##### 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 27, 2009
 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
    
    (I.R.S. Employer Identification No.)organization)301 S. Tippecanoe AvenueSan Bernardino, California
    
    92408(Address of principal executive offices)
    
    (Zip Code)
 (909) 733-5000
 (Former name, former address and former fiscal year, if changed since last report.)
 þ o
 o o
  Large accelerated filer o
Accelerated filer o
Non-accelerated filer þ(Do not check if a smaller reporting company)
Smaller reporting company o o þ




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##### 



STATER BROS. HOLDINGS INC.
December 27, 2009
 INDEX
 PagePART I
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial StatementsConsolidated Balance Sheets as of September 27, 2009 and December 27, 2009 (Unaudited)
    
    3Consolidated Statements of Income (Unaudited) for the 13 weeks ended December 28, 2008 and December 27, 2009
    
    5Consolidated Statements of Cash Flows (Unaudited) for the 13 weeks ended December 28, 2008 and December 27, 2009
    
    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
    
    21Item 4.
    
    Controls and Procedures
    
    21PART II
    
    OTHER INFORMATIONItem 1.
    
    Legal Proceedings
    
    22Item 1A.
    
    Risk Factors
    
    22Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    23Item 3.
    
    Defaults Upon Senior Securities
    
    23Item 4.
    
    Submission of Matters to a Vote of Security Holders
    
    23Item 5.
    
    Other Information
    
    23Item 6.
    
    Exhibits
    
    23SIGNATURES
    
    
    
    24EX-31.1EX-31.2EX-32.1
  2




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##### Table of Contents



PART I  FINANCIAL INFORMATION
 
 Item 1. FINANCIAL STATEMENTS
 
 STATER BROS. HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS
 ASSETS
 Sept. 27,
    
    
    Dec. 27,2009
    
    
    2009(Unaudited)Current assetsCash and cash equivalents
    
    $
    196,914
    
    
    $
    242,247Restricted cash
    
    
    3,121
    
    
    
    3,121Receivables, net of allowance of $759 and $767
    
    
    36,671
    
    
    
    41,616Income tax receivables
    
    
    4,049
    
    
    
    Inventories
    
    
    212,856
    
    
    
    237,761Prepaid expenses
    
    
    9,330
    
    
    
    11,452Deferred income taxes
    
    
    20,479
    
    
    
    25,579Assets held for sale
    
    
    83,617
    
    
    
    Note receivable, current portion
    
    
    300
    
    
    
    300Total current assets
    
    
    567,337
    
    
    
    562,076Property and equipmentLand
    
    
    97,430
    
    
    
    97,430Buildings and improvements
    
    
    544,440
    
    
    
    550,002Store fixtures and equipment
    
    
    428,431
    
    
    
    432,349Property subject to capital leases
    
    
    9,983
    
    
    
    9,9831,080,284
    
    
    
    1,089,764Less accumulated depreciation and amortization
    
    
    408,791
    
    
    
    422,156671,493
    
    
    
    667,608Deferred income taxes, long-term
    
    
    36,014
    
    
    
    37,119Deferred debt issuance cost, net
    
    
    11,276
    
    
    
    10,473Note receivable, less current portion
    
    
    493
    
    
    
    493Long-term receivable
    
    
    18,867
    
    
    
    18,867Goodwill
    
    
    2,894
    
    
    
    2,894Other assets
    
    
    6,361
    
    
    
    5,97575,905
    
    
    
    75,821Total assets
    
    $
    1,314,735
    
    
    $
    1,305,505
  3




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS EQUITY
 Sept. 27,
    
    
    Dec. 27,2009
    
    
    2009(Unaudited)Current liabilitiesAccounts payable
    
    $
    153,083
    
    
    $
    157,000Accrued payroll and related expenses
    
    
    53,313
    
    
    
    52,580Other accrued liabilities
    
    
    79,618
    
    
    
    62,562Income taxes payable
    
    
    
    
    
    
    6,450Liabilities held for sale
    
    
    5,634
    
    
    
    Current portion of capital lease obligations
    
    
    1,336
    
    
    
    1,389Total current liabilities
    
    
    292,984
    
    
    
    279,981Long-term debt
    
    
    810,000
    
    
    
    810,000Capital lease obligations, less current portion
    
    
    3,768
    
    
    
    3,400Long-term portion of self-insurance and other reserves
    
    
    36,227
    
    
    
    38,108Long-term deferred benefits
    
    
    77,396
    
    
    
    78,375Other long-term liabilities
    
    
    30,605
    
    
    
    30,175Total liabilities
    
    
    1,250,980
    
    
    
    1,240,039Commitments and contingenciesStockholders equityCommon Stock, $.01 par value:Authorized shares - 100,000Issued and outstanding shares - 0
    
    
    
    
    
    
    Class A Common Stock, $.01 par value:Authorized shares - 100,000Issued and outstanding shares - 35,152
    
    
    
    
    
    
    Additional paid-in capital
    
    
    8,939
    
    
    
    8,939Accumulated other comprehensive loss
    
    
    (16,720
    )
    
    
    (16,720
    )Retained earnings
    
    
    71,536
    
    
    
    73,247Total stockholders equity
    
    
    63,755
    
    
    
    65,466Total liabilities and stockholders equity
    
    $
    1,314,735
    
    
    $
    1,305,505
  4




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
 13 Weeks EndedDec. 28,
    
    
    Dec. 27,2008
    
    
    2009Sales
    
    $
    959,253
    
    
    $
    923,864Cost of goods sold
    
    
    712,391
    
    
    
    685,714Gross profit
    
    
    246,862
    
    
    
    238,150Operating expensesSelling, general and
administrative expenses
    
    
    211,004
    
    
    
    205,288Gain on sale of dairy assets
    
    
    
    
    
    
    (7,950
    )Depreciation and amortization
    
    
    13,360
    
    
    
    12,666Total operating expenses
    
    
    224,364
    
    
    
    210,004Operating profit
    
    
    22,498
    
    
    
    28,146Interest income
    
    
    205
    
    
    
    59Interest expense
    
    
    (17,100
    )
    
    
    (17,189
    )Other income (expenses), net
    
    
    149
    
    
    
    (11
    )Income before income taxes
    
    
    5,752
    
    
    
    11,005Income taxes
    
    
    2,211
    
    
    
    4,294Net income
    
    $
    3,541
    
    
    $
    6,711Earnings per average common share outstanding
    
    $
    100.73
    
    
    $
    190.91Average common shares outstanding
    
    
    35,152
    
    
    
    35,152Shares outstanding at end of period
    
    
    35,152
    
    
    
    35,152
  5




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 13 Weeks EndedDec. 28,
    
    
    Dec. 27,2008
    
    
    2009Operating activities:Net income
    
    $
    3,541
    
    
    $
    6,711Adjustments
to reconcile net income to net cash used in operating activities:Depreciation and amortization
    
    
    17,660
    
    
    
    15,528Amortization of debt issuance costs
    
    
    803
    
    
    
    803(Increase)
decrease in deferred income taxes
    
    
    1,347
    
    
    
    (6,205
    )Gain on sale of dairy assets
    
    
    
    
    
    
    (7,950
    )(Gain) loss on disposals of assets
    
    
    (104
    )
    
    
    13Changes in operating assets and liabilities:Decrease in restricted cash
    
    
    2,500
    
    
    
    Increase in receivables
    
    
    (17,468
    )
    
    
    (4,945
    )(Increase) decrease in income tax
receivables
    
    
    (986
    )
    
    
    4,049Increase in inventories
    
    
    (7,437
    )
    
    
    (24,905
    )Increase in prepaid expenses
    
    
    (7,091
    )
    
    
    (2,122
    )Decrease in assets held for sale
    
    
    14,211
    
    
    
    215(Increase) decrease in other assets
    
    
    (1,258)
    
    
    
    796Increase in accounts payable
    
    
    4,696
    
    
    
    3,917Increase in income taxes payable
    
    
    
    
    
    
    6,450Increase in liabilities held of sale
    
    
    488
    
    
    
    1,014Decrease in other accrued liabilities
    
    
    (24,872
    )
    
    
    (17,789
    )Increase in long-term reserves
    
    
    6,314
    
    
    
    2,430Net cash used in operating activities
    
    
    (7,656
    )
    
    
    (21,990
    )Financing activities:Principal payments on capital lease obligations
    
    
    (272
    )
    
    
    (315
    )Dividend paid
    
    
    
    
    
    
    (5,000
    )Net cash used in financing activities
    
    
    (272
    )
    
    
    (5,315
    )Investing activities:Decrease in store construction reimbursement
    
    
    5,950
    
    
    
    Proceeds from sale of dairy assets, net of fees
    
    
    
    
    
    
    84,294Purchase of property and equipment
    
    
    (20,653
    )
    
    
    (11,666
    )Proceeds from sale of property and equipment
    
    
    189
    
    
    
    10Net cash provided by (used in) investing activities
    
    
    (14,514
    )
    
    
    72,638Net increase (decrease) in cash and cash equivalents
    
    
    (22,442
    )
    
    
    45,333Cash and cash equivalents at beginning of period
    
    
    144,942
    
    
    
    196,914Cash and cash equivalents at end of period
    
    $
    122,500
    
    
    $
    242,247Interest paid
    
    $
    32,633
    
    
    $
    32,588Income taxes paid
    
    $
    1,850
    
    
    $
    
  6




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 1  Basis of Presentation
    Note 2  Principles of Consolidation
  Note 3  Reclassifications
  Note 4  Subsequent Events
  Note 5  Use of Estimates
  7




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 6  Income Taxes
     Note 7  Retirement Plans
   Dec. 28,
    
    
    Dec. 27,2008
    
    
    2009(in thousands)Expected return on assets
    
    
    (800
    )
    
    $
    (877
    )Service cost
    
    
    574
    
    
    
    841Interest cost
    
    
    964
    
    
    
    1,029Amortization of prior service cost
    
    
    (1
    )
    
    
    (1
    )Amortization of recognized losses
    
    
    49
    
    
    
    359Net pension expense
    
    $
    786
    
    
    $
    1,351
  Discount rate
    
    
    7.50
    %
    
    
    5.50
    %Rate of increase in compensation levels
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on assets
    
    
    6.50
    %
    
    
    6.50
    %
  8




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 8  Asset Sale
    Note 9  Subsidiary Guarantee
   9




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 10  Credit Facility
         10




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 11  Litigation Matters
  Note 12  Dividend and Stock Redemption
    Note 13  Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Receivables
  Note Receivable
  Long-Term Receivable
  11




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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 27, 2009
 Note 13  Fair Value of Financial Instruments (contd.)
 Long-Term Debt and Capital Lease Obligations
   As ofDecember 27, 2009(In thousands)Carrying
    
    FairAmount
    
    ValueCash and cash equivalents
    
    $
    242,247
    
    
    $
    242,247Receivables
    
    $
    41,616
    
    
    $
    41,616Note receivable
    
    $
    793
    
    
    $
    793Long-term receivable
    
    $
    18,867
    
    
    $
    18,867Long-term debt
    
    $
    810,000
    
    
    $
    819,638Capital lease obligations
    
    $
    4,789
    
    
    $
    4,789
 12




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 PART I
 FINANCIAL INFORMATION (contd.)
 
 Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
 CRITICAL ACCOUNTING POLICIES
   SIGNIFICANT ACCOUNTING POLICIES
  13




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 OWNERSHIP OF THE COMPANY
  AVAILABLE INFORMATION
 http://www.sec.gov.
 EXECUTIVE OVERVIEW
     14




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 RESULTS OF OPERATIONS
 Sales and Cost of Goods Sold
 Fiscal Period Ended
    
    ChangeDec. 28,
    
    Dec. 27,
    
    2010 to 2009(in thousands)
    
    2008
    
    2009
    
    Dollar
    
    %Sales
    
    $
    959,253
    
    
    $
    923,864
    
    
    $
    (35,389
    )
    
    
    (3.69
    )%Gross Profit
    
    $
    246,862
    
    
    $
    238,150
    
    
    $
    (8,712
    )
    
    
    (3.53
    )%as a % of sales
    
    
    25.73
    %
    
    
    25.78
    %
 Sales
  Like Store Sales
     15




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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.)
 Gross Profit
  Operating Expenses and Operating Profit
 Fiscal Period Ended
    
    ChangeDec. 28,
    
    Dec. 27,
    
    2010 to 2009(in thousands)
    
    2008
    
    2009
    
    Dollar
    %Operating Expenses:Selling, general and
administrative expenses
    
    $
    211,004
    
    
    $
    205,288
    
    
    $
    (5,716
    )
    
    
    (2.71
    )%as a % of sales
    
    
    21.99
    %
    
    
    22.22
    %Gain on sale of assets
    
    $
    
    
    
    $
    (7,950
    )
    
    $
    (7,950
    )
    
    
    as a % of sales
    
    
    
    
    
    
    (0.86
    )%Depreciation and amortization
    
    $
    13,360
    
    
    $
    12,666
    
    
    $
    (694
    )
    
    
    (5.19
    )%as a % of sales
    
    
    1.39
    %
    
    
    1.37
    %Operating profit
    
    $
    22,498
    
    
    $
    28,146
    
    
    $
    5,648
    
    
    
    25.10
    %as a % of sales
    
    
    2.35
    %
    
    
    3.05
    %
 Selling, General and Administrative Expenses
   Gain on Sale of Dairy Assets
  Depreciation and Amortization
  16




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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.)
 Interest Income
  Interest Expense
  Income Before Income Taxes
  Income Taxes
  Net Income
  LIQUIDITY AND CAPITAL RESOURCES
     17




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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.)
  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
    
    
    106,640
    
    
    
    42,656
    
    
    
    63,984
    
    
    
    
    
    
    
    631,640
    
    
    
    42,656
    
    
    
    588,984
    
    
    
    
    
    
    
    7.75% Senior Notes due April 2015Principal
    
    
    285,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285,000Interest
    
    
    121,482
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    11,044406,482
    
    
    
    22,088
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    296,044Capital lease obligations (1)Principal
    
    
    4,789
    
    
    
    1,389
    
    
    
    2,487
    
    
    
    913
    
    
    
    Interest
    
    
    1,539
    
    
    
    706
    
    
    
    723
    
    
    
    110
    
    
    
    6,328
    
    
    
    2,095
    
    
    
    3,210
    
    
    
    1,023
    
    
    
    Operating leases (1)
    
    
    358,648
    
    
    
    37,204
    
    
    
    65,186
    
    
    
    50,730
    
    
    
    205,528Total contractual cash obligations
    
    $
    1,403,098
    
    
    $
    104,043
    
    
    $
    701,555
    
    
    $
    95,928
    
    
    $
    501,572Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (2)
    
    $
    49,762
    
    
    $
    49,762
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    $
    49,762
    
    
    $
    49,762
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    We lease the majority of our retail stores. We have
subleased our former headquarters building and certain former distribution facilities located
in Colton, California under an initial 15 year term for an amount equal to our lease payment.
For purposes of contractual cash obligations shown here, minimum lease payments on this lease
are shown without sub-lease offsets. Certain of our operating leases provide for minimum
annual payments that change over the primary term of the lease. For purposes of contractual
cash obligations shown here, contractual step increases or decreases are shown in the period
they are due. 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. Outstanding letters of credit expire between February 2010 and
December 2010. 18




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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.)
      Labor Relations
  19




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STATER BROS. HOLDINGS INC.
MANAGEMENTS DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 CAUTIONARY STATEMENT FOR PURPOSES OF SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
  20




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STATER BROS. HOLDINGS INC.
DECEMBER 27, 2009
 PART I   FINANCIAL INFORMATION (contd.)
 
 Item 3. QUANTITATIVE AND QUALITATIVE
DISCLOSURE ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
 Disclosure Controls and Procedures
  21




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STATER BROS. HOLDINGS INC.
DECEMBER 27, 2009
 
 PART II  OTHER INFORMATION
 
 Item 1. LEGAL PROCEEDINGS
   
 Item 1A. RISK FACTORS
    22




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STATER BROS. HOLDINGS INC.
DECEMBER 27, 2009
 
 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
  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.
 23




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STATER BROS. HOLDINGS INC.
 
 Signatures
  Date:  February 9, 2010
    /s/ Jack H. BrownJack H. BrownChairman of the Board, President,
and Chief Executive Officer
(Principal Executive Officer)Date:  February 9, 2010
    /s/ Phillip J. SmithPhillip J. Smith 
Executive Vice Presidentand Chief Financial Officer
(Principal Financial Officer) 24