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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended December 29, 2002

OR

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

For the transition from            to           

Commission file number 001-13222

STATER BROS. HOLDINGS INC.

Not Applicable

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 February 6, 2003, there were issued and outstanding
38,301 shares of the registrant’s Class A Common Stock.

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STATER BROS. HOLDINGS INC.
DECEMBER 29, 2002

INDEX

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PART I — FINANCIAL INFORMATION

Item 1.

FINANCIAL STATEMENTS

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

ASSETS

See accompanying notes to unaudited consolidated financial statements.

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

LIABILITIES AND STOCKHOLDERS’ DEFICIT

See accompanying notes to unaudited consolidated financial statements.

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

See accompanying notes to unaudited consolidated financial statements.

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

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 29, 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 29, 2002 and December 29, 2002 and the results of its operations and cash flows for the thirteen weeks ended December 30, 2001 and December 29, 2002. These consolidated financial statements should be read in conjunction with the audited financial statements and notes thereto included in the Company’s latest annual report filed on Form 10-K. The operating results for the thirteen weeks ended December 29, 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 thirteen weeks ended December 30, 2001 and December 29, 2002 consists of the following:

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 using the equity method of accounting and recognized income of $648,000 and $746,000 for the thirteen weeks ended December 30, 2001 and December 29, 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.

Summary of unaudited financial information for Santee is as follows:

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STATER BROS. HOLDINGS INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
DECEMBER 29, 2002

Note 4 — Reclassifications

     Certain amounts in the prior period have been reclassified to conform to the current period financial statements presentation.

Note 5 — Use of Estimates

     The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that effect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 6 — Stock Redemption

     During the second quarter of fiscal 2002, the Company obtained consent of the holders of its 10.75% Senior Notes due 2006 to make a distribution and payment to stockholders consisting of $25.0 million in cash and a subordinated note in the principal amount of $20.0 million. On January 22, 2002, the Company redeemed 11,699 shares of the Company’s stock previously held by La Cadena Investments and made a cash payment of $20.0 million and executed a $20.0 million subordinated note due March 31, 2007 to a former partner of La Cadena Investments. The subordinated note bears interest at a rate of 5.0% per annum, payable semi-annually. On February 1, 2002, the Company paid a $4.5 million dividend to La Cadena Investments. Fees for consent of the holders of its 10.75% Senior Notes and fees and expenses of the transaction, including a $500,000 financial advisory service fee to La Cadena Investments, were approximately $5.0 million.

Note 7 — Redemption of Notes

     During the second quarter of fiscal 2002, the Company redeemed $250,000 of its 10.75% Senior Notes due 2006. The Notes were restricted and unregistered. The Notes were redeemed for $250,000 plus accrued interest.

Note 8 — Long-Lived Assets

     Financial Accounting Standards Board Statements No. 144 (“SFAS No. 144”), “Accounting for the Impairment or Disposal of Long-Lived Assets” became effective for the Company September 30, 2002. This standard replaces SFAS No. 121 and APB No. 30 and amends APB No. 51. Adoption of this standard did not have a material effect on the Company’s financial statements. As part of the adoption of this standard, assets previously classified as “Properties held for sale” on the consolidated balance sheets were reclassified to “Property and equipment”.

Note 9 — Subsequent Events

     On February 4, 2003, the Company signed a Fourth Amendment to the credit facility with Bank of America N.A. dated August 6, 1999. The principal provisions of the Fourth Credit Amendment were to remove the $25 million letter of credit facility, remove the $15 million Revolving Loan Commitment L/C Sublimit; create a $50 million Letter of Credit Sublimit; extend the availability of the Revolving Loan Facility from March 31, 2003 to March 31, 2005 and change the fee for outstanding letters of credit from 1.50% to 1.25%. The Company will pay a renewal fee of $75,000 to the administrative agent of the credit facility.

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STATER BROS. HOLDINGS INC.
DECEMBER 29, 2002

PART I — FINANCIAL INFORMATION (contd.)

Item 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
		CRITICAL ACCOUNTING POLICIES
		The Company’s discussion and analysis of financial condition and results of operations are based upon the Company’s unaudited consolidated financial statements prepared in accordance with accounting principles generally accepted in the United States. The preparation of the financial statements requires the use of estimates and judgements on the part of management. The Company based its estimates on the Company’s historical experience combined with management’s understanding of current facts and circumstances. The Company believes that the following critical accounting policies are the most important to the Company’s financial statement presentation and require the most difficult, subjective and complex judgements on the part of management.
		Vendor Rebates and Allowances
		The Company receives certain rebates and allowances (“allowances”) from its vendors. The Company recognizes these allowances as a reduction in cost of goods sold as the allowances are earned. These allowances are earned by promoting certain products or by purchasing specified amounts of product. The Company records a liability for allowance funds that have been received but not yet earned.
		Self-Insurance
		The Company is primarily self-insured, subject to certain retention levels for workers’ compensation, automobile and general liability costs. The Company records its self-insurance liability based on the claims filed and an estimate of claims incurred but not yet reported. The estimates used by management are based on the Company’s historical experiences as well as current facts and circumstances. The Company uses third party actuarial analysis in making its estimates. Actuarial projections and the Company’s estimate of ultimate losses are subject to a high degree of variability. The variability in the projections and estimates are subject to, but not limited to, such factors as judicial and administrative rulings, legislative actions, and changes in compensation benefits structure. In recent years, the Company and employers within the State of California as a whole have seen significant increases in the severity of workers’ compensation claims. While the Company has factored these increases into its estimates of ultimate loss, no assurance can be given that future events will not require a change in these estimates. The Company discounts its workers’ compensation, automobile and general liability insurance reserves at a discount rate of approximately 7.5%.

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

Inventories

Investment in Affiliate

Deferred Debt Issuance Costs

Deferred Taxes

Phantom Stock Plan

OWNERSHIP OF THE COMPANY

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

RESULTS OF OPERATIONS

Total sales for the thirteen weeks ended December 29, 2002, the first quarter of fiscal 2003, increased 2.9% and amounted to $681.5 million compared to $662.6 million for the same period in the prior year. The increase in total sales in the first quarter of fiscal 2003 was due primarily to continued favorable customer response to the Company’s marketing plan which emphasizes high quality, large product selections and customer service. Like store sales increased 2.3% for the thirteen-week period ended December 29, 2002. In the first quarter of the prior year, the Company experienced stronger than normal sales during the period immediately following the 911 tragedy. The Company found people were more inclined to stay close to home and be with family after the 911 tragedy, therefore eating more meals at home. The Company operated 156 supermarkets at December 29, 2002 and 155 supermarkets at December 30, 2001.

Gross profit for the thirteen weeks ended December 29, 2002, amounted to $183.6 million or 26.94% of sales compared to $176.2 million or 26.59% of sales in the same period of the prior year. The increase in the first quarter of fiscal 2003 gross profit, as a percent of sales, was due primarily to an increase in the sale of higher margin items.

Operating expenses include selling, general and administrative expenses and depreciation and amortization. For the thirteen weeks ended December 29, 2002, selling, general and administrative expenses amounted to $158.0 million or 23.18% of sales compared to $149.9 million or 22.63% of sales for the thirteen weeks ended December 30, 2001. The increase in selling, general and administration expenses, as a percentage of sales, in the first quarter of fiscal 2003 compared to the first quarter of fiscal 2002, was due primarily to an increase in payroll related expenses.

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

RESULTS OF OPERATIONS (contd.)

Operating profit for the thirteen weeks ended December 29, 2002 amounted to $17.4 million or 2.56% of sales compared to $18.7 million or 2.83% of sales for the thirteen weeks ended December 30, 2001.

Interest expense amounted to $13.3 million for the thirteen weeks ended December 29, 2002 compared to $12.8 million for the thirteen weeks ended December 30, 2001. The increase in interest expense in the first quarter of fiscal 2003 is primarily attributed to the issuance of a $20.0 million subordinated note in connection with the redemption of Company stock in the second quarter of 2002.

The Company’s equity in earnings from unconsolidated affiliate, amounted to $746,000 for the first quarter of fiscal 2003 compared to $648,000 in the first quarter of the prior year. The increase in earnings in the first quarter of 2003 over the first quarter of 2002, was due to increased volume and improved efficiencies by Santee.

Income before income taxes amounted to $4.8 million for the thirteen weeks ended December 29, 2002 compared to $6.7 million for the thirteen weeks ended December 30, 2001.

Net income for the thirteen weeks ended December 29, 2002, amounted to $2.9 million compared to $3.9 million for the thirteen weeks ended December 30, 2001.

LIQUIDITY AND CAPITAL RESOURCES