STATER BROS HOLDINGS INC - 10-Q Quarterly Report

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES

EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2002


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

For the transition from ____ to ____

Commission file number 001-13222

STATER BROS. HOLDINGS INC.

(Exact name of registrant as specified in its charter)


Delaware		33-0350671

(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)


21700 Barton Road Colton, California			92324

(Address of principal executive offices)			(Zip Code)

Registrant’s telephone number, including area code			(909) 783-5000

Not Applicable

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


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


	As of July 31, 2002, there were issued and outstanding 38,301 shares of the registrant’s Class A Common Stock.

TABLE OF CONTENTS


PART I — FINANCIAL INFORMATION
	Item 1. FINANCIAL STATEMENTS
		CONSOLIDATED BALANCE SHEETS
		CONSOLIDATED STATEMENTS OF INCOME
CONSOLIDATED STATEMENTS OF CASH FLOWS
		NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
	Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
	Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
PART II — OTHER INFORMATION
	Item 1. LEGAL PROCEEDINGS
	Item 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
	Item 3. DEFAULTS UPON SENIOR SECURITIES
	Item 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
	Item 5. OTHER INFORMATION
	Item 6. EXHIBITS AND REPORTS ON FORM 8-K
Signatures

STATER BROS. HOLDINGS INC.
JUNE 30, 2002

INDEX


		Page

PART	FINANCIAL INFORMATION (Unaudited)

Item 1.	Financial Statements

	Consolidated Balance Sheets (Unaudited) as of September 30, 2001 and June 30, 2002		3

	Consolidated Statements of Income (Unaudited) for the 39 weeks ended June 24, 2001 and June 30, 2002		5

	Consolidated Statements of Income (Unaudited) for the 13 weeks ended June 24, 2001 and June 30, 2002		6

	Consolidated Statements of Cash Flows (Unaudited) for the 39 weeks ended June 24, 2001 and June 30, 2002		7

	Notes to Consolidated Financial Statements (Unaudited)		8

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		11

Item 3.	Quantitative and Qualitative Disclosure About Market Risk		20

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings		21

Item 2.	Changes in Securities and Use of Proceeds		21

Item 3.	Defaults Upon Senior Securities		21

Item 4.	Submission of Matters to a Vote of Security Holders		21

Item 5.	Other Information		21

Item 6.	Exhibits and Reports on Form 8-K		21

SIGNATURES			22

PART I — FINANCIAL INFORMATION

Item 1. FINANCIAL STATEMENTS

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

ASSETS


		Sept. 30,		June 30,
		2001		2002

Current assets
	Cash and cash equivalents	$	101,636	$	91,531
	Receivables		29,894		33,359
	Income tax receivables		358		1,263
	Inventories		170,189		174,238
	Prepaid expenses		6,743		7,626
	Deferred income taxes		6,634		2,208
	Properties held for sale		3,840		3,823

Total current assets			319,294		314,048
Investment in unconsolidated affiliate			12,666		15,221
Property and equipment
	Land		47,574		47,574
	Buildings and improvements		181,641		188,339
	Store fixtures and equipment		190,581		206,683
	Property subject to capital leases		24,670		24,670

			444,466		467,266
	Less accumulated depreciation and amortization		169,979		186,441

			274,487		280,825
Deferred income taxes			4,897		11,136
Deferred debt issuance costs, net			12,042		14,798
Other assets			5,908		6,564

			22,847		32,498
Total assets		$	629,294	$	642,592

See accompanying notes to unaudited consolidated financial statements.

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

LIABILITIES AND STOCKHOLDERS’ DEFICIT


		Sept. 30,			June 30,
		2001			2002

Current liabilities
	Accounts payable	$	107,485		$	114,296
	Accrued payroll and related expenses		41,737			42,590
	Other accrued liabilities		44,340			53,933
	Current portion of capital lease obligations		1,435			1,190

Total current liabilities			194,997			212,009
Long-term debt			439,000			458,750
Capital lease obligations, less current portion			12,098			11,239
Long-term portion of self-insurance and other reserves			15,852			21,537
Other long-term liabilities			8,756			13,830

Total liabilities			670,703			717,365
Stockholders’ deficit
	Common Stock, $.01 par value: Authorized shares - 100,000 Issued and outstanding shares - 0		—			—
	Class A Common Stock, $.01 par value: Authorized shares - 100,000 Issued and outstanding shares - 50,000 at Sept. 30, 2001, 38,301 at June 30, 2002		1			—
	Additional paid-in capital		12,715			9,740
	Retained deficit		(54,125	)		(84,513	)

Total stockholders’ deficit			(41,409	)		(74,773	)

Total liabilities and stockholders’ deficit		$	629,294		$	642,592

See accompanying notes to unaudited consolidated financial statements.

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


		39 Weeks Ended

		June 24,			June 30,
		2001			2002

Sales		$	1,877,079		$	1,989,579
Cost of goods sold			1,397,398			1,463,461

Gross profit			479,681			526,118
Operating expenses:
	Selling, general and administrative expenses		414,528			447,052
	Depreciation and amortization		21,102			23,160

Total operating expenses			435,630			470,212

Operating profit			44,051			55,906
Interest income			2,597			1,345
Interest expense			(38,506	)		(39,441	)
Equity in earnings from unconsolidated affiliate			1,173			2,555
Other loss — net			(75	)		(1,488	)

Income before income taxes			9,240			18,877
Income taxes			3,789			7,740

Net income		$	5,451		$	11,137

Earnings per share		$	109.02		$	257.88

Average common shares outstanding			50,000			43,186

Shares outstanding at end of period			50,000			38,301

See accompanying notes to unaudited consolidated financial statements.

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


		13 Weeks Ended

		June 24,			June 30,
		2001			2002

Sales		$	639,925		$	672,779
Cost of goods sold			473,806			495,637

Gross profit			166,119			177,142
Operating expenses:
	Selling, general and administrative expenses		142,986			151,459
	Depreciation and amortization		7,194			7,976

Total operating expenses			150,180			159,435

Operating profit			15,939			17,707
Interest income			693			319
Interest expense			(12,847	)		(13,444	)
Equity in earnings from unconsolidated affiliate			215			532
Other loss — net			(154	)		(179	)

Income before income taxes			3,846			4,935
Income taxes			1,577			2,024

Net income		$	2,269		$	2,911

Earnings per share		$	45.38		$	76.00

Average common shares outstanding			50,000			38,301

Shares outstanding at end of period			50,000			38,301

See accompanying notes to unaudited consolidated financial statements.

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


			39 Weeks Ended

			June 24,			June 30,
			2001			2002

Operating activities:
Net income			$	5,451		$	11,137
Adjustments to reconcile net income to net cash provided by operating activities:
	Depreciation and amortization			21,102			23,160
	Provision for deferred income taxes			3,784			(1,813	)
	Loss on disposals of assets			75			1,489
	Net undistributed gain in investment in unconsolidated affiliate			(1,173	)		(2,555	)
	Changes in operating assets and liabilities:
		Decrease in lease guarantee escrow		13,180			—
		Increase in receivables		(5,828	)		(3,465	)
		(Increase) decrease in income tax receivables		263			(905	)
		(Increase) decrease in inventories		335			(4,049	)
		Increase in prepaid expenses		(1,363	)		(898	)
		Decrease in other assets		1,983			1,621
		Increase (decrease) in accounts payable		(1,049	)		6,811
		Increase in accrued liabilities and long-term portion of self-insurance reserves		23,614			21,205

Net cash provided by operating activities				60,374			51,738

Investing activities:
Purchase of property and equipment				(25,199	)		(31,032	)
Proceeds from sale of property and equipment and properties held for sale				230			76

Net cash used in investing activities				(24,969	)		(30,956	)

Financing activities:
Debt issuance cost				—			(5,033	)
Stock redemption				—			(20,000	)
Dividends paid				—			(4,500	)
Principal payments on long-term debt				(5,048	)		(250	)
Principal payments on capital lease obligations				(1,625	)		(1,104	)

Net cash used in financing activities				(6,673	)		(30,887	)

Net increase (decrease) in cash and cash equivalents				28,732			(10,105	)
Cash and cash equivalents at beginning of period				62,631			101,636

Cash and cash equivalents at end of period			$	91,363		$	91,531

Interest paid			$	25,691		$	25,351
Income taxes paid			$	5		$	10,459

See accompanying notes to unaudited consolidated financial statements.

STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2002

Note 1 — Basis of Presentation

In the opinion of management, the accompanying unaudited consolidated financial statements contain all normal recurring adjustments necessary to present fairly the financial position of Stater Bros. Holdings Inc. (the “Company”) and its subsidiaries as of September 30, 2001 and June 30, 2002 and the results of its operations and cash flows for the thirty-nine and thirteen weeks ended June 24, 2001 and June 30, 2002. These consolidated financial statements should be read in conjunction with the audited consolidated financial statements and notes thereto included in the Company’s latest annual report filed on Form 10-K. The operating results for the thirty-nine and thirteen weeks ended June 30, 2002 are not necessarily indicative of the results of operations for a full year.

Note 2 — Income Taxes

The provision for income taxes for the thirty-nine weeks ended June 24, 2001 and June 30, 2002 consists of the following:


	39 Weeks Ended

	June 24, 2001		June 30, 2002

	(In thousands)
Current
Federal	$	2,972	$	7,155
State		817		2,398

		3,789		9,553
Deferred
Federal		—		(1,084	)
State		—		(729	)

		—		(1,813	)

Income tax expense	$	3,789	$	7,740

Note 3 — Unconsolidated Affiliate

The Company owns 50% of Santee Dairies LLC. Through its wholly owned subsidiary, Santee Dairies, Inc. (“Santee”), it operates a fluid milk processing plant located in City of Industry, California, and the Company is not the controlling stockholder. Accordingly, the Company accounts for its investment in Santee Dairies LLC using the equity method of accounting and recognized income of $1.2 million and $2.6 million for the thirty-nine weeks ended June 24, 2001 and June 30, 2002, respectively. The Company is a significant customer of Santee, which supplies the Company with a substantial portion of its fluid milk and dairy products.

STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
JUNE 30, 2002

Note 3 — Unconsolidated Affiliate (contd.)

Summary of unaudited financial information for Santee Dairies LLC is as follows:


	39 Weeks Ended

	June 24, 2001		June 30, 2002

	(In thousands)
Current assets	$	23,578	$	23,214
Non-current assets		96,208

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