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,~~December 29, 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 13, 2013~~February 11, 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 30,~~December 29, 2013

INDEX



		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September ~~30, 2012~~29, 2013 and ~~June 30,~~December 29, 2013 (Unaudited)	3

	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the thirteen weeks ended ~~June 24,~~December 30, 2012 and ~~June 30,~~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 ~~thirty-nine~~thirteen weeks ended ~~June 24,~~December 30, 2012 and ~~June 30,~~December 29, 2013	76

	Notes to Consolidated Financial Statements (Unaudited)	87

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1211

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	1817

Item 4.	Controls and Procedures	1817

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

Table of Contents

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)						(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	219,800		$	228,571		$	242,818		$	210,949
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	10,475			—			1,413			—
Inventories	229,117			234,428			228,116			258,192
Prepaid expenses	17,221			16,079			14,570			16,150
Deferred income taxes, current portion	28,519			25,401			24,706			23,588
Note receivable, current portion	600			600			600			600
Total current assets	543,159			541,706			548,303			559,252
Property and equipment
Land	109,729			110,343			114,460			114,819
Buildings and improvements	582,282			597,455			606,112			611,137
Store fixtures and equipment	465,576			469,872			472,463			475,876
Property subject to capital leases	11,410			11,615			11,615			11,615
	1,168,997			1,189,285			1,204,650			1,213,447
Less accumulated depreciation and amortization	(561,493		)	(594,913		)	(604,631		)	(615,823		)
	607,504			594,372			600,019			597,624
Deferred income taxes, less current portion	41,945			47,326			36,310			39,635
Deferred debt issuance costs, net	8,397			6,723			6,173			5,628
Note receivable, less current portion	1,423			816			616			415
Other assets	5,894			5,921			5,925			5,926
	57,659			60,786			49,024			51,604
Total assets	$	1,208,322		$	1,196,864		$	1,197,346		$	1,208,480

~~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)						(Unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable	$	147,544		$	152,403		$	144,214		$	151,446
Accrued payroll and related expenses	103,918			92,173			89,227			88,698
Accrued income taxes	—			2,791			—			8,382
Accrued interest	18,164			7,805			17,940			7,691
Other accrued liabilities	43,869			35,785			46,820			47,563
Current portion of capital lease obligations	1,242			979			772			607
Current portion of long-term debt	11,419			10,875			24,810			89,896
Total current liabilities	326,156			302,811			323,783			394,283
Long-term debt, less current portion	633,521			622,646			608,711			540,000
Capital lease obligations, less current portion	1,186			535			414			291
Long-term portion of self-insurance and other reserves	43,796			51,743			54,162			51,018
Long-term portion of deferred benefits	70,118			70,721			71,224			71,803
Accrued pension and other	50,923			52,552			25,602			26,579
Total liabilities	1,125,700			1,101,008			1,083,896			1,083,974
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			8,270			8,270			8,270
Accumulated other comprehensive loss	(30,126		)	(30,126		)	(15,903		)	(15,903		)
Retained earnings	104,311			117,712			121,083			132,139
Total stockholder’s equity	82,622			95,856			113,450			124,506
Total liabilities and stockholder’s equity	$	1,208,322		$	1,196,864		$	1,197,346		$	1,208,480

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						Thirteen Weeks Ended
	Jun 24, 2012			Jun 30, 2013			Dec. 30, 2012			Dec. 29, 2013
Sales	$	949,772		$	968,761		$	968,744		$	984,025
Cost of goods sold	698,550			711,087			718,015			725,390
Gross profit	251,222			257,674			250,729			258,635
Operating expenses (income)
Selling, general and administrative expenses	216,330			218,779			220,079			217,138
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			11,329			11,683			11,373
Total operating expenses	227,354			229,497			229,829			228,521
Operating profit	23,868			28,177			20,900			30,114
Interest income	25			19			23			15
Interest expense	(11,630		)	(11,478		)	(11,809		)	(11,486		)
Income before income taxes	12,263			16,718			9,114			18,643
Income taxes	4,985			6,761			3,665			7,587
Net income and comprehensive income	$	7,278		$	9,957		$	5,449		$	11,056
Earnings per average common share outstanding	$	219.36		$	301.69		$	164.23		$	339.96
Average common shares outstanding	33,179			33,004			33,179			32,521

See accompanying notes to unaudited consolidated financial statements.

~~Table of Contents~~

~~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	$	32,721		$	27,004		$	5,449		$	11,056
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	42,273			43,156			14,523			14,150
Amortization of debt issuance costs	1,691			1,674			559			545
Increase in deferred income taxes	(4,802		)	(2,263		)
Gain on disposals of assets	(940		)	(2,538		)
(Increase) decrease in deferred income taxes							433			(2,207		)
(Gain) loss on disposals of assets							(1,933		)	10
Changes in operating assets and liabilities:
Decrease in restricted cash	3,121			—
(Increase) decrease in receivables	(2,706		)	800
Increase in receivables							(4,483		)	(13,693		)
Decrease in income tax receivables	—			10,475			3,232			1,413
(Increase) decrease in inventories	5,696			(5,311		)
Decrease in prepaid expenses	376			1,142
Increase in inventories							(24,956		)	(30,076		)
Increase in prepaid expenses							(488		)	(1,580		)
Increase in other assets	(10		)	(27		)	(12		)	(1		)
Increase (decrease) in accounts payable	(437		)	4,859
Increase (decrease) in accrued income taxes	(3,715		)	2,791
Increase in accounts payable							5,464			7,232
Increase in accrued income taxes							—			8,382
Decrease in other accrued liabilities	(12,762		)	(30,188		)	(19,568		)	(10,035		)
Increase in long-term liabilities	3,181			10,179
Net cash provided by operating activities	63,687			61,753
Increase (decrease) in long-term reserves							3,210			(1,588		)
Net cash used in operating activities							(18,570		)	(16,392		)
Investing activities:
Collections on note receivable	545			607			204			201
Purchase of property and equipment	(30,008		)	(31,315		)	(7,388		)	(11,765		)
Proceeds from sale of property and equipment	1,574			3,829			2,079			—
Net cash used in investing activities	(27,889		)	(26,879		)	(5,105		)	(11,564		)
Financing Activities:
Proceeds from capital lease financing	724			—
Principal payments on long-term debt	(34,622		)	(11,419		)	(1,812		)	(3,625		)
Principal payments on capital lease obligations	(437		)	(914		)	(295		)	(288		)
Stock redemption	(8,770		)	(8,770		)
Dividends paid	(5,000		)	(5,000		)	(5,000		)	—
Net cash used in financing activities	(48,105		)	(26,103		)	(7,107		)	(3,913		)
Net increase (decrease) in cash and cash equivalents	(12,307		)	8,771
Net decrease in cash and cash equivalents							(30,782		)	(31,869		)
Cash and cash equivalents at beginning of period	235,784			219,800			219,800			242,818
Cash and cash equivalents at end of period	$	223,477		$	228,571		$	189,018		$	210,949
Interest paid	$	44,505		$	43,865		$	21,477		$	21,258
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 30,~~December 29, 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 30,~~December 29, 2013 are not necessarily indicative of the results that may be experienced for the fiscal year ending September ~~29, 2013~~28, 2014.

The consolidated balance sheet at September ~~30, 2012~~29, 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 ~~30, 2012~~29, 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~~

~~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 43 – 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 30,~~December 29, 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 purposes, the Company is subject to review of its fiscal 2009 through fiscal 2012 tax returns. For~~and 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 30,~~December 29, 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						Thirteen Weeks Ended
	Jun 24, 2012			Jun 30, 2013			Jun 24, 2012			Jun 30, 2013			Dec. 30, 2012			Dec. 29, 2013
	(in thousands)												(in thousands)
Expected return on assets	$	(1,024	)	$	(1,150	)	$	(3,071	)	$	(3,502	)	$	(1,175	)	$	(1,333	)
Service cost	975			1,209			2,926			3,667			1,222			1,036
Interest cost	1,092			1,130			3,275			3,359			1,120			1,257
Amortization of prior service cost	—			—			2			2			1			1
Amortization of recognized losses	528			789			1,585			2,240			747			298
Net pension expense	$	1,571		$	1,978		$	4,717		$	5,766		$	1,915		$	1,259


Actuarial assumptions used to determine net pension expense were:
Discount rate	4.50	%	3.70	%	4.50	%	3.70	%	3.70	%	4.70	%
Rate of increase in compensation levels	3.00	%	3.00	%	3.00	%	3.00	%	3.08	%	3.08	%
Expected long-term rate of return on assets	6.50	%	6.00	%	6.50	%	6.00	%	6.00	%	6.00	%

The ~~Company contributed approximately~~ ~~$2.6 million~~ ~~to the Plan in the~~ ~~thirty-nine weeks endedJune 30, 2013~~ ~~and the~~ Company expects to contribute an additional $~~5.0~~4.0 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 30,~~December 29, 2013, the Company made principal payments on the ~~term loan~~Term Loan of approximately $~~11.4 million~~ ~~which consisted of a contractual quarterly principal payment of~~ ~~$10.9 million~~ ~~and an excess cash payment of approximately~~ ~~$0.5~~3.6 million.

As of ~~June 30,~~December 29, 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 30,~~December 29, 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 30,~~December 29, 2013, the Company and Markets were in compliance with all restrictive financial covenants under the Credit Facility.

As of ~~June 30,~~December 29, 2013, the Company had $~~59.9~~62.7 million of outstanding letters of credit and had $~~40.1~~37.3 million available under the Credit Facility.

The Company had no borrowings outstanding under the Revolving Credit Facility as of ~~June 30,~~December 29, 2013 and the Company did not incur any borrowings under the Revolving Credit Facility during the ~~thirty-nine~~thirteen weeks ended ~~June 30,~~December 29, 2013.

Note 87 – Senior Notes and Subsidiary Guarantee

As of ~~June 30,~~December 29, 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.

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 the Company’s consolidated financial statements for fiscal 2012 and the full amount was paid in fiscal 2013.

~~Table of Contents~~

Note 109 – Dividends and Stock Redemption

On December ~~23, 2011,~~27, 2012, the 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.~~

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") which La Cadena had distributed to the Moseley Trusts prior to the redemption of the shares.

On ~~June 13, 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.~~Company.

As of ~~June 30,~~December 29, 2013, the Company had the ability and right to make restricted payments, including dividends, of $~~15.3~~36.7 million.

Table of Contents

STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

December 29, 2013

Note 1110 - 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 30,~~December 29, 2013, the estimated fair value of the Company’s Long-Term Debt was $~~649.5~~644.5 million.

~~Note 12 - Recently Issued Accounting Pronouncements~~

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.

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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 ~~30, 2012~~29, 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 ~~30, 2012~~29, 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~~seventy-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 strategy combined with continued and increasing competitive pressures has caused~~While our gross ~~profit~~ margins ~~to be reduced. We~~have been challenged, we 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
(in thousands) Dollar
%
Sales $ 949,772
$ 968,761
$ 18,989
2.00 %
Gross Profit $ 251,222
$ 257,674
$ 6,452
2.57 %
as a % of sales 26.45 % 26.60 %


	Thirty-Nine Weeks							Change						Thirteen Weeks Ended								Change
	June 24, 2012			June 30, 2013				2013 to 2012						Dec. 30, 2012				Dec. 29, 2013				2014 to 2013
(in thousands)	June 24, 2012						Dollar				%						Dollar						%
Sales	$	2,848,159		June 30, 2013	$	2,899,401			$	51,242			1.80	Dec. 30, 2012	%	$	968,744	Dec. 29, 2013			$	984,025		$	15,281		1.58	%
Gross Profit	$	771,589		$	767,175			$	(4,414	)		(0.57	)%	$	250,729			$	258,635			$	7,906		3.15	%
as a % of sales	27.09		%	26.46		%								25.88		%		26.28		%

Sales

Our sales increased $~~19.0~~15.3 million ~~and~~ ~~$51.2 million~~or 1.58% for our thirteen ~~and~~ ~~thirty-nine~~week ~~periods~~period ended ~~June 30,~~December 29, 2013, ~~respectively,~~ compared to the same ~~periods~~period ended ~~June 24,~~December 30, 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 $~~29.8~~13.7 million or ~~3.18%~~1.42% 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 2014 increased 40 basis points to 26.28% from 25.88% in the first quarter of fiscal 2013 ~~increased 15 basis points to~~ ~~26.60%~~ ~~from~~ ~~26.45%~~. The increase in our gross margin in the ~~third quarter~~ ~~of fiscal~~ ~~2012. Year-to-date gross profit margin, as a percentage of sales, for fiscal~~ ~~2013~~ ~~was~~ ~~26.46%~~ ~~a decrease of 63 basis points from prior year's year-to-date gross profit margin of~~ ~~27.09%. Due~~current year is attributed to ~~competitive pressures~~improvement in our shrink and ~~our desire to retain customers, we have elected not to fully pass the effect of cost inflation we have experienced to our customers. This strategy has caused our~~ ~~year to date~~ ~~fiscal~~ ~~2013~~ ~~gross profit to be lower than the same period of the prior year. In the~~ ~~third quarter~~ ~~of fiscal~~ ~~2013, our gross profit margins are~~ somewhat ~~higher than the same period of the prior year.~~reduced promotional 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						Thirteen Weeks Ended							Change
	June 24, 2012			June 30, 2013				2013 to 2012						Dec. 30, 2012				Dec. 29, 2013			2014 to 2013
(in thousands)	June 24, 2012						Dollar				%						Dollar					%
Operating Expenses (Income):				June 30, 2013														Dec. 29, 2013
Selling, general and administrative expenses	$	216,330		$	218,779			$	2,449			1.13	%	Dec. 30, 2012	$	220,079			$	217,138		$	(2,941	)		(1.34	)%
as a % of sales	22.78		%	22.58		%								22.72		%		22.07		%
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	(0.03		)%	(0.06		)%								(0.20		)%		—		%
Depreciation and amortization	$	11,350		$	11,329			$	(21	)		(0.19	)%	$	11,683			$	11,373		$	(310	)		(2.65	)%
as a % of sales	1.20		%	1.17		%								1.21		%		1.16		%
Operating profit	$	23,868		$	28,177			$	4,309			18.05	%	$	20,900			$	30,114		$	9,214			44.09	%
as a % of sales	2.51		%	2.91		%								2.16		%		3.06		%

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 ~~22.58%~~22.07% for the thirteen weeks ended ~~June 30,~~December 29, 2013 and were ~~22.78%~~22.72% for the thirteen weeks ended ~~June 24,~~December 30, 2012. ~~Selling,~~Our reduction in selling, general and administrative expenses, as a percentage of sales, ~~were~~ ~~22.58%~~ ~~for~~in the ~~thirty-nine weeks ended June 30, 2013~~current year compared to ~~22.75%~~the prior year is attributed to a 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. Also, in the prior year, we had a charge to reserves for escalating rents of 19 basis points, as a percentage of sales, that was not present in the ~~year-to-date period of 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 $~~2.5 million~~ ~~which included a pre-tax gain of approximately~~ ~~$2.0~~1.9 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 $~~11.3~~11.4 million compared to $~~11.4~~11.7 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.~~2013. 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 both fiscal ~~2013~~2014 and fiscal ~~2012~~2013 was $~~2.9~~2.8 million ~~and~~ ~~$2.7 million, respectively, and for the~~ ~~thirty-nine~~ ~~weeks of fiscal~~ ~~2013~~ ~~and fiscal~~ ~~2012~~ ~~was~~ ~~$8.6 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 endedJune 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 $~~11.6~~11.8 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.~~2013. 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 endedJune 30,~~ 2013, ~~and~~ ~~June 24, 2012~~, respectively.

Income Before Income Taxes

Income before income taxes amounted to $~~16.7~~18.6 million and $~~12.3~~9.1 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 $~~6.8~~7.6 million and $~~5.0~~3.7 million in the ~~third~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012, respectively,~~2013, respectively. Our effective tax rate was 40.7% and ~~amounted to~~ ~~$18.3 million~~ ~~and~~ ~~$22.4 million~~40.2% for the ~~thirty-nine~~ ~~week periods~~first quarters of fiscal ~~2013~~2014 and fiscal ~~2012~~,2013, respectively.

Net Income

Net income for the ~~third~~first quarter of fiscal ~~2013~~2014 amounted to $~~10.0~~11.1 million compared to $~~7.3~~5.4 million in the ~~third~~first quarter of fiscal ~~2012. Net income for the~~ ~~thirty-nine weeks endedJune 30, 2013~~ ~~and~~ ~~June 24, 2012~~ ~~was~~ ~~$27.0 million~~ ~~and~~ ~~$32.7 million, respectively.~~2013.

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’~~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 30,~~December 29, 2013, we had approximately $~~59.9~~62.7 million of outstanding letters of credit and we had approximately $~~40.1~~37.3 million available under the revolving credit facility.

We had no short-term borrowings outstanding under our revolving credit facility as of ~~June 30,~~December 29, 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 30,~~December 29, 2013.


	Contractual Cash Obligations (in thousands)										Contractual Cash Obligations (in thousands)
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Term Loan due November 2014 ⁽¹⁾
Principal	$	93,521	$	10,875	$	82,646	$	—	$	—	$	89,896	$	89,896	$	—	$	—	$	—
Interest	4,798		3,012		1,786		—		—		2,634		2,634		—		—		—
	98,319		13,887		84,432		—		—		92,530		92,530		—		—		—
7.75% Senior Notes due April 2015
Principal	285,000		—		285,000		—		—		285,000		—		285,000		—		—
Interest	44,176		22,088		22,088		—		—		33,132		22,088		11,044		—		—
	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		—		—		255,000		—
Interest	103,435		18,806		37,613		37,613		9,403		94,032		18,806		37,613		37,613		—
	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		979		535		—		—		898		607		291		—		—
Interest	112		90		22		—		—		50		42		8		—		—
	1,626		1,069		557		—		—		948		649		299		—		—
Post retirement benefit obligation ⁽³⁾	4,987		4,987		N/A		N/A		N/A		4,001		4,001		N/A		N/A		N/A
Operating leases ⁽²⁾	340,108		40,692		76,138		60,980		162,298		323,631		41,121		74,487		57,987		150,036
Total contractual cash obligations	$	1,132,651	$	101,529	$	505,828	$	98,593	$	426,701	$	1,088,274	$	179,195	$	408,443	$	350,600	$	150,036
	Other Commercial Commitments (in thousands)										Other Commercial Commitments (in thousands)
	Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years		Total		Less than 1 Year		1-3 Years		4-5 Years		After 5 Years
Standby letters of credit ⁽⁴⁾	$	59,858	$	59,858	$	—	$	—	$	—	$	62,658	$	62,658	$	—	$	—	$	—
Total other commercial commitments	$	59,858	$	59,858	$	—	$	—	$	—	$	62,658	$	62,658	$	—	$	—	$	—

₍₁₎

~~As of~~ ~~June 30, 2013, interest~~Interest on our Term Loan is based on the Eurodollar Rate plus 2.500% ~~and consisted of a ninety day rate of~~ ~~2.778%~~ ~~on approximately~~ ~~$3.6 million~~ ~~and a twelve month rate of~~ ~~3.344%~~ ~~on approximately~~ ~~$89.9 million~~. For purposes of contractual cash obligations shown here, ~~we have assumed the ninety day and twelve month~~our interest rates are based on rates existing as of December 31, 2013 which includes a 90 day rate of ~~June~~2.747% on approximately $10.9 million and a 181 day rate of 2.849% on approximately $65.1 million. On December 30, 2013, ~~for the respective assumed short-term and long-term portions of~~ we made principal payments on our Term ~~Loan.~~Loan of approximately $13.9 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 30, 2012~~,December 29, 2013, we had unfunded pension and other post retirement obligations of $~~46.3~~21.5 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 $~~5.0~~4.0 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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MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

LIQUIDITY AND CAPITAL RESOURCES (contd.)

Working capital amounted to $~~238.9~~165.0 million at ~~June 30,~~December 29, 2013 and $~~217.0~~224.5 million at September ~~30, 2012~~29, 2013, and our current ratios were ~~1.79~~1.42:1 and ~~1.67~~1.69:1, respectively. Fluctuations in working capital and current ratios are not unusual in our industry.

Net cash ~~provided by~~used in operating activities for the ~~thirty-nine~~thirteen weeks ended ~~June 30,~~December 29, 2013 was $~~61.8~~16.4 million and was $~~63.7~~18.6 million for the ~~thirty-nine~~thirteen weeks ended ~~June 24,~~December 30, 2012. A significant ~~source~~use of cash from operating activities in the ~~thirty-nine~~thirteen weeks of fiscal 2014 and fiscal 2013 was increases in inventory of $30.1 million and $25.0 million, respectively. Increases in inventory levels in our fiscal ~~2012~~ ~~was net income before~~first quarters are normal due to the ~~effect of non-cash depreciation~~holiday activity occurring during our first quarter and ~~amortization.~~preparation for the New Year's holiday.

As of ~~June 30,~~December 29, 2013, we had the ability and right to pay a restricted payment, including dividends, of up to $~~15.3~~36.7 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 30,~~December 29, 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 30,~~December 29, 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 30,~~December 29, 2013. There were no material changes in our internal control over financial reporting during the ~~thirteen and~~ ~~thirty-nine~~thirteen weeks ended ~~June 30,~~December 29, 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.

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~~June 30,~~December 29, 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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~~June 30,~~December 29, 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.

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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 13, 2013~~February 11, 2014	/s/ Jack H. Brown
		Jack H. Brown Chairman of the Board, President, and Chief Executive Officer (Principal Executive Officer)

Date:	~~August 13, 2013~~February 11, 2014	/s/ David J. Harris
		David J. Harris ~~Senior~~Executive Vice President - Finance and Chief Financial Officer (Principal Financial Officer) (Principal Accounting Officer)

2120

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company