##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended December 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For
the transition from ________ to ________
 Commission file number 001-13222
 STATER BROS. HOLDINGS INC.
  Delaware
    
    33-0350671(State or other jurisdiction of incorporation or 
organization)
    
    (I.R.S. Employer Identification No.)301 S. Tippecanoe AvenueSan Bernardino, California
    
    92408(Address of principal executive offices)
    
    (Zip Code)
 (909) 733-5000
   þ o
  Large accelerated filer o
    
    Accelerated filer o
    
    Non-accelerated filer þ
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



STATER BROS. HOLDINGS INC.
December 30, 2007
 INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 30, 2007 and
December 30, 2007 (Unaudited)
    
    
    3Consolidated Statements of Income (Unaudited) for the 13 weeks ended
December 24, 2006 and December 30, 2007
    
    
    5Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks
ended December 24, 2006 and December 30, 2007
    
    
    6Notes to Consolidated Financial Statements (Unaudited)
    
    
    7Item 2.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3.
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    23Item 4T.
    
    Controls and Procedures
    
    
    23PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    
    24Item 1A.
    
    Risk Factors
    
    
    24Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    25Item 3.
    
    Defaults Upon Senior Securities
    
    
    25Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    
    25Item 5.
    
    Other Information
    
    
    25Item 6.
    
    Exhibits
    
    
    25SIGNATURES
    
    
    26EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




---



##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS
 ASSETS
 Sept. 30,
    
    
    Dec. 30,2007
    
    
    2007(Unaudited)Current assetsCash and cash equivalents
    
    $
    277,062
    
    
    $
    209,473Restricted cash
    
    
    8,121
    
    
    
    5,621Receivables, net of allowance of $1,006 and $1,087
    
    
    46,391
    
    
    
    53,818Inventories
    
    
    202,073
    
    
    
    212,875Prepaid expenses
    
    
    11,026
    
    
    
    11,813Deferred income taxes
    
    
    23,939
    
    
    
    23,390Total current assets
    
    
    568,612
    
    
    
    516,990Property and equipmentLand
    
    
    112,029
    
    
    
    111,988Buildings and improvements
    
    
    479,808
    
    
    
    525,781Store fixtures and equipment
    
    
    403,052
    
    
    
    403,788Property subject to capital leases
    
    
    24,747
    
    
    
    24,7471,019,636
    
    
    
    1,066,304Less accumulated depreciation and amortization
    
    
    389,992
    
    
    
    400,450629,644
    
    
    
    665,854Deferred income taxes, long-term
    
    
    22,889
    
    
    
    24,554Deferred debt issuance costs, net
    
    
    17,671
    
    
    
    16,869Long-term receivable
    
    
    22,228
    
    
    
    22,228Goodwill
    
    
    2,894
    
    
    
    2,894Other assets
    
    
    6,340
    
    
    
    6,32472,022
    
    
    
    72,869Total assets
    
    $
    1,270,278
    
    
    $
    1,255,713
  3




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS EQUITY
 Sept. 30,
    
    
    Dec. 30,2007
    
    
    2007(Unaudited)Current liabilitiesAccounts payable
    
    $
    187,978
    
    
    $
    184,979Accrued payroll and related expenses
    
    
    60,761
    
    
    
    52,836Other accrued liabilities
    
    
    77,109
    
    
    
    53,175Accrued income taxes
    
    
    4,727
    
    
    
    7,566Current portion of capital lease obligations
    
    
    1,008
    
    
    
    1,044Total current liabilities
    
    
    331,583
    
    
    
    299,600Long-term debt
    
    
    810,000
    
    
    
    810,000Capital lease obligations, less current portion
    
    
    6,285
    
    
    
    6,010Long-term portion of self-insurance and other reserves
    
    
    36,307
    
    
    
    39,577Long-term deferred benefits
    
    
    57,388
    
    
    
    61,174Other long-term liabilities
    
    
    19,436
    
    
    
    19,322Total liabilities
    
    
    1,260,999
    
    
    
    1,235,683Commitment and ContingenciesStockholders equityCommon Stock, $.01 par value:Authorized shares - 100,000
Issued and outstanding shares - 0
    
    
    
    
    
    
    Class A Common Stock, $.01 par value:Authorized shares - 100,000
Issued and outstanding shares - 35,770
    
    
    
    
    
    
    Additional paid-in capital
    
    
    9,096
    
    
    
    9,096Accumulated other comprehensive loss
    
    
    (9,037
    )
    
    
    (9,037
    )Retained earnings
    
    
    9,220
    
    
    
    19,971Total stockholders equity
    
    
    9,279
    
    
    
    20,030Total liabilities and stockholders equity
    
    $
    1,270,278
    
    
    $
    1,255,713
  4




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
 13 Weeks EndedDec. 24,
    
    
    Dec. 30,2006
    
    
    2007Sales
    
    $
    904,354
    
    
    $
    943,030Cost of goods sold
    
    
    662,464
    
    
    
    698,601Gross profit
    
    
    241,890
    
    
    
    244,429Operating expensesSelling, general and administrative expenses
    
    
    201,801
    
    
    
    204,318Depreciation and amortization
    
    
    11,884
    
    
    
    12,908Total operating expenses
    
    
    213,685
    
    
    
    217,226Operating profit
    
    
    28,205
    
    
    
    27,203Interest income
    
    
    2,826
    
    
    
    2,391Interest expense
    
    
    (14,285
    )
    
    
    (13,581
    )Other income (expenses), net
    
    
    (171
    )
    
    
    1,875Income before income taxes
    
    
    16,575
    
    
    
    17,888Income taxes
    
    
    6,673
    
    
    
    7,137Net income
    
    $
    9,902
    
    
    $
    10,751Earnings per average common shares outstanding
    
    $
    268.38
    
    
    $
    300.56Average common shares outstanding
    
    
    36,895
    
    
    
    35,770Shares outstanding at end of period
    
    
    36,895
    
    
    
    35,770
  5




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 13 Weeks EndedDec. 24,
    
    
    Dec. 30,2006
    
    
    2007Operating activities:Net income
    
    $
    9,902
    
    
    $
    10,751Adjustments to reconcile net income to net cashprovided by (used in) operating activities:Depreciation and amortization
    
    
    14,851
    
    
    
    16,107Amortization of debt issuance costs
    
    
    761
    
    
    
    802Increase in deferred income taxes
    
    
    (1,452
    )
    
    
    (1,116
    )(Gain) loss on disposals of assets
    
    
    215
    
    
    
    (1,828
    )Changes in operating assets and liabilities:Decrease in restricted cash
    
    
    16,000
    
    
    
    2,500Increase in receivables
    
    
    (5,232
    )
    
    
    (7,427
    )Decrease in income tax receivables
    
    
    3,863
    
    
    
    Increase in inventories
    
    
    (2,848
    )
    
    
    (10,802
    )(Increase) decrease in prepaid
expenses
    
    
    (952
    )
    
    
    1,455(Increase) decrease in other assets
    
    
    (338
    )
    
    
    16Decrease in accounts payable
    
    
    (6,716
    )
    
    
    (2,999
    )Increase in accrued income taxes
    
    
    4,282
    
    
    
    2,839Decrease in other accrued liabilities
    
    
    (10,827
    )
    
    
    (31,859
    )Increase in long-term reserves
    
    
    3,233
    
    
    
    6,942Net cash provided by (used in) operating activities
    
    
    24,742
    
    
    
    (14,619
    )Financing activities:Principal payments on capital lease obligations
    
    
    (320
    )
    
    
    (239
    )Net cash used in financing activities
    
    
    (320
    )
    
    
    (239
    )Investing activities:Decrease in short-term investments
    
    
    26,849
    
    
    
    Increase in store construction reimbursement
    
    
    (1,488
    )
    
    
    (2,246
    )Increase in long-term receivable
    
    
    (3,541
    )
    
    
    Purchase of property and equipment
    
    
    (23,709
    )
    
    
    (52,625
    )Proceeds from sale of property and equipment
    
    
    16
    
    
    
    2,140Net cash used in investing activities
    
    
    (1,873
    )
    
    
    (52,731
    )Net increase (decrease) in cash and cash equivalents
    
    
    22,549
    
    
    
    (67,589
    )Cash and cash equivalents at beginning of period
    
    
    198,545
    
    
    
    277,062Cash and cash equivalents at end of period
    
    $
    221,094
    
    
    $
    209,473Interest paid
    
    $
    25,595
    
    
    $
    32,489Income taxes paid
    
    $
    
    
    
    $
    5,500
  6




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 1  Basis of Presentation
    Note 2  Recent Accounting Pronouncements
  .
 Note 3  Use of Estimates
  Note 4  Restricted Cash
  7




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 5  Income Taxes
     8




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 6 Retirement Plans
   Dec. 24,
    
    
    Dec. 30,2006
    
    
    2007Expected return on assets
    
    $
    (663
    )
    
    $
    (784
    )Service cost
    
    
    665
    
    
    
    658Interest cost
    
    
    813
    
    
    
    900Amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Amortization of recognized losses
    
    
    223
    
    
    
    151Net pension expense
    
    $
    1,037
    
    
    $
    924
  Discount rate
    
    
    5.80
    %
    
    
    6.25
    %Rate of increase in compensation levels
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on
assets
    
    
    5.00
    %
    
    
    6.50
    %
  9




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 7 Segment Information
  Retail
    
    
    All Other
    
    
    Total(in thousands)Quarter ended December 24, 2006Sales to external customers
    
    $
    880,339
    
    
    $
    24,015
    
    
    $
    904,354Intersegment sales
    
    $
    
    
    
    $
    18,803
    
    
    $
    18,803Operating profit
    
    $
    28,570
    
    
    $
    (365
    )
    
    $
    28,205Net income
    
    $
    18,057
    
    
    $
    (8,155
    )
    
    $
    9,902Total assets
    
    $
    1,444,277
    
    
    $
    (386,630
    )
    
    $
    1,057,647Quarter ended December 30, 2007Sales to external customers
    
    $
    912,972
    
    
    $
    30,058
    
    
    $
    943,030Intersegment sales
    
    $
    
    
    
    $
    26,951
    
    
    $
    26,951Operating profit
    
    $
    26,562
    
    
    $
    641
    
    
    $
    27,203Net income
    
    $
    17,458
    
    
    $
    (6,707
    )
    
    $
    10,751Total assets
    
    $
    1,602,623
    
    
    $
    (346,910
    )
    
    $
    1,255,713
 Note 8 Subsidiary Guarantee
   10




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 9 New Corporate Office and Distribution Center
  
    
    Component 1: dry goods warehouse; and
    
    Component 2: refrigeration warehouse.
  Note 10 Credit Facilities
 Markets Credit Facility
      11




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 30, 2007
 Note 10 Credit Facilities (contd.)
 Santees Revolver
      Note 11 Litigation Matters
   12




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 Fiscal Period Ended
    
    
    ChangeDec. 24,
    
    
    Dec. 30,
    
    
    2008 to 2007($ in thousands)
    
    2006
    
    
    2007
    
    
    Dollar
    
    
    %Sales
    
    $
    904,354
    
    
    $
    943,030
    
    
    $
    38,676
    
    
    
    4.28
    %Gross Profit
    
    $
    241,890
    
    
    $
    244,429
    
    
    $
    2,539
    
    
    
    1.05
    %as a % of sales
    
    
    26.75
    %
    
    
    25.92
    %
 Sales
  Like Store Sales
     Santee Sales
  17




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS (contd.)
 Gross Profit
  Operating Expenses and Operating Profit
 Fiscal Period Ended
    
    
    ChangeDec. 24,
    
    
    Dec. 30,
    
    
    2008 to 2007($ in thousands)
    
    2006
    
    
    2007
    
    
    Dollar
    
    
    %Operating Expenses:Selling, general and
administrative
    
    $
    201,801
    
    
    $
    204,318
    
    
    $
    2,517
    
    
    
    1.25
    %expensesas a % of sales
    
    
    22.32
    %
    
    
    21.67
    %Depreciation and amortization
    
    $
    11,884
    
    
    $
    12,908
    
    
    $
    1,024
    
    
    
    8.62
    %as a % of sales
    
    
    1.31
    %
    
    
    1.37
    %Operating profit
    
    $
    28,205
    
    
    $
    27,203
    
    
    $
    (1,002
    )
    
    
    (3.55
    )%as a % of sales
    
    
    3.12
    %
    
    
    2.88
    %
 Selling, General and Administrative Expenses
   Depreciation and Amortization
  18




---



##### Table of Contents



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




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 LIQUIDITY AND CAPITAL RESOURCES (contd.)
  Contractual Cash Obligations(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years8.125% Senior Notes due June 2012Principal
    
    $
    525,000
    
    
    $
    
    
    
    $
    
    
    
    $
    525,000
    
    
    $
    Interest
    
    
    191,953
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    63,984
    
    
    
    716,953
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    588,984
    
    
    
    7.75% Senior Notes due April 2015Principal
    
    
    285,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285,000Interest
    
    
    165,657
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    55,219450,657
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    340,219Capital lease obligations (1)Principal
    
    
    7,054
    
    
    
    1,044
    
    
    
    2,609
    
    
    
    2,488
    
    
    
    913Interest
    
    
    3,511
    
    
    
    1,068
    
    
    
    1,610
    
    
    
    723
    
    
    
    11010,565
    
    
    
    2,112
    
    
    
    4,219
    
    
    
    3,211
    
    
    
    1,023Operating leases (1)
    
    
    326,964
    
    
    
    38,787
    
    
    
    62,369
    
    
    
    49,162
    
    
    
    176,646Total contractual cash obligations
    
    $
    1,505,139
    
    
    $
    105,643
    
    
    $
    196,076
    
    
    $
    685,532
    
    
    $
    517,888
 Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (2)
    
    $
    50,433
    
    
    $
    50,433
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    $
    50,433
    
    
    $
    50,433
    
    
    $
    
    
    
    $
    
    
    
    $
    
 (1)
 (2)
 20




---



##### Table of Contents



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




---



##### Table of Contents



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




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 30, 2007
 PART I  FINANCIAL INFORMATION (contd.)
 
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
  
 Item 4T. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  Changes in Internal control Over Financial Reporting
  Limitations on Effectiveness of Controls
  23




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 30, 2007
 
 PART
II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
    
 Item 1A. RISK FACTORS
   24




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
DECEMBER 30, 2007
 Item 1A. RISK FACTORS (contd.)
  
 Item 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
  
 Item 3. DEFAULTS UPON SENIOR SECURITIES
  
 Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
  
 Item 5. OTHER INFORMATION
  
 Item 6. EXHIBITS
 (a)
    
    Exhibits31.1
    
    Certification of Principal Executive Officer pursuant to Section 302
(a) of the Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Principal Financial Officer pursuant to Section 302
(a) of the Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Principal Executive Officer and Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
 25




---



##### Table of Contents



STATER BROS. HOLDINGS INC.
   Date:  February 13, 2008

/s/
Jack H. BrownJack H. BrownChairman of the Board,
President, and Chief Executive Officer
(Principal Executive Officer)Date:  February 13, 2008
    /s/

Phillip J. SmithPhillip J. SmithExecutive Vice President
and Chief Financial Officer (Principal Financial Officer)
 26