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 ~~December 29, 2013~~March 30, 2014



¨	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 ~~February 11,~~May 13, 2014, there were issued and outstanding

~~32,521~~31,863 shares of the registrant’s Class A Common Stock.

Table of Contents

STATER BROS. HOLDINGS INC.

~~December 29, 2013~~March 30, 2014

INDEX



		Page
PART I	FINANCIAL INFORMATION

Item 1.	Financial Statements

	Consolidated Balance Sheets as of September 29, 2013 and ~~December 29, 2013~~March 30, 2014 (Unaudited)	3

	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the thirteen weeks ended ~~December~~March 31, 2013 and March 30, ~~2012 and December 29, 2013~~2014	5

	Consolidated Statements of Income and Comprehensive Income (Unaudited) for the twenty-six weeks ended March 31, 2013 and March 30, 2014	6

	Consolidated Statements of Cash Flows (Unaudited) for the ~~thirteen~~twenty-six weeks ended ~~December~~March 31, 2013 and March 30, ~~2012 and December 29, 2013~~2014	67

	Notes to Consolidated Financial Statements (Unaudited)	78

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	1113

Item 3.	Quantitative and Qualitative Disclosure about Market Risk	1720

Item 4.	Controls and Procedures	1720

PART II	OTHER INFORMATION

Item 1.	Legal Proceedings	1720

Item 1A.	Risk Factors	1821

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	1922

Item 3.	Defaults Upon Senior Securities	1922

Item 4.	(Removed and Reserved)	1922

Item 5.	Other Information	1922

Item 6.	Exhibits	1922

SIGNATURES		2023

Table of Contents

PART I - FINANCIAL INFORMATION



Item 1.	FINANCIAL STATEMENTS

STATER BROS. HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS

(In thousands)


	Sept. 29, 2013			Dec. 29, 2013			Sep 29, 2013		Mar 30, 2014
				(Unaudited)					(Unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	242,818		$	210,949		$	242,818	$	245,950
Receivables, net of allowance of $975 and $975	36,080			49,773
Receivables, net of allowance of $975 and $1,106							36,080		37,626
Income tax receivable	1,413			—			1,413		—
Inventories	228,116			258,192			228,116		231,076
Prepaid expenses	14,570			16,150			14,570		15,965
Deferred income taxes, current portion	24,706			23,588			24,706		23,992
Note receivable, current portion	600			600			600		600
Total current assets	548,303			559,252			548,303		555,209
Property and equipment
Land	114,460			114,819			114,460		115,185
Buildings and improvements	606,112			611,137			606,112		615,381
Store fixtures and equipment	472,463			475,876			472,463		479,692
Property subject to capital leases	11,615			11,615			11,615		16,365
	1,204,650			1,213,447			1,204,650		1,226,623
Less accumulated depreciation and amortization	(604,631		)	(615,823		)	604,631		628,351
	600,019			597,624			600,019		598,272
Deferred income taxes, less current portion	36,310			39,635			36,310		41,585
Deferred debt issuance costs, net	6,173			5,628			6,173		5,082
Note receivable, less current portion	616			415			616		215
Other assets	5,925			5,926			5,925		5,926
	49,024			51,604			49,024		52,808
Total assets	$	1,197,346		$	1,208,480		$	1,197,346	$	1,206,289

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STATER BROS. HOLDINGS INC.

CONSOLIDATED BALANCE SHEETS (contd.)

(In thousands, except share amounts)


	Sept. 29, 2013			Dec. 29, 2013			Sep 29, 2013			Mar 30, 2014
				(Unaudited)						(Unaudited)
LIABILITIES AND STOCKHOLDER’S EQUITY
Current liabilities
Accounts payable	$	144,214		$	151,446		$	144,214		$	137,617
Accrued payroll and related expenses	89,227			88,698			89,227			89,437
Accrued income taxes	—			8,382			—			5,882
Accrued interest	17,940			7,691			17,940			17,271
Other accrued liabilities	46,820			47,563			46,820			44,752
Current portion of capital lease obligations	772			607			772			1,538
Current portion of long-term debt	24,810			89,896			24,810			72,336
Total current liabilities	323,783			394,283			323,783			368,833
Long-term debt, less current portion	608,711			540,000			608,711			540,000
Capital lease obligations, less current portion	414			291			414			3,427
Long-term portion of self-insurance and other reserves	54,162			51,018			54,162			48,871
Long-term portion of deferred benefits	71,224			71,803			71,224			74,826
Accrued pension and other	25,602			26,579			25,602			26,675
Total liabilities	1,083,896			1,083,974			1,083,896			1,062,632
Commitments and contingencies
Stockholder’s equity
Common Stock, $.01 par value:
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 - 32,521 in 2013 and 2014	—			—			—			—
Additional paid-in capital	8,270			8,270			8,270			8,270
Accumulated other comprehensive loss	(15,903		)	(15,903		)	(15,903		)	(15,903		)
Retained earnings	121,083			132,139			121,083			151,290
Total stockholder’s equity	113,450			124,506			113,450			143,657
Total liabilities and stockholder’s equity	$	1,197,346		$	1,208,480		$	1,197,346		$	1,206,289

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
	Dec. 30, 2012			Dec. 29, 2013			Mar 31, 2013			Mar 30, 2014
Sales	$	968,744		$	984,025		$	961,896		$	963,841
Cost of goods sold	718,015			725,390			703,124			697,455
Gross profit	250,729			258,635			258,772			266,386
Operating expenses (income)
Operating expenses
Selling, general and administrative expenses	220,079			217,138			215,965			212,223
(Gain) loss on sale of property and equipment	(1,933		)	10
(Gain) loss on sale of assets							6			(1,451		)
Depreciation and amortization	11,683			11,373			11,566			11,859
Total operating expenses	229,829			228,521			227,537			222,631
Operating profit	20,900			30,114			31,235			43,755
Interest income	23			15			21			13
Interest expense	(11,809		)	(11,486		)	(11,768		)	(11,470		)
Income before income taxes	9,114			18,643			19,488			32,298
Income taxes	3,665			7,587			7,890			13,147
Net income and comprehensive income	$	5,449		$	11,056		$	11,598		$	19,151
Earnings per average common share outstanding	$	164.23		$	339.96		$	349.56		$	588.88
Average common shares outstanding	33,179			32,521			33,179			32,521

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)



	Twenty-Six Weeks Ended
	Mar 31, 2013			Mar 30, 2014
Sales	$	1,930,640		$	1,947,866
Cost of goods sold	1,421,139			1,422,845
Gross profit	509,501			525,021
Operating expenses
Selling, general and administrative expenses	436,044			429,361
Gain on sale of assets	(1,927		)	(1,441		)
Depreciation and amortization	23,249			23,232
Total operating expenses	457,366			451,152
Operating profit	52,135			73,869
Interest income	44			28
Interest expense	(23,577		)	(22,956		)
Income before income taxes	28,602			50,941
Income taxes	11,555			20,734
Net income and comprehensive income	$	17,047		$	30,207
Earnings per average common share outstanding	$	513.79		$	928.85
Average common shares outstanding	33,179			32,521

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(In thousands)


	Thirteen Weeks						Twenty-Six Weeks Ended
	Dec. 30, 2012			Dec. 29, 2013			Mar 31, 2013			Mar 30, 2014
Operating activities:
Net income	$	5,449		$	11,056		$	17,047		$	30,207
Adjustments to reconcile net income to net cash used in operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization	14,523			14,150			28,951			28,758
Amortization of debt issuance costs	559			545			1,119			1,091
(Increase) decrease in deferred income taxes	433			(2,207		)
(Gain) loss on disposals of assets	(1,933		)	10
Increase in deferred income taxes							(1,508		)	(4,561		)
Gain on sale of assets							(1,927		)	(1,441		)
Changes in operating assets and liabilities:
Increase in receivables	(4,483		)	(13,693		)	(5,815		)	(1,546		)
Decrease in income tax receivables	3,232			1,413			6,513			1,413
Increase in inventories	(24,956		)	(30,076		)	(3,071		)	(2,960		)
Increase in prepaid expenses	(488		)	(1,580		)	(1,610		)	(1,395		)
Increase in other assets	(12		)	(1		)	(28		)	(1		)
Increase in accounts payable	5,464			7,232
Increase in accrued income taxes	—			8,382
Increase (decrease) in accounts payable							1,394			(6,597		)
Increase in income taxes payable							—			5,882
Decrease in other accrued liabilities	(19,568		)	(10,035		)	(13,273		)	(2,527		)
Increase (decrease) in long-term reserves	3,210			(1,588		)
Net cash used in operating activities	(18,570		)	(16,392		)
Increase (decrease) in long-term liabilities							12,492			(616		)
Net cash provided by operating activities							40,284			45,707
Investing activities:
Collections on note receivable	204			201			404			401
Purchase of property and equipment	(7,388		)	(11,765		)	(13,500		)	(22,701		)
Proceeds from sale of property and equipment	2,079			—
Proceeds from sale of assets							3,209			1,881
Net cash used in investing activities	(5,105		)	(11,564		)	(9,887		)	(20,419		)
Financing Activities:
Principal payments on long-term debt	(1,812		)	(3,625		)	(7,794		)	(21,185		)
Principal payments on capital lease obligations	(295		)	(288		)	(599		)	(971		)
Dividends paid	(5,000		)	—			(5,000		)	—
Net cash used in financing activities	(7,107		)	(3,913		)	(13,393		)	(22,156		)
Net decrease in cash and cash equivalents	(30,782		)	(31,869		)
Net increase in cash and cash equivalents							17,004			3,132
Cash and cash equivalents at beginning of period	219,800			242,818			219,800			242,818
Cash and cash equivalents at end of period	$	189,018		$	210,949		$	236,804		$	245,950
Interest paid	$	21,477		$	21,258		$	22,557		$	22,667
Income taxes paid	$	—		$	—		$	6,550		$	18,000
Capital lease additions							$	—		$	4,750

See accompanying notes to unaudited consolidated financial statements.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~December 29, 2013~~March 30, 2014

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 ~~thirteen~~twenty-six weeks ended~~December 29, 2013~~March 30, 2014 are not necessarily indicative of the results that may be experienced for the fiscal year ending September 28, 2014.

The consolidated balance sheet at September 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 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 – 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 4 – 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 ~~thirteen~~twenty-six weeks ended ~~December 29, 2013~~March 30, 2014, 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 and state tax purposes, the Company is subject to review of its fiscal 2010 through fiscal 2013 tax returns.

~~Table of Contents~~

~~STATER BROS. HOLDINGS INC.~~

~~NOTES TO CONSOLIDATED FINANCIAL STATEMENTS~~

~~(Unaudited)~~

~~December 29, 2013~~

Note 5 – Retirement ~~Plan~~Plans

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.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 30, 2014

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


	Thirteen Weeks Ended						Thirteen Weeks Ended						Twenty-Six Weeks Ended
	Dec. 30, 2012			Dec. 29, 2013			Mar 31, 2013			Mar 30, 2014			Mar 31, 2013			Mar 30, 2014
	(in thousands)						(in thousands)
Expected return on assets	$	(1,175	)	$	(1,333	)	$	(1,175	)	$	(1,325	)	$	(2,350	)	$	(2,658	)
Service cost	1,222			1,036			1,223			872			2,445			1,908
Interest cost	1,120			1,257			1,119			1,222			2,239			2,479
Amortization of prior service cost	1			1			1			1			2			2
Amortization of recognized losses	747			298			747			258			1,494			556
Net pension expense	$	1,915		$	1,259		$	1,915		$	1,028		$	3,830		$	2,287


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

The Company contributed approximately $1.0 million to the Plan in the twenty-six weeks endedMarch 30, 2014 and the Company expects to contribute an additional $~~4.0~~3.0 million ~~to the Plan~~ during the remainder of fiscal ~~2014.~~2014.

Note 6 – 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~~$72.3 million outstanding on the Term Loan as of ~~December 29, 2013~~March 30, 2014 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 ~~thirteen~~twenty-six weeks ended ~~December 29, 2013~~March 30, 2014, the Company made principal payments on the Term Loan of approximately $~~3.6~~21.2 million which consisted of a contractual quarterly principal payment of $10.9 million and an excess cash payment of $10.3 million.

As of ~~December 29, 2013~~March 30, 2014, the interest rates on the Term Loan are based on the Eurodollar Rate and consisted of a ~~twelve~~90 ~~month~~day rate of approximately ~~3.344%~~2.734% on approximately $~~89.9~~7.2 million of outstanding principal amount and a 180 day rate of approximately 2.849% on approximately $65.1 million of outstanding principal amount.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~December 29, 2013~~March 30, 2014

Note 6 – 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 ~~December 29, 2013~~March 30, 2014, the Company and Markets were in compliance with all restrictive financial covenants under the Credit Facility.

As of ~~December 29, 2013~~March 30, 2014, the Company had $62.7 million of outstanding letters of credit and had $37.3 million available under the Credit Facility.

The Company had no borrowings outstanding under the Revolving Credit Facility as of ~~December 29, 2013~~March 30, 2014 and the Company did not incur any borrowings under the Revolving Credit Facility during the ~~thirteen~~twenty-six weeks ended ~~December 29, 2013~~March 30, 2014.

Note 7 – Senior Notes and Subsidiary Guarantee

As of ~~December 29, 2013~~March 30, 2014, 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.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

March 30, 2014

Note 8 – Refinancing

On May 12, 2014, the Company refinanced and signed a new Credit Agreement with Bank of America, N.A., as Administrative Agent, which consist of a five year Revolving Credit Facility in the amount of $150.0 million, a five year Term Loan A in the amount of $325.0 million and a seven year Term Loan B in the amount of $250.0 million (collectively the “Facility”). Loans under the new Revolving Credit Facility will bear an interest rate at the Eurodollar Rate plus 2.50%. The new Term Loan A will bear an interest rate at the Eurodollar Rate plus 2.50%. The Term Loan B will bear an interest rate at the Eurodollar Rate plus 3.75%, with a minimum Eurodollar Rate floor of 1.0%. Lending parties to the Facility consists of Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and a consortium of other banks and institutional lenders. The Facility is secured by substantially all of the Company’s personal property excluding certain intangible assets consisting of trademarks and shares of the Company's capital stock. The Facility is guaranteed by the Company, its direct subsidiary Development and its indirect subsidiary Super RX. Covenants under the Facility will be similar to covenants under the Company’s old Revolving Credit Facility and Term Loan.

The proceeds from the Facility and cash on hand will be used to pay-off the remaining outstanding $72.3 million of the Company’s existing Term Loan, the $285.0 million outstanding on the Company’s 7.75% Senior Notes due April 2015, the $255.0 million outstanding on the Company’s 7.375% Senior Notes due November 2018 and to pay fees and expenses from the transaction.

On May 12, 2014, the Company issued irrevocable call notices to redeem its $285.0 million 7.75% Senior Notes and its $255.0 million 7.375% Senior Notes. The redemption on these notes will occur on June 11, 2014.

Note 89 – 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 adverse effect upon its consolidated financial statements.

Note 910 – Dividends and Stock Redemption

On December 27, 2012, the Company paid a $5.0 million dividend to La Cadena Investments (“La Cadena”), the sole shareholder of the Company. On April 15, 2014, the Company declared a $10.0 million dividend to La Cadena which was paid on April 17, 2014.

On April 9, 2014, the Company redeemed 658 shares of its class A Common Stock for approximately $8.8 million. The redemption was for shares held by the two Trusts created under the Moseley Family Revocable Trust (the "MoseleyTrusts") which La Cadena had distributed to the Moseley Trusts prior to the redemption of the shares.

As of ~~December 29, 2013~~March 30, 2014, and after taking into consideration the stock redemption on April 9, 2014 and the dividend payment on April 17, 2014, the Company had the ability and right to make restricted payments, including dividends, of $~~36.7~~27.5 million.

Note 11 – Sale of Pharmacy Prescription Files

In the second quarter of fiscal 2014, the Company closed three under performing pharmacies and sold the prescription files associated with these closed pharmacies. It recognized a pre-tax gain from the sale of the prescription files of $1.2 million which has been recorded in gain on sale of assets the Consolidated Statements of Income and Comprehensive Income.

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STATER BROS. HOLDINGS INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

~~December 29, 2013~~March 30, 2014

Note 1012 - 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 ~~December 29, 2013~~March 30, 2014, the estimated fair value of the Company’s Long-Term Debt was $~~644.5~~627.1 million.

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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 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 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-eight year Stater Bros.’ tradition.

During these tough economic times, our strategy is to retain and grow 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. ~~While~~This strategy combined with continued and increasing competitive pressures will continue to put pressure on our gross ~~margins have been challenged, we~~margin for the foreseeable future. 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						Thirteen Weeks Ended								Change
	Dec. 30, 2012			Dec. 29, 2013				2014 to 2013						March 31, 2013				March 30, 2014				2014 to 2013
(in thousands)	Dec. 30, 2012						Dollar				%						Dollar						%
Sales	$	968,744		Dec. 29, 2013	$	984,025			$	15,281			1.58	March 31, 2013	%	$	961,896	March 30, 2014			$	963,841		$	1,945		0.20	%
Gross Profit	$	250,729		$	258,635			$	7,906			3.15	%	$	258,772			$	266,386			$	7,614		2.94	%
as a % of sales	25.88		%	26.28		%								26.90		%		27.64		%



	Twenty-Six Weeks Ended						Change
	March 31, 2013			March 30, 2014			2014 to 2013
(in thousands)	March 31, 2013			March 30, 2014			Dollar		%
Sales	$	1,930,640		$	1,947,866		$	17,226	0.89	%
Gross Profit	$	509,501		$	525,021		$	15,520	3.05	%
as a % of sales	26.39		%	26.95		%

Sales

Our sales increased $~~15.3~~1.9 million ~~or 1.58%~~and $17.2 million for our thirteen and twenty-sixweek ~~period~~periods ended ~~December 29, 2013~~March 30, 2014, respectively, compared to the same ~~period~~periods ended ~~December 30, 2012~~March 31, 2013. Sales in the prior year periods were effected by the Easter holiday that fell in the second quarter in the prior year and will fall in the third quarter of the current year. We estimate that the Easter holiday increased net sales in the prior year's periods by approximately $11.3 million. Without the effect of the Easter holiday sales in the prior year, we estimate that our sales would have increased $13.3 million and $28.5 million, respectively, in the thirteen and twenty-six week periods of fiscal 2014 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~~Excluding the affect of the Easter holiday in the prior year, our like store sales for the ~~first~~second quarter of fiscal 2014 increased $~~13.7~~9.5 million or ~~1.42%~~0.99% over the same period of the prior year. Like stores sales for the twenty-six weeks ended March 30, 2014 increased $23.2 million or 1.20% over the twenty-six weeks ended March 31, 2013.

Gross Profit

Gross profit margin, as a percentage of sales, in the ~~first~~second quarter of fiscal 2014 increased 4074 basis points to ~~26.28%~~27.64% from ~~25.88%~~26.90% in the ~~first~~second quarter of fiscal 2013. Year-to-date gross profit margin, as a percentage of sales, for fiscal 2014 was 26.95% an increase of 56 basis points from prior year's year-to-date gross profit margin of 26.39%. The increase in ~~our~~ gross ~~margin in~~profit margins for the ~~current year~~thirteen and twenty-six week periods of fiscal 2014 is ~~attributed~~due primarily to improvement in our shrink, some easing of promotional discounting and ~~somewhat reduced promotional pressures. We~~favorable prior year comparisons. While our gross margins have improved over the prior year periods, 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
	Dec. 30, 2012			Dec. 29, 2013				2014 to 2013						March 31, 2013				March 30, 2014			2014 to 2013
(in thousands)	Dec. 30, 2012						Dollar				%						Dollar					%
Operating Expenses (Income):				Dec. 29, 2013
Operating Expenses:														March 31, 2013				March 30, 2014
Selling, general and administrative expenses	$	220,079		$	217,138			$	(2,941	)		(1.34	)%	$	215,965			$	212,223		$	(3,742	)	(1.73	)%
as a % of sales	22.72		%	22.07		%								22.45		%		22.02		%
(Gain) loss on sale of property and equipment	$	(1,933	)	$	10			$	1,943			(100.52	)%
(Gain) loss on sale of assets														$	6			$	(1,451	)	$	(1,457	)	N/A
as a % of sales	(0.20		)%	—		%								—		%		(0.15		)%
Depreciation and amortization	$	11,683		$	11,373			$	(310	)		(2.65	)%	$	11,566			$	11,859		$	293		2.53	%
as a % of sales	1.21		%	1.16		%								1.20		%		1.23		%
Operating profit	$	20,900		$	30,114			$	9,214			44.09	%	$	31,235			$	43,755		$	12,520		40.08	%
as a % of sales	2.16		%	3.06		%								3.25		%		4.54		%



	Twenty-Six Weeks Ended						Change
	March 31, 2013			March 30, 2014			2014 to 2013
(in thousands)	March 31, 2013			March 30, 2014			Dollar			%
Operating Expenses:
Selling, general and administrative expenses	$	436,044		$	429,361		$	(6,683	)	(1.53	)%
as a % of sales	22.59		%	22.04		%
Gain on sale of assets	$	(1,927	)	$	(1,441	)	$	486		(25.22	)%
as a % of sales	(0.10		)%	(0.07		)%
Depreciation and amortization	$	23,249		$	23,232		$	(17	)	(0.07	)%
as a % of sales	1.20		%	1.19		%
Operating profit	$	52,135		$	73,869		$	21,734		41.69	%
as a % of sales	2.70		%	3.79		%

Selling, General and Administrative Expenses

Selling, general and administrative expenses, as a percentage of sales, were ~~22.07%~~22.02% for the thirteen weeks ended ~~December 29, 2013~~March 30, 2014 and were ~~22.72%~~22.45% for the thirteen weeks ended ~~December 30, 2012~~March 31, 2013. ~~Our~~Reductions in selling, general and administrative expenses for the second quarter of fiscal 2014 compared to the same period of the prior year included a 12 basis point reduction in ~~selling,~~payroll related expenses, a 16 basis point reduction in supply related expenses and reduction in repairs and maintenance of 10 basis points. Selling, general and administrative expenses, as a percentage of sales, were 22.04% for the twenty-six weeks ended March 30, 2014 compared to 22.59% for the year-to-date period of the prior year. The reduction in selling, general and administrative expenses in the current ~~year compared~~year-to-date is due primarily to ~~the prior year is attributed to~~ a ~~14 basis points~~ reduction in payroll related ~~costs and~~expenses of 13 basis points, a reduction in ~~our~~ supply ~~expense~~related expenses of 2018 basis points and ~~other cost reductions and improved efficiencies~~the reduction in ~~our operations. Also, in the prior year,~~rental expense of 11 basis points.

Gain on Sale of Assets

In fiscal 2014, we had a ~~charge to reserves~~pre-tax gain on the sale assets of approximately $1.4 million which consisted primarily of a gain from the sale of pharmacy prescription files for ~~escalating rents~~three closed pharmacies of ~~19 basis points, as a percentage of sales, that was not present in the current year.~~

~~Gain loss on Sale of Property and Equipment~~

approximately $1.2 million. In fiscal 2013, we had a pre-tax net gain ~~from the sale of property and equipment of approximately~~ ~~$1.9 million~~ from the sale of an old store ~~site.~~site of approximately $1.9 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 ~~first~~second quarter of fiscal 2014 was $~~11.4~~11.9 million compared to $~~11.7~~11.6 million for the ~~first~~second quarter of fiscal ~~2013.~~2013. Depreciation and amortization for both the twenty-six weeks of fiscal 2014 and fiscal 2013 was $23.2 million. 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 ~~first~~second quarters of ~~both~~ fiscal 2014 and fiscal 2013 was $~~2.8~~2.7 million. and $2.9 million, respectively, and for the twenty-six weeks of fiscal 2014 and fiscal 2013 was $5.5 million and $5.7 million, respectively.

Interest Income

Interest income was $1513 thousand and $2321 thousand for the ~~first~~second quarters of fiscal 2014 and fiscal 2013, respectively. Interest income for the twenty-six weeks endedMarch 30, 2014 and March 31, 2013 was $28 thousand and $44 thousand, respectively.

Interest Expense

Interest expense was $11.5 million for the ~~first~~second quarter of fiscal 2014 and $11.8 million in the ~~first~~second quarter of fiscal ~~2013.~~2013. For the twenty-six week periods ended March 30, 2014 and March 31, 2013, interest expense was $23.0 million and $23.6 million, respectively. Included as a reduction in interest expense was capitalized interest related to construction of new stores of $6765 thousand and $~~237~~86 thousand for the ~~first~~second quarters of fiscal 2014 and fiscal 2013, respectively, and $132 thousand and $322 thousand for the twenty-six weeks endedMarch 30, 2014 and March 31, 2013, respectively.

Income Before Income Taxes

Income before income taxes amounted to $~~18.6~~32.3 million and $~~9.1~~19.5 million in the ~~first~~second quarters of fiscal 2014 and fiscal 2013, respectively, and was $50.9 million and $28.6 million for the twenty-six week periods of fiscal 2014 and fiscal 2013, respectively.

Income Taxes

Income taxes amounted to $~~7.6~~13.1 million and $~~3.7~~7.9 million in the ~~first~~second quarters of fiscal 2014 and fiscal 2013 ~~respectively. Our effective tax rate was 40.7%~~, respectively, and ~~40.2%~~amounted to $20.7 million and $11.6 million for the ~~first quarters~~twenty-six week periods of fiscal 2014 and fiscal 2013, respectively.

Net Income

Net income for the ~~first~~second quarter of fiscal 2014 amounted to $~~11.1~~19.2 million compared to $~~5.4~~11.6 million in the ~~first~~second quarter of fiscal ~~2013.~~2013. Net income for the twenty-six weeks endedMarch 30, 2014 and March 31, 2013 was $30.2 million and $17.0 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'~~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~~$72.3 million outstanding on the Term Loan as current portion of long-term debt.

As of ~~December 29, 2013~~March 30, 2014, we had approximately $62.7 million of outstanding letters of credit and we had approximately $37.3 million available under the revolving credit facility.

We had no short-term borrowings outstanding under our revolving credit facility as of ~~December 29, 2013~~March 30, 2014. We did not incur any short-term borrowings under our revolving credit facility in the ~~thirteen~~twenty-six weeks of fiscal ~~2014.~~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 ~~December 29, 2013~~March 30, 2014.


	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	$	89,896	$	89,896	$	—	$	—	$	—	$	72,336	$	72,336	$	—	$	—	$	—
Interest	2,634		2,634		—		—		—		1,378		1,378		—		—		—
	92,530		92,530		—		—		—		73,714		73,714		—		—		—
7.75% Senior Notes due April 2015
Principal	285,000		—		285,000		—		—		285,000		—		285,000		—		—
Interest	33,132		22,088		11,044		—		—		33,132		22,088		11,044		—		—
	318,132		22,088		296,044		—		—		318,132		22,088		296,044		—		—
7.375% Senior Notes due November 2018
Principal	255,000		—		—		255,000		—		255,000		—		—		255,000
Interest	94,032		18,806		37,613		37,613		—		94,032		18,806		37,613		37,613
	349,032		18,806		37,613		292,613		—		349,032		18,806		37,613		292,613		—
Capital lease obligations ⁽²⁾
Principal	898		607		291		—		—		4,965		1,538		2,125		1,302		—
Interest	50		42		8		—		—		689		297		318		74		—
	948		649		299		—		—		5,654		1,835		2,443		1,376		—
Post retirement benefit obligation ⁽³⁾	4,001		4,001		N/A		N/A		N/A		3,031		3,031		N/A		N/A		N/A
Operating leases ⁽²⁾	323,631		41,121		74,487		57,987		150,036		326,236		42,544		75,810		58,136		149,746
Total contractual cash obligations	$	1,088,274	$	179,195	$	408,443	$	350,600	$	150,036	$	1,075,799	$	162,018	$	411,910	$	352,125	$	149,746
	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⁾	$	62,658	$	62,658	$	—	$	—	$	—	$	62,658	$	62,658	$	—	$	—	$	—
Total other commercial commitments	$	62,658	$	62,658	$	—	$	—	$	—	$	62,658	$	62,658	$	—	$	—	$	—

₍₁₎

~~Interest~~As of March 30, 2014, interest on our Term Loan is based on the Eurodollar Rate plus 2.500% and consisted of a ninety day rate of 2.734% on approximately $7.2 million and a 180 day rate of 2.849% on approximately $65.1 million. For purposes of contractual cash obligations shown here, ~~our~~we have assumed the ninety day and 180 day interest rates ~~are based on rates existing~~ as of ~~December 31, 2013 which includes a 90 day rate of~~ ~~2.747%~~March 30, 2014 ~~on approximately~~ ~~$10.9 million~~for the respective assumed short-term and ~~a 181 day rate~~long-term portions of ~~2.849% on approximately $65.1 million. On December 30, 2013, we made principal payments on~~ our Term ~~Loan of approximately $13.9 million.~~Loan.

₍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 ~~December~~September 29, 2013, we had unfunded pension and other post retirement obligations of $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 $~~4.0~~3.0 million which we expect to contribute to the Plan during the remainder of fiscal ~~2014.~~2014.


₍₄₎	Standby letters of credit are committed as security for workers’ compensation obligations. Outstanding letters of credit expire between ~~December 2013~~September 2014 and ~~October 2014~~February 2015.

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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.)

Refinancing

On May 12, 2014, we refinanced and signed a new Credit Agreement with Bank of America, N.A., as Administrative Agent, which consist of a five year Revolving Credit Facility in the amount of $150.0 million, a five year Term Loan A in the amount of $325.0 million and a seven year Term Loan B in the amount of $250.0 million (collectively the “Facility”). Loans under the new Revolving Credit Facility will bear an interest rate at the Eurodollar Rate plus 2.50%. The new Term Loan A will bear an interest rate at the Eurodollar Rate plus 2.50%. The Term Loan B will bear an interest rate at Eurodollar Rate plus 3.75%, with a minimum the Eurodollar Rate floor of 1.0%. Lending parties to the Facility consists of Bank of America, N.A., Merrill Lynch, Pierce, Fenner & Smith Incorporated and a consortium of other banks and institutional lenders. The Facility is secured by substantially all of our personal property excluding certain intangible assets consisting of trademarks and shares of our capital stock. The Facility is guaranteed by the Company, its direct subsidiary Development and its indirect subsidiary Super RX. Covenants under the Facility will be similar to covenants under our old Revolving Credit Facility and Term Loan.

The proceeds from the Facility and cash on hand will be used to pay-off the remaining outstanding $72.3 million of our existing Term Loan, the $285.0 million outstanding on our 7.75% Senior Notes due April 2015, the $255.0 million outstanding our 7.375% Senior Notes due November 2018 and to pay fees and expenses from the transaction.

On May 12, 2014, we issued irrevocable call notices to redeem our $285.0 million 7.75% Senior Notes and our $255.0 million 7.375% Senior Notes. The redemption on these notes will occur on June 11, 2014.

Working capital amounted to $~~165.0~~186.4 million at ~~December 29, 2013~~March 30, 2014 and $224.5 million at September 29, 2013, and our current ratios were ~~1.42~~1.51:1 and 1.69:1, respectively. Fluctuations in working capital and current ratios are not unusual in our industry.

Net cash ~~used in~~provided by operating activities for the ~~thirteen~~twenty-six weeks ended ~~December 29, 2013~~March 30, 2014 was $~~16.4~~45.7 million and ~~was~~ $~~18.6~~40.3 million for the ~~thirteen~~twenty-six weeks ended ~~December 30, 2012~~March 31, 2013. A significant ~~use~~source of cash from operating activities in the ~~thirteen~~twenty-six weeks of fiscal 2014 and fiscal 2013 was ~~increases in inventory~~net income before the effect of ~~$30.1 million~~non-cash depreciation and $25.0 million, respectively. Increases in inventory levels in our fiscal first quarters are normal due to the holiday activity occurring during our first quarter and preparation for the New Year's holiday.amortization.

As of ~~December 29, 2013~~March 30, 2014, after taking into consideration the stock redemption on April 9, 2014 and our dividend paid on April 17, 2014, we had the ability and right to pay a restricted payment, including dividends, of up to $~~36.7~~27.5 million.

We believe that operating cash flows and current cash reserves will be sufficient to meet identified operating needs, ~~and~~ scheduled debt maturities and scheduled 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.

Table of Contents

STATER BROS. HOLDINGS INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Labor Relations

Our collective bargaining ~~agreements~~agreement with the ~~UFCW were~~United Food and Commercial Workers (the "UFCW") was renewed in October 2011 and ~~expire~~expired in March 2014. We signed an agreement with the UFCW to extend the terms of the current collective bargaining agreement until the new agreement is signed. We anticipate the new agreement will be reached without any work stoppages. Our collective bargaining ~~agreement~~agreements with the International Brotherhood of Teamsters ~~was~~were 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.

~~December 29, 2013~~MARCH 30, 2014

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~~rate on our Term Loan ~~change~~changes 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 ~~December 29, 2013~~March 30, 2014. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures were effective as of ~~December 29, 2013~~March 30, 2014. There were no material changes in our internal control over financial reporting during the thirteen and ~~thirteen~~twenty-six weeks ended ~~December 29, 2013~~March 30, 2014.

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 adverse effect upon our consolidated financial statements.

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STATER BROS. HOLDINGS INC.

~~December 29, 2013~~MARCH 30, 2014



Item 1A.	RISK FACTORS

The ~~Supermarket~~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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~~December 29, 2013~~MARCH 30, 2014



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

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

2023

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller Reporting Company