##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



---



FORM 10-K

(Mark One)



|[x] | ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|--- | ------------------------------------------------------------------------------
|   
|    | For the fiscal year ended: September 30, 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) |  | (IRS Employer Identification No.)
|                                                               |  |                                  
|21700 Barton RoadColton, California                            |  | 92324                            
|(Address of principal executive offices)                       |  | (Zip Code)                       
|                                                               |  |                                  
|Registrants telephone number, including area code             |  | (909) 783-5000                   

Securities registered pursuant to Section 12(b) of the Act:
None

Securities registered pursuant to Section 12(g) of the Act:
None

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

Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein and will not be
contained, to the best of registrants knowledge, in definitive proxy or
information statements incorporated by reference in Part III of this Form
10-K or any amendment to this
Form 10-K.  Yes  [X]    No  [   ].

No voting stock of the registrant is held by non-affiliates of the
registrant.

Number of shares of the registrants Common Stock, $.01 par value, outstanding as
of December 10, 2001 Class A Common Stock  50,000 shares.

DOCUMENTS INCORPORATED BY REFERENCE

None

1



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TABLE OF CONTENTS



|           |                                                                                               |                                                  |  |  |  |  |  | 
|---------- | --------------------------------------------------------------------------------------------- | ------------------------------------------------ |  |  |  |  |  | 
|PART I    
|           | Item 1. Business                                                                             
|           | Item 2. Properties                                                                           
|           | Item 3. Legal Proceedings                                                                    
|           | Item 4. Submission of Matters to a Vote of Security Holders                                  
|PART II   
|           | Item 5. Market for the Registrants Common Equity and Related Stockholder Matters            
|           | Item 6. Selected Financial Data                                                              
|           | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations
|           | Item 8. Financial Statements and Supplementary Data                                          
|           | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 
|PART III  
|           | Item 10. Directors and Executive Officers of the Registrant                                  
|           | Item 11. Executive Compensation                                                              
|           | Item 12. Security Ownership of Certain Beneficial Owners and Management                      
|           | Item 13. Certain Relationships and Related Transactions                                      
|PART IV   
|           | Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K                     
|SIGNATURES
|           |                                                                                               | INDEX TO CONSOLIDATED FINANCIAL STATEMENTS      
|           |                                                                                               | REPORT OF INDEPENDENT AUDITORS                  
|           |                                                                                               | CONSOLIDATED BALANCE SHEETS                     
|           |                                                                                               | CONSOLIDATED STATEMENTS OF OPERATIONS           
|           |                                                                                               | CONSOLIDATED STATEMENTS OF CASH FLOWS           
|           |                                                                                               | CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
|           |                                                                                               | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS      
|EXHIBIT 11
|EXHIBIT 12



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##### Table of Contents



STATER BROS. HOLDINGS INC.
FORM 10-K
TABLE OF CONTENTS

PART I

|         |  |                                                                                       |  |            |    |             |    | 
|-------- |  | ------------------------------------------------------------------------------------- |  | ---------- | -- | ----------- | -- | 
|         |  |                                                                                       |  |            |    | Page Number
|         |  |                                                                                       |  |            |    |            
|Item 1   |  | Business                                                                              |  |            | 3  |            
|Item 2   |  | Properties                                                                            |  |            | 9  |            
|Item 3   |  | Legal Proceedings                                                                     |  |            | 10 |            
|Item 4   |  | Submission of Matters to a Vote of Security Holders                                   |  |            | 10 |            
|        
|PART II 
|        
|Item 5   |  | Market for the Registrants Common Equity and
Related Stockholder Matters             |  |            | 10 |            
|Item 6   |  | Selected Financial Data                                                               |  |            | 11 |            
|Item 7   |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  |            | 13 |            
|Item 8   |  | Financial Statements and Supplementary Data                                           |  |            | 21 |            
|Item 9   |  | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure  |  |            | 22 |            
|        
|PART III
|        
|Item 10  |  | Directors and Executive Officers of the Registrant                                    |  |            | 22 |            
|Item 11  |  | Executive Compensation                                                                |  |            | 24 |            
|Item 12  |  | Security Ownership of Certain Beneficial Owners
and Management                        |  |            | 27 |            
|Item 13  |  | Certain Relationships and Related Transactions                                        |  |            | 28 |            
|        
|PART IV 
|        
|Item 14  |  | Exhibits, Financial Statement Schedules and
Reports on Form 8-K                       |  |            | 29 |            
|         |  |                                                                                       |  | Signatures |    |             | 33 | 

2



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##### Table of Contents






PART I






|Item 1. | Business
|------- | --------

General

Stater Bros. Holdings Inc. was incorporated in Delaware in 1989 and together
with its wholly-owned subsidiaries, Stater Bros. Markets and Stater Bros.
Development, Inc., (collectively Stater Bros. or the Company) were founded
in 1936 when the first Stater Bros. Market opened in Yucaipa, California. The
Company is a leading supermarket chain in Southern California and operates 155
supermarkets under the Stater Bros. Markets name.

The Company has grown, primarily by constructing supermarkets in its primary
trading areas, through the enlargement of existing supermarkets and through a
strategic acquisition in August 1999 of 43 supermarkets in Southern California.
Stater Bros. supermarkets consist of approximately 5.1 million total square
feet and approximately 3.7 million selling square feet. The Companys
supermarkets offer its customers a high level of customer service, broad
selections of grocery, meat, produce, liquor and general merchandise. All of
the Companys supermarkets have expanded selections of produce and full-service
meat departments. Nearly all of the supermarkets have hot service
delicatessens and hot service bakery departments.

The Company utilizes a central warehouse and distribution facility which
provides the Companys supermarkets with approximately 77% of the merchandise
they offer for sale. The Companys warehouse and distribution facilities
encompass approximately 1,358,000 square feet and include facilities for
grocery, deli, produce, meat, meat deli, frozen, bakery, health and beauty
care, and general merchandise products.

Ownership of the Company

In August 1997, La Cadena Investments (La Cadena) became 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 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 (the
Acquisition) 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.

The Acquisition was funded through an issue, in August 1999, of $450 million of
10.75% Senior Notes due 2006 (the 10.75% Notes) under Rule 144A of the
Securities Act of 1933. Proceeds from the issuance were used to (a) retire
all of the 9% Notes ($100.0 million), (b) retire substantially all of the 11%
Notes ($159,952,000), (c) fund early redemption premiums of $18.7 million for
both the 9% Notes and the 11% Notes, (d) acquire the assets of 43 supermarkets
and one future store site for $134.0 million, (e) pay a fee to La Cadena for
financial advisory services of $4.5 million, and (f) pay fees and expenses of
the transaction. The remaining proceeds from the issue were used for general
corporate purposes, including capital expenditures. Of the 10.75% Notes,
$449,750,000 are registered securities and $250,000 are restricted and
unregistered.

3



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##### Table of Contents





|Item 1. | Business (contd.)
|------- | -----------------

Conversion and Redemption of Series B Preferred Stock

Effective March 8, 1996, pursuant to options available to the Company, the
Company exercised its right to convert all of its outstanding shares of Common
Stock (previously held by Craig Corporation (Craig)) into 693,650 shares of
its Series B Preferred Stock. The Series B Preferred Stock had a redemption
value of approximately $69.4 million and paid dividends at the rate of 10.5%
per annum. In August 1997, the Company redeemed all of the outstanding shares
of its Series B Preferred Stock for $69.4 million plus accrued and unpaid
dividends.

In July 1997, the Company issued $100.0 million of 9% Senior Subordinated Notes
due 2004 (the 9% Notes) under Rule 144A of the Securities Act of 1933.
Proceeds from the issuance of the 9% Notes were used as follows (a) $69.4
million to redeem the Series B Preferred Stock, (b) $4.6 million to pay accrued
dividends due from the Series B Preferred Stock, (c) $4.9 million to obtain
consents from the holders of the Companys 11% Senior Notes due 2001 to permit
the issue of the 9% Notes, (d) pay fees and expenses of the transaction. The
remaining proceeds from the issuance of the 9% Notes were used for general
corporate purposes, including capital expenditures. The 9% Notes were redeemed
in August 1999.

Business Strategy

Store Profile and Locations

The Companys supermarkets have well-established locations and low overhead
expenses, including fixed rent payments in most supermarkets. In addition, the
Company believes that its existing supermarkets are well maintained and
generally require capital expenditures only for customary maintenance. An
average supermarket is approximately 33,000 square feet, while newly
constructed supermarkets range from approximately 35,000 square feet to 44,000
square feet. Stater Bros. supermarkets typically utilize approximately 72% of
total square feet for retail selling space. The Company operates its
supermarkets with minimal back-room storage space because of the close
proximity of its distribution facilities to its store locations. Generally,
all Stater Bros. supermarkets are similarly designed and stocked thereby
allowing Stater Bros. customers to find items easily in any of the Companys
supermarkets.

Substantially all of the Companys 155 supermarkets are located in neighborhood
shopping centers in well-populated residential areas. The Company endeavors to
locate its supermarkets in growing areas that will be convenient to potential
customers and will accommodate future supermarket expansion.

Management actively pursues the acquisition of sites for new supermarkets. In
an effort to determine sales potential, new supermarket sites are carefully
researched and analyzed by management for population shifts, zoning changes,
traffic patterns, nearby new construction and competitive locations. Stater
Bros. works with developers to attain the Companys criteria for potential
supermarket sites, and to insure adequate parking and a complementary co-tenant
mix.

Store Expansion and Remodeling

The Company has historically focused its expansion in the San Bernardino,
Riverside, Orange, Los Angeles, San Diego and Kern counties of Southern
California. Such expansion has been accomplished through improving and
remodeling existing stores, constructing new supermarkets, and the acquisition
of other supermarket operations. The number of supermarkets operated by the
Company is 155 as of September 30, 2001. The Company intends to continue to
expand its existing supermarket operations by enlarging and remodeling existing
supermarkets and constructing new supermarkets. The Company may also make
strategic acquisitions of existing supermarkets, if such opportunities arise.

4



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|Item 1. | Business (contd.)
|------- | -----------------

Store Expansion and Remodeling (contd.)

The Company monitors sales and profitability of its operations on a
store-by-store basis and enlarges, remodels or replaces stores in light of
their performance and managements assessment of their future potential.
Approximately 65% of the Companys supermarkets have been either newly
constructed or remodeled within the last five years. Minor remodels cost
between $100,000 and $500,000 and typically include new fixtures and may
include a change in decor. Major remodels cost in excess of $500,000 and
typically involve more extensive refurbishment of the stores interior and may
include the addition of one or more specialty service departments such as a hot
service delicatessen or hot service bakery. Expansions entail enlargement of
the store building and typically includes breaking through an exterior wall.
The primary objectives of remodelings and expansions are to improve the
attractiveness of supermarkets, increase sales of higher margin product
categories and, where feasible, to increase selling area. The Company conducts
all of its new construction and most of its remodeling through its wholly-owned
subsidiary, Stater Bros. Development, Inc., which serves as the general
contractor for all Company construction projects.

The following table sets forth certain statistical information with respect to
the Companys supermarket expansion and remodeling for the periods indicated.

|                        |                      |  |                   |     |           |  |           |     |           |  |           |     |   |  |  |     |  |  |  |     |  
|----------------------- | -------------------- |  | ----------------- | --- | --------- |  | --------- | --- | --------- |  | --------- | --- | - |  |  | --- |  |  |  | --- | -
|                        |                      |  | Fiscal Year Ended
|                        |                      |  |                  
|                        |                      |  | Sept. 28,         |     | Sept. 27, |  | Sept. 26, |     | Sept. 24, |  | Sept. 30,
|                        |                      |  | 1997              |     | 1998      |  | 1999      |     | 2000      |  | 2001     
|                        |                      |  |                   |     |           |  |           |     |           |  |          
|Number of supermarkets: |                      |  |                   |     |           |  |           |     |           |  |           |     |   |  |  |     |  |  |  |    
|                        | Opened               |  |                   |    |           |  |           | 2   |           |  |           | 1   |   |  |  |    |  |  |  | 1   |  
|                        | Acquired             |  |                   |    |           |  |           |    |           |  |           | 43  |   |  |  |    |  |  |  |    |  
|                        | Replaced             |  |                   |    |           |  |           |    |           |  |           | (1  | ) |  |  |    |  |  |  | (1  | )
|                        | Closed               |  |                   |    |           |  |           |    |           |  |           |    |   |  |  |    |  |  |  |    |  
|                        | Total at end of year |  |                   | 110 |           |  |           | 112 |           |  |           | 155 |   |  |  | 155 |  |  |  | 155 |  
|                        | Minor Remodel        |  |                   | 13  |           |  |           | 5   |           |  |           | 7   |   |  |  | 17  |  |  |  | 10  |  
|                        | Major Remodel        |  |                   | 1   |           |  |           | 6   |           |  |           | 10  |   |  |  | 2   |  |  |  | 2   |  
|                        | Expansion            |  |                   |    |           |  |           |    |           |  |           |    |   |  |  | 1   |  |  |  |    |  

Beyond 2001, the Company plans to open approximately one to five new stores per
year, based upon a number of factors, including customer demand, market
conditions, profitability, costs of opening, and availability of financing for
such new stores. The Companys plans with respect to major and minor remodels,
expansion and new construction are reviewed continually and are revised, if
appropriate, to take advantage of marketing opportunities. The Company
finances its new store construction primarily from cash provided by operating
activities and short-term borrowings under its credit facilities. Long-term
financing of new stores generally will be obtained through either sale and
leaseback transactions or secured long-term financings. However, no assurances
can be made as to the availability of such financings.

Warehouse and Distribution Facilities

The Companys warehouse and distribution facilities and administrative offices
are located in Colton, California, and encompass approximately 1,358,000 square
feet. The facilities include warehouses for grocery, deli, produce, meat, meat
deli, frozen, bakery, health and beauty care, and general merchandise products.
Management believes that its existing warehouse and distribution facilities
are adequate to meet its current volume. Approximately 77% of the products
offered for sale in the Companys supermarkets are processed through the
Companys warehouse and distribution facilities.

The Companys warehouse and distribution facilities are centrally located and
are an average distance of approximately 41 miles from its supermarkets. Most
supermarkets can be reached without using the most congested portions of the
Southern California freeway system.

5



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|Item 1. | Business (contd.)
|------- | -----------------

Warehouse and Distribution Facilities (contd.)

The Companys transportation fleet consists of modern well-maintained vehicles.
As of September 30, 2001, the Company operated approximately 153 tractors and
391 trailers, all of which were owned by the Company. The Company also
operates a repair terminal at the Colton distribution facility.

Purchasing and Marketing

The Company uses an Aggressive Everyday Low Price (AEDLP) format supported
heavily by radio, TV, newspaper and direct mail advertising programs as an
integral part of its purchasing and marketing strategy to provide its customers
with the best overall supermarket value in its primary market areas. The
Company supplements its everyday low price structure with chain-wide temporary
price reductions (Stater Savers) on selected food and non-food merchandise.
The geographic location of the Companys supermarkets allows it to reach its
target consumers through a variety of media and the Company aggressively
advertises its everyday low prices through local and regional newspapers,
direct mail and printed circulars as well as extensive advertisements on radio
and television.

A key factor in the Companys business strategy is to provide its customers
with a variety of quality brand-name merchandise as well as alternative
selections of high-quality private label and generic brands of merchandise. To
meet the needs of customers, most supermarkets are stocked with approximately
35,000 items. The Company places particular emphasis on the freshness and
quality of its meat and produce merchandise and maintains high standards for
these perishables by distributing the merchandise through its perishable
warehouses and distribution facilities.

Retail Operations

The Companys supermarkets are well maintained, have sufficient off-street
parking and generally are open from 6:00 a.m. or 7:00 a.m. until 10:00 p.m. or
11:00 p.m., seven days a week, including all holidays with the exception of
Christmas Day. Because Stater Bros. operates its supermarkets under similar
formats, management believes it is able to achieve certain operating economies.

Store Management. Each supermarket is managed by a store manager and an
assistant manager, each of whom receives a base salary and may receive a bonus
based on the individual supermarkets overall performance and management of
labor costs within the supermarket. The store manager and assistant manager
are supported by their store management staff who have the training and skills
necessary to provide proper customer service, operate the store and manage
personnel in each department. Each store has individual department managers
for grocery, meat, produce, and where applicable, hot service bakeries and hot
service delicatessens. Store managers report to one of nine district managers,
each of whom is responsible for an average of 17 supermarkets. District
managers report to one of three Regional Vice Presidents.

Customer Service. The Company considers customer service and customer
confidence to be critical to the success of its business strategy. This
strategy, to provide courteous and efficient customer service through specific
programs and training, is a focus of the executive officers and is implemented
by employees at all levels of the Company. The Company maintains an intensive
checker training school to train prospective checkers and to provide a
refresher program for existing checkers. All of the Companys supermarkets
provide customers with purchase carry-out service and have express check-out
lanes.

6



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|Item 1. | Business (contd.)
|------- | -----------------

Santee Dairies, LLC

Stater Bros. and Hughes Family Markets currently each own a 50% interest in
Santee Dairies, LLC, which through its wholly-owned subsidiary, Santee Dairies,
Inc. (Santee Dairies), operates one of the largest dairy plants in California
and provides fluid milk products to Stater Bros., Ralphs, and other customers
in Southern California. The Kroger Co., which operates as Ralphs supermarkets,
is the indirect owner of Hughes. Santee Dairies processes, packages and
distributes whole, low-fat and non-fat milk, as well as orange juice, fruit
drinks and certain other cultured milk products under the Knudsen, Foremost and
certain store brand names. Santee Dairies is the exclusive licensee of the
Knudsen trademark from Kraft Foods, Inc. for fluid milk, juices and certain
other cultured milk products in the Southern California market. In addition,
Santee Dairies is the exclusive licensee for Foremost Farms USA, Cooperative of
the Foremost trademark for fluid milk in Southern California. Santee Dairies
also distributes Hershey chocolate milk under license. In calendar 2000,
Santee Dairies processed approximately 67.1 million gallons of fluid products,
including 53.8 million gallons of fluid milk. Total revenues in Santee
Dairies 52-week fiscal year ended December 30, 2000 were $177.5 million, of
which approximately $90.4 million were sales to Stater Bros. and Ralphs.
Santee Dairies also sells to unaffiliated supermarkets, independent food
distributors, military bases and food service providers in Southern California.

In 1998, Santee Dairies moved to a new dairy plant in City of Industry,
California (the New Dairy). The New Dairy increased Santee Dairies capacity
to process milk to approximately 250,000 to 350,000 gallons per day, with the
ability to expand capacity to approximately 500,000 gallons per day.

Stater Bros. and Santee Dairies are parties to a ten-year fluid milk purchase
agreement entered into in August 1997. It requires that Stater Bros. purchase
its requirements of fluid milk and certain other products, subject to a minimum
volume each year equal to approximately 80% of the volume purchased during
Stater Bros. 1996 fiscal year. Prices under the agreement are calculated to
cover Santee Dairies direct and indirect costs of production, including
financing costs. However, recoverable costs by Santee Dairies may not include
under any circumstances amounts owing solely by reason of the acceleration of
principal payments under any loan agreement to which Santee Dairies is a party.
During fiscal 1999 and fiscal 2000, the prices paid by Stater Bros. pursuant
to the fluid milk agreement were adversely affected by cost overruns and lower
than anticipated production volumes. Incremental prices paid for milk by
Stater Bros. amounted to $48,000 in fiscal 2000 and $9.4 million in fiscal
1999. There were no incremental prices paid for milk in fiscal 2001. Stater
Bros. believes that future incremental pricing will not be necessary, however,
no assurances can be given that Stater Bros. will not incur incremental prices
in the future.

The Company accounts for its investment in Santee using the equity method of
accounting.

Management Information Systems

The Companys management information systems and point-of-sale scanning
technology reduce the labor costs attributable to product pricing and customer
check-out, and provide management with information that facilitates purchasing,
receiving and management of inventory and accounts payable. The Company has
point-of-sale scanning checkout technology in all of its stores. All stores
use electronic systems for employee time and attendance records, inventory
orderings, and labor scheduling, which assist store management in developing a
more efficient and customer-sensitive work schedule.

7



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|Item 1. | Business (contd.)
|------- | -----------------

Management Information Systems (contd.)

During fiscal 1999, the Company installed, in fifty-nine stores, NCRs new
generation of electronic scan systems, the 7452 ACS Scan System, an additional
fifteen systems were installed during fiscal 2000 and eleven systems were
installed during fiscal 2001. The Company anticipates completing the
conversion of all remaining stores to the 7452 ACS Systems during the second
quarter of fiscal 2002. These new systems are more customer-oriented, operate
more efficiently and reduce the time required to check out customers.

The Company uses the Stater Express® system in all of the Companys
supermarkets. Stater Express® is a combined supermarket technology platform
that includes enhanced systems for check verification and acceptance and
provides alternative pay choices such as most nationally recognized financial
institution debit and credit cards. Stater Express® also provides each
supermarket with the technology required to print in-store advertising signs
and connects each supermarket to the Companys host computer which provides
certain efficiencies in data transfers between the supermarkets and the
Companys main office. The Company has obtained a federal service mark for the
name Stater Express.

Employees

The Company has approximately 12,600 employees, approximately 770 of whom are
management and administrative employees and approximately 11,830 of whom are
hourly employees. Approximately 72% of the Companys employees work part-time.
Substantially all of the Companys hourly employees are members of either the
United Food & Commercial Workers or International Brotherhood of Teamsters
labor unions and are represented by several different collective bargaining
agreements. The Companys collective bargaining agreements, with the United
Food & Commercial Workers, which covers the largest number of employees, were
renewed in October 1999 and expire in October 2003. The International
Brotherhood of Teamsters agreement was renewed in September 1998 and expires in
September 2002.

The Company values its employees and believes its relationship with them is
good and that employee loyalty and enthusiasm are key elements of its operating
performance.

Competition

The Company operates in a highly competitive industry characterized by narrow
profit margins. Competitive factors include price, quality and variety of
products, customer service, and store location and condition. The Company
believes that its competitive strengths include its specialty services,
everyday low prices, breadth of product selection, high product quality,
one-stop shopping convenience, attention to customer service, convenient store
locations and a long history of community involvement.

Given the wide assortment of products it offers, the Company competes with
various types of retailers, including local, regional and national supermarket
retailers, convenience stores, retail drug stores, national general
merchandisers and discount retailers, membership clubs and warehouse stores.
The Companys primary competitors include Vons, Albertsons, Ralphs, and a
number of independent supermarket operators.

Government Regulation

The Company is subject to regulation by a variety of governmental authorities,
including federal, state and local agencies that regulate trade practices,
building standards, labor, health, safety and environmental matters and
regulate the distribution and sale of alcoholic beverages, tobacco products,
milk and other agricultural products and other food items.

Environmental

Environmental remediation costs incurred over the past five years were
approximately $1.3 million, in the aggregate, including remediation costs of
approximately $101,000 in 1999, $198,000 in 2000 and $495,000 in 2001.
Management believes that any such future remediation costs will not have a
material adverse effect on the financial condition or results of operations of
the Company.

8



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|Item 2. | Properties
|------- | ----------

The Company leases its warehouse and distribution facilities located in Colton,
California, and management believes that its warehouse and distribution
facilities are well maintained and are adequate to meet its current volume.

The following schedule presents the Companys warehouse and distribution
facilities by product classification and the size of each facility as of
September 30, 2001.

|                                               |       |      |         |           | 
|---------------------------------------------- | ----- | ---- | ------- | --------- | 
|                                               |       |      | Square 
|Facility                                       |       | Feet
|                                               |       |     
|Grocery                                        |       |      | 787,000 |          
|Health and beauty care and general merchandise |       |      | 131,000 |          
|Produce, meat and meat deli                    |       |      | 118,000 |          
|Grocery deli                                   |       |      | 116,000 |          
|Frozen                                         |       |      | 74,000  |          
|Bakery                                         |       |      | 40,000  |          
|Support and administrative offices             |       |      | 92,000  |          
|                                               |       |      |         |          
|                                               | Total |      |         | 1,358,000 | 
|                                               |       |      |         |          

As of September 30, 2001, the Company owned 45 of its supermarkets and leased
the remaining 110 supermarkets. Management believes that its supermarkets are
well maintained and adequately meet the expectations of its customers. The
Company operates 155 supermarkets in the Southern California counties of San
Bernardino, Riverside, Orange, Los Angeles, San Diego and Kern. The following
schedule reflects the Companys store counts by size, county, and the number of
stores that are either leased or owned as of September 30, 2001.

|               |  |               |     |                   |  |        |    |        |  |        |     |        |  |        |    |         |  |         |    |         |  |      |    |  |  |  |    |  |  |  |    | 
|-------------- |  | ------------- | --- | ----------------- |  | ------ | -- | ------ |  | ------ | --- | ------ |  | ------ | -- | ------- |  | ------- | -- | ------- |  | ---- | -- |  |  |  | -- |  |  |  | -- | 
|               |  | No. of Stores |     | Total Square Feet
|               |  |               |     |                  
|               |  |               |     |                   |  |        |    |        |  |        |     |        |  | Under  |    | 25,000- |  | 30,000- |    | 35,000- |  | Over
|County         |  | Total         |     | Owned             |  | Leased |    | 25,000 |  | 29,999 |     | 34,999 |  | 40,000 |    | 40,000 
|               |  |               |     |                   |  |        |    |        |  |        |     |        |  |        |    |        
|San Bernardino |  |               | 46  |                   |  |        | 9  |        |  |        | 37  |        |  |        | 5  |         |  |         | 16 |         |  |      | 6  |  |  |  | 14 |  |  |  | 5  | 
|Riverside      |  |               | 40  |                   |  |        | 12 |        |  |        | 28  |        |  |        | 10 |         |  |         | 14 |         |  |      | 5  |  |  |  | 5  |  |  |  | 6  | 
|Orange         |  |               | 30  |                   |  |        | 11 |        |  |        | 19  |        |  |        | 4  |         |  |         | 13 |         |  |      | 1  |  |  |  | 4  |  |  |  | 8  | 
|Los Angeles    |  |               | 27  |                   |  |        | 8  |        |  |        | 19  |        |  |        | 5  |         |  |         | 7  |         |  |      | 1  |  |  |  | 3  |  |  |  | 11 | 
|San Diego      |  |               | 10  |                   |  |        | 5  |        |  |        | 5   |        |  |        |   |         |  |         | 1  |         |  |      |   |  |  |  | 2  |  |  |  | 7  | 
|Kern           |  |               | 2   |                   |  |        |   |        |  |        | 2   |        |  |        |   |         |  |         |   |         |  |      | 1  |  |  |  | 1  |  |  |  |   | 
|               |  |               |     |                   |  |        |    |        |  |        |     |        |  |        |    |         |  |         |    |         |  |      |    |  |  |  |    |  |  |  |    | 
|Total          |  |               | 155 |                   |  |        | 45 |        |  |        | 110 |        |  |        | 24 |         |  |         | 51 |         |  |      | 14 |  |  |  | 29 |  |  |  | 37 | 
|               |  |               |     |                   |  |        |    |        |  |        |     |        |  |        |    |         |  |         |    |         |  |      |    |  |  |  |    |  |  |  |    | 

The total size of the Companys supermarkets is approximately 5,118,000 square
feet, of which 3,664,000 is selling square feet.

9



---



##### Table of Contents








|Item 3. | Legal Proceedings
|------- | -----------------

In the ordinary course of its business, the Company is party to various legal
actions which the Company believes are incidental to the operation of the
business of the Company and its subsidiaries. The Company records an
appropriate provision when the occurrence of loss is probable and can be
reasonably estimated. The Company believes that the outcome of such legal
proceedings to which the Company is currently a party will not have a material
adverse effect upon its results of operations or its consolidated financial
condition.

In September of 2000, two lawsuits were filed against Stater Bros. Markets in
the State of California Superior Court, County of San Bernardino alleging that
certain of its employees are entitled to overtime wages. The two cases were
purportedly filed on behalf of certain Stater Bros. Markets store managers and
assistant store managers, respectively, alleging that such workers are
non-exempt under California labor laws and are therefore entitled to overtime
wages. The Companys position is that the store managers and assistant
managers are highly compensated employees with duties and responsibilities
which place them in the exempt category under California law and that such
employees are not entitled to overtime wages. This is consistent with the
position taken by other supermarket chains in California. The Company believes
it has complied in all respects with California laws and regulations relative
to employee wages and that each of these Complaints is without merit.

Environmental Matters

Environmental remediation costs incurred during the last five years were
approximately $1.3 million, in the aggregate, including remediation costs of
approximately $101,000 in 1999, $198,000 in 2000 and $495,000 in 2001.
Management believes that any such future remediation costs will not have a
material adverse effect on the financial condition or results of operations of
the Company.






|Item 4. | Submission of Matters to a Vote of Security Holders
|------- | ---------------------------------------------------

None




PART II






|Item 5. | Market for the Registrants Common Equity and Related Stockholder Matters
|------- | -------------------------------------------------------------------------



| | (a) |  | Market Information
| | --- |  | ------------------



| |  |  | There is no established public trading market for the Companys common
equity.
| |  |  | ------------------------------------------------------------------------------



| | (b) |  | Holders
| | --- |  | -------



| |  |  | La Cadena Investments holds 50,000 shares, or 100% of the Companys Class
A Common Stock.
| |  |  | -----------------------------------------------------------------------------------------



| | (c) |  | Dividends
| | --- |  | ---------



| |  |  | No dividends were paid in fiscal years 1999, 2000, and 2001 on the
common equity of the Company and the Company does not intend to pay
dividends on its common equity in the foreseeable future, but intends
to make the distribution and payments described in the Liquidity
and Capital Resources section on page 20.
| |  |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10



---



##### Table of Contents








|Item 6. | Selected Financial Data
|------- | -----------------------

The following table sets forth historical financial data derived from the
audited financial statements of the Company as of and for the fiscal years
ended September 28, 1997, September 27, 1998, September 26, 1999, September 24,
2000 and September 30, 2001. The information set forth below should be read in
conjunction with Managements Discussion and Analysis of Financial Condition
and Results of Operations, the Consolidated Financial Statements of the
Company and related notes thereto contained elsewhere herein. The information
included in Other Operating and Financial Data and Store Data is unaudited.

|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |   | 
|----------------------------------------------------------------- |  | - | --------------------------------------------------------- | - | --------- | - | --------- | - | --------- | - | ------------ | - |  | - | --------- | - |  | - | --------- | - | 
|                                                                  |  |   | Fiscal Years Ended                                       
|                                                                  |  |   |                                                          
|                                                                  |  |   | Sept. 28,                                                 |   | Sept. 27, |   | Sept. 26, |   | Sept. 24, |   | Sept.
30,(6)
|                                                                  |  |   | 1997                                                      |   | 1998      |   | 1999      |   | 2000      |   | 2001        
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |             
|                                                                  |  |   | (In thousands of dollars except per share and store data)
|Statement of Earnings Data:                                       |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Sales                                                             |  | $ | 1,717,924                                                 |   |           | $ | 1,726,107 |   |           | $ | 1,830,195    |   |  | $ | 2,417,710 |   |  | $ | 2,573,913 |  
|Cost of goods sold                                                |  |   | 1,326,410                                                 |   |           |   | 1,323,522 |   |           |   | 1,387,619    |   |  |   | 1,819,068 |   |  |   | 1,911,065 |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Gross profit                                                      |  |   | 391,514                                                   |   |           |   | 402,585   |   |           |   | 442,576      |   |  |   | 598,642   |   |  |   | 662,848   |  
|Selling, general and administrative
expenses                      |  |   | 333,199                                                   |   |           |   | 353,075   |   |           |   | 377,195      |   |  |   | 532,147   |   |  |   | 572,815   |  
|Depreciation and amortization                                     |  |   | 13,265                                                    |   |           |   | 15,434    |   |           |   | 16,591       |   |  |   | 25,580    |   |  |   | 29,061    |  
|Acquisition integration expenses                                  |  |   |                                                          |   |           |   |          |   |           |   | 5,590        |   |  |   | 4,594     |   |  |   | -         |  
|Consulting fees(1)                                                |  |   | 1,458                                                     |   |           |   |          |   |           |   |             |   |  |   |          |   |  |   | -         |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Total operating expenses                                          |  |   | 347,922                                                   |   |           |   | 368,509   |   |           |   | 399,376      |   |  |   | 562,321   |   |  |   | 601,876   |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Operating profit                                                  |  |   | 43,592                                                    |   |           |   | 34,076    |   |           |   | 43,200       |   |  |   | 36,321    |   |  |   | 60,972    |  
|Interest and other income                                         |  |   | 3,110                                                     |   |           |   | 3,061     |   |           |   | 2,951        |   |  |   | 3,217     |   |  |   | 3,151     |  
|Interest expense                                                  |  |   | (21,563                                                   | ) |           |   | (30,206   | ) |           |   | (33,630      | ) |  |   | (53,680   | ) |  |   | (52,410   | )
|Equity in income (loss) from
unconsolidated affiliate             |  |   | (2,313                                                    | ) |           |   | (2,941    | ) |           |   | 1,130        |   |  |   | 1,483     |   |  |   | 1,584     |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Income before income taxes and
extraordinary gain (loss)          |  |   | 22,826                                                    |   |           |   | 3,990     |   |           |   | 13,651       |   |  |   | (12,659   | ) |  |   | 13,297    |  
|Income taxes (benefit)                                            |  |   | 9,359                                                     |   |           |   | 1,459     |   |           |   | 5,372        |   |  |   | (5,369    | ) |  |   | 5,452     |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Income before extraordinary
gain (loss)                           |  |   | 13,467                                                    |   |           |   | 2,531     |   |           |   | 8,279        |   |  |   | (7,290    | ) |  |   | 7,845     |  
|Extraordinary gain (loss)(2) (3)                                  |  |   |                                                          |   |           |   |          |   |           |   | (17,311      | ) |  |   | 1,123     |   |  |   | -         |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Net income (loss)                                                 |  |   | 13,467                                                    |   |           |   | 2,531     |   |           |   | (9,032       | ) |  |   | (6,167    | ) |  |   | 7,845     |  
|Preferred dividends                                               |  |   | 6,166                                                     |   |           |   |          |   |           |   |             |   |  |   |          |   |  |   | -         |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Income (loss) available to common
stockholder                     |  | $ | 7,301                                                     |   |           | $ | 2,531     |   |           | $ | (9,032       | ) |  | $ | (6,167    | ) |  | $ | 7,845     |  
|                                                                  |  |   |                                                           |   |           |   |           |   |           |   |              |   |  |   |           |   |  |   |           |  
|Earnings (loss) per common share
before extraordinary gain (loss) |  | $ | 146.02                                                    |   |           | $ | 50.62     |   |           | $ | 165.58       |   |  | $ | (145.80   | ) |  | $ | 156.90    |  
|Earnings (loss) per common share                                  |  | $ | 146.02                                                    |   |           | $ | 50.62     |   |           | $ | (180.64      | ) |  | $ | (123.34   | ) |  | $ | 156.90    |  

(footnotes on following page)

11



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##### Table of Contents



|Item 6. | Selected Financial Data (contd.)
|------- | --------------------------------

|                                                                      |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |        |  
|--------------------------------------------------------------------- | --------------------------------- | - | --------------------------------------------------------- | ------ | --------- | - | --------- | ------ | --------- | - | ------------ | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                      |                                   |   | Fiscal Years Ended                                       
|                                                                      |                                   |   |                                                          
|                                                                      |                                   |   | Sept. 28,                                                 |        | Sept. 27, |   | Sept. 26, |        | Sept. 24, |   | Sept.
30,(6)
|                                                                      |                                   |   | 1997                                                      |        | 1998      |   | 1999      |        | 2000      |   | 2001        
|                                                                      |                                   |   |                                                           |        |           |   |           |        |           |   |             
|                                                                      |                                   |   | (In thousands of dollars except per share and store data)
|Balance Sheet Data (end of fiscal year):                              |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|Working capital                                                       |                                   | $ | 92,013                                                    |        |           | $ | 90,725    |        |           | $ | 130,915      |        |   | $ | 111,770 |        |   | $ | 124,297 |       
|Total assets                                                          |                                   |   | 358,477                                                   |        |           |   | 364,318   |        |           |   | 603,917      |        |   |   | 595,288 |        |   |   | 629,294 |       
|Long-term notes                                                       |                                   |   | 265,000                                                   |        |           |   | 265,000   |        |           |   | 455,048      |        |   |   | 439,000 |        |   |   | 439,000 |       
|Long-term capitalized lease
obligations                               |                                   |   | 5,661                                                     |        |           |   | 4,350     |        |           |   | 15,625       |        |   |   | 13,679  |        |   |   | 12,098  |       
|Other long-term liabilities                                           |                                   |   | 11,348                                                    |        |           |   | 12,009    |        |           |   | 10,960       |        |   |   | 14,070  |        |   |   | 24,608  |       
|Common stockholders deficit                                          |                                   |   | (36,586                                                   | )      |           |   | (34,055   | )      |           |   | (43,087      | )      |   |   | (49,254 | )      |   |   | (41,409 | )     
|Dividends declared per share:                                         |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|                                                                      | 10.5% Series B Preferred Stock    |   | $                                                         | 8.91   |           |   |           |       |           |   |              |       |   |   |         |       |   |   |         |       |  
|Other Operating and Financial Data:                                   |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|Sales increases (decreases):                                          |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|                                                                      | Total stores                      |   |                                                           | 0.7    | %         |   |           | 0.5    | %         |   |              | 6.0    | % |   |         | 32.1   | % |   |         | 6.5    | %
|                                                                      | Like stores (comparable 52-weeks) |   |                                                           | 2.6    | %         |   |           | (1.0   | %)        |   |              | 1.9    | % |   |         | 1.4    | % |   |         | 4.5    | %
|EBITDA(4)                                                             |                                   | $ | 57,654                                                    |        |           | $ | 49,630    |        |           | $ | 63,872       |        |   | $ | 66,601  |        |   | $ | 94,768  |       
|Operating profit                                                      |                                   | $ | 43,592                                                    |        |           | $ | 34,076    |        |           | $ | 43,200       |        |   | $ | 36,321  |        |   | $ | 60,972  |       
|Ratio
of earnings to fixed charges(5)                                 |                                   |   | 1.23x                                                     |        |           |   | 1.03x     |        |           |   | 1.27x        |        |   |   | 0.85x   |        |   |   | 1.19x   |       
|Gross profit as a percentage
of sales                                 |                                   |   | 22.79                                                     | %      |           |   | 23.32     | %      |           |   | 24.18        | %      |   |   | 24.76   | %      |   |   | 25.75   | %     
|Selling, general and administrative
expenses as a percentage of sales |                                   |   | 19.40                                                     | %      |           |   | 20.46     | %      |           |   | 20.61        | %      |   |   | 22.01   | %      |   |   | 22.25   | %     
|Store Data:                                                           |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|Number of stores (at end of
fiscal year)                              |                                   |   | 110                                                       |        |           |   | 112       |        |           |   | 155          |        |   |   | 155     |        |   |   | 155     |       
|Average sales per store (000s)                                        |                                   | $ | 15,617                                                    |        |           | $ | 15,551    |        |           | $ | 15,741       |        |   | $ | 15,598  |        |   | $ | 16,606  |       
|Average store size:                                                   |                                   |   |                                                           |        |           |   |           |        |           |   |              |        |   |   |         |        |   |   |         |       
|                                                                      | Total square feet                 |   |                                                           | 28,809 |           |   |           | 29,061 |           |   |              | 32,895 |   |   |         | 32,910 |   |   |         | 33,018 |  
|                                                                      | Selling square feet               |   |                                                           | 20,845 |           |   |           | 20,991 |           |   |              | 23,570 |   |   |         | 23,570 |   |   |         | 23,639 |  
|Total square feet (at end of
fiscal year) (000s)                      |                                   |   | 3,169                                                     |        |           |   | 3,255     |        |           |   | 5,099        |        |   |   | 5,101   |        |   |   | 5,118   |       
|Total selling square feet (at end
of fiscal year) (000s)              |                                   |   | 2,293                                                     |        |           |   | 2,351     |        |           |   | 3,653        |        |   |   | 3,653   |        |   |   | 3,664   |       
|Sales per average total sq. ft                                        |                                   | $ | 542                                                       |        |           | $ | 537       |        |           | $ | 531          |        |   | $ | 474     |        |   | $ | 503     |       
|Sales per average selling sq. ft                                      |                                   | $ | 749                                                       |        |           | $ | 743       |        |           | $ | 736          |        |   | $ | 662     |        |   | $ | 702     |       



---

|(1) |  | Effective March 1994, the Company paid $1.5 million annually in
consulting fees to Craig Corporation, subject to a certain five year
Consulting Agreement entered into between the Company and Craig. The
Companys agreement to pay Craig an annual consulting fee was
terminated, at the election of the Company, in August 1997.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

(footnotes continued on following page)

12



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##### Table of Contents





|Item 6. | Selected Financial Data (contd.)
|------- | --------------------------------



|(2) |  | The extraordinary loss in 1999 represents the after-tax loss from the
early extinguishment of debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(3) |  | The extraordinary gain in 2000 represents the after-tax gain from the
early extinguishment of debt.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|   
|   
|   
|   
|(4) |  | EBITDA represents earnings before extraordinary gain (loss), interest
expense, depreciation and amortization and income tax expense. The
Company has included information concerning EBITDA here as it is
relevant for covenant analysis under the 10.75% Senior Notes due 2006
and because it is used by certain investors as a measure of a companys
ability to service its debt. EBITDA should not be used as an
alternative to, or be construed as more meaningful than, operating
profit or cash flows as an indicator of the Companys operating
performance.                                                                         
|   
|   
|   
|   
|(5) |  | For the purpose of determining the ratio of earnings to fixed
charges, earnings consist of income before income taxes and the
extraordinary loss and amortization of previously capitalized interest.
Fixed charges consist of interest expense whether expensed or
capitalized, amortization of deferred debt expense, preferred stock
dividends adjusted to represent pre-tax earnings requirements and such
portion of rental expense as can be deemed by management to be
representative of the interest factor in the particular case. Included
in earnings and fixed charges is the Companys 50% share of an
unconsolidated affiliate.
|   
|   
|   
|   
|(6) |  | The fiscal year 2001 was a 53-week year, whereas fiscal years 1997,
1998, 1999 and 2000 were 52-week years.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  






|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations
|------- | -------------------------------------------------------------------------------------

Ownership of the Company

Effective August, 1997, La Cadena became 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 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

Comparisons between fiscals 1999, 2000 and 2001 are difficult due to the
acquisition of 43 supermarkets and one future store site in August 1999,
expenses incurred to integrate the acquired supermarkets into the Companys
retail operating and distribution systems and the issuance of $450.0 million of
10.75% Notes and related redemptions, together with early redemption premiums,
of all the 9% Notes and substantially all the 11% Notes in August 1999. On May
7, 1999, the Company entered into an agreement with Albertsons to acquire 43
supermarkets and one future store site. The stores were formerly operated by
Albertsons or Lucky Stores and were divested in connection with the merger of
Albertsons and American Stores Company, the parent of Lucky Stores. The
supermarkets were acquired sequentially over a twenty-four day period beginning
August 9, 1999. The purchase price for the property, plant, equipment and
inventories of 43 supermarkets and one future store site was approximately
$134.0 million plus capital lease obligations assumed of $13.3 million and
approximately $2.2 million of capitalized costs related to the transfer of
ownership of the supermarkets. The acquisition was accounted for using the
purchase method of accounting and the results of operations of the 43
supermarkets are included in the Companys consolidated results of operations
from the acquisition date of each supermarket.

13



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##### Table of Contents





|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Results of Operations

The following table sets forth certain income statement components expressed as
a percent of sales for the 52-week fiscal years ended September 26, 1999,
September 24, 2000 and the 53-week fiscal year ended September 30, 2001.

|                                                                |                                              |  |                    |       |      |  |        |       |  |  |        |       | 
|--------------------------------------------------------------- | -------------------------------------------- |  | ------------------ | ----- | ---- |  | ------ | ----- |  |  | ------ | ----- | 
|                                                                |                                              |  | Fiscal Years Ended
|                                                                |                                              |  |                   
|                                                                |                                              |  | 1999               |       | 2000 |  | 2001  
|                                                                |                                              |  |                    |       |      |  |       
|Sales                                                           |                                              |  | 100.00             | %     |      |  | 100.00 | %     |  |  | 100.00 | %    
|Gross profit                                                    |                                              |  | 24.18              |       |      |  | 24.76  |       |  |  | 25.75  | %    
|Operating expenses:                                             |                                              |  |                    |       |      |  |        |       |  |  |        |      
|                                                                | Selling, general and
administrative expenses |  |                    | 20.61 |      |  |        | 22.01 |  |  |        | 22.25 | 
|                                                                | Depreciation and amortization                |  |                    | .91   |      |  |        | 1.06  |  |  |        | 1.13  | 
|                                                                | Acquisition integration expenses             |  |                    | .30   |      |  |        | .19   |  |  |        |      | 
|Operating profit                                                |                                              |  | 2.36               |       |      |  | 1.50   |       |  |  | 2.37   |      
|Interest income                                                 |                                              |  | .18                |       |      |  | .13    |       |  |  | .13    |      
|Interest expense                                                |                                              |  | (1.84              | )     |      |  | (2.22  | )     |  |  | (2.04  | )    
|Equity in income from
unconsolidated affiliate                  |                                              |  | .06                |       |      |  | .06    |       |  |  | .06    |      
|Other income (expense) net                                      |                                              |  | (.01               | )     |      |  | .01    |       |  |  |       |      
|Income (loss) before income taxes
and extraordinary gain (loss) |                                              |  | .75                | %     |      |  | (.52   | %)    |  |  | .52    | %    

Total sales amounted to $2.574 billion in 2001 compared to $2.418 billion in
2000 and $1.830 billion in 1999. Like-store sales increased 4.5% (52-week
basis) in fiscal 2001, compared to an increase of 1.9% (before erosion of
like-store sales of 0.5% to newly acquired stores) in fiscal 2000 and an
increase 1.9% in fiscal 1999. The increase in sales during fiscal 2001 was due
to favorable customer response to the Companys marketing plan and to the
replacement of one of its stores in San Bernardino, California. The increase
in total sales during fiscal 2000 was due to the acquisition of 43 supermarkets
and the increase in like-store sales, after erosion, of 1.4%. The increase in
like-store sales of 1.9% in fiscal 1999 was due to favorable customer response
to the Companys 1999 marketing plan, which emphasized the Companys high
quality and expanded product selections in the produce and other perishable
departments and the completion of 10 major remodels.

Gross profits increased to $662.8 million or 25.75% of sales in 2001 compared
to $598.6 million or 24.76% of sales in 2000 and $442.6 million or 24.18% of
sales in 1999. The increase in gross profits, as a percent of sales, during
the last three fiscal years was due to the introduction of higher gross margin
products achieved through the Companys merchandising expansion and upgrading
programs including significant investments in product display fixtures. During
fiscal 2000, the Company had a major expansion in its general merchandise
program, expanded its produce selection and added additional service meat and
seafood cases. The Company adjusts its pricing strategy as necessary to retain
its every day aggressive low price marketing position.

Operating expenses include selling, general and administrative expenses,
depreciation and amortization and acquisition integration expenses. In fiscal
year 2001, selling, general and administrative expenses amounted to $572.8
million or 22.25% of sales compared to $532.1 million or 22.01% of sales in
2000 and $377.2 million or 20.61% of sales in 1999. Selling, general and
administrative expenses, as a percentage of sales, for fiscal 2001 increased
over fiscal 2000 due primarily to increased utility costs resulting from the
energy crisis within the State of California. Selling, general and
administrative expenses, as a percentage of sales, for fiscal 2000 increased
over fiscal 1999 due to the acquisition of the 43 new stores. In addition, the
Company experienced higher than expected labor costs in the first two quarters
of fiscal 2000 due to the staffing and training of personnel for the new
service meat departments in the newly acquired stores.

14



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##### Table of Contents





|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Results of Operations (contd.)

Depreciation and amortization expenses amounted to $29.1 million in 2001
compared to $25.6 million in 2000 and $16.6 million in 1999. The increase in
depreciation and amortization expenses in fiscal years 2001 and 2000 over
fiscal 1999 is due to the acquisition of the 43 new stores in fiscal 1999.
Depreciation and amortization expenses include amortization of $438,000 in
1999, from a $5.0 million prepaid five-year covenant not to compete included in
a Consulting Agreement between the Company and Craig, which became effective
March 8, 1994. Amortization of the covenant not to compete terminated in March
1999.

Acquisition integration expenses amounted to $4.6 million in fiscal 2000 and
$5.6 million in fiscal 1999 and were related to the acquisition of 43
supermarkets acquired from Albertsons in August 1999. No additional
acquisition integration costs were incurred in fiscal 2001 and none are
anticipated in the future. Acquisition integration expenses consisted of
salaries and wages, uniforms, supplies and non-recurring advertising expenses
incurred during the integration of the supermarkets.

Operating profits amounted to $61.0 million or 2.37% of sales in 2001 compared
to $36.3 million or 1.50% of sales in 2000 and $43.2 million or 2.36% of sales
in 1999.

Interest expense amounted to $52.4 million, $53.7 million and $33.6 million for
the 2001, 2000 and 1999 fiscal years, respectively. The decrease in interest
expense in fiscal 2001 compared to fiscal 2000 was due to the retirement of the
remaining $5.0 million of 11% notes in March of 2001 and the early redemption
of $11.0 million of 10.75% notes due 2006 in fiscal 2000. The increase in
interest expense in 2000 was due to the issuance in August 1999 of $450.0
million of 10.75% Senior Notes due 2006 reduced by the redemption of the 9%
Notes and substantially all of the 11% Notes (remaining $5.0 million redeemed
in fiscal 2001). Interest expense included amortization of fees and expenses
incurred to acquire debt of $2.5 million in 2001, $2.5 million in 2000 and $2.8
million in 1999.

The equity in income from unconsolidated affiliate amounted to $1.6 million in
fiscal 2001 compared to $1.5 million in 2000 and $1.1 million in 1999. The
increase in income from unconsolidated affiliate in fiscal 2000 over fiscal
1999 was due to increased volume and improved efficiencies by Santee Dairies,
Inc. Stater Bros. Markets and Hughes (the Owners) are each parties to
ten-year fluid milk purchasing agreements entered into in August 1997. The
agreements require the Owners to each purchase their fluid milk and certain
other products, subject to a minimum volume each year equal to approximately
80% of the volume purchased in 1996. Prices under the agreements are
calculated to cover Santees direct and indirect costs of production, including
financing costs. However, recoverable costs by Santee may not include under
any circumstances amounts owing solely by reason of acceleration of principal
payments under any loan agreement to which Santee is a party. During 1999 and
2000, the prices paid by Stater Bros. Markets pursuant to the fluid milk
agreement were adversely effected by cost overruns and lower production volumes
than anticipated. In fiscal 2000, Stater Bros. paid Santee approximately
$48,000 in incremental prices compared to $9.4 million in fiscal 1999. There
were no incremental prices paid in fiscal 2001. The incremental pricing
structure was terminated in October of 1999, but no assurances can be given
that Stater Bros. will not incur incremental price increases in the future.

15



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|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Results of Operations (contd.)

Income (loss) before income taxes (benefit) and extraordinary gain (loss)
amounted to income of $13.3 million in fiscal 2001, compared to a $12.7 million
loss in fiscal 2000 and income of $13.7 million in fiscal 1999.

Income (loss) before extraordinary gain (loss) amounted to income of $7.8
million in 2001, compared to a $7.3 million loss in 2000 and income of $8.3
million in 1999.

Extraordinary gain (loss) amounted to an extraordinary gain in fiscal 2000 of
$1.1 million ($1.9 million less tax effect) from early extinguishment of $11.0
million of 10.75% Senior Notes due 2006, and an extraordinary loss in fiscal
1999 of $17.3 million ($28.5 million less tax effect) from the early
extinguishment of all of the Companys 9% Notes and substantially all of the
Companys 11% Notes.

Net income, for fiscal 2001, amounted to $7.8 million, compared to net losses
of $6.2 million and $9.0 million in fiscal years 2000 and 1999, respectively.

Liquidity and Capital Resources

The Company historically has funded its daily cash flow requirements through
funds generated from operations and from 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 September 30,
2001 and a letter of credit facility with a maximum availability of $25.0
million, of which $8.2 million was available at September 30, 2001. The letter
of credit facility is maintained pursuant to the Companys workers
compensation and general liability self-insurance requirements and to secure
current rent obligations.

The Company had no short-term borrowings outstanding at the end of fiscal years
2001, 2000 and 1999, and the Company did not incur short-term borrowings during
fiscal years 2001, 2000 and 1999.

Working capital amounted to $124.3 million at September 30, 2001, $111.8
million at September 24, 2000 and $130.9 million at September 26, 1999. The
Companys current ratios were 1.64:1, 1.63:1 and 1.79:1, respectively.
Fluctuations in working capital and current ratios are not unusual in the
industry.

Net cash provided by operating activities amounted to $79.4 million in 2001,
$15.4 million in 2000 and $59.3 million in 1999. Fluctuations in operating
assets and liabilities are not unusual in the industry. The change in cash
provided by operating activity in fiscal 2001 compared to fiscal 2000 was due
primarily to changes from normal operations and the termination of a lease
guarantee escrow account. Cash provided from operating activities in fiscal
2001 consisted primarily of increases in accrued liabilities and self-insurance
reserves, increases in accounts payable, the termination of a lease guarantee
escrow account and depreciation and amortization. The change in cash provided
by operating activities in fiscal 2000 compared to fiscal 1999 was due
primarily to larger than normal increases in asset and liability accounts in
1999 due to the acquisition of the 43 new stores. Cash provided by operating
activities in fiscal 2000 consisted of increases in inventories, accounts
payable and accrued liabilities, decreases in accounts receivable and prepaid
expenses and depreciation and amortization.

16



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|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Liquidity and Capital Resources (contd.)

Net cash used in financing activities during fiscal 2001 amounted to $7.1
million and consisted of the retirement of the remaining $5.0 million of 11%
notes which matured in March 2001 and payment on capital lease obligations of
$2.1 million. Net cash used in financing activities during fiscal 2000
amounted to $10.7 million and consisted of funds of $8.7 million used to retire
$11.0 million of 10.75% Senior Notes due 2006 and principal payment on capital
lease obligations of $1.9 million. Net cash provided by financing activities
in fiscal 1999 amounted to $152.9 million and consisted of reductions in
capital lease obligations of $1.3 million and an issuance of $450.0 million of
10.75% Senior Notes due 2006 in August 1999. Proceeds from the 10.75% Notes
were used to fund the early redemption of all ($100.0 million) of the
outstanding 9% Notes and substantially all ($159.9 million) of the outstanding
11% Notes, together with early redemption premiums of $18.7 million and to pay
fees and expenses of the debt offering of approximately $17.l million, which
includes a financial advisory fee paid to La Cadena of $4.5 million.
Additionally, proceeds from the 10.75% Notes were used to acquire the assets of
43 supermarkets and one future store site for approximately $136.2 million and
the remaining proceeds were used for general corporate purposes including
capital expenditures.

Net cash used in investing activities in fiscal 2001 amounted to $33.2 million
and consisted primarily of the purchase of property and equipment of $33.5
million. Net cash used in investing activities during fiscal 2000 amounted to
$35.4 million and consisted primarily of the purchase of property and equipment
of $38.2 million which included approximately $21.8 million to fund projects
related to the acquisition of the 43 supermarkets and related warehouse
expansion. Additional capital expenditures were used to acquire land for a
store site, fund year 2000 projects, as well as fund normal maintenance capital
expenditures. Proceeds from the sale of assets amounted to $2.8 million and
consisted primarily from the sale of a store site in Colton, California. The
Colton store site was leased backed by the Company under an operating lease.
Net cash used in investing activities during fiscal 1999 amounted to $176.1
million and consisted of $136.2 million to acquire the assets of 43
supermarkets, one future store site and related capitalized asset acquisition
costs in August 1999. Capital expenditures of $42.8 million includes $12.6
million in point of sale scan systems and related equipment and warehousing and
material handling equipment which were purchased as a direct result of the
acquisition of the 43 supermarkets and included approximately $3.3 million in
equipment and software purchased to achieve Year 2000 compliance. Proceeds
from sales of assets amounted to $2.9 million and consisted primarily of
reimbursements from the landlord for costs incurred by the Company to construct
its new supermarket in Loma Linda, which opened in December 1998. Capital
expenditures for fiscal 1999 were funded through proceeds from the reimbursed
construction costs of the Loma Linda supermarket, cash flow from operations and
from proceeds from the issuance of the 10.75% Notes.

17



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|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Liquidity and Capital Resources (contd.)

Management believes that cash capital expenditures for fiscal 2002 will be
approximately $40.6 million.

Management believes that operating cash flow, supplemented by capital
expenditures financings obtained through capital and operating leases, will be
sufficient to meet the Companys currently identified operating needs and
scheduled capital expenditures. However, there can be no assurance that such
lease financings will be available to the Company in the future.

The Company operated 155 supermarkets at September 30, 2001, September 24, 2000
and September 26, 1999.

The Companys supermarkets had approximately 5.1 million total square feet at
September 30, 2001, September 24, 2000 and September 26, 1999.

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 (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 are expected to be used for
certain working capital and corporate purposes. Letters of credit under the
letter of credit facility are expected to be used to support the purchase of
inventory, obligations incurred in connection with the construction of stores,
workers compensation insurance obligations and as 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 August 6, 1999 credit facility
is guaranteed by Stater Bros. Development, Inc., a subsidiary of Stater Bros.,
and any subsidiaries that Stater Bros. Markets or Stater Bros. Development,
Inc. acquires or forms after the date of the credit facility.

Loans under the credit facility bear interest at a rate based upon either (i)
the Base Rate (defined as the higher of (a) the rate of interest publicly
announced by Bank of America as its reference rate and (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 of credit under the credit facility can be
issued until August 6, 2002, and all letters of credit must expire not later
than August 6, 2003. The loans under the revolving loan facility must be
repaid for a period of ten consecutive days semi-annually.

18



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|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Liquidity and Capital Resources (contd.)

Credit Facilities (contd.)

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 under the credit facility is
subject to a monthly borrowing base test based on inventory. The credit
facility requires Stater Bros. Markets to meet certain financial tests,
including minimum net worth and minimum EBITDA tests. The credit facility
contains covenants which, among other things, will limit indebtedness, liens,
guarantee obligations, mergers, consolidations, liquidations and dissolutions,
asset sales, leases, investments, loans and advances, transactions with
affiliates, sale and leasebacks, other matters customarily restricted in such
agreements and modifications to the holding company status of Stater Bros.
Markets.

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 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; judgments; defaults; invalidity of any guaranty;
failure of Jack H. Brown to be Chairman of the Board and Chief Executive
Officer of Stater Bros. Markets; and change of control.

As of September 30, 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 $97.8 million and
exceeded minimum inventory coverage by approximately $59.7 million. The
minimum EBITDA (as defined) covenant measurement period begins (as amended) in
the quarter ending June 27, 2000, and requires an annualized minimum EBITDA of
$75.0 million. As of September 30, 2001, Stater Bros. Markets exceeded minimum
annualized EBITDA by approximately $20.0 million.

As of September 30, 2001, for the purposes of the credit facility with Bank of
America, Stater Bros. Holdings Inc. was in compliance with all restrictive
covenants.

19



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|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Liquidity and Capital Resources (contd.)

Credit Facilities (contd.)

The Company is also subject to certain covenants associated with its 10.75%
Senior Notes due 2006. As of September 30, 2001, the Company was in compliance
with all such covenants. However, there can be no assurance that the Company
will be able to achieve the expected operating results or implement the capital
expenditure strategy upon which future compliance with such covenants is based.

The Board of Directors of Stater Bros. has determined that, subject to
obtaining the necessary consent of the holders of its 10.75% Senior Notes due
2006, it will make a distribution and payments to stockholders consisting of
$25.0 million cash and its subordinated note in the principal amount of $20.0
million. The subordinated note will bear interest at a rate of 5.0% per annum,
payable semi-annually, with the principal due on March 31, 2007. Stater Bros.
expects to begin soliciting the noteholder consents in December 2001.

Labor Relations

The Company and other major supermarket employers in Southern California
negotiated a four-year contract, beginning October 1999 and expiring in October
2003, with the United Food and Commercial Workers Union. The Companys
collective bargaining agreement with the International Brotherhood of Teamsters
was renewed in September 1998 and expires in September 2002. Management
believes it has good relations with its employees.

Recent Accounting Pronouncements

During the Companys fiscal 2001, the Financial Accounting Standards Board
issued or required the adoption of Statement of Financial Accounting Standards
(SFAS) No. 140 and No. 141 and the Emerging Issue Task Force (EITF) issued
or required the adoption of EITF 00-14 Issue and 00-25 Issue. Adoption of SFAS
No. 140 and No. 141 and adoption of EITF 00-14 and 00-25 Issues were either not
applicable to the Company or were adopted by the Company in its fiscal 2001 and
did not have a material effect on the Companys financial position or its
results of operations in fiscal 2001.

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 to the current
competitive conditions.

20



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##### Table of Contents





|Item 7. | Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
|------- | ----------------------------------------------------------------------------------------------

Effect of Inflation and Competition (contd.)

The Company conducts business in one industry segment, the operation of retail
food supermarkets, which offer for sale to the public most merchandise
typically found in supermarkets. The supermarket industry is highly
competitive and is characterized by low profit margins. The Companys primary
competitors include Vons, Albertsons, Ralphs and a number of independent
supermarket operators. Competitive factors typically include the price,
quality and selection of products offered for sale, customer service, and the
convenience and location of retail facilities. The Company monitors
competitive activity and Senior Management regularly reviews the Companys
marketing and business strategy and periodically adjusts them to adapt to
changes in the Companys primary trading area.

Cautionary Statement

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 8. | Financial Statements and Supplementary Data
|------- | -------------------------------------------

Information called for by this item is set forth in the Companys financial
statements and supplementary data contained in this report. Specific financial
statements and supplementary data can be found on the pages listed in the
following index.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                             |                                                  |  |             |     | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ |  | ----------- | --- | 
|                                                                                             |                                                  |  | Page Number
|                                                                                             |                                                  |  |            
|Report of Independent Auditors                                                               |                                                  |  | F-2         |    
|Consolidated Balance Sheets at September 26, 1999,
September 24, 2000 and September 30, 2001 |                                                  |  | F-3         |    
|Fiscal years ended September 26, 1999, September 24, 2000 and
September 30, 2001:            |                                                  |  |             |    
|                                                                                             | Consolidated Statements of Operations            |  |             | F-5 | 
|                                                                                             | Consolidated Statements of Cash Flows            |  |             | F-6 | 
|                                                                                             | Consolidated Statements of Stockholders Deficit |  |             | F-7 | 
|Notes to Consolidated Financial Statements                                                   |                                                  |  | F-8         |    

21



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|Item 9. | Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure
|------- | ------------------------------------------------------------------------------------

None




PART III






|Item 10. | Directors and Executive Officers of the Registrant
|-------- | --------------------------------------------------

The following table sets forth certain information with respect to the current
executive officers and directors of the Company, their ages and principal
occupations for at least the past five years. Directors of the Company each
serve for a term of one year, or until their successors are elected. The
officers serve at the discretion of the Board of Directors of the Company.



|                      |  |     |    |          |  |                                                             
|--------------------- |  | --- | -- | -------- |  | ------------------------------------------------------------
|Name                  |  | Age |    | Position
|                      |  |     |    |         
|Jack H. Brown         |  |     | 62 |          |  | Chairman of the Board, President
and Chief Executive Officer
|Donald I. Baker       |  |     | 60 |          |  | Executive Vice President
and Chief Operating Officer        
|H. Harrison Lightfoot |  |     | 63 |          |  | Group Senior Vice President  Development                   
|A. Gayle Paden        |  |     | 65 |          |  | Group Senior Vice President  Administration                
|Phillip J. Smith      |  |     | 54 |          |  | Senior Vice President and Chief Financial Officer           
|Bruce D. Varner       |  |     | 65 |          |  | Director and Secretary                                      
|Thomas W. Field, Jr.  |  |     | 67 |          |  | Vice Chairman of the Board of Directors                     
|C. Dale Warman        |  |     | 72 |          |  | Director                                                    

Background of Directors and Executive Officers

Jack H. Brownhas been President and Chief Executive Officer of the
Company since June 1981 and Chairman of the Board since 1986. From September
1978 to June 1981, Mr. Brown served as President of Pantry Food Markets, Inc.
and American Community Stores Corporation, Inc., both wholly-owned subsidiaries
of Cullum Companies, Inc., a publicly held corporation. From 1972 to 1978, Mr.
Brown served as Corporate Vice President of Marsh Supermarkets, Inc., a
publicly held corporation. Mr. Brown has been employed in various capacities
in the supermarket industry for 49 years. Mr. Brown has a majority interest
and is the managing general partner of La Cadena Investments.

Donald I. Bakerhas been Executive Vice President and Chief Operating
Officer since November 2001 and Executive Vice President of the Company since
October 1998. Mr. Baker joined the Company in November 1983 as Vice
President-Warehouse and Transportation and was Group Senior Vice
President-Administration from July 1996 to October 1998. From July 1992 to
July 1996, Mr. Baker was Group Senior Vice President-Human Resources and
Distribution. From August 1986 to July 1992, Mr. Baker was Senior Vice
President-Human Resources and Distribution. Mr. Baker has approximately 35
years of experience in the supermarket industry. Prior to joining the Company,
Mr. Baker was employed by American Community Stores Corporation, Inc., a
subsidiary of Cullum Companies, Inc., a publicly held corporation, from 1972 to
1983 in various capacities including Vice President of Retail Operations, and
was also employed by The Kroger Co. from 1966 to 1972.

22



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##### Table of Contents





|Item 10. | Directors and Executive Officers of the Registrant (contd.)
|-------- | -----------------------------------------------------------

Background of Directors and Executive Officers (contd.)

H. Harrison Lightfoothas been Group Senior Vice President-Development
since May 1998 and was Group Senior Vice President-Retail Operations of the
Company from June 1986 to May 1998. Mr. Lightfoot has served the Company for
47 years in various capacities, including store manager, buyer, general
supervisor and Vice President. Mr. Lightfoot is a general partner of La Cadena
Investments.

A. Gayle Padenhad been Group Senior Vice President-Administration since
May 1998 and was Group Senior Vice President-Distribution from July 1996 to May
1998. Mr. Paden joined the Company in 1986 as Group Senior Vice
President-Administration and served in that capacity until July 1996. Mr.
Paden was previously with Lucky Stores for 35 years where he served in various
capacities, the most recent of which was President of the Southern California
Food Division. Mr. Paden retired from the Company in November of 2001.

Phillip J. Smithhas been Senior Vice President and Chief Financial
Officer since November 2000, and was Vice President and Controller from April
1998 until November 2000. Mr. Smith joined the Company in 1987 as Controller.
Mr. Smith has approximately 26 years experience in the supermarket industry.
Prior to joining the Company, Mr. Smith was employed by Market Basket
Foodstores as Vice President and Chief Financial Officer from 1985 to 1987.
From 1975 until 1985, Mr. Smith was employed by various divisions of Cullum
Companies, Inc., a publicly held corporation, in various financial capacities.

Bruce D. Varnerhas been a director of Stater Bros. Markets since
September 1985 and director of Stater Bros. Holdings Inc. since May 1989.
Since February 1997, Mr. Varner has been a partner in the law firm of Varner,
Saleson & Dobler LLP. From 1967 to February 1997, Mr. Varner was a partner in
the law firm of Gresham, Varner, Savage, Nolan & Tilden. Mr. Varner
specializes in business and corporate matters. Mr. Varner and the law firm of
Varner, Saleson & Dobler LLP have performed legal services in the past for the
Company and the Company expects such services to continue in the future.

Thomas W. Field, Jr.has been Vice Chairman of the Board of Directors of
the Company since May 1998 and a Director of the Company since 1994. He has
been President of Field and Associates since 1989. From 1988 to 1989, Mr.
Field was Chairman of the Board, President and Chief Executive Officer of
McKesson Corporation and was its President since 1984, and President and Chief
Executive Officer from 1986 to 1988. Mr. Field was President of American
Stores Company from 1981 to 1984 and was President of Alpha Beta Company from
1976 to 1984. Mr. Field was a Director of American Stores Company from 1979 to
1984. Mr. Field is a nationally recognized and highly regarded supermarket
executive. Mr. Field has held various positions in the Supermarket Industry
for over 42 years and serves as a Director for several companies including,
Campbell Soup Company and Maxicare.

C. Dale Warmanhas been a director of the Company since 2000. He served
the Fred Meyer Company for over 41 years. He served as a director of Fred
Meyer from 1975 to 1990. He served as president of Fred Meyer Foods from 1982
to 1990. He served as executive vice president of Fred Meyer Inc. from 1981 to
1990. He was executive vice president of Allied Foods from 1972 to 1975. He
served as a director of Big Bear Stores from 1987 to 1989 and as a director of
Allied Stores from 1973 to 1975. He is considered one of the supermarket
industrys outstanding executives.

23



---



##### Table of Contents








|Item 11. | Executive Compensation
|-------- | ----------------------

The following table summarizes the compensation for services rendered during
the prior three fiscal years paid to the CEO and the four most highly
compensated executive officers other than the CEO of the Company:



|                            |  |                     |      |        |  |           |           |              |  |           |           |              |  |              |   |  |  |           |        | 
|--------------------------- |  | ------------------- | ---- | ------ |  | --------- | --------- | ------------ |  | --------- | --------- | ------------ |  | ------------ | - |  |  | --------- | ------ | 
|                            |  | Annual Compensation |      |        |  |          
|                            |  |                     |      |        |  |          
|                            |  |                     |      |        |  |           |           |              |  |           |           |              |  |              |   |  |  | All Other
|Name and                    |  |                     |      |        |  |           |           |              |  | Bonuses   |           | Other Annual |  | Compensation
|Principal Position          |  | Year                |      | Salary |  | (4)(5)(6) |           | Compensation |  | (1)(2)(3)
|                            |  |                     |      |        |  |           |           |              |  |          
|Jack H. Brown               |  |                     | 2001 |        |  | $         | 1,128,000 |              |  | $         |          |              |  | $            |  |  |  | $         | 50,500 | 
|Chairman, President and     |  |                     | 2000 |        |  | $         | 1,044,000 |              |  | $         | 2,995,000 |              |  | $            |  |  |  | $         | 52,378 | 
|Chief Executive Officer     |  |                     | 1999 |        |  | $         | 960,000   |              |  | $         | 2,800,000 |              |  | $            |  |  |  | $         | 27,071 | 
|                           
|Donald I. Baker             |  |                     | 2001 |        |  | $         | 412,000   |              |  | $         |          |              |  | $            |  |  |  | $         |       | 
|Executive Vice President    |  |                     | 2000 |        |  | $         | 360,000   |              |  | $         | 175,000   |              |  | $            |  |  |  | $         | 1,378  | 
|and Chief Operating Officer |  |                     | 1999 |        |  | $         | 305,000   |              |  | $         | 250,000   |              |  | $            |  |  |  | $         | 1,571  | 
|                           
|H. Harrison Lightfoot       |  |                     | 2001 |        |  | $         | 334,000   |              |  | $         |          |              |  | $            |  |  |  | $         |       | 
|Group Senior Vice           |  |                     | 2000 |        |  | $         | 323,000   |              |  | $         | 140,000   |              |  | $            |  |  |  | $         | 1,378  | 
|President, Development      |  |                     | 1999 |        |  | $         | 320,000   |              |  | $         | 180,000   |              |  | $            |  |  |  | $         | 1,571  | 
|                           
|A. Gayle Paden              |  |                     | 2001 |        |  | $         | 338,000   |              |  | $         |          |              |  | $            |  |  |  | $         |       | 
|Group Senior Vice           |  |                     | 2000 |        |  | $         | 316,000   |              |  | $         | 90,000    |              |  | $            |  |  |  | $         | 1,378  | 
|President, Administration   |  |                     | 1999 |        |  | $         | 298,000   |              |  | $         | 115,000   |              |  | $            |  |  |  | $         | 1,571  | 
|                           
|Phillip J. Smith            |  |                     | 2001 |        |  | $         | 187,000   |              |  | $         |          |              |  | $            |  |  |  | $         |       | 
|Senior Vice President and   |  |                     | 2000 |        |  | $         | 150,000   |              |  | $         | 70,000    |              |  | $            |  |  |  | $         | 1,378  | 
|Chief Financial Officer     |  |                     | 1999 |        |  | $         | 139,000   |              |  | $         | 92,000    |              |  | $            |  |  |  | $         | 1,571  | 



---

|(1) |  | The dollar value of perquisites and other personal benefits, if any,
for each of the Named Executive Officers was less than the reporting
thresholds established by the Securities and Exchange Commission.                                                                                        
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Amounts shown for the Named Executive Officers represent the
Companys contributions to the Companys Profit Sharing Plan, a defined
contribution plan, for the account of each Named Executive Officer.
Plan participants become fully vested in the plan after seven years of
service.           
|   
|   
|   
|   
|(3) |  | Includes Mr. Browns Director Fees for 1999, 2000 and 2001, which
amounted to $25,500, $51,000, and $50,500, respectively.                                                                                                                                                                         
|   
|   
|   
|   
|(4) |  | The bonuses reflected in 1999, for Mr. Brown, Mr. Baker, Mr.
Lightfoot, Mr. Paden and Mr. Smith include one-time bonuses, based upon
the Companys successful integration, re-merchandizing and sales
increases in the acquired 43 Supermarkets from Albertsons and Lucky, in
Southern California.
|   
|   
|   
|   
|(5) |  | The Board of Directors of Stater Bros. Holdings Inc. unanimously
awarded Mr. Brown a one-time bonus in 2000 for the very successful
acquisition and financing of the 43 acquired supermarkets.                                                                                                     
|   
|   
|   
|   
|(6) |  | Annual bonuses to be paid to the Named Executive Officers for fiscal
2001 had neither been calculated nor awarded as of December 10, 2001,
the latest practical date.                                                                                                                              

Stock Options and SARs

None

24



---



##### Table of Contents







|Item 11. | Executive Compensation (contd.)
|-------- | -------------------------------

Pension Plan

The Companys Pension Plan for Salaried Employees (the Pension Plan) is a
non-contributory, defined benefit plan which applies to all salaried employees
who have completed one year of qualified service, including directors who are
employees. For each year of credited service, the annual pension to which an
employee is entitled under the Pension Plan upon normal retirement at age 65 is
an amount equal to three quarters of one percent of the employees compensation
for each year up to the social security wage base, plus 2.15 percent of the
employees compensation for each year in excess of the social security wage
base. The Named Executive Officers have the following years of credited
service under the Pension Plan as of September 30, 2001: Jack H. Brown  20
years, H. Harrison Lightfoot  47 years, A. Gayle Paden  15 years, Donald I.
Baker  18 years and Phillip J. Smith  14 years.

The amounts shown in the following table are estimated annual retirement
benefits under the Pension Plan (assuming payments are made on the normal life
annuity and not under any of the various survivor forms of benefits) based upon
retirement at age 65, after various years of service at selected salary levels.
Benefits under the Pension Plan do not become fully vested until the employee
has five years of credited service with the Company. The Internal Revenue Code
of 1986, as amended, places certain limitations on pension benefits that can be
paid from a tax-qualified pension plan and trust, as well as the compensation
that may be taken into account in determining such benefits. Such limitations
are not reflected in the table below. The maximum annual benefit for 2001
retirees with ten or more years of service at retirement is $135,000. The
maximum annual compensation that may be considered for 2001 retirees is
$170,000.

|             |  |                    |        |    |  |    |        |    |  |    |        |  |  |   |         |  |  |   |         | 
|------------ |  | ------------------ | ------ | -- |  | -- | ------ | -- |  | -- | ------ |  |  | - | ------- |  |  | - | ------- | 
|             |  | Pension Plan Table
|             |  | Years of Service  
|             |  |                   
|Remuneration |  | 15                 |        | 20 |  | 25 |        | 30 |  | 35
|             |  |                    |        |    |  |    |        |    |  |   
|$  50,000    |  | $                  | 5,667  |    |  | $  | 7,556  |    |  | $  | 9,445  |  |  | $ | 11,334  |  |  | $ | 13,223  | 
|75,000       |  |                    | 13,730 |    |  |    | 18,306 |    |  |    | 22,883 |  |  |   | 27,459  |  |  |   | 32,036  | 
|100,000      |  |                    | 21,792 |    |  |    | 29,056 |    |  |    | 36,320 |  |  |   | 43,584  |  |  |   | 50,848  | 
|125,000      |  |                    | 29,855 |    |  |    | 39,806 |    |  |    | 49,758 |  |  |   | 59,709  |  |  |   | 69,661  | 
|150,000      |  |                    | 37,917 |    |  |    | 50,556 |    |  |    | 63,195 |  |  |   | 75,834  |  |  |   | 88,473  | 
|175,000      |  |                    | 45,980 |    |  |    | 61,306 |    |  |    | 76,633 |  |  |   | 91,959  |  |  |   | 107,286 | 
|200,000      |  |                    | 54,042 |    |  |    | 72,056 |    |  |    | 90,070 |  |  |   | 108,084 |  |  |   | 126,098 | 

Compensation of Directors

Directors of the Company are paid an annual fee of $50,000 plus $500 for each
board meeting attended.

Employment and Severance Agreements

In June of 2000, the Companys principal operating subsidiary, Stater Bros.
Markets, entered into Employment Agreements with Messrs. Brown, Baker,
Lightfoot, Paden and Smith. Under each of the Agreements, the employee is
employed to serve as an officer of the Company and with certain exceptions the
Agreements prohibits the employee from employment in any other business except
for a parent or subsidiary of the Company. Each of the Agreements may be
terminated by the Company with cause and by either party without cause upon
ninety (90) days written notice. If the employment is terminated without
cause, the Employees compensation continues through the expiration of the
term of the Agreement then in effect except in the event of termination of

25



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##### Table of Contents





|Item 11. | Executive Compensation (contd.)
|-------- | -------------------------------

Employment and Severance Agreements (contd.)

any of the Agreements of Messrs. Baker, Lightfoot, Paden and Smith by Mr. Brown
or by the Board of Directors with the consent of Mr. Brown. If the employee is
terminated as a result of a change of control, he is entitled to receive all
salary and benefits provided under the Agreement for the original term
notwithstanding termination of his employment. Each Agreement provides for
annual base compensation at the employees current level with annual increases
plus employee benefits and incentive bonus calculated in accordance with a
formula based on the Companys earnings. Mr. Browns Agreement has an original
term of five (5) years which is automatically renewed on July 1 of each year
for a five (5) year term unless ninety (90) days notice of termination is given
by either party. Mr. Bakers Agreement has an original term of four (4) years
and unless sooner terminated is renewed automatically through April 20, 2006,
the date of Mr. Bakers sixty-fifth (65th) birthday, the Companys normal
retirement age. Mr. Lightfoots and Mr. Padens Agreements have terms ending
on March 5, 2003 and November 6, 2001 respectively, the dates of their
respective sixty-fifth (65) birthdays, the Companys normal retirement age.
Mr. Smiths Agreement has an original term of three (3) years which is
automatically renewed for an additional term of three (3) years unless sooner
terminated.

In addition, the Companys operating entity, Stater Bros. Markets, entered into
employment contracts with 44 additional members of Senior Management during
fiscal 2000.

The Companys severance policies generally provide for two weeks of severance
pay to full-time, non-bargaining unit employees for every year of service to
the Company, up to a maximum of twelve weeks.

Phantom Stock Plan

Stater Bros. Holdings maintains a phantom stock plan to provide additional
incentive compensation to certain executives of Stater Bros. Markets whose
performance is considered especially critical to the Companys business. Under
the plan, grants may be made by the Compensation Committee and Board of
Directors to persons recommended by the Chairman of the Board or Chief
Executive Officer. Existing stockholders and partners of La Cadena Investments
are not eligible to receive awards. Awards under the plan are for units that
have a value equal to a fraction of a share of Stater Bros. Holdings common
stock. The value of the units awarded under the plan will increase or decrease
in accordance with the value of the common stock. Subject to vesting
provisions of the plan, units are paid in cash either (i) in a lump sum upon a
change in control of the Company; or (ii) if sooner, in either a lump sum or
installments (with interest) over a five-year period (as Stater Bros. Holdings
may determine) following termination of the participants employment by reason
of retirement, permanent total disability or death. Awards under the plan vest
after five years, except that upon a participants early retirement, permanent
total disability or death, awards are considered partially vested at the rate
of 20% for each year of employment following the grant. If a participant
voluntarily terminates his or her employment, or is terminated for cause, any
unvested awards under the plan will terminate and no payment will be made
thereunder. As of September 30, 2001, there were 663,000 units awarded.

Payments pursuant to units awarded under the plan are based upon the value of a
share of common stock at the date of retirement, permanent total disability or
death, except that if such date occurs within two years of the grant the amount
of payment, per unit, is limited to the appreciated value of a share of stock
during the period. Upon a change of control, the payment on all units is equal
to the value of a fraction of a Stater Bros. Holdings common stock share.

26



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##### Table of Contents








|Item 12. | Security Ownership of Certain Beneficial Owners and
Management
|-------- | --------------------------------------------------------------

The following table sets forth, as of December 10, 2001, the number and
percentage of outstanding shares of Class A Common Stock beneficially owned by
(a) each person known by the Company to beneficially own more than 5% of such
stock, (b) each director of the Company, (c) each of the Named Executive
Officers, and (d) all directors and executive officers of the Company as a
group:

|                                                                |  |                |        |               |  |  |     |  
|--------------------------------------------------------------- |  | -------------- | ------ | ------------- |  |  | --- | -
|                                                                |  | Shares of      |        |               |  | 
|                                                                |  | Class A Common |        | Percentage of
|                                                                |  | Stock          |        | Class A      
|Name and Address                                                |  | Beneficially   |        | Common Stock 
|of Beneficial Owner                                             |  | Owned          |        | Outstanding  
|                                                                |  |                |        |              
|La Cadena Investments (1)                                       |  |                | 50,000 |               |  |  | 100 | %
|Jack H. Brown (1)(2)                                            |  |                | 50,000 |               |  |  | 100 | %
|H. Harrison Lightfoot (1)(2)                                    |  |                | 50,000 |               |  |  | 100 | %
|Richard C. Moseley (1)(2)                                       |  |                | 50,000 |               |  |  | 100 | %
|A. Gayle Paden (2)                                              |  |                |       |               |  |  |    |  
|Donald I. Baker (2)                                             |  |                |       |               |  |  |    |  
|Phillip J. Smith (2)                                            |  |                |       |               |  |  |    |  
|Bruce D. Varner (2)                                             |  |                |       |               |  |  |    |  
|Thomas W. Field, Jr. (2)                                        |  |                |       |               |  |  |    |  
|C. Dale Warman (2)                                              |  |                |       |               |  |  |    |  
|All directors and executive
officers as a group
(8 persons) (1) |  |                | 50,000 |               |  |  | 100 | %



---

|(1) |  | The 50,000 outstanding shares of the Companys Class A Common Stock
are owned by La Cadena Investments and may be deemed to be beneficially
owned by the partners of La Cadena Investments. The general partners of
La Cadena Investments are Jack H. Brown, Richard C. Moseley and H.
Harrison Lightfoot. Mr. Brown has the majority interest and is the
managing general partner of La Cadena Investments and has the power to
vote the shares of the Company owned by La Cadena Investments on all
matters. Certain La Cadena issues, such as the disposition of such
shares of the Company, may require approval of 60% of the voting power
of La Cadena Investments. Accordingly, Messrs. Brown, Moseley and
Lightfoot may be deemed to have shared voting power or shared investment
power with respect to the shares owned by La Cadena Investments, and
such individuals therefore may be deemed to be the beneficial owners
thereof. The address of La Cadena Investments is 3750 University
Avenue, Suite 610, Riverside, California 92501.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | The address of Messrs. Brown, Lightfoot, Moseley, Paden, Baker,
Smith, Varner, Field and Warman is c/o the Company at 21700 Barton Road,
Colton, California 92324.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   

Change of Control Arrangements

None

27



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##### Table of Contents








|Item 13. | Certain Relationships and Related Transactions
|-------- | ----------------------------------------------

Mr. Bruce D. Varner and the law firm of Varner, Saleson & Dobler LLP, of which
Mr. Varner is a partner, have performed legal services in the past for the
Company. The total cost of such legal services incurred by the Company during
fiscal 2001 was approximately $1.7 million. The Company believes that the
terms and costs of such legal services provided by Mr. Varner and the law firm
of Varner, Saleson & Dobler LLP were at least as fair to the Company as could
have been obtained from unaffiliated law firms. The Company expects such
services to continue in the future.

Effective March 8, 1996, pursuant to options available to the Company, the
Company exercised its right to convert all of its outstanding shares of Common
Stock (previously held by Craig Corporation) into 693,650 shares of its Series
B Preferred Stock. The Series B Preferred Stock had a redemption value of
approximately $69.4 million and paid dividends at the rate of 10.5% per annum.
In August 1997, the Company redeemed all of the outstanding shares of its
Series B Preferred Stock for $69.4 million plus accrued and unpaid dividends.

Effective March 1994, the Company paid $1.5 million annually in consulting fees
to Craig Corporation, subject to a certain five-year Consulting Agreement
entered into between the Company and Craig. The Companys agreement to pay
Craig an annual consulting fee was terminated, at the election of the Company,
in August 1997.

In July 1997, in connection with the issuance of $100.0 million 9% Senior
Subordinated Notes due 2004, the Company retained La Cadena to provide
financial advisory services for a fee of $2.0 million.

In August 1999, in connection with the $450.0 million debt offering, the
redemption of all of the 9% Notes and substantially all of the 11% Notes and
the acquisition of 43 supermarkets and one future store site from Albertsons,
the Company retained La Cadena to provide financial advisory services for a fee
of $4.5 million.

The 50,000 outstanding shares of the Companys Class A Common Stock are owned
by La Cadena Investments and may be deemed to be beneficially owned by the
partners of La Cadena Investments. The general partners of La Cadena are Jack
H. Brown, Richard C. Moseley and H. Harrison Lightfoot. Mr. Brown has a
majority interest and is the managing general partner. Mr. Brown is a director
of the Company and Messrs. Brown and Lightfoot are Named Executive Officers of
the Company. Mr. Brown has the power to vote the shares of the Company owned
by La Cadena, except with respect to certain fundamental corporate changes of
the Company, including the disposition of such shares. Accordingly, Messrs.
Brown, Moseley and Lightfoot may be deemed to have shared voting power with
respect to shares of the Company owned by La Cadena. Mr. Moseley served the
Company for over 44 years and in many executive capacities, most recently and
from September 1995 until his retirement from the Company in January 1996, Mr.
Moseley served as Executive Vice President of the Company.

28



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##### Table of Contents






PART IV






|Item 14. | Exhibits, Financial Statement Schedules and Reports on Form 8-K
|-------- | ---------------------------------------------------------------



| | (a) |  | Document list
| | --- |  | -------------



| | (1) |  | Financial Statements                                                                                                                                                                                                                                                          
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |     |  | See Financial Statement Index included in Item 8 of Part II of
this Form 10-K.                                                                                                                                                                                                
|
| | (2) |  | Financial Statement Schedules                                                                                                                                                                                                                                                 
|
| |     |  | The Financial Statement Schedules required by Item 14(d) for
which provision is made in the applicable accounting regulations
of the Securities and Exchange Commission, are not required under
the related instructions or are inapplicable and therefore, have
been omitted.
|
| | (3) |  | Exhibits                                                                                                                                                                                                                                                                      
|
| |     |  | Exhibits as required by Item 14(c) are as follows:                                                                                                                                                                                                                            

|            |  |  |     |  |                                                                                                                                                                                                                                                                        
|----------- |  |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  |  |     |  | DESCRIPTION                                                                                                                                                                                                                                                            
|            |  |  |     |  |                                                                                                                                                                                                                                                                        
|1           |  |  | (5) |  | Purchase Agreement dated August 6, 1999 by and between
Stater Bros. and Banc of America Securities LLC.                                                                                                                                                                
|2.1         |  |  | (5) |  | Asset Purchase Agreement dated as of May 7, 1999, by and between
Albertsons Inc., Stater Bros. Markets and Stater Bros.                                                                                                                                               
|3.1         |  |  | (1) |  | Certificate of Incorporation of the Company.                                                                                                                                                                                                                           
|3.2         |  |  | (1) |  | By-Laws of the Company.                                                                                                                                                                                                                                                
|4.2         |  |  | (4) |  | First Supplemental Indenture between the Company and IBJ Schroder
Bank & Trust Company, as Trustee, for $165,000,000 11% Senior
Notes due 2001, dated as of July 22, 1997 (the First
Supplemental Indenture)                                                         
|4.6         |  |  | (5) |  | Indenture dated as of August 6, 1999, between Stater Bros. and
IBJ Whitehall Bank & Trust Company.                                                                                                                                                                     
|4.7         |  |  | (5) |  | Registration Rights Agreement dated as of August 6, 1999, by and
between Stater Bros. and Banc of America Securities, LLC.                                                                                                                                             
|4.8         |  |  | (5) |  | Second Supplemental Indenture dated as of July 16, 1999 between
Stater Bros. and IBJ Whitehall Bank & Trust Company, for the
securities issued under the indenture dated as of March 8, 1994,
as amended by the First Supplemental Indenture dated as of July
22, 1997.
|5.0         |  |  | (5) |  | Opinion of Gibson, Dunn & Crutcher LLP                                                                                                                                                                                                                                 
|10.1        |  |  | (1) |  | Reclassification Agreement dated September 3, 1993, by and among
the Company, Craig and La Cadena.                                                                                                                                                                     

29



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##### Table of Contents





|Item 14. | Exhibits, Financial Statement Schedules
and Reports on Form 8-K (contd.)
|-------- | ------------------------------------------------------------------------



| | (a)(3) Exhibits (contd.) |  | 
| | ------------------------ |  | 

|            |  |  |     |  |                                                                                                                                                                  
|----------- |  |  | --- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  |  |     |  | DESCRIPTION                                                                                                                                                      
|            |  |  |     |  |                                                                                                                                                                  
|10.2        |  |  | (1) |  | Amendment to Reclassification Agreement, dated January 12, 1994,
by and among the Company, Craig and La Cadena.                                                  
|10.3        |  |  | (1) |  | Agreement of Stockholders dated May 10, 1989, by and among the
Company, Craig and La Cadena.                                                                     
|10.4        |  |  | (1) |  | Amendment to Agreement of Stockholders dated September 3, 1993,
by and among the Company, Craig, Craig Management, Inc. (CMI)
and La Cadena.                   
|10.5        |  |  | (1) |  | Option Agreement dated September 3, 1993, by and between the
Company and Craig.                                                                                  
|10.6        |  |  | (1) |  | Amendment to Option Agreement dated January 12, 1994, by and
between the Company and Craig.                                                                      
|10.7        |  |  | (1) |  | Consulting Agreement dated September 3, 1993, by and between the
Company, Craig and CMI.                                                                         
|10.8        |  |  | (1) |  | Letter Agreement regarding Consulting Agreement, dated March
8, 1994, by and between the Company, Craig and CMI.                                                 
|10.9        |  |  | (1) |  | Second Amended and Restated Stock Agreement dated January 12,
1994, by and among the Company, Craig, CMI, La Cadena and James
J. Cotter.                         
|10.10       |  |  | (1) |  | Security Agreement dated March 8, 1994, by and between the
Company and Craig.                                                                                    
|10.12       |  |  | (1) |  | Credit Agreement dated March 8, 1994, by and between Stater Bros.
Markets and Bank of America Trust and Savings Association.                                     
|10.12 (a)   |  |  | (2) |  | Amendment dated June 23, 1995 to the Credit Agreement dated March
8, 1994, by and between Stater Bros. Markets and Bank of America
Trust and Savings Association.
|10.12 (b)   |  |  | (3) |  | Amendment dated July 22, 1996 to the Credit Agreement dated March
8, 1994, by and between Stater Bros. Markets and Bank of America
Trust and Savings Association.
|10.12 (c)   |  |  | (5) |  | Credit Agreement dated as of August 6, 1999 by and among Stater
Bros. Markets, Stater Bros. and Bank of America, N.A.                                            
|10.13       |  |  | (1) |  | Continuing Guaranty dated March 8, 1994, of Stater Bros.
Development, Inc. in favor of Bank of America Trust and Savings
Association.                            
|10.15       |  |  | (1) |  | Subordination Agreement dated March 8, 1994, by and among the
Company, Stater Bros. Markets and Bank of America Trust and
Savings Association.                   

30



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##### Table of Contents





|Item 14. | Exhibits, Financial Statement Schedules
and Reports on Form 8-K (contd.)
|-------- | ------------------------------------------------------------------------



| | (a)(3) Exhibits (contd.) |  | 
| | ------------------------ |  | 

|            |  |  |     |  |                                                                                                                                              
|----------- |  |  | --- |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|EXHIBIT NO. |  |  |     |  | DESCRIPTION                                                                                                                                  
|            |  |  |     |  |                                                                                                                                              
|10.16       |  |  | (1) |  | Amended and Restated Sublease Agreement dated June 1, 1983,
between Wren Leasing Corp., as Lessor, and Stater Bros. Markets,
as Lessee.      
|10.17       |  |  | (1) |  | Preferred Stock Agreement dated March 22, 1983, between Stater
Bros. Markets and Petrolane Incorporated.                                     
|10.18       |  |  | (1) |  | Escrow Agreement dated September 19, 1985, by and among Stater
Bros. Markets, Petrolane Incorporated and First Interstate Bank
of California.
|10.19       |  |  | (5) |  | Dealer Manager Agreement dated as of July 1, 1999, by and between
Stater Bros. and Banc of America Securities LLC.                           
|10.20       |  |  | (6) |  | Employment contract dated June 1, 2000 by and between Stater
Bros. Markets and Jack H. Brown.                                                
|10.21.1     |  |  | (7) |  | Employment contract dated June 1, 2000, as amended, by and
between Stater Bros. Markets and Donald I. Baker.                                 
|10.22.1     |  |  | (7) |  | Employment contract dated June 1, 2000, as amended, by and
between Stater Bros. Markets and A. Gayle Paden.                                  
|10.23       |  |  | (7) |  | Employment contract dated June 1, 2000 by and between Stater
Bros. Markets and H. Harrison Lightfoot.                                        
|10.24       |  |  | (7) |  | Employment contract dated June 1, 2000 by and between Stater
Bros. Markets and Phillip J. Smith                                              
|10.25       |  |  | (7) |  | Stater Bros. Holdings Inc. Phantom Stock Plan                                                                                                
|11          |  |  |     |  | Calculation of earnings per common share.                                                                                                    
|12          |  |  |     |  | Computation of ratio of earnings to fixed charges.                                                                                           
|21          |  |  | (1) |  | Subsidiaries of the Company.                                                                                                                 
|24          |  |  | (5) |  | Powers of Attorney (included on signature pages of this
Registration Statement on Form S-4)                                                  
|25          |  |  | (5) |  | Form T-1 Statement of Eligibility and Qualification of IBJ
Whitehall Bank & Trust Company, as Trustee.                                       



---

|(1) |  | Previously filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement S-4 No. 33-77296 dated July 21,
1994.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------

31



---



##### Table of Contents





|Item 14. | Exhibits, Financial Statement Schedules
and Reports on Form 8-K (contd.)
|-------- | ------------------------------------------------------------------------



| |  |  | (a)(3) Exhibits (contd.)
| |  |  | ------------------------



|(2) |  | Previously filed with the Securities and Exchange Commission as
an exhibit to the Registrants Quarterly Report on Form 10-Q dated June
25, 1995 and filed on August 8, 1995.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(3) |  | Previously filed with the Securities and Exchange Commission as
exhibit 10.12(b) with the Annual Report on Form 10-K for the fiscal year
ended September 29, 1996.           
|   
|   
|   
|   
|(4) |  | Previously filed with the Securities and
Exchange Commission as exhibits to the Registration
Statement S-4, No. 333-34113 dated October 17, 1997.                            
|   
|   
|   
|   
|(5) |  | Previously filed with the Securities and
Exchange Commission as exhibits to the Registration
Statement S-4, No. 333-85723 dated September 13, 1999.                          
|   
|   
|   
|   
|(6) |  | Previously filed with the Securities and
Exchange Commission as exhibits to Registrants Quarterly
Report on Form 10-Q dated June 25, 2000 and filed on
August 9, 2000.      
|   
|   
|   
|   
|(7) |  | Filed with the Securities and Exchange
Commission as exhibits with the Annual Report on Form 10-K
for the fiscal year ended September 24, 2000.                              

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               

32



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##### Table of Contents






STATER BROS. HOLDINGS INC.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2001
FORM 10-K

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.

|                      |  |                                                                            |                  
|--------------------- |  | -------------------------------------------------------------------------- | -----------------
|December 20, 2001Date |  | Stater Bros. Holdings Inc.                                                
|                      |  | By:                                                                        | /s/ Jack H. Brown
|                      |  |                                                                           
|                      |  | Jack H. Brown
Chairman of the Board,
President and Chief
Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.

|                                              |  |                                                                                                         |  |                  
|--------------------------------------------- |  | ------------------------------------------------------------------------------------------------------- |  | -----------------
|Signature                                     |  | Title                                                                                                   |  | Date             
|                                              |  |                                                                                                         |  |                  
|                                             
|/s/  Jack H. BrownJack H. Brown               |  | Chairman of the Board, President
and Chief Executive Officer
and Director (Principal
Executive Officer) |  | December 20, 2001
|                                             
|/s/  Thomas W. Field, Jr.Thomas W. Field, Jr. |  | Vice Chairman of the Board
and Director                                                                 |  | December 20, 2001
|                                             
|/s/  Bruce D. VarnerBruce D. Varner           |  | Secretary and Director                                                                                  |  | December 20, 2001
|                                             
|/s/  C. Dale WarmanC. Dale Warman             |  | Director                                                                                                |  | December 20, 2001
|                                             
|/s/ Phillip J. SmithPhillip J. Smith          |  | Senior Vice President and
Chief Financial Officer
(Chief Accounting Officer)                            |  | December 20, 2001

33



---



##### Table of Contents






INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

|                                                                                             |                                                  |  |             |     | 
|-------------------------------------------------------------------------------------------- | ------------------------------------------------ |  | ----------- | --- | 
|                                                                                             |                                                  |  | Page Number
|                                                                                             |                                                  |  |            
|Report of Independent Auditors                                                               |                                                  |  | F-2         |    
|Consolidated Balance Sheets at September 26, 1999,
September 24, 2000 and September 30, 2001 |                                                  |  | F-3         |    
|Fiscal years ended September 26, 1999, September 24, 2000 and
September 30, 2001:            |                                                  |  |             |    
|                                                                                             | Consolidated Statements of Operations            |  |             | F-5 | 
|                                                                                             | Consolidated Statements of Cash Flows            |  |             | F-6 | 
|                                                                                             | Consolidated Statements of Stockholders Deficit |  |             | F-7 | 
|Notes to Consolidated Financial Statements                                                   |                                                  |  | F-8         |    

F-1



---



##### Table of Contents






REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of
Stater Bros. Holdings Inc.

We have audited the accompanying consolidated balance sheets of Stater
Bros. Holdings Inc. and subsidiaries as of September 26, 1999, September 24,
2000 and September 30, 2001, and the related consolidated statements of
operations, stockholders deficit, and cash flows for the 52-week periods ended
September 26, 1999 and September 24, 2000 and the 53-week period ended
September 30, 2001. These financial statements are the responsibility of the
Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Stater Bros. Holdings Inc. and subsidiaries as of September 26, 1999,
September 24, 2000 and September 30, 2001, and the consolidated results of
their operations and their cash flows for the 52-week periods ended September
26, 1999 and September 24, 2000 and the 53-week period ended September 30,
2001, in conformity with accounting principles generally accepted in the United
States.



| | ERNST & YOUNG LLP
| | -----------------

Riverside, California
December 4, 2001

F-2



---



##### Table of Contents






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

ASSETS

|                                       |                                                |   |         |         |           |   |           |         |           |   |         |         |  |  | 
|-------------------------------------- | ---------------------------------------------- | - | ------- | ------- | --------- | - | --------- | ------- | --------- | - | ------- | ------- |  |  | 
|                                       |                                                |   |         |         | Sept. 26, |   | Sept. 24, |         | Sept. 30,
|                                       |                                                |   |         |         | 1999      |   | 2000      |         | 2001     
|                                       |                                                |   |         |         |           |   |           |         |          
|Current assets                         |                                                |   |         |         |           |   |           |         |           |   |         |        
|                                       | Cash and cash equivalents                      |   | $       | 93,352  |           |   | $         | 62,631  |           |   | $       | 101,636 | 
|                                       | Lease guarantee escrow                         |   |         |        |           |   |           | 13,180  |           |   |         |        | 
|                                       | Receivables                                    |   |         | 28,296  |           |   |           | 28,181  |           |   |         | 29,894  | 
|                                       | Income tax receivables                         |   |         | 5,942   |           |   |           | 263     |           |   |         | 358     | 
|                                       | Inventories                                    |   |         | 155,361 |           |   |           | 165,332 |           |   |         | 170,189 | 
|                                       | Prepaid expenses                               |   |         | 5,926   |           |   |           | 5,337   |           |   |         | 6,743   | 
|                                       | Deferred income taxes                          |   |         | 3,523   |           |   |           | 10,776  |           |   |         | 6,634   | 
|                                       | Properties held for sale                       |   |         | 3,886   |           |   |           | 3,863   |           |   |         | 3,840   | 
|                                       |                                                |   |         |         |           |   |           |         |           |   |         |        
|Total current assets                   |                                                |   | 296,286 |         |           |   | 289,563   |         |           |   | 319,294 |        
|Investment in unconsolidated affiliate |                                                |   | 9,599   |         |           |   | 11,082    |         |           |   | 12,666  |        
|Property and equipment                 |                                                |   |         |         |           |   |           |         |           |   |         |        
|                                       | Land                                           |   |         | 44,941  |           |   |           | 47,574  |           |   |         | 47,574  | 
|                                       | Buildings and improvements                     |   |         | 160,406 |           |   |           | 169,584 |           |   |         | 181,641 | 
|                                       | Store fixtures and equipment                   |   |         | 150,027 |           |   |           | 172,465 |           |   |         | 190,581 | 
|                                       | Property subject to capital leases             |   |         | 25,261  |           |   |           | 25,261  |           |   |         | 24,670  | 
|                                       |                                                |   |         |         |           |   |           |         |           |   |         |        
|                                       |                                                |   | 380,635 |         |           |   | 414,884   |         |           |   | 444,466 |        
|                                       | Less accumulated depreciation and amortization |   |         | 120,906 |           |   |           | 144,370 |           |   |         | 169,979 | 
|                                       |                                                |   |         |         |           |   |           |         |           |   |         |        
|                                       |                                                |   | 259,729 |         |           |   | 270,514   |         |           |   | 274,487 |        
|Deferred income taxes                  |                                                |   | 4,297   |         |           |   | 3,676     |         |           |   | 4,897   |        
|Deferred debt issuance costs, net      |                                                |   | 16,774  |         |           |   | 14,569    |         |           |   | 12,042  |        
|Lease guarantee escrow                 |                                                |   | 11,280  |         |           |   |          |         |           |   |        |        
|Other assets                           |                                                |   | 5,952   |         |           |   | 5,884     |         |           |   | 5,908   |        
|                                       |                                                |   |         |         |           |   |           |         |           |   |         |        
|                                       |                                                |   | 38,303  |         |           |   | 24,129    |         |           |   | 22,847  |        
|Total assets                           |                                                | $ | 603,917 |         |           | $ | 595,288   |         |           | $ | 629,294 |        
|                                       |                                                |   |         |         |           |   |           |         |           |   |         |        

See accompanying notes to consolidated financial statements.

F-3



---



##### Table of Contents



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

LIABILITIES AND STOCKHOLDERS DEFICIT

|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |   |         |   | 
|------------------------------------------------------ |  | --------------------------------------------------------------- | ------------------------------------------------------------- | - | --------- | - | --------- | - | --------- | - | ------- | - | ------- | - | 
|                                                       |  |                                                                 |                                                               |   | Sept. 26, |   | Sept. 24, |   | Sept. 30,
|                                                       |  |                                                                 |                                                               |   | 1999      |   | 2000      |   | 2001     
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |          
|Current liabilities                                    |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|                                                       |  | Accounts payable                                                |                                                               | $ | 97,169    |   |           | $ | 100,777   |   |         | $ | 107,485 |  
|                                                       |  | Accrued payroll and related expenses                            |                                                               |   | 35,757    |   |           |   | 35,385    |   |         |   | 41,737  |  
|                                                       |  | Other accrued liabilities                                       |                                                               |   | 30,501    |   |           |   | 34,637    |   |         |   | 44,340  |  
|                                                       |  | Current portion of capital lease obligations and long-term debt |                                                               |   | 1,944     |   |           |   | 6,994     |   |         |   | 1,435   |  
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|Total current liabilities                              |  |                                                                 | 165,371                                                       |   |           |   | 177,793   |   |           |   | 194,997 |  
|Long-term debt, less current portion                   |  |                                                                 | 455,048                                                       |   |           |   | 439,000   |   |           |   | 439,000 |  
|Capital lease obligations, less current portion        |  |                                                                 | 15,625                                                        |   |           |   | 13,679    |   |           |   | 12,098  |  
|Long-term portion of self-insurance and other reserves |  |                                                                 | 7,450                                                         |   |           |   | 9,875     |   |           |   | 15,852  |  
|Other long-term liabilities                            |  |                                                                 | 3,510                                                         |   |           |   | 4,195     |   |           |   | 8,756   |  
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|Total liabilities                                      |  |                                                                 | 647,004                                                       |   |           |   | 644,542   |   |           |   | 670,703 |  
|Stockholders deficit                                  |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|                                                       |  | Common Stock, $.01 par value:                                   |                                                               |   |           |   |           |   |           |   |         |   |         |  
|                                                       |  |                                                                 | Authorized shares - 100,000                                   |   |           |   |           |   |           |   |         |   |         |   | 
|                                                       |  |                                                                 | Issued and outstanding shares -
0 in 1999, 2000 and 2001      |   |           |  |           |   |           |  |         |   |         |  | 
|                                                       |  | Class A Common Stock, $.01 par value:                           |                                                               |   |           |   |           |   |           |   |         |   |         |  
|                                                       |  |                                                                 | Authorized shares - 100,000                                   |   |           |   |           |   |           |   |         |   |         |   | 
|                                                       |  |                                                                 | Issued and outstanding shares -
50,000 in 1999, 2000 and 2001 |   |           | 1 |           |   |           | 1 |         |   |         | 1 | 
|                                                       |  | Additional paid-in capital                                      |                                                               |   | 12,715    |   |           |   | 12,715    |   |         |   | 12,715  |  
|                                                       |  | Retained deficit                                                |                                                               |   | (55,803   | ) |           |   | (61,970   | ) |         |   | (54,125 | )
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|Total stockholders deficit                            |  |                                                                 | (43,087                                                       | ) |           |   | (49,254   | ) |           |   | (41,409 | )
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  
|Total liabilities and stockholders deficit            |  | $                                                               | 603,917                                                       |   |           | $ | 595,288   |   |           | $ | 629,294 |  
|                                                       |  |                                                                 |                                                               |   |           |   |           |   |           |   |         |  

See accompanying notes to consolidated financial statements.

F-4



---



##### Table of Contents






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

|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |         | 
|---------------------------------------------------------------------------------- | -------------------------------------------- | - | ----------------- | ------- | --------- | - | --------- | ------- | - | - | --------- | ------- | 
|                                                                                   |                                              |   | Fiscal Year Ended
|                                                                                   |                                              |   |                  
|                                                                                   |                                              |   | Sept. 26,         |         | Sept. 24, |   | Sept. 30,
|                                                                                   |                                              |   | 1999              |         | 2000      |   | 2001     
|                                                                                   |                                              |   |                   |         |           |   |          
|Sales                                                                              |                                              | $ | 1,830,195         |         |           | $ | 2,417,710 |         |   | $ | 2,573,913 |        
|Cost of goods sold                                                                 |                                              |   | 1,387,619         |         |           |   | 1,819,068 |         |   |   | 1,911,065 |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Gross profit                                                                       |                                              |   | 442,576           |         |           |   | 598,642   |         |   |   | 662,848   |        
|Operating expenses:                                                                |                                              |   |                   |         |           |   |           |         |   |   |           |        
|                                                                                   | Selling, general and administrative expenses |   |                   | 377,195 |           |   |           | 532,147 |   |   |           | 572,815 | 
|                                                                                   | Depreciation and amortization                |   |                   | 16,591  |           |   |           | 25,580  |   |   |           | 29,061  | 
|                                                                                   | Acquisition integration expenses             |   |                   | 5,590   |           |   |           | 4,594   |   |   |           |        | 
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Total operating expenses                                                           |                                              |   | 399,376           |         |           |   | 562,321   |         |   |   | 601,876   |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Operating profit                                                                   |                                              |   | 43,200            |         |           |   | 36,321    |         |   |   | 60,972    |        
|Interest income                                                                    |                                              |   | 3,308             |         |           |   | 3,244     |         |   |   | 3,409     |        
|Interest expense                                                                   |                                              |   | (33,630           | )       |           |   | (53,680   | )       |   |   | (52,410   | )      
|Equity in income from unconsolidated affiliate                                     |                                              |   | 1,130             |         |           |   | 1,483     |         |   |   | 1,584     |        
|Other expense  net                                                                |                                              |   | (357              | )       |           |   | (27       | )       |   |   | (258      | )      
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Income (loss) before income taxes (benefit) and
extraordinary gain (loss)          |                                              |   | 13,651            |         |           |   | (12,659   | )       |   |   | 13,297    |        
|Income taxes (benefit)                                                             |                                              |   | 5,372             |         |           |   | (5,369    | )       |   |   | 5,452     |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Income (loss) before extraordinary gain (loss)                                     |                                              |   | 8,279             |         |           |   | (7,290    | )       |   |   | 7,845     |        
|Extraordinary gain (loss), net of tax effect of
$(11,233) in 1999 and $773 in 2000 |                                              |   | (17,311           | )       |           |   | 1,123     |         |   |   |          |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Net income (loss)                                                                  |                                              | $ | (9,032            | )       |           | $ | (6,167    | )       |   | $ | 7,845     |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Earnings (loss) per common share:                                                  |                                              |   |                   |         |           |   |           |         |   |   |           |        
|                                                                                   | Before extraordinary gain (loss)             |   |                   | 165.58  |           |   |           | (145.80 | ) |   |           | 156.90  | 
|                                                                                   | Extraordinary gain (loss)                    |   |                   | (346.22 | )         |   |           | 22.46   |   |   |           |        | 
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Earnings (loss) per common share                                                   |                                              | $ | (180.64           | )       |           | $ | (123.34   | )       |   | $ | 156.90    |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Average common shares outstanding                                                  |                                              |   | 50,000            |         |           |   | 50,000    |         |   |   | 50,000    |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        
|Common shares outstanding at end of year                                           |                                              |   | 50,000            |         |           |   | 50,000    |         |   |   | 50,000    |        
|                                                                                   |                                              |   |                   |         |           |   |           |         |   |   |           |        

See accompanying notes to consolidated financial statements.

F-5



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##### Table of Contents






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

|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |        |        |  
|---------------------------------------------------------------------------------------- | ---------------------------------------------------- | -------------------------------------------------------------------------------- | -------- | ----------------- | ------ | --------- | ------- | --------- | ------ | - | ------- | ------ | ------ | -
|                                                                                         |                                                      |                                                                                  |          | Fiscal Year Ended
|                                                                                         |                                                      |                                                                                  |          |                  
|                                                                                         |                                                      |                                                                                  |          | Sept. 26,         |        | Sept. 24, |         | Sept. 30,
|                                                                                         |                                                      |                                                                                  |          | 1999              |        | 2000      |         | 2001     
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |          
|Operating activities:                                                                    |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Net income (loss)                                                                        |                                                      | $                                                                                | (9,032   | )                 |        | $         | (6,167  | )         |        | $ | 7,845   |       
|Adjustments to reconcile net income (loss) to net cash
provided by operating activities: |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|                                                                                         | Extraordinary (gain) loss                            |                                                                                  |          | 17,311            |        |           |         | (1,123    | )      |   |         |       |       
|                                                                                         | Depreciation and amortization                        |                                                                                  |          | 16,591            |        |           |         | 25,580    |        |   |         | 29,061 |       
|                                                                                         | Deferred income taxes                                |                                                                                  |          | (783              | )      |           |         | (6,632    | )      |   |         | 2,921  |       
|                                                                                         | Loss on disposals of assets                          |                                                                                  |          | 357               |        |           |         | 29        |        |   |         | 258    |       
|                                                                                         | Net undistributed income in unconsolidated affiliate |                                                                                  |          | (1,130            | )      |           |         | (1,483    | )      |   |         | (1,584 | )     
|                                                                                         | Changes in operating assets and liabilities:         |                                                                                  |          |                   |        |           |         |           |        |   |         |        |       
|                                                                                         |                                                      | (Increase) decrease in receivables                                               |          |                   | (7,845 | )         |         |           | 115    |   |         |        | (1,713 | )
|                                                                                         |                                                      | (Increase) decrease in income tax receivables                                    |          |                   | (5,942 | )         |         |           | 4,906  |   |         |        | (95    | )
|                                                                                         |                                                      | Increase in inventories                                                          |          |                   | (8,264 | )         |         |           | (9,971 | ) |         |        | (4,857 | )
|                                                                                         |                                                      | (Increase) decrease in prepaid expenses                                          |          |                   | 1,174  |           |         |           | 563    |   |         |        | (1,427 | )
|                                                                                         |                                                      | (Increase) decrease in other assets                                              |          |                   | 702    |           |         |           | (11    | ) |         |        | 15,683 |  
|                                                                                         |                                                      | Increase in accounts payable                                                     |          |                   | 31,616 |           |         |           | 3,608  |   |         |        | 6,708  |  
|                                                                                         |                                                      | Increase in accrued liabilities and long-term
portion of self-insurance reserves |          |                   | 24,541 |           |         |           | 5,971  |   |         |        | 26,593 |  
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Net cash provided by operating activities                                                |                                                      |                                                                                  | 59,296   |                   |        |           | 15,385  |           |        |   | 79,393  |       
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Financing activities:                                                                    |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Proceeds from long-term debt                                                             |                                                      |                                                                                  | 450,000  |                   |        |           |        |           |        |   |        |       
|Debt issuance costs                                                                      |                                                      |                                                                                  | (17,122  | )                 |        |           |        |           |        |   |        |       
|Premiums paid on early retirement of debt                                                |                                                      |                                                                                  | (18,668  | )                 |        |           |        |           |        |   |        |       
|Principal payments on long-term debt                                                     |                                                      |                                                                                  | (259,952 | )                 |        |           | (8,720  | )         |        |   | (5,048  | )     
|Principal payments on capital lease obligations                                          |                                                      |                                                                                  | (1,346   | )                 |        |           | (1,944  | )         |        |   | (2,092  | )     
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Net cash provided by (used in) financing activities                                      |                                                      |                                                                                  | 152,912  |                   |        |           | (10,664 | )         |        |   | (7,140  | )     
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Investing activities:                                                                    |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Acquisition of new stores                                                                |                                                      |                                                                                  | (136,221 | )                 |        |           |        |           |        |   |        |       
|Purchase of property and equipment                                                       |                                                      |                                                                                  | (42,840  | )                 |        |           | (38,203 | )         |        |   | (33,499 | )     
|Proceeds from sale of property and equipment and properties
held for sale                |                                                      |                                                                                  | 2,924    |                   |        |           | 2,761   |           |        |   | 251     |       
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Net cash used in investing activities                                                    |                                                      |                                                                                  | (176,137 | )                 |        |           | (35,442 | )         |        |   | (33,248 | )     
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Net increase (decrease) in cash and cash equivalents                                     |                                                      |                                                                                  | 36,071   |                   |        |           | (30,721 | )         |        |   | 39,005  |       
|Cash and cash equivalents at beginning of year                                           |                                                      |                                                                                  | 57,281   |                   |        |           | 93,352  |           |        |   | 62,631  |       
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Cash and cash equivalents at end of year                                                 |                                                      | $                                                                                | 93,352   |                   |        | $         | 62,631  |           |        | $ | 101,636 |       
|                                                                                         |                                                      |                                                                                  |          |                   |        |           |         |           |        |   |         |       
|Interest paid                                                                            |                                                      | $                                                                                | 27,309   |                   |        | $         | 52,520  |           |        | $ | 49,848  |       
|Income taxes paid                                                                        |                                                      | $                                                                                | 925      |                   |        | $         |        |           |        | $ | 2,890   |       

See accompanying notes to consolidated financial statements.

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STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS DEFICIT
(In thousands)

|                               |                                                  |   |        |   |        |   |         |   |            |   |        |   |  |   |         |        |  
|------------------------------ | ------------------------------------------------ | - | ------ | - | ------ | - | ------- | - | ---------- | - | ------ | - |  | - | ------- | ------ | -
|                               |                                                  |   |        |   |        |   | Class A |   | Additional |   |        |   | 
|                               |                                                  |   | Common |   | Common |   | Paid-in |   | Retained  
|                               |                                                  |   | Stock  |   | Stock  |   | Capital |   | Deficit   
|                               |                                                  |   |        |   |        |   |         |   |           
|Balances at September 27, 1998 |                                                  | $ |       |   |        | $ | 1       |   |            | $ | 12,715 |   |  | $ | (46,771 | )     
|                               | Net loss for 52 weeks ended
September 26, 1999   |   |        |  |        |   |         |  |            |   |        |  |  |   |         | (9,032 | )
|                               |                                                  |   |        |   |        |   |         |   |            |   |        |   |  |   |         |       
|Balances at September 26, 1999 |                                                  |   |       |   |        |   | 1       |   |            |   | 12,715 |   |  |   | (55,803 | )     
|                               | Net loss for 52 weeks ended
September 24, 2000   |   |        |  |        |   |         |  |            |   |        |  |  |   |         | (6,167 | )
|                               |                                                  |   |        |   |        |   |         |   |            |   |        |   |  |   |         |       
|Balances at September 24, 2000 |                                                  |   |       |   |        |   | 1       |   |            |   | 12,715 |   |  |   | (61,970 | )     
|                               | Net income for 53 weeks ended
September 30, 2001 |   |        |  |        |   |         |  |            |   |        |  |  |   |         | 7,845  |  
|                               |                                                  |   |        |   |        |   |         |   |            |   |        |   |  |   |         |       
|Balances at September 30, 2001 |                                                  | $ |       |   |        | $ | 1       |   |            | $ | 12,715 |   |  | $ | (54,125 | )     
|                               |                                                  |   |        |   |        |   |         |   |            |   |        |   |  |   |         |       

See accompanying notes to consolidated financial statements.

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##### Table of Contents






STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001

Note 1  The Company and Its Significant Accounting Policies

Description of Business

Stater Bros. Holdings Inc. (the Company) is engaged primarily in the
operation of retail supermarkets. As of September 30, 2001, the Company
operated 155 retail food supermarkets under the name Stater Bros. Markets.
The Companys supermarkets are located in Southern Californias San Bernardino,
Riverside, Los Angeles, Orange, San Diego and Kern counties. The Company and
its predecessor companies have operated retail grocery stores under the Stater
Bros. Markets name in Southern California since 1936.

Principles of Consolidation

The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries, Stater Bros. Markets (Markets) and Stater
Bros. Development, Inc. All significant inter-company transactions have been
eliminated in consolidation.

Fiscal Year

The Companys fiscal year ends on the last Sunday in September. The
fiscal years ended September 26, 1999 and September 24, 2000 were 52-week years
and the fiscal year ended September 30, 2001 was a 53-week year.

Cash and Cash Equivalents

Cash and cash equivalents are reflected at cost, which approximates their
fair value, and consist primarily of overnight repurchase agreements,
certificates of deposit and money market funds with maturities of less than
three months when purchased.

Inventories

Inventories are stated at the lower of cost (first-in, first-out) or
market.

Receivables

Receivables represent amounts expected to be received during the next
operating cycle of the Company. The carrying amount reported in the balance
sheet for receivables approximates their fair value.

Properties Held for Sale

Properties expected to be sold within one year are classified as current
assets and are stated at the lower of cost or estimated net realizable value
and consist of land, buildings and equipment.

Deferred Debt Issuance Costs

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

Self-insurance Reserves

The Company provides reserves, subject to certain retention levels, for
workers compensation, general and automobile liability claims. Actuaries
assist the Company in developing reserve estimates for its self-insured
liabilities. Such reserves are discounted at a rate approximating 7.5%. The
Company is self-insured, subject to certain retention levels, for health care
costs of eligible non-bargaining unit employees. Such health care reserves are
not discounted.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 1  The Company and Its Significant Accounting Policies (contd.)

Recent Accounting Pronouncements

During the Companys fiscal 2001, the Financial Accounting Standards Board
issued or required the adoption of Statement of Financial Accounting Standards
(SFAS) No. 140 and No. 141 and the Emerging Issues Task Force (EITF) issued
or required the adoption of EITF 00-14 Issue and 00-25 Issue. Adoption of SFAS
No. 140 and No. 141 and adoption of EITF 00-14 and 00-25 Issues were either not
applicable to the Company or were adopted by the Company in its fiscal 2001 and
did not have a material effect on the Companys financial position or its
results of operations in fiscal 2001.

Property and Equipment

Property and equipment are stated at cost and are depreciated or
amortized, principally on the straight-line method over the estimated useful
lives of the assets, and for capitalized leases over the initial lease term or
the estimated economic life of the asset.

The average economic lives are as follows:

|                                   |  |               |  |                |  |  |  | 
|---------------------------------- |  | ------------- |  | -------------- |  |  |  | 
|                                   |  | Range         |  | Most Prevalent
|                                   |  |               |  |               
|Buildings and improvements         |  | 8 - 30 Years  |  | 25 Years      
|Store furniture and equipment      |  | 3 - 10 Years  |  | 5 Years       
|Property subject to capital leases |  | Life of Lease |  | 25 Years      

Income Taxes

The Company provides for deferred income taxes as timing differences arise
between income and expenses recorded for financial and income tax reporting
purposes.

Cost of Goods Sold

Costs of goods sold include certain warehousing, transportation and
distribution costs.

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 affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.

Note 2  Debt

Long-term debt consisted of the following:

|                             |  |                |         |           |  |           |         |  |  |   |         | 
|---------------------------- |  | -------------- | ------- | --------- |  | --------- | ------- |  |  | - | ------- | 
|                             |  | Sept. 26,      |         | Sept. 24, |  | Sept. 30,
|                             |  | 1999           |         | 2000      |  | 2001     
|                             |  |                |         |           |  |          
|                             |  | (In thousands)
|11% Senior Notes due 2001    |  | $              | 5,048   |           |  | $         | 5,048   |  |  | $ |        | 
|10.75% Senior Notes due 2006 |  |                | 450,000 |           |  |           | 439,000 |  |  |   | 439,000 | 
|                             |  |                |         |           |  |           |         |  |  |   |         | 
|Total long-term debt         |  | $              | 455,048 |           |  | $         | 444,048 |  |  | $ | 439,000 | 
|                             |  |                |         |           |  |           |         |  |  |   |         | 

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 2  Debt (contd.)

Interest on the 10.75% Senior Notes due 2006 is payable semi-annually on
February 15 and August 15. Principal on the 10.75% Senior Notes is due in the
year 2006.

Interest capitalized during fiscal years 1999, 2000 and 2001 amounted to
$64,000, $35,000 and $238,000 respectively. Interest expense incurred, before
the effect of capitalized interest, during 1999, 2000 and 2001 amounted to
$33,694,000, $53,715,000 and $52,648,000, respectively.

The Company did not have short-term borrowings outstanding at September
26, 1999, September 24, 2000 and September 30, 2001. The Company did not incur
any short-term borrowings during fiscal years 1999, 2000 and 2001.

The Company is subject to certain covenants associated with its 10.75%
Senior Notes due 2006. As of September 30, 2001, the Company was in compliance
with all such covenants.

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. 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 $1,130,000, $1,483,000 and $1,584,000 for fiscal years 1999, 2000 and
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:

|                        |  |                |         |                |  |                |         |  |  |   |         | 
|----------------------- |  | -------------- | ------- | -------------- |  | -------------- | ------- |  |  | - | ------- | 
|                        |  | 52 Weeks       |         | 53 Weeks       |  | 52 Weeks      
|                        |  |                |         |                |  |               
|                        |  | Sept. 25, 1999 |         | Sept. 30, 2000 |  | Sept. 29, 2001
|                        |  |                |         |                |  |               
|                        |  | (In thousands)
|Current assets          |  | $              | 15,557  |                |  | $              | 19,341  |  |  | $ | 24,060  | 
|Non-current assets      |  |                | 106,284 |                |  |                | 100,681 |  |  |   | 95,236  | 
|Current liabilities     |  |                | 24,861  |                |  |                | 25,639  |  |  |   | 26,754  | 
|Non-current liabilities |  |                | 77,782  |                |  |                | 72,220  |  |  |   | 67,046  | 
|Shareholders equity    |  |                | 19,198  |                |  |                | 22,163  |  |  |   | 25,496  | 
|                       
|Sales                   |  |                | 168,638 |                |  |                | 177,336 |  |  |   | 188,627 | 
|Gross profit            |  |                | 19,730  |                |  |                | 29,045  |  |  |   | 29,134  | 
|Net income              |  | $              | 2,257   |                |  | $              | 2,965   |  |  | $ | 3,168   | 

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 3  Unconsolidated Affiliate (contd.)

The Company accepted and paid an incremental price in costs of product
purchased from Santee of approximately $9.4 million for product delivered by
Santee to the Company during fiscal 1999 and $48,000 in fiscal 2000. There
were no incremental price payments made in fiscal 2001. The incremental price
in cost of product is included in cost of goods sold of the Company. The
incremental price in the cost of product purchased from Santee by the Company
was discontinued in October 1999, however, no assurances can be provided that
the incremental prices will remain discontinued.

Note 4  Bank 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 (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,
workers compensation insurance obligations and as 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 August 6, 1999 credit
facility is guaranteed by Stater Bros. Development, Inc., a subsidiary of
Stater Bros., and any subsidiaries that Stater Bros. Markets or Stater Bros.
Development, Inc. acquires or forms after the date of the credit facility.

Loans under the credit facility bear interest at a rate based upon either
(i) the Base Rate (defined as the higher of (a) the rate of interest publicly
announced by Bank of America as its reference rate and (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 of credit under the credit facility can be
issued until August 6, 2002, and all letters of credit must expire not 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.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 4  Bank Facilities (contd.)

Availability of the loans and letters of credit under the credit facility is
subject to a monthly borrowing base test based on inventory. The credit
facility requires Stater Bros. Markets to meet certain financial tests,
including minimum net worth and minimum EBITDA tests. The credit facility
contains covenants which, among other things, will limit indebtedness, liens,
guarantee obligations, mergers, consolidations, liquidations and dissolutions,
asset sales, leases, investments, loans and advances, transactions with
affiliates, sale and leasebacks, other matters customarily restricted in such
agreements and modifications to the holding company status of Stater Bros.
Markets.

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 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 September 30, 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 $97.8 million and
exceeded minimum inventory coverage by approximately $59.7 million. The
minimum EBITDA (as defined) covenant measurement period begins (as amended) in
the quarter ending June 27, 2000, and requires an annualized minimum EBITDA of
$75.0 million. As of September 30, 2001, Stater Bros. Markets exceeded minimum
annualized EBITDA by approximately $20.0 million.

As of September 30, 2001, for the purposes of the credit facility with Bank of
America, Stater Bros. Holdings Inc. was in compliance with all restrictive
covenants.

The Company is also subject to certain covenants associated with its 10.75%
Senior Notes due 2006. As of September 30, 2001, the Company was in compliance
with all such covenants. However, there can be no assurance that the Company
will be able to achieve the expected operating results or implement the capital
expenditure strategy upon which future compliance with such covenants is based.

Subsequent to year-end, the credit facility with Bank of America N.A. dated
August 6, 1999 was amended to include a Revolving Loan Commitment L/C
Sublimit which is defined as an amount equal to the lessor of (a) the
Revolving Loan Commitment and (b) $15,000,000. The Revolving Loan Commitment
L/C Sublimit is part of, and not in addition to, the Revolving Loan Commitment.
The facility was amended to fulfill additional letter of credit requirements
related to workers compensation insurance policy renewals.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 5  Leases

The Company leases the majority of its retail stores, offices, warehouses
and distribution facilities. Certain leases provide for additional rents based
on sales. Primary lease terms range from 10 to 99 years and substantially all
leases provide for renewal options.

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 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.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 5  Leases (contd.)

Following is a summary of future minimum lease payments as of September 30, 2001:

|                                        |  |                |        |         |  |           |         | 
|--------------------------------------- |  | -------------- | ------ | ------- |  | --------- | ------- | 
|                                        |  |                |        |         |  | Operating
|                                        |  |                |        |         |  | Leases   
|                                        |  | Capital        |        | Minimum
|Fiscal Year                             |  | Leases         |        | Payment
|                                        |  |                |        |        
|                                        |  | (In thousands)
|2002                                    |  | $              | 3,509  |         |  | $         | 29,294  | 
|2003                                    |  |                | 3,013  |         |  |           | 27,579  | 
|2004                                    |  |                | 2,781  |         |  |           | 21,909  | 
|2005                                    |  |                | 2,453  |         |  |           | 19,805  | 
|2006                                    |  |                | 2,225  |         |  |           | 18,347  | 
|Thereafter                              |  |                | 13,178 |         |  |           | 99,452  | 
|                                        |  |                |        |         |  |           |         | 
|Total minimum lease payments            |  |                | 27,159 |         |  | $         | 216,386 | 
|                                        |  |                |        |         |  |           |         | 
|Less amounts representing interest      |  |                | 13,626 |         |  |           |         | 
|                                        |  |                |        |         |  |           |         | 
|Present value of minimum lease payments |  |                | 13,533 |         |  |           |         | 
|Less current portion                    |  |                | 1,435  |         |  |           |         | 
|                                        |  |                |        |         |  |           |         | 
|Long-term portion                       |  | $              | 12,098 |         |  |           |         | 
|                                        |  |                |        |         |  |           |         | 

Rental expense and sublease income were as follows:

|                       |  |                |        |           |  |           |        |  |  |   |        | 
|---------------------- |  | -------------- | ------ | --------- |  | --------- | ------ |  |  | - | ------ | 
|                       |  | Sept. 26,      |        | Sept. 24, |  | Sept. 30,
|                       |  | 1999           |        | 2000      |  | 2001     
|                       |  |                |        |           |  |          
|                       |  | (In thousands)
|Minimum rentals        |  | $              | 22,088 |           |  | $         | 24,280 |  |  | $ | 23,612 | 
|Rentals based on sales |  | $              | 4,739  |           |  | $         | 10,318 |  |  | $ | 10,372 | 
|Sublease income        |  | $              | 1,210  |           |  | $         | 970    |  |  | $ | 1,165  | 

Aggregate sublease income to be received subsequent to September 30, 2001
is approximately $2,862,000.

Note 6  Preferred Stock

During fiscal 2001, the Company paid all cumulative deferred dividends and
redeemed all outstanding $11.00 Cumulative Redeemable Preferred Stock due 2003
of Stater Bros. Markets (see Note 5).

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 7  Income Taxes

The provision for income taxes (benefit) consisted of the following:

|                             |         |   |                |       |           |   |           |        |   |   |       |       | 
|---------------------------- | ------- | - | -------------- | ----- | --------- | - | --------- | ------ | - | - | ----- | ----- | 
|                             |         |   | Sept. 26,      |       | Sept. 24, |   | Sept. 30,
|                             |         |   | 1999           |       | 2000      |   | 2001     
|                             |         |   |                |       |           |   |          
|                             |         |   | (In thousands)
|Current                      |         |   |                |       |           |   |           |        |   |   |       |      
|                             | Federal |   | $              | 3,914 |           |   | $         |       |   |   | $     | 3,642 | 
|                             | State   |   |                | 496   |           |   |           |       |   |   |       | 933   | 
|                             |         |   |                |       |           |   |           |        |   |   |       |      
|                             |         |   | 4,410          |       |           |   |          |        |   |   | 4,575 |      
|                             |         |   |                |       |           |   |           |        |   |   |       |      
|Deferred                     |         |   |                |       |           |   |           |        |   |   |       |      
|                             | Federal |   |                | 839   |           |   |           | (4,810 | ) |   |       | 635   | 
|                             | State   |   |                | 123   |           |   |           | (559   | ) |   |       | 242   | 
|                             |         |   |                |       |           |   |           |        |   |   |       |      
|                             |         |   | 962            |       |           |   | (5,369    | )      |   |   | 877   |      
|                             |         |   |                |       |           |   |           |        |   |   |       |      
|Income tax expense (benefit) |         | $ | 5,372          |       |           | $ | (5,369    | )      |   | $ | 5,452 |      
|                             |         |   |                |       |           |   |           |        |   |   |       |      

Federal and State income taxes benefit for fiscal year ended September 24,
2000 is exclusive of the income tax expense associated with the extraordinary
gain from the early extinguishment of debt. Such Federal and State income tax
expense in 2000 amounted to $605,000 and $168,000, respectively.

The current portion of Federal and State income taxes for fiscal year
ended September 26, 1999 is exclusive of the tax benefits associated with the
extraordinary loss from the early extinguishment of debt. Such Federal and
State tax benefits in 1999 amounted to $9.9 million and $1.3 million,
respectively.

A reconciliation of the provision for income taxes to amounts computed at the federal statutory rate is as follows:

|                                                            |  |           |      |           |  |           |      |   |  |  |      |  
|----------------------------------------------------------- |  | --------- | ---- | --------- |  | --------- | ---- | - |  |  | ---- | -
|                                                            |  | Sept. 26, |      | Sept. 24, |  | Sept. 30,
|                                                            |  | 1999      |      | 2000      |  | 2001     
|                                                            |  |           |      |           |  |          
|Statutory federal income tax rate                           |  |           | 35.0 | %         |  |           | 35.0 | % |  |  | 35.1 | %
|State franchise tax rate, net of
federal income tax benefit |  |           | 3.0  |           |  |           | 2.8  |   |  |  | 7.3  |  
|Tax credits                                                 |  |           | 0.5  |           |  |           | 4.6  |   |  |  | (4.6 | )
|Other                                                       |  |           | 0.9  |           |  |           |     |   |  |  | 3.2  |  
|                                                            |  |           |      |           |  |           |      |   |  |  |      |  
|                                                            |  |           | 39.4 | %         |  |           | 42.4 | % |  |  | 41.0 | %
|                                                            |  |           |      |           |  |           |      |   |  |  |      |  

Components of deferred income taxes are as follows:

|                                              |                                       |   |                |        |           |   |           |        |   |   |        |         |  
|--------------------------------------------- | ------------------------------------- | - | -------------- | ------ | --------- | - | --------- | ------ | - | - | ------ | ------- | -
|                                              |                                       |   | Sept. 26,      |        | Sept. 24, |   | Sept. 30,
|                                              |                                       |   | 1999           |        | 2000      |   | 2001     
|                                              |                                       |   |                |        |           |   |          
|                                              |                                       |   | (In thousands)
|Deferred income tax assets:                   |                                       |   |                |        |           |   |           |        |   |   |        |        
|Self-insurance reserves                       |                                       | $ | 4,086          |        |           | $ | 6,290     |        |   | $ | 10,646 |        
|Pension and vacation liabilities              |                                       |   | 2,495          |        |           |   | 3,425     |        |   |   | 3,844  |        
|Inventories                                   |                                       |   | 1,495          |        |           |   | 1,495     |        |   |   | 1,862  |        
|Investment in unconsolidated affiliate        |                                       |   | 1,677          |        |           |   | 1,073     |        |   |   | 427    |        
|Income deferred for book purposes             |                                       |   | 2,094          |        |           |   | 2,789     |        |   |   | 2,762  |        
|Tax credits and operating loss carry forwards |                                       |   |               |        |           |   | 8,954     |        |   |   | 4,190  |        
|                                              |                                       |   |                |        |           |   |           |        |   |   |        |        
|                                              | Total deferred income tax assets      |   |                | 11,847 |           |   |           | 24,026 |   |   |        | 23,731  |  
|Deferred income tax liabilities:              |                                       |   |                |        |           |   |           |        |   |   |        |        
|Property and equipment                        |                                       |   | (1,610         | )      |           |   | (4,090    | )      |   |   | (7,936 | )      
|Other assets                                  |                                       |   | (1,561         | )      |           |   | (2,058    | )      |   |   | (2,058 | )      
|Other, net                                    |                                       |   | (856           | )      |           |   | (3,426    | )      |   |   | (2,206 | )      
|                                              |                                       |   |                |        |           |   |           |        |   |   |        |        
|                                              | Total deferred income tax liabilities |   |                | (4,027 | )         |   |           | (9,574 | ) |   |        | (12,200 | )
|                                              |                                       |   |                |        |           |   |           |        |   |   |        |        
|Net deferred income tax assets                |                                       | $ | 7,820          |        |           | $ | 14,452    |        |   | $ | 11,531 |        
|                                              |                                       |   |                |        |           |   |           |        |   |   |        |        

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 7  Income Taxes (contd.)

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

Note 8  Retirement Plans

Pension Plan

The Company has a noncontributory defined benefit pension plan covering
substantially all non-union employees. The plan provides for benefits based on
an employees compensation during the three years before retirement. The
Companys funding policy for this plan is to contribute annually at a rate that
is intended to provide sufficient assets to meet future benefit payment
requirements.

Net periodic pension cost included the following components:

|                                                 |  |                |        |           |  |           |        |   |  |   |        |  
|------------------------------------------------ |  | -------------- | ------ | --------- |  | --------- | ------ | - |  | - | ------ | -
|                                                 |  | Sept. 26,      |        | Sept. 24, |  | Sept. 30,
|                                                 |  | 1999           |        | 2000      |  | 2001     
|                                                 |  |                |        |           |  |          
|                                                 |  | (In thousands)
|Service cost  benefits earned during
the period |  | $              | 1,081  |           |  | $         | 898    |   |  | $ | 1,299  |  
|Interest cost on projected benefit
obligation    |  |                | 1,657  |           |  |           | 1,688  |   |  |   | 1,671  |  
|Actual return on assets                          |  |                | (1,134 | )         |  |           | (1,248 | ) |  |   | (1,528 | )
|Net amortization and deferral                    |  |                | 27     |           |  |           | 27     |   |  |   | 27     |  
|Recognized gains or losses                       |  |                | 295    |           |  |           | 203    |   |  |   | 60     |  
|Prior service cost recognized                    |  |                | (5     | )         |  |           | (5     | ) |  |   | (5     | )
|                                                 |  |                |        |           |  |           |        |   |  |   |        |  
|Net periodic pension cost                        |  | $              | 1,921  |           |  | $         | 1,563  |   |  | $ | 1,524  |  
|                                                 |  |                |        |           |  |           |        |   |  |   |        |  
|Assumptions used for accounting were:            |  |                |        |           |  |           |        |   |  |   |        |  
|Discount rate                                    |  |                | 6.75   | %         |  |           | 7.75   | % |  |   | 7.75   | %
|Rate of increase in compensation levels          |  |                | 5.00   | %         |  |           | 5.00   | % |  |   | 5.00   | %
|Expected long-term rate of return on
assets      |  |                | 9.00   | %         |  |           | 9.00   | % |  |   | 9.00   | %

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 8  Retirement Plans (contd.)

Pension Plan (contd.)

The following table sets forth the plans funded status and amounts
recognized in the Companys balance sheet at:

|                                                         |                                |   |                |        |           |   |           |        |  |   |         |        | 
|-------------------------------------------------------- | ------------------------------ | - | -------------- | ------ | --------- | - | --------- | ------ |  | - | ------- | ------ | 
|                                                         |                                |   | Sept. 26,      |        | Sept. 24, |   | Sept. 30,
|                                                         |                                |   | 1999           |        | 2000      |   | 2001     
|                                                         |                                |   |                |        |           |   |          
|                                                         |                                |   | (In thousands)
|Actuarial present value of benefit obligations:          |                                |   |                |        |           |   |           |        |  |   |         |       
|                                                         | Vested benefit obligation      |   | $              | 14,112 |           |   | $         | 16,284 |  |   | $       | 20,159 | 
|                                                         |                                |   |                |        |           |   |           |        |  |   |         |       
|                                                         | Accumulated benefit obligation |   | $              | 14,655 |           |   | $         | 16,326 |  |   | $       | 20,397 | 
|                                                         |                                |   |                |        |           |   |           |        |  |   |         |       
|Projected benefit obligation                             |                                | $ | (22,064        | )      |           | $ | (24,259   | )      |  | $ | (26,622 | )     
|Plan assets at fair value,
primarily notes and bonds     |                                |   | 13,129         |        |           |   | 15,227    |        |  |   | 20,497  |       
|                                                         |                                |   |                |        |           |   |           |        |  |   |         |       
|Projected benefit obligation in
excess of plan assets    |                                |   | (8,935         | )      |           |   | (9,032    | )      |  |   | (6,125  | )     
|Unrecognized net loss                                    |                                |   | 5,504          |        |           |   | 5,695     |        |  |   | 4,851   |       
|Unrecognized prior service cost                          |                                |   | (56            | )      |           |   | (51       | )      |  |   | (5      | )     
|Unrecognized net obligations established
October 1, 1987 |                                |   | 135            |        |           |   | 108       |        |  |   | 81      |       
|                                                         |                                |   |                |        |           |   |           |        |  |   |         |       
|Pension (liability) recognized in the
balance sheet      |                                | $ | (3,352         | )      |           | $ | (3,280    | )      |  | $ | (1,198  | )     
|                                                         |                                |   |                |        |           |   |           |        |  |   |         |       

Expenses recognized for this retirement plan were $2,166,000, $1,678,000
and $1,795,000 in 1999, 2000 and 2001, respectively.

Profit Sharing Plan

The Company has a noncontributory defined contribution profit sharing plan
covering substantially all non-union employees. Union employees may
participate if their collective bargaining agreement specifically provides for
their inclusion. The Company may contribute up to 7.5% of total compensation
paid or accrued during the year to each plan participant subject to limitations
imposed by the Internal Revenue Code. The Company recognized expenses for this
plan in the amount of $419,000, $425,000 and $787,000 in 1999, 2000 and 2001,
respectively.

Multi-Employer Plans

The Company also contributes to multi-employer defined benefit retirement
plans in accordance with the provisions of the various labor agreements that
govern the plans. Contributions to these plans are generally based on the
number of hours worked. Information for these plans as to vested and
non-vested accumulated benefits and net assets available for benefits is not
available.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 8  Retirement Plans (contd.)

Multi-Employer Plans (contd.)

The Companys expense for these retirement plans and health and welfare plans consisted of the following:

|                                  |  |                |        |           |  |           |        |  |  |   |        | 
|--------------------------------- |  | -------------- | ------ | --------- |  | --------- | ------ |  |  | - | ------ | 
|                                  |  | Sept. 26,      |        | Sept. 24, |  | Sept. 30,
|                                  |  | 1999           |        | 2000      |  | 2001     
|                                  |  |                |        |           |  |          
|                                  |  | (In thousands)
|Multi-Employer Pension Plans      |  | $              | 5,886  |           |  | $         | 8,312  |  |  | $ | 6,579  | 
|Multi-Employer Health and Welfare |  |                | 38,364 |           |  |           | 56,552 |  |  |   | 58,000 | 
|                                  |  |                |        |           |  |           |        |  |  |   |        | 
|Total Multi-Employer Benefits     |  | $              | 44,250 |           |  | $         | 64,864 |  |  | $ | 64,579 | 
|                                  |  |                |        |           |  |           |        |  |  |   |        | 

The Companys employer contributions fluctuate as a result of periodic
resumptions and suspensions of employer contributions to collective bargaining
trusts.

Note 9  Labor Relations

The Company and other major supermarket employers in Southern California
negotiated a four-year contract, beginning October 1999 and expiring in October
2003, with the United Food and Commercial Workers Union. The Companys
collective bargaining agreement with the International Brotherhood of Teamsters
was renewed in September 1998 and expires in September 2002. Management
believes it has good relations with its employees.

Note 10  Fair Value of Financial Instruments

The following methods and assumptions were used to estimate the fair value
of each class of financial instruments for which it is practicable to estimate
that value:

Cash and Cash Equivalents

The carrying amount approximates fair value because of the short-term
maturity of these instruments.

Receivables

The carrying amount approximates fair value because of the short-term
maturity of these instruments.

Long-Term Debt

The fair value of the 10.75% Notes, is based on quoted market prices.
Although market quotes for the fair value of the Companys capitalized lease
obligations are not readily available, the Company believes the stated value
approximates fair value.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 10  Fair Value of Financial Instruments (contd.)

The estimated fair values of the Companys financial instruments are as
follows:

|                              |  |                    |         |       |  |   |         | 
|----------------------------- |  | ------------------ | ------- | ----- |  | - | ------- | 
|                              |  | As of             
|                              |  | September 30, 2001
|                              |  |                   
|                              |  | (In thousands)    
|                              |  | Carrying           |         | Fair 
|                              |  | Amount             |         | Value
|                              |  |                    |         |      
|Cash and cash equivalents     |  | $                  | 101,636 |       |  | $ | 101,636 | 
|Receivables                   |  | $                  | 30,252  |       |  | $ | 30,252  | 
|Long-term debt                |  | $                  | 439,000 |       |  | $ | 443,390 | 
|Capitalized lease obligations |  | $                  | 13,533  |       |  | $ | 13,533  | 

Note 11  Litigation Matters

In the ordinary course of its business, the Company is party to various
legal actions which the Company believes are incidental to the operation of the
business of the Company and its subsidiaries. The Company records an
appropriate provision when the occurrence of loss is probable and can be
reasonably estimated. The Company believes that the outcome of such legal
proceedings to which the Company is currently a party will not have a material
adverse effect upon its results of operations or its consolidated financial
condition.

In September of 2000, two lawsuits were filed against Stater Bros. Markets
in the State of California Superior Court, County of San Bernardino alleging
that certain of its employees are entitled to overtime wages. The two cases
were purportedly filed on behalf of certain Stater Bros. Markets store managers
and assistant store managers, respectively, alleging that such workers are
non-exempt under California labor laws and are therefore entitled to overtime
wages. The Companys position is that the store managers and assistant
managers are highly compensated employees with duties and responsibilities
which place them in the exempt category under California law and that such
employees are not entitled to overtime wages. This is consistent with the
position taken by other supermarket chains in California. The Company believes
it has complied in all respects with California laws and regulations relative
to employee wages and that each of these Complaints is without merit.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 12  Acquisition

On May 7, 1999, the Company entered into an agreement with Albertsons to
acquire 43 supermarkets and one future store site. The stores were formerly
operated by Albertsons or Lucky Stores and were divested in connection with
the merger of Albertsons and American Stores Company, the parent of Lucky
Stores. The supermarkets were acquired sequentially over a twenty-four day
period beginning August 9, 1999. The purchase price for the property, plant,
equipment and inventories of 43 supermarkets and one future store site was
approximately $134.0 million plus capital lease obligations assumed of $13.3
million and approximately $2.2 million of capitalized costs related to the
transfer of ownership of the supermarkets. The acquisition was accounted for
using the purchase method of accounting and the results of operations of the 43
supermarkets are included in the Companys fiscal 1999 consolidated results of
operations from the acquisition date of each supermarket.

The following table provides unaudited pro forma financial data for the
Company reflecting the completion of the Acquisition as if it occurred
September 28, 1998. These unaudited pro forma results have been prepared for
comparative purposes only and include certain pro forma adjustments. Such pro
forma amounts are not necessarily indicative of what actual results of
operations might have been or will be in the future. Pro forma results of
operations for fiscal 1999 exclude an extraordinary loss of approximately $17.3
million ($28.5 million less tax effect of $11.2 million), related to the early
extinguishment of debt. The acquisition has been included in the results of
operation for all of fiscal 2000 and fiscal 2001.

|                                                    |  |                                          |           | 
|--------------------------------------------------- |  | ---------------------------------------- | --------- | 
|                                                    |  | Fiscal Year                             
|                                                    |  | 1999                                    
|                                                    |  |                                         
|                                                    |  | (In thousands, except per share amounts)
|Sales                                               |  | $                                        | 2,433,182 | 
|Income before extraordinary loss                    |  | $                                        | 13,628    | 
|Earnings per common share
before extraordinary loss |  | $                                        | 272.56    | 

Note 13  Extraordinary Gain (Loss)

In fiscal 2000, the Company incurred an extraordinary gain of $1.1 million
($1.9 million less tax effect) from early extinguishment of $11.0 million of
10.75% Senior Notes due 2006.

In connection with the Acquisition of the 43 supermarkets and one future
store site in August 1999, the Company issued $450.0 million of 10.75% Senior
Notes due 2006 under Rule 144A of the Securities Act of 1933. A portion of the
proceeds from the issuance were used to retire all of the 9% Senior
Subordinated Notes due 2004 and retire substantially all of the 11% Senior
Notes due 2001. The Company incurred an extraordinary loss of $17.3 million
($28.5 million less tax effect) associated with the early extinguishment of
such debt in fiscal 1999.

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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)

Note 14  Phantom Stock Plan

Stater Bros. Holdings maintains a phantom stock plan for certain
executives of Stater Bros. Markets. Existing stockholders and partners of La
Cadena Investments are not eligible to receive awards. Awards under the plan
are for units that have a value equal to a fraction of a share of Stater Bros.
Holdings common stock. Awards under the plan vest after five years, except
that upon a participants early retirement, permanent total disability or
death, awards are considered partially vested at the rate of 20% for each year
of employment following the grant. If a participant voluntarily terminates his
or her employment, or is terminated for cause, any unvested awards under the
plan will terminate and no payment will be made thereunder. As of September
30, 2001, there were 663,000 units awarded. The Company recognized an expense
for the plan of $4.8 million in 2001.

Note 15  Quarterly Results (unaudited)

Quarterly results for fiscal 1999, 2000 and 2001 are as follows:

(In thousands)

|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|----------------------- |  | ----- | --------- | ------ |  | ------------- | ------- | ------------- |  | --- | ------ | ---- |  | - | ------- | ----
|                        |  |       |           |        |  | Gross         |         | Operating     |  | Net
|                        |  | Sales |           | Profit |  | Profit (loss) |         | Income (loss)
|                        |  |       |           |        |  |               |         |              
|Fiscal 1999 Quarters    |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|13 weeks ended 12/27/98 |  | $     | 441,422   |        |  | $             | 102,401 |               |  | $   | 9,827  |      |  | $ | 2,287   |     
|13 weeks ended 03/28/99 |  |       | 441,802   |        |  |               | 104,811 |               |  |     | 13,085 |      |  |   | 3,736   |     
|13 weeks ended 06/27/99 |  |       | 441,134   |        |  |               | 105,604 |               |  |     | 12,184 |      |  |   | 3,211   |     
|13 weeks ended 09/26/99 |  |       | 505,837   |        |  |               | 129,760 |               |  |     | 8,104  | (1)  |  |   | (18,266 | )(2)
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|                        |  | $     | 1,830,195 |        |  | $             | 442,576 |               |  | $   | 43,200 |      |  | $ | (9,032  | )   
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|Fiscal 2000 Quarters    |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|13 weeks ended 12/26/99 |  | $     | 597,168   |        |  | $             | 155,822 |               |  | $   | 15,577 | (1)  |  | $ | 1,852   |     
|13 weeks ended 03/26/00 |  |       | 607,286   |        |  |               | 136,691 |               |  |     | (6,056 | )(1) |  |   | (10,953 | )   
|13 weeks ended 06/25/00 |  |       | 607,300   |        |  |               | 152,503 |               |  |     | 13,566 |      |  |   | 1,874   | (3) 
|13 weeks ended 09/24/00 |  |       | 605,956   |        |  |               | 153,626 |               |  |     | 13,234 |      |  |   | 1,060   |     
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|                        |  | $     | 2,417,710 |        |  | $             | 598,642 |               |  | $   | 36,321 |      |  | $ | (6,167  | )   
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|Fiscal 2001 Quarters    |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|13 weeks ended 12/24/00 |  | $     | 624,849   |        |  | $             | 157,892 |               |  | $   | 14,432 |      |  | $ | 1,822   |     
|13 weeks ended 03/25/01 |  |       | 612,305   |        |  |               | 155,670 |               |  |     | 13,680 |      |  |   | 1,360   |     
|13 weeks ended 06/24/01 |  |       | 639,925   |        |  |               | 166,119 |               |  |     | 15,939 |      |  |   | 2,269   |     
|14 weeks ended 09/30/01 |  |       | 696,834   |        |  |               | 183,167 |               |  |     | 16,921 |      |  |   | 2,394   |     
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     
|                        |  | $     | 2,573,913 |        |  | $             | 662,848 |               |  | $   | 60,972 |      |  | $ | 7,845   |     
|                        |  |       |           |        |  |               |         |               |  |     |        |      |  |   |         |     



---

|(1) |  | Reflects acquisition integration expenses of $4,594 ($2,646 net of tax)
for fiscal 2000 and $5,590 ($3,390 net of tax) for fiscal 1999 in
connection with the acquisition of supermarkets
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|   
|   
|   
|(2) |  | Reflects an extraordinary loss of $28,544 ($17,311 net of tax) in
connection with the early extinguishment of debt.                                                                      
|   
|   
|   
|   
|(3) |  | Reflects an extraordinary gain of $1,896 ($1,123 net of tax) in
connection with the early extinguishment of debt.                                                                        

F-21