**SECURITIES AND EXCHANGECOMMISSION**

**Washington, D.C. 20549**

 

**FORM 10-Q**

 

| **ý**                                                   | **QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934**  |
|--------------------------------------------------------------|------------------------------------------------------------------------------------------------|
|                                                         |                                                                                           |   |
| **For  the quarterly period ended   May 3,  2003** |                                                                                           |   |
|                                                         |
| **OR**                                                       |
|                                                         |
| **o**                                                        | **TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE  SECURITIES EXCHANGE ACT OF 1934** |
|                                                         |                                                                                           |
| **For  the transition period from**                          |                                                                                           |   |
|                                                         |                                                                                           |   |
| **Commission  File Number  0-17871**                    |
|                                                              |                                                                                                |  |  |

 

**EAGLE FOOD CENTERS, INC.**

(Exact name of registrant as specified in the charter)

 

| **Delaware**                                                                                                          |   | **36-3548019**                        |
|-----------------------------------------------------------------------------------------------------------------------|--------|---------------------------------------|
| (State or other  jurisdiction of  incorporation or organization)                                                      |   | (I.R.S. Employer  Identification No.) |
|                                                                                                                  |   |                                  |
| **Rt.  67 & Knoxville Rd., Milan, Illinois**          **61264** |
| (Address of  principal executive  offices)          (Zip  Code)     |
|                                                                                                                  |   |                                  |
| Registrant’s  telephone number, including area code:   **(309) 787-7700**                                   |

 

Indicate by check markwhether the registrant (1) has filed all reports required to be filed bySection 13 or 15 (d) of the Securities Exchange Act of 1934 during thepreceding 12 months (or for such shorter period that the registrant wasrequired to file such reports), and (2) has been subject to such filingrequirements for the past 90 days.   Yes  ý    No o

 

Indicate by check mark whether the registrant is an accelerated filer(as defined in Rule 12b-2 of the Exchange Act).  Yes  o    No ý

 

Indicate by check markwhether the registrant has filed all documents and reports required to be filedby Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequentto the distribution of securities under a plan confirmed by a court:  Yes  ý    No o

 

The number of shares ofthe Registrant’s Common Stock, par value four cents ($0.04) per share,outstanding at June 13, 2003 was 3,110,935.

 

 

----

 

**PART I -FINANCIAL INFORMATION**

 

**Item 1:****          FinancialStatements**

 

 

**EAGLE FOOD CENTERS, INC.**

**(DEBTOR-IN-POSSESSION)**

**CONSOLIDATEDSTATEMENTS OF OPERATIONS**

**(Dollarsin thousands, except per share data)**

**(Unaudited)**

 
|                                          |   | **Quarter Ended** |    |
|-----------------------------------------------|--------|-------------------|---------|
|                                          |   | **May 3,  2003**  |    | **May 4,  2002** |   |
|                                          |   |              |    | **(as adjusted,  see note)** |   |
| Sales                                         |   | $                 | 136,199 |   | $ | 152,807 |   |
| Cost of goods  sold                           |   | (97,927           | )       | (110,818 | ) |
| Gross margin                                  |   | 38,272            |    | 41,989 |   |
| Operating  expenses:                          |   |              |    |   |   |
| Selling, general  and administrative          |   | (35,599           | )       | (38,188 | ) |
| Store closing  and asset impairment           |   | (1,704            | )       | — |   |
| Reorganization  items, net                    |   | (2,871            | )       | — |   |
| Depreciation and  amortization                |   | (3,572            | )       | (4,521 | ) |
| Operating income  (loss)                      |   | (5,474            | )       | (720 | ) |
| Interest  expense, net                        |   | (3,073            | )       | (3,108 | ) |
| Gain on  extinguishment of debt               |   | —            |    | 478 |   |
| Earnings (loss)  from continuing operations   |   | (8,547            | )       | (3,350 | ) |
| Earnings (loss)  from discontinued operations |   | (193              | )       | 171 |   |
| Net loss                                      |   | $                 | (8,740  | ) | $ | (3,179 | ) |
|                                          |   |              |    |   |   |
| Weighted average  basic shares outstanding    |   | 3,110,935         |    | 3,118,652 |   |
|                                          |   |              |    |   |   |
| Basic and  diluted loss per common share:     |   |              |    |   |   |
| Earnings (loss)  from continuing operations   |   | $                 | (2.75   | ) | $ | (1.07 | ) |
| Earnings (loss)  from discontinued operations |   | (0.06             | )       | 0.05 |   |
| Net loss                                      |   | $                 | (2.81   | ) | $ | (1.02 | ) |

 

See notes to the unaudited consolidatedfinancial statements.

 

2

----

 

**EAGLE FOOD CENTERS, INC.**

**(DEBTOR-IN-POSSESSION)**

**CONSOLIDATED BALANCE SHEETS**

**(Dollarsin thousands, except per share data)**

**(Unaudited)**

 
|                                                                                                           |   | **May 3, 2003** |    | **February 1, 2003** |   |
|----------------------------------------------------------------------------------------------------------------|--------|-----------------|---------|----------------------|--------|
| **ASSETS**                                                                                                     |   |            |    |                 |   |
| Current assets:                                                                                                |   |            |    |                 |   |
| Cash and cash equivalents                                                                                      |   | $               | 3,213   |                 | $      | 3,892 |   |
| Restricted assets                                                                                              |   | 8,193           |    | 8,840                |   |
| Accounts receivable, net of allowance for doubtful accounts of $1.4  million in fiscal 2003 and in fiscal 2002 |   | 8,802           |    | 7,246                |   |
| Inventories                                                                                                    |   | 43,172          |    | 46,666               |   |
| Prepaid expenses and other                                                                                     |   | 9,680           |    | 5,823                |   |
| Total current assets                                                                                           |   | 73,060          |    | 72,467               |   |
|                                                                                                           |   |            |    |                 |   |
| Property and equipment, net                                                                                    |   | 91,194          |    | 95,962               |   |
| Other assets:                                                                                                  |   |            |    |                 |   |
| Deferred software costs, net                                                                                   |   | 2,512           |    | 3,029                |   |
| Property held for resale, net                                                                                  |   | 2,486           |    | 2,530                |   |
| Other                                                                                                          |   | 1,266           |    | 1,120                |   |
| Total other assets                                                                                             |   | 6,264           |    | 6,679                |   |
| Total assets                                                                                                   |   | $               | 170,518 |                 | $      | 175,108 |   |
|                                                                                                           |   |            |    |                 |   |
| **LIABILITIES AND SHAREHOLDERS’ DEFICIT**                                                                 |   |            |    |                 |   |
| Current liabilities:                                                                                           |   |            |    |                 |   |
| Accounts payable                                                                                               |   | $               | 13,066  |                 | $      | 19,016 |   |
| Payroll and associate benefits                                                                                 |   | 13,978          |    | 14,336               |   |
| Accrued liabilities                                                                                            |   | 7,943           |    | 11,963               |   |
| Reserve for closed stores                                                                                      |   | —          |    | 64                   |   |
| Accrued taxes                                                                                                  |   | 1,016           |    | 5,436                |   |
| Loan and security agreement and debtor-in-possession financing                                                 |   | 19,902          |    | —               |   |
| Loan and security agreement                                                                                    |   | —          |    | 25,135               |   |
| Current portion of long term debt                                                                              |   | 157             |    | 900                  |   |
| Total current liabilities                                                                                      |   | 56,062          |    | 76,850               |   |
| Long term debt:                                                                                                |   |            |    |                 |   |
| Senior notes, net                                                                                              |   | —          |    | 63,318               |   |
| Capital lease obligations                                                                                      |   | —          |    | 32,303               |   |
| Other                                                                                                          |   | 260             |    | 301                  |   |
| Total long term debt                                                                                           |   | 260             |    | 95,922               |   |
| Other liabilities:                                                                                             |   |            |    |                 |   |
| Reserve for closed stores                                                                                      |   | —          |    | 910                  |   |
| Other deferred liabilities                                                                                     |   | —          |    | 7,466                |   |
| Total other liabilities                                                                                        |   | —          |    | 8,376                |   |
| Liabilities subject to compromise                                                                              |   | 128,938         |    | —               |   |
| Total liabilities                                                                                              |   | 185,260         |    | 181,148              |   |
| Shareholders’ deficit:                                                                                    |   |            |    |                 |   |
| Preferred stock, $.01 par value, 100,000 shares authorized                                                     |   | —          |    | —               |   |
| Common stock, $.04 par value, 4,500,000 shares authorized, 3,357,605  shares issued                            |   | 134             |    | 134                  |   |
| Capital in excess of par value                                                                                 |   | 55,464          |    | 55,464               |   |
| Common stock in treasury, at cost, 246,670 shares                                                              |   | (2,383          | )       | (2,383               | )      |
| Accumulated other comprehensive loss                                                                           |   | (4,662          | )       | (4,700               | )      |
| Accumulated deficit                                                                                            |   | (63,295         | )       | (54,555              | )      |
| Total shareholders’ deficit                                                                               |   | (14,742         | )       | (6,040               | )      |
| Commitments and contingencies                                                                                  |   |            |    |                 |   |
| Total liabilities and shareholders’ deficit                                                               |   | $               | 170,518 |                 | $      | 175,108 |   |

 

See notes to the unaudited consolidatedfinancial statements.

 

3

----

 

**EAGLE FOOD CENTERS, INC.**

**(DEBTOR-IN-POSSESSION)**

**CONSOLIDATEDSTATEMENTS OF CASH FLOWS**

**(Dollarsin thousands)**

**(Unaudited)**

** **
|                                                                            |   | **May 3, 2003** |   | **May 4, 2002** |   |
|---------------------------------------------------------------------------------|--------|-----------------|--------|-----------------|--------|
| CASH FLOWS FROM OPERATING ACTIVITIES:                                           |   |            |   |            |   |
| Net loss                                                                        |   | $               | (8,740 | )               | $      | (3,179 | ) |
| Adjustments to reconcile net loss to net cash flows from operating  activities: |   |            |   |            |   |
| Gain on extinguishment of debt                                                  |   | —          |   | (478            | )      |
| Depreciation and amortization                                                   |   | 3,583           |   | 4,555           |   |
| Reorganization items:                                                           |   |            |   |            |   |
| Reorganization items, net                                                       |   | 2,871           |   | —          |   |
| Payments for professional fees                                                  |   | (1,087          | )      | —          |   |
| Deferred charges                                                                |   | (685            | )      | —          |   |
| Other                                                                           |   | (12             | )      | —          |   |
| Store closing and asset impairment                                              |   | 1,704           |   | —          |   |
| Deferred charges and credits                                                    |   | 872             |   | 172             |   |
| (Gain) loss on disposal of assets                                               |   | (102            | )      | 1               |   |
| Changes in assets and liabilities:                                              |   |            |   |            |   |
| Receivables and other assets                                                    |   | (5,333          | )      | 44              |   |
| Inventories                                                                     |   | 3,494           |   | 2,319           |   |
| Accounts payable                                                                |   | 6,554           |   | (3,867          | )      |
| Accrued and other liabilities                                                   |   | 1,205           |   | (4,904          | )      |
| Principal payments on reserve for closed stores                                 |   | (35             | )      | (302            | )      |
| Net cash flows from operating activities                                        |   | 4,289           |   | (5,639          | )      |
| CASH FLOWS FROM INVESTING ACTIVITIES:                                           |   |            |   |            |   |
| Sales of marketable securities, net                                             |   | 685             |   | 978             |   |
| Additions to property and equipment                                             |   | (37             | )      | (2,119          | )      |
| Cash proceeds from sale/leasebacks or dispositions of property and  equipment   |   | 34              |   | 46              |   |
| Cash proceeds from dispositions of property held for resale                     |   | 147             |   | —          |   |
| Net cash flows from investing activities                                        |   | 829             |   | (1,095          | )      |
| CASH FLOWS FROM FINANCING ACTIVITIES:                                           |   |            |   |            |   |
| Deferred financing costs on debtor-in- possession financing                     |   | (340            | )      | —          |   |
| Principal payments on capital lease obligations                                 |   | (224            | )      | (201            | )      |
| Principal payments on senior notes                                              |   | —          |   | (563            | )      |
| Net loans (repayments) on secured debt                                          |   | (5,233          | )      | 4,646           |   |
| Purchase of treasury stock                                                      |   | —          |   | (13             | )      |
| Net cash flows from financing activities                                        |   | (5,797          | )      | 3,869           |   |
|                                                                            |   |            |   |            |   |
| NET CHANGE IN CASH AND CASH EQUIVALENTS                                         |   | (679            | )      | (2,865          | )      |
| CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD                                |   | 3,892           |   | 4,667           |   |
| CASH AND CASH EQUIVALENTS AT END OF PERIOD                                      |   | $               | 3,213  |            | $      | 1,802 |   |
|                                                                            |   |            |   |            |   |
| Supplemental disclosures of cash flow information:                              |   |            |   |            |   |
| Cash paid for interest                                                          |   | $               | 1,129  |            | $      | 4,758 |   |
|                                                                            |   |            |   |            |   |
| Noncash investing and financing activities:                                     |   |            |   |            |   |
| Unrealized gain (loss) on securities                                            |   | $               | 38     |            | $      | (64 | ) |

** **

Seenotes to the consolidated financial statements.

 

4

----

 

**NOTES TOCONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)**

 

**Reorganization Proceedings UnderChapter 11 of the Bankruptcy Code**

On April 7, 2003 (the “Petition Date II”), the Company filed a voluntarypetition under Chapter 11 of Title 11 of the United States Code (the “SecondBankruptcy Case”).  The petition wasfiled in the United States Bankruptcy Court for the Northern District ofIllinois in Chicago (“Court”) under case number 03-15299.  The Company continues to manage its affairsand operate its business as a debtor-in-possession while the Second BankruptcyCase is pending.

 

When the Second Bankruptcy Case was filed, the Company’s capitalstructure was comprised of a $50 million revolving credit facility withCongress Financial Corporation (Central) (“Congress”), of which approximately$26 million was outstanding,  $85million of 11% Senior Notes that are due April 15, 2005 (the “Senior Notes”),of which approximately $64 million in principal is still outstanding and 3.1million shares of common stock outstanding.

 

Since the Company’s restructuring efforts in 2000, it has faced newthreats from increased non-union competition, rising costs in health andwelfare, significant cash outlays to cover interest expense from itsoutstanding Senior Notes, and a recessionary economy.  As a result, the Company’s overall cost of doing businessincreased and its revenues declined. The Company has experienced cumulative lossesduring the last three fiscal years of $34.8 million, and had a stockholders’deficit of $14.7 million at May 3, 2003.

 

During the third fiscal quarter of 2002, the Company became concernedthat it could violate a covenant under its Second Amended and Restated Loan andSecurity Agreement (“Revolver”) with Congress. In particular, the Revolver contains a financial covenant requiring theCompany to maintain an “Adjusted Net Worth” (as defined in the Revolver) of$3.0 million.  The Company and Congressentered into a limited waiver agreement, effective as of November 1, 2002,which waived the Adjusted Net Worth covenant until February 1, 2003, which wassubsequently extended to April 5, 2003 (the “Waiver”). Since the Company didnot attempt to extend the Waiver beyond April 5, 2003, it was not in compliancewith the financial covenant as of April 6, 2003.  The Company determined it would not be able to cure the defaultwithin the next twelve months. Therefore, according to EITF Issue No. 86-30“Classification of Obligations When a Violation is Waived by the Creditor” therelated debt is classified as current. Moreover, the Company’s Senior Notes required an interest payment ofapproximately $3.5 million on April 15, 2003. Subsequent to the filing, theinterest payment relating to the Senior Notes was not made, which is an eventof default under the Indenture for the Senior Notes.   This upcoming interestpayment, the low excess availability ($1.5 million) under the Revolver, thetightening of vendor credit, the expiration of the Waiver, the Company’sincreasing cost structure, and the slow economic climate forced the Company tofile for Chapter 11 protection. The filingof the Second Bankruptcy Case is also an event of default under the Revolverand under the Indenture for the Senior Notes and the debts outstanding becameimmediately due and payable subject, however, to the automatic stay provisionsof Chapter 11.  The Company isembarking upon this restructuring in order to attempt to create financialflexibility for future operating requirements and capital expenditures.  In preparations for the Chapter 11 filing,the Company, together with its outside advisors, have identified certainstrategic alternatives to maximize value for its creditors.  The Company, in its business judgment, isevaluating all possible strategic alternatives, including the possible sale ofsome or all of its assets.

 

In conjunction with the Chapter 11 filing on April 7, 2003, the Companyreceived a commitment for up to $40 million in debtor-in-possession (DIP)financing from Congress which the bankruptcy court approved on an interimbasis, with the final DIP order approved on May 20, 2003.  The

 

5

----

 

interest rates for this facility are the same as defined in the Waiverwith a weighted average rate of 4.37% on May 3, 2003.

 

The United States Trustee has appointed an unsecured creditors’committee.  This committee and its legalrepresentatives often take positions on matters that come before the Court, andis the most likely entity with which the Company will negotiate the terms of aplan of reorganization.  There can be noassurance that this committee will support the Company’s positions in thebankruptcy proceedings or the plan of reorganization once proposed, anddisagreements between the Company and this committee could protract thebankruptcy proceedings, could negatively impact our ability to operate duringbankruptcy, and could delay our emergence from bankruptcy.

 

The Company received a Nasdaq Staff Determination on March 18, 2003indicating that the Company had failed to regain compliance with the minimumbid price and did not comply with the minimum market value of publicly heldshares as required by Marketplace Rules 4310(c)(4) and 4310(c)(7),respectively.  Accordingly, Nasdaqnotified the Company that its Common Stock would be delisted from the NasdaqStock Market effective as of the opening of business on March 27, 2003.  The Company’s Common Stock began trading onthe OTC Bulletin Board, on March 27, 2003.

 

Inclusion of the Company’s common stock on the OTC Bulletin Board couldadversely affect the liquidity of the Company’s common stock and may impact thepublic’s perception of the Company. There can be no assurance that delisting will not have a materialadverse effect on liquidity or business operations.

 

***Common Stock Risks*- At****this time, it is not possible to predict the effect of the Chapter 11reorganization on our business, various creditors and security holders or whenwe will be able to exit Chapter 11.**

 

**Under the priority scheme establishedby the Bankruptcy Code, certain postpetition liabilities and prepetitionliabilities need to be satisfied before shareholders are entitled to receiveany distribution.  The ultimate recoveryto common shareholders, if any, will not be determined until confirmation of aplan or plans of reorganization.  Noassurance can be given as to what values, if any, will be ascribed in thebankruptcy proceedings to the common shareholders.  A plan of reorganization could also result in holders of theCompany’s common stock receiving no value for their interests.  Because of such possibilities, the value ofthe common stock is highly speculative. Accordingly, the Company urges that appropriate caution be exercisedwith respect to existing and future investments in the securities.**

 

**Currently, the Board of Directorsbelieves it is unlikely there will be any recovery of value to commonshareholders.**

 

**AccountingPolicies**

The accompanying unaudited financial statements have been prepared inaccordance with the summary of significant accounting policies set forth in thenotes to the audited financial statements contained in the Company’s Form 10-Kfiled with the Securities and Exchange Commission on May 23, 2003.

 

6

----

 

In the opinion of management, the accompanying unaudited financialstatements reflect fairly, under generally accepted accounting principles, theresults of operations and financial position for the interim periods presented.  Operating results for the thirteen weeksended May 3, 2003 are not necessarily indicative of the results that may beexpected for the fiscal year ending January 31, 2004.

 

***Reorganization items -***Since the Petition Date II the Company hasoperated its business as a debtor-in-possession under the Bankruptcy Code.  The American Institute of Certified PublicAccountant’s (“AICPA”) Statement of Position 90-7, “Financial Reporting byEntities in Reorganization Under the Bankruptcy Code” (“SOP 90-7”) providesguidance for financial reporting by entities that have filed petitions with theBankruptcy Court and expect to reorganize under Chapter 11 of the BankruptcyCode.

 

Under SOP 90-7, the financial statements of an entity in a Chapter 11reorganization proceeding should distinguish transactions and events that aredirectly associated with the reorganization from those of the operations of theongoing business as it evolves. Accordingly, SOP 90-7 requires the following financial reporting oraccounting treatments with respect to each of the financial statements:

 

The balance sheet separately classifiesprepetition liabilities as those subject to compromise (generally unsecured andundersecured claims) and those not subject to compromise (including fullysecured claims).  Prepetitionliabilities are reported on the basis of the expected amount of such allowedclaims, as opposed to the amount for which those allowed claims may besettled.  Under an approved final planof reorganization, those claims may be settled at amounts substantially lessthan their allowed amounts. Theautomatic stay provisions of Chapter 11 make it unnecessary to reclassifyprepetition long-term liabilities to current even though prepetition creditorsmight demand payment or there is a violation of a covenant in a debt agreement.

 

When debt subject to compromise, such as the senior notes, has becomean allowed claim and that claim differs from the net carrying amount of thedebt (defined as the face amount of the debt less unamortized debt issuancecosts and discount), the net carrying amount is adjusted to the amount of theallowed claim.  The resulting gain orloss is classified as a reorganization item.

 

The statement of operations, pursuant to SOP90-7, reports revenues and expenses, realized gains and losses, and provisionsfor losses resulting from the reorganization and restructuring of the businessseparately as reorganization items,net, except for those required to be reported as discontinued operations inconformity with Statement of Accounting Standards (“SFAS”) No. 144, “Accountingfor the Impairment or Disposal of Long-Lived Assets.” Professional fees are expensed as incurred.  Interest expense is reported only to the extent that it will bepaid during the proceeding or that it is probable that it will be an allowedclaim.

 

The statement of cash flows reports reorganization items separatelywithin the operating, investing and financing categories.

 

***Stock Based Compensation*****-** The Company accounts for stock optiongrants and awards under its stock based compensation plans in accordance withAccounting Principles Board Opinion No. 25. If compensation cost for stockoption grants and awards had been determined based on fair value at the grantdates for quarters ended May 3, 2003 and May 4, 2002 consistent with the methodprescribed by SFAS No. 123, “Accounting for Stock Based Compensation”, asamended by SFAS No. 148, the Company’s net loss and net loss per share wouldhave been adjusted to the pro forma amounts indicated below:

 

7

----

 
|                                                                                                                                                |   |        |       | **Quarter Ended** |       |
|-----------------------------------------------------------------------------------------------------------------------------------------------------|--------|-------------|------------|-------------------|------------|
| **(In thousands, except per share data)**                                                                                                           |   |        |       | **May 3,  2003**  |       | **May 4,  2002** |   |
|                                                                                                                                                |   |        | ** ** |              | ** ** |   | ** ** |
| Net loss:                                                                                                                                           |   | As reported |       | $                 | (8,740     | ) | $ | (3,179 | ) |
| Deduct:  Total stock-based employee compensation  expense determined under fair value based method for all awards, net of  related tax effects |   |        |       | (9                | )          | (7 | ) |
|                                                                                                                                                |   | Pro Forma   |       | $                 | (8,749     | ) | $ | (3,186 | ) |
|                                                                                                                                                |   |        |       |              |       |   |   |
| Basic and  diluted net loss per share:                                                                                                              |   | As reported |       | $                 | (2.81      | ) | $ | (1.02 | ) |
|                                                                                                                                                |   | Pro Forma   |       | $                 | (2.81      | ) | $ | (1.02 | ) |

 

The Company implemented SFAS No. 144 on February 3, 2002.  During the first quarter of fiscal 2003 theCompany recorded an asset impairment charge of $1.7 million which is includedin store closing and asset impairment in the Consolidated Statements ofOperations.  In accordance with SFAS No.144, the two stores that the Company closed in fiscal 2002, the two stores thatthe Company closed in the first quarter of fiscal 2003 and the one store theCompany closed in the second quarter of fiscal 2003 are required to be reportedas discontinued operations. The results include all direct charges to theoperations of the stores.  Corporateoverhead, including interest, is not included in discontinued store operations.  The results are excluded from theaccompanying notes to the Consolidated Financial Statements, unless otherwisenoted.  Sales relating to discontinuedoperations were $2.6 million in the first quarter of fiscal 2003 and $8.9million in the first quarter of fiscal 2002. The Company’s discontinuedoperations recorded a loss of $193 thousand in the first quarter of fiscal 2003and income of $171 thousand in the first quarter of fiscal 2002.  In the first quarter of fiscal 2003, theCompany reclassified the assets of one store with a book value of $161 thousandfrom “Property and Equipment (Net)” to “Property Held for Resale” as this storewas closed and the assets sold during the second quarter of fiscal 2003.

 

The Company implemented SFAS No. 145 on May 5, 2002 at the beginning of the second quarter of fiscal2002.  The quarter ended May 4, 2002 hasbeen reclassed to conform to the provisions of Statement No. 145.  The effects of implementation areillustrated as follows:

 
|                                                          |   | **Quarter Ended** |   |
|---------------------------------------------------------------|--------|-------------------|--------|
| **(Dollars in thousands)**                                    |   | **May 3,  2003**  |   | **May 4,  2002** |   |
| Gain on  extinguishment of debt increase                      |   | $                 | — |   | $ | 478 |   |
| Extraordinary  item - gain on extinguishment of debt decrease |   | $                 | — |   | $ | 478 |   |

 

**Reclassifications**

Certain reclassifications were made to balances for the May 4, 2002quarter end to conform to May 3, 2003 presentation.

 

**Liabilities Subject to Compromise**

Liabilities subject to compromise refer to liabilities incurred priorto the filing of a petition for protection under the Bankruptcy Code, exceptthose claims that will not be impaired. The liabilities subject to compromise represent management’s bestestimate of known or potential claims to be

 

8

----

 

resolved in connection with the Chapter 11 filing.  Such claims may be subject to futureadjustment depending on Court action, further developments with respect todisputed claims or other events.  Theprincipal categories of claims classified as liabilities subject to compromiseconsist of the following:

 
| **(Dollars in thousands)**                   |   | **May 3, 2003** |    |
|----------------------------------------------|--------|-----------------|---------|
|                                         |   |            |    |
| Senior notes                                 |   | $               | 64,076  |   |
| Accrued interest payable on the Senior notes |   | 3,917           |    |
| Prepetition accounts payable                 |   | 13,591          |    |
| Closed store reserve                         |   | 953             |    |
| Capital leases                               |   | 32,863          |    |
| Real estate taxes                            |   | 4,882           |    |
| Other deferred debt                          |   | 7,078           |    |
| Other                                        |   | 1,578           |    |
|                                         |   |            |    |
| Total                                        |   | $               | 128,938 |   |

 

**Reorganization Items, Net**

A summary of costsrecognized during the first quarter of fiscal 2003 relating to the SecondBankruptcy Case is as follows:

 
| **(Dollars  in thousands)**                             |   | **Quarter Ended  May 3,  2003** |       |
|---------------------------------------------------------|--------|---------------------------------|------------|
|                                                    |   |                            | ** ** |
| Professional  fees                                      |   | $                               | 2,174      |   |
| Unamortized  issuance cost and discount on senior notes |   | 685                             |       |
| Other                                                   |   | 12                              |       |
| Total                                                   |   | $                               | 2,871      |   |

 

The net reorganization items are based on information presentlyavailable to the Company, however, the actual costs could differ materiallyfrom the estimates.  Additionally, othercosts may be incurred which cannot be presently estimated.

 

*Professionalfees* - Professional fees relate to legal, accounting,consulting and other professional costs directly attributable to the SecondBankruptcy Case and are being expensed as incurred.

 

*Unamortized issuance cost anddiscount on senior notes* - When debt subject to compromise, such as the senior notes, has becomean allowed claim and that claim differs from the net carrying amount of thedebt (defined as the face amount of the debt less unamortized debt issuance costsand discount), the net carrying amount is adjusted to the amount of the allowedclaim.

 

9

----

 

**Comprehensive Income (Loss)**

Comprehensive income (loss) includes all changes in the Company’sequity during the period, except transactions with stockholders of theCompany.  Comprehensive loss consistedof the following:

 
|                                             |   | **Quarter Ended** |   |
|--------------------------------------------------|--------|-------------------|--------|
| **(Dollars  in thousands)**                      |   | **May 3,  2003**  |   | **May 4,  2002** |   |
|                                             |   |              |   |   |   |
| Net loss                                         |   | $                 | (8,740 | ) | $ | (3,179 | ) |
| Other  comprehensive income (loss):              |   |              |   |   |   |
| Unrealized gain  (loss) on marketable securities |   | 38                |   | (64 | ) |
|                                             |   |              |   |   |   |
| Comprehensive  loss                              |   | $                 | (8,702 | ) | $ | (3,243 | ) |

 

**Risks and Uncertainties**

See *ReorganizationProceedings Under Chapter 11 of the Bankruptcy Code* above.

 

The Company’scollective bargaining agreement with Union locals covering 35 stores,representing 45.5% of the Company’s associates, were due to expire on November16, 2002.  The Company signed anagreement on November 1, 2002 extending the term of the collective bargainingagreement until December 16, 2002 and subsequently signed another agreement onDecember 16, 2002 extending the term of the collective bargaining agreementuntil February 1, 2003 and subsequently signed another agreement extending theterm of the collective bargaining agreement until August 1, 2003.  In addition, the Company has collectivebargaining agreements covering two stores, representing 1.8% of the Company’sassociates, which are under extension agreements pending negotiation of newcollective bargaining agreements.  TheCompany expects to continue to negotiate with the unions while a plan ofreorganization develops.  There can beno assurance, however, that such agreements will be reached without a workstoppage.  A prolonged work stoppageaffecting a substantial number of stores could have a material adverse effecton the Company’s financial position and results of operations.

 

**Litigation**

On April 7, 2003 (the “Petition Date II”), the Company filed avoluntary petition under Chapter 11 of Title 11 of the United States Code(“Second Bankruptcy Case”).  Thepetition was filed in the United States Bankruptcy Court for the NorthernDistrict of Illinois in Chicago under case number 03-15299.  The Company continues to manage its affairsand operate its business as a debtor-in-possession while the Second BankruptcyCase is pending.  Additional informationrelating to the Second Bankruptcy Case is set forth in the notes to theconsolidated financial statements under the caption “Reorganization ProceedingsUnder Chapter 11 of the Bankruptcy Code.”

** **

**Other Cases**

 

TheCompany is subject to various other unresolved legal actions that arise in thenormal course of its business.  Althoughit is not possible to predict with certainty, and no assurances can be givenwith respect to such matters, the Company believes the outcome of theseunresolved legal actions will not have a materially adverse effect on itsresults of operations, liquidity or financial position.

 

**New AccountingStandards**

In April 2003, the FASB issued SFAS No. 149, *Amendment of Statement 133 onDerivative Instruments and Hedging Activities.*SFAS No. 149 amendsand clarifies financial accounting and

 

10

----

 

reporting for derivative instruments, including certain derivative instrumentsembedded in other contracts (collectively referred to as derivatives) and forhedging activities under SFAS No. 133*, Accounting for Derivative Instruments and HedgingActivities.*This Statement is primarily effective for contractsentered into or modified after June 30, 2003*.*The Company has determined theapplication of this statement will not have a material effect on itsconsolidated financial statements.

 

In May 2003, the FASB issued SFAS No. 150, *Accounting for Certain FinancialInstruments with Characteristics of both Liabilities and Equity. *SFAS No.150 establishes standardsfor how an issuer classifies and measures certain financial instruments withcharacteristics of both liabilities and equity.  It requires that an issuer classify a financial instrument thatis within its scope as a liability when previously it was classified as equity(or an asset in some circumstances). This Statement is effective for financialinstruments entered into or modified after May 31, 2003*.*The Company has determinedthe application of this statement will not have a material effect on itsconsolidated financial statements.

 

**Item 2:Management’s Discussion and Analysis of Financial Condition and Results ofOperations**

 

***Critical Accounting Policies***

Critical accounting policies are those accounting policies thatmanagement believes are important to the portrayal of Eagle’s financialcondition and results of operations and require management’s most difficult,subjective or complex judgments, often as a result of the need to makeestimates about the effect of matters that are inherently uncertain.

 

*Inventory*-Inventoriesare stated at the lower of cost or market. Cost is determined through use of the first-in,first-out (“FIFO”) method, for substantially all inventories, applied toinventory values determined primarily by the retail inventory method (“RIM”)for store inventories and the weighted average inventory method for warehouseinventories.

 

Under RIM the valuation of inventories are at cost and the resultinggross margins are calculated by applying a cost-to-retail ratio to sales.  Inherent in the RIM calculations are certainmanagement judgments and estimates, including shrinkage, which could impact theending inventory valuation at cost, as well as the resulting grossmargins.  RIM is an averaging methodthat has been widely used in the retail industry due to its practicality.

 

*Long-LivedAssets*— The Company monitors under-performing stores andunder-utilized facilities for an indication that the carrying amount of assetsmay not be recoverable.  If the sum ofthe expected future undiscounted cash flows is less than the carrying amount ofthe asset an impairment loss is recognized. Impairment is measured based on the estimated fair value of theasset.  Fair value is based onmanagement’s estimate of the amount that could be realized from the sale ofassets in a current transaction between willing parties based on professionalappraisals, offers and other indications of fair value.  In determining whether an asset is impaired,assets are grouped at the lowest level for which there are identifiable cashflows that are largely independent of the cash flows of other groups of assets,which, for the Company, is generally on a store by store basis.

 

*Self-Insurance  -* The Company is primarily self-insured,through its captive insurance subsidiary, for workers’ compensation, generalliability and automobile (effective November 1, 2001) claims. Theself-insurance claim liability is determined actuarially based on claims filedand an estimate of claims incurred but not yet reported.  Actuarial projections of the losses areemployed due to the high degree of variability in the liability estimates.  Some factors affecting the uncertainty ofclaims include the timeframe of development, settlement patterns, litigationand adjudication direction and

 

11

----

 

medical treatment and cost trends. The liability is not discounted.

 

A single parent captive is used to fund the self-insurance liabilities.  The captive allows greater flexibility andmanagement control over the claims activities while earning income on thereserves.

 

**Results ofContinuing Operations**

Sales for continuing operations for the Company’s first quarter endedMay 3, 2003 were $136.2 million, a decrease of $16.6 million or 10.9% comparedto sales of $152.8 million for the quarter ended May 4, 2002. These salesdeclines were due primarily to continued new store openings by competitors anda challenging competitive environment. There were 59 stores included in continuing operations at the end of thequarter. The sales for the two stores that closed during fiscal 2002, the twostores that closed during the first quarter of fiscal 2003 and the one storethat has closed in the second quarter of fiscal 2003 are classified asdiscontinued operations.

 

The gross margin for the first quarter of fiscal 2003 was $38.3 millionor 28.1% of sales compared to $42.0 million or 27.5% of sales for the samequarter of fiscal 2002. The gross margin decline of $3.7 million is primarilydue to the decrease in sales, partially offset by an increase of $663thousand relating to the application of The Financial Accounting StandardsBoard (“FASB”) Emerging Issues Task Force (“EITF”) Issue No. 02-16, “Accountingby a Customer (Including a Reseller) for Certain Consideration Received from aVendor”.

 

Selling, general and administrative expense for the first quarter offiscal 2003 was $35.6 million or 26.1% of sales compared to $38.2 million or25.0% of sales in the same quarter of fiscal 2002. The decrease of $2.6million for the quarter is primarily due to decreases of $1.3 million inadvertising expense, $350 thousand of severance expense, and a reduction invariable expenses of $1.7 million associated with the decline in sales,partially offset by an increase of $919 thousand relating to the application ofEITF Issue No. 02-16.

 

For the quarter ended May 3, 2003 the Company recorded a store closingand asset impairment charge of $1.7 million for underperforming stores.

 

A charge of $2.9 million was recorded during the first quarter offiscal 2003 for reorganization items, including $2.2 million in professionalfees, $685 thousand in unamortized issuance cost and discount on senior notes,and $12 thousand of other items.

 

Depreciation and amortization expense for the quarter ended May 3, 2003was $3.6 million or 2.6% of sales compared to $4.5 million or 3.0% of sales inthe same quarter of fiscal 2002.  Thedecrease is primarily due to a decrease in capital spending since fiscal year1999 resulting in a higher percentage of the Company’s capital assets beingfully depreciated.  Net interest expensewas $3.1 million or 2.3% of sales in the first quarter of fiscal 2003 comparedto $3.1 million or 2.0% of sales in the same quarter of fiscal 2002.

 

Gain on extinguishment of debt of $478 thousand was recorded in thefirst quarter of fiscal 2002 relating to the repurchase of senior notes.  Senior notes with a face value of $1.0million were purchased for $563 thousand plus accrued interest.

 

In accordance with SFAS No. 144, the two stores that the Company closedin fiscal 2002, the two stores that the Company closed in the first quarter offiscal 2003 and the one store the Company closed in the second quarter of fiscal2003 are required to be reported as discontinued operations. The resultsinclude all direct charges to the operations of the stores.  Corporate overhead, including interest, isnot included in discontinued store operations. The results are excluded from the

 

12

----

 

accompanying notes to the Consolidated Financial Statements, unlessotherwise noted.  Sales relating todiscontinued operations were $2.6 million in the first quarter of fiscal 2003and $8.9 million in the first quarter of fiscal 2002. The Company’sdiscontinued operations recorded a loss of $193 thousand in the first quarterof fiscal 2003 and income of $171 thousand in the first quarter of fiscal 2002.

 

The net loss, including discontinued operations, for the first quarterof fiscal 2003 was $8.7 million or $2.81 per share compared to a net loss of$3.2 million or $1.02 per share in the same quarter of fiscal 2002. No taxbenefit was recognized in fiscal 2003 or 2002 as the Company is in a net operatingloss carryforward position.  Valuationallowances have been established for the entire amount of net deferred taxassets due to the uncertainty of future recoverability.

 

**Liquidity and Capital Resources**

The Company’s Senior Notes required an interest payment ofapproximately $3.5 million on April 15, 2003. This upcoming interest payment, the low excess availability under theRevolver, the tightening of vendor credit, the expiration of the Waiver, theCompany’s increasing cost structure, and the slow economic climate forced theCompany to file for Chapter 11 protection on April 7, 2003 (See “ReorganizationProceedings Under Chapter 11 of the Bankruptcy Code”).  Subsequent to the filing, the interestpayment relating to the Senior Notes was not made, which is an event of defaultunder the Indenture for the Senior Notes. Also, the filing of the SecondBankruptcy Case is an event of default under the Indenture and the Senior Notesbecame immediately due and payable subject to the automatic stay provisions ofChapter 11. The Company is embarking upon this restructuring in order toattempt to create financial flexibility for future operating requirements andcapital expenditures.  In preparationsfor the Chapter 11 filing, the Company, together with its outside advisors,have identified certain strategic alternatives to maximize value for itscreditors.  The Company, in its businessjudgment, is evaluating all possible strategic alternatives, including thepossible sale of some or all of its assets.

 

In conjunction with the Chapter 11 filing on April 7, 2003, the Companyreceived a commitment for up to $40 million in debtor-in-possession (DIP)financing from Congress which replaced the Revolver.  On April 7, 2003, the bankruptcy court approved the DIP financingon an interim basis, with the final DIP order approved on May 20, 2003.  The interest rates for this facility are thesame as defined in the Waiver with a weighted average rate of 4.37% on May 3,2003.

 

On May 3, 2003, the Company had $19.9 million in loans against the DIPfinancing and no letters of credit outstanding.  Subject to the borrowing base provisions of the DIP financing,the Company had additional availability of $8.5 million on May 3, 2003.  As outlined under “Safe HarborStatements Under the Private Securities Litigation Reform Act of 1995” and since no plan of reorganization has beendetermined, there can be no assurance of future availability which could causethe Company to seek additional financing or force the Company to liquidate.

 

Cash generated by operating activities was $4.3 million for the quarterended May 3, 2003 compared to cash used by operating activities of $5.6 millionin the comparable period of fiscal 2002. The net loss and non-cash charges used $1.6 million of cash.  Working capital changes generated $5.9million, due primarily to increases in accounts payable and accrued and otherliabilities and a decrease in inventories, partially offset by increases inaccounts receivable and other assets.

 

Working capital at May 3, 2003 was $17.0 million and the ratio ofcurrent assets to current liabilities was 1.30 to 1 compared to negative $4.4million and 0.94 to 1 on February 1, 2003. The increase in working capital is primarily due to classifying certainliabilities as subject to compromise on May 3, 2003 compared to as current onFebruary 1, 2003.

 

13

----

 

Additions to property and equipment for the first quarter of fiscal2003 were $37 thousand compared to $2.1 million in the same period of fiscal2002.

 

The Company received a Nasdaq Staff Determination on March 18, 2003indicating that the Company had failed to regain compliance with the minimumbid price and did not comply with the minimum market value of publicly heldshares as required by Marketplace Rules 4310(c)(4) and 4310(c)(7),respectively.  Accordingly, Nasdaqnotified the Company that its Common Stock would be delisted from the NasdaqStock Market effective as of the opening of business on March 27, 2003.  The Company’s Common Stock began trading onthe OTC Bulletin Board, on March 27, 2003.

 

Inclusion of the Company’s common stock on the OTC Bulletin Board couldadversely affect the liquidity of the Company’s common stock and may impact thepublic’s perception of the Company. There can be no assurance that delisting will not have a materialadverse effect on liquidity or business operations.

 

***Common Stock Risks* - At this time, itis not possible to predict the effect of the Chapter 11 reorganization on ourbusiness, various creditors and security holders or when we will be able toexit Chapter 11.**

 

**Under the priority scheme establishedby the Bankruptcy Code, certain postpetition liabilities and prepetitionliabilities need to be satisfied before shareholders are entitled to receiveany distribution.  The ultimate recoveryto common shareholders, if any, will not be determined until confirmation of aplan or plans of reorganization.  Noassurance can be given as to what values, if any, will be ascribed in thebankruptcy proceedings to the common shareholders.  A plan of reorganization could also result in holders of theCompany’s common stock receiving no value for their interests.  Because of such possibilities, the value ofthe common stock is highly speculative. Accordingly, the Company urges that appropriate caution be exercisedwith respect to existing and future investments in the securities.**

 

**Currently, the Board of Directorsbelieves it is unlikely there will be any recovery of value to commonshareholders.**

 

The Company’s collective bargaining agreement with Union localscovering 35 stores, representing 45.5% of the Company’s associates, expired onNovember 16, 2002.  The Company signedan agreement on November 1, 2002 extending the term of the collectivebargaining agreement until December 16, 2002 and subsequently signed anotheragreement on December 16, 2002 extending the term of the collective bargainingagreement until February 1, 2003 and subsequently signed another agreementextending the term of the collective bargaining agreement until August 1,2003.  In addition, the Company hascollective bargaining agreements covering two stores, representing 1.8% of theCompany’s associates, which are under extension agreements pending negotiationof new collective bargaining agreements. The Company expects to continue to negotiate with the unions while aplan of reorganization develops.  Therecan be no assurance, however, that such agreements will be reached without awork stoppage.  A prolonged workstoppage affecting a substantial number of stores could have a material adverseeffect on the Company’s financial position and results of operations.

 

**Safe Harbor Statements Under the Private SecuritiesLitigation Reform Act of 1995**

The statements under Management’s Discussion and Analysis of FinancialCondition and Results of Operations and the other statements in this Form 10-Qwhich are not historical facts are forward looking statements.  These forward looking statements involve risksand uncertainties that could

 

14

----

 

render them materially different, including, but not limited to,acceptance of the Company’s products in the marketplace, the effect of economicconditions, the impact of current and additional competitive stores andpricing, availability and costs of inventory, employee costs and availability,the rate of technology change, the cost and uncertain outcomes of pending andunforeseen litigation including the Second Bankruptcy Case, the availabilityand cost of capital including the continued availability of capital under theinterim DIP financing (final order approved May 20, 2003), supply constraintsor difficulties, the effect of the Company’s accounting policies, the effect ofregulatory and legal developments and other risks detailed in the Company’sSecurities and Exchange Commission filings or in material incorporated thereinby reference.

 

Similarly, these and other factors, including the terms of anyreorganization plan ultimately confirmed, can affect the value of the Company’svarious prepetition liabilities and common stock. No assurance can be given asto what values, if any, will be ascribed in the bankruptcy proceedings to eachof these constituencies.  Accordingly,the Company urges that the appropriate caution be exercised with respect toexisting and future investments in any of these liabilities and/or securities.

 

**Item 3: Quantitative and QualitativeDisclosures about Market Risk**

 

No significant changes since filing the Form10-K, for the period ended February 1 2003, with the Securities and ExchangeCommission on May 23, 2003.

 

**Item 4: Procedures and Controls**

 
| a.     |   | Evaluation of disclosure controls and procedures                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  |
|--------|--------|-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------|
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | Based on their evaluation as of a date within 90  days of the filing date of the Quarterly Report on Form 10-Q, the Company’s  Chief Executive Officer and Chief Financial Officer have concluded that the  Company’s disclosure controls and procedures (as defined in Rules 13a-14 and  15d-14 under the Securities Exchange Act of 1934 (the “Exchange Act”)) are  effective to ensure that information required to be disclosed by the Company  in reports that are filed and submitted under the Exchange Act is recorded,  processed, summarized and reported within the time periods specified in  Securities and Exchange Commission rules and forms. |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
| b.     |   | Changes in internal controls                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                      |
|   |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |
|   |   | There were no significant changes in the Company’s  internal controls or in other factors that could significantly affect these  controls subsequent to the date of their evaluation, including any corrective  actions with regard to significant deficiencies and material weaknesses.                                                                                                                                                                                                                                                                                                                                                                                     |

 

**PART II : OTHERINFORMATION:**

 

**Item 1 : LegalProceedings**

****Chapter 11 Proceedings.  Reference is made to the notes to the consolidated financialstatements under the caption “Reorganization Proceedings Under Chapter 11 ofthe  Bankruptcy Code.”

 

15

----

 

**Item 2 : Changesin Securities and Use of Proceeds**    Not Applicable

 

**Item 3 : DefaultsUpon Senior Securities**

As a result of the filing by the Company on April7, 2003 of a voluntary petition for relief under Chapter 11, Title 11 of theUnited States Code, a default occurred on the Company’s 11% Senior Notes dueApril 15, 2005 (“the Senior notes”). The Company is also in default under the Senior notes because it did notpay the interest of approximately $3.5 million which was due on April 15, 2003.

 

**Item 4 : Submissionof  Matters to a Vote of SecurityHolders**   Not Applicable

 

**Item 5 : OtherInformation**   Not Applicable

 

**Item 6 : Exhibitsand Reports on Form 8-K**

 

No exhibits orreports were filed on Form 8-K.

 

16

----

 

SIGNATURES

 

Pursuant to therequirements of the Securities Exchange Act of 1934, the registrant has dulycaused this report to be signed on its behalf by the undersigned thereunto dulyauthorized:

 

 
|                       |   | EAGLE FOOD CENTERS,  INC.                        |
|----------------------------|--------|--------------------------------------------------|
|                       |   |                                             |
|                       |   |                                             |
| Dated:  June 17, 2003 |   | /s/  Robert J. Kelly                        |   |
|                       |   | Robert J. Kelly                                  |
|                       |   | Chairman, Chief  Executive Officer and President |

 
|                       |   |                                                                 |
|----------------------------|--------|----------------------------------------------------------------------|
| Dated:  June 17, 2003 |   | /s/  Randall D. McMurray                                   |   |
|                       |   | Randall D. McMurray                                                  |
|                       |   | Vice President  –Controller and Acting Chief Financial  Officer |

 

17

----

 

CERTIFICATIONS

 

I, Robert J. Kelly, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle FoodCenters, Inc.;

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed suchdisclosure controls and procedures to ensure that material information relatingto the registrant, including its consolidated subsidiaries, is made known to usby others within those entities, particularly during the period in which thisquarterly report is being prepared;

b) evaluated theeffectiveness of the registrant’s disclosure controls and procedures as of adate within 90 days prior to the filing date of this quarterly report (the“Evaluation Date”); and

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 

 
| Date:  | June 17, 2003                                     |   |   |
|--------|---------------------------------------------------|--------|--------|
|   |
|   |
|   | /s/  Robert  J. Kelly                        |   |
|   | Robert J. Kelly                                   |
|   | Chairman, Chief Executive  Officer and  President |

 

18

----

 

I, Randall D. McMurray, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Eagle FoodCenters, Inc.;

2. Based on my knowledge, this quarterly report does not contain anyuntrue statement of a material fact or omit to state a material fact necessaryto make the statements made, in light of the circumstances under which suchstatements were made, not misleading with respect to the period covered by thisquarterly report;

3. Based on my knowledge, the financial statements, and other financialinformation included in this quarterly report, fairly present in all materialrespects the financial condition, results of operations and cash flows of theregistrant as of, and for, the periods presented in this quarterly report;

4. The registrant’s other certifying officer and I are responsible forestablishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a) designed suchdisclosure controls and procedures to ensure that material information  relating to the registrant, including itsconsolidated subsidiaries, is made known to us by others within those entities,particularly during the period in which this quarterly report is beingprepared;

b) evaluated the effectivenessof the registrant’s disclosure controls and procedures as of a date within 90days prior to the filing date of this quarterly report (the “Evaluation Date”);and

c) presented in thisquarterly report our conclusions about the effectiveness of the disclosurecontrols and procedures based on our evaluation as of the Evaluation Date;

5. The registrant’s other certifying officer and I have disclosed,based on our most recent evaluation, to the registrant’s auditors and the auditcommittee of registrant’s board of directors (or persons performing theequivalent function):

a) all significantdeficiencies in the design or operation of internal controls which couldadversely affect the registrant’s ability to record, process, summarize andreport financial data and have identified for the registrant’s auditors anymaterial weaknesses in internal controls; and

b) any fraud, whether ornot material, that involves management or other employees who have asignificant role in the registrant’s internal controls; and

6. The registrant’s other certifying officer and I have indicated inthis quarterly report whether or not there were significant changes in internalcontrols or in other factors that could significantly affect internal controlssubsequent to the date of our most recent evaluation, including any correctiveactions with regard to significant deficiencies and material weaknesses.

 
| Date:  | June 17, 2003                                                  |   |   |
|--------|----------------------------------------------------------------|--------|--------|
|   |
|   |
|   | /s/  Randall  D. McMurray                                 |   |
|   | Randall D. McMurray                                            |
|   | Vice President-Controller and  Acting Chief  Financial Officer |

 

19

----

 

**Certification of Chief Executive Officer**

**Pursuant to Section 906 of the**

**Sarbanes-Oxley Act of 2002**

 

In connection with this quarterly report on Form 10-Q of Eagle FoodCenters, Inc. I,

Robert J. Kelly, Chief Executive Officer of Eagle Food Centers, Inc.,certify, pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, tothe best of my knowledge:

 

(1)                                                                        Thereport fully complies with the requirements of Section 13(a) or 15(d) of the SecuritiesExchange Act of 1934; and

 

(2)                                                                        Theinformation contained in this report fairly presents, in all material respects,the financial condition and results of operations of Eagle Food Centers, Inc.

 

 
| Date:  June  17, 2003 | /s/  Robert  J. Kelly                       |   |
|----------------------------|--------------------------------------------------|--------|
|                       | Robert J. Kelly                                  |
|                       | Chairman, Chief Executive  Officer and President |

 

20

----

 

**Certification of Chief Financial Officer**

**Pursuant to Section 906 of the**

**Sarbanes-Oxley Act of 2002**

 

In connection with this quarterly report on Form 10-Q of Eagle FoodCenters, Inc. I,

Randall D. McMurray, Acting Chief Financial Officer of Eagle FoodCenters, Inc., certify, pursuant to Section 906 of the Sarbanes-Oxley Act of2002, that, to the best of my knowledge:

 

(1)                                                                        Thereport fully complies with the requirements of Section 13(a) or 15(d) of theSecurities Exchange Act of 1934; and

 

(2)                                                                        Theinformation contained in this report fairly presents, in all material respects,the financial condition and results of operations of Eagle Food Centers, Inc.

 

 
| Date:  June  17, 2003 | /s/  Randall  D. McMurray                          |   |
|----------------------------|---------------------------------------------------------|--------|
|                       | Randall D. McMurray                                     |
|                       | Vice President-Controller and  Chief  Financial Officer |

 

21

----