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                                  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 24, 2000

                                  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      (IRS Employer Identification No.)
       incorporation or organization)

               21700 Barton Road
               Colton, 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 12, 2000--Class A Common Stock - 50,000 shares.

                       DOCUMENTS INCORPORATED BY REFERENCE

                                      None

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                                       1
<PAGE>   2

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


                                     PART I


<TABLE>
<CAPTION>
                                                                           Page Number
                                                                           -----------
<S>        <C>                                                               <C>
Item 1     Business........................................................   3
Item 2     Properties......................................................  10
Item 3     Legal Proceedings...............................................  11
Item 4     Submission of Matters to a Vote of Security Holders.............  11


                                     PART II

Item 5     Market for the Registrant's Common Equity and
                 Related Stockholder Matters...............................  11
Item 6     Selected Financial Data.........................................  12
Item 7     Management's Discussion and Analysis of Financial
                 Condition and Results of Operations.......................  14
Item 8     Financial Statements and Supplementary Data.....................  22
Item 9     Changes in and Disagreements with Accountants on
                 Accounting and Financial Disclosure.......................  23


                                    PART III

Item 10    Directors and Executive Officers of the Registrant..............  23
Item 11    Executive Compensation..........................................  25
Item 12    Security Ownership of Certain Beneficial Owners
                 and Management............................................  28
Item 13    Certain Relationships and Related Transactions..................  29


                                     PART IV

Item 14    Exhibits, Financial Statement Schedules and
                 Reports on Form 8-K.......................................  31

           Signatures......................................................  35
</TABLE>



                                       2

<PAGE>   3

                                     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 full-service meat departments. Nearly all of the supermarkets
have hot service delicatessens and hot service bakery departments. All of the
Company's supermarkets have expanded selections of produce merchandise.

The Company utilizes a central warehouse and distribution facility which
provides the Company's supermarkets with approximately 84% 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, produce, meat, frozen foods, health and beauty aids and bakery
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.


                                       3
<PAGE>   4


ITEM 1. BUSINESS (CONTD.)


ACQUISITION (CONTD.)

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.

RECAPITALIZATION TRANSACTION

In March 1994, the Company completed a Recapitalization Transaction (the
"Recapitalization") which transferred effective voting control of the Company to
La Cadena, reclassified the Company's outstanding equity, provided for certain
cash payments and distributions to Craig Corporation ("Craig"), previously a
common shareholder of the Company, and provided the Company with an option to
acquire Craig's remaining equity in Stater Bros. Holdings Inc. The
Recapitalization Transaction was funded through an offering of $165.0 million of
11% Senior Notes due 2001 (the "11% Notes") under Rule 144A of the Securities
Act of 1933, as amended. Proceeds from the 1994 Notes were used to (a) repay
$75.5 million of 9.8% Senior Notes, together with prepayment premiums of $13.9
million, (b) repay outstanding bank loans and mortgages of approximately $12.0
million, (c) repay an outstanding capital expenditure revolving credit facility
of $9.0 million, (d) fund a $5.0 million five-year consulting agreement and
covenant not to compete with Craig, (e) fund a payment of $14.6 million to
purchase an option to acquire Craig's remaining interest in the Company, (f) pay
$20.0 million in dividends on the Company's Common Stock (held by Craig) and (g)
pay fees and expenses associated with the Recapitalization. Substantially all of
the 11% Notes ($159,952,000) were redeemed in August 1999.

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) 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.



                                       4
<PAGE>   5


ITEM 1. BUSINESS (CONTD.)


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 32,900 square feet, while newly constructed
supermarkets range from approximately 35,300 square feet to 43,200 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 facility 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 Inland Empire and
Orange County. 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 24, 2000. 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.

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. Prior to the
acquisition of the 43 supermarkets, approximately 55% of the Company's
supermarkets have been either newly constructed or remodeled within the last
five years. Minor remodels cost between $100,000 and $250,000 and typically
include new fixtures, a change in decor, and the addition of one or more
specialty service departments such as a delicatessen or bakery. Major remodels
cost in excess of $250,000 and typically involve more extensive refurbishment of
the store's interior and often increase the retail selling space per store.
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.


                                       5
<PAGE>   6

ITEM 1. BUSINESS (CONTD.)


STORE EXPANSION AND REMODELING (CONTD.)

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

<TABLE>
<CAPTION>
                                                        Fiscal Year Ended
                                    ----------------------------------------------------------
                                    Sept. 29,   Sept. 28,    Sept. 27,   Sept. 26,   Sept. 24,
                                       1996        1997         1998        1999        2000
                                    ---------   ---------    ---------   ---------   ---------
<S>                                 <C>         <C>          <C>         <C>         <C>
Number of supermarkets:
  Opened........................         1          -            2           1           -
  Acquired......................         -          -            -          43           -
  Replaced......................        (1)         -            -          (1)          -
  Closed........................         -          -            -           -           -
  Total at end of year..........       110        110          112         155         155
  Minor Remodel.................         8         13            5           7          17
  Major Remodel.................         8          1            6          10           2
  Expansion.....................         -          -            -           -           1
</TABLE>

Beyond 2000, the Company plans to open approximately three 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, produce and deli products,
meats and meat deli products, frozen products, health and beauty aids and bakery
merchandise. Management believes that its existing warehouse and distribution
facilities are adequate to meet its current volume. Approximately 84% 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.

The Company's transportation fleet consists of modern well-maintained vehicles.
As of September 24, 2000, the Company operated approximately 140 tractors and
393 trailers, approximately 4% of which were leased 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.



                                       6
<PAGE>   7


ITEM 1. BUSINESS (CONTD.)


PURCHASING AND MARKETING (CONTD.)

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
processing and 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. Additionally, the store manager is supported by
individual department managers for grocery, meat, produce, and where applicable,
bakeries and 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
at all levels of employees. 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 for purchases of 10
items or less.

SANTEE DAIRIES, LLC

Stater Bros. and Hughes Family Markets currently each own a 50% interest in
Santee Dairies, LLC, and have jointly owned the Santee Dairies operation since
1986. Recently, through a series of transactions, The Kroger Co. became the
indirect owner of Hughes, which it operates as Ralph's supermarkets. 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. Santee Dairies processes, packages and distributes whole milk,
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 1999, Santee Dairies processed
approximately 57.1 million gallons of fluid products, including 47.0 million
gallons of fluid milk. Total revenues in Santee Dairies' 52-week fiscal year
ended January 1, 2000 were $167.4 million, of which approximately $86.8 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.


                                       7
<PAGE>   8

ITEM 1. BUSINESS (CONTD.)


SANTEE DAIRIES, LLC (CONTD.)

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. Plans for
the New Dairy contemplated that, when operating at full capacity, the New Dairy
would lower Santee Dairies' costs of producing fluid milk and other products.
Until recently, the New Dairy had not achieved the planned operating
efficiencies and Santee Dairies' costs of production had been higher than
anticipated.

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 1998 and 1999, the prices paid by Stater Bros. pursuant to the fluid milk
agreement were adversely affected by delays in completion of the New Dairy, cost
overruns and lower production volumes than anticipated. Beginning in June 1998,
Stater Bros. accepted and paid incremental prices of approximately $1.0 million
per month to Santee Dairies as the result of its increased cost structure. In
February 1999, incremental prices paid to Santee Dairies by Stater Bros.
decreased to approximately $800,000 per month. In July 1999, the incremental
prices paid to Santee Dairies decreased to approximately $400,000 per month and
were eliminated during October 1999. Incremental prices paid for milk by Stater
Bros. amounted to $48,000 in fiscal 2000, $9.4 million in fiscal 1999 and $4.3
million in fiscal 1998. 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.

During fiscal 1998, the Company installed in fifteen stores, NCR's new
generation of electronic scan systems, the 7452 ACS Scan System, an additional
fifty-nine systems were installed during fiscal 1999 and fifteen systems were
installed during fiscal 2000. 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(R) system in all of the Company's
supermarkets. Stater Express(R) 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(R) 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".


                                       8
<PAGE>   9

ITEM 1. BUSINESS (CONTD.)


EMPLOYEES

The Company has approximately 12,100 employees, approximately 750 of whom are
management and administrative employees and approximately 11,350 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 $891,000, in the aggregate, including remediation costs of
approximately $174,000 in 1998, $101,000 in 1999 and $198,000 in 2000.
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.

During fiscal 1998, the Company removed all of its underground gasoline fuel
storage tanks and remediated the surrounding soils, where necessary. The costs
incurred in 1998 to remove the underground gasoline storage tanks and to
remediate the surrounding soils amounted to approximately $84,000. The Company
refuels its transportation equipment at several off-site locations which are
owned and operated by an unrelated third party.


                                       9
<PAGE>   10

ITEM 1. BUSINESS (CONTD.)


YEAR 2000 COMPLIANCE

The Company successfully achieved compliance with the Year 2000 requirements and
Year 2000 related issues had no material adverse effect on the Company's results
of operations, liquidity or financial condition. However, no assurance can be
given that unforeseen problems may not occur in the future that may have a
material adverse effect on the Company's results of operations, liquidity or
financial condition.

The Company's costs required to achieve Year 2000 compliance such as replace or
modify Information Systems, including scheduled replacements of in-store Point
of Sale equipment, was approximately $8.5 million, of which $7.0 million was
capitalized and $1.5 million was expensed.


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 24, 2000.

<TABLE>
<CAPTION>
                                                                             Square
         Facility                                                             Feet
         --------                                                         ----------
<S>                                                                       <C>
         Grocery........................................................     787,000
         Frozen.........................................................      74,000
         Produce/deli...................................................     118,000
         Meat/deli......................................................     116,000
         Health and beauty aids.........................................     131,000
         Bakery.........................................................      40,000
         Support and administrative offices.............................      92,000
                                                                          ----------
             Total......................................................   1,358,000
                                                                           =========
</TABLE>

As of September 24, 2000, 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, Kern and San Diego. 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 24, 2000.

<TABLE>
<CAPTION>
                                   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
------                       -----      -----     ------     ------     ------     ------     ------      -----
<S>                          <C>        <C>       <C>        <C>        <C>        <C>        <C>         <C>
San Bernardino ........         46          9         37          5         17          6         14          4
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
Kern ..................          2          0          2          0          0          1          1          0
San Diego .............         10          5          5          0          1          0          2          7
                               ---        ---        ---        ---        ---        ---        ---        ---

Total .................        155         45        110         24         52         14         29         36
                               ===        ===        ===        ===        ===        ===        ===        ===
</TABLE>

The total size of the Company's supermarkets is approximately 5,101,000 square
feet, of which 3,653,000 is selling square feet.


                                       10
<PAGE>   11


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.

On June 19, 1997, Stater Bros. Markets was named as a defendant in the case of
Ufondu, et al. vs. Stater Bros. Markets filed in the Superior Court of the State
of California for the County of San Bernardino. The complaint filed by twelve
employees sought damages alleging racial discrimination in the Company's
employment practices. This case was settled during fiscal 2000 with the payment
of damages to the plaintiffs without any admission of liability by Stater Bros.
Markets, which payment has been accounted for in the Company's financial
statements.

On September 21, 2000, Stater Bros. Markets was named as a defendant in two
cases, Barnhart, et al vs. Stater Bros. Markets and Jenkins/Harvth, et al vs.
Stater Bros. Markets, both filed in the Superior Court of the State of
California for the County of San Bernardino. The complaints were purportedly
filed on behalf of Stater Bros. Markets store managers and assistant store
managers respectively alleging that such workers are non-exempt under California
Wage Law and are therefore entitled to overtime wages. The Company believes the
complaints are without merit and intends to vigorously defend these cases and
does not believe that the outcome of these cases will result in any material
adverse effect on the Company's results of operations or consolidated financial
condition.

ENVIRONMENTAL MATTERS

Environmental remediation costs incurred during the last five years were
approximately $891,000, in the aggregate, including remediation costs of
approximately $174,000 in 1998, $101,000 in 1999, and $198,000 in 2000.
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.

During fiscal 1998, the Company removed all of its underground gasoline fuel
storage tanks and remediated the surrounding soils, where necessary. The costs
incurred in 1998 to remove the underground gasoline storage tanks and to
remediate the surrounding soils amounted to approximately $84,000. The Company
refuels its transportation equipment at several off-site locations which are
owned and operated by an unrelated third party.


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 2000, 1999, and 1998 on
the common equity of the Company and the Company does not intend to pay
dividends on its common equity in the foreseeable future.


                                       11
<PAGE>   12

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 29, 1996, September 28, 1997, September 27, 1998, September 26, 1999
and September 24, 2000. 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.

<TABLE>
<CAPTION>
                                                                              FISCAL YEARS ENDED
                                              -----------------------------------------------------------------------------------
                                             SEPT. 29, (6)       SEPT. 28,         SEPT. 27,         SEPT. 26,         SEPT. 24,
                                                 1996              1997              1998               1999             2000
                                              -----------       -----------       -----------       -----------       -----------
                                                           (In thousands of dollars except per share and store data)
<S>                                           <C>               <C>               <C>               <C>               <C>
STATEMENT OF EARNINGS DATA:
SALES ..................................      $ 1,705,332       $ 1,717,924       $ 1,726,107       $ 1,830,195       $ 2,417,710
COST OF GOODS SOLD .....................        1,315,726         1,326,410         1,323,522         1,387,619         1,819,068
                                              -----------       -----------       -----------       -----------       -----------
GROSS PROFIT ...........................          389,606           391,514           402,585           442,576           598,642
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES .............................          328,242           333,199           353,075           377,195           532,147
DEPRECIATION AND AMORTIZATION ..........           12,583            13,265            15,434            16,591            25,580
ACQUISITION INTEGRATION EXPENSES .......                -                 -                 -             5,590             4,594
CONSULTING FEES(1) .....................            1,525             1,458                 -                 -                 -
                                              -----------       -----------       -----------       -----------       -----------
TOTAL OPERATING EXPENSES ...............          342,350           347,922           368,509           399,376           562,321
                                              -----------       -----------       -----------       -----------       -----------
OPERATING PROFIT .......................           47,256            43,592            34,076            43,200            36,321

INTEREST AND OTHER INCOME ..............            1,757             3,110             3,061             2,951             3,217
INTEREST EXPENSE .......................          (20,258)          (21,563)          (30,206)          (33,630)          (53,680)
EQUITY IN INCOME (LOSS) FROM
  UNCONSOLIDATED AFFILIATE .............           (1,624)           (2,313)           (2,941)            1,130             1,483
                                              -----------       -----------       -----------       -----------       -----------
INCOME BEFORE INCOME TAXES AND
  EXTRAORDINARY GAIN (LOSS) ............           27,131            22,826             3,990            13,651           (12,659)
INCOME TAXES (BENEFIT) .................           11,120             9,359             1,459             5,372            (5,369)
                                              -----------       -----------       -----------       -----------       -----------
INCOME BEFORE EXTRAORDINARY
  GAIN (LOSS) ..........................           16,011            13,467             2,531             8,279            (7,290)
EXTRAORDINARY GAIN (LOSS)(2)(3) ........                -                 -                 -           (17,311)            1,123
                                              -----------       -----------       -----------       -----------       -----------
NET INCOME (LOSS) ......................           16,011            13,467             2,531            (9,032)           (6,167)
PREFERRED DIVIDENDS ....................            4,111             6,166                 -                 -                 -
                                              -----------       -----------       -----------       -----------       -----------
INCOME (LOSS) AVAILABLE TO COMMON
  STOCKHOLDERS .........................      $    11,900       $     7,301       $     2,531       $    (9,032)      $    (6,167)
                                              ===========       ===========       ===========       ===========       ===========
EARNINGS (LOSS) PER COMMON SHARE
  BEFORE EXTRAORDINARY GAIN (LOSS) .....      $    165.28       $    146.02       $     50.62       $    165.58       $    145.80)
EARNINGS (LOSS) PER COMMON SHARE .......      $    165.28       $    146.02       $     50.62       $   (180.64)      $   (123.34)
</TABLE>

                          (FOOTNOTES ON FOLLOWING PAGE)


                                       12
<PAGE>   13

ITEM 6.      SELECTED FINANCIAL DATA (CONTD.)

<TABLE>
<CAPTION>
                                                                               FISCAL YEARS ENDED
                                                   -----------------------------------------------------------------------------
                                                   SEPT. 29,(6)     SEPT. 28,        SEPT. 27,        SEPT. 26,        SEPT. 24,
                                                     1996              1997            1998             1999             2000
                                                   ---------        ---------        ---------        ---------        ---------
                                                             (In thousands of dollars except per share and store data)
<S>                                                <C>              <C>              <C>              <C>              <C>
BALANCE SHEET DATA (END OF FISCAL YEAR):
WORKING CAPITAL .............................      $  63,473        $  92,013        $  90,725        $ 130,915        $ 111,770
TOTAL ASSETS ................................        338,294          358,477          364,318          603,917          595,288
LONG-TERM NOTES AND MORTGAGES
  PAYABLE ...................................        165,000          265,000          265,000          455,048          439,000
LONG-TERM CAPITALIZED LEASE
  OBLIGATIONS ...............................          6,917            5,661            4,350           15,625           13,679
OTHER LONG-TERM LIABILITIES .................         12,858           11,348           12,009           10,960           14,070
SERIES B PREFERRED STOCK ....................         69,365                -                -                -                -
COMMON STOCKHOLDERS' EQUITY (DEFICIT) .......        (43,887)         (36,586)         (34,055)         (43,087)         (49,254)
DIVIDENDS DECLARED PER SHARE:
  COMMON STOCK ..............................              -                -                -                -                -
  CLASS A COMMON STOCK ......................              -                -                -                -                -
  10.5% SERIES B PREFERRED STOCK ............      $    5.93        $    8.91                -                -                -

OTHER OPERATING AND FINANCIAL DATA:
SALES INCREASES (DECREASES):
  TOTAL STORES ..............................            7.9%             0.7%             0.5%             6.0%            32.1%
  LIKE STORES (COMPARABLE 52-WEEKS) .........            6.3%             2.6%            (1.0%)            1.9%             1.4%
EBITDA(4) ...................................      $  59,972        $  57,654        $  49,630        $  63,872        $  66,601
OPERATING PROFIT ............................      $  47,256        $  43,592        $  34,076        $  43,200        $  36,321
RATIO OF EARNINGS TO FIXED CHARGES(5) .......          1.53X            1.23X            1.03X            1.27X            0.85X
GROSS PROFIT AS A PERCENTAGE
  OF SALES ..................................          22.85%           22.79%           23.32%           24.18%           24.76%
SELLING, GENERAL AND ADMINISTRATIVE
  EXPENSES AS A PERCENTAGE OF SALES .........          19.25%           19.40%           20.46%           20.61%           22.01%

STORE DATA:
NUMBER OF STORES (AT END OF
  FISCAL YEAR) ..............................            110              110              112              155              155
AVERAGE SALES PER STORE (000S) ..............      $  15,503        $  15,617        $  15,551        $  15,741        $  15,598
AVERAGE STORE SIZE:
  TOTAL SQUARE FEET .........................         28,809           28,809           29,061           32,895           32,910
  SELLING SQUARE FEET .......................         20,845           20,845           20,991           23,570           23,570
TOTAL SQUARE FEET (AT END OF
  FISCAL YEAR) (000S) .......................          3,169            3,169            3,255            5,099            5,101
TOTAL SELLING SQUARE FEET (AT END
  OF FISCAL YEAR) (000S) ....................          2,293            2,293            2,351            3,653            3,653
SALES PER AVERAGE TOTAL SQ. FT ..............      $     538        $     542        $     537        $     531        $     474
SALES PER AVERAGE SELLING SQ. FT ............      $     744        $     749        $     743        $     736        $     662
</TABLE>


(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)


                                       13
<PAGE>   14

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 Notes 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,
     amortization of previously capitalized interest and undistributed earnings
     or loss from less than 50% owned subsidiaries and includes fixed charges.
     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.

(6)  The fiscal year 1996 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 2000, 1999 and 1998 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.


                                       14
<PAGE>   15

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 fiscal years ended September 27, 1998, September 26,
1999 and September 24, 2000.

<TABLE>
<CAPTION>
                                                   Fiscal Years Ended
                                          -----------------------------------------
                                            1998             1999             2000
                                          -------          -------          -------
<S>                                       <C>              <C>              <C>
Sales                                      100.00%          100.00%          100.00%
Gross profit                                23.32            24.18            24.76
Operating expenses:
  Selling, general and
    administrative expenses                 20.46            20.61            22.01
  Depreciation and amortization               .89              .91             1.06
  Acquisition integration expenses              -              .30              .19
Operating profit                             1.97             2.36             1.50
Interest income                               .18              .18              .13
Interest (expense)                          (1.75)           (1.84)           (2.22)
Equity in income (loss) from
  unconsolidated affiliate                   (.17)             .06              .06
Other income (expense) net                      -             (.01)             .01
Income (loss) before income taxes
  and extraordinary gain (loss)               .23%             .75%            (.52)%
</TABLE>

Total sales amounted to $2.418 billion in 2000 compared to $1.830 billion in
1999 and $1.726 billion in 1998. Like-store sales increased 1.9% (before erosion
of like-store sales of 0.5% to newly acquired stores) in fiscal 2000, compared
to an increase of 1.9% in fiscal 1999 and an decrease of 1.0% in fiscal 1998.
The increase in total sales during fiscal 2000 is 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. The decrease in
like-store sales in fiscal 1998 was due to competitors re-opening supermarkets
vacated by a competitor that terminated its California operations.

Gross profits increased to $598.6 million or 24.76% of sales in 2000 compared to
$442.6 million or 24.18% of sales in 1999 and $402.6 million or 23.32% of sales
in 1998. 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 2000, selling, general and administrative expenses amounted to $532.1
million or 22.01% of sales compared to $377.2 million or 20.61% of sales in 1999
and $353.1 million or 20.46% of sales in 1998. Selling, general and
administrative expenses 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 the year due to the
staffing and training of personnel for the new service meat departments in the
newly acquired stores. Selling, general and administrative expenses for fiscal
1999 included expenses incurred to operate the additional 43 supermarkets
acquired in August 1999, from increased labor costs due to contractual wage
increases, from increased labor required to staff ten additional service deli
departments and from additional labor in the Company's supermarkets required to
support the 1999 marketing plan which emphasized


                                       15
<PAGE>   16

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS (CONTD.)


RESULTS OF OPERATIONS (CONTD.)

the perishable departments. Selling, general and administrative expenses for
fiscal 1998 included expenses incurred to operate two additional supermarkets
and non-recurring advertising expenses of approximately $2.1 million incurred in
the second and third quarters to re-affirm the Company's strategy of Aggressive
Every Day Low Price leadership in its primary marketing areas and to advertise
the Company's successful No Club Card strategy.

Depreciation and amortization expenses amounted to $25.6 million in 2000
compared to $16.6 million in 1999 and $15.4 million in 1998. The increase in
depreciation and amortization expenses in fiscal 2000 over fiscal 1999 and
fiscal 1998 is due to the acquisition of the 43 new stores in fiscal 1999.
Depreciation and amortization expenses include amortization of $438,000 in 1999
and $1.0 million in 1998, 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 as part of the Recapitalization Transaction.
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 are anticipated. 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 $36.3 million or 1.50% of sales in 2000 compared
to $43.2 million or 2.36% of sales in 1999 and $34.1 million or 1.97% of sales
in 1998.

Interest expense amounted to $53.7 million, $33.6 million and $30.2 million for
the 2000, 1999 and 1998 fiscal years, respectively. The increase in interest
expense in 2000 and 1999 was due to the issuance in August 1999 of $450.0
million of 10.75% Senior Notes due 2006 and reduced by the redemption of all of
the 9% Notes and substantially all ($5.1 million remain outstanding) of the 11%
Notes. Interest expense included amortization of fees and expenses incurred to
acquire debt of $2.5 million in 2000 and $2.8 million in 1999 and 1998.

The equity in income from unconsolidated affiliate amounted to $1.5 million in
fiscal 2000 compared to $1.1 million in 1999 and a loss of $2.9 million in 1998.
The increase in income from unconsolidated affiliate in fiscal 2000 was due to
increased volume and improved efficiencies by Santee Dairies LLC. The increase
in earnings in fiscal 1999 over fiscal 1998 was due to incremental price
increases paid by the two owners of Santee Dairies LLC (Hughes and Stater Bros.
Markets) of $12.9 million compared to $5.6 million in 1998. 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 1998 and 1999, the prices paid by Stater Bros. Markets pursuant to
the fluid milk agreement were adversely effected by delays in construction of
the New Dairy, cost overruns and lower production volumes than anticipated.
Beginning in June 1998, Stater Bros. accepted and paid incremental prices of
approximately $1.0 million per month to Santee as a result of its increased cost
structure. In February 1999, incremental prices paid to Santee by Stater Bros.
decreased to approximately $800,000 per month and decreased to approximately
$400,000 per month in July 1999. In October 1999, the incremental pricing
structure was terminated, but no assurances can be given that Stater Bros. will
not incur incremental prices in the future. In fiscal 2000, Stater Bros. paid


                                       16
<PAGE>   17

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS (CONTD.)


RESULTS OF OPERATIONS (CONTD.)

Santee approximately $48,000 in incremental prices compared to $9.4 million in
fiscal 1999 and $4.3 million in fiscal 1998 and such amounts are included in
Stater Bros.' cost of goods sold.

Income (loss) before income taxes (benefit) and extraordinary gain (loss)
amounted to a $12.7 million loss in fiscal 2000, $13.7 million income and $4.0
million income for 1999 and 1998 fiscal years, respectively.

Income (loss) before extraordinary gain (loss) amounted to a $7.3 million loss
in 2000, $8.3 million income in 1999 and $2.5 million income in 1998.

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 loss, for fiscal 2000, amounted to $6.2 million, compared to a net loss of
$9.0 million in 1999 and net income of $2.5 million in 1998.

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 24,
2000 and a letter of credit facility with a maximum availability of $25.0
million, of which $15.0 million was available at September 24, 2000. The letter
of credit facility is maintained pursuant to the Company's workers' compensation
and general liability self-insurance requirements.

The Company had no short-term borrowings outstanding at the end of fiscal years
2000, 1999 and 1998, and the Company did not incur short-term borrowings during
fiscal years 2000, 1999 and 1998.

Working capital amounted to $111.8 million at September 24, 2000, $130.9 million
at September 26, 1999 and $90.7 million at September 27, 1998. The Company's
current ratios were 1.63:1, 1.79:1 and 1.78:1, respectively. Fluctuations in
working capital and current ratios are not unusual in the industry.

Net cash provided by operating activities amounted to $15.4 million in 2000,
$59.3 million in 1999 and $26.4 million in 1998. Fluctuations in operating
assets and liabilities are not unusual in the industry. 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 and decreases in accounts receivable and prepaid
expenses. The increase in cash provided by operating activities in fiscal 1999,
when compared to fiscal 1998, was due primarily to increases in accounts payable
and accrued liabilities, net of increases in inventories and accounts receivable
that relate, primarily, to the post acquisition operations of the August 1999
acquisition of 43 supermarkets. The change in net cash provided by operating
activities in fiscal 1998 was due to fluctuations in inventory, accounts payable
and accrued liabilities.


                                       17
<PAGE>   18


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 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
financing activities during fiscal 1998 amounted to $1.3 million and consisted
of reductions in capitalized lease obligations.

Net cash used in investing activities during fiscal 2000 amounted to $35.4
million and consisted 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. During fiscal 1999, capital expenditures were also
incurred to complete the construction of the new Loma Linda supermarket and to
complete 7 minor and 10 major remodels. 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. Net cash used in investing activities for fiscal 1998 amounted
to $27.0 million. Capital expenditures amounted to $26.3 million in 1998 and
included costs to complete construction and to open two supermarkets, to begin
construction on a third supermarket (which opened in December 1998) and to
complete five minor and six major remodels.


                                       18
<PAGE>   19

ITEM 7.      MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
             CONDITION AND RESULTS OF OPERATIONS (CONTD.)


LIQUIDITY AND CAPITAL RESOURCES (CONTD.)

The Company owns 50% of Santee Dairies, LLC. Hughes Family Markets ("Hughes"),
located in Irwindale, California owns 50% of Santee Dairies, LLC. In May 1998,
the Company increased its investment in Santee Dairies LLC by contributing $1.1
million into Santee's capital structure. Santee Dairies, Inc. is a wholly owned
subsidiary of Santee Dairies LLC. Santee Dairies, Inc. operates a fluid milk
processing plant in City of Industry, California. Santee provides the Company's
supermarkets with a significant amount of high-quality fluid milk and other
dairy products.

Management believes that cash capital expenditures for fiscal 2001 will be
approximately $34.4 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.

The Company operated 155 supermarkets at September 24, 2000 and September 26,
1999 and operated 112 supermarkets at September 27, 1998.

The Company's supermarkets had approximately 5.1 million total square feet at
September 24, 2000 and September 26, 1999 and had approximately 3.3 million
total square feet at September 27, 1998.

    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, and workers'
compensation insurance 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.


                                       19
<PAGE>   20

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 24, 2000, 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 $100.0 million and
exceeded minimum inventory coverage by approximately $64.4 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 24, 2000, Stater Bros. Markets exceeded minimum
annualized EBITDA by approximately $10.3 million.

As of September 24, 2000, for the purposes of the credit facility with Bank of
America, Stater Bros. Holdings Inc. was in compliance with all restrictive
covenants.


                                       20
<PAGE>   21

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 11% Senior
Notes due 2001 and its 10.75% Senior Notes due 2006. As of September 24, 2000,
the Company was in compliance with all such covenants. However, there can be no
assurance that the Company will be able to achieve the expected operating
results or implement the capital expenditure strategy upon which future
compliance with such covenants is based.

        LABOR RELATIONS

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

YEAR 2000 COMPLIANCE

The Company successfully achieved compliance with the Year 2000 requirements and
Year 2000 related issues had no material adverse effect on the Company's results
of operations, liquidity or financial condition. However, no assurance can be
given that unforeseen problems may not occur in the future that may have a
material adverse effect on the Company's results of operations, liquidity or
financial condition.

The Company's costs required to achieve Year 2000 compliance such as replace or
modify Information Systems, including scheduled replacements of in-store Point
of Sale equipment, was approximately $8.5 million, of which $7.0 million was
capitalized and $1.5 million was expensed.

RECENT ACCOUNTING PRONOUNCEMENTS

During the Company's fiscal 2000, the Financial Accounting Standards Board
issued or required the adoption of Statement of Financial Accounting Standards
("SFAS") No. 138 and No. 139. Adoption of SFAS No. 138 and No. 139 were either
not applicable to the Company or were adopted by the Company in its fiscal 2000
and did not have a material effect on the Company's financial position or its
results of operations in fiscal 2000.

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.


                                       21
<PAGE>   22

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

<TABLE>
<CAPTION>
                                                                                Page Number
                                                                                -----------
<S>                                                                             <C>
Report of Independent Auditors...............................................        F-2

Consolidated Balance Sheets at September 27, 1998,
    September 26, 1999 and September 24, 2000................................        F-3

Fiscal years ended September 27, 1998, September 26, 1999 and
    September 24, 2000:

      Consolidated Statements of Operations..................................        F-5

      Consolidated Statements of Cash Flows..................................        F-6

      Consolidated Statements of Stockholders' Equity (Deficit)..............        F-7

Notes to Consolidated Financial Statements...................................        F-8
</TABLE>



                                       22
<PAGE>   23


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.

<TABLE>
<CAPTION>
                    NAME               AGE                  POSITION
        ----------------------------   ---  ---------------------------------------------
<S>                                    <C>  <C>
        Jack H. Brown...............   61   Chairman of the Board, President
                                              and Chief Executive Officer

        Donald I. Baker.............   59   Executive Vice President

        H. Harrison Lightfoot.......   62   Group Senior Vice President - Development

        A. Gayle Paden..............   64   Group Senior Vice President - Administration

        Phillip J. Smith............   53   Sr. Vice President - Chief Financial Officer

        Bruce D. Varner.............   64   Director and Secretary

        Thomas W. Field, Jr.........   66   Vice Chairman of the Board of Directors

        C. Dale Warman..............   71   Director
</TABLE>


BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS

        Jack H. Brown has 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 48 years. Mr. Brown has a majority interest and is the
managing general partner of La Cadena Investments.

        Donald I. Baker has been 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 34 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.



                                       23
<PAGE>   24

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT (CONTD.)


BACKGROUND OF DIRECTORS AND EXECUTIVE OFFICERS (CONTD.)


        H. Harrison Lightfoot has 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 46
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 Paden has 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.

        Phillip J. Smith has 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 25 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. Varner has 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 41 years and serves
as a Director for several companies including, Campbell Soup Company and
Maxicare.

        C. Dale Warman has 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.


                                       24
<PAGE>   25

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:


<TABLE>
<CAPTION>
                                                   ANNUAL COMPENSATION
                                 =========================================================
                                                                                               ALL OTHER
NAME AND                                                         BONUSES      OTHER ANNUAL   COMPENSATION
PRINCIPAL POSITION               YEAR          SALARY          (4)(5)(6)(7)   COMPENSATION    (1)(2)(3)
=========================        ====        ==========        ===========   ==============  ============
<S>                              <C>         <C>               <C>           <C>             <C>
Jack H. Brown                    2000        $1,044,000        $2,000,000    $           -   $   51,000
Chairman, President and          1999        $  960,000        $2,800,000    $           -   $   27,071
Chief Executive Officer          1998        $  879,000        $  700,000    $           -   $   27,663

Donald I. Baker                  2000        $  360,000        $        -    $           -   $        -
Executive Vice President         1999        $  305,000        $  250,000    $           -   $    1,571
                                 1998        $  234,000        $  110,000    $           -   $    1,663

H. Harrison Lightfoot            2000        $  323,000        $        -    $           -   $        -
Group Senior Vice                1999        $  320,000        $  180,000    $           -   $    1,571
President, Development           1998        $  311,000        $  140,000    $           -   $    1,663

A. Gayle Paden                   2000        $  316,000        $        -    $           -   $        -
Group Senior Vice                1999        $  298,000        $  115,000    $           -   $    1,571
President, Administration        1998        $  279,500        $   55,000    $           -   $    1,663

Phillip J. Smith                 2000        $  150,000        $        -    $           -   $        -
Senior Vice President,           1999        $  139,000        $   92,000    $           -   $    1,571
Chief Financial Officer          1998        $  134,000        $   42,000    $           -   $    1,663
</TABLE>


        (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 1998, 1999 and 2000, which
            amounted to $26,000, $25,500, and $51,000, respectively.

        (4) The Bonus reflected in 1999 for Mr. Brown includes a one-time bonus
            of $2,000,000 awarded in recognition of his expertise in acquiring
            43 supermarkets from Albertson's and his expertise in handling the
            August 1999 offering of $450.0 million of 10.75% Senior Notes due
            2006 and obtaining a $75.0 million credit facility.

        (5) The Bonuses reflected in 1999, for Mr. Baker, Mr. Lightfoot, Mr.
            Paden and Mr. Smith include one-time Bonuses, based upon the
            Company's acquisition and successful integration of 43 Supermarkets
            from Albertson's and Lucky, in Southern California.

        (6) The Board of Directors of Stater Bros. Holdings Inc. unanimously
            awarded Mr. Brown a one-time bonus in 2000 for successful
            integration of the 43 acquired supermarkets.

        (7) Annual Bonuses to be paid to the Named Executive Officers for fiscal
            2000 had neither been calculated nor awarded as of December 12,
            2000, the latest practical date.

                             STOCK OPTIONS AND SARS

                                      None


                                       25
<PAGE>   26

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 24, 2000: Jack H. Brown - 19 years, H.
Harrison Lightfoot - 46 years, A. Gayle Paden - 14 years, Donald I. Baker - 17
years and Phillip J. Smith - 13 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 2000
retirees with ten or more years of service at retirement is $130,000. The
maximum annual compensation that may be considered for 2000 retirees is
$160,000.

<TABLE>
<CAPTION>
                                                 PENSION PLAN TABLE

                                                   YEARS OF SERVICE
                             -------------------------------------------------------------
   REMUNERATION                   15           20           25          30           35
   ------------              ----------   ----------   ----------   ----------   ---------
   <S>                       <C>          <C>          <C>          <C>          <C>
    $100,000..............   $   22,359   $   29,812   $   37,265   $   44,718   $  52,171
     150,000..............       38,484       51,312       64,140       76,968      89,796
     200,000..............       54,609       72,812       91,015      109,218     127,421
     250,000..............       70,734       94,312      117,890      141,468     165,046
     300,000..............       86,859      115,812      144,765      173,718     202,671
     350,000..............      102,984      137,312      171,640      205,968     240,296
     400,000..............      119,109      158,812      198,515      238,218     277,921
     450,000..............      135,234      180,312      225,390      270,468     315,546
     500,000..............      151,359      201,812      252,265      302,718     353,171
</TABLE>


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


                                       26
<PAGE>   27


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 which 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.

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.


                                       27
<PAGE>   28

ITEM 12.     SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
             MANAGEMENT


The following table sets forth, as of December 12, 2000, 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:

<TABLE>
<CAPTION>
                                             Shares of
                                           Class A Common       Percentage of
                                               Stock              Class A
Name and Address                           Beneficially         Common Stock
of Beneficial Owner                            Owned             Outstanding
-------------------                        --------------       -------------
<S>                                        <C>                  <C>
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%
</TABLE>
-------------

        (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


                                       28
<PAGE>   29

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 2000 was approximately $1.5 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.

Prior to March 24, 1994, the Company's common stock was owned equally by La
Cadena and Craig. In March 1994, the Company completed the 1994
Recapitalization, which transferred effective voting control of the Company to
La Cadena, reclassified the Company's outstanding equity, provided for certain
cash payments and distributions to Craig and provided the Company with an option
to acquire Craig's remaining equity in the Company. The 1994 Recapitalization
was funded through the offering of the 11% Senior Notes. The following
paragraphs describe the 1994 Recapitalization.

The Company amended its Certificate of Incorporation to provide for two classes
of common stock designated "Common Stock" and "Class A Common Stock", and two
series of preferred stock designated "Series A Preferred Stock" and "Series B
Preferred Stock." The then existing shares of outstanding common stock were
classified as Common Stock, and holders of such stock were afforded the right to
exchange all such shares into a like number of shares of Class A Common Stock.
La Cadena exchanged its shares of Common Stock for shares of Class A Common
Stock and Craig initially retained its shares of Common Stock (subject to the
Company's right to convert such shares of Common Stock into shares of Series B
Preferred Stock, and subject to the Company's option to acquire such shares of
Common Stock, as described below). For a period of five years following the 1994
Recapitalization, each share of Class A Common Stock was entitled to 1.1 votes
while each share of Common Stock was entitled to one vote, thereby giving La
Cadena approximately 52% and Craig approximately 48% of the total voting power
of the Company.

The Board of Directors of the Company declared a dividend of $400 per share on
the Common Stock, payable to holders of record at the close of business on the
day following the closing of the 1994 Recapitalization. As a result of the
amendment of the Company's Certificate of Incorporation and the exchange by La
Cadena of its shares of Common Stock for Class A Common Stock, the aggregate
amount of the dividend on the Common Stock amounted to $20.0 million, and the
entire dividend was paid to Craig.

Pursuant to the Option Agreement dated as of September 3, 1993 between the
Company and Craig, as amended (the "Option Agreement"), the Company was given
the right, at its option, for a period of two years from the 1994
Recapitalization, to convert the Common Stock into 693,650 shares of Series B
Preferred Stock. The Company exercised the option effective March 8, 1996 and
the Company subsequently redeemed the Series B Preferred Stock for $69.4 million
in August 1997.


                                       29
<PAGE>   30

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS (CONTD.)


The Company entered into a prepaid five year covenant not to compete and a
consulting agreement with Craig, pursuant to which the Company paid Craig $5.0
million at the closing of the 1994 Recapitalization. Additionally, the Company
had been paying an annual consulting fee of $1.5 million. The covenant not to
compete and consulting arrangements with Craig were unique, based upon the
confidential information available to Craig and its experience with, and
relationship to the Company. Accordingly, the Company had no basis to determine
whether comparable services could be obtained from unaffiliated third parties on
similar or more favorable terms. On July 31, 1997, the Company gave notice to
Craig to terminate the Consulting Agreement.

Pursuant to the Amendment to the Agreement of Stockholders of Stater Bros.
Holdings Inc. dated as of September 3, 1993, the Agreement of Stockholders of
Stater Bros. Holdings Inc. dated as of May 10, 1989 among the Company, La
Cadena, Craig and an affiliate of Craig (as amended, the "Stockholders
Agreement") was amended effective as of the 1994 Recapitalization closing to
provide that, among other things: (a) the Stockholders Agreement may be
terminated by any party upon exercise by the Company of its right to convert the
Common Stock into the Series B Preferred Stock as described above, and (b)
certain rights of the stockholders to purchase shares of Common Stock owned by
other stockholders would be suspended until after the expiration of the
Company's right to convert the Common Stock into the Series B Preferred Stock.
Under the Stockholders Agreement, the Company and the holders of the Class A
Common Stock and Common Stock were granted certain rights of first refusal with
respect to transfers of such stock. The Stockholders Agreement was terminated
effective October 15, 1996.

In June 1997, in connection with the Consent Solicitation, 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.


                                       30
<PAGE>   31

                                     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.


                                       31
<PAGE>   32

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.


                                       32
<PAGE>   33

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.

               27                  Financial Data Schedule

               -----------------------------------------------------------------

               (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.


                                       33
<PAGE>   34

 ITEM 14.              EXHIBITS, FINANCIAL STATEMENT SCHEDULES
                       AND REPORTS ON FORM 8-K (CONTD.)

        (a)(3)    Exhibits (contd.)

            EXHIBIT NO.            DESCRIPTION
            -----------            -----------

               (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


                                       34
<PAGE>   35


                           STATER BROS. HOLDINGS INC.
                  FOR THE FISCAL YEAR ENDED SEPTEMBER 24, 2000
                                    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 12, 2000                         STATER BROS. HOLDINGS INC.
-----------------------------
           DATE


                                              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.


<TABLE>
<CAPTION>
            SIGNATURE                           TITLE                              DATE
            ---------                           -----                              ----
<S>                                    <C>                                    <C>


   /S/    JACK H. BROWN                CHAIRMAN OF THE BOARD, PRESIDENT       DECEMBER 12, 2000
---------------------------------      AND CHIEF EXECUTIVE OFFICER            -----------------
          JACK H. BROWN                AND DIRECTOR (PRINCIPAL
                                       EXECUTIVE OFFICER)


   /S/    THOMAS W. FIELD, JR.         VICE CHAIRMAN OF THE BOARD             DECEMBER 12, 2000
---------------------------------      AND DIRECTOR                           -----------------
          THOMAS W. FIELD, JR.


   /S/    BRUCE D. VARNER              SECRETARY AND DIRECTOR                 DECEMBER 12, 2000
---------------------------------                                             -----------------
          BRUCE D. VARNER


   /S/    C. DALE WARMAN               DIRECTOR                               DECEMBER 12, 2000
---------------------------------                                             -----------------
          C. DALE WARMAN


   /S/    PHILLIP J. SMITH             SR. VICE PRESIDENT -                   DECEMBER 12, 2000
---------------------------------      CHIEF FINANCIAL OFFICER                -----------------
          PHILLIP J. SMITH             (PRINCIPAL ACCOUNTING OFFICER)
</TABLE>


                                       35
<PAGE>   36


                   INDEX TO CONSOLIDATED FINANCIAL STATEMENTS



<TABLE>
<CAPTION>
                                                                               Page Number
                                                                               -----------
<S>                                                                            <C>
Report of Independent Auditors..............................................        F-2

Consolidated Balance Sheets at September 27, 1998,
    September 26, 1999 and September 24, 2000...............................        F-3

Fiscal years ended September 27, 1998, September 26, 1999 and
    September 24, 2000:

      Consolidated Statements of Operations.................................        F-5

      Consolidated Statements of Cash Flows.................................        F-6

      Consolidated Statements of Stockholders' Equity (Deficit).............        F-7

Notes to Consolidated Financial Statements..................................        F-8
</TABLE>



                                      F-1

<PAGE>   37

                         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 27, 1998, September 26,
1999 and September 24, 2000, and the related consolidated statements of
operations, stockholders' equity (deficit), and cash flows for each of the
52-week periods then ended. 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 27, 1998, September
26, 1999 and September 24, 2000, and the consolidated results of their
operations and their cash flows for each of the 52-week periods then ended, in
conformity with accounting principles generally accepted in the United States.






                                                            ERNST & YOUNG LLP
Riverside, California
November 30, 2000



                                       F-2
<PAGE>   38

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

                                     ASSETS

<TABLE>
<CAPTION>
                                                                  SEPT. 27,     SEPT. 26,     SEPT. 24,
                                                                    1998          1999          2000
                                                                  --------      --------      --------
<S>                                                               <C>           <C>           <C>
Current assets
   Cash and cash equivalents ...............................      $ 57,281      $ 93,352      $ 62,631
   Lease guarantee escrow ..................................            --            --        13,180
   Receivables .............................................        20,451        28,296        28,181
   Income tax receivables ..................................            --         5,942           263
   Inventories .............................................       116,274       155,361       165,332
   Prepaid expenses ........................................         5,176         5,926         5,337
   Deferred income taxes ...................................         4,588         3,523        10,776
   Properties held for sale ................................         3,969         3,886         3,863
                                                                  --------      --------      --------

Total current assets .......................................       207,739       296,286       289,563


Investment in unconsolidated affiliate .....................         8,472         9,599        11,082


Property and equipment
   Land ....................................................        15,924        44,941        47,574
   Buildings and improvements ..............................        94,794       160,406       169,584
   Store fixtures and equipment ............................       100,781       150,027       172,465
   Property subject to capital leases ......................        14,368        25,261        25,261
                                                                  --------      --------      --------
                                                                   225,867       380,635       414,884


   Less accumulated depreciation and amortization ..........       107,513       120,906       144,370
                                                                  --------      --------      --------
                                                                   118,354       259,729       270,514


Deferred income taxes ......................................         2,449         4,297         3,676
Deferred debt issuance costs, net ..........................        12,294        16,774        14,569
Lease guarantee escrow .....................................         9,629        11,280            --
Other assets ...............................................         5,381         5,952         5,884
                                                                  --------      --------      --------
                                                                    29,753        38,303        24,129

Total assets ...............................................      $364,318      $603,917      $595,288
                                                                  ========      ========      ========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-3
<PAGE>   39

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

                 LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)

<TABLE>
<CAPTION>
                                                                                 SEPT. 27,       SEPT. 26,       SEPT. 24,
                                                                                   1998            1999            2000
                                                                                 ---------       ---------       ---------
<S>                                                                              <C>             <C>             <C>
Current liabilities
   Accounts payable .......................................................      $  65,553       $  97,169       $ 100,777
   Accrued payroll and related expenses ...................................         25,363          35,757          35,385
   Other accrued liabilities ..............................................         24,788          30,501          34,637
   Current portion of capital lease obligations and long-term debt ........          1,310           1,944           6,994
                                                                                 ---------       ---------       ---------

Total current liabilities .................................................        117,014         165,371         177,793

Long-term debt, less current portion ......................................        265,000         455,048         439,000
Capital lease obligations, less current portion ...........................          4,350          15,625          13,679
Long-term portion of self-insurance and other reserves ....................          8,284           7,450
                                                                                                                     9,875
Other long-term liabilities ...............................................          3,725           3,510           4,195
                                                                                 ---------       ---------       ---------

Total liabilities .........................................................        398,373         647,004         644,542

Stockholders' equity (deficit)
   Common Stock, $.01 par value:
      Authorized shares - 100,000
      Issued and outstanding shares -
        0 in 1998, 1999 and 2000 ..........................................             --              --              --
   Class A Common Stock, $.01 par value:
      Authorized shares - 100,000
      Issued and outstanding shares -
        50,000 in 1998, 1999 and 2000 .....................................              1               1               1
   Additional paid-in capital .............................................         12,715          12,715          12,715
   Retained earnings (deficit) ............................................        (46,771)        (55,803)        (61,970)
                                                                                 ---------       ---------       ---------

Total stockholders' equity (deficit) ......................................        (34,055)        (43,087)        (49,254)
                                                                                 ---------       ---------       ---------

Total liabilities and stockholders' equity (deficit)  .....................      $ 364,318       $ 603,917       $ 595,288
                                                                                 =========       =========       =========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-4
<PAGE>   40

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

<TABLE>
<CAPTION>
                                                                                     Fiscal Year Ended
                                                                       -----------------------------------------------
                                                                        SEPT. 27,         SEPT. 26,         SEPT. 24,
                                                                          1998              1999              2000
                                                                       -----------       -----------       -----------
<S>                                                                    <C>               <C>               <C>
Sales ...........................................................      $ 1,726,107       $ 1,830,195       $ 2,417,710
Cost of goods sold ..............................................        1,323,522         1,387,619         1,819,068
                                                                       -----------       -----------       -----------
Gross profit ....................................................          402,585           442,576           598,642

Operating expenses:
   Selling, general and administrative expenses .................          353,075           377,195           532,147
   Depreciation and amortization ................................           15,434            16,591            25,580
   Acquisition integration expenses .............................               --             5,590             4,594
                                                                       -----------       -----------       -----------
Total operating expenses ........................................          368,509           399,376           562,321
                                                                       -----------       -----------       -----------

Operating profit ................................................           34,076            43,200            36,321

Interest income .................................................            3,059             3,308             3,244
Interest expense ................................................          (30,206)          (33,630)          (53,680)
Equity in income (loss) from unconsolidated affiliate ...........           (2,941)            1,130             1,483
Other income (expense) - net ....................................                2              (357)              (27)
                                                                       -----------       -----------       -----------

Income (loss) before income taxes (benefit) and
  extraordinary gain (loss) .....................................            3,990            13,651           (12,659)
Income taxes (benefit) ..........................................            1,459             5,372            (5,369)
                                                                       -----------       -----------       -----------
Income (loss) before extraordinary gain (loss) ..................            2,531             8,279            (7,290)

Extraordinary gain (loss), net of tax effect of
  $(11,233) in 1999 and $773 in 2000 ............................               --           (17,311)            1,123
                                                                       -----------       -----------       -----------
Net income (loss) ...............................................      $     2,531       $    (9,032)      $    (6,167)
                                                                       ===========       ===========       ===========

Earnings (loss) per common share:
   Before extraordinary gain (loss) .............................            50.62            165.58           (145.80)
   Extraordinary gain (loss) ....................................               --           (346.22)            22.46
                                                                       -----------       -----------       -----------

Earnings (loss) per common share ................................      $     50.62       $   (180.64)      $   (123.34)
                                                                       ===========       ===========       ===========

Average common shares outstanding ...............................           50,000            50,000            50,000
                                                                       ===========       ===========       ===========

Common shares outstanding at end of year ........................           50,000            50,000            50,000
                                                                       ===========       ===========       ===========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-5
<PAGE>   41

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

<TABLE>
<CAPTION>
                                                                                       Fiscal Year Ended
                                                                            -----------------------------------------
                                                                            SEPT. 27,       SEPT. 26,       SEPT. 24,
                                                                              1998            1999            2000
                                                                            ---------       ---------       ---------
<S>                                                                         <C>             <C>             <C>
OPERATING ACTIVITIES:
Net income (loss) ....................................................      $   2,531       $  (9,032)      $  (6,167)
Adjustments to reconcile net income (loss) to net cash
 provided by operating activities:
   Extraordinary (gain) loss .........................................             --          17,311          (1,123)
   Depreciation and amortization .....................................         15,434          16,591          25,580
   Deferred income taxes .............................................            640            (783)         (6,632)
   (Gain) loss on disposals of assets ................................             (2)            357              29
   Net undistributed loss (income) in unconsolidated affiliate .......          2,941          (1,130)
                                                                                                               (1,483)
   Changes in operating assets and liabilities:
    (Increase) decrease in receivables ...............................          1,030          (7,845)            115
    (Increase) decrease in income tax receivables ....................             --          (5,942)          4,906
    Increase in inventories ..........................................           (761)         (8,264)         (9,971)
    (Increase) decrease in prepaid expenses ..........................           (509)          1,174             563
    (Increase) decrease in other assets ..............................            557             702             (11)
    Increase (decrease) in accounts payable ..........................         (1,281)         31,616           3,608
    Increase in accrued liabilities and long-term
     portion of self-insurance reserves ..............................          5,848          24,541           5,971
                                                                            ---------       ---------       ---------

Net cash provided by operating activities ............................         26,428          59,296          15,385
                                                                            ---------       ---------       ---------

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)
Principal payments on capital lease obligations ......................         (1,257)         (1,346)         (1,944)
                                                                            ---------       ---------       ---------

Net cash provided by (used in) financing activities ..................         (1,257)        152,912         (10,664)
                                                                            ---------       ---------       ---------

INVESTING ACTIVITIES:
Acquisition of new stores ............................................             --        (136,221)             --
Investments in unconsolidated affiliate ..............................         (1,100)             --              --
Purchase of property and equipment ...................................        (26,278)        (42,840)        (38,203)
Proceeds from sale of property and equipment and properties
 held for sale .......................................................            402           2,924           2,761
                                                                            ---------       ---------       ---------
Net cash used in investing activities ................................        (26,976)       (176,137)        (35,442)
                                                                            ---------       ---------       ---------

Net increase (decrease) in cash and cash equivalents .................         (1,805)         36,071         (30,721)
Cash and cash equivalents at beginning of year .......................         59,086          57,281          93,352
                                                                            ---------       ---------       ---------

Cash and cash equivalents at end of year .............................      $  57,281       $  93,352       $  62,631
                                                                            =========       =========       =========

Interest paid ........................................................      $  27,133       $  27,309       $  52,520
Income taxes paid ....................................................      $   1,000       $     925       $      --
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-6
<PAGE>   42

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

<TABLE>
<CAPTION>
                                                                        CLASS A     ADDITIONAL     RETAINED
                                                          COMMON        COMMON       PAID-IN       EARNINGS
                                                          STOCK         STOCK        CAPITAL      (DEFICIT)
                                                        ---------      --------      --------      --------
<S>                                                     <C>            <C>           <C>           <C>
Balances at September 28, 1997 ...................      $      --      $      1      $ 12,715      $(49,302)
   Net income for 52 weeks ended
      September 27, 1998 .........................             --            --            --         2,531
                                                        ---------      --------      --------      --------

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)
                                                        =========      ========      ========      ========
</TABLE>


          See accompanying notes to consolidated financial statements.



                                       F-7
<PAGE>   43

                           STATER BROS. HOLDINGS INC.

                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

                               SEPTEMBER 24, 2000

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 24, 2000, 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, Kern and San Diego counties. The Company and its
predecessor companies have operated retail grocery stores under the "Stater
Bros. Markets" name in the Inland Empire of 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 27, 1998, September 26, 1999 and September 24, 2000
were 52-week years.

        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 10%. The Company is
self-insured, subject to certain retention levels, for healthcare costs of
eligible non-bargaining unit employees. Such healthcare reserves are not
discounted.



                                      F-8
<PAGE>   44

                           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 2000, the Financial Accounting Standards
Board issued or required the adoption of Statement of Financial Accounting
Standards ("SFAS") No. 138 and No. 139. Adoption of SFAS No. 138 and No. 139
were either not applicable to the Company or were adopted by the Company in its
fiscal 2000 and did not have a material effect on the Company's financial
position or its results of operations in fiscal 2000.

        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:

<TABLE>
<CAPTION>
                                              Range            Most Prevalent
                                           -------------       --------------
<S>                                        <C>                 <C>
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
</TABLE>

        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:

<TABLE>
<CAPTION>
                                               Sept. 27,        Sept. 26,        Sept. 24,
                                                 1998             1999             2000
                                               --------         --------         --------
                                                             (In thousands)
<S>                                            <C>              <C>              <C>
11% Senior Notes due 2001 ............         $165,000         $  5,048         $  5,048

9 % Senior Subordinated Notes due 2004          100,000               --               --

10.75% Senior Notes due 2006 .........               --          450,000          439,000
                                               --------         --------         --------

Total long-term debt .................         $265,000         $455,048         $444,048
                                               ========         ========         ========
</TABLE>



                                      F-9
<PAGE>   45


                           STATER BROS. HOLDINGS INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

NOTE 2 - DEBT (CONTD.)

        As of September 24, 2000, principal payments amounting to $5.0 million
are due in 2001. Interest on the 11% Senior Notes due 2001 is payable
semi-annually on September 1 and March 1. 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 1998, 1999 and 2000 amounted to
$224,000, $64,000 and $35,000 respectively. Interest expense incurred, before
the effect of capitalized interest, during 1998, 1999 and 2000 amounted to
$30,430,000, $33,694,000 and $53,715,000, respectively.

        The Company did not have short-term borrowings outstanding at September
27, 1998, September 26, 1999 and September 24, 2000. The Company did not incur
any short-term borrowings during fiscal years 1998, 1999 and 2000.

        The Company is subject to certain covenants associated with its 11%
Senior Notes due 2001 and with its 10.75% Senior Notes due 2006. As of September
24, 2000, 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 operated a fluid milk processing
plant located in Los Angeles, California, and as of May 1, 1998, Santee moved
its operations to a newly constructed fluid milk processing plant 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 a loss of $2,941,000 and income of
$1,130,000 and $1,483,000 for fiscal years 1998, 1999 and 2000, 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:

<TABLE>
<CAPTION>
                                                                      52 Weeks                            53 Weeks
                                                       -------------------------------------        --------------
                                                       Sept. 26, 1998         Sept. 25, 1999        Sept. 30, 2000
                                                       --------------         --------------        --------------
                                                                              (In thousands)
<S>                                                    <C>                    <C>                   <C>
Current assets ...................................        $  19,690             $  15,557              $  19,341

Non-current assets ...............................          111,236               106,284                100,681

Current liabilities ..............................           31,178                24,861                 25,639

Non-current liabilities ..........................           82,807                77,782                 72,220

Shareholder's equity .............................           16,941                19,198                 22,163



Sales ............................................          166,314               168,638                177,336

Gross profit .....................................            3,509                19,730                 29,045

Net income (loss) ................................        $  (5,711)            $   2,257              $   2,965
</TABLE>



                                      F-10
<PAGE>   46

                           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 $4.3 million for product delivered by
Santee to the Company during the last eighteen weeks of fiscal 1998, $9.4
million in fiscal 1999 and $48,000 in fiscal 2000. 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, and worker's
compensation insurance 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.



                                      F-11
<PAGE>   47

                           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 24, 2000, 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 $100.0 million and
exceeded minimum inventory coverage by approximately $64.4 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 24, 2000, Stater Bros. Markets exceeded minimum
annualized EBITDA by approximately $10.3 million.

As of September 24, 2000, 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 11% Senior
Notes due 2001 and its 10.75% Senior Notes due 2006. As of September 24, 2000,
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.



                                      F-12
<PAGE>   48

                           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.

        A portion of the Company's lease obligations are guaranteed by Petrolane
Incorporated ("Petrolane") or its successor (see Note 6). The leases guaranteed
by Petrolane had initial terms of 20 years and expire in the year 2003. Lease
payments for the properties subject to the Petrolane guarantees are
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 is required to make annual deposits into a
lease guarantee escrow account. The amount of each annual deposit is to be based
on (a) a percentage of sales of 20 supermarkets, as specified in the agreement,
to the extent they exceed a defined base; and (b) a percentage of rents adjusted
for increases in the Consumer Price Index for certain rental property, including
the Company's office and warehouse complex. The Company deposited $1,113,000,
$1,176,000 and $1,247,000 into the lease guarantee escrow account during fiscal
years 1998, 1999 and 2000, respectively.

        Upon termination of the leases, or the termination of the Petrolane
lease guarantees, all amounts deposited into the lease guarantee escrow account,
plus interest thereon, less any amounts disbursed, will be returned to the
Company. At September 24, 2000, the lease guarantee escrow account had a
cumulative balance of $13,180,000, compared to $11,280,000 and $9,629,000 as of
September 26, 1999 and September 27, 1998, respectively.

        Petrolane, or its successor, has the right to cause the escrow holder to
disburse funds from the amounts held in the lease guarantee escrow account for
any amounts which Petrolane or its successor may be required to pay as guarantor
of the lease obligations of Stater Bros. Markets.

        Subsequent to year end, all of the store leases guaranteed by Petrolane
were extended for additional five year terms following expiration of their
respective initial terms in 2003 (the effect of these extensions are not
reflected in the table below), and the Petrolane guarantees of these leases were
terminated in exchange for a $400,000 fee. In addition, Stater Bros. Markets
redeemed all outstanding shares of its $11.00 Cumulative Redeemable Preferred
Stock due 2003 from Texas Eastern Corporation, Petrolane's assignee of such
preferred stock (See Note 6). 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




                                      F-13
<PAGE>   49

                           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
24, 2000:

<TABLE>
<CAPTION>
                                                                    Operating
                                                                     Leases
                                                    Capital          Minimum
Fiscal Year                                         Leases           Payment
                                                   --------         --------
                                                        (In thousands)
<S>                                                <C>              <C>
2001 .....................................         $  4,339         $ 28,611
2002 .....................................            3,586           27,815
2003 .....................................            3,090           25,125
2004 .....................................            2,787           13,639
2005 .....................................            2,453           12,899
Thereafter ...............................           15,402           98,879
                                                   --------         --------

Total minimum lease payments .............           31,657         $206,968
                                                                    ========
Less amounts representing interest .......           16,032
                                                   --------
Present value of minimum lease payments ..           15,625
Less current portion .....................            1,946
                                                   --------

Long-term portion ........................         $ 13,679
                                                   ========
</TABLE>

        Rental expense and sublease income were as follows:

<TABLE>
<CAPTION>
                                 Sept. 27, 1998  Sept. 26, 1999   Sept. 24, 2000
                                 --------------  --------------   --------------
                                                 (In thousands)
<S>                              <C>             <C>              <C>
Minimum rentals ............         $20,194         $22,088         $24,280
Rentals based on sales .....         $ 4,727         $ 4,739         $10,318
Sublease income ............         $ 1,267         $ 1,210         $   970
</TABLE>

        Aggregate sublease income to be received subsequent to September 24,
2000 is approximately $3,382,000.

NOTE 6 - PREFERRED STOCK

        As of September 24, 2000, Stater Bros. Markets has issued and
outstanding 10 shares of its $11.00 Cumulative Redeemable Preferred Stock due in
2003 for $1,000 plus accrued and unpaid dividends. Dividends are accrued at the
rate of $11.00 per share per annum. The preferred stock was issued in
conjunction with a guarantee of Stater Bros. Markets lease obligations by
Petrolane Incorporated or its successors (see Note 5). For as long as shares of
the $11.00 Cumulative Redeemable Preferred Stock remain outstanding, Stater
Bros. Markets is subject to certain covenants. The most restrictive covenant
limits the amount of dividends that may be paid to amounts that may be legally
paid under applicable state laws. At September 24, 2000, accumulated earnings
available for dividend distributions were approximately $384.0 million. In the
event of non-compliance by Stater Bros. Markets, the holders of the Stater Bros.
Markets preferred stock may elect the Board of Directors of Stater Bros.
Markets. At September 24, 2000, Stater Bros. Markets was in compliance with
these covenants.

        Subsequent to year end, 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).



                                      F-14
<PAGE>   50

                           STATER BROS. HOLDINGS INC.

               NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTD.)

NOTE 7 - INCOME TAXES

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

<TABLE>
<CAPTION>
                                        Sept. 27, 1998   Sept. 26, 1999   Sept. 24, 2000
                                        --------------   --------------   --------------
                                                         (In thousands)
<S>                                     <C>              <C>              <C>
 Current
   Federal .......................         $ 1,921          $ 3,914          $    --
   State .........................             795              496               --
                                           -------          -------          -------
                                             2,716            4,410               --
                                           -------          -------          -------
 Deferred
   Federal .......................            (813)             839           (4,810)
   State .........................            (444)             123             (559)
                                           -------          -------          -------
                                            (1,257)             962           (5,369)
                                           -------          -------          -------
 Income tax expense (benefit) ....         $ 1,459          $ 5,372          $(5,369)
                                           =======          =======          =======
</TABLE>

        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:

<TABLE>
<CAPTION>
                                               Sept. 27, 1998      Sept. 26, 1999     Sept. 24, 2000
                                               --------------      --------------     --------------
<S>                                            <C>                 <C>                <C>
Statutory federal income tax rate ....              34.0%               35.0%              35.0%
State franchise tax rate, net of
    federal income tax benefit .......               6.1                 3.0                2.8
Tax credits ..........................              (2.7)                0.5                4.6
Other ................................              (0.9)                0.9                 --
                                                    ----                ----               ----
                                                    36.5%               39.4%              42.4%
                                                    ====                ====               ====
</TABLE>

        Components of deferred income taxes are as follows:

<TABLE>
<CAPTION>
                                                             Sept. 27, 1998         Sept. 26, 1999          Sept. 24, 2000
                                                             --------------         --------------          --------------
                                                                                    (In thousands)
<S>                                                          <C>                    <C>                     <C>
     Deferred income tax assets:
     Self-insurance reserves ......................              $  3,712               $  4,086               $  6,290
     Pension and vacation liabilities .............                 1,812                  2,495                  3,425
     Inventories  .................................                 1,341                  1,495                  1,495
     Investment in unconsolidated affiliate .......                 1,917                  1,677                  1,073
     Income deferred for book purposes ............                 1,695                  2,094                  2,789
     Net operating loss carry forward .............                    --                     --                  8,954
                                                                 --------               --------               --------
         Total deferred income tax assets .........                10,477                 11,847                 24,026
     Deferred income tax liabilities:
     Property and equipment .......................                  (347)                (1,610)                (4,090)
     Other assets .................................                  (950)                (1,561)                (2,058)
     Other, net ...................................                (2,143)                  (856)                (3,426)
                                                                 --------               --------               --------
         Total deferred income tax liabilities ....                (3,440)                (4,027)                (9,574)
                                                                 --------               --------               --------
     Net deferred income tax assets ...............              $  7,037               $  7,820               $ 14,452
                                                                 ========               ========               ========
</TABLE>



                                      F-15
<PAGE>   51

                           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:

<TABLE>
<CAPTION>
                                                        Sept. 27, 1998        Sept. 26, 1999         Sept. 24, 2000
                                                        --------------        --------------         --------------
                                                                              (In thousands)
<S>                                                     <C>                   <C>                    <C>
Service cost - benefits earned during
  the period ................................              $   902                $ 1,081                $   898
Interest cost on projected benefit
  obligation ................................                1,241                  1,657                  1,688
Actual return on assets .....................               (1,033)                (1,134)                (1,248)
Net amortization and deferral ...............                  187                     27                     27
Recognized gains or losses ..................                   --                    295                    203
Prior service cost recognized ...............                   --                     (5)                    (5)
                                                           -------                -------                -------
Net periodic pension cost ...................              $ 1,297                $ 1,921                $ 1,563
                                                           =======                =======                =======
Assumptions used for accounting were:
Discount rate ...............................                 7.50%                  6.75%                  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%
</TABLE>



                                      F-16
<PAGE>   52

                           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:

<TABLE>
<CAPTION>
                                                                 Sept. 27, 1998         Sept. 26, 1999         Sept. 24, 2000
                                                                 --------------         --------------         --------------
                                                                                        (In thousands)
<S>                                                              <C>                    <C>                    <C>
 Actuarial present value of benefit obligations:
   Vested benefit obligation ..........................              $ 15,376               $ 14,112               $ 16,284
                                                                     ========               ========               ========
   Accumulated benefit obligation .....................              $ 15,850               $ 14,655               $ 16,326
                                                                     ========               ========               ========
 Projected benefit obligation .........................              $(21,636)              $(22,064)              $(24,259)
 Plan assets at fair value,
   primarily notes and bonds ..........................                11,951                 13,129                 15,227
                                                                     --------               --------               --------
 Projected benefit obligation in
   excess of plan assets ..............................                (9,685)                (8,935)                (9,032)
 Unrecognized net loss ................................                 6,774                  5,504                  5,695
 Unrecognized prior service cost ......................                   (61)                   (56)                   (51)
 Unrecognized net obligations established
   October 1, 1987 ....................................                   162                    135                    108
                                                                     --------               --------               --------
 Pension (liability) recognized in the
    balance sheet .....................................              $ (2,810)              $ (3,352)              $ (3,280)
                                                                     ========               ========               ========
</TABLE>


        Expenses recognized for this retirement plan were $1,499,000, $2,166,000
and $1,678,000 in 1998, 1999 and 2000, 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 $420,000, $419,000 and $425,000 in 1998, 1999 and 2000,
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.



                                      F-17
<PAGE>   53

                           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:

<TABLE>
<CAPTION>
                                                   Sept. 27, 1998      Sept. 26, 1999       Sept. 24, 2000
                                                   --------------      --------------       --------------
                                                                       (In thousands)
<S>                                                <C>                 <C>                  <C>
Multi-Employer Pension Plans ...........              $12,420              $ 5,886              $ 8,312
Multi-Employer Health and Welfare ......               36,930               38,364               56,552
                                                      -------              -------              -------
Total Multi-Employer Benefits ..........              $49,350              $44,250              $64,864
                                                      =======              =======              =======
</TABLE>

        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, with the United Food
and Commercial Workers Union. The Company's collective bargaining agreement with
the International Brotherhood of Teamsters was renewed in 1998 and expires in
September 2002. Management believes it has good relations with its employees.

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 11% Notes and 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.



                                      F-18
<PAGE>   54

                           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:

<TABLE>
<CAPTION>
                                                             As of
                                                       September 24, 2000
                                                 ------------------------------
                                                         (In thousands)
                                                 Carrying                Fair
                                                  Amount                 Value
                                                 --------              --------
<S>                                              <C>                   <C>
Cash and cash equivalents .........              $ 62,631              $ 62,631
Receivables .......................              $ 28,181              $ 28,181
Long-term debt ....................              $444,048              $369,418
Capitalized lease obligations .....              $ 15,625              $ 15,625
</TABLE>

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.

On June 19, 1997, Stater Bros. Markets was named as a defendant in the case of
Ufondu, et al. vs. Stater Bros. Markets filed in the Superior Court of the State
of California for the County of San Bernardino. The complaint filed by twelve
employees sought damages alleging racial discrimination in the Company's
employment practices. This case was settled during fiscal 2000 with the payment
of damages to the plaintiffs without any admission of liability by Stater Bros.
Markets, which payment has been accounted for in the Company's financial
statements.

On September 21, 2000, Stater Bros. Markets was named as a defendant in two
cases, Barnhart, et al vs. Stater Bros. Markets and Jenkins/Harvth, et al vs.
Stater Bros. Markets, both filed in the Superior Court of the State of
California for the County of San Bernardino. The complaints were purportedly
filed on behalf of Stater Bros. Markets store managers and assistant store
managers respectively alleging that such workers are non-exempt under California
Wage Law and are therefore entitled to overtime wages. The Company believes the
complaints are without merit and intends to vigorously defend these cases and
does not believe that the outcome of these cases will result in any material
adverse effect on the Company's results of operations or consolidated financial
condition.


                                      F-19

<PAGE>   55

                           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
29, 1997. 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.

<TABLE>
<CAPTION>
                                                                 Fiscal Year
                                                        -----------------------------
                                                           1998               1999
                                                        -----------       -----------
                                                   (In thousands, except per share amounts)
<S>                                                     <C>               <C>
Sales                                                   $ 2,395,353       $ 2,433,182

Income (loss) before
     extraordinary loss                                 $    (2,775)      $    13,628

Earnings (loss) per common share
     before extraordinary loss                          $    (55.50)      $    272.56
</TABLE>


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.



                                      F-20
<PAGE>   56

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

NOTE 14 - QUARTERLY RESULTS (UNAUDITED)


        Quarterly results for fiscal 1998, 1999 and 2000 are as follows:
                                 (In thousands)



<TABLE>
<CAPTION>
                                                         Gross            Operating             Net
                                         Sales           Profit          Profit (loss)      Income (Loss)
                                       ==========      ==========        =============      =============
<S>                                    <C>             <C>               <C>                <C>
Fiscal 1998 Quarters
13 weeks ended 12/28/97  ........      $  430,918      $   98,296         $   10,110         $    1,373
13 weeks ended 03/29/98  ........         422,829         100,467             10,090              1,225
13 weeks ended 06/28/98  ........         431,301          99,113              5,115             (1,185)
13 weeks ended 09/27/98  ........         441,059         104,709              8,761              1,118
                                       ----------      ----------         ----------         ----------

                                       $1,726,107      $  402,585         $   34,076         $    2,531
                                       ==========      ==========         ==========         ==========

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)
                                       ==========      ==========         ==========         ==========
</TABLE>

(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
<PAGE>   57
                                 EXHIBIT INDEX

            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.


<PAGE>   58

            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.


<PAGE>   59


            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.

               27                  Financial Data Schedule

               -----------------------------------------------------------------

               (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.


<PAGE>   60


            EXHIBIT NO.            DESCRIPTION
            -----------            -----------

               (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.