##### Table of Contents



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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

|    |                                                                                        
|--- | ---------------------------------------------------------------------------------------
|[X] | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the quarterly period ended June 24, 2001

OR



|       |                                                                                         
|------ | ----------------------------------------------------------------------------------------
|[    ] | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934

For the transition from ____ to ____

Commission file number 001-13222

STATER BROS. HOLDINGS INC.

(Exact name of registrant as specified in its charter)


|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0350671                          
|                                                               |  |                                     
|(State or other jurisdiction of incorporation or
organization) |  | (I.R.S. Employer Identification No.)
|                                                              
|21700 Barton Road
Colton, California                           |  | 92324                               
|                                                               |  |                                     
|(Address of principal executive offices)                       |  | (Zip Code)                          
|                                                              
|Registrants telephone number, including area code             |  | (909) 783-5000                      
|                                                               |  |                                     

Not Applicable

---

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




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



| |                                                                                                                | 
| | -------------------------------------------------------------------------------------------------------------- | 
| | As of July 24, 2001, there were issued and outstanding
50,000 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 (Unaudited) as of September 24, 2000 and June 24, 2001                      
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME (Unaudited) for the 39 weeks ended June 25, 2000 and June 24, 2001    
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF INCOME (Unaudited) for the 13 weeks ended June 25, 2000 and June 24, 2001    
|                               |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) for the 39 weeks ended June 25, 2000 and June 24, 2001
|                               |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS                                                              
|                               | Item 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|                               | Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK                            
|PART II  OTHER INFORMATION   
|                               | Item 1. LEGAL PROCEEDINGS                                                                    
|                               | Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS                                            
|                               | Item 3. DEFAULTS UPON SENIOR SECURITIES                                                      
|                               | Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                  
|                               | Item 5. OTHER INFORMATION                                                                    
|                               | Item 6. EXHIBITS AND REPORTS ON FORM 8-K                                                     
|Signatures                    
|EXHIBIT 11                    



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##### Table of Contents



STATER BROS. HOLDINGS INC.
JUNE 24, 2001

INDEX

|           |  |                                                                                                          |  |      |  |    |  | 
|---------- |  | -------------------------------------------------------------------------------------------------------- |  | ---- |  | -- |  | 
|           |  |                                                                                                          |  | Page |  |   
|           |  |                                                                                                          |  |      |  |   
|PART I     |  | FINANCIAL INFORMATION (Unaudited)                                                                        |  |      |  |    |  | 
|          
|          
|          
|          
|Item 1.    |  | Financial Statements                                                                                     |  |      |  |    |  | 
|          
|          
|          
|          
|           |  | Consolidated Balance Sheets (Unaudited) as of September 24, 2000
and June 24, 2001                       |  |      |  | 3  |  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Income (Unaudited) for the 39 weeks ended
June 25, 2000 and June 24, 2001     |  |      |  | 5  |  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Income (Unaudited) for the 13 weeks ended
June 25, 2000 and June 24, 2001     |  |      |  | 6  |  | 
|          
|          
|          
|          
|           |  | Consolidated Statements of Cash Flows (Unaudited) for the 39 weeks ended
June 25, 2000 and June 24, 2001 |  |      |  | 7  |  | 
|          
|          
|          
|          
|           |  | Notes to Consolidated Financial Statements (Unaudited)                                                   |  |      |  | 8  |  | 
|          
|          
|          
|          
|Item 2.    |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations                    |  |      |  | 10 |  | 
|          
|          
|          
|          
|Item 3.    |  | Quantitative and Qualitative Disclosure About Market Risk                                                |  |      |  | 16 |  | 
|          
|          
|          
|          
|PART II    |  | OTHER INFORMATION                                                                                        |  |      |  |    |  | 
|          
|          
|          
|          
|Item 1.    |  | Legal Proceedings                                                                                        |  |      |  | 17 |  | 
|          
|          
|          
|          
|Item 2.    |  | Changes in Securities and Use of Proceeds                                                                |  |      |  | 17 |  | 
|          
|          
|          
|          
|Item 3.    |  | Defaults Upon Senior Securities                                                                          |  |      |  | 17 |  | 
|          
|          
|          
|          
|Item 4.    |  | Submission of Matters to a Vote of Security Holders                                                      |  |      |  | 17 |  | 
|          
|          
|          
|          
|Item 5.    |  | Other Information                                                                                        |  |      |  | 17 |  | 
|          
|          
|          
|          
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                         |  |      |  | 17 |  | 
|          
|          
|          
|          
|SIGNATURES |  |                                                                                                          |  |      |  | 18 |  | 

2



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##### Table of Contents









PART I  FINANCIAL INFORMATION







Item 1. FINANCIAL STATEMENTS







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

ASSETS

|                                       |                                                |   |           |         |          |   |         |         | 
|-------------------------------------- | ---------------------------------------------- | - | --------- | ------- | -------- | - | ------- | ------- | 
|                                       |                                                |   | Sept. 24, |         | June 24,
|                                       |                                                |   | 2000      |         | 2001    
|                                       |                                                |   |           |         |         
|Current assets                        
|                                      
|                                      
|                                      
|                                      
|                                       | Cash and cash equivalents                      |   | $         | 62,631  |          |   | $       | 91,363  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Lease guarantee escrow                         |   |           | 13,180  |          |   |         |        | 
|                                      
|                                      
|                                      
|                                      
|                                       | Receivables                                    |   |           | 28,181  |          |   |         | 34,009  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Income tax receivables                         |   |           | 263     |          |   |         |        | 
|                                      
|                                      
|                                      
|                                      
|                                       | Inventories                                    |   |           | 165,332 |          |   |         | 164,997 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Prepaid expenses                               |   |           | 5,337   |          |   |         | 6,684   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Deferred income taxes                          |   |           | 10,776  |          |   |         | 6,992   | 
|                                      
|                                      
|                                      
|                                      
|                                       | Properties held for sale                       |   |           | 3,863   |          |   |         | 3,846   | 
|                                       |                                                |   |           |         |          |   |         |        
|Total current assets                   |                                                |   | 289,563   |         |          |   | 307,891 |        
|                                      
|                                      
|                                      
|                                      
|Investment in unconsolidated affiliate |                                                |   | 11,082    |         |          |   | 12,255  |        
|                                      
|                                      
|                                      
|                                      
|Property and equipment                
|                                      
|                                      
|                                      
|                                      
|                                       | Land                                           |   |           | 47,574  |          |   |         | 47,574  | 
|                                      
|                                      
|                                      
|                                      
|                                       | Buildings and improvements                     |   |           | 169,584 |          |   |         | 179,310 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Store fixtures and equipment                   |   |           | 172,465 |          |   |         | 186,031 | 
|                                      
|                                      
|                                      
|                                      
|                                       | Property subject to capital leases             |   |           | 25,261  |          |   |         | 24,670  | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 414,884   |         |          |   | 437,585 |        
|                                      
|                                      
|                                      
|                                      
|                                       | Less accumulated depreciation and amortization |   |           | 144,370 |          |   |         | 163,246 | 
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 270,514   |         |          |   | 274,339 |        
|                                      
|                                      
|                                      
|                                      
|Deferred income taxes                  |                                                |   | 3,676     |         |          |   | 3,676   |        
|                                      
|                                      
|                                      
|                                      
|Deferred debt issuance costs, net      |                                                |   | 14,569    |         |          |   | 12,710  |        
|                                      
|                                      
|                                      
|                                      
|Other assets                           |                                                |   | 5,884     |         |          |   | 5,760   |        
|                                       |                                                |   |           |         |          |   |         |        
|                                       |                                                |   | 24,129    |         |          |   | 22,146  |        
|                                      
|                                      
|                                      
|                                      
|Total assets                           |                                                | $ | 595,288   |         |          | $ | 616,631 |        
|                                       |                                                |   |           |         |          |   |         |        

See accompanying notes to unaudited consolidated financial statements.

3



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

LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)

|                                                       |                                                                 |                                                                    |         |           |   |          |         |         |   | 
|------------------------------------------------------ | --------------------------------------------------------------- | ------------------------------------------------------------------ | ------- | --------- | - | -------- | ------- | ------- | - | 
|                                                       |                                                                 |                                                                    |         | Sept. 24, |   | June 24,
|                                                       |                                                                 |                                                                    |         | 2000      |   | 2001    
|                                                       |                                                                 |                                                                    |         |           |   |         
|Current
liabilities                                    |                                                                 |                                                                    |         |           |   |          |         |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accounts payable                                                |                                                                    | $       | 100,777   |   |          | $       | 99,728  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Accrued payroll and related expenses                            |                                                                    |         | 35,385    |   |          |         | 42,121  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Other accrued liabilities                                       |                                                                    |         | 34,637    |   |          |         | 51,652  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Current portion of capital lease obligations and long-term debt |                                                                    |         | 6,994     |   |          |         | 1,571   |  
|                                                       |                                                                 |                                                                    |         |           |   |          |         |        
|Total current liabilities                              |                                                                 |                                                                    | 177,793 |           |   |          | 195,072 |        
|                                                      
|                                                      
|                                                      
|                                                      
|Long-term debt, less current portion                   |                                                                 |                                                                    | 439,000 |           |   |          | 439,000 |        
|                                                      
|                                                      
|                                                      
|                                                      
|Capital lease obligations, less current portion        |                                                                 |                                                                    | 13,679  |           |   |          | 12,429  |        
|                                                      
|                                                      
|                                                      
|                                                      
|Long-term portion of self-insurance and other reserves |                                                                 |                                                                    | 9,875   |           |   |          | 9,875   |        
|                                                      
|                                                      
|                                                      
|                                                      
|Other long-term liabilities                            |                                                                 |                                                                    | 4,195   |           |   |          | 4,058   |        
|                                                       |                                                                 |                                                                    |         |           |   |          |         |        
|Total liabilities                                      |                                                                 |                                                                    | 644,542 |           |   |          | 660,434 |        
|                                                      
|                                                      
|                                                      
|                                                      
|Stockholders equity (deficit)                         |                                                                 |                                                                    |         |           |   |          |         |        
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Common Stock, $.01 par value:                                   |                                                                    |         |           |   |          |         |         |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                 | Authorized
shares - 100,000
Issued and outstanding shares - 0      |         |           |  |          |         |         |  | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Class A Common Stock, $.01 par value:                           |                                                                    |         |           |   |          |         |         |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       |                                                                 | Authorized
shares - 100,000
Issued and outstanding shares - 50,000 |         |           | 1 |          |         |         | 1 | 
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Additional paid-in capital                                      |                                                                    |         | 12,715    |   |          |         | 12,715  |  
|                                                      
|                                                      
|                                                      
|                                                      
|                                                       | Retained earnings (deficit)                                     |                                                                    |         | (61,970   | ) |          |         | (56,519 | )
|                                                       |                                                                 |                                                                    |         |           |   |          |         |        
|Total stockholders equity (deficit)                   |                                                                 |                                                                    | (49,254 | )         |   |          | (43,803 | )      
|                                                       |                                                                 |                                                                    |         |           |   |          |         |        
|Total liabilities and stockholders equity (deficit)   |                                                                 | $                                                                  | 595,288 |           |   | $        | 616,631 |        
|                                                       |                                                                 |                                                                    |         |           |   |          |         |        

See accompanying notes to unaudited consolidated financial statements.

4



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

|                                                                                   |                                              |   |                |         |          |   |           |         | 
|---------------------------------------------------------------------------------- | -------------------------------------------- | - | -------------- | ------- | -------- | - | --------- | ------- | 
|                                                                                   |                                              |   | 39 Weeks Ended
|                                                                                   |                                              |   |               
|                                                                                   |                                              |   | June 25,       |         | June 24,
|                                                                                   |                                              |   | 2000           |         | 2001    
|                                                                                   |                                              |   |                |         |         
|Sales                                                                              |                                              | $ | 1,811,754      |         |          | $ | 1,877,079 |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Cost of goods sold                                                                 |                                              |   | 1,366,738      |         |          |   | 1,397,398 |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Gross profit                                                                       |                                              |   | 445,016        |         |          |   | 479,681   |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Operating expenses:                                                                |                                              |   |                |         |          |   |           |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Selling, general and administrative expenses |   |                | 398,448 |          |   |           | 414,528 | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Depreciation and amortization                |   |                | 18,887  |          |   |           | 21,102  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Acquisition integration expenses             |   |                | 4,594   |          |   |           |        | 
|                                                                                   |                                              |   |                |         |          |   |           |        
|Total operating expenses                                                           |                                              |   | 421,929        |         |          |   | 435,630   |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Operating profit                                                                   |                                              |   | 23,087         |         |          |   | 44,051    |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Interest income                                                                    |                                              |   | 2,190          |         |          |   | 2,597     |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Interest expense                                                                   |                                              |   | (40,508        | )       |          |   | (38,506   | )      
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Equity in earnings from unconsolidated affiliate                                   |                                              |   | 1,081          |         |          |   | 1,173     |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Other loss  net                                                                   |                                              |   | (3             | )       |          |   | (75       | )      
|                                                                                   |                                              |   |                |         |          |   |           |        
|Income (loss) before income taxes (benefit) and extraordinary gain                 |                                              |   | (14,153        | )       |          |   | 9,240     |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Income taxes (benefit)                                                             |                                              |   | (5,803         | )       |          |   | 3,789     |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Net income (loss) before extraordinary gain                                        |                                              |   | (8,350         | )       |          |   | 5,451     |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|Extraordinary gain from early retirement of bonds
($1,896 less tax effect of $773) |                                              |   | 1,123          |         |          |   |          |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Net income (loss)                                                                  |                                              | $ | (7,227         | )       |          | $ | 5,451     |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Earnings (loss) per share:                                                         |                                              |   |                |         |          |   |           |        
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Before extraordinary gain                    |   | $              | (167.00 | )        |   | $         | 109.02  | 
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                  
|                                                                                   | Extraordinary gain                           |   |                | 22.46   |          |   |           |        | 
|                                                                                   |                                              |   |                |         |          |   |           |        
|Earnings (loss) per share                                                          |                                              | $ | (144.54        | )       |          | $ | 109.02    |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Average common shares outstanding                                                  |                                              |   | 50,000         |         |          |   | 50,000    |        
|                                                                                   |                                              |   |                |         |          |   |           |        
|Shares outstanding at end of period                                                |                                              |   | 50,000         |         |          |   | 50,000    |        
|                                                                                   |                                              |   |                |         |          |   |           |        

See accompanying notes to unaudited consolidated financial statements.

5



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##### Table of Contents









STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(In thousands, except per share and share amounts) 13 Weeks EndedJune 25,
        
        June 24,2000
        
        2001Sales
        
        $
        607,300
        
        
        $
        639,925Cost of goods sold
        
        
        454,797
        
        
        
        473,806Gross profit
        
        
        152,503
        
        
        
        166,119Operating expenses:Selling, general and administrative expenses
        
        
        132,381
        
        
        
        142,986Depreciation and amortization
        
        
        6,556
        
        
        
        7,194Total operating expenses
        
        
        138,937
        
        
        
        150,180Operating profit
        
        
        13,566
        
        
        
        15,939Interest income
        
        
        485
        
        
        
        693Interest expense
        
        
        (13,378
        )
        
        
        (12,847
        )Equity in earnings from unconsolidated affiliate
        
        
        601
        
        
        
        215Other loss  net
        
        
        (2
        )
        
        
        (154
        )Income before income taxes and extraordinary gain
        
        
        1,272
        
        
        
        3,846Income taxes
        
        
        521
        
        
        
        1,577Net income before extraordinary gain
        
        
        751
        
        
        
        2,269Extraordinary gain from early retirement of bonds
($1,896 less tax effect of $773)
        
        
        1,123
        
        
        
        Net income
        
        $
        1,874
        
        
        $
        2,269Earnings per share:Before extraordinary gain
        
        $
        15.02
        
        
        $
        45.38Extraordinary gain
        
        
        22.46
        
        
        
        Earnings per share
        
        $
        37.48
        
        
        $
        45.38Average common shares outstanding
        
        
        50,000
        
        
        
        50,000Shares outstanding at end of period
        
        
        50,000
        
        
        
        50,000 See accompanying notes to unaudited consolidated financial statements.


6



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##### Table of Contents









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

|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |        |        |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------------------- | -------------------------------------------------------------------------------- | ------- | -------------- | ------ | -------- | ------- | ------ | ------ | -
|                                                                                         |                                                                  |                                                                                  |         | 39 Weeks Ended
|                                                                                         |                                                                  |                                                                                  |        
|                                                                                         |                                                                  |                                                                                  |         | June 25,       |        | June 24,
|                                                                                         |                                                                  |                                                                                  |         | 2000           |        | 2001    
|                                                                                         |                                                                  |                                                                                  |         |                |       
|Operating activities:                                                                    |                                                                  |                                                                                  |         |                |        |          |         |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Net income (loss)                                                                        |                                                                  | $                                                                                | (7,227  | )              |        | $        | 5,451   |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Adjustments to reconcile net income (loss) to net cash provided by
operating activities: |                                                                  |                                                                                  |         |                |        |          |         |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Depreciation and amortization                                    |                                                                                  |         | 18,887         |        |          |         | 21,102 |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Provision for deferred income taxes                              |                                                                                  |         | (7,243         | )      |          |         | 3,784  |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Gain on repurchase of bonds                                      |                                                                                  |         | (1,896         | )      |          |         |       |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Loss on disposals of assets                                      |                                                                                  |         | 2              |        |          |         | 75     |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Net undistributed gain in investment in unconsolidated affiliate |                                                                                  |         | (1,081         | )      |          |         | (1,173 | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         | Changes in operating assets and liabilities:                     |                                                                                  |         |                |        |          |         |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | Decrease in lease guarantee escrow                                               |         |                |       |          |         |        | 13,180 |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | (Increase) decrease in receivables                                               |         |                | 2,557  |          |         |        | (5,828 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | Decrease in income tax receivables                                               |         |                |       |          |         |        | 263    |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | (Increase) decrease in inventories                                               |         |                | (4,208 | )        |         |        | 335    |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | Increase in prepaid expenses                                                     |         |                | (2,409 | )        |         |        | (1,363 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | (Increase) decrease in other assets                                              |         |                | (832   | )        |         |        | 1,983  |  
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | Decrease in accounts payable                                                     |         |                | (7,322 | )        |         |        | (1,049 | )
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                         |                                                                  | Increase in accrued liabilities and long-term
portion of self-insurance reserves |         |                | 11,728 |          |         |        | 23,614 |  
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash provided by operating activities                                                |                                                                  |                                                                                  | 956     |                |        |          | 60,374  |       
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Investing activities:                                                                    |                                                                  |                                                                                  |         |                |        |          |         |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Purchase of property and equipment                                                       |                                                                  |                                                                                  | (32,520 | )              |        |          | (25,199 | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Proceeds from sale of property and equipment and properties
held for sale                |                                                                  |                                                                                  |        |                |        |          | 230     |       
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash used in investing activities                                                    |                                                                  |                                                                                  | (32,520 | )              |        |          | (24,969 | )     
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Financing activities:                                                                    |                                                                  |                                                                                  |         |                |        |          |         |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Purchase of bonds                                                                        |                                                                  |                                                                                  | (8,720  | )              |        |          |        |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Principal payments on long-term debt                                                     |                                                                  |                                                                                  |        |                |        |          | (5,048  | )     
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Principal payments on capital lease obligations                                          |                                                                  |                                                                                  | (1,456  | )              |        |          | (1,625  | )     
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Net cash used in financing activities                                                    |                                                                  |                                                                                  | (10,176 | )              |        |          | (6,673  | )     
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Net increase (decrease) in cash and cash equivalents                                     |                                                                  |                                                                                  | (41,740 | )              |        |          | 28,732  |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Cash and cash equivalents at beginning of period                                         |                                                                  |                                                                                  | 93,352  |                |        |          | 62,631  |       
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Cash and cash equivalents at end of period                                               |                                                                  | $                                                                                | 51,612  |                |        | $        | 91,363  |       
|                                                                                         |                                                                  |                                                                                  |         |                |        |          |         |       
|Interest paid                                                                            |                                                                  | $                                                                                | 28,148  |                |        | $        | 25,691  |       
|                                                                                        
|                                                                                        
|                                                                                        
|                                                                                        
|Income taxes paid                                                                        |                                                                  | $                                                                                | (704    | )              |        | $        | 5       |       

See accompanying notes to unaudited consolidated financial statements.

7



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##### Table of Contents









STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 24, 2001

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 24, 2000 and June 24, 2001 and
the results of its operations and cash flows for the thirty-nine weeks ended
June 25, 2000 and June 24, 2001. 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 thirty-nine weeks ended June 24, 2001 are not
necessarily indicative of the results of operations for a full year.

Note 2  Income Taxes

The provision for income taxes for the thirty-nine weeks ended June 25,
2000 and June 24, 2001 consists of the following:

|                               |  |                |        |               |  |   |       | 
|------------------------------ |  | -------------- | ------ | ------------- |  | - | ----- | 
|                               |  | 39 Weeks Ended
|                               |  |               
|                               |  | June 25, 2000  |        | June 24, 2001
|                               |  |                |        |              
|                               |  | (In thousands)
|Federal income taxes (benefit) |  | $              | (4,552 | )             |  | $ | 2,972 | 
|                              
|                              
|                              
|                              
|State income taxes (benefit)   |  |                | (1,251 | )             |  |   | 817   | 
|                               |  |                |        |               |  |   |       | 
|                               |  | $              | (5,803 | )             |  | $ | 3,789 | 
|                               |  |                |        |               |  |   |       | 

Note 3  Unconsolidated Affiliate

The Company owns 50% of Santee Dairies LLC. Through its wholly-owned
subsidiary, Santee Dairies, Inc. (Santee), it operates a fluid milk
processing plant located in City of Industry, California, and the Company is
not the controlling stockholder. Accordingly, the Company accounts for its
investment in Santee Dairies LLC using the equity method of accounting and
recognized income of $1.1 million and $1.2 million for the thirty-nine weeks
ended June 25, 2000 and June 24, 2001, respectively. 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 Dairies LLC is as
follows:

|                        |  |                |         |               |  |   |         | 
|----------------------- |  | -------------- | ------- | ------------- |  | - | ------- | 
|                        |  | 39 Weeks Ended
|                        |  |               
|                        |  | June 25, 2000  |         | June 24, 2001
|                        |  |                |         |              
|                        |  | (In thousands)
|Current assets          |  | $              | 15,013  |               |  | $ | 23,578  | 
|                       
|                       
|                       
|                       
|Non-current assets      |  |                | 102,066 |               |  |   | 96,208  | 
|                       
|                       
|                       
|                       
|Current liabilities     |  |                | 22,070  |               |  |   | 26,621  | 
|                       
|                       
|                       
|                       
|Non-current liabilities |  |                | 73,650  |               |  |   | 68,492  | 
|                       
|                       
|                       
|                       
|Shareholders equity    |  |                | 21,359  |               |  |   | 24,673  | 
|                       
|                       
|                       
|                       
|Sales                   |  |                | 133,561 |               |  |   | 140,785 | 
|                       
|                       
|                       
|                       
|Gross profit            |  |                | 21,562  |               |  |   | 22,674  | 
|                       
|                       
|                       
|                       
|Net income              |  | $              | 1,719   |               |  | $ | 2,345   | 

8



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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)JUNE 24, 2001

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.

9



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##### Table of Contents









STATER BROS. HOLDINGS INC.
JUNE 24, 2001

PART I  FINANCIAL INFORMATION (contd.)



|        |                                                                                      
|------- | -------------------------------------------------------------------------------------
|Item 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS



| |  | OWNERSHIP OF THE COMPANY                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | La Cadena Investments is the sole shareholder of the Company and holds
all of the shares of the Companys Class A Common Stock which are
entitled to 1.1 votes per share. La Cadena Investments is a
California General Partnership whose partners include Jack H. Brown,
Chairman of the Board, President and Chief Executive Officer of the
Company and two other members 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.                                                                                                                                                                                                                                                                                                   
|
| |  | ACQUISITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | On May 7, 1999, Stater Bros. entered into an agreement with
Albertsons, Inc. (Albertsons) to purchase 43 supermarkets and one
future store site in Stater Bros. existing and contiguous market
areas. The stores were formerly operated by Albertsons or Lucky
Stores and were divested in connection with the merger of Albertsons
and American Store Company, the parent of Lucky Stores. The purchase
price was $94.4 million for land, buildings and equipment, $39.6
million for inventories on hand at closing, and the assumption of
$13.3 million of capitalized lease obligations. The supermarkets were
acquired sequentially over a twenty-four day period, which began on
August 9, 1999. Each acquired store was reopened under the Stater
Bros. name within two days of its acquisition and was fully integrated
into the Stater Bros. operating systems.
|
| |  | LEASE GUARANTEE ESCROW                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|
| |  | As of September 24, 2000, a portion of the Companys lease obligations
were guaranteed by Petrolane Incorporated (Petrolane) or its
successor. The leases guaranteed by Petrolane had initial terms of 20
years and expired in 2003. Lease payments for the properties subject
to the Petrolane guarantees were approximately $10.0 million per year.
Under the terms of the agreement related to the Companys acquisition
of Stater Bros. Markets from Petrolane in 1983, as amended in 1985,
Stater Bros. Markets was required to make annual deposits into a lease
guarantee escrow account. In addition, 10 shares of Stater Bros.
Markets $11.00 Cumulative Redeemable Preferred Stock due 2003 were
held by Petrolane in connection with the lease guarantees.                                                                                                       
|
| |  | During the first quarter of fiscal 2001, Stater Bros. Markets redeemed
all 10 outstanding shares of its $11.00 Cumulative Redeemable
Preferred Stock due 2003 from Texas Eastern Corporation, Petrolanes
assignee of such preferred stock. The Petrolane lease guarantees were
terminated in exchange for a $400,000 fee and a letter of credit was
issued in favor of Texas Eastern to secure a portion of the remaining
lease payments through 2003. As part of these transactions, the lease
guarantee escrow account was terminated and the $13.2 million in such
account was released to Stater Bros. Markets. All of the store leases
that had been guaranteed by Petrolane were extended for an additional
five years following expiration of their respective initial terms in
2003.                                                                                 

10



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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                                                                                                                                                           
| |  |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | The following table sets forth certain income statement components
expressed as a percent of sales for the thirteen and thirty-nine weeks
ended June 24, 2001 and June 25, 2000.

|                                                                       |                                             |  |                |       |                   |  |        |       |      |  |        |       |  |  |        |       | 
|---------------------------------------------------------------------- | ------------------------------------------- |  | -------------- | ----- | ----------------- |  | ------ | ----- | ---- |  | ------ | ----- |  |  | ------ | ----- | 
|                                                                       |                                             |  | Thirteen Weeks |       | Thirty-nine Weeks
|                                                                       |                                             |  |                |       |                  
|                                                                       |                                             |  | 2001           |       | 2000              |  | 2001   |       | 2000
|                                                                       |                                             |  |                |       |                   |  |        |       |     
|Sales                                                                  |                                             |  | 100.00         | %     |                   |  | 100.00 | %     |      |  | 100.00 | %     |  |  | 100.00 | %    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Gross profit                                                           |                                             |  | 25.96          |       |                   |  | 25.11  |       |      |  | 25.55  |       |  |  | 24.56  |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Operating expenses:                                                    |                                             |  |                |       |                   |  |        |       |      |  |        |       |  |  |        |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Selling, general and
administrative expense |  |                | 22.35 |                   |  |        | 21.80 |      |  |        | 22.08 |  |  |        | 21.99 | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Depreciation and amortization               |  |                | 1.12  |                   |  |        | 1.08  |      |  |        | 1.12  |  |  |        | 1.04  | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|                                                                       | Acquisition integration expenses            |  |                |      |                   |  |        |      |      |  |        |      |  |  |        | .25   | 
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Operating profit                                                       |                                             |  | 2.49           |       |                   |  | 2.23   |       |      |  | 2.35   |       |  |  | 1.28   |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Interest income                                                        |                                             |  | .11            |       |                   |  | .08    |       |      |  | .14    |       |  |  | .12    |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Interest expense                                                       |                                             |  | (2.01          | )     |                   |  | (2.20  | )     |      |  | (2.05  | )     |  |  | (2.24  | )    
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Equity in unconsolidated affiliate                                     |                                             |  | .03            |       |                   |  | .10    |       |      |  | .06    |       |  |  | .06    |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Other income (loss)  (net)                                            |                                             |  | (.02           | )     |                   |  |       |       |      |  | (.01   | )     |  |  |       |      
|                                                                      
|                                                                      
|                                                                      
|                                                                      
|Net income (loss) before income taxes
(benefit) and extraordinary gain |                                             |  | .60            | %     |                   |  | 0.21   | %     |      |  | .49    | %     |  |  | (0.78  | )%   



| |  | Total sales for the thirteen weeks ended June 24, 2001, the third
quarter of fiscal 2001, increased 5.4% and amounted to $639.9 million
compared to $607.3 million for the same period in the prior year.
Total sales for the thirty-nine weeks ended June 24, 2001, increased
3.6% and amounted to $1.877 billion compared to $1.812 billion for the
same period in the prior year. The increase in total sales in the
third quarter of fiscal 2001 and fiscal year to date of 2001 was due
primarily to favorable customer response to the Companys marketing
plan, which emphasizes high quality, large product selections and
customer service.                                                                                                                                                                                                                                                                                                                                                                                                                          
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Like store sales increased 5.4% and 3.6% for the thirteen week and
thirty-nine week periods ended June 24, 2001, respectively. The
Company operated 155 supermarkets at June 24, 2001 and June 25,
2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Gross profit for the thirteen weeks ended June 24, 2001, amounted
to $166.1 million or 25.96% of sales compared to $152.5 million or
25.11% of sales in the same period of the prior year. The increase in
gross profit, as a percentage of sales, in the third quarter of 2001,
was attributed to the introduction of higher margin general
merchandise products and a company-wide merchandising effort to offset
increased energy costs within the State of California. Gross profit
for the thirty-nine weeks ended June 24, 2001, amounted to $479.7
million or 25.55% of sales compared to $445.0 million or 24.56% of
sales in the same period of the prior year. The increase in the
fiscal year to date of 2001 gross profit, as a percent of sales, was
due to several factors including a company-wide merchandising effort
to offset increased energy costs within the State of California, the
continued expanded selection of perishable products, a continued
emphasis on private label brand products and the Companys general
merchandise expansion program.

11



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##### Table of Contents



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

| |  | Operating expenses include selling, general and administrative
expenses, depreciation and amortization, and acquisition integration
expenses. For the thirteen weeks ended June 24, 2001, selling,
general and administrative expenses amounted to $143.0 million or
22.35% of sales compared to $132.4 million or 21.80% of sales for the
thirteen weeks ended June 25, 2000. For the thirty-nine weeks ended
June 24, 2001, selling, general and administrative expenses amounted
to $414.5 million or 22.08% of sales compared to $398.4 million or
21.99% of sales for the thirty-nine weeks ended June 25, 2000. The
increase in selling, general and administrative expenses as a
percentage of sales during the quarter reflects the effect of
increased utility costs implemented within the State of California.
The Company believes it has taken actions to minimize the effects of
these increases in the future; however, the full financial impact of
current and future increases in utility costs cannot be determined and
may be significant.
| |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Depreciation and amortization expenses amounted to $7.2 million
and $21.1 million for the third quarter and year to date periods ended
June 24, 2001, respectively. Depreciation and amortization expenses
amounted to $6.6 million and $18.9 million for the quarter and year to
date periods of the prior year. The increase in depreciation and
amortization expense in fiscal 2001 was primarily due to the increase
in fixed assets, much of which was related to the remodels of the
acquired stores.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | Acquisition integration expenses amounted to
$4.6 million for the year to date period ended June 25, 2000 and were
related to the acquisition of the 43 supermarkets. There were no
acquisition integration expenses for the year to date period ended
June 24, 2001. Acquisition integration expenses consisted of salaries
and wages and non-recurring advertising expenses incurred during the
integration of the supermarkets and the grand re-openings of service
meat departments in most of the acquired supermarkets.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | Operating profit for the third quarter of 2001 amounted to $15.9
million or 2.49% of sales compared to $13.6 million or 2.23% of sales
for the third quarter of 2000. Operating profit for the fiscal year to
date of 2001 amounted to $44.1 million or 2.35% of sales compared to
an operating profit of $23.1 million or 1.28% of sales for the fiscal
year to date of 2000.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | Interest expense amounted to $12.8 million for the third quarter of
2001 compared to $13.4 million for the third quarter of 2000. For the
fiscal year to date of 2001 and 2000, interest expense amounted to
$38.5 million and $40.5 million, respectively. The decrease in
interest expense was primarily due to the redemption (in the third
quarter of fiscal 2000) of $11 million of the 10.75% Senior Notes due
2006, the maturity and redemption of the remaining $5 million of the
11.00% Notes (in the second quarter of fiscal 2001) and the
capitalization of interest expense attributed to the construction of a
replacement store.                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | The Companys equity in earnings from
unconsolidated affiliate, amounted to $215,000 for the third quarter
of fiscal 2001 compared to $601,000 in the third quarter of the prior
year. For the fiscal year to date periods of 2001 and 2000, the
Companys equity in earnings from unconsolidated affiliate amounted to
$1.2 million and $1.1 million, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|
| |  | Results before income taxes and extraordinary gain amounted to income of $3.8 million and
$1.3 million for the third quarter of 2001 and 2000, respectively.
Results before income taxes and extraordinary gain amounted to income
of $9.2 million and a                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      

12



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##### Table of Contents



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

| |  | loss of $14.2 million for the thirty-nine week year to date periods of
2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Company realized an extraordinary
gain of $1.1 million ($1.9 million less tax effect of $0.8 million) in
the third quarter of fiscal 2000 associated with the early retirement
of $11 million of 10.75% Senior Notes due 2006.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  | Net income for the third quarter amounted to $2.3 million and $1.9
million for 2001 and 2000, respectively. Net income for the fiscal
year to date periods amounted to $5.5 million and a net loss of $7.2
million for 2001 and 2000, respectively.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | 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 became effective August 6,
1999 and expires in August 2002, and consists of a revolving loan
facility for working capital of $50.0 million, all of which was
available at June 24, 2001 and a letter of credit facility with a
maximum availability of $25.0 million, of which $8.2 million was
available at June 24, 2001. The letter of credit facility is
maintained pursuant to the Companys workers compensation and general
liability self-insurance requirements and as security for current rent
obligations.
|
| |  | Working capital amounted to $112.8 million at June 24, 2001 and $111.8
million at September 24, 2000, and the Companys current ratios were
1.58:1, and 1.63:1, respectively. Fluctuations in working capital and
current ratios are not unusual in the industry.                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|
| |  | The net cash provided by operating activities in the thirty-nine weeks ended June 24, 2001
amounted to $60.4 million compared to $1.0 million for the thirty-nine
weeks ended June 25, 2000. Fluctuations in net cash provided by
operating activities are not unusual in the industry. Cash provided
by operating activities in fiscal 2001 of $60.4 million consisted of
an increase in accrued liabilities and self-insurance reserves of
$23.6 million, a decrease in other assets of $2.0 million, an increase
in accounts receivable of $5.8 million and a decrease in lease
guarantee escrow of $13.2 million.                                                                                                               
|
| |  | Net cash used in investing activities for the thirty-nine weeks ended June 24, 2001, amounted to
$25.0 million compared to $32.5 million for the thirty-nine weeks
ended June 25, 2000. The difference in net cash used in investing
activities between the comparable periods is due to the Companys
capital expenditures during such periods, net of proceeds from asset
dispositions. Capital expenditures amounted to $25.2 million in the
fiscal year to date of 2001 compared to $32.5 million in the fiscal
year to date of 2000. The higher level of capital expenditures in the
prior year was due primarily to additional remodeling expenditures in
the 43 acquired supermarkets.                                       
|
| |  | Net cash used by financing activities amounted to $6.7 million and $10.2 million for the thirty-nine weeks
ended June 24, 2001 and June 25, 2000, respectively, and consisted of
payments on the Companys capitalized lease obligations and principal
payments on long-term debt, and the repurchase of bonds in the third
quarter of fiscal 2000.                                                                                                                                                                                                                                                                                                                                                                                 
|
| |  | The Credit Facilities                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|
| |  | Stater Bros. principal operating subsidiary, Stater Bros. Markets, signed a credit facility
with Bank of America N.A. on August 6, 1999. The credit facility
provides for                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          

13



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##### Table of Contents



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

| |  | (i) a $50.0 million three-year revolving loan facility and (ii) a
$25.0 million three-year letter of credit facility. Borrowings under
the revolving loan facility are unsecured and expected to be used for
certain working capital and corporate purposes. Letters of credit
under the letter of credit facility are expected to be used to support
the purchase of inventory, obligations incurred in connection with the
construction of stores, workmens compensation insurance obligations
and security for current rent obligations. The availability of the
loans and letters of credit are subject to certain sub-limits 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 new 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 rate of interest publicly announced
by Bank of America as its reference rate or (b) the federal funds
effective rate from time to time plus 0.50%), plus 1.00%, or (ii) the
Offshore Rate (defined as the rate (adjusted for statutory reserve
requirements for eurocurrency liabilities) at which eurodollar
deposits for one, two, three or six months (as selected by Stater
Bros. Markets) are offered to Bank of America in the inter-bank
eurodollar market), plus 2.25%. The revolving loan facility will
cease to be available and will be payable in full on August 6, 2002.
Letters under the credit facility can be issued until August 6, 2002
and all letters of credit must expire no later than August 6, 2003.
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. For purposes
of that fee, commercial letters of credit will not constitute
outstanding standby letters of credit issued under the letter of
credit facility equal to 1.25% per annum on the face amount of such
letters of credit, and will be required to pay standard fees charged
by Bank of America with respect to the issuance, negotiation, and
amendment of commercial letter of credit issued under the letter of
credit facility.
|
| |  | Availability of the loans and letters of credit facility is subject to
a monthly borrowing 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 Stater Bros.                                                                                                                                                                                                                                                                                                                                                                         
|
| |  | The credit facility also contains covenants that apply to Stater Bros. Holdings Inc., and
Stater Bros. Holdings Inc. 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 Stater Bros. Holdings
Inc.s capital stock, prepayments and redemptions                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  

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##### Table of Contents



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

| |  | of the exchange notes and other debt, and limit indebtedness, investments,
loans and advances by Stater Bros. Holdings Inc. The credit facility
requires Stater Bros. Holdings Inc. and Stater Bros. Markets to comply
with certain covenants intended to ensure that their legal identities
remain separate.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The credit facility contains customary events of default, including
payment defaults; material inaccuracies in representations and warranties;
covenant defaults; cross-defaults to certain other indebtedness; certain
bankruptcy events; certain ERISA events; judgment; defaults; invalidity of
any guaranty; failure of Jack H. Brown to be Chairman of the Board and
Chief Executive Officer of Stater Bros. Markets; and change of control.                                                                                                                                                                                                                                                                                                                                                              
|
| |  | As of June 24, 2001, for purposes of the credit facility with Bank of
America, Stater Bros. Markets was in compliance with all restrictive
covenants and exceeded the minimum net worth covenant by approximately
$108.4 million and exceeded minimum inventory coverage by approximately
$57.4 million. The minimum EBITDA (as defined) covenant measurement period
begins (as amended) in the quarter ending June 25, 2000, and requires an
annualized minimum EBITDA of $75.0 million. As of June 24, 2001, Stater
Bros. Markets exceeded minimum annualized EBITDA by approximately $15.4
million.                                                                                                                                                                                                         
|
| |  | The Company was in compliance with all restrictive covenants for the
purpose of the credit facility with Bank of America.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      
|
| |  | Labor Relations                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|
| |  | The Company and other major supermarket employers in Southern California
negotiated a four-year contract, beginning October 1999, with the United
Food and Commercial Workers Union. The Companys collective bargaining
agreement with the International Brotherhood of Teamsters was renewed in
1998 and expires in September 2002. Management believes it has good
relations with its employees.                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | EFFECT OF INFLATION AND COMPETITION                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                            
|
| |  | The Companys performance is affected by inflation. In recent years the
impact of inflation on the operations of the Company has been moderate. As
inflation has increased expenses, the Company has recovered, to the extent
permitted by competition, the increase in expenses by increasing prices
over time. However, the economic and competitive environment in Southern
California continues to challenge the Company to become more cost
efficient as its ability to recover increases in expenses through price
increases is diminished. The future results of operations of the Company
will depend upon the ability of the Company to adapt to the current
economic environment as well as the current competitive conditions.                                                                      
|
| |  | The Company conducts business in one industry segment, the operation of
retail food supermarkets, which offer for sale to the public most
merchandise typically found in supermarkets. The supermarket industry is
highly competitive and is characterized by low profit margins. The
Companys primary competitors include Vons, Albertsons, Ralphs and a
number of independent supermarket operators. Competitive factors typically
include the price, quality and selection of products offered for sale,
customer service, and the convenience and location of retail facilities.
The Company monitors competitive activity and Senior Management regularly
reviews the Companys marketing and business strategy and periodically
adjusts them to adapt to changes in the Companys primary trading area.

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##### Table of Contents



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.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
| |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | The Private Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements. Certain information contained in the
Companys filings with the Securities and Exchange Commission (as well
as information included in oral statements or other written statements
made or to be made by the Company) includes statements that are
forward-looking, such as statements relating to plans for future
activities. Such forward-looking information involves important risks
and uncertainties that could significantly affect results in the
future and, accordingly, such results may differ from those expressed
in any forward-looking statements made by or on behalf of the Company.
These risks and uncertainties include, but are not limited to, those
relating to domestic economic conditions, seasonal and weather
fluctuations, expansion and other activities of competitors, changes
in federal or state laws and the administration of such laws and the
general condition of the economy.






|        |                                                          
|------- | ---------------------------------------------------------
|Item 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

Not Applicable.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
JUNE 24, 2001







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 Legal Proceedings contained in the Notes to
Consolidated Financial Statements section of the Companys Form 10-K
for the fiscal year ended September 24, 2000.                                                                                                          







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

Exhibits are as follows:

|            |  |                                           |  |  |  | 
|----------- |  | ----------------------------------------- |  |  |  | 
|EXHIBIT NO. |  | DESCRIPTION                               |  |  |  | 
|            |  |                                           |  |  |  | 
|11          |  | Calculation of Earnings Per Common Share.



| |  | Copies of Exhibits listed herein can be obtained by writing and requesting such Exhibits
from: Corporate Secretary, P. O. Box 150, Colton, California 92324.
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------

(b)  Reports on Form 8-K

None

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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: |  | July 31, 2001 |  | /s/ Jack H. Brown                                                          
|      |  |               |  |                                                                            
|      |  |               |  | Jack H. Brown
Chairman of the Board, President,
and Chief Executive Officer

|      |  |               |  |                                                                                              
|----- |  | ------------- |  | ---------------------------------------------------------------------------------------------
|Date: |  | July 31, 2001 |  | /s/ Phillip J. Smith                                                                         
|      |  |               |  |                                                                                              
|      |  |               |  | Phillip J. Smith
Senior Vice President and Chief Financial Officer
(Chief Accounting Officer)

18