by comparing year-to-year
sales for stores that are opened in both years. For stores that were
not opened for the entire previous year, only the current years
weekly sales that correspond to the weeks the store was open in the
previous year are used. All of the current year replacement store
sales are included in the like store sales calculation. Like store
sales increased 49.3% for the thirteen-week period ended December 28,
2003.                                                                             
|
| |  | Gross profit for the thirteen weeks ended December 28, 2003, amounted
to $304.9 million or 29.70% of sales compared to $184.2 million or
27.02% of sales in the same period of the prior year. The increase in
gross profit, as a percentage of sales, is due in part to
approximately 1.1% increase in gross profit, as a percentage of sales,
from improved efficiencies in labor and facilities within warehouse
and distribution operations resulting from the increased sales volume.
The remaining improvement in gross profit, as a percentage of sales,
is due primarily to improved shrink control in perishable departments
resulting from the increased inventory turns. The amount of
co-operative advertising allowances in excess of the fair value of
advertising, which is included as a reduction in cost of goods sold,
for the first quarters of fiscal 2004 and 2003 is $840,000 and
$540,000, respectively.
|
| |  | Operating expenses include selling, general and administrative
expenses and depreciation and amortization. For the thirteen weeks
ended December 28, 2003, selling, general and administrative expenses
amounted to $226.9 million or 22.11% of sales compared to $160.4
million or 23.53% of sales for the thirteen weeks ended December 29,
2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             

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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.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
| |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | While selling, general and
administrative expenses increased $66.5
million in the current year over the prior year, selling general and
administrative expenses, as a percentage of sales, decreased from
23.53% in fiscal 2003 to 22.11% in fiscal 2004. The increased sales
volume resulting from the labor dispute allowed the Company to
leverage fixed facility cost and reduce advertising cost, as a
percentage of sales. Also, the Companys primary energy provider
reduced energy rates effective October of 2003. The reduction in cost,
as a percentage of sales, for the fiscal first quarter of 2004
compared to the fiscal first quarter of 2003 from the leveraging of
fixed facility cost, reduced advertising cost and reduced energy rates
were approximately 0.43%, 0.24% and 0.50% respectively. The amount of
salaries, wages and administrative costs associated with the purchase
of the Companys products included in selling, general and
administrative expenses for the first quarters of fiscal 2004 and
fiscal 2003 is $253,000 and $215,000 respectively.
|
| |  | Depreciation and amortization
expenses amounted to $7.4 million for
the thirteen weeks ended December 28, 2003 and amounted to $6.3
million for the like period of the prior year. The increase in
depreciation and amortization expense in fiscal 2004 was primarily due
to an increase in fixed assets. Included in cost of goods sold is
$1.6 million and $1.8 million of depreciation in the first
quarters of fiscal 2004 and fiscal 2003, respectively, related to
warehousing and distribution activities.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | Operating profit for the thirteen weeks ended December 28, 2003
amounted to $70.6 million or 6.87% of sales compared to $17.4 million
or 2.56% of sales for the thirteen weeks ended December 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Interest expense amounted to $13.2 million for the thirteen weeks
ended December 28, 2003 compared to $13.3 million for the thirteen
weeks ended December 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | The Companys equity in income from unconsolidated affiliate amounted
to $626,000 for the first quarter of fiscal 2004 compared to $746,000
in the first quarter of the prior year. The decrease in earnings in
the first quarter of 2004 over the first quarter of 2003, was due to
increased operating costs at Santee.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Income before income taxes amounted to $57.9 million for the thirteen
weeks ended December 28, 2003 compared to $4.8 million for the
thirteen weeks ended December 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Net income for the thirteen weeks ended December 28, 2003, amounted to
$34.6 million compared to $2.9 million for the thirteen weeks ended
December 29, 2002.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | LIQUIDITY AND CAPITAL RESOURCES                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | The Company historically has funded its daily cash flow requirements
through funds provided by operations and through borrowings from
short-term revolving credit facilities. The Companys credit
agreement, as amended, became effective August 6, 1999 and expires in
March 2005 and consists of a revolving loan facility for working
capital of $75.0 million which includes a Letter of Credit Sublimit
with a maximum availability of the lesser of a) the Revolving Loan
Commitment or b) $50 million. As of December 28, 2003, the Company
had $47.3 million of outstanding letters of credit and had $27.7
million available under the revolving loan facility. The letter of
credit facility is maintained pursuant to the Companys workers
compensation and general liability self-insurance requirements and as
security for certain rent 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 Company had no short-term borrowings outstanding at the end of the
first quarters of fiscal 2004 and 2003, and the Company did not incur
short-term borrowings during the year to date periods ended December
28, 2003 and December 29, 2002.
|
| |  | The following table sets forth the Companys contractual cash
obligations and commercial commitments as of December 28, 2003.                                                                                                                    

|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|----------------------------------- |  | ------------------------------------------- | ------- | ------ |  | --------- | ------ | --------- |  | ------ | ------- |  |  | - | ------ | ----- |  | - | ------ | 
|                                    |  | Contractual Cash Obligations (In thousands)
|                                    |  |                                            
|                                    |  |                                             |         |        |  | Less than |        |           |  |        |         |  |  |   |        | After
|                                    |  | Total                                       |         | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Yrs 
|                                    |  |                                             |         |        |  |           |        |           |  |       
|10.75% Senior Notes due August 2006 |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|Principal                           |  | $                                           | 438,750 |        |  | $         |       |           |  | $      | 438,750 |  |  | $ |       |       |  | $ |       | 
|Interest                            |  |                                             | 137,567 |        |  |           | 47,166 |           |  |        | 90,401  |  |  |   |       |       |  |   |       | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|                                    |  |                                             | 576,317 |        |  |           | 47,166 |           |  |        | 529,151 |  |  |   |       |       |  |   |       | 
|5% Subordinated Note due March 2007 |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|Principal                           |  |                                             | 20,000  |        |  |           |       |           |  |        |        |  |  |   | 20,000 |       |  |   |       | 
|Interest                            |  |                                             | 3,500   |        |  |           | 1,000  |           |  |        | 2,000   |  |  |   | 500    |       |  |   |       | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|                                    |  |                                             | 23,500  |        |  |           | 1,000  |           |  |        | 2,000   |  |  |   | 20,500 |       |  |   |       | 
|Capital Lease Obligations (1)       |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|Principal                           |  |                                             | 9,679   |        |  |           | 882    |           |  |        | 1,787   |  |  |   | 2,221  |       |  |   | 4,789  | 
|Interest                            |  |                                             | 7,532   |        |  |           | 1,479  |           |  |        | 2,545   |  |  |   | 1,969  |       |  |   | 1,539  | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|                                    |  |                                             | 17,211  |        |  |           | 2,361  |           |  |        | 4,332   |  |  |   | 4,190  |       |  |   | 6,328  | 
|Operating Leases (1)                |  |                                             | 221,643 |        |  |           | 31,233 |           |  |        | 57,429  |  |  |   | 41,125 |       |  |   | 91,856 | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|Total Contractual Cash Obligations  |  | $                                           | 838,671 |        |  | $         | 81,760 |           |  | $      | 592,912 |  |  | $ | 65,815 |       |  | $ | 98,184 | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|                                   
|                                    |  | Other Commercial Commitments (In thousands)
|                                    |  |                                            
|                                    |  |                                             |         |        |  | Less than |        |           |  |        |         |  |  |   |        | After
|                                    |  | Total                                       |         | 1 Year |  | 1-3 Years |        | 4-5 Years |  | 5 Yrs.
|                                    |  |                                             |         |        |  |           |        |           |  |       
|Standby Letters of Credit (2)       |  | $                                           | 47,288  |        |  | $         | 47,288 |           |  | $      |        |  |  | $ |       |       |  | $ |       | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 
|Total Other Commercial Commitments  |  | $                                           | 47,288  |        |  | $         | 47,288 |           |  | $      |        |  |  | $ |       |       |  | $ |       | 
|                                    |  |                                             |         |        |  |           |        |           |  |        |         |  |  |   |        |       |  |   |        | 



| |  | (1) The Company leases the majority of its retail stores, offices and
warehouse and distribution facilities. Certain leases provide for
additional rents based on sales. Primary lease terms range from 3 to 55
years and substantially all leases provide for renewal options.
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | (2) Standby letters of credit are committed as security for
workers compensation obligations and as security for current rent
obligations. Outstanding letters of credit expire between December 2003
and October 2004.                                                       

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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 $173.3 million at December 28, 2003 and
$124.5 million at September 28, 2003, and the Companys current ratios
were 1.54:1, and 1.60:1, respectively. Fluctuations in working
capital and current ratios are not unusual in the industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The net cash provided by operating activities in the thirteen weeks
ended December 28, 2003 amounted to $140.3 million compared to $28.8
million for the thirteen weeks ended December 29, 2002. The change in
cash provided from operating activities in the current year over prior
year is due primarily from the effect of the labor dispute on the
Companys financial condition. Cash provided by operating activities
consisted of an increase of $68.9 million in accounts payable, a $46.8
million increase in accrued liabilities and self-insurance reserves
offset by a $20.0 million increase in restricted cash and a $13.0
million increase in inventory. The $20.0 million increase in
restricted cash is a result of cash being used for workers
compensation and general liability reserve requirements. Cash
provided by operating activities in fiscal 2003 consisted of a $9.3
million increase in accrued liabilities and self-insurance reserves, a
$7.3 million decrease in inventory and $8.2 million from depreciation.
|
| |  | Net cash used by investing activities for the thirteen weeks ended
December 28, 2003, amounted to $15.3 million compared to $11.0 million
for the thirteen weeks ended December 29, 2002. The difference in net
cash used by investing activities between the comparable periods is
due to the Companys capital expenditures during these periods, net of
proceeds from asset dispositions. Capital expenditures amounted to
$15.3 million in the first quarter of fiscal 2004 compared to $11.0
million in the first quarter of fiscal 2003.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|
| |  | Net cash used by financing activities amounted to $262,000 and
$291,000 for the thirteen weeks ended December 28, 2003 and December
29, 2002, respectively, and consisted of payments on the Companys
capitalized lease obligations.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | Subsequent to December 28, 2003, the Company entered into a Settlement
Agreement that gave control of Santee to the Company. As of the date
of the Settlement Agreement, Santee had $53,500,000 of 9.36% Senior
Secured Notes due 2008 (Santee Notes) with various institutional
investors. In the event of a change in control of Santee, the Santee
Notes required the payment of principal, accrued interest and a
make-whole payment. Subsequent to the Settlement Agreement, Markets
loaned $55,000,000 to Santee and Santee made payments to the holders
of the Santee Notes to retire the Santee Notes (see footnote entitled
Subsequent Events in the Notes to the Unaudited Consolidated
Financial Statements).                                                                                                                                                                                                                                                                                                                      

16



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##### Table of Contents



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



| |  | The Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Companys principal operating subsidiary, Stater Bros. Markets,
entered into a credit facility, as amended, with Bank of America N.A.
on August 6, 1999 (the credit facility). The credit facility
provides for (i) a $75.0 million revolving loan facility and (ii) a
Letter of Credit Sublimit which is defined as an amount equal to the
lesser of (a) the Revolving Loan Commitment and (b) $50,000,000. The
Letter of Credit 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 obligations
incurred in connection with the construction of stores, workers
compensation insurance obligations and as security for certain 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 1.75%.
For Offshore Rate Loans, the Offshore Rate will be applied in
consecutive 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 will cease to be available and will be
payable in full on March 31, 2005. Letters of credit under the credit
facility can be issued until March 31, 2006. 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
1.25% 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.

17



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##### Table of Contents



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



| |  | The Credit Facilities (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Availability of the loans and letters of credit under the credit
facility is subject to a monthly borrowing base test based on
inventory. The credit facility requires Stater Bros. Markets to meet
certain financial tests, including minimum net worth and minimum
EBITDA tests. The credit facility contains covenants which, among
other things, will limit indebtedness, liens, guarantee obligations,
mergers, consolidations, liquidations and dissolutions, asset sales,
leases, investments, loans and advances, transactions with affiliates,
sale and leasebacks, other matters customarily restricted in such
agreements and modifications to the holding company status of 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;
judgments; defaults; invalidity of any guaranty; failure of Jack H.
Brown to be Chairman of the Board and Chief Executive Officer of
Stater Bros. Markets; and change of control.                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | As of December 28, 2003, for purposes of the credit facility with Bank
of America, both Markets and the Company were in compliance with all
restrictive covenants. The Company is also subject to certain
covenants associated with its 10.75% Senior Notes due 2006. As of
December 28, 2003, the Company was in compliance with all such
covenants. However, there can be no assurance that the Company will
be able to achieve the expected operating results or implement the
capital expenditure strategy upon which future compliance with such
covenants is based.                                                                                                                                                                                                                                                                                   
|
| |  | Labor Relations

Substantially all of the Companys hourly employees are members of
either UCFW or International Brotherhood of Teamsters (Teamsters)
labor unions and are represented by several different collective
bargaining agreements.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|
| |  | The Companys collective bargaining agreement with the UFCW, which
covers the largest number of employees, expired in October 2003. The
UFCW had the same collective bargaining agreement with the Company
that it had with the Companys three major competitors, Vons,
Albertsons and Ralphs. On April 14, 2003, prior to the expiration of
the collective bargaining agreement, the Company signed an agreement
with the UFCW that extended the expiring collective bargaining
agreement until a new collective bargaining agreement is negotiated
and stated that the Company would accept the same contract terms that
the UFCW negotiates with Vons, Albertsons and Ralphs. In return, the
UFCW agreed not to strike the Company. The Company is not a party to
the current contract negotiations between the UFCW and Vons,
Albertsons and Ralphs.

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##### Table of Contents



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



| |  | Labor Relations (contd.)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Prior to the labor action, Vons, Albertsons and Ralphs informed the
UFCW that a strike against any one of the grocery chains would be
considered as a strike against all three chains. On October 11, 2003,
the UFCW declared a strike against Vons; in turn, Albertsons and
Ralphs locked out all of their UFCW employees. As of the date of this
filing, a new agreement has not been reached and the labor dispute
continues. The effect, if any, of any new collective bargaining
agreement on the Companys future labor and benefits costs is unknown.                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Teamsters collective bargaining agreement was renewed in
September 2002 and expires in September 2005.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Company values its employees and believes its relationship with
them is good and that employee loyalty and enthusiasm are key elements
of its operating performance.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | 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 operates in a highly competitive industry characterized by
narrow profit margins. Competitive factors include price, quality and
variety of products, customer service, and store location and
condition. The Company believes that its competitive strengths
include its specialty services, everyday low prices, breadth of
product selection, high product quality, one-stop shopping
convenience, attention to customer service, convenient store
locations, a long history of community involvement, established
long-term customer base in the Inland Empire (consisting of San
Bernardino and Riverside counties) and a growing customer awareness in
the counties of Orange, San Diego and Los Angeles.                                                                                                                                                                                                                                                               
|
| |  | Given the wide assortment of products it offers, the Company competes
with various types of retailers, including local, regional and
national supermarket retailers, convenience stores, retail drug
stores, national general merchandisers and discount retailers,
membership clubs and warehouse stores. The Companys primary
competitors include Vons, Albertsons, Ralphs, and a number of
independent supermarket operators. The Company, and its competitors,
will be faced with additional competitive pressures with the entry in
the geographic market area of Wal-Marts Super Center format stores.
Wal-Mart currently has a number of Wal-Mart discount locations and
Sams Clubs within the Companys marketing area selling a variety of
grocery products. The Company believes that its everyday low prices,
breadth of product offering, specialty service departments and
long-term customer relationships will help it withstand the increased
competitive environment.

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##### Table of Contents



STATER BROS. HOLDINGS INC.

PART I - FINANCIAL INFORMATION (contd.)

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



| |  | There have been no material changes in the Companys market risks
since the information provided under the caption Quantitative and
Qualitative Disclosure about Market Risk in the Companys filing on
Form 10-K dated September 28, 2003.
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Item 4. CONTROLS AND PROCEDURES



| |  | As of the quarter ended December 28, 2003, the Company carried out an
evaluation, under the supervision of the Chief Executive Officer and
Chief Financial Officer, of the effectiveness of the Companys
disclosure controls and procedures. Based on that evaluation, the
Chief Executive Officer and Chief Financial Officer have each
concluded that those controls and procedures were effective in making
known to them, on a timely basis, the material information needed for
the preparation of this Report on Form 10-Q. During the quarter ended
December 28, 2003, there were no significant changes in the Companys
internal control over financial reporting or in other factors that
could significantly affect the internal control over financial
reporting since the date of their evaluation, nor did they find any
significant deficiencies or material weaknesses that would have
required corrective actions to be taken.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

20



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##### Table of Contents



STATER BROS. HOLDINGS INC.







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 Report on Form 10-K for
the fiscal year ended September 28, 2003.                                                                                                                       
|
| |  | Subsequent to December 28, 2003, a final settlement agreement was
signed on January 29, 2004 by Markets and Defendants to resolve
litigation matters and control of Santee. For a description of the
settlement agreement, see the footnote entitled Subsequent Event in
the Notes to the Consolidated Financial Statements (unaudited)
contained in this Report on Form 10-Q.




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
| | --- |  | --------

|            |  |                                                                                                                                                                                       
|----------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  | DESCRIPTION                                                                                                                                                                           
|            |  |                                                                                                                                                                                       
|31.1        |  | Certification of Principal Executive Officer
pursuant to Section 302 (a) of the Sarbanes-Oxley Act of
2002.                                                                           
|            |  |                                                                                                                                                                                       
|31.2        |  | Certification of Principal Financial Officer
pursuant to Section 302 (a) of the Sarbanes-Oxley Act of
2002.                                                                           
|            |  |                                                                                                                                                                                       
|32.1        |  | Certification of Principal Executive Officer
and Principal Financial Officer pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.



| | (b) |  | Reports on Form 8-K                               
| | --- |  | --------------------------------------------------
|
| |     |  | Current Report on Form 8-K dated February 2, 2004.

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##### Table of Contents



STATER BROS. HOLDINGS INC.




Signatures



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

| |  |                         |  |                                  
| |  | ----------------------- |  | ---------------------------------
| |  | Date: February 11, 2004 |  | /s/ Jack H. Brown                
| |  |                         |  |                                  
| |  |                         |  | Jack H. Brown                    
| |  |                         |  | Chairman of the Board, President,
| |  |                         |  | and Chief Executive Officer      
| |  |                         |  | (Principal Executive Officer)    
| |  |                         |  |                                  
| |  | Date: February 11, 2004 |  | /s/ Phillip J. Smith             
| |  |                         |  |                                  
| |  |                         |  | Phillip J. Smith                 
| |  |                         |  | Senior Vice President and        
| |  |                         |  | Chief Financial Officer          
| |  |                         |  | (Principal Financial Officer)    

22