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~~December 3029, 2013



¨	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.)

301 S. Tippecanoe Avenue San Bernardino, California		92408
(Address of principal executive offices)		(Zip Code)

Registrant’s telephone number, including area code		(909) 733-5000

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 ¨.

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨.

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x.

As of ~~August~~February 1311, ~~2013~~2014, there were issued and outstanding

32,521 shares of the registrant’s Class A Common Stock.

Table of Contents

STATER BROS. HOLDINGS INC.

~~June~~December 3029, 2013

INDEX

		Page
PART I	FINANCIAL INFORMATION
Item 1.	Financial Statements
	Consolidated Balance Sheets as of September 30, 2012 and June 30, 2013 (Unaudited)	3
	Consolidated Balance Sheets as of September 29, 2013 and December 29, 2013 (Unaudited)	3
	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the thirteen weeks ended June 24, 2012 and June 30, 2013	5
	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the thirteen weeks ended December 30, 2012 and December 29, 2013	5
	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the thirty-nine weeks ended June 24, 2012 and June 30, 2013	6
	Consolidated Statements of Cash Flows (Unaudited) for the thirteen weeks ended December 30, 2012 and December 29, 2013	6
	Consolidated Statements of Cash Flows (Unaudited) for the thirty-nine weeks ended June 24, 2012 and June 30, 2013	7
	Notes to Consolidated Financial Statements (Unaudited)	7
	Notes to Consolidated Financial Statements (Unaudited)	8
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	11
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	12
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	17
Item 3.	Quantitative and Qualitative Disclosure about Market Risk	18
Item 4.	Controls and Procedures	17
Item 4.	Controls and Procedures	18
PART II	OTHER INFORMATION
Item 1.	Legal Proceedings	1817
Item 1A.	Risk Factors	1918
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	2019
Item 3.	Defaults Upon Senior Securities	2019
Item 4.	(Removed and Reserved)	2019
Item 5.	Other Information	2019
Item 6.	Exhibits	2019
SIGNATURES		2120

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PART I - FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

STATER BROS. HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)

	Sep 30, 2012			Jun 30, 2013
	Sept. 29,2013			Dec. 29,2013
				(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	~~219~~242,~~800~~818		$	~~228~~210,~~571~~949
Receivables, net of allowance of $1,323 and $1,077	37,427			36,627
Receivables, net of allowance of $975 and $975	36,080			49,773
Income tax receivable	101,~~475~~413			—
Inventories	~~229~~228,~~117~~116			~~234~~258,~~428~~192
Prepaid expenses	1714,~~221~~570			16,~~079~~150
Deferred income taxes, current portion	2824,~~519~~706			2523,~~401~~588
Note receivable, current portion	600			600
Total current assets	~~543~~548,~~159~~303			~~541~~559,~~706~~252
Property and equipment
Land	~~109~~114,~~729~~460			~~110~~114,~~343~~819
Buildings and improvements	~~582~~606,~~282~~112			~~597~~611,~~455~~137
Store fixtures and equipment	~~465~~472,~~576~~463			~~469~~475,~~872~~876
Property subject to capital leases	11,~~410~~615			11,615
	1,168,997			1,189,285
	1,204,650			1,213,447
Less accumulated depreciation and amortization	(~~561~~604,~~493~~631		)	(~~594~~615,~~913~~823		)
	607,504			594,372
	600,019			597,624
Deferred income taxes, less current portion	4136,~~945~~310			4739,~~326~~635
Deferred debt issuance costs, net	86,~~397~~173			65,~~723~~628
Note receivable, less current portion	~~1,423~~616			~~816~~415
Other assets	5,~~894~~925			5,~~921~~926
	57,659			60,786
	49,024			51,604
Total assets	$	1,~~208~~197,~~322~~346		$	1,~~196~~208,~~864~~480

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS (contd.)

(In thousands, except share amounts)

	Sep 30, 2012			Jun 30, 2013
	Sept. 29,2013			Dec. 29,2013
				(Unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable	$	~~147~~144,~~544~~214		$	~~152~~151,~~403~~446
Accrued payroll and related expenses	~~103~~89,~~918~~227			9288,~~173~~698
Accrued income taxes	—			28,~~791~~382
Accrued interest	1817,~~164~~940			7,~~805~~691
Other accrued liabilities	4346,~~869~~820			3547,~~785~~563
Current portion of capital lease obligations	~~1,242~~772			~~979~~607
Current portion of long-term debt	1124,~~419~~810			1089,~~875~~896
Total current liabilities	~~326~~323,~~156~~783			~~302~~394,~~811~~283
Long-term debt, less current portion	~~633~~608,~~521~~711			~~622~~540,~~646~~000
Capital lease obligations, less current portion	~~1,186~~414			~~535~~291
Long-term portion of self-insurance and other reserves	4354,~~796~~162			51,~~743~~018
Long-term portion of deferred benefits	7071,~~118~~224			7071,~~721~~803
Accrued pension and other	5025,~~923~~602			5226,~~552~~579
Total liabilities	1,~~125~~083,~~700~~896			1,~~101~~083,~~008~~974
Commitments and contingencies
Stockholder’s equity
Common Stock, $.01 par value:
Authorized shares - 100,000, issued and outstanding shares - 0 in 2012 and 2013	—			—
Authorized shares - 100,000, issued and outstanding shares - 0 in 2013 and 2014	—			—
Class A Common Stock, $.01 par value:
Authorized shares - 100,000, issued and outstanding shares - 33,179 in 2012 and 32,521 in 2013	—			—
Authorized shares - 100,000, issued and outstanding shares - 32,521 in 2013 and 2014	—			—
Additional paid-in capital	8,~~437~~270			8,270
Accumulated other comprehensive loss	(3015,~~126~~903		)	(3015,~~126~~903		)
Retained earnings	~~104~~121,~~311~~083			~~117~~132,~~712~~139
Total stockholder’s equity	82113,~~622~~450			95124,~~856~~506
Total liabilities and stockholder’s equity	$	1,~~208~~197,~~322~~346		$	1,~~196~~208,~~864~~480

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share and share amounts)

	Thirteen Weeks Ended
	Jun 24, 2012			Jun 30, 2013
	Dec. 30,2012			Dec. 29,2013
Sales	$	~~949~~968,~~772~~744		$	~~968~~984,~~761~~025
Cost of goods sold	~~698~~718,~~550~~015			~~711~~725,~~087~~390
Gross profit	~~251~~250,~~222~~729			~~257~~258,~~674~~635
Operating expenses (income)
Selling, general and administrative expenses	~~216~~220,~~330~~079			~~218~~217,~~779~~138
Gain on sale of property and equipment	(326		)	(611		)
(Gain) loss on sale of property and equipment	(1,933		)	10
Depreciation and amortization	11,~~350~~683			11,~~329~~373
Total operating expenses	~~227~~229,~~354~~829			~~229~~228,~~497~~521
Operating profit	2320,~~868~~900			2830,~~177~~114
Interest income	2523			1915
Interest expense	(11,~~630~~809		)	(11,~~478~~486		)
Income before income taxes	129,~~263~~114			1618,~~718~~643
Income taxes	43,~~985~~665			67,~~761~~587
Net income and comprehensive income	$	75,~~278~~449		$	911,~~957~~056
Earnings per average common share outstanding	$	~~219~~164.3623		$	~~301~~339.6996
Average common shares outstanding	33,179			3332,~~004~~521

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME

(Unaudited)

(In thousands, except per share and share amounts)

	Thirty-Nine Weeks
	Jun 24, 2012			Jun 30, 2013
Sales	$	2,848,159		$	2,899,401
Cost of goods sold	2,076,570			2,132,226
Gross profit	771,589			767,175
Operating expenses (income)
Selling, general and administrative expenses	648,032			654,823
Gain on sale of property and equipment	(940		)	(2,538		)
Depreciation and amortization	34,133			34,578
Total operating expenses	681,225			686,863
Operating profit	90,364			80,312
Interest income	89			63
Interest expense	(35,314		)	(35,055		)
Income before income taxes	55,139			45,320
Income taxes	22,418			18,316
Net income and comprehensive income	$	32,721		$	27,004
Earnings per average common share outstanding	$	974.04		$	815.31
Average common shares outstanding	33,593			33,121

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)

	Thirty-Nine Weeks
	Thirteen Weeks
	Jun 24, 2012			Jun 30, 2013
	Dec. 30,2012			Dec. 29,2013
Operating activities:
Net income	$	325,~~721~~449		$	2711,~~004~~056
Adjustments to reconcile net income to net cash provided by operating activities:
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization	4214,~~273~~523			4314,~~156~~150
Amortization of debt issuance costs	~~1,691~~559			~~1,674~~545
Increase in deferred income taxes	(4,802		)	(2,263		)
(Increase) decrease in deferred income taxes	433			(2,207		)
Gain on disposals of assets	(940		)	(2,538		)
(Gain) loss on disposals of assets	(1,933		)	10
Changes in operating assets and liabilities:
Decrease in restricted cash	3,121			—
Increase in receivables	(4,483		)	(13,693		)
(Increase) decrease in receivables	(2,706		)	800
Decrease in income tax receivables	3,232			1,413
Decrease in income tax receivables	—			10,475
Increase in inventories	(24,956		)	(30,076		)
(Increase) decrease in inventories	5,696			(5,311		)
Increase in prepaid expenses	(488		)	(1,580		)
Decrease in prepaid expenses	376			1,142
Increase in other assets	(12		)	(1		)
Increase in other assets	(10		)	(27		)
Increase in accounts payable	5,464			7,232
Increase (decrease) in accounts payable	(437		)	4,859
Increase in accrued income taxes	—			8,382
Increase (decrease) in accrued income taxes	(3,715		)	2,791
Decrease in other accrued liabilities	(19,568		)	(10,035		)
Decrease in other accrued liabilities	(12,762		)	(30,188		)
Increase (decrease) in long-term reserves	3,210			(1,588		)
Increase in long-term liabilities	3,181			10,179
Net cash used in operating activities	(18,570		)	(16,392		)
Net cash provided by operating activities	63,687			61,753
Investing activities:
Collections on note receivable	~~545~~204			~~607~~201
Purchase of property and equipment	(307,~~008~~388		)	(3111,~~315~~765		)
Proceeds from sale of property and equipment	12,~~574~~079			~~3,829~~—
Net cash used in investing activities	(275,~~889~~105		)	(2611,~~879~~564		)
Financing Activities:
Proceeds from capital lease financing	724			—
Principal payments on long-term debt	(1,812		)	(3,625		)
Principal payments on long-term debt	(34,622		)	(11,419		)
Principal payments on capital lease obligations	(295		)	(288		)
Principal payments on capital lease obligations	(437		)	(914		)
Dividends paid	(5,000		)	—
Stock redemption	(8,770		)	(8,770		)
Net cash used in financing activities	(7,107		)	(3,913		)
Dividends paid	(5,000		)	(5,000		)
Net decrease in cash and cash equivalents	(30,782		)	(31,869		)
Net cash used in financing activities	(48,105		)	(26,103		)
Cash and cash equivalents at beginning of period	219,800			242,818
Net increase (decrease) in cash and cash equivalents	(12,307		)	8,771
Cash and cash equivalents at end of period	$	189,018		$	210,949
Cash and cash equivalents at beginning of period	235,784			219,800
Interest paid	$	21,477		$	21,258
Cash and cash equivalents at end of period	$	223,477		$	228,571
Income taxes paid	$	—		$	—
Interest paid	$	44,505		$	43,865
Income taxes paid	$	30,950		$	7,313

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~June~~December 3029, 2013

Note 1 – Basis of Presentation

The accompanying unaudited consolidated financial statements have been prepared in accordance with generally accepted accounting principles in the United States of America ("GAAP") for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the ~~thirty-nine~~thirteen weeks ended ~~June~~December 3029, 2013 are not necessarily indicative of the results that may be experienced for the fiscal year ending September 2928, ~~2013~~2014.

The consolidated balance sheet at September 3029, ~~2012~~2013 has been derived from the audited consolidated financial statements at that date, but does not include all of the information and footnotes required by GAAP for complete financial statements.

For further information, refer to the consolidated financial statements and footnotes thereto included in the Company’s report on Form 10-K for the fiscal year ended September 3029, ~~2012~~2013.

Note 2 – Principles of Consolidation

The unaudited consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries, Stater Bros. Markets (“Markets”) and Stater Bros. Development, Inc. (“Development”), and Markets’ wholly-owned subsidiaries, Super Rx, Inc. (“Super Rx”) and SBM Dairies, Inc. (“Dairies”). All significant inter-company transactions have been eliminated in consolidation.

Note 3 – ~~Reclassifications~~Use of Estimates

Certain amounts in prior periods have been reclassified to conform to current period financial statement presentation. For the thirteen and thirty-nine weeks ended June 24, 2012, the Company reclassified approximately $0.3 million and $0.9 million, respectively, from "Other income, net" to "Gain on sale of property and equipment" in the Consolidated Statements of Income and Comprehensive Income. For the thirty-nine weeks ended June 24, 2012, the Company reclassified approximately $0.2 million from "Accounts payable" to "Other accrued liabilities" in the Statements of Consolidated Cash Flows.

Note 4 – Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates.

Note 54 – Income Taxes

The Company establishes deferred tax liabilities for anticipated tax timing differences where payment of tax is anticipated. Such amounts represent a reasonable provision for taxes ultimately expected to be paid, and the amounts may be adjusted over time as additional information becomes known.

The Company does not have any material tax positions that did not meet a “more-likely-than-not” recognition threshold. As such, the Company has not recorded any liabilities for uncertain tax positions. During the ~~thirty-nine~~thirteen weeks ended ~~June~~December 3029, 2013, there were no material changes to the amount of uncertain tax positions.

The Company recognizes interest and penalties related to income tax deficiencies or assessments by taxing authorities for any underpayment of income taxes separately from income tax expenses as either interest expense or other operating expenses.

For federal ~~tax~~and ~~purposes, the Company is subject to review of its fiscal 2009 through fiscal 2012 tax returns. For~~ state tax purposes, the Company is subject to review of its fiscal 2010 through fiscal ~~2012~~2013 tax returns.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~June~~December 3029, 2013

Note 65 – Retirement ~~Plans~~Plan

The Company has a Noncontributory Defined Benefit Pension Plan (the “Plan”) covering substantially all non-union employees. The Plan provides for benefits based on an employee’s compensation during the eligibility period while employed with the Company. The Company’s funding policy for the Plan is to contribute annually at a rate that is intended to provide sufficient assets to meet future benefit payment requirements. The Plan’s investments are recorded at fair value and include cash, which earns interest, governmental securities and corporate bonds and securities.

The following table provides the components of net periodic pension expense:

Thirteen Weeks Ended

~~Thirty-Nine Weeks~~

Jun 24, 2012

Jun 30, 2013

Jun 24, 2012

Jun 30, 2013

Dec. 30,2012

Dec. 29,2013

(in thousands)

Expected return on assets

(1,~~024~~175

)

(1,~~150~~333

)

~~(3,071~~

)

~~(3,502~~

)

Service cost

~~975~~1,222

1,~~209~~036

~~2,926~~

~~3,667~~

Interest cost

1,~~092~~120

1,~~130~~257

~~3,275~~

~~3,359~~

Amortization of prior service cost

—1

Amortization of recognized losses

~~528~~747

~~789~~298

~~1,585~~

~~2,240~~

Net pension expense

1,~~571~~915

1,~~978~~259

~~4,717~~

~~5,766~~

Actuarial assumptions used to determine net pension expense were:
Discount rate	43.5070	%	34.70	%	~~4.50~~	%	~~3.70~~	%
Rate of increase in compensation levels	3.0008	%	3.0008	%	~~3.00~~	%	~~3.00~~	%
Expected long-term rate of return on assets	6.5000	%	6.00	%	~~6.50~~	%	~~6.00~~	%

The Company ~~contributed approximately $2.6 million to the Plan in the thirty-nine weeks ended June 30, 2013 and the Company~~ expects to contribute an additional $54.0 million to the Plan during the remainder of fiscal ~~2013~~2014.

Note 76 – Credit Facility

On November 29, 2010, the Company and Markets entered into a $245.0 million senior secured credit facility (the “Credit Facility”) with Bank of America, N.A., as administrative agent and a lender. Lenders under the Credit Facility consist of a consortium of banks. The Credit Facility consists of a four-year $145.0 million term loan (the “Term Loan”) and a $100.0 million revolving credit facility (the “Revolving Credit Facility”). The Credit Facility is secured by substantially all of the Company’s personal property excluding certain intangible assets consisting of trademarks and shares of capital stock. The Credit Facility is guaranteed by the Company, its direct subsidiary Development and by its indirect subsidiaries Super Rx and Dairies.

The Term Loan bears interest at the Eurodollar Rate plus 2.50% or the Base Rate plus 1.50% (as defined in the Credit Facility) and the interest under the Term Loan is payable quarterly in arrears and includes mandatory quarterly principal payments of 5.0%, of the original outstanding balance, in each of the first two years of the agreement and 10.0%, of the original outstanding balance, in each of the years three and four of the agreement. The Term Loan also includes additional mandatory principal payments on the Term Loan based on a percentage of “excess cash flow” as defined in the Credit Facility. The Term Loan is due November 29, 2014 with any remaining outstanding principal amounts under the Term Loan due as of that date. Accordingly, the Company has classified the entire $89.9 million outstanding on the Term Loan as of December 29, 2013 as current portion of long-term debt. The security held under the Credit Facility is held until the Term Loan is paid in full.

During the ~~thirty-nine~~thirteen weeks ended ~~June~~December 3029, 2013, the Company made principal payments on the ~~term~~Term ~~loan~~Loan of approximately $113.46 million ~~which consisted of a contractual quarterly principal payment of $10~~.~~9 million and an excess cash payment of approximately $0.5 million.~~

As of ~~June~~December 3029, 2013, the interest rates on the Term Loan are based on the Eurodollar Rate and consisted of a ~~ninety day rate of approximately 2.778% on approximately $3.6 million of outstanding principal amount and a~~ twelve month rate of approximately 3.344% on approximately $89.9 million of outstanding principal amount.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~June~~December 3029, 2013

Note 76 – Credit Facility (contd.)

Subject to certain restrictions, the entire amount of the Revolving Credit Facility may be used for loans, letters of credit or a combination thereof. Borrowing under the Revolving Credit Facility are secured and will be used for working capital, certain capital expenditures and other general corporate purposes. Letters of credit issued under the Revolving Credit Facility are expected to be used for workers’ compensation insurance obligations and may be used for new store construction and certain other corporate purposes. The availability of the loans and letters of credit are subject to certain borrowing restrictions.

Loans under the Revolving Credit Facility bear interest at a rate based upon either (i) the “Base Rate” (defined as the higher of (a) the federal funds rate plus 0.50% and (b) the Bank of America “prime rate”), plus 1.50%, or (ii) the “Eurodollar Rate” (defined as the British Bankers Association LIBOR Rate adjusted for the maximum reserve requirement for Eurocurrency funding), plus 2.50%. For Eurodollar Rate loans, the Company will be entitled to select interest periods of one, two, three, six, nine or twelve months, subject to availability.

The Credit Facility requires the Company and Markets to meet certain financial tests, including minimum net worth and the maintenance of minimum earnings levels. The Credit Facility contains covenants which, among other things, limit the ability of the Company and its subsidiaries to (i) incur indebtedness, grant liens and guarantee obligations, (ii) enter into mergers, consolidations, liquidations and dissolutions, asset sales, investments, leases and transactions with affiliates, (iii) make restricted payments and (iv) make certain amendments to the Indentures governing the $255.0 million 7.375% Senior Notes due November 15, 2018 (“7.375% Senior Notes”) and the $285.0 million 7.75% Senior Notes due April 15, 2015 (“7.75% Senior Notes”) (“Notes Indentures”). Markets and the Company’s other direct and indirect subsidiaries are not limited in their ability to transfer assets in the form of loans, advances or cash dividends to the Company.

As of ~~June~~December 3029, 2013, the Company and Markets were in compliance with all restrictive financial covenants under the Credit Facility.

As of ~~June~~December 3029, 2013, the Company had $5962.97 million of outstanding letters of credit and had $4037.13 million available under the Credit Facility.

The Company had no borrowings outstanding under the Revolving Credit Facility as of ~~June~~December 3029, 2013 and the Company did not incur any borrowings under the Revolving Credit Facility during the ~~thirty-nine~~thirteen weeks ended ~~June~~December 3029, 2013.

Note 87 – Senior Notes and Subsidiary Guarantee

As of ~~June~~December 3029, 2013, the Company had $285.0 million outstanding of the 7.75% Senior Notes and $255.0 million outstanding of the 7.375% Senior Notes, collectively (the “Notes”).

The Notes are guaranteed by the Company’s subsidiaries Markets and Development and the Company’s indirect subsidiaries Super Rx and Dairies (each a “subsidiary guarantor”, and collectively, the “subsidiary guarantors”). Condensed consolidating financial information with respect to the subsidiary guarantors is not provided because the Company has no independent assets or operations, the subsidiary guarantees are full and unconditional and joint and several and there are no subsidiaries of the Company other than the subsidiary guarantors.

Note 98 – Litigation Matters

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

InNote ~~May~~9 of– ~~2011,~~Dividends ~~Markets was served with an action filed in the Superior Court of the State of California for the County of Riverside (“Harold F. Lunsford et al. v. Stater Bros. Markets”) seeking individual~~ and ~~potential~~Stock class action damages including associated penalties for Markets’ alleged failure to provide meal periods, rest periods or compensation in lieu thereof and alleged failure to pay certain wages for terminated employees. On January 26, 2012, following a mediation, this case was settled which settlement was approved by the court. The full settlement amount was recorded in the Company’s consolidated financial statements for fiscal 2012 and the full amount was paid in fiscal 2013.Redemption

10On December 27, 2012, the Company paid a $5.0 million dividend to La Cadena Investments (“La Cadena”), the sole shareholder of the Company.

As of December 29, 2013, the Company had the ability and right to make restricted payments, including dividends, of $36.7 million.

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~~Note~~STATER 10BROS. –HOLDINGS ~~Dividends and Stock Redemption~~INC.

OnNOTES ~~December 23,~~TO ~~2011,~~CONSOLIDATED ~~the~~FINANCIAL ~~Company paid a $5.0 million dividend to La Cadena Investments (“La Cadena”), the sole shareholder of the Company and on December 27, 2012, the Company paid a $5.0 million dividend to La Cadena.~~STATEMENTS

On March 16, 2012, the Company redeemed 658 shares of its class A Common Stock for approximately $8.8 million. The redemption was for shares held by two trusts created under the Moseley Family Revocable Trust (~~the "Moseley Trusts"~~Unaudited) ~~which La Cadena had distributed to the Moseley Trusts prior to the redemption of the shares.~~

OnDecember ~~June 13~~29, 2013, the Company redeemed 658 shares of its class A Common Stock for approximately $8.8 million. The redemption was for shares held by the Moseley Trusts which La Cadena had distributed to the Moseley Trusts prior to the redemption of the shares.

AsNote of10 ~~June 30,~~- ~~2013,~~Fair ~~the~~Value ~~Company had the ability and right to make restricted payments, including dividends,~~ of ~~$15.3~~Financial ~~million.~~Instruments

Note 11 - Fair Value of Financial Instruments

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

Cash and Cash Equivalents

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

Receivables

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

Note Receivable

Although market quotes for the fair value of the Company’s note receivable are not readily available, the Company believes the stated value approximates fair value.

Long-Term Debt

The fair value of the 7.75% Senior Notes and the 7.375% Senior Notes are determined based on observable inputs that are corroborated by market data (Level 2 as defined by ASC Topic 820, “Fair Value Measurements and Disclosures”). Although market quotes for the fair value of the Company’s Term Loan are not readily available, the Company believes its stated value approximates fair value.

As of ~~June~~December 3029, 2013, the estimated fair value of the Company’s Long-Term Debt was $~~649~~644.5 million.

~~Note 12 - Recently Issued Accounting Pronouncements~~10

ASU No. 2013-02, Comprehensive Income (Topic 220): Reporting of Amounts Reclassified Out of Accumulated Other Comprehensive Income (”ASU 2013-02”), was issued in February 2013. This ASU does not change the current requirements for reporting net income or other comprehensive income in financial statements. However, ASU 2013-02 requires an entity to present information about significant items reclassified out of accumulated other comprehensive income by component either (1) on the face of the statement where net income is presented or (2) as a separate disclosure in the notes to the financial statements. ASU No. 2013-12 is effective for fiscal years, and interim periods within those years beginning after December 15, 2012. Early adoption is permitted. The Company will adopt ASU No. 2013-02 commencing in the first quarter of fiscal 2014. The adoption of ASU No. 2013-02 is not expected to have a material impact on the condensed consolidated financial statements.

Table of Contents

STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART I - FINANCIAL INFORMATION (contd.)



Item 2.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

CRITICAL ACCOUNTING POLICIES

We have chosen accounting policies that we believe are appropriate to report accurately and fairly our operating results and financial position, and we apply those accounting policies in a consistent manner. Our critical accounting policies are summarized in our report on Form 10-K for the fiscal year ended September 3029, ~~2012~~2013.

Our discussion and analysis of financial condition and results of operations are based upon our unaudited consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America (“GAAP”). The preparation of the financial statements requires the use of estimates and judgments on the part of management. We base our estimates on our historical experience combined with management’s understanding of current facts and circumstances.

SIGNIFICANT ACCOUNTING POLICIES

There are certain accounting policies that we have adopted that may differ from policies of other companies within our industry and other companies as a whole. Such differences in the treatment of these policies may be important to the readers of our report on Form 10-Q and our unaudited consolidated financial statements contained herein. For further information regarding our accounting policies, refer to the significant accounting policies included in the notes to the unaudited consolidated financial statements contained herein and in our report on Form 10-K for the fiscal year ended September 3029, ~~2012~~2013.

OWNERSHIP OF THE COMPANY

La Cadena Investments (“La Cadena”), a California general partnership whose sole voting partner is the Jack H. Brown Revocable Trust (the “Trust”), holds all of our issued and outstanding capital stock. Mr. Jack H. Brown, the Chairman of the Board, President and Chief Executive Officer of the Company, as Trustee of the Trust, is the Managing General Partner of La Cadena with the power to vote the shares of our capital stock held by La Cadena on all matters, including with respect to the election of our Board of Directors, and any other matters requiring shareholder approval.

AVAILABLE INFORMATION

We file quarterly and annual reports electronically with the Securities and Exchange Commission (“SEC”) under forms 10-Q and 10-K and we file current reports on form 8-K and amendments to these reports. The SEC maintains an internet site that contains reports, proxy and information statements and other information regarding issuers that file electronically with the SEC. These electronic files can be found at the SEC’s website at http://www.sec.gov. The public may read and copy any of our reports filed with the SEC at the SEC’s Public Reference Room at 100 F Street, NE., Washington, DC 20549. The public may obtain information on the Public Reference Room by calling the SEC at 1-800-732-0330.

EXECUTIVE OVERVIEW

We are the largest privately owned supermarket chain in Southern California. Our revenues are generated primarily from retail sales through our supermarkets. Our success is a result of our marketing strategy of offering everyday low prices while providing our customers with friendly and outstanding service on each of their visits to our stores which has been a seventy-~~seven~~eight year Stater Bros.’ tradition.

During these tough economic times, our strategy is to retain customer counts by providing our customers with value and exceptional service on their visits to our stores. In order to retain ~~and grow~~ customers in this current economic environment, we have not passed on all cost of inflation to our customers. ~~This~~While ~~strategy combined with continued and increasing competitive pressures has caused~~ our gross ~~profit~~ margins tohave bebeen ~~reduced.~~challenged, Wewe believe it is better to sacrifice short-term margins in order to retain our customers so that when our local economy does turn around we will still have them as customers. At the same time, we have reduced our operating costs and improved efficiencies at the store level and in our distribution center.

Our marketing area of Southern California has seen job losses and business closures which has put and will continue to put pressure on our gross margin as we endeavor to retain our customer base. We anticipate continued competitive pressures from “big box” format competitors including Walmart, Costco, Target and Winco and from our traditional grocery format competitors Vons, Albertsons and Ralphs and from independent supermarket operators.

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STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS

Sales and Gross Profit

	Thirteen Weeks Ended						Change
	June 24, 2012			June 30, 2013			2013 to 2012
	Dec. 30,2012			Dec. 29,2013			2014 to 2013
(in thousands)							Dollar		%
Sales	$	~~949~~968,~~772~~744		$	~~968~~984,~~761~~025		$	1815,~~989~~281	21.0058	%
Gross Profit	$	~~251~~250,~~222~~729		$	~~257~~258,~~674~~635		$	67,~~452~~906	23.5715	%
as a % of sales	2625.4588		%	26.6028		%

	Thirty-Nine Weeks						Change
	June 24, 2012			June 30, 2013			2013 to 2012
(in thousands)							Dollar			%
Sales	$	2,848,159		$	2,899,401		$	51,242		1.80	%
Gross Profit	$	771,589		$	767,175		$	(4,414	)	(0.57	)%
as a % of sales	27.09		%	26.46		%

Sales

Our sales increased $1915.03 million ~~and~~or ~~$51~~1.258% ~~million~~ for our thirteen ~~and thirty-nine~~ week ~~periods~~period ended ~~June~~December 3029, 2013, ~~respectively,~~ compared to the same ~~periods~~period ended ~~June~~December 2430, 2012. Sales in the prior year third quarter were effected by the Easter holiday that fell in the second quarter in the current year and in the third quarter of the prior year. We estimate that the Easter holiday increased net sales in the prior year third quarter by approximately $10.8 million. Without the effect of the Easter holiday sales, we estimate that our sales would have increased $29.8 million and $51.2 million, respectively, in the thirteen and thirty-nine week periods of fiscal 2013 compared to the same periods of the prior year.

Like Store Sales

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 periods, we only include the current year’s weekly sales that correspond to the weeks the stores were opened in the previous year. For stores that have been closed, we only include the prior year’s weekly sales that correspond to the weeks the stores were opened in the current year. For replacement stores, we include sales for the entire year for both the replaced and replacement store in our like store sales calculation.

Like store sales are affected by various factors including, but not limited to, inflation and deflation, promotional discounting, customer traffic, buying trends, pricing pressures from competitors and competitive openings and closings.

Our like store sales, ~~excluding the effect of the Easter holiday~~ for ~~third~~first quarter of fiscal ~~2012~~2014, increased $2913.87 million or 31.1842% over the same period of the prior year. ~~Like stores sales for the thirty-nine weeks ended June 30, 2013 increased $51.2 million or 1.80% over the thirty-nine weeks ended June 24, 2012.~~

Gross Profit

Gross profit margin, as a percentage of sales, in the ~~third~~first quarter of fiscal ~~2013~~2014 increased 1540 basis points to 26.6028% from 2625.4588% in the ~~third~~first quarter of fiscal ~~2012. Year-to-date gross profit margin, as a percentage of sales, for fiscal~~ 2013 ~~was 26~~.~~46%~~ aThe ~~decrease~~increase ofin 63our ~~basis points from prior year's year-to-date~~ gross ~~profit~~ margin ofin ~~27.09%. Due to competitive pressures and our desire to retain customers, we have elected not to fully pass~~ the ~~effect~~current ~~of cost inflation we have experienced to our customers. This strategy has caused our~~ year tois ~~date~~attributed ~~fiscal 2013 gross profit~~ to beimprovement ~~lower~~in ~~than the same period of the prior year. In the third quarter of fiscal 2013,~~ our ~~gross~~shrink ~~profit~~and ~~margins are~~ somewhat ~~higher~~reduced ~~than~~promotional ~~the same period of the prior year~~pressures. We anticipate that the current economic conditions and competitive pressures will limit our ability to pass on price increases which will continue to put pressure on our gross margins for the foreseeable future.

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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 Expenses and Operating Profit

	Thirteen Weeks Ended						Change
	June 24, 2012			June 30, 2013			2013 to 2012
	Dec. 30,2012			Dec. 29,2013			2014 to 2013
(in thousands)							Dollar			%
Operating Expenses (Income):
Selling, general and administrative expenses	$	~~216~~220,~~330~~079		$	~~218~~217,~~779~~138		$	(2,~~449~~941	)	(1.1334	)%
as a % of sales	22.7872		%	22.5807		%
Gain on sale of property and equipment	$	(326	)	$	(611	)	$	(285	)	87.42	%
(Gain) loss on sale of property and equipment	$	(1,933	)	$	10		$	1,943		(100.52	)%
as a % of sales	(0.0320		)%	~~(0.06~~—		)%
Depreciation and amortization	$	11,~~350~~683		$	11,~~329~~373		$	(21310	)	(02.1965	)%
as a % of sales	1.2021		%	1.1716		%
Operating profit	$	2320,~~868~~900		$	2830,~~177~~114		$	49,~~309~~214		1844.0509	%
as a % of sales	2.5116		%	23.9106		%

	Thirty-Nine Weeks						Change
	June 24, 2012			June 30, 2013			2013 to 2012
(in thousands)							Dollar			%
Operating Expenses (Income):
Selling, general and administrative expenses	$	648,032		$	654,823		$	6,791		1.05	%
as a % of sales	22.75		%	22.58		%
Gain on sale of property and equipment	$	(940	)	$	(2,538	)	$	(1,598	)	170.00	%
as a % of sales	(0.03		)%	(0.09		)%
Depreciation and amortization	$	34,133		$	34,578		$	445		1.30	%
as a % of sales	1.20		%	1.19		%
Operating profit	$	90,364		$	80,312		$	(10,052	)	(11.12	)%
as a % of sales	3.17		%	2.77		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses, as a percentage of sales, were 22.5807% for the thirteen weeks ended ~~June~~December 3029, 2013 and were 22.7872% for the thirteen weeks ended ~~June~~December 2430, 2012. ~~Selling~~Our reduction in selling, general and administrative expenses, as a percentage of sales, ~~were~~in ~~22.58%~~the ~~for~~current ~~the~~year ~~thirty-nine~~compared ~~weeks~~to ~~ended~~the ~~June~~prior ~~30,~~year ~~2013~~is ~~compared~~attributed to 22a 14 basis points reduction in payroll related costs and reduction in our supply expense of 20 basis points and other cost reductions and improved efficiencies in our operations.~~75%~~ ~~for~~Also, in the prior year-, we had a charge to~~-date~~ ~~period~~reserves for escalating rents of 19 basis points, as a percentage of sales, that was not present in the ~~prior~~current year.

Gain loss on Sale of Property and Equipment

In fiscal 2013, we had a pre-tax gain from the sale of property and equipment of approximately $21.59 million ~~which included a pre-tax gain of approximately $2.0 million~~ from the sale of an old store site ~~and a pre-tax gain of approximately $0~~.~~5 million from the sale of a parcel at an existing store site. In fiscal 2012, we had a pre-tax net gain from the sale of property and equipment of approximately $0.9 million.~~

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STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

RESULTS OF OPERATIONS (contd.)

Depreciation and Amortization

Depreciation and amortization expense in the ~~third~~first quarter of fiscal ~~2013~~2014 was $11.34 million compared to $11.47 million for the ~~third~~first quarter of fiscal ~~2012. Depreciation and amortization for the thirty-nine weeks of fiscal~~ 2013 ~~and fiscal 2012 was $34~~.6 ~~million and $34.1 million, respectively.~~ Included in cost of goods sold is depreciation and amortization related to our warehouse and distribution activities. The amount of depreciation and amortization included in cost of goods sold in the ~~third~~first quarters of ~~fiscal~~both ~~2013 and~~ fiscal ~~2012~~2014 ~~was $2.9 million~~ and ~~$2.7 million, respectively, and for the thirty-nine weeks of~~ fiscal 2013 ~~and fiscal 2012~~ was $82.~~6 million and $~~8.1 million~~, respectively~~.

Interest Income

Interest income was $1915 thousand and $2523 thousand for the ~~third~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012, respectively. Interest income for the thirty-nine weeks ended June 30,~~ 2013 ~~and June 24~~, ~~2012 was $63 thousand and $89 thousand,~~ respectively.

Interest Expense

Interest expense was $11.5 million for the ~~third~~first quarter of fiscal ~~2013~~2014 and $11.68 million in the ~~third~~first quarter of fiscal ~~2012. For the thirty-nine week periods ended June 30,~~ 2013 ~~and June 24, 2012, interest expense was $35~~.1 ~~million and $35.3 million, respectively.~~ Included as a reduction in interest expense was capitalized interest related to construction of new stores of $~~107~~67 thousand and $~~103~~237 thousand for the ~~third~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012, respectively, and $124 thousand and $344 thousand for the thirty-nine weeks ended June 30,~~ 2013 ~~and June 24~~, ~~2012,~~ respectively.

Income Before Income Taxes

Income before income taxes amounted to $1618.76 million and $129.31 million in the ~~third~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012, respectively, and was $45.3 million and $55.1 million for the thirty-nine week periods of fiscal~~ 2013 ~~and fiscal 2012~~, respectively.

Income Taxes

Income taxes amounted to $67.86 million and $53.07 million in the ~~third~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012~~2013, respectively,. ~~and~~Our ~~amounted~~effective totax ~~$18.3~~rate ~~million~~was 40.7% and ~~$22~~40.42% ~~million~~ for the ~~thirty-nine~~first ~~week~~quarters ~~periods~~ of fiscal ~~2013~~2014 and fiscal ~~2012~~2013, respectively.

Net Income

Net income for the ~~third~~first quarter of fiscal ~~2013~~2014 amounted to $1011.01 million compared to $75.34 million in the ~~third~~first quarter of fiscal ~~2012. Net income for the thirty-nine weeks ended June 30,~~ 2013 ~~and June 24, 2012 was $27~~.~~0 million and $32.7 million, respectively.~~

LIQUIDITY AND CAPITAL RESOURCES

We historically fund our daily cash flow requirements through funds provided by operations. We have the ability to borrow under our short-term revolving credit facility. Our credit facility expires in November 2014 and includes a revolving credit facility for working capital and letters of credit of $100.0 million. The letters of credit are maintained pursuant to our workers’' compensation and general liability self-insurance requirements. Our Term Loan is due November 29, 2014 with any unpaid principal amounts due at that date. Accordingly, we have classified the entire $89.9 million outstanding on the Term Loan as current portion of long-term debt.

As of ~~June~~December 3029, 2013, we had approximately $5962.97 million of outstanding letters of credit and we had approximately $4037.13 million available under the revolving credit facility.

We had no short-term borrowings outstanding under our revolving credit facility as of ~~June~~December 3029, 2013. We did not incur any short-term borrowings under our revolving credit facility in the ~~thirty-nine~~thirteen weeks of fiscal ~~2013~~2014.

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STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES (contd.)

The following table sets forth our contractual cash obligations and commercial commitments as of ~~June~~December 3029, 2013.

	Contractual Cash Obligations(in thousands)
	Total		Less than1 Year		1-3 Years		4-5 Years		After5 Years
Term Loan due November 2014 (1)
Principal	$	9389,~~521~~896	$	1089,~~875~~896	$	~~82,646~~—	$	—	$	—
Interest	42,~~798~~634		32,~~012~~634		~~1,786~~—		—		—
	98,319		13,887		84,432		—		—
	92,530		92,530		—		—		—
7.75% Senior Notes due April 2015
Principal	285,000		—		285,000		—		—
Interest	4433,~~176~~132		22,088		2211,~~088~~044		—		—
	329,176		22,088		307,088		—		—
	318,132		22,088		296,044		—		—
7.375% Senior Notes due November 2018
Principal	255,000		—		—		—255,000		~~255,000~~—
Interest	~~103~~94,~~435~~032		18,806		37,613		37,613		~~9,403~~—
	358,435		18,806		37,613		37,613		264,403
	349,032		18,806		37,613		292,613		—
Capital lease obligations (2)
Principal	~~1,514~~898		~~979~~607		~~535~~291		—		—
Interest	~~112~~50		9042		228		—		—
	1,626		1,069		557		—		—
	948		649		299		—		—
Post retirement benefit obligation (3)	4,~~987~~001		4,~~987~~001		N/A		N/A		N/A
Operating leases (2)	~~340~~323,~~108~~631		4041,~~692~~121		7674,~~138~~487		6057,~~980~~987		~~162~~150,~~298~~036
Total contractual cash obligations	$	1,~~132~~088,~~651~~274	$	~~101~~179,~~529~~195	$	~~505~~408,~~828~~443	$	98350,~~593~~600	$	~~426~~150,~~701~~036
	Other Commercial Commitments(in thousands)
	Total		Less than1 Year		1-3 Years		4-5 Years		After5 Years
Standby letters of credit (4)	$	5962,~~858~~658	$	5962,~~858~~658	$	—	$	—	$	—
Total other commercial commitments	$	5962,~~858~~658	$	5962,~~858~~658	$	—	$	—	$	—

(1) AsInterest ~~of June 30, 2013, interest~~ on our Term Loan is based on the Eurodollar Rate plus 2.500%. ~~and~~For ~~consisted~~purposes of contractual cash obligations shown here, our interest rates are based on rates existing as of December 31, 2013 which includes a ~~ninety~~90 day rate of 2.~~778~~747% on approximately $310.69 million and a ~~twelve~~181 ~~month~~day rate of 32.~~344~~849% on approximately $8965.91 million. ~~For~~On ~~purposes~~December ~~of contractual cash obligations shown here, we have assumed the ninety day and twelve month interest rates as of June~~ 30, 2013, ~~for~~we ~~the~~made ~~respective~~principal ~~assumed~~payments ~~short-term~~on ~~and~~our ~~long-term~~Term ~~portions~~Loan of ~~our~~approximately ~~Term~~$13.9 ~~Loan~~million.

₍₂₎

We lease the majority of our retail stores. We have subleased our former headquarters building and certain former distribution facilities located in Colton, California under an initial fifteen year term for an amount equal to our lease payment. For purposes of contractual cash obligations shown here, minimum lease payments on this lease are shown without sub-lease offsets. 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 three to fifty-five years and substantially all leases provide for renewal options.

(3) As of ~~September~~December 3029, ~~2012~~2013, we had unfunded pension and other post retirement obligations of $4621.35 million under our Retired Benefit Pension Plan and our Early Retiree Medical Reimbursement Plan. Since we cannot determine the specific periods in which the obligations will be funded, the table above reflects no amounts related to these obligations except for the amount of $54.0 million which we expect to contribute to the Plan during the remainder of fiscal ~~2013~~2014.

(4) Standby letters of credit are committed as security for workers’ compensation obligations. Outstanding letters of credit expire between ~~September~~December 2013 and ~~February~~October 2014.

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STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES (contd.)

Working capital amounted to $~~238~~165.90 million at ~~June~~December 3029, 2013 and $~~217~~224.05 million at September 3029, ~~2012~~2013, and our current ratios were 1.7942:1 and 1.6769:1, respectively. Fluctuations in working capital and current ratios are not unusual in our industry.

Net cash ~~provided~~used byin operating activities for the ~~thirty-nine~~thirteen weeks ended ~~June~~December 3029, 2013 was $6116.84 million and was $6318.76 million for the ~~thirty-nine~~thirteen weeks ended ~~June~~December 2430, 2012. A significant ~~source~~use of cash from operating activities in the ~~thirty-nine~~thirteen weeks of fiscal ~~2013~~2014 and fiscal ~~2012~~2013 was ~~net~~increases ~~income~~in ~~before~~inventory of $30.1 million and $25.0 million, respectively. Increases in inventory levels in our fiscal first quarters are normal due to the ~~effect~~holiday ofactivity ~~non-cash~~occurring ~~depreciation~~during our first quarter and ~~amortization~~preparation for the New Year's holiday.

As of ~~June~~December 3029, 2013, we had the ability and right to pay a restricted payment, including dividends, of up to $1536.37 million.

We believe that operating cash flows and current cash reserves will be sufficient to meet identified operating needs and scheduled debt maturities and capital expenditures for the next twelve months. However, we may elect to fund some capital expenditures through capital leases, operating leases or debt financing. There can be no assurance that such debt and lease financing will be available to us in the future.

Labor Relations

Our collective bargaining agreements with the UFCW were renewed in October 2011 and expire in March 2014. Our collective bargaining agreement with the International Brotherhood of Teamsters was renewed in October 2010 and expires in September 2015. We believe we have good relations with our employees.

CAUTIONARY STATEMENT FOR PURPOSES OF “SAFE HARBOR PROVISIONS” OF THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995.

The Private Securities Litigation Reform Act of 1995 provides a “safe harbor” for forward-looking statements. Certain information contained in our filings with the Securities and Exchange Commission (as well as information included in oral statements or other written statements made or to be made by us) includes statements that are forward-looking, such as statements relating to plans for future activities. Such forward-looking information involves important risks and uncertainties that could significantly affect results in the future and, accordingly, such results may differ from those expressed in any forward-looking statements made by us or on our behalf. These risks and uncertainties include, but are not limited to, those relating to domestic economic conditions, seasonal and weather fluctuations, labor unrest, expansion and other activities of competitors, changes in federal or state laws and the administration of such laws and the general condition of the economy.

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STATER BROS. HOLDINGS INC.

~~June~~December 3029, 2013

PART I - FINANCIAL INFORMATION (contd.)



Item 3.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

We are subject to interest rate risk on our fixed interest rate debt obligations. Our fixed rate debt obligations are comprised of our Term Loan due November 2014, our 7.75% Senior Notes due April 2015, our 7.375% Senior Notes due November 2018 and capital lease obligations. In general, the fair value of fixed rate debt will increase as the market rate of interest decreases and will decrease as the market rate of interest increases. While interest rate changes will impact the market value risk of our Notes, such changes in the market value of our Notes do not affect our earnings or cash flows. Our earnings and our cash flows may be affected to the extent the interest rates on our Term Loan change at each interest rate renewal period. We have not engaged in any interest rate swap agreements, derivative financial instruments or other type of financial transactions to manage interest rate risk.



Item 4.	CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our management, with the participation of our Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of our disclosure controls and procedures as of ~~June~~December 3029, 2013. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~June~~December 3029, 2013. There were no material changes in our internal control over financial reporting during the thirteen ~~and thirty-nine~~ weeks ended ~~June~~December 3029, 2013.

Because of the inherent limitation of internal control over financial reporting, including the possibility of collusion or improper management override of controls, material misstatements due to error or fraud may not be prevented or detected on a timely basis. Also, projections of any evaluation of the effectiveness of the internal control over financial reporting to future periods are subject to the risk that the controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION



Item 1.	LEGAL PROCEEDINGS

In the ordinary course of business, we are party to various legal actions which we believe are incidental to the operation of our business and the business of our subsidiaries. We record an appropriate provision when the occurrence of loss is probable and can be reasonably estimated. We believe that the outcome of such legal proceedings to which we are currently a party will not have a material effect upon our consolidated financial statements.

In May of 2011, Markets was served with an action filed in the Superior Court of the State of California for the County of Riverside (“Harold F. Lunsford et al. v. Stater Bros. Markets”) seeking individual and potential class action damages including associated penalties for Markets’ alleged failure to provide meal periods, rest periods or compensation in lieu thereof and alleged failure to pay certain wages for terminated employees. On January 26, 2012, following a mediation, this case was settled which settlement was approved by the court. The full settlement amount was recorded in our consolidated financial statements for fiscal 2012 and the full amount was paid in fiscal 2013.17

Table of Contents

STATER BROS. HOLDINGS INC.

~~June~~December 3029, 2013



Item 1A.	RISK FACTORS

The Supermarket industry is highly competitive and generally characterized by narrow profit margins. We compete with various types of retailers, including local, regional and national supermarket retailers, convenience stores, retail drug chains, national general merchandisers and discount retailers, membership clubs, warehouse stores and independent and specialty grocers. Our primary traditional grocery format competitors include Vons, Albertsons, Ralphs, and a number of independent supermarket operators. We also face competition from restaurants and fast food chains as household food expenditures are directed to the purchase of food prepared outside the home.

Our principal competitors include traditional grocery format operators, regional markets, and “big box” format retailers, including Walmart, Target, Costco and Winco. Our competitors compete with us on the basis of location, quality of products, service, price, product variety and store condition. Our competitors maintain market share through high levels of promotional activities and discount pricing, which creates a difficult environment in which to consistently increase year-over-year sales gains. We expect our competitors to continue to apply pricing and other competitive pressures as they expand the number of their stores in our market area and as they continue to take steps to both maintain and grow their customer counts.

We face competitive pressure from existing competitors and from smaller format stores such as convenience stores, drug stores and discount stores that carry traditional grocery format items. Some of our competitors have greater resources than us and are not unionized resulting in lower labor cost. These competitors could use their resources to take measures which could adversely affect our competitive position.

Our marketing area in Southern California continues to be highly competitive and in flux. Our market changes frequently as competitors open and close supermarket locations and introduce new pricing strategies. We anticipate increased competition from “big box” format retailers, our traditional grocery format competitors and other smaller format competitors.

Our performance is affected by inflation and deflation. In recent periods, we have experienced increases in transportation costs and the cost of products we sell in our stores. Our costs fluctuate for increases and decreases in commodities such as fuel, plastic and other product categories. As inflation has increased expenses, we have recovered, to the extent permitted by competition, the increase in expenses by increasing prices over time. However, the economic and competitive environment in Southern California continues to challenge us to become more cost efficient as our ability to recover increases in expenses through price increases is diminished. Our future results of operations will depend upon our ability to adapt to the current economic environment as well as the current competitive conditions.

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STATER BROS. HOLDINGS INC.

~~June~~December 3029, 2013



Item 2.	UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None



Item 3.	DEFAULTS UPON SENIOR SECURITIES

None



Item 4.	(REMOVED AND RESERVED)



Item 5.	OTHER INFORMATION

None



Item 6.		EXHIBITS

(a)		Exhibits

31.1		Certification of Principal Executive Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act.

31.2		Certification of Principal Financial Officer pursuant to Section 302 (a) of the Sarbanes-Oxley Act.

32.1		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.

101.INS		-XBRL Instance Document.

101.SCH		-XBRL Taxonomy Extension Schema Document.

101.CAL		-XBRL Taxonomy Extension Calculation Linkbase Document.

101.DEF		-XBRL Taxonomy Extension Definition Linkbase Document.

101.LAB		-XBRL Taxonomy Extension Lable Linkbase Document.

101.PRE		-XBRL Taxonomy Extension Presentation Linkbase Document.

2019

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STATER BROS. HOLDINGS INC.

Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Date:	~~August~~February 1311, ~~2013~~2014	/s/ Jack H. Brown
		Jack H. BrownChairman of the Board, President,and Chief Executive Officer(Principal Executive Officer)
Date:	~~August~~February 1311, ~~2013~~2014	/s/ David J. Harris
		David J. HarrisSenior Vice President - Financeand Chief Financial Officer(Principal Financial Officer)(Principal Accounting Officer)
		David J. HarrisExecutive Vice President - Financeand Chief Financial Officer(Principal Financial Officer)(Principal Accounting Officer)

2120

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