##### Table of Contents



UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 
 FORM 10-K
  þ
    
    ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended: September 30, 2007
 OR
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the transition from  to 
Commission file number 001-13222
 STATER BROS. HOLDINGS INC.
  Delaware
    
    33-0350671(State or other jurisdiction of incorporation or 
organization)
    
    (IRS Employer Identification No.)301 S. Tippecanoe AvenueSan Bernardino, California
    
    92408(Address of principal executive offices)
    
    (Zip Code)Registrants telephone number, including area code
    
    (909) 733-5000
 
 
  ̈ þ
  ̈ þ
 þ  ̈
 þ  ̈
  Large accelerated filer
 ̈
    
    Accelerated filer  ̈
    
    Non-accelerated filer
þ.
  ̈ þ
   DOCUMENTS INCORPORATED BY REFERENCE
 None




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##### 



Page NumberPART IItem 1
    
    Business
    
    
    3Item 1A
    
    Risk Factors
    
    
    8Item 1B
    
    Unresolved Staff Comments
    
    
    9Item 2
    
    Properties
    
    
    9Item 3
    
    Legal Proceedings
    
    
    10Item 4
    
    Submission of Matters to a Vote of Security Holders
    
    
    10PART IIItem 5
    
    Market for the Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities
    
    
    11Item 6
    
    Selected Financial Data
    
    
    11Item 7
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    13Item 7A
    
    Quantitative and Qualitative Disclosure about Market Risk
    
    
    25Item 8
    
    Financial Statements and Supplementary Data
    
    
    26Item 9
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
    
    
    26Item 9A
    
    Controls and Procedures
    
    
    26Item 9B
    
    Other Information
    
    
    26PART IIIItem 10
    
    Directors and Executive Officers of the Registrant
    
    
    27Item 11
    
    Executive Compensation
    
    
    29Item 12
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
    
    
    38Item 13
    
    Certain Relationships and Related Transactions
    
    
    39Item 14
    
    Principal Accounting Fees and Services
    
    
    39PART IVItem 15
    
    Exhibits and Financial Statement Schedules
    
    
    40Signatures
    
    
    43EXHIBIT 12.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1
  2




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##### Table of Contents



PART I
 
 Item 1.
    
    Business
 General
   Ownership of the Company
 Issuance of Debt and Early Extinguishment of Debt
  3




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##### Table of Contents



Item 1.
    
    Business (contd.)
 Store Profile and Locations
    Store Expansion and Remodeling
   4




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##### Table of Contents



Item 1.
    
    Business (contd.)
 Store Expansion and Remodeling (contd.)
 Sept. 28,
    
    
    Sept. 26,
    
    
    Sept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007Number of supermarkets:Opened
    
    
    1
    
    
    
    2
    
    
    
    4
    
    
    
    3
    
    
    
    3Closed
    
    
    
    
    
    
    (1
    )
    
    
    (1
    )
    
    
    (2
    )
    
    
    (1
    )Total at end of year
    
    
    157
    
    
    
    158
    
    
    
    161
    
    
    
    162
    
    
    
    164Minor remodel
    
    
    20
    
    
    
    31
    
    
    
    47
    
    
    
    34
    
    
    
    6Major remodel
    
    
    4
    
    
    
    5
    
    
    
    8
    
    
    
    14
    
    
    
    12
  Corporate Office and Distribution Center
   5




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##### Table of Contents



Item 1.
    
    Business (contd.)
 New Corporate Office and Distribution Center
  
    
    Component 1: dry goods warehouse; and
    
    Component 2: refrigeration warehouse.
  Purchasing and Marketing
  Retail Operations
 Store Management
 Customer Service
 6




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##### Table of Contents



Item 1.
    
    Business (contd.)
 Santee Dairies, Inc  ® ® ® ® ®
  Employees
   Competition
   7




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##### Table of Contents



Item 1.
    
    Business (contd.)
 Financial Information about Segments
 Government Regulation
  Environmental
 
 Item 1A.
    
    Risk Factors
     8




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##### Table of Contents



Item 1A.
    
    Risk Factors (contd.)
  
 Item 1B.
    
    Unresolved Staff Comments
 None
 
 Item 2.
    
    Properties
  SquareFacility
    
    FeetGrocery
    
    
    960,000Health and beauty care and general merchandise
    
    
    188,000Frozen
    
    
    146,000Dairy manufacturing
    
    
    118,000Produce, meat and meat deli
    
    
    118,000Grocery deli
    
    
    116,000Dairy cold storage
    
    
    67,000Bakery
    
    
    40,000Support, administrative offices and other
    
    
    260,000Total
    
    
    2,013,000
 9




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##### Table of Contents



Item 2.
    
    Properties (contd.)
  No. of Stores
    
    
    Total Square FeetUnder
    
    
    25,000-
    
    
    30,000-
    
    
    35,000-
    
    
    OverCounty
    
    Total
    
    
    Owned
    
    
    Leased
    
    
    25,000
    
    
    29,999
    
    
    34,999
    
    
    40,000
    
    
    40,000San Bernardino
    
    
    52
    
    
    
    12
    
    
    
    40
    
    
    
    5
    
    
    
    16
    
    
    
    6
    
    
    
    14
    
    
    
    11Riverside
    
    
    45
    
    
    
    11
    
    
    
    34
    
    
    
    9
    
    
    
    13
    
    
    
    4
    
    
    
    5
    
    
    
    14Orange
    
    
    30
    
    
    
    11
    
    
    
    19
    
    
    
    4
    
    
    
    13
    
    
    
    1
    
    
    
    4
    
    
    
    8Los Angeles
    
    
    25
    
    
    
    8
    
    
    
    17
    
    
    
    3
    
    
    
    7
    
    
    
    1
    
    
    
    3
    
    
    
    11San Diego
    
    
    10
    
    
    
    5
    
    
    
    5
    
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    2
    
    
    
    7Kern
    
    
    2
    
    
    
    
    
    
    
    2
    
    
    
    
    
    
    
    
    
    
    
    1
    
    
    
    1
    
    
    
    Total
    
    
    164
    
    
    
    47
    
    
    
    117
    
    
    
    21
    
    
    
    50
    
    
    
    13
    
    
    
    29
    
    
    
    51
  
 Item 3.
    
    Legal Proceedings
    
 Item 4. Submission of Matters to a Vote of Security Holders
  10




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##### Table of Contents



PART II
 
 Item 5.
    
    Market for the Registrants Common Equity, Related Stockholder Matters And Issuer Purchases of Equity Securities
    Authorized
    
    
    OutstandingCommon Stock
    
    
    100,000
    
    
    
    0Class A Common Stock
    
    
    100,000
    
    
    
    35,770
     
 Item 6.
    
    Selected Financial Data
  Fiscal Year EndedSept.
28,(4)
    
    
    Sept.
26,(4)
    
    
    Sept.
25,(4)
    
    
    Sept.
24,(4)
    
    
    Sept. 30,(4)2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(In thousands, except per share amounts)Statement of Earnings Data:Sales
    
    $
    2,753,774
    
    
    $
    3,705,209
    
    
    $
    3,372,844
    
    
    $
    3,508,794
    
    
    $
    3,674,427Cost of goods sold
    
    
    1,999,361
    
    
    
    2,653,139
    
    
    
    2,468,736
    
    
    
    2,578,435
    
    
    
    2,674,563Gross profit
    
    
    754,413
    
    
    
    1,052,070
    
    
    
    904,108
    
    
    
    930,359
    
    
    
    999,864Selling, general and administrative
expenses
    
    
    659,547
    
    
    
    820,329
    
    
    
    772,885
    
    
    
    790,756
    
    
    
    818,863Depreciation and amortization
    
    
    27,660
    
    
    
    33,284
    
    
    
    39,575
    
    
    
    46,642
    
    
    
    48,715Total operating expenses
    
    
    687,207
    
    
    
    853,613
    
    
    
    812,460
    
    
    
    837,398
    
    
    
    867,578Operating profit
    
    
    67,206
    
    
    
    198,457
    
    
    
    91,648
    
    
    
    92,961
    
    
    
    132,286Interest and other income (expense)
    
    
    (44
    )
    
    
    855
    
    
    
    5,402
    
    
    
    8,288
    
    
    
    13,927Interest expense
    
    
    (53,254
    )
    
    
    (53,951
    )
    
    
    (57,142
    )
    
    
    (57,238
    )
    
    
    (59,586
    )Interest expense related to debt
purchase
    
    
    
    
    
    
    (35,647
    )
    
    
    
    
    
    
    
    
    
    
    (3,953
    )Equity in income from unconsolidated
affiliate
    
    
    1,330
    
    
    
    929
    
    
    
    
    
    
    
    
    
    
    
    Income before income taxes
    
    
    15,238
    
    
    
    110,643
    
    
    
    39,908
    
    
    
    44,011
    
    
    
    82,674Income taxes
    
    
    5,471
    
    
    
    39,202
    
    
    
    13,662
    
    
    
    17,945
    
    
    
    33,279Net income
    
    $
    9,767
    
    
    $
    71,441
    
    
    $
    26,246
    
    
    $
    26,066
    
    
    $
    49,395Earnings per average common shares
outstanding
    
    $
    255.01
    
    
    $
    1,865.25
    
    
    $
    685.26
    
    
    $
    697.21
    
    
    $
    1,356.19
 11




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##### Table of Contents



Item 6.
    
    Selected Financial Data (contd.)
 Fiscal Year EndedSept. 28,(4)
    
    
    Sept. 26,(4)
    
    
    Sept. 25,(4)
    
    
    Sept. 24,(4)
    
    
    Sept. 30,(4)2003
    
    
    2004
    
    
    2005
    
    
    2006
    
    
    2007(In thousands, except per share amounts)Balance Sheet Data (end of fiscal year):Working capital
    
    $
    124,517
    
    
    $
    319,855
    
    
    $
    277,154
    
    
    $
    233,280
    
    
    $
    237,029Total assets
    
    
    663,836
    
    
    
    1,014,121
    
    
    
    1,055,369
    
    
    
    1,058,092
    
    
    
    1,270,278Long-term notes
    
    
    458,750
    
    
    
    700,000
    
    
    
    700,000
    
    
    
    700,000
    
    
    
    810,000Long-term capitalized lease obligations
    
    
    9,926
    
    
    
    9,470
    
    
    
    8,292
    
    
    
    7,294
    
    
    
    6,285Other long-term liabilities
    
    
    53,014
    
    
    
    83,112
    
    
    
    83,799
    
    
    
    80,316
    
    
    
    113,131Common stockholders equity (deficit)
    
    
    (66,082
    )
    
    
    (39,641
    )
    
    
    (13,395
    )
    
    
    (11,079
    )
    
    
    9,279Dividends paid per share, Class A
common stock
    
    $
    
    
    
    $
    1,174.90
    
    
    $
    
    
    
    $
    135.52
    
    
    $
    139.78Cash Flow Data:Cash provided by operating activities
    
    
    82,950
    
    
    
    138,726
    
    
    
    78,253
    
    
    
    89,473
    
    
    
    173,194Cash provided by (used in)
financing activities
    
    
    (1,116
    )
    
    
    119,481
    
    
    
    (1,235
    )
    
    
    (24,884
    )
    
    
    81,750Cash used in investing activities
    
    
    (51,725
    )
    
    
    (67,412
    )
    
    
    (115,568
    )
    
    
    (129,441
    )
    
    
    (176,427
    )Other Operating and Financial Data:Sales increases (decreases):Total sales
    
    
    3.3
    %
    
    
    34.6
    %
    
    
    (9.0
    )%
    
    
    4.0
    %
    
    
    4.7
    %Like stores sales (comparable 52-weeks)(1)
    
    
    2.8
    %
    
    
    30.3
    %
    
    
    (12.1
    )%
    
    
    1.5
    %
    
    
    1.7
    %Operating profit
    
    $
    67,206
    
    
    $
    198,457
    
    
    $
    91,648
    
    
    $
    92,961
    
    
    $
    132,286Ratio of earnings to fixed charges(2)
    
    
    1.21
    x
    
    
    1.97
    x
    
    
    1.47
    x
    
    
    1.47
    x
    
    
    1.77
    xGross profit as a percentage of sales
    
    
    27.40
    %
    
    
    28.40
    %
    
    
    26.81
    %
    
    
    26.52
    %
    
    
    27.21
    %Selling, general and administrative
expenses as a percentage of sales
    
    
    23.96
    %
    
    
    22.14
    %
    
    
    22.92
    %
    
    
    22.54
    %
    
    
    22.29
    %Store Data:(3)Number of stores (at end of fiscal year)
    
    
    157
    
    
    
    158
    
    
    
    161
    
    
    
    162
    
    
    
    164Average sales per store (000s)
    
    $
    17,619
    
    
    $
    23,014
    
    
    $
    20,404
    
    
    $
    20,937
    
    
    $
    21,860Average store size:Total square feet
    
    
    33,111
    
    
    
    33,206
    
    
    
    33,474
    
    
    
    33,778
    
    
    
    34,028Selling square feet
    
    
    23,693
    
    
    
    23,746
    
    
    
    23,872
    
    
    
    24,028
    
    
    
    24,165Total square feet (at end of
fiscal year) (000s)
    
    
    5,205
    
    
    
    5,267
    
    
    
    5,415
    
    
    
    5,491
    
    
    
    5,599Total selling square feet (at end of
fiscal year) (000s)
    
    
    3,724
    
    
    
    3,764
    
    
    
    3,860
    
    
    
    3,904
    
    
    
    3,972Sales per average square foot
    
    $
    532
    
    
    $
    693
    
    
    $
    610
    
    
    $
    620
    
    
    
    642Sales per average selling square foot
    
    $
    744
    
    
    $
    969
    
    
    $
    855
    
    
    $
    871
    
    
    $
    905
 
 (1)
    
    We calculate like store sales by comparing year-to-year sales for stores
that are opened in both years. For stores that were not opened for the entire previous
year, we only use the current years weekly sales that correspond to the weeks the stores
were open in the previous year. For replacement store sales, we include sales for the
entire year in the like store sales calculation. For stores that were closed during the
year, we only include prior year sales that correspond to the week the stores were opened
in the current year. (footnotes continued on following page)
 12




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##### Table of Contents



Item 6.
    
    Selected Financial Data (contd.)
 (2)
    
    For the purpose of determining the ratio of earnings to fixed charges, earnings consist
of income before income taxes and amortization of previously capitalized interest. Fixed
charges consist of interest expense whether expensed or capitalized, amortization of debt
issuance costs, and such portion of rental expense as can be deemed by management to be
representative of the interest factor in the particular case. Included in earnings and
fixed charges for fiscal year 2003 is our 50% share of Santee. For fiscal 2004, included in
earnings and fixed charges is our 50% share of fixed charges and earnings of Santee through
February 6, 2004. Santee has been consolidated into our consolidated results since that
date.(3)
    
    Average sales per store, sales per total square feet and sales per selling square feet
are calculated by prorating the number of stores, total square feet and selling square feet
by the period of time the store was opened, for new stores, or the period of time the
expanded square footage was in service, for expanded stores.(4)
    
    Fiscal years 2003, 2004, 2005 and 2006 were 52-week years while fiscal 2007 was a 53-week
year.
 
 Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations
 Critical Accounting Policies
 Self-Insurance Reserves
 Employee Benefit Plans
 13




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Employee Benefit Plans (contd.)
  Long-Lived Assets
  Income Taxes
 Goodwill
 14




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Critical Accounting Policies (contd.)
 Store Closing Costs
 Advertising Allowances
  Gift Cards and Certificates
 Significant Accounting Policies
 15




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Ownership of the Company
 Executive Overview
  rd
    16




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Results of Operations
 Fiscal Year Ended
    
    
    Change2006 to
    
    
    2007 toSept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,
    
    
    2005
    
    
    20062005
    
    
    2006
    
    
    2007
    
    
    Dollar
    
    
    %
    
    
    Dollar
    
    
    %Sales
    
    $
    3,372,844
    
    
    $
    3,508,794
    
    
    $
    3,674,427
    
    
    $
    135,950
    
    
    
    4.03
    %
    
    $
    165,633
    
    
    
    4.72
    %Gross Profit
    
    $
    904,108
    
    
    $
    930,359
    
    
    $
    999,864
    
    
    $
    26,251
    
    
    
    2.90
    %
    
    $
    69,505
    
    
    
    7.47
    %as a % of sales
    
    
    26.81
    %
    
    
    26.52
    %
    
    
    27.21
    %
 Sales  rd
 Like Store Sales
    Santee Sales
 17




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Results of Operations (contd.)
 Gross Profit
 Operating Expenses and Income
 Fiscal
Year Ended
    
    
    ChangeSept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,
    
    
    2006 to
    
    
    2007 to2005
    
    
    2006
    
    
    2007
    
    
    2005
    
    
    2006Dollar
    
    
    %
    
    
    Dollar
    
    
    %Operating Expenses:Selling, general and
administrative expenses
    
    $
    772,885
    
    
    $
    790,756
    
    
    $
    818,863
    
    
    $
    17,871
    
    
    
    2.31
    %
    
    $
    28,107
    
    
    
    3.55
    %as a % of sales
    
    
    22.92
    %
    
    
    22.54
    %
    
    
    22.28
    %Depreciation and amortization
    
    $
    39,575
    
    
    $
    46,642
    
    
    $
    48,715
    
    
    $
    7,067
    
    
    
    17.86
    %
    
    $
    2,073
    
    
    
    4.44
    %as a % of sales
    
    
    1.17
    %
    
    
    1.33
    %
    
    
    1.33
    %Operating profit
    
    $
    91,648
    
    
    $
    92,961
    
    
    $
    132,286
    
    
    $
    1,313
    
    
    
    1.43
    %
    
    $
    39,325
    
    
    
    42.30
    %as a % of sales
    
    
    2.72
    %
    
    
    2.65
    %
    
    
    3.60
    %
 Selling, General and Administrative Expenses
   18




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Results of Operations (contd.)
 Depreciation and Amortization
 Interest Income
 Interest Expense
 Income Before Income Taxes
 Income Taxes
 Net
Income
 Liquidity
and Capital Resources
  19




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Liquidity
and Capital Resources (contd.)
         20




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Liquidity and Capital Resources (contd.)
 Expected Capital Expenditures Fiscal 2008
 New distribution center
    
    $
    99,667New store construction, less reimbursements
    
    
    12,000Store remodels
    
    
    21,880MIS equipment and software
    
    
    9,742Store equipment
    
    
    26,286Transportation equipment
    
    
    3,010Production equipment
    
    
    1,379Distribution equipment
    
    
    3,780Office equipment and other
    
    
    140$
    177,884
  Credit Facilities
 Markets Credit Facility
    21




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Credit Facilities (contd.)
 Markets Credit Facility (contd.)
 Santees Revolver
      Labor Relations
  Off-Balance Sheet Arrangements
 22




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Tabular Disclosure of Contractual Cash Obligations
  Contractual Cash Obligations(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 Years8.125% Senior Notes due 2012Principal
    
    $
    525,000
    
    
    $
    
    
    
    $
    
    
    
    $
    525,000
    
    
    $
    Interest
    
    
    213,282
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    85,313
    
    
    
    738,282
    
    
    
    42,656
    
    
    
    85,313
    
    
    
    610,313
    
    
    
    7.75% Senior Notes due 2015Principal
    
    
    285,000
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    285,000Interest
    
    
    176,516
    
    
    
    21,903
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    66,263461,516
    
    
    
    21,903
    
    
    
    44,175
    
    
    
    44,175
    
    
    
    351,263Capital lease obligations (1)Principal
    
    
    7,293
    
    
    
    1,008
    
    
    
    2,512
    
    
    
    2,674
    
    
    
    1,099Interest
    
    
    3,801
    
    
    
    1,105
    
    
    
    1,707
    
    
    
    829
    
    
    
    16011,094
    
    
    
    2,113
    
    
    
    4,219
    
    
    
    3,503
    
    
    
    1,259Operating leases (1)
    
    
    332,823
    
    
    
    39,217
    
    
    
    63,513
    
    
    
    50,143
    
    
    
    179,950Total contractual cash obligations
    
    $
    1,543,715
    
    
    $
    105,889
    
    
    $
    197,220
    
    
    $
    708,134
    
    
    $
    532,472
 Other Commercial Commitments(in thousands)Less than
    
    
    
    
    
    
    
    
    
    
    AfterTotal
    
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    5 YearsStandby letters of credit (2)
    
    $
    50,433
    
    
    $
    50,433
    
    
    $
    
    
    
    $
    
    
    
    $
    Total other commercial commitments
    
    $
    50,433
    
    
    $
    50,433
    
    
    $
    
    
    
    $
    
    
    
    $
    
 
 (1)
    
    We lease the majority of our retail stores, offices, warehouses and distribution
center. Certain of our operating leases provide for minimum annual payments that change
over the primary term of the lease. For purposes of contractual cash obligations shown
here, contractual step increases or decreases are shown in the period they are due.
Certain leases provide for additional rents based on sales. Primary lease terms range from
3 to 55 years and substantially all leases provide for renewal options.(2)
    
    Standby letters of credit are committed as security for workers compensation.
Outstanding letters of credit expire between October 2007 and February 2008. 23




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##### Table of Contents



Item 7.
    
    Managements Discussion and Analysis of Financial
Condition and Results of Operations (contd.)
 Recent Accounting Pronouncements
  .
 Cautionary Statement
 24




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##### Table of Contents



Item 7A.
    
    Quantitative and Qualitative Disclosure about Market Risk
  Expected Year of Maturity(In thousands)Fair2008
    
    
    2009
    
    
    2010
    
    
    2011
    
    
    2012
    
    
    Thereafter
    
    
    ValueLong-term debt and
capital lease obligations
    
    $
    1,008
    
    
    $
    1,162
    
    
    $
    1,350
    
    
    $
    1,566
    
    
    $
    526,107
    
    
    $
    286,099
    
    
    $
    825,714Average interest rate
    
    
    8.06
    %
    
    
    8.05
    %
    
    
    8.04
    %
    
    
    8.03
    %
    
    
    7.99
    %
    
    
    7.76
    %
 25




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##### Table of Contents



Item 8.
    
    Financial Statements and Supplementary Data
  INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page NumberReport of Independent Registered Public Accounting Firm
    
    
    F-2Consolidated Balance Sheets at September 24, 2006
and September 30, 2007
    
    
    F-3Fiscal years ended September 25, 2005, September 24, 2006 and
September 30, 2007:Consolidated Statements of Income
    
    
    F-5Consolidated Statements of Cash Flows
    
    
    F-6Consolidated Statements of Stockholders Equity (Deficit)
    
    
    F-7Notes to Consolidated Financial Statements
    
    
    F-8
 
 Item 9.
    
    Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
  
 Item 9A.
    
    Controls and Procedures
    
 Item 9B.
    
    Other Information
  26




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##### Table of Contents



PART III
 
 Item 10.
    
    Directors and Executive Officers of the Registrant
  Name
    
    Age
    
    PositionJack H. Brown
    
    68
    
    Chairman of the Board, President and Chief Executive OfficerPhillip J. Smith.
    
    60
    
    Executive Vice President and Chief Financial OfficerJames W. Lee
    
    56
    
    President and Chief Operating Officer of MarketsDennis L. McIntyre
    
    47
    
    Group Senior Vice President of Marketing of MarketsGeorge A. Frahm
    
    54
    
    Group Senior Vice President of Retail Operations and Administration of MarketsBruce D. Varner
    
    71
    
    Director and SecretaryThomas W. Field, Jr.
    
    74
    
    Vice Chairman of the Board of DirectorsRonald G. Skipper
    
    67
    
    Director
 Background of Directors and Executive Officers
 Jack H. Brown
 Phillip J. Smith
 James W. Lee
 27




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##### Table of Contents



Item 10.
    
    Directors and Executive Officers of the Registrant (contd.)
 Background of Directors and Executive Officers (contd.)
 Dennis L. McIntyre
 George A. Frahm
 Bruce D. Varner
 Thomas W. Field, Jr.
 Ronald G. Skipper
 C. Dale Warman,
 Director Compensation
  Annual Board Retainer
  Meeting Fees
  28




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##### Table of Contents



Item 10.
    
    Directors and Executive Officers of the Registrant (contd.)
 Director Compensation For fiscal Year 2007
 Director
    
    
    MeetingName
    
    Fees
    
    
    Fees
    
    
    TotalThomas W. Field, Jr.
    
    $
    50,000
    
    
    $
    3,500
    
    
    $
    53,500Bruce D. Varner
    
    $
    50,000
    
    
    $
    3,500
    
    
    $
    53,500Ronald G. Skipper
    
    $
    25,000
    
    
    $
    2,000
    
    
    $
    27,000C. Dale Warman
    
    $
    25,000
    
    
    $
    1,500
    
    
    $
    26,500
  
 Item 11.
    
    Executive Compensation
 Compensation Discussion and Analysis
    29




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##### Table of Contents



Item 11.
    
    Executive Compensation (contd.)
 Compensation Discussion and Analysis (contd.)
 Salary
 Bonus
 Deferred Compensation  st .
 Retirement Benefits
 30




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##### Table of Contents



Item 11.
    
    Executive Compensation (contd.)
 Compensation Discussion and Analysis (contd.)
 Other Benefits
 Employment and Severance Agreements
 Deductibility of Compensation
 COMPENSATION COMMITTEE REPORT
 COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
 31




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##### Table of Contents



Item 11.
    
    Executive Compensation (contd.)
  Change inPensionValue andNon-qual.Def. Comp
    
    
    All OtherSalary
    
    
    Bonus
    
    
    Earnings
    
    
    Compensation
    
    
    Total(1)
    
    
    (2)
    
    
    (3)Name & Principal Position
    
    Year
    
    
    $
    
    
    $
    
    
    $
    
    
    $
    
    
    $Jack H. Brown
Chairman, President and
Chief Executive Officer
    
    
    2007
    
    
    $
    1,651,058
    
    
    $
    
    
    
    $
    (45,249
    )
    
    $
    51,500
    
    
    $
    1,657,309Phillip J. Smith
Executive Vice President and
Chief Financial Officer
    
    
    2007
    
    
    $
    310,714
    
    
    $
    
    
    
    $
    618,540
    
    
    $
    
    
    
    $
    929,254James W. Lee
President and Chief Operating Officer
of Markets
    
    
    2007
    
    
    $
    373,365
    
    
    $
    
    
    
    $
    750,667
    
    
    $
    250,000
    
    
    $
    1,374,032Dennis L. McIntyre
Group Senior Vice President of
Marketing of Markets
    
    
    2007
    
    
    $
    313,708
    
    
    $
    
    
    
    $
    496,649
    
    
    $
    250,000
    
    
    $
    1,060,357George A. Frahm
Group Senior Vice President of Retail
Operations and Administration of Markets
    
    
    2007
    
    
    $
    256,482
    
    
    $
    
    
    
    $
    427,273
    
    
    $
    
    
    
    $
    683,755
 
 (1)
    
    Annual performance bonuses to be paid to the named executive officers for fiscal 2007 had
neither been calculated nor awarded as of December 19, 2007 the latest practical date.(2)
    
    The amount shown represents the change in pension value and change in nonqualified deferred
compensation during fiscal 2007.(3)
    
    The value of perquisites and other benefits is only included here if the aggregate amount of
such compensation for a named executive officer is greater than $10,000. Mr. Brown is a
Director of Holdings and amount shown is the Director fees paid during fiscal 2007 of $51,500.
Amounts shown for Mr. Lee and Mr. McIntyre represent a one-time withdrawal from the deferred
compensation plan. 32




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##### Table of Contents



Item 11. Executive Compensation (contd.)
  Number of
    
    Present Value
    
    
    PaymentsYears of
    
    of Accum
    
    
    During LastName
    
    Plan Name
    
    Credited Service
    
    Benefit
    
    
    Fiscal YearJack H. Brown
Chairman, President and Chief Executive Officer
    
    Pension Plan for Salaried Employees
    
    26
    
    $
    1,375,964
    
    
    $
    Phillip J. Smith
Executive Vice President and Chief Financial Officer
    
    Pension Plan for Salaried Employees
    
    21
    
    $
    417,420
    
    
    $
    James W. Lee
President and Chief Operating Officer of Markets
    
    Pension Plan for Salaried Employees
    
    5
    
    $
    91,982
    
    
    $
    Dennis L. McIntyre
Group Senior Vice President of Marketing of Markets
    
    Pension Plan for Salaried Employees
    
    30
    
    $
    147,189
    
    
    $
    George A. Frahm
Group Senior Vice President of Retail Operations and Administration of Markets
    
    Pension Plan for Salaried Employees
    
    31
    
    $
    248,322
    
    
    $
    
 33




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##### Table of Contents



Item 11.
    
    Executive Compensation (contd.)
  AggregateExecutive
    
    
    Registrant
    
    
    Aggregate
    
    
    Withdrawals
    
    
    AggregateContributions in
    
    
    Contributions in
    
    
    Earnings in
    
    
    /Distributions ($)
    
    
    BalanceName
    
    Last FY ($)
    
    
    Last FY ($) (1)
    
    
    Last FY ($)
    
    
    (2)
    
    
    at Last FYE ($) (3)Jack H. Brown
Chairman, President and
Chief Executive Officer
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Phillip J. Smith
Executive Vice President and
Chief Financial Officer
    
    $
    
    
    
    $
    589,061
    
    
    $
    
    
    
    $
    300,000
    
    
    $
    2,769,161James W. Lee
President and Chief Operating
Officer of Markets
    
    $
    
    
    
    $
    727,238
    
    
    $
    
    
    
    $
    250,000
    
    
    $
    2,469,175Dennis L. McIntyre
Group Senior Vice President
of Marketing of Markets
    
    $
    
    
    
    $
    490,884
    
    
    $
    
    
    
    $
    250,000
    
    
    $
    2,307,634George A. Frahm
Group Senior Vice President of Retail
Operations and Administration of Markets
    
    $
    
    
    
    $
    412,707
    
    
    $
    
    
    
    $
    150,000
    
    
    $
    1,502,757
 
 (1)
    
    The amounts shown represent our contribution in fiscal 2007 to the named executive
officers deferred compensation. This includes 20% vesting for new units awarded to Mr. Lee
and Mr. Frahm and appreciation of 98.2% of the stated value for all existing units.(2)
    
    The amounts shown represent a one-time withdrawal of half the stated value of vested
units in the deferred compensation plan. The stated value of each unit is $20.(3)
    
    The aggregate balance represents each named executive officers deferred compensation
balance as of September 30, 2007. The amounts shown represents the vested portion of all
units plus appreciation, less the one-time withdrawal. 34




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##### Table of Contents



Item 11.  Executive Compensation (contd.)
 POTENTIAL PAYMENTS UPON TERMINATION OR CHANGE OF CONTROL
 TERMINATION
    
    
    
    CHANGE IN CONTROLDeferred
    
    
    Health &Severance Pay
    
    
    
    Salary & Bonus
    
    
    Compensation
    
    
    Welfare
    
    
    Total(1)
    
    
    
    (2)
    
    
    (3)
    
    
    (4)Name & Principal Position
    
    $
    
    
    
    $
    
    
    $
    
    
    $
    
    
    $Jack H. Brown
Chairman, President and
Chief Executive Officer
    
    $
    381,013
    
    
    
    $
    23,768,505
    
    
    $
    
    
    
    $
    58,440
    
    
    $
    23,826,945Phillip J. SmithExecutive Vice President andChief Financial Officer
    
    $
    71,703
    
    
    
    $
    1,574,613
    
    
    $
    2,769,161
    
    
    $
    35,064
    
    
    $
    4,378,838James W. LeePresident and Chief OperatingOfficer of Markets
    
    $
    71,801
    
    
    
    $
    1,649,588
    
    
    $
    2,629,175
    
    
    $
    35,064
    
    
    $
    4,313,827Dennis L. McIntyreGroup Senior Vice President ofMarketing of Markets
    
    $
    72,394
    
    
    
    $
    1,419,023
    
    
    $
    2,307,634
    
    
    $
    35,064
    
    
    $
    3,761,721George A. FrahmGroup Senior Vice President of RetailOperations and Administration of Markets
    
    $
    59,188
    
    
    
    $
    1,064,105
    
    
    $
    1,582,757
    
    
    $
    35,064
    
    
    $
    2,681,926
 
 (1)
    
    Termination of employment by Mr. Brown or by the Board of Directors with the
consent of Mr. Brown entitles named executive officers to two weeks of severance pay for every
year of service to Markets, up to a maximum of twelve weeks. Severance Pay outlined above
represents 12 weeks of pay for Messrs. Brown, Smith, McIntyre & Frahm. Severance pay for Mr. Lee represents 10 weeks of pay.(2)
    
    Per Mr. Browns employment and severance agreement, the salary and bonus payable with
a change in control represents the sum of five times the greatest of the highest total
annual compensation during any of the five years preceding termination or the amount of
total compensation during the twelve months immediately preceding termination with an
estimated increase of 10% per year. For Messrs. Smiths, Lees, McIntyres and Frahms
employment and severance agreements, the salary and bonus payable with a change in control
represents the sum of three times the highest of either the average of the total
compensation during the three years immediately preceding termination or total
compensation during the twelve months preceding termination with an estimated increase of
10% per year.(3)
    
    At a change in control, the named executive officer is entitled to the full vested
value and appreciation of all deferred compensation. The amounts above reflect estimated
values as of September 30, 2007.(4)
    
    Represents continued group health benefits (medical, dental and vision) for the named
executive officer and current dependents for a period of up to 5 years for Mr. Brown and 3
years for Messrs. Smith, Lee, McIntyre and Frahm. 35




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##### Table of Contents



Item 11.
    
    Executive Compensation (contd.)
 Stock Options and SARs
 Pension Plan
  Pension Plan TableYears of ServiceRemuneration
    
    15
    
    
    20
    
    
    25
    
    
    30
    
    
    35$50,000
    
    $
    5,625
    
    
    $
    7,500
    
    
    $
    9,375
    
    
    $
    11,250
    
    
    $
    13,12575,000
    
    
    11,525
    
    
    
    15,366
    
    
    
    19,208
    
    
    
    23,049
    
    
    
    26,891100,000
    
    
    19,587
    
    
    
    26,116
    
    
    
    32,645
    
    
    
    39,174
    
    
    
    45,703125,000
    
    
    27,650
    
    
    
    36,866
    
    
    
    46,083
    
    
    
    55,299
    
    
    
    64,516150,000
    
    
    35,712
    
    
    
    47,616
    
    
    
    59,520
    
    
    
    71,424
    
    
    
    83,328175,000
    
    
    43,775
    
    
    
    58,366
    
    
    
    72,958
    
    
    
    87,549
    
    
    
    102,141200,000
    
    
    51,837
    
    
    
    69,116
    
    
    
    86,395
    
    
    
    103,674
    
    
    
    120,953220,000
    
    
    58,287
    
    
    
    77,716
    
    
    
    97,145
    
    
    
    116,574
    
    
    
    136,003
 Board of Directors
   Code of Ethics
 36




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##### Table of Contents



Item 11. Executive Compensation (contd.)
   Deferred Compensation Plan
   37




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##### Table of Contents



Item 12.
    
    Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
  Shares ofClass A
    
    
    Percentage ofCommon Stock
    
    
    Class AName and Address of
    
    Beneficially
    
    
    Common StockBeneficial Owner
    
    Owned
    
    
    OutstandingLa Cadena(1)
    
    
    35,770
    
    
    
    100
    %Jack H. Brown(1)(2)
    
    
    35,770
    
    
    
    100
    %Phillip J. Smith(2)
    
    
    
    
    
    
    James W. Lee(2)
    
    
    
    
    
    
    Dennis L. McIntyre(2)George A. Frahm(2)Thomas W. Field, Jr.(2)
    
    
    
    
    
    
    Bruce D. Varner(2)
    
    
    
    
    
    
    Ronald G. Skipper(2)
    
    
    
    
    
    
    All Directors and executive officers
as a group (8 persons)(1)
    
    
    35,770
    
    
    
    100
    %
 
 (1)
    
    The 35,770 outstanding shares of Holdings Class A Common Stock are owned by La Cadena
and may be deemed to be beneficially owned by the partners of La Cadena. The sole partner
of La Cadena is The Jack H. Brown Revocable Trust. Mr. Browns Trust has the sole interest
and Mr. Brown is the Managing General Partner of La Cadena with the power to vote the shares
of Holdings owned by La Cadena on all matters. The address of La Cadena is 3750 University
Avenue, Suite 610, Riverside, California 92501.(2)
    
    The address of Messrs. Brown, Smith, Lee, McIntyre, Frahm, Field, Varner and Skipper is
c/o Stater Bros. at 301 S. Tippecanoe Avenue, San Bernardino, California 92408. Change of Control Arrangements
  38




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##### Table of Contents



Item 13.
    
    Certain Relationships and Related Transactions
    
 Item 14.
    
    Principal Accounting Fees and Services
 Audit Fees
 Audit Related Fees
 Tax Fees
 All Other Fees
 39




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##### Table of Contents



PART IV
 
 Item 15.
    
    Exhibits and Financial Statement Schedules
 (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 15(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 15(c) are as follows:
 exhibit no.
    
    
    
    
    
    description3.1
    
    
    (1
    )
    
    Certificate of Incorporation of Stater Bros. Holdings Inc.3.2
    
    
    (1
    )
    
    By-Laws of Stater Bros. Holdings Inc.3.3
    
    
    (1
    )
    
    Articles of Incorporation of Stater Bros. Markets3.4
    
    
    (1
    )
    
    By-Laws of Stater Bros. Markets3.5
    
    
    (1
    )
    
    Articles of Incorporation of Stater Bros. Development, Inc.3.6
    
    
    (1
    )
    
    By-Laws of Stater Bros. Development, Inc.3.7
    
    
    (1
    )
    
    Articles of Incorporation of Santee Dairies, Inc3.8
    
    
    (1
    )
    
    By-Laws of Santee Dairies, Inc.3.9
    
    
    (2
    )
    
    Articles of Incorporation of Super Rx, Inc.3.10
    
    
    (2
    )
    
    By-Laws of Super Rx, Inc.4.1
    
    
    (1
    )
    
    Indenture dated as of June 17, 2004 among
Stater Bros. Holdings Inc. as Issuer, Stater Bros. Markets, Stater
Bros. Development, Inc. and Santee Dairies Inc., as Guarantors, and The
Bank of New York, as Trustee4.2
    
    
    (1
    )
    
    Specimen Form of Fixed Rate Global Note4.3
    
    
    (3
    )
    
    Supplemental Indenture dated as of April 16,
2007 among Stater Bros. Holdings Inc., Stater Bros. Markets, Santee
Dairies, Inc., Stater Bros. Development, Inc., Super Rx, Inc. and The
Bank of New York Trust Company, N.A. (as successor in interest to The
Bank of New York), as Trustee4.4
    
    
    (4
    )
    
    Indenture dated as of April 18, 2007, between
Stater Bros. Holdings Inc., Stater Bros. Markets, Stater Bros.
Development Inc., Super Rx, Inc., Santee Dairies, Inc. and The Bank of
New York Trust Company, N.A.
 40




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##### Table of Contents



Item 15. Exhibits and Financial Statement Schedules (contd.)
 (a)(3) Exhibits (contd.)
 exhibit no.
    
    
    
    
    
    description4.5
    
    
    (4
    )
    
    Registration Rights Agreement, dated as of
April 18, 2007, between Stater Bros. Holdings Inc., Stater Bros.
Markets, Stater Bros. Development, Inc., Super Rx, Inc., Santee
Dairies, Inc. and Banc of America Securities LLC4.6
    
    
    (4
    )
    
    Restricted 144A Global Note4.7
    
    
    (4
    )
    
    Restricted Temporary Regulations S Global Note5.1
    
    
    (11
    )
    
    Opinion of Gibson, Dunn & Crutcher LLP10.1
    
    
    (5
    )
    
    Amended and restated Sublease Agreement dated
June 1, 1983, between Wren Leasing Corp., as Lessor, and Stater Bros. Markets, as Lessee10.2
    
    
    (6
    )
    
    Employment contract dated June 1, 2000 by and between Stater Bros. Markets and Jack H. Brown10.3
    
    
    (7
    )
    
    Employment contract dated June 1, 2000 by and between Stater Bros. Markets and Phillip J. Smith10.4
    
    
    (8
    )
    
    Employment contract dated June 1, 2000 by and between Stater Bros. Markets and Dennis L. McIntyre10.6
    
    
    (8
    )
    
    Employment contract dated August 1, 2002 by and between Stater Bros. Markets and James W. Lee10.7
    
    
    (11
    )
    
    Employment contract dated May 16, 2000 by and between Stater Bros. Markets and George A. Frahm10.8
    
    
    (11
    )
    
    Amendment to employment contract dated July 1, 2000 by and between Stater Bros. Markets and George A. Frahm10.9
    
    
    (9
    )
    
    Owner Participation Agreement, dated as of April 14, 2004 between Stater Bros. Markets and the Inland Valley Development Agency10.10
    
    
    (9
    )
    
    Development Parcel Disposition Agreement, dated as of June 16, 2004 between Stater Bros. Markets and Hillwood/San Bernardino, LLC10.11
    
    
    (10
    )
    
    Amendment No. 1 to Amended and Restated Stater Bros. Holdings Inc. Phantom Stock Plan dated September 30, 200510.12
    
    
    (4
    )
    
    Second Amended and Restated Credit Agreement, dated as of April 16, 2007, by and among Stater Bros. Markets, StaterBros. Holdings Inc., and Bank of America, N.A.10.13
    
    
    (4
    )
    
    Second Amended and Restated Business Loan
Agreement (Receivables) dated as of April 16, 2007, by and among SanteeDairies, Inc., as Borrower, Bank of America, N.A., as Lender, and
Stater Bros. Markets, as guarantor.10.14
    
    
    (11
    )
    
    Subsidiary Guaranty entered into as of April 16, 2007 by Stater Bros. Holdings Inc., Stater Bros. Development, Inc.,Santee Dairies, Inc. and Super Rx, Inc.10.15
    
    
    (11
    )
    
    Amended and Restated Stater Bros. Holdings Inc. Phantom Stock Plan dated December 18, 2002
 41




---



##### Table of Contents



Item 15. Exhibits and Financial Statement Schedules (contd.)
 (a)(3) Exhibits (contd.)
 exhibit no.
    
    
    
    
    
    description10.16
    
    
    (11
    )
    
    Amendment No. 2 to amended and restated
Stater Bros. Holdings Inc. Phantom Stock Plan dated May 15, 200612.1
    
    
    (12
    )
    
    Computation of ratio of earnings to fixed charges.14.1
    
    
    (11
    )
    
    Copy of Key Personnel Code of Ethics.21.1
    
    
    (1
    )
    
    Subsidiaries of Stater Bros. Holdings Inc.21.2
    
    
    (2
    )
    
    Subsidiaries of Stater Bros. Markets31.1
    
    
    (12
    )
    
    Certification of Principal Executive Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act of 2002.31.2
    
    
    (12
    )
    
    Certification of Principal Financial Officer pursuant to Section 302 (a) of theSarbanes-Oxley Act of 2002.32.1
    
    
    (12
    )
    
    Certification of Principal
Executive Officer and Principal Financial Officer pursuant to 18
U.S.C. Section 1350, as adopted pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002.(1)
    
    
    Previously filed with the Securities and Exchange Commission as
an exhibit to the Registration Statement S-4 No. 33-118436 dated August 27, 2004, as amended(2)
    
        
    Previously filed with the Securities and Exchange
Commission as an exhibit to the Annual report on Form 10-K for the
fiscal year ended September 25, 2005(3)
    
    
    Previously filed with the Securities and Exchange Commission as
an exhibit to the Current Report on form 8-k dated April 17, 2007(4)
    
        
    Previously filed with the Securities and Exchange
Commission as an exhibit to the Current Report on Form 8-K dated April 20, 2007(5)
    
        
    Previously filed with the Securities and Exchange
Commission as an exhibit to the Registration Statement S-4 No. 33-77296
dated July 21, 1994(6)
    
    
    Previous 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)
    
        
    Previously 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(8)
    
        
    Previously filed with the Securities and Exchange
Commission as exhibits with the Annual Report on Form 10-K for the
fiscal year ended September 29, 2002(9)
    
        
    Incorporated by reference to Exhibit 10.35 to the Quarterly
Report on Form 10-Q for the quarter ended June 27, 2004(10)
    
        
    Previously filed with the Securities and Exchange
Commission as an exhibit to the Annual Report on Form 10-K for the
fiscal year ended September 25, 2005(11)
    
        
    Previously filed with the Securities and Exchange
Commission as an exhibit to the Registration Statement S-4 No.
33-0350671 dated July 24, 2007(12)
    
        
    Filed with the Securities and Exchange Commission
as exhibits with the Annual Report on Form 10-K for the fiscal year
ended September 30, 2007
 42




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##### Table of Contents



STATER BROS. HOLDINGS INC.
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 2007
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 19, 2007
    
    Stater Bros. Holdings Inc.DateBy:
    
    /s/ Jack H. BrownJack H. BrownChairman of the Board,President and ChiefExecutive Officer
 Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
 Signature
    
    Title
    
    Date/s/
    
    Jack H. Brown
    
    Chairman of the Board, President and
    
    December 19, 2007Jack H. Brown
    
    Chief Executive Officer and Director(Principal Executive Officer)/s/
    
    Thomas W. Field, Jr.
    
    Vice Chairman of the Board
    
    December 19, 2007Thomas W. Field, Jr.
    
    and Director/s/
    
    Ronald G. Skipper
    
    Director
    
    December 19, 2007Ronald G. Skipper/s/
    
    Bruce D. Varner
    
    Secretary and Director
    
    December 19, 2007Bruce D. Varner/s/
    
    Phillip J. Smith
    
    Executive Vice President and
    
    December 19, 2007Phillip J. Smith
    
    Chief Financial Officer
(Principal Financial Officer)
 43




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##### Table of Contents



INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
 Page NumberReport of Independent Registered Public Accounting Firm
    
    F-2Consolidated Balance Sheets at September 24, 2006
and September 30, 2007
    
    F-3Fiscal years ended September 25, 2005, September 24, 2006
and September 30, 2007:Consolidated Statements of Income
    
    F-5Consolidated Statements of Cash Flows
    
    F-6Consolidated Statements of Stockholders Equity (Deficit)
    
    F-7Notes to Consolidated Financial Statements
    
    F-8
 F-1




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##### Table of Contents



/s/ Ernst &Young LLP 
 F-2




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##### Table of Contents



STATER
BROS. HOLDINGS INC.CONSOLIDATED BALANCE SHEETS
 ASSETS
 Sept. 24,
    
    
    Sept. 30,2006
    
    
    2007Current assetsCash and cash equivalents
    
    $
    198,545
    
    
    $
    277,062Restricted cash
    
    
    24,121
    
    
    
    8,121Short-term investments
    
    
    26,849
    
    
    
    Receivables, net of allowance of
$936 and $1,006
    
    
    35,310
    
    
    
    46,391Income tax receivables
    
    
    3,863
    
    
    
    Inventories
    
    
    196,031
    
    
    
    202,073Prepaid expenses
    
    
    8,513
    
    
    
    11,026Deferred income taxes
    
    
    21,609
    
    
    
    23,939Total current assets
    
    
    514,841
    
    
    
    568,612Property and equipmentLand
    
    
    110,479
    
    
    
    112,029Buildings and improvements
    
    
    323,805
    
    
    
    479,808Store fixtures and equipment
    
    
    397,491
    
    
    
    403,052Property subject to capital leases
    
    
    25,836
    
    
    
    24,747857,611
    
    
    
    1,019,636Less accumulated depreciation and
amortization
    
    
    360,538
    
    
    
    389,992497,073
    
    
    
    629,644Deferred income taxes, long-term
    
    
    8,845
    
    
    
    22,889Deferred debt issurance costs, net
    
    
    15,972
    
    
    
    17,671Long-term receivable
    
    
    12,160
    
    
    
    22,228Goodwill
    
    
    2,894
    
    
    
    2,894Other assets
    
    
    6,307
    
    
    
    6,34046,178
    
    
    
    72,022Total assets
    
    $
    1,058,092
    
    
    $
    1,270,278
  F-3




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##### Table of Contents



STATER
BROS. HOLDINGS INC.CONSOLIDATED BALANCE SHEETS (contd.)
 LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)
 Sept. 24,
    
    
    Sept. 30,2006
    
    
    2007Current liabilitiesAccounts payable
    
    $
    155,827
    
    
    $
    187,978Accrued payroll and related expenses
    
    
    55,582
    
    
    
    60,761Other accrued liabilities
    
    
    69,098
    
    
    
    77,109Accrued income taxes
    
    
    
    
    
    
    4,727Current portion of capital lease obligations
    
    
    1,054
    
    
    
    1,008Total current liabilities
    
    
    281,561
    
    
    
    331,583Long-term debt
    
    
    700,000
    
    
    
    810,000Capital lease obligations, less current portion
    
    
    7,294
    
    
    
    6,285Long-term portion of self-insurance and other reserves
    
    
    33,112
    
    
    
    36,307Long-term deferred benefits
    
    
    43,573
    
    
    
    57,388Other long-term liabilities
    
    
    3,631
    
    
    
    19,436Total liabilities
    
    
    1,069,171
    
    
    
    1,260,999Commitments and contingenciesStockholders equity (deficit)Common Stock, $.01 par value:Authorized shares - 100,000Issued and outstanding shares - 0 in 2006 and 2007
    
    
    
    
    
    
    Class A Common Stock, $.01 par value:Authorized shares - 100,000Issued and outstanding shares - 36,895 in 2006
and 35,770 in 2007
    
    
    
    
    
    
    Additional paid-in capital
    
    
    9,382
    
    
    
    9,096Accumulated other comprehensive loss
    
    
    
    
    
    
    (9,037
    )Retained earnings (deficit)
    
    
    (20,461
    )
    
    
    9,220Total stockholders equity (deficit)
    
    
    (11,079
    )
    
    
    9,279Total liabilities and stockholders equity (deficit)
    
    $
    1,058,092
    
    
    $
    1,270,278
  F-4




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF INCOME
 Fiscal Year EndedSept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2007(52 weeks)
    
    
    (52 weeks)
    
    
    (53 weeks)Sales
    
    $
    3,372,844
    
    
    $
    3,508,794
    
    
    $
    3,674,427Cost of goods sold
    
    
    2,468,736
    
    
    
    2,578,435
    
    
    
    2,674,563Gross profit
    
    
    904,108
    
    
    
    930,359
    
    
    
    999,864Operating expenses:Selling, general and administrative expenses
    
    
    772,885
    
    
    
    790,756
    
    
    
    818,863Depreciation and amortization
    
    
    39,575
    
    
    
    46,642
    
    
    
    48,715Total operating expenses
    
    
    812,460
    
    
    
    837,398
    
    
    
    867,578Operating profit
    
    
    91,648
    
    
    
    92,961
    
    
    
    132,286Interest income
    
    
    6,816
    
    
    
    10,284
    
    
    
    14,151Interest expense
    
    
    (57,142
    )
    
    
    (57,238
    )
    
    
    (59,586
    )Interest expense related to debt purchase
    
    
    
    
    
    
    
    
    
    
    (3,953
    )Other expenses, net
    
    
    (1,414
    )
    
    
    (1,996
    )
    
    
    (224
    )Income before income taxes
    
    
    39,908
    
    
    
    44,011
    
    
    
    82,674Income taxes
    
    
    13,662
    
    
    
    17,945
    
    
    
    33,279Net income
    
    $
    26,246
    
    
    $
    26,066
    
    
    $
    49,395Earnings per average common shares outstanding
    
    $
    685.26
    
    
    $
    697.21
    
    
    $
    1,356.19Dividends per common share outstanding at end of year
    
    $
    
    
    
    $
    135.52
    
    
    $
    139.78Average common shares outstanding
    
    
    38,301
    
    
    
    37,386
    
    
    
    36,422Common shares outstanding at end of year
    
    
    38,301
    
    
    
    36,895
    
    
    
    35,770
  F-5




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
 Fiscal Year EndedSept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2007(52 weeks)
    
    
    (52 weeks)
    
    
    (53 weeks)Operating activities:Net income
    
    $
    26,246
    
    
    $
    26,066
    
    
    $
    49,395Adjustments to reconcile net income to net cash provided
by operating activities:Depreciation and amortization
    
    
    51,754
    
    
    
    58,570
    
    
    
    60,395Amortization of debt issuance costs
    
    
    3,042
    
    
    
    3,038
    
    
    
    5,496Premium paid on purchase of debt
    
    
    
    
    
    
    
    
    
    
    (1,750
    )Deferred income taxes
    
    
    (4,554
    )
    
    
    (2,693
    )
    
    
    (10,159
    )Loss on disposals of assets
    
    
    1,594
    
    
    
    2,176
    
    
    
    403Changes in operating assets and liabilities:(Increase) decrease in restricted cash
    
    
    (9,000
    )
    
    
    4,879
    
    
    
    16,000(Increase) decrease in receivables
    
    
    (8,610
    )
    
    
    7,589
    
    
    
    (11,226
    )(Increase) decrease in income tax receivables
    
    
    (2,512
    )
    
    
    (1,413
    )
    
    
    3,863(Increase) decrease in inventories
    
    
    1,994
    
    
    
    (10,729
    )
    
    
    (6,042
    )(Increase) decrease in prepaid expenses
    
    
    100
    
    
    
    116
    
    
    
    (3,937
    )(Increase) decrease in other assets
    
    
    (171
    )
    
    
    92
    
    
    
    (33
    )Increase (decrease) in accounts payable
    
    
    (314
    )
    
    
    11,529
    
    
    
    32,151Increase in accrued income taxes
    
    
    
    
    
    
    
    
    
    
    4,727Increase (decrease) in other accrued liabilities
    
    
    15,926
    
    
    
    (6,264
    )
    
    
    14,843Increase (decrease) in long-term reserves
    
    
    2,758
    
    
    
    (3,483
    )
    
    
    19,068Net cash provided by operating activities
    
    
    78,253
    
    
    
    89,473
    
    
    
    173,194Financing activities:Proceeds from issuance of long-term debt
    
    
    
    
    
    
    
    
    
    
    285,000Debt issuance costs
    
    
    
    
    
    
    
    
    
    
    (7,195
    )Dividends paid
    
    
    
    
    
    
    (5,000
    )
    
    
    (5,000
    )Stock redemption
    
    
    
    
    
    
    (18,750
    )
    
    
    (15,000
    )Principal payment on long-term debt
    
    
    
    
    
    
    
    
    
    
    (175,000
    )Principal payments on capital lease obligations
    
    
    (1,235
    )
    
    
    (1,134
    )
    
    
    (1,055
    )Net cash provided by (used in) financing activities
    
    
    (1,235
    )
    
    
    (24,884
    )
    
    
    81,750Investing activities:Increase (decrease) in short-term investments
    
    
    
    
    
    
    (26,849
    )
    
    
    26,849Incerease (decrease) in store reimbursement
    
    
    5,312
    
    
    
    (343
    )
    
    
    145Increase in long-term receivable
    
    
    
    
    
    
    (12,160
    )
    
    
    (10,068
    )Acquisition of pharmacies
    
    
    (4,845
    )
    
    
    
    
    
    
    Purchase of property and equipment
    
    
    (116,341
    )
    
    
    (95,797
    )
    
    
    (193,560
    )Proceeds from sale of property and equipment
    
    
    306
    
    
    
    5,708
    
    
    
    207Net cash used in investing activities
    
    
    (115,568
    )
    
    
    (129,441
    )
    
    
    (176,427
    )Net increase (decrease) in cash and cash equivalents
    
    
    (38,550
    )
    
    
    (64,852
    )
    
    
    78,517Cash and cash equivalents at beginning of period
    
    
    301,947
    
    
    
    263,397
    
    
    
    198,545Cash and cash equivalents at end of period
    
    $
    263,397
    
    
    $
    198,545
    
    
    $
    277,062Interest paid
    
    $
    55,022
    
    
    $
    58,563
    
    
    $
    57,587Income taxes paid
    
    $
    20,821
    
    
    $
    22,050
    
    
    $
    34,850
  F-6




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##### Table of Contents



STATER BROS. HOLDINGS INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)
 Accumulated
    
    
    TotalClass A
    
    
    Additional
    
    
    Retained
    
    
    Other Comp-
    
    
    Stockholder's
    
    
    Comp-Common
    
    
    Common Stock
    
    
    Paid-in
    
    
    Earnings
    
    
    rehensive
    
    
    Equity
    
    
    rehensiveStock
    
    
    Shares
    
    
    Amount
    
    
    Capital
    
    
    (Deficit)
    
    
    Loss
    
    
    (Deficit)
    
    
    IncomeBalance at September 26, 2004
    
    
    
    
    
    
    38,301
    
    
    $
    
    
    
    $
    9,740
    
    
    $
    (49,381
    )
    
    
    
    
    
    $
    (39,641
    )
    
    
    Net income for 52 weeks ended
September 25, 2005
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,246
    
    
    
    
    
    
    
    26,246
    
    
    $
    26,246Balance at September 25, 2005
    
    
    
    
    
    
    38,301
    
    
    
    
    
    
    
    9,740
    
    
    
    (23,135
    )
    
    
    
    
    
    
    (13,395
    )
    
    
    26,246Net income for 52 weeks ended
September 24, 2006
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26,066
    
    
    
    
    
    
    
    26,066
    
    
    
    26,066Dividend paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )
    
    
    Stock redemption
    
    
    
    
    
    
    (1,406
    )
    
    
    
    
    
    
    (358
    )
    
    
    (18,392
    )
    
    
    
    
    
    
    (18,750
    )
    
    
    Balance at September 24, 2006
    
    
    
    
    
    
    36,895
    
    
    
    
    
    
    
    9,382
    
    
    
    (20,461
    )
    
    
    
    
    
    
    (11,079
    )
    
    
    26,066Net income for 53 weeks ended
September 30, 2007
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    49,395
    
    
    
    
    
    
    
    49,395
    
    
    
    49,395SFAS No. 158 Adjustment (net
of tax of $6,214)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (9,037
    )
    
    
    (9,037
    )
    
    
    Dividend paid
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,000
    )
    
    
    
    
    
    
    (5,000
    )
    
    
    Stock redemption
    
    
    
    
    
    
    (1,125
    )
    
    
    
    
    
    
    (286
    )
    
    
    (14,714
    )
    
    
    
    
    
    
    (15,000
    )
    
    
    Balance at September 30, 2007
    
    
    
    
    
    
    35,770
    
    
    $
    
    
    
    $
    9,096
    
    
    $
    9,220
    
    
    $
    (9,037
    )
    
    $
    9,279
    
    
    $
    49,395
  F-7




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
September 30, 2007
 Note 1  The Company and Summary of Significant Accounting Policies
 Description of Business
  Principles of Consolidation
  Reclassifications
  Use of Estimates
  Fiscal Year
  Cash and Cash Equivalents
  Restricted Cash
  Short-Term Investments
  Inventories
  Receivables
  Long-Lived Assets
  F-8




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 1  The Company and Summary of Significant Accounting Policies (contd.)
 Property and Equipment
   Range
    
    Most PrevalentBuildings and improvements
    
    5  20 Years
    
    20 YearsStore furniture and equipment
    
    3  10 Years
    
    5 YearsProperty subject to capital leases
    
    Life of Lease
    
    25 Years
 Deferred Debt Issuance Costs
  Deferred Compensation Plan
  Self-Insurance Reserves
  Income Taxes
  Revenue Recognition
  F-9




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 1  The Company and Summary of Significant Accounting Policies (contd.)
 Cost of Goods Sold
  Selling, General and Administrative Expenses
    Vendor Rebates and Allowances
  Advertising
  F-10




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 1  The Company and Summary of Significant Accounting Policies (contd.)
 Advertising Allowances
  Leases
  Recent Accounting Pronouncements
    F-11




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 2  Goodwill
  Note 3  Issuance of New Debt and Early Extinguishment of Debt
   Note 4  Debt
  Fiscal Year EndedSept. 24,
    
    
    Sept. 30,2006
    
    
    2007(In thousands)Floating Rate Senior Notes due 2010
    
    $
    175,000
    
    
    $
    8.125% Senior Notes due 2012
    
    
    525,000
    
    
    
    525,0007.75% Senior Notes due 2015
    
    
    
    
    
    
    285,000Total long-term debt
    
    $
    700,000
    
    
    $
    810,000
     F-12




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 5  Credit Facilities
 Markets Credit Facility
      Santees Revolver
    F-13




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 5  Credit Facilities (contd.)
     Note 6  Leases
   OperatingLeases
    
    
    NoncancelableCapital
    
    
    Minimum
    
    
    SubleaseLeases
    
    
    Payments
    
    
    Income(In thousands)2008
    
    $
    2,113
    
    
    $
    39,217
    
    
    $
    1,4372009
    
    
    2,109
    
    
    
    33,575
    
    
    
    2,7842010
    
    
    2,109
    
    
    
    29,938
    
    
    
    2,6462011
    
    
    2,099
    
    
    
    26,684
    
    
    
    2,6462012
    
    
    1,403
    
    
    
    23,459
    
    
    
    2,646Thereafter
    
    
    1,261
    
    
    
    179,949
    
    
    
    25,695Total minimum lease payments
    
    
    11,094
    
    
    $
    332,822
    
    
    $
    37,854Less amounts representing interest
    
    
    3,801Present value of minimum lease
payments
    
    
    7,293Less current portion
    
    
    1,008Long-term portion
    
    $
    6,285
 F-14




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 6 Leases (contd.)
  Sept. 25, 2005
    
    
    Sept. 24, 2006
    
    
    Sept. 30, 2007(In thousands)Minimum rentals
    
    $
    29,491
    
    
    $
    30,827
    
    
    $
    33,014Rentals based on sales
    
    $
    12,838
    
    
    $
    14,092
    
    
    $
    14,368Sublease income
    
    $
    1,283
    
    
    $
    1,327
    
    
    $
    1,303
  Note 7  Income Taxes
  Sept. 25, 2005
    
    
    Sept. 24, 2006
    
    
    Sept. 30, 2007(In thousands)CurrentFederal
    
    $
    15,662
    
    
    $
    16,092
    
    
    $
    34,141State
    
    
    5,190
    
    
    
    3,957
    
    
    
    8,87620,852
    
    
    
    20,049
    
    
    
    43,017DeferredFederal
    
    
    (4,564
    )
    
    
    (1,394
    )
    
    
    (8,209
    )State
    
    
    (2,626
    )
    
    
    (710
    )
    
    
    (1,529
    )(7,190
    )
    
    
    (2,104
    )
    
    
    (9,738
    )Income tax expense
    
    $
    13,662
    
    
    $
    17,945
    
    
    $
    33,279
  Sept. 25, 2005
    
    
    Sept. 24, 2006
    
    
    Sept. 30, 2007Federal statutory income tax rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %State franchise tax rate, net of federal
income tax benefit
    
    
    5.8
    
    
    
    5.8
    
    
    
    5.8Change in valuation allowance
    
    
    (3.6
    )
    
    
    
    
    
    
    Tax credits
    
    
    (2.3
    )
    
    
    (1.4
    )
    
    
    (1.1
    )Other
    
    
    (0.7
    )
    
    
    1.4
    
    
    
    0.6Effective tax rate
    
    
    34.2
    %
    
    
    40.8
    %
    
    
    40.3
    %
 F-15




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 7  Income Taxes (contd.)
 Sept. 24, 2006
    
    
    Sept. 30, 2007(In thousands)Deferred income tax assets:Self-insurance reserves
    
    $
    21,661
    
    
    $
    23,709Deferred compensation
    
    
    21,661
    
    
    
    23,383Payroll liabilities
    
    
    9,645
    
    
    
    17,083State franchise tax
    
    
    1,385
    
    
    
    3,136Inventories
    
    
    2,211
    
    
    
    2,237Income deferred for book purposes
    
    
    1,775
    
    
    
    1,569Tax credits and operating loss carry forwards
    
    
    4,718
    
    
    
    3,960Other, net
    
    
    
    
    
    
    344Total deferred income tax assets
    
    
    63,056
    
    
    
    75,421Deferred income tax liabilities:Property and equipment
    
    
    (28,577
    )
    
    
    (24,854
    )Other assets
    
    
    (2,058
    )
    
    
    (2,058
    )Investment in unconsolidated affiliate
    
    
    (1,681
    )
    
    
    (1,681
    )Other, net
    
    
    (286
    )
    
    
    Total deferred income tax liabilities
    
    
    (32,602
    )
    
    
    (28,593
    )Net deferred income tax assets
    
    $
    30,454
    
    
    $
    46,828
   F-16




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 8  Retirement Plans
 Pension and Medical Plans
    Retirement BenefitsBefore
    
    
    
    
    
    
    AfterImplementation
    
    
    Change due to
    
    
    Implementationof SFAS 158
    
    
    SFAS 158
    
    
    of SFAS 158(in thousands)Deferred tax assets
    
    $
    40,614
    
    
    $
    6,214
    
    
    $
    46,828Pre-paid pension
    
    $
    1,904
    
    
    $
    (1,904
    )
    
    $
    Total assets
    
    $
    1,265,968
    
    
    $
    4,310
    
    
    $
    1,270,278Pension liability
    
    $
    
    
    
    $
    12,403
    
    
    $
    12,403Other post retirement liability
    
    $
    496
    
    
    $
    944
    
    
    $
    1,440Total liabilities
    
    $
    1,247,652
    
    
    $
    13,347
    
    
    $
    1,260,999Accumulated other comprehensive loss
    
    $
    
    
    
    $
    (9,037
    )
    
    $
    (9,037
    )Total stockholders equity
    
    $
    18,316
    
    
    $
    (9,037
    )
    
    $
    9,279Total
liabilities and stockholders equity
    
    $
    1,265,968
    
    
    $
    4,310
    
    
    $
    1,270,278
  Pension Plan
    
    
    Medical PlanSept. 24,
    
    
    Sept. 30,
    
    
    Sept. 24,
    
    
    Sept. 30,2006
    
    
    2007
    
    
    2006
    
    
    2007(in thousands)Prior service cost
    
    $
    
    
    
    $
    9
    
    
    $
    
    
    
    $
    736Net actuarial loss
    
    
    
    
    
    $
    14,298
    
    
    
    
    
    
    $
    208Total recognized in accumulated
other comprehensive loss, before tax
    
    $
    
    
    
    $
    14,307
    
    
    $
    
    
    
    $
    944
 F-17




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 8  Retirement Plans (contd.)
 Pension and Medical Plans (contd.)
  Pension Plan
    
    
    Medical PlanSept. 24,
    
    
    Sept. 30,
    
    
    Sept. 24,
    
    
    Sept. 30,2006
    
    
    2007
    
    
    2006
    
    
    2007(in thousands)Change in benefit obligation:Beginning balance
    
    $
    55,192
    
    
    $
    57,378
    
    
    $
    1,258
    
    
    $
    1,211Service cost
    
    
    2,715
    
    
    
    2,659
    
    
    
    44
    
    
    
    43Interest cost
    
    
    2,970
    
    
    
    3,250
    
    
    
    65
    
    
    
    81Actuarial (gain) loss
    
    
    (2,030
    )
    
    
    (2,942
    )
    
    
    (99
    )
    
    
    164Benefit payments
    
    
    (1,469
    )
    
    
    (2,072
    )
    
    
    (57
    )
    
    
    (59
    )Ending balance
    
    $
    57,378
    
    
    $
    58,273
    
    
    $
    1,211
    
    
    $
    1,440Change in fair value of plan assets:Beginning balance
    
    $
    31,648
    
    
    $
    38,666
    
    
    $
    
    
    
    $
    Actual return on plan assets
    
    
    1,188
    
    
    
    2,440
    
    
    
    
    
    
    
    Employer contributions
    
    
    7,299
    
    
    
    6,836
    
    
    
    57
    
    
    
    59Benefit payments
    
    
    (1,469
    )
    
    
    (2,072
    )
    
    
    (57
    )
    
    
    (59
    )Ending balance
    
    $
    38,666
    
    
    $
    45,870
    
    
    $
    
    
    
    $
    Funded status:Fair value of plan assets
    
    $
    38,666
    
    
    $
    45,870
    
    
    $
    
    
    
    $
    Projected benefit obligation
    
    
    57,378
    
    
    
    58,273
    
    
    
    1,211
    
    
    
    1,440Funded status
    
    
    (18,712
    )
    
    
    (12,403
    )
    
    
    (1,211
    )
    
    
    (1,440
    )Adjustment for difference in book and tax
basis of assetsUnamortized prior service cost
    
    
    7
    
    
    
    
    
    
    
    813
    
    
    
    Unrecognized loss
    
    
    17,920
    
    
    
    
    
    
    
    55
    
    
    
    Prepaid pension cost
    
    $
    (785
    )
    
    $
    (12,403
    )
    
    $
    (343
    )
    
    $
    (1,440
    )
  F-18




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 8  Retirement Plans (contd.)
 Pension Plan
  Sept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2007(in thousands)Expected return on assets
    
    $
    (1,485
    )
    
    $
    (1,704
    )
    
    $
    (2,652
    )Service cost
    
    
    2,577
    
    
    
    2,715
    
    
    
    2,659Interest cost
    
    
    2,864
    
    
    
    2,970
    
    
    
    3,250Amortization of prior service cost
    
    
    (2
    )
    
    
    (2
    )
    
    
    (2
    )Amortization of recognized losses
    
    
    908
    
    
    
    1,070
    
    
    
    892Net pension expense
    
    $
    4,862
    
    
    $
    5,049
    
    
    $
    4,147Actuarial assumptions used to determine net pension expense were:Discount rate
    
    
    6.00
    %
    
    
    5.50
    %
    
    
    5.80
    %Rate of increase in compensation levels
    
    
    4.00
    %
    
    
    3.00
    %
    
    
    3.00
    %Expected long-term rate of return on assets
    
    
    5.00
    %
    
    
    5.00
    %
    
    
    6.50
    %Actuarial assumptions used to determine year-end projected benefit obligation were:Weighted-average discount rate
    
    
    5.50
    %
    
    
    5.80
    %
    
    
    6.25
    %Weighted-average rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %
    
    
    3.00
    %
   Sept. 24,
    
    
    Sept. 30,Target
    
    
    2006
    
    
    2007Asset category:Fixed income
    
    
    65
    %
    
    
    88
    %
    
    
    75
    %Equity
    
    
    35
    %
    
    
    0
    %
    
    
    16
    %Cash and other
    
    
    0
    %
    
    
    12
    %
    
    
    9
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 F-19




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 8  Retirement Plans (contd.)
 Pension Plan (contd.)
   Estimated Future Benefit Payments
  PensionBenefits2008
    
    $
    1,3682009
    
    
    2,0162010
    
    
    2,6302011
    
    
    2,7522012
    
    
    2,8812013 - 2017
    
    
    22,103
 Medical Plan
  Sept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2007(in thousands)Service cost
    
    $
    41
    
    
    $
    44
    
    
    $
    43Interest cost
    
    
    66
    
    
    
    65
    
    
    
    81Amortization of prior service cost
    
    
    78
    
    
    
    78
    
    
    
    78Amortization of recognized losses
    
    
    
    
    
    
    
    
    
    
    10Net periodic pension costs
    
    $
    185
    
    
    $
    187
    
    
    $
    212Actuarial assumptions used to determine net periodic benefit costs were:Discount rate
    
    
    6.00
    %
    
    
    5.50
    %
    
    
    5.80
    %Actuarial assumptions used to determine year-end projected benefit obligation were:Weighted-average discount rate
    
    
    5.50
    %
    
    
    5.80
    %
    
    
    6.25
    %
 F-20




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 8  Retirement Plans (contd.)
 Medical Plan (contd.)
   Estimated Future Benefit Payments
  MedicalPlan2008
    
    $
    972009
    
    
    882010
    
    
    912011
    
    
    1032012
    
    
    1142013 - 2017
    
    
    622
 Profit Sharing Plan
  Multi-Employer Plans
   Sept. 25,
    
    
    Sept. 24,
    
    
    Sept. 30,2005
    
    
    2006
    
    
    2007(in thousands)Multi-Employer Pension Plans
    
    $
    34,344
    
    
    $
    38,022
    
    
    $
    38,548Multi-Employer Health and Welfare
    
    
    102,518
    
    
    
    92,905
    
    
    
    74,376Total Multi-Employer Benefits
    
    $
    136,862
    
    
    $
    130,927
    
    
    $
    112,924
  F-21




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 9  Segment Information
  Retail
    
    
    All Other
    
    
    Total(in thousands)Fiscal year ended September 25, 2005Sales to external customers
    
    $
    3,264,571
    
    
    $
    108,273
    
    
    $
    3,372,844Intersegment sales
    
    $
    
    
    
    $
    78,974
    
    
    $
    78,974Depreciation and amortization
    
    $
    39,416
    
    
    $
    159
    
    
    $
    39,575Operating profit
    
    $
    86,964
    
    
    $
    4,684
    
    
    $
    91,648Interest income
    
    $
    6,439
    
    
    $
    377
    
    
    $
    6,816Interest expense
    
    $
    (412
    )
    
    $
    (56,730
    )
    
    $
    (57,142
    )Income tax expense (benefit)
    
    $
    35,706
    
    
    $
    (22,044
    )
    
    $
    13,662Net income (loss)
    
    $
    55,680
    
    
    $
    (29,434
    )
    
    $
    26,246Total assets
    
    $
    1,329,081
    
    
    $
    (273,712
    )
    
    $
    1,055,369Capital expenditures
    
    $
    114,187
    
    
    $
    2,154
    
    
    $
    116,341
 Retail
    
    
    All Other
    
    
    Total(in thousands)Fiscal year ended September 24, 2006Sales to external customers
    
    $
    3,410,343
    
    
    $
    98,451
    
    
    $
    3,508,794Intersegment sales
    
    $
    
    
    
    $
    74,885
    
    
    $
    74,885Depreciation and amortization
    
    $
    46,527
    
    
    $
    115
    
    
    $
    46,642Operating profit
    
    $
    91,902
    
    
    $
    1,059
    
    
    $
    92,961Interest income
    
    $
    9,645
    
    
    $
    639
    
    
    $
    10,284Interest expense
    
    $
    (1,376
    )
    
    $
    (55,862
    )
    
    $
    (57,238
    )Income tax expense (benefit)
    
    $
    40,932
    
    
    $
    (22,987
    )
    
    $
    17,945Net income (loss)
    
    $
    57,056
    
    
    $
    (30,990
    )
    
    $
    26,066Total assets
    
    $
    1,415,146
    
    
    $
    (357,054
    )
    
    $
    1,058,092Capital expenditures
    
    $
    94,193
    
    
    $
    1,604
    
    
    $
    95,797
 F-22




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 9  Segment Information (contd.)
 Retail
    
    
    All Other
    
    
    Total(in thousands)Fiscal year ended September 30, 2007Sales to external customers
    
    $
    3,573,075
    
    
    $
    101,352
    
    
    $
    3,674,427Intersegment sales
    
    $
    
    
    
    $
    88,337
    
    
    $
    88,337Depreciation and amortization
    
    $
    48,597
    
    
    $
    118
    
    
    $
    48,715Operating profit
    
    $
    133,882
    
    
    $
    (1,596
    )
    
    $
    132,286Interest income
    
    $
    10,536
    
    
    $
    3,615
    
    
    $
    14,151Interest expense
    
    $
    (1,237
    )
    
    $
    (62,302
    )
    
    $
    (63,539
    )Income tax expense (benefit)
    
    $
    58,692
    
    
    $
    (25,413
    )
    
    $
    33,279Net income (loss)
    
    $
    84,085
    
    
    $
    (34,690
    )
    
    $
    49,395Total assets
    
    $
    1,588,772
    
    
    $
    (318,494
    )
    
    $
    1,270,278Capital expenditures
    
    $
    191,873
    
    
    $
    1,687
    
    
    $
    193,560
 Note 10  Labor Relations
  Note 11  Fair Value of Financial Instruments
  Cash and Cash Equivalents
  Receivables
  Long-Term Receivable
  F-23




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 11  Fair Value of Financial Instruments (contd.)
 Long-Term Debt and Capital Lease Obligations
   As ofSeptember 30, 2007(In thousands)Carrying
    
    
    FairAmount
    
    
    ValueCash and cash equivalents
    
    $
    277,062
    
    
    $
    277,062Receivables
    
    $
    46,391
    
    
    $
    46,391Long-term receivable
    
    $
    22,228
    
    
    $
    22,228Long-term debt
    
    $
    810,000
    
    
    $
    818,419Capitalized lease obligations
    
    $
    7,293
    
    
    $
    7,293
 Note 12  Litigation Matters
    F-24




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note 13  Deferred Compensation Plan
  Note 14  Related Party Transactions
   Note 15  Stock Redemption
    F-25




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##### Table of Contents



STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (contd.)
 Note
16  Quarterly Results (unaudited)
  AverageGross
    
    
    Operating
    
    
    Net
    
    
    Shares
    
    
    EarningsSales
    
    
    Profit
    
    
    Profit
    
    
    Income
    
    
    Outstanding
    
    
    Per ShareFiscal 2005 Quarters13 weeks ended
12/26/04
    
    $
    839,175
    
    
    $
    217,009
    
    
    $
    18,400
    
    
    $
    3,263
    
    
    
    38,301
    
    
    $
    85.1913 weeks ended
03/27/05
    
    
    842,987
    
    
    
    218,242
    
    
    
    19,258
    
    
    
    3,600
    
    
    
    38,301
    
    
    
    93.9913 weeks ended
06/26/05
    
    
    840,597
    
    
    
    231,595
    
    
    
    25,125
    
    
    
    7,276
    
    
    
    38,301
    
    
    
    189.9713 weeks ended
09/25/05
    
    
    850,085
    
    
    
    237,262
    
    
    
    28,865
    
    
    
    12,107
    
    
    
    38,301
    
    
    
    316.11$
    3,372,844
    
    
    $
    904,108
    
    
    $
    91,648
    
    
    $
    26,246
    
    
    
    38,301
    
    
    $
    685.26Fiscal 2006 Quarters13 weeks ended
12/25/05
    
    $
    867,166
    
    
    $
    226,715
    
    
    $
    17,592
    
    
    $
    3,332
    
    
    
    38,301
    
    
    $
    87.0013 weeks ended
03/26/06
    
    
    863,751
    
    
    
    232,512
    
    
    
    23,442
    
    
    
    6,176
    
    
    
    37,442
    
    
    
    164.9513 weeks ended
06/25/06
    
    
    886,221
    
    
    
    229,700
    
    
    
    24,351
    
    
    
    5,742
    
    
    
    36,895
    
    
    
    155.6313 weeks ended
09/24/06
    
    
    891,656
    
    
    
    241,432
    
    
    
    27,576
    
    
    
    10,816
    
    
    
    36,895
    
    
    
    293.16$
    3,508,794
    
    
    $
    930,359
    
    
    $
    92,961
    
    
    $
    26,066
    
    
    
    37,386
    
    
    $
    697.21Fiscal 2007 Quarters13 weeks ended
12/24/06
    
    $
    904,354
    
    
    $
    241,890
    
    
    $
    28,205
    
    
    $
    9,902
    
    
    
    36,895
    
    
    $
    268.3813 weeks ended
03/25/07
    
    
    866,062
    
    
    
    249,444
    
    
    
    33,674
    
    
    
    13,460
    
    
    
    36,895
    
    
    
    364.8213 weeks ended
06/24/07
    
    
    910,229
    
    
    
    253,787
    
    
    
    41,625
    
    
    
    15,602
    
    
    
    36,178
    
    
    
    431.2614 weeks ended
09/30/07
    
    
    993,782
    
    
    
    254,743
    
    
    
    28,782
    
    
    
    10,431
    
    
    
    35,770
    
    
    
    291.61$
    3,674,427
    
    
    $
    999,864
    
    
    $
    132,286
    
    
    $
    49,395
    
    
    
    36,422
    
    
    $
    1,356.19
 F-26