<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            WASHINGTON, D.C. 20549
                                   FORM 10-K

[X]  Annual report pursuant to Section 13 or 15(d) of the Securities Exchange 
     Act of 1934 for the fiscal year ended January 31, 1998 or

[_}  Transition report pursuant to Section 13 or 15(d) of the Securities 
     Exchange Act of 1934 for the transition period from ________________ to
     ________________.

                          Commission File No. 0-17871

                           EAGLE FOOD CENTERS, INC.
            (Exact name of registrant as specified in its charter)

             Delaware                                    36-3548019
  -------------------------------                        ----------
  (State or other jurisdiction of                      (IRS Employer
  incorporation or organization)                     Identification No.)

               Route 67 & Knoxville Road, Milan, Illinois 61264
                   (Address of principal executive offices)

Registrant's telephone number including area code (309) 787-7700
                                                  --------------

Securities registered pursuant to Section 12(b) of the Act: None

Securities registered pursuant to Section 12(g) of the Act: Common Stock

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 if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.  _____

The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $19,428,199 as of April 20, 1998.

The number of shares of the Registrant's Common Stock, par value one cent
$(0.01) per share, outstanding on April 20, 1998 was 19,873,782.

Documents incorporated by reference include:

1)    Portions of the definitive Proxy Statement expected to be filed with the 
      Commission on or before May 18, 1998 with respect to the annual meeting of
      shareholders are incorporated by reference into Part III.

                                 1 of 48 Pages


                       Exhibit Index appears on page 46
<PAGE>
 
                      FISCAL YEAR ENDED January 31, 1998
                            FORM 10-K ANNUAL REPORT

                               TABLE OF CONTENTS


<TABLE>
<S>          <C>                                                                               <C>
                                           PART I

Item 1       Business                                                                           3

Item 2       Properties                                                                         9

Item 3       Legal Proceedings                                                                 10

Item 4       Submission of Matters to a Vote of Security Holders                               10

Item 4a      Executive Officers of the Registrant                                              11

 
                                           PART II


Item 5       Market for the Registrant's Common Equity and Related Shareholder
             Matters                                                                           12
 
Item 6       Selected Financial Data                                                           13

Item 7       Management's Discussion and Analysis of Financial Condition and
             Results of Operations                                                             14

Item 7a      Quantitative and Qualitative Disclosures about Market Risk                        19
 
Item 8       Financial Statements and Supplementary Data                                       20

Item 9       Changes in and Disagreements with Accountants on Accounting and
             Financial Disclosure                                                              42

 
                                           PART III


Item 10      Directors and Executive Officers of the Registrant                                43

Item 11      Executive Compensation                                                            43

Item 12      Security Ownership of Certain Beneficial Owners and Management                    43

Item 13      Certain Relationships and Related Transactions                                    43

 
                                           PART IV


Item 14      Exhibits, Financial Statement Schedules and Reports on Form 8-K                   44
</TABLE>

                                       2
<PAGE>
 
                                 PART I
ITEM 1: BUSINESS
----------------

General

Eagle Food Centers, Inc. (the "Company" or "Eagle"), is a Delaware Corporation.
Eagle is a leading regional supermarket chain operating 90 supermarkets in the
Quad Cities area of Illinois and Iowa, north, central and eastern Illinois,
eastern Iowa, and the Chicago/Fox River Valley and northwestern Indiana area
under the trade names "Eagle Food Centers", "Eagle Country Markets(R)", and
"BOGO's."  Most Eagle supermarkets offer a full line of groceries, meats, fresh
produce, dairy products, delicatessen and bakery products, health and beauty
aids and other general merchandise, as well as video rental and floral service.

The Company's fiscal year ends on the Saturday closest to January 31st.  Fiscal
1997 was a 52 week year ending January 31, 1998, fiscal 1996 was a 52-week year
ending February 1, 1997, and fiscal 1995 was a 53-week year ending February 3,
1996.

Talon Insurance Company ("Talon"), formed in the State of Vermont in 1994 to
provide insurance for its workers' compensation and general liability claims, is
a wholly-owned subsidiary of Eagle Food Centers, Inc.  Prior to the formation of
Talon, Eagle used paid loss and retro programs through external insurance
companies.

Store Development and Expansion

Eagle currently operates stores in the three general formats discussed below.

Eagle Country Markets represent the Company's current full line supermarket
format which was introduced by management in 1991.  Of the 76 current Eagle
Country Markets, 17 have been opened as new stores and 59 have been remodeled
with the Eagle Country Market decor.  In the new stores, extra space has been
devoted to expanded perishable departments, tying together produce, full-service
delicatessen, service bakery, service seafood and meat departments, and, in
certain stores, floral, video rental departments and in-store banks.  All newly-
built Eagle Country Markets are designed to encourage shoppers to walk through
the higher margin "Power Aisle," which includes extensive perishable offerings.
Eagle Country Markets tend to be larger stores ranging from 38,000 square feet
to 67,500 square feet for new stores.  The pricing strategy in the Eagle Country
Markets is to offer overall lower prices than comparable supermarket
competition.

Eagle Food Centers use a traditional supermarket format ranging in size from
16,500 square feet to 42,000 square feet.  The Company currently has thirteen
stores operating under this  format.  These stores offer a full range of
groceries, meats, fresh produce, dairy products, delicatessen and bakery
products, health and beauty aids and other general merchandise and many stores
offer video rental and floral departments as well.  Eagle Food Centers offer
overall low prices while providing high quality products and a service-oriented
shopping experience.

                                       3
<PAGE>
 
BOGO's Food and Deals uses a limited assortment format covering approximately
2,000 stock-keeping units of groceries, produce, meat, health and beauty aids,
and general merchandise.  The purpose of this store is to take advantage of
consumer demand for deep discount stores in less densely populated markets.  The
Company currently operates one BOGO's store opened in a previous Eagle Food
Center location.  BOGO's operates on three pricing themes: BOGO (buy one-get one
free), advertised item, and BOGO everyday low price.

Management intends to concentrate its future store development strategy around
the Eagle Country Market supermarket format.  As part of its store development
program, management continuously reviews the performance of all its stores and
expects to implement a variety of strategies, including converting or modifying
certain store formats as well as selling, subleasing or closing underperforming
stores.

The Company is pursuing a more aggressive store development program to identify
markets for new stores and obtain the best potential new store locations
available in any target market for openings over the next two to five years.
Management intends to focus the Company's new store development within existing
markets or new markets within a 300 mile radius of its Headquarters and central
distribution facility in  Milan, Illinois where the utilization of existing
distribution, marketing and support systems is advantageous to its cost
structure.  Within these markets, the Company expects to select sites for its
stores based upon factors such as existing competition, demographic composition
and available locations.

The Company opened one new store in fiscal 1997.  The Company currently has one
new store under construction and plans to open five additional new stores during
1998.  In addition, the Company is in the process of expanding two existing
stores, and plans to expand two additional stores and complete major remodels on
six stores during 1998.

The Company prefers to lease stores from local developers and pursues this
strategy wherever appropriate and cost-effective.  The Company completed two
sale/leaseback transactions in fiscal 1995, one in 1996, and one in 1997 for a
total of seven existing locations in order to reduce the amount of capital
committed to real estate.  Currently, the Company owns 16 of its stores and
leases 74 stores.

Store Operations

The Company's geographic market is divided into three areas, each having an Area
Vice President of Operations who is responsible for approximately thirty stores.
Areas and stores operate with a certain degree of autonomy to take advantage of
local market and consumer needs.  Areas and stores are responsible for store
operations, associate recruitment and development, community affairs and other
functions relating to local operations.

Store managers are given relatively broad discretion in tailoring merchandise
and services to the needs of customers in the particular community.  Associate
involvement and participation has been encouraged through meetings with the
chairman and chief executive officer, district advisory boards and store
management team incentive bonus programs for sales and earnings improvement.

Computer and Information Systems

In February, 1996, the Company outsourced its MIS function and signed a long-
term contract with MCI Systemhouse, Inc. (formerly SHL Systemhouse, Inc.) to
assume complete responsibility for Eagle's MIS organization.

                                       4
<PAGE>
 
Eagle Management uses technology as a means of enhancing productivity,
controlling costs, providing an easier shopping experience for customers and
learning more about shopper's buying habits.  The Company owns a royalty-free
license from its former parent, Lucky Stores Inc., to use or modify all legacy
computer software programs used for information processing.  Eagle has embraced
client/server technology and has started replacing several mainframe-based
legacy systems with new, client/server systems.

Eagle has been successful in implementing and integrating several new
client/server systems that will equip Eagle for processing into the next
century.  These new systems, which support essential business functions include:

 .  Warehouse and Distribution
 .  Purchasing and Inventory Control
 .  Store Applications for Cash Management, DSD Receiving, and Time and 
   Attendance

Eagle will complete the implementation and integration of three additional new
client/server systems in 1998.  These new systems, which also support essential
business functions and will prepare Eagle for processing into the next century,
include:

 .  Store Application for Labor Scheduling
 .  Pricing and Shelf Label Management
 .  Eagle Savers Card Promotional Offers

MCI Systemhouse has identified the scope of work that will need to be completed
to ensure that Eagle's remaining systems are Year 2000 compliant.  The primary
additional systems that need to be upgraded to year 2000 compliant releases
include:

 .  Human Resources - Payroll and Benefits
 .  Financial Applications including General Ledger, Accounts Payable, Accounts
   Receivable, Fixed Assets and Capital Projects
 .  Store Systems Controllers - Operating System and Supermarket Application

The Company will utilize IBM 4690 generation equipment for its point-of-sale
systems.  The systems will continue to provide the ability to offer electronic
coupons and processing of the Eagle Savers Card, a customer specific
identification card designed to facilitate targeted marketing and frequent
shopper programs. The Company will also continue to utilize a Unix processor
together with database marketing software to store and analyze customer-specific
shopping data for target marketing.  See comments at page 18 for further
discussion.

Merchandising Strategy

Eagle's strategy is to strengthen its perception as a price leader compared to
other supermarket competitors and to strengthen its image as a high quality,
service-oriented supermarket chain and provider of high quality perishables.
The Company strives to offer its customers one-stop shopping convenience and
price value for all of their food and general merchandise shopping needs.

Customer Service - Eagle delivers a wide variety of customer services.  Most
stores provide customer services such as video rental, check cashing, film
processing, lottery ticket and money order sales, and UPS shipping.  All stores
provide quick, friendly checkout service.  Management intends as part of its
current strategy to further enhance customer service through additional training
of store associates.

                                       5
<PAGE>
 
Corporate Brands (Private Label) - Corporate Brand sales are an important
element in Eagle's merchandising plan.  The Company became a member of the Topco
Associates, Inc. buying organization in  1994 and has engaged Daymon Associates,
Inc. as its "corporate brand" broker.  Eagle has a strong penetration in many
categories with its Lady Lee brand.  In 1995 the Company entered into an
agreement with Topco to carry World Classics premium corporate brand products
and in 1996 introduced the Valu Time label for the low price corporate brand
niche.

Selection - A typical Eagle store carries over 23,000 items, including food and
general merchandise.  The Company carries nationally advertised brands and an
extensive selection of top quality corporate brand products.  All stores carry a
full line of dairy, frozen food, health and beauty aids and selected general
merchandise.  In addition, most stores have service delicatessens and bakeries
and some stores provide additional specialty departments such as ethnic food
items, floral service, seafood service, beer, wine, liquor, and in-store banking
facilities.

Promotion - The Company's promotion and merchandising strategy focuses on its
image as a high-quality, service-oriented supermarket chain while reinforcing
its reputation for price leadership and high quality perishables.  Eagle has
utilized the Eagle Savers' Card for several continuity promotions and for
electronic coupon discounts.  Through its store personnel, the Company takes an
active interest in the communities in which it operates.  The Company also
contributes funds, products and services to local charities and civic groups.

Consumer Research - The Company utilizes consumer research to track customer
attitudes and the market shares of the Company and its competitors.  The Company
also has a continuous program of soliciting customer opinions in all of its
market areas through the use of in-store customer comment cards.  This data
enables management to respond to changing consumer needs, direct advertising to
specific customer perceptions and evaluate store services and product offerings.

Advertising Strategy

The Company utilizes a broad range of print and broadcast advertising in the
markets it serves.  In addition, the Company seeks co-op advertising
reimbursements from vendors.  The additional co-op advertising has allowed the
Company to broaden its exposure in various media.

The Company eliminated its in-house advertising department in 1993.  These
services are now being purchased from third party providers.  This allowed the
Company to take advantage of technological advances in layout, desktop
publishing and production more quickly than if the Company had attempted to
develop such technology internally.

Purchasing and Distribution

The Company's stores are located an average of 120 miles from the Company's
central distribution facility in Milan, Illinois.  This complex includes the
Company's executive offices, warehouse, areas used for receiving, shipping and
trailer storage, and a truck repair facility.

The Company supplies approximately 70% of its stores' inventory requirements
from its  935,332 square foot central distribution facility (which includes
approximately 189,072 square feet of refrigerated and freezer space).  The
remaining 30% of the stores' inventory requirements are delivered direct to the
store.  The Company's purchasing and distribution functions are managed through
its central merchandising system.

The Company's purchasing and distribution operations permit rapid turnover at
its central distribution facility, allowing its stores to offer consistently
fresh, high-quality dairy products, meats, produce, bakery items and 

                                       6
<PAGE>
 
frozen foods. Also, centralized purchasing and distribution reduces the
Company's cost of merchandise and related transportation costs by allowing the
Company to take advantage of volume buying opportunities and manufacturers'
promotional discounts and allowances and by minimizing vendor distribution
costs. The Company engages in forward buying programs to take advantage of
temporary price discounts. Due to its proximity to Chicago and other major
markets, the Company is able to reduce transportation costs included in cost of
goods sold by "backhauling" merchandise to its Milan central distribution
facility.

Competition

The food retailing business is highly competitive.  The Company is in direct
competition with national, regional and local chains as well as independent
supermarkets, warehouse stores, membership warehouse clubs, supercenters,
limited assortment stores, discount drug stores and convenience stores.  The
Company also competes with local food stores, specialty food stores (including
bakeries, fish markets and butcher shops), restaurants and fast food chains.
The principal competitive factors include store location, price, service,
convenience, product quality and variety.  The number and type of competitors
vary by location, and the Company's competitive position varies according to the
individual markets in which the Company does business.  The Company's principal
competitors operate under the trade names of Cub, Dominicks, Hy-Vee, Jewel,
Kmart, Kroger, Shop-N-Save, Target, and Wal-Mart (Supercenters and Sam's Clubs).
Management believes that the Company's principal competitive advantages are its
value perception, the attractive Eagle Country Market store format,
concentration in certain markets and expansion of service and product offerings.
The Company is at a competitive disadvantage to some of its competitors due to
having unionized associates.

A new format appeared in the Company's trade area in 1994 as five Super KMart
supercenters opened.  One Wal-Mart Supercenter opened in fiscal 1995 followed by
six in 1996 and six more in 1997. Additional supercenter openings by KMart, Wal-
Mart, Target and Meijer are likely in the next several years.  Not only does
this format add new grocery square footage to the market but it offers
traditional grocery products at low prices to attract customers to the location
with the intent to draw them to the general merchandise side of the store.
These new competitors operate at a significant cost advantage to supermarkets by
using mostly part-time, non-union employees.

Trademarks, Trade Names and Licenses

The Company uses various trademarks and service marks in its business, the most
important of which are the "Eagle Country Market "TM", "5-Star Meats(R)", "Lady
Lee(R)", "Eagle Savers' Card "TM", and "Harvest Day(R)" trademarks and the
"Eagle(R)" and "Eagle Country Market(R)" service marks.  Each such trademark is
federally registered or has an application for registration pending.  Pursuant
to a trademark license agreement (the "Trademark License Agreement") entered
into with the Company's former parent, Lucky Stores, Inc., the Company has been
granted the royalty-free use of the "5-Star Meats(R)", "Lady Lee(R)" and
"Harvest Day(R)" trademarks until November 30, 2007.  The Trademark License
Agreement permits the Company to use the licensed trademarks only in the states
of Illinois, Indiana, Iowa, Michigan, Ohio, Wisconsin, Kentucky and Minnesota.
Lucky Stores, Inc. has agreed not to grant to any other person the right to use
such trademarks in the states of Illinois, Indiana and Iowa during the period of
the license to the Company.

Associates and Labor Relations

At the end of fiscal 1997, the Company had 6,337 associates, 341 of whom were
management and administrative associates and 5,996 of whom were hourly
associates.  Of the Company's hourly associates, substantially all are
represented by 19 separate locals which are associated with four international
unions.  Store associates are represented by several locals of the United Food
and Commercial Workers; warehouse associates, warehouse and bakery drivers and
office and clerical workers are represented by Teamsters Local 371; bakery

                                       7
<PAGE>
 
plant workers are represented by Bakery and Confectionery Workers Union Local
36; and bakery plant operating engineers are represented by Operating Engineers
Local 150.

The Company values its associates and believes that its relationship with them
is good.  Several associate relations programs have been introduced, including
measures that allow associates to participate in store level decisions, safety
incentive programs and store management team incentive bonus programs.  The
Company began offering a 401(k) savings plan in 1996 open to all union
associates.  In addition, the Company has an associate stock purchase program
and a scholarship program for associates' children and offers preferential
discounts to associates on merchandise purchases.

                                       8
<PAGE>
 
ITEM 2:  PROPERTIES
-------------------

Stores

The Company currently operates 90 stores, ranging in size from 16,500 to 67,500
square feet, with an average size of 37,756 square feet. Sixteen of the
Company's stores are owned in fee by the Company. The Company is the lessee or
sublessee for the remaining 74 stores. The Company sold and leased back one of
its stores in fiscal 1997, one in fiscal 1996, and five in fiscal 1995.

Selected statistics on Eagle retail food stores are presented below:
<TABLE>
<CAPTION>
                                                                      Fiscal Year Ended

                                                        ---------------------------------------------
                                                          January 31,     February 1,     February 3,
                                                              1998            1997            1996

<S>                                                      <C>             <C>             <C>
Average total sq. ft. per store                               37,756          37,281          36,772
Average total sq. ft. selling space per store                 27,835          27,460          27,102

Stores beginning of year                                          92              92              96
Opened during year                                                 1               2               0
Major remodels(1)                                                  5               1               3
Closed during year                                                 3               2               4
Stores end of year                                                90              92              92

Size of stores at end of year:
Less than 25,000 sq. ft.                                           5               5               5
25,000 - 29,999 sq. ft.                                           25              28              29
30,000 - 34,999 sq. ft.                                            5               5               5
35,000 - 44,999 sq. ft.                                           38              38              40
45,000 sq. ft. or greater                                         17              16              13

Type of stores:
Eagle Country Markets                                             76              74              67
Eagle Country Warehouses (2)                                       0               0               7
Eagle Food Centers                                                13              17              17
BOGO's Food and Deals                                              1               1               1
</TABLE>
(1)  A remodeling project which costs $300,000 or more for 1997 and $100,000 for
     1996 and 1995.

(2)  The Company discontinued the Eagle Country Warehouse format in 1996 and
     converted all Eagle Country Warehouses to the Eagle Country Market format.

Eagle stores contain various specialty departments such as full service
delicatessen (87 stores), bakery (86 stores), floral (63 stores), video rentals
(53 stores), pharmacy (17 stores), seafood (31 stores), alcoholic beverages (79
stores), Eagle Country Cafe (11 stores), and in-store banks (18 stores).

                                       9
<PAGE>
 
Most of the leases and subleases for the stores contain renewal options for
periods ranging from five to thirty years. The Company is required to pay fixed
rent and a percentage (ranging from 0.75% to 1.5%) of its gross sales in excess
of stated minimum gross sales amounts under 74 of the leases and subleases. The
Company also has subleases on 14 former store locations and has four vacant
former store properties with continuing rent obligations of which the Company is
attempting to dispose. For additional information on leased premises, see Note H
in the notes to the consolidated financial statements included elsewhere in this
document.

Central Distribution and Bakery Facilities

The Company leases its central distribution facility under a lease expiring in
2007. The Company's central distribution facility contains a total of 935,332
square feet of space.

The Company's central bakery is a 49,000 square foot facility located in Rock
Island, Illinois, three miles from the central distribution facility. The
Company's lease for the bakery facility expires in 2001 and has two five-year
renewal options.

During 1996 the Company terminated the lease on its Westville, Indiana
warehouse. The Company incurred a net cash outflow of $9.1 million for the
transaction. The transaction had no impact on earnings, as the cost was
previously reserved, and was financed through the Company's revolving credit
facility.

For the most part, store fixtures and equipment, leasehold improvements and
transportation and office equipment are owned by the Company. The total cost of
the Company's ownership of property and equipment is shown in Note E of the
notes to the Company's consolidated financial statements.

ITEM 3:  LEGAL PROCEEDINGS
--------------------------

A complaint alleging discrimination in employment was filed against the Company
in 1994 in the United States District Court for the Central District of Illinois
by two current and one former associates individually and as representative of a
class of all individuals who are similarly situated. The Plaintiffs moved for
class certification and their motion was granted. In 1997, the Court granted the
Company's motion to narrow the scope of the class. The Company denies all
substantive allegations of the Plaintiffs and of the class. The Company is
subject to various other unresolved legal actions which arise in the normal
course of its business. It is not possible to predict with certainty the outcome
of these unresolved legal actions or the range of the possible loss.

ITEM 4:  SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
------------------------------------------------------------

No matters were submitted to a vote of security holders during the fourth
quarter of fiscal 1997.

                                      10
<PAGE>
 
ITEM 4a:  EXECUTIVE OFFICERS OF THE REGISTRANT
----------------------------------------------

The following table sets forth certain information with respect to the persons
who are executive officers of the Company.
<TABLE>
<CAPTION>
        Name                           Age                         Position(s) Held
 
<S>                                 <C>             <C>
Robert J. Kelly                         53          Chairman of the Board of Directors and Chief
                                                    Executive Officer
S. Patric Plumley                       49          Vice President - Chief Financial Officer and
                                                    Secretary
David S. Norton                         50          Senior Vice President - Retailing
</TABLE>
The business experience of each of the executive officers during the past five
years is as follows:

Mr. Kelly, who was named Chairman of the Board of Directors on March 30, 1998,
joined the Company as President and Chief Executive Officer in May 1995. Prior
to May 1995, Mr. Kelly was Executive Vice President, Retailing for The Vons
Companies Inc., and was employed by that company since 1963. Mr. Kelly has 35
years of experience in the supermarket industry.

Mr. Plumley, who was named Vice President - Chief Financial Officer and
Secretary on March 30, 1998, served the Company as Vice President and Corporate
Controller from September 15, 1997 until his promotion. Prior to September 1997,
Mr. Plumley served as Senior Vice President of American Stores' Super Saver
Division from 1994 to 1997, and Senior Vice President of Lucky Stores from 1990
to 1994. Mr. Plumley has 25 years of experience in the supermarket industry.

Mr. Norton joined the Company as Senior Vice President - Retailing in July 1995.
Prior to July 1995, Mr. Norton was Vice President - Merchandising for Office 1
beginning in June 1994. From May 1993 to June 1994 Mr. Norton was Vice President
of Merchandising for Reliable Corporation. For the period between September 1991
and May 1992, Mr. Norton was Senior Vice President for Food 4 Less Corporation.
Mr. Norton had been with the Alpha Beta Company, a grocery retailer, from 1963
until September 1991. The last position held by Mr. Norton with the Alpha Beta
Company was Vice President - Sales and Merchandising. Mr. Norton has 32 years of
experience in the supermarket industry.

The Company's directors are elected annually to serve until the next annual
meeting of shareholders and until their successors have been elected and
qualified. None of the directors or executive officers listed herein is related
to any other director or executive officer of the Company.

Section 16(a) of the Securities Exchange Act of 1934 requires the Company's
directors and executive officers, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file with the Securities
and Exchange Commission initial reports of ownership and reports of changes in
ownership of Common Stock and other equity securities of the Company. Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish the Company with copies of all Section 16(a) forms they
file.

To the Company's knowledge, based solely on review of the copies of such reports
furnished to the Company and written representations that no other reports were
required, during the two fiscal years ended January 31, 1998 all Section 16(a)
filing requirements applicable to its officers, directors and greater than ten-
percent beneficial owners were in compliance.

                                      11
<PAGE>
 
                                    PART II

ITEM 5:  MARKET FOR REGISTRANT'S COMMON EQUITY
----------------------------------------------
AND RELATED SHAREHOLDER MATTERS
-------------------------------

The Company's common stock trades on the NASDAQ National Market System under the
symbol "EGLE". The stock began trading on July 27, 1989. The following table
sets forth, by fiscal quarter, the high and low sale prices reported by the
NASDAQ National Market System for the periods indicated. As of April 20, 1998
there were approximately 2,693 beneficial holders of shares.
<TABLE>
<CAPTION>
                                Year Ended
                             January 31, 1998
                      ----------------------------------
                              High                Low
 
<S>                           <C>                <C>
First Quarter                  $5-3/8            $ 3-5/8
Second Quarter                  7-3/8              4-3/4
Third Quarter                   6-3/8              4-1/4
Fourth Quarter                  5-1/2             3-5/16
              
                                 Year Ended
                              February 1, 1997
                      ----------------------------------
                              High                Low
              
First Quarter                  $4-3/4            $ 1-3/4
Second Quarter                  6-1/4              3-1/4
Third Quarter                   6-7/8              3-3/8
Fourth Quarter                  4-5/8              3-3/8
</TABLE>
There were no dividends paid in fiscal 1997 or 1996. The Indenture underlying
the Company's Senior Notes and the Revolving Credit Agreement contain
restrictions on the payment of dividends. (See Note F of the notes to the
Company's consolidated financial statements). The Company does not intend to pay
dividends in the foreseeable future.

                                       12
<PAGE>
 
ITEM 6:  SELECTED FINANCIAL DATA
--------------------------------

The following table represents selected financial data of the Company on a
consolidated basis for the five fiscal years ended January 31, 1998.

The selected historical financial data for the five fiscal years ended January
31, 1998 are derived from the consolidated financial statements of the Company
which have been audited by Deloitte & Touche LLP, independent auditors.

The selected financial data set forth below should be read in conjunction with
the Company's consolidated financial statements and related notes included
elsewhere in this document.
<TABLE>
<CAPTION>
                                          Year Ended      Year Ended       Year Ended      Year Ended      Year Ended
                                         January 31,     February 1,      February 3,     January 28,     January 29,
                                             1998            1997             1996            1995            1994
<S>                                      <C>             <C>              <C>            <C>              <C>
                                                                       (53  Weeks)
Consolidated Operating Data:
Sales                                       $967,090       $1,014,889      $1,023,664      $1,015,063      $1,062,348
Gross margin                                 243,644          256,242         254,355         242,452         269,188
Selling, general and administrative
  expenses                                   208,133          218,253         227,460         221,408         225,292
Voluntary severance program(1)                     -                -               -           6,917               -
Store closing and asset
  revaluation(2)                                   -            1,700           6,519               -          17,015
Depreciation and amortization                 19,068           20,494          23,555          23,578          22,579
                                            --------       ----------      ----------      ----------      ----------
Operating income (loss)                       16,443           15,795          (3,179)         (9,451)          4,302
Interest expense                              11,751           12,547          15,497          14,780          14,244
                                            --------       ----------      ----------      ----------      ----------
Earnings (loss) before income
  taxes & extraordinary charge                 4,692            3,248         (18,676)        (24,231)         (9,942)
Income taxes (benefit)                          (400)               -            (609)         (5,357)         (3,779)
Extraordinary charge(3)                            -                -             625               -           3,969
                                            --------       ----------      ----------      ----------      ----------
Net earnings (loss)                         $  5,092       $    3,248      $  (18,692)     $  (18,874)     $  (10,132)
                                            ========       ==========      ==========      ==========      ==========
Earnings (loss) per common
  share - diluted                               $.45             $.29          $(1.68)         $(1.71)          $(.91)

Consolidated Balance
  Sheet Data (at year-end):
Total assets                                $261,624       $  254,748      $  265,278      $  311,484      $  335,165
Total debt (including capital                122,008          114,585         122,791         143,883         126,126
 leases)
Total shareholders' equity                    32,237           26,688          23,921          42,485          61,746
</TABLE>
(1)  Represents a charge of $6.9 million for a voluntary severance program for
     approximately 600 clerks in the Chicago area in fiscal 1994.
(2)  Represents a charge of $1.7 million to provide for costs of closed stores
     and asset revaluations in fiscal 1996. Represents a charge of $6.5 million
     to reduce book value of certain assets to estimated fair value for asset
     impairment in fiscal 1995. Represents a charge of $17.0 million to provide
     for costs of closing certain stores and asset revaluations in connection
     therewith in fiscal 1993. See Notes B and D of the notes to the Company's
     consolidated financial statements included elsewhere in this document.
(3)  Represents a charge of $625,000 related to the refinancing of the Revolving
     Credit Facility in fiscal 1995. Represents a charge of $4.0 million related
     to the early retirement of debt in fiscal 1993.

                                      13
<PAGE>

ITEM 7:  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

The following table sets forth certain key operating statistics as a percentage
of sales for the periods indicated:
<TABLE>
<CAPTION>
                                     Year Ended       Year Ended         Year Ended       Year Ended     Year Ended
                                     January 31,      February 1,        February 3,      January 28,    January 29,
                                        1998             1997               1996             1995           1994
<S>                                  <C>              <C>               <C>               <C>             <C>
                                                                        (53 Weeks)
Operations Statement Data:
  Sales                                  100.00%           100.00%           100.00%          100.00%          100.00%
  Gross margin                            25.19             25.25             24.85            23.89            25.34
  Selling, general and
    administrative expenses               21.52             21.51             22.22            21.81            21.21
  Depreciation and amortization
    expenses                               1.97              2.02              2.30             2.32             2.13
  Voluntary severance program                 -                 -                 -              .68                -
  Provision for store closing and
    asset revaluation                         -               .17               .64                -             1.60
  Operating income (loss)                  1.70              1.56             (0.31)           (0.93)             .40
  Interest expense                         1.22              1.24              1.51             1.46             1.34
  Earnings (loss) before income
    taxes & extraordinary charge            .49               .32             (1.82)           (2.39)            (.94)
  Income taxes (benefit)                   (.04)                -              (.06)            (.53)            (.36)
  Extraordinary charge                        -                 -               .06                -              .37
  Net earnings (loss)                       .53               .32             (1.83)           (1.86)            (.95)
</TABLE>

RESULTS OF OPERATIONS

<TABLE>
<CAPTION>

Sales

                                                                    Year Ended        Year Ended          Year Ended
                                                                    January 31,       February 1,         February 3,
                                                                       1998              1997                1996
                                                                                                          (53 Weeks)
<S>                                                                 <C>               <C>                 <C> 
Sales                                                                 $967,090        $1,014,889          $1,023,664
Percent Change                                                           (4.7)%            (0.9)%                0.8%
Same Store Change                                                        (5.2)%              1.7%                1.8%
</TABLE> 

Sales for fiscal 1997 were $967 million, a decrease of $47.8 million or 4.7%
from fiscal 1996.  Same store sales decreased 5.2% from fiscal 1996 to fiscal
1997.  Same store sales decreases are attributed primarily to competitive store
openings during the year.  The Company was operating 90 stores as of the end of
fiscal 1997 and 92 stores at the end of fiscal 1996.

Sales for fiscal 1996 were $1.015 billion, a decrease of $8.8 million or 0.9%
from the 53-week fiscal 1995. Total sales declined in fiscal 1996 because of one
less week compared to fiscal 1995, offset by same store sales increases. Same
store sales increased 1.7% from fiscal 1995 to fiscal 1996. Same store sales
increases are attributed to a better in-stock position, more consistent
promotions, increased margins and increased Eagle Savers' Card usage. The
Company was operating 92 stores as of the end of fiscal 1996 and fiscal 1995.

                                       14
<PAGE>
 
Gross Margin

Gross margin as a percentage of sales decreased to 25.19% in fiscal 1997 from
25.25% in fiscal 1996 and increased from 24.85% in  fiscal 1995.  The decrease
in gross margin in fiscal 1997 is primarily the result of increased promotional
activities.  The increase in gross margin in fiscal 1996 is primarily the result
of better buying practices, increased corporate brand sales and lower inventory
shrinkage.  Gross margin included a charge for LIFO in fiscal 1997 of .08% of
sales, in fiscal 1996 of .07% of sales and in fiscal 1995 of 0.06% of sales.

Selling, General and Administrative Expenses

Selling, general and administrative expenses as a percentage of sales were
21.52% in fiscal 1997 compared to 21.51% in fiscal 1996 and 22.22% in fiscal
1995.  Selling, general and administrative expenses were $10.1 million or 4.6%
lower in fiscal 1997 than fiscal 1996 primarily due to lower sales, increased
associate productivity and a one time $2.7 million reduction in associate
benefit costs.  Selling, general and administrative expenses were $9.2 million
or 4.0% lower in fiscal 1996 than 1995 due to lower net advertising costs, lower
professional fees and lower equipment rental costs and one less week of
operations.

Depreciation and Amortization Expense

Depreciation and amortization expense as a percentage of sales was 1.97% in
fiscal 1997 as compared to 2.02% in fiscal 1996 and 2.30% in fiscal 1995. The
decrease in depreciation expense in 1997 primarily relates to a number of assets
being fully depreciated in 1996 and 1997. The decrease in depreciation expense
from fiscal 1995 to fiscal 1996 primarily relates to assets being written off in
fiscal 1995 due to the adoption of Statement of Financial Accounting Standard
No. 121, other assets becoming fully depreciated, and the impact of
sale/leaseback transactions. There was one new store opened in fiscal 1997 and
two new replacement stores opened in fiscal 1996.

Provision for Store Closing and Asset Revaluation

During fiscal 1997 the costs to close three stores of $.6 million and provide
for $1.9 million of estimated future costs on stores to be closed was offset by
$1.2 million of favorable lease terminations and $1.3 million of favorable
changes in estimates on closed stores The fiscal 1996 charge was primarily
related to $2.0 million of costs associated with certain sublease cancellations,
net of $.3 million of changes in estimates on existing closed stores. (See Note
D to the Company's consolidated financial statements, "Reserve for Closed Stores
and Warehouse").

During 1995, the Company recorded a $6.5 million charge for impairment of "Long-
Lived Assets" (See Note B to the Company's consolidated financial statements,
"Long-Lived Assets"). No provision was made for additional store closings during
fiscal 1995.

The Company closed three stores during fiscal 1997, two stores during fiscal
1996 and four in 1995.

                                       15
<PAGE>
 
Operating Income (Loss)

Operations for fiscal 1997 resulted in operating income of $16.4 million or
1.70% of sales compared to operating income of $15.8 million or 1.56% of sales
in fiscal 1996 and an operating loss of $3.2 million or 0.31% of sales in fiscal
1995. The operating income in 1997 increased due to expense reductions in
selling, general and administrative costs, including lower associate benefit
costs, depreciation and interest, partially offset by reductions resulting from
the decrease in sales volume. The operating income in fiscal 1996 compared to an
operating loss in fiscal 1995 was the result of higher gross margin and lower
selling, general and administrative expenses and lower depreciation and store
closing/asset revaluation costs. The fiscal 1996 loss includes a store closing
and asset revaluation charge of $1.7 million. The fiscal 1995 loss included a
$6.5 million charge for asset impairments.

Interest Expense

Interest expense decreased to 1.22% of sales in fiscal 1997 compared to 1.24% of
sales in fiscal 1996 and 1.51% of sales in fiscal 1995. Interest expense
decreased in fiscal 1997 and 1996 due to lower weighted average short term
borrowings as compared to the prior fiscal year and lower interest rates in 1996
compared to 1995.

Extraordinary Charge

In the second quarter of fiscal 1995, the extraordinary charge of $625,000 or
$.06 per share was related to the refinancing of the Revolving Credit Facility.

Net Earnings (Loss)

The Company recognized net earnings of $5.1 million or $.45 per share on a
diluted basis for fiscal 1997 compared to net earnings for fiscal 1996 of $3.2
million or $.29 per share on a diluted basis and net loss of $18.7 million or
$1.68 per share in fiscal 1995. The 1997 results included a one time associate
benefit cost reduction of $2.7 million. The 1996 results include a pre-tax
charge of $1.7 million for store closings and asset revaluation. The 1995 net
loss includes a $6.5 million pre-tax charge for asset impairment as discussed
above. The weighted average common shares outstanding were 10,9l9,720,
10,863,554, and 11,120,815 for fiscal years 1997, 1996, and 1995, respectively.

The fiscal 1997 and 1996 tax provision benefited from the utilization of net
operating loss carryforwards that were not previously recognized. The effective
income tax rate in fiscal 1995 was lower than the statutory federal and state
income tax rates primarily due to limiting the income tax benefits recognized
for net operating losses that arose in 1995 and prior years. Valuation
allowances have been established for the entire amount of net deferred tax
assets due to the uncertainty of future recoverability. (See Note I to the
Company's consolidated financial statements.)

                                      16
<PAGE>
 
LIQUIDITY AND CAPITAL RESOURCES
-------------------------------

Net cash flows from operating activities were $8.5 million in fiscal 1997
compared to $24.2 million in fiscal 1996 and $14.6 million in fiscal 1995. The
1997 decrease as compared to 1996 related primarily to a $12.4 million increase
in inventory and accounts receivable compared to a decrease in such amounts in
1996. The fiscal 1996 improvement primarily related to increased net earnings.
Working capital changes used $18.4 million of cash in fiscal 1997 compared to a
use of $4.8 million of cash in fiscal 1996 and to a use of $1.6 million in
fiscal 1995. Capital expenditures totaled $19.6 million in fiscal 1997, $12.8
million in fiscal 1996 and $4.6 million in fiscal 1995, including $4.0 million,
$4.6 million and $2.2 million invested in property held for resale in fiscal
1997, 1996 and fiscal 1995, respectively.

The following table summarizes store development and planned reductions:

<TABLE>
<CAPTION>
                               Planned
                               Fiscal   Fiscal  Fiscal
                                1998     1997    1996
<S>                            <C>      <C>     <C>
New stores                        6        1       2
Store closings                    8        3       2
Expansions and major remodels    10        5       1
Store count, end of year         88       90      92
</TABLE>

The Company is planning capital expenditures of approximately $65.0 million in
fiscal 1998, which is expected to be funded primarily from internally generated
cash flows, sale/leaseback transactions and short-term borrowings from the
Revolving Credit Facility.

The Company owned 16 of its 90 stores as of January 31, 1998 and leased or
subleased the remainder. One store was sold and leased back which provided $2.8
million of proceeds during fiscal 1997. One store was also sold and leased back
which provided $3.5 million of proceeds during fiscal 1996.

The Company completed a three year agreement in May of 1995 with Congress
Financial Corporation (Central) for a $40.0 million Revolving Credit Facility
(subsequently expanded up to $50.0 million). The Revolving Credit Facility is
secured by inventories located at the Company's central distribution facility
and stores and is intended to provide for the Company's short-term liquidity
needs and capital expenditures. This agreement was subsequently extended to
April 15, 2000, and the terms provide for availability up to a maximum of $50
million, increase the capital expenditure limits per year, increase the
permitted purchase money security interests and purchase money mortgages and
provide for reductions in the interest rate and fees. Cash borrowings under the
Company's Revolving Credit Facility were $7.2 million at January 31, 1998.

                                      17
<PAGE>
 
The following table summarizes borrowing and interest information:
<TABLE>
<CAPTION>
                                                       Fiscal 1997         Fiscal 1996         Fiscal 1995
                                                       January 31,         February 1,         February 3,
                                                           1998                1997                1996
<S>                                                    <C>                 <C>                 <C>
(Dollars in millions)
 
Borrowed as of year-end                                      $ 7.2               $   -               $ 2.0
Letters of Credit as of year-end                             $   -               $ 1.8               $12.3
Maximum amount outstanding during year                       $13.8               $11.1               $26.4
Average amount outstanding during year                       $ 1.0               $ 1.4               $16.1
Weighted average interest rate                                 9.3 %               9.3 %               9.5 %
</TABLE>

The Company was in compliance with all covenants at January 31, 1998, and
expects to be in compliance with all covenants for fiscal 1998 based on
management's estimates of fiscal 1998 operating results and cash flows.
Working capital and the current ratio were as follows:

<TABLE>
<CAPTION>
                                                                             Working     Current
                                                                             Capital      Ratio
<S>                                                                         <C>         <C>
(Dollars in millions)
January 31, 1998                                                              $13.3     1.13 to 1
February 1, 1997                                                              $11.7     1.12 to 1
February 3, 1996                                                              $ 1.6     1.01 to 1
 
</TABLE>
Management believes that working capital is adequate for the Company's
reasonably foreseeable needs.

The Company terminated the Westville warehouse lease as of April 29, 1996.  The
Company incurred a net cash outflow of approximately $9.1 million for this
transaction.  This transaction did not impact reported earnings as the payment
was provided for in the Reserve for Closed Stores and Warehouse.

Inflation

Inflation has had only a minor effect on the operations of the Company and its
internal and external sources of liquidity and working capital.

Year 2000 Matters

The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year.  Any of the Company's
computer programs that have time-sensitive software may recognize a date using
"00" as the year 1900 rather than the year 2000.  This could result in a system
failure or miscalculations causing inaccuracies and disruptions of operations,
including among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.

The Company is currently engaged in a comprehensive project to upgrade its
information, technology, distribution and in-store computer software and
hardware in an effort to develop a competitive advantage in the marketplace (see
page 5).  Addressing Year 2000 matters is an integral part of this process.  The
Company has phased in a substantial number of computer systems and related
programs over the past year in 

                                       18
<PAGE>
 
its process of converting from the main frame to a client server format.
Addressing and correcting Year 2000 matters is an integral part of this
transition expected to be completed by September 1999.

The Company and MCI Systemhouse have not yet determined the costs to be incurred
relating to the Year 2000 issue.

Safe Harbor Statements Under the Private Securities Litigation Reform Act of
1995

The statements under Management's Discussion and Analysis of Financial Condition
and Results of Operations and the other statements in this Form 10-K which are
not historical facts are forward looking statements.  These forward looking
statements involve risks and uncertainties that could render them materially
different, including, but not limited to, the effect of economic conditions, the
impact of competitive stores and pricing, availability and costs of inventory,
the rate of technology change, the cost and uncertain outcomes of pending and
unforeseen litigation, the availability of capital, supply constraints or
difficulties, the effect of the Company's accounting policies, the effect of
regulatory and legal developments, and other risks detailed in the Company's
Securities and Exchange Commission filings.

Item 7A. Quantitative and Qualitative Disclosures about Market Risk
-------------------------------------------------------------------

The Company is exposed to certain market risks which are inherent in the
Company's financial instruments which arise from transactions entered into in
the normal course of business. Although the Company currently utilizes no
derivative financial instruments which expose the Company to significant market
risk, the Company is exposed to fair value risk due to changes in interest rates
with respect to its long-term debt borrowings.

The Company is subject to interest rate risk on its long-term fixed interest 
rate debt borrowings. Borrowings on the Revolving Credit Facility do not give 
rise to significant interest rate risk because of the floating interest rate 
charged on such borrowings. The Company manages its exposure to interest rate 
risk by utilizing a combination of fixed and floating rate borrowings.

The following describes information relating to the Company's instrument which 
is subject to interest rate risk at January 31, 1998 (dollars in millions):

   Description       Contract Term       Interest Rate    Cost    Fair Value
--------------------------------------------------------------------------------
   Senior Notes    Due April 15, 2000     8 5/8% fixed    $100      $97.8


                                       19
<PAGE>
 
ITEM 8:  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
----------------------------------------------------




INDEPENDENT AUDITORS' REPORT


To the Board of Directors and Shareholders of
 Eagle Food Centers, Inc.:

We have audited the accompanying consolidated balance sheets of Eagle Food
Centers, Inc. and subsidiaries as of January 31, 1998 and February 1, 1997, and
the related consolidated statements of operations, equity, and cash flows for
each of the three years in the period ended January 31, 1998. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Eagle Food Centers, Inc. and
subsidiaries as of January 31, 1998 and February 1, 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended January 31, 1998 in conformity with generally accepted accounting
principles.


DELOITTE & TOUCHE LLP


Davenport, Iowa
April 2, 1998 (April 12, 1998 as to Note P)

                                       20
<PAGE>
 
<TABLE>
<CAPTION>
EAGLE FOOD CENTERS, INC.
 
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
-------------------------------------------------------------------------------
 
                                               January 31,          February 1,
                                                  1998                  1997
ASSETS
Current assets:
<S>                                             <C>                     <C>
  Cash and cash equivalents                     $  5,113             $  9,134
  Restricted assets                               10,349                8,965
  Accounts receivable                             10,826               12,210
  Income taxes receivable                            993                  993
  Inventories                                     83,841               76,395
  Prepaid expenses and other                       1,595                1,225
                                                --------             --------
           Total current assets                  112,717              108,922
 
Property and equipment (net)                     113,124              118,473
 
Other assets:
  Deferred debt issuance costs (net)               1,070                1,761
  Excess of cost over fair value of net            2,406                2,487
   assets acquired (net)
  Property held for resale                        18,769               13,748
  Other                                           13,538                9,357
                                                --------             --------
           Total other assets                     35,783               27,353
                                                --------             --------
           Total assets                         $261,624             $254,748
                                                ========             ========
 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
  Accounts payable                              $ 43,078             $ 43,824
  Payroll and associate benefits                  16,982               18,185
  Accrued liabilities                             19,258               20,085
  Reserve for closed stores and warehouse          3,271                2,963
  Accrued taxes                                    9,131                9,633
  Bank revolving credit facility                   7,208                    -
  Current portion of long term debt                  841                2,502
                                                --------             --------
           Total current liabilities              99,769               97,192
Long term debt:
  Senior Notes                                   100,000              100,000
  Capital lease obligations                       13,959               12,083
                                                --------             --------
           Total long term debt                  113,959              112,083
Other liabilities:
  Reserve for closed stores and warehouse          6,397                8,839
  Other deferred liabilities                       9,262                9,946
                                                --------             --------
           Total other liabilities                15,659               18,785
Shareholders' equity:
  Preferred stock, $.01 par value,                     -                    -
   100,000 shares authorized
  Common stock, $.01 par value, 18,000,000 
    shares authorized, 11,500,000 shares 
    issued                                           115                  115
  Capital in excess of par value                  53,336               53,336
  Common stock in treasury, at cost,              (2,259)              (2,590)
   553,127 and 633,361 shares
  Other                                             (199)                (448)
  Retained earnings (deficit)                    (18,756)             (23,725)
                                                --------             --------
           Total shareholders' equity             32,237               26,688
                                                --------             --------
           Total liabilities and                $261,624             $254,748
            shareholders' equity                ========             ========
</TABLE> 
See notes to the consolidated financial statements.

                                      21
<PAGE>
 
<TABLE> 
<CAPTION> 

EAGLE FOOD CENTERS, INC.
 
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
--------------------------------------------------------------------------------------------
                                                     Year Ended    Year Ended    Year Ended
                                                     January 31,   February 1,   February 3,
                                                        1998          1997          1996
                                                                                 (53 Weeks)
<S>                                                  <C>           <C>           <C> 
Sales                                                $   967,090   $ 1,014,889   $ 1,023,664
 
Cost of goods sold                                       723,446       758,647       769,309
                                                     -----------   -----------   -----------
 
           Gross margin                                  243,644       256,242       254,355
 
Operating expenses:
 
  Selling, general and  administrative                   208,133       218,253       227,460
 
  Store closing and asset revaluation                          -         1,700         6,519
 
  Depreciation and amortization                           19,068        20,494        23,555
                                                     -----------   -----------   -----------
 
           Operating income (loss)                        16,443        15,795        (3,179)
 
Interest expense                                          11,751        12,547        15,497
                                                     -----------   -----------   -----------
 
Earnings (loss) before income taxes and
  extraordinary charge                                     4,692         3,248       (18,676)
 
Income taxes (benefit)                                      (400)            -          (609)
                                                     -----------   -----------   -----------
 
Earnings (loss) before extraordinary charge                5,092         3,248       (18,067)
 
Extraordinary charge                                           -             -           625
                                                     -----------   -----------   -----------
 
Net earnings (loss)                                  $     5,092   $     3,248   $   (18,692)
                                                     ===========   ===========   ===========
 
Weighted average common shares outstanding            10,919,720    10,863,554    11,120,815
 
Weighted average common and potential common
  shares outstanding                                  11,364,496    11,171,799    11,120,815
 
Basic earnings (loss) per common share:
  Earnings (loss) before extraordinary charge        $       .47   $       .30   $     (1.62)
  Extraordinary charge                                         -             -          (.06)
                                                     -----------   -----------   -----------
  Net earnings (loss)                                $       .47   $       .30   $     (1.68)
                                                     ===========   ===========   ===========
 
Diluted net earnings (loss) per common share:
  Earnings (loss) before extraordinary charge        $       .45   $       .29   $     (1.62)
  Extraordinary charge                                         -             -          (.06)
                                                     -----------   -----------   -----------
  Net earnings (loss)                                $       .45   $       .29   $     (1.68)
                                                     ===========   ===========   ===========
</TABLE> 

See notes to the consolidated financial statements.

                                       22
<PAGE>
 
<TABLE> 
<CAPTION> 

EAGLE FOOD CENTERS, INC.
 
CONSOLIDATED STATEMENTS OF EQUITY
(Dollars in thousands)
-------------------------------------------------------------------------------------------------------------------------------
                                                                    Common Stock
                                              --------------------------------------------------------
                                                                    Capital in          Treasury                      Retained
                                                             Par     Excess of    --------------------                Earnings
                                                Shares      Value    Par Value     Shares      Dollars     Other      (Deficit)
<S>                                           <C>            <C>      <C>         <C>          <C>         <C>        <C> 

BALANCE, JANUARY 28, 1995                     11,500,000     $115     $53,541      448,006     $(2,850)    $(387)     $ (7,934)
 
  Net loss                                                                                                             (18,692)
 
  Pension liability adjustment                                                                                50
 
  Change in unrealized gain (loss) on
    marketable securities                                                                                    494
 
  Purchase of treasury shares                                                      231,900        (416)
 
  Officer stock sale                                                     (205)    (125,000)        795      (281)         (309)
                                              ----------     ----     -------     --------     -------     -----      --------
 
BALANCE, FEBRUARY 3, 1996                     11,500,000      115      53,336      554,906      (2,471)     (124)      (26,935)
 
  Net earnings                                                                                                           3,248
 
  Pension liability adjustment                                                                               (19)
 
  Purchase of treasury shares                                                       91,200        (171)
 
  Stock options exercised                                                          (12,745)         52                     (38)
 
  Change in unrealized gain (loss) on
    marketable securities                                                                                   (305)
                                              ----------     ----     -------     --------     -------     -----      --------
 
BALANCE, FEBRUARY 1, 1997                     11,500,000      115      53,336      633,361      (2,590)     (448)      (23,725)
 
  Net earnings                                                                                                           5,092
 
  Pension liability adjustment                                                                               111
 
  Purchase of treasury shares                                                       12,953         (49)
 
  Stock options exercised                                                          (93,187)        380                    (123)

  Change in unrealized gain (loss) on
    marketable securities                                                                                    138
                                              ----------     ----     -------     --------     -------     -----      --------
BALANCE, JANUARY 31, 1998                     11,500,000     $115     $53,336      553,127     $(2,259)    $(199)     $(18,756)
                                              ==========     ====     =======     ========     =======     =====      ========
</TABLE> 

See notes to the consolidated financial statements.

                                      23
<PAGE>
 
<TABLE>
<CAPTION>
EAGLE FOOD CENTERS, INC.
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
-----------------------------------------------------------------------------------------------------------------
                                                             Year Ended          Year Ended           Year Ended
                                                             January 31,         February 1,         February 3,
                                                                1998                1997                 1996
<S>                                                          <C>                 <C>                 <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
  Net earnings (loss)                                           $  5,092            $  3,248             $(18,692)
  Adjustments to reconcile net earnings
    (loss) to net cash flows from operating activities:
    Extraordinary charge before income tax effect                      -                   -                  658
    Depreciation and amortization                                 19,068              20,494               23,555
    Store closing and asset revaluation                                -               1,700                6,519
    Deferred income taxes                                              -                   -                1,389
    LIFO charge                                                      775                 731                  604
    Deferred charges and credits                                   1,358               1,975                3,586
    Loss (gain) on disposal of assets                                603                 883               (1,448)
    Changes in assets and liabilities:
      Accounts receivable and other assets                        (3,902)               (962)              (1,268)
      Inventories                                                 (8,221)              3,766                2,443
      Accounts payable                                              (746)              1,799               (2,713)
      Accrued and other liabilities                               (3,216)              2,766                6,687
      Payments on reserve for closed stores and warehouse         (2,275)            (12,207)              (6,764)
                                                                --------            --------             --------
           Net cash flows from operating activities                8,536              24,193               14,556
                                                                --------            --------             --------
CASH FLOWS FROM INVESTING ACTIVITIES:
  Additions to property and equipment                            (15,560)             (8,164)              (2,419)
  Additions to property held for resale                           (4,028)             (4,629)              (2,163)
  Purchase of marketable securities (net)                         (1,246)               (231)              (3,122)
  Cash proceeds from dispositions
    of property and equipment                                      3,664               3,884               15,568
                                                                --------            --------             --------
           Net cash flows from investing activities              (17,170)             (9,140)               7,864
                                                                --------            --------             --------
CASH FLOWS FROM FINANCING ACTIVITIES:
  Deferred financing costs                                             -                   -                 (684)
  Principal payments on capital lease obligations                 (2,546)             (5,237)              (3,927)
  Net bank revolving credit facility borrowing (repayment)         7,208              (1,992)             (20,008)
  Purchase of treasury stock                                         (49)               (171)                (416)
                                                                --------            --------             --------
           Net cash flows from financing activities                4,613              (7,400)             (25,035)
                                                                --------            --------             --------
NET CHANGE IN CASH AND CASH EQUIVALENTS                           (4,021)              7,653               (2,615)
CASH AND CASH EQUIVALENTS AT
  BEGINNING OF YEAR                                                9,134               1,481                4,096
                                                                --------            --------             --------
CASH AND CASH EQUIVALENTS AT
  END OF YEAR                                                   $  5,113            $  9,134             $  1,481
                                                                ========            ========             ========
</TABLE>

                                       24
<PAGE>
 
EAGLE FOOD CENTERS, INC.

NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED JANUARY 31, 1998, FEBRUARY 1, 1997, AND FEBRUARY 3, 1996
--------------------------------------------------------------------------------

Note A - Organization - Eagle Food Centers, Inc. (the "Company"), a Delaware
corporation, engaged in the operation of retail food stores, was the General
Partner of Eagle Food Centers, L.P. ("EFC"), a Delaware limited partnership,
which previously conducted the Eagle Food Centers business. On July 27, 1989,
the owners of all of the outstanding common limited partnership interests in EFC
exchanged their partnership interests for 8.3 million shares of Common Stock of
the Company. As a result, and following the consummation of the offering by the
Company of 3.2 million shares of Common Stock and the redemption by EFC of the
preferred limited partnership interests in EFC held by Lucky Stores, Inc.
("Lucky") on August 3, 1989, the Company succeeded to the business and assets
and assumed the liabilities of EFC.

Note B - Summary of Significant Accounting Policies

Fiscal Year - The Company's fiscal year ends on the Saturday closest to January
31st. Fiscal 1997 was a 52 week year, fiscal 1996 was a 52 week year, and fiscal
1995 was a 53 week year ending January 31, 1998, February 1, 1997, and February
3, 1996, respectively.

Advertising Expense - The Company's advertising costs, including radio and
television production costs, are expensed as incurred and included in the
"Selling, general and administrative" caption of the income statement. The
components of advertising expense are as follows:

<TABLE>
<CAPTION>
                              Gross                          CO-OP Credits                         Net
                           Advertising                                                        Advertising
                      ----------------------            ----------------------           ---------------------
                      Dollars     % of Sales            Dollars     % of Sales           Dollars    % of Sales
     (Dollars in thousands)
 
<S>                      <C>            <C>                <C>            <C>               <C>           <C>
     Fiscal 1997         $16,054        1.7 %              $13,525        1.4 %             $2,529        0.3 %
     Fiscal 1996         $15,548        1.5 %              $13,724        1.3 %             $1,824        0.2 %
     Fiscal 1995         $16,493        1.6 %              $11,771        1.1 %             $4,722        0.5 %
</TABLE>

Basis of Consolidation - The consolidated financial statements include the
accounts of Eagle Food Centers, Inc. and all subsidiaries. All significant
intercompany transactions have been eliminated.

Debt Issuance Costs - Debt issuance costs, recorded net of accumulated
amortization of $2.8 million at January 31, 1998 and $2.1 million at February 1,
1997, are amortized over the terms of the related debt agreements.

Deferred Software Costs - The Company classifies software for internal use as
Other Assets. Software costs are generally amortized over five years beginning
when the software is placed in service. Deferred software balances were $12.1
million and $7.2 million for the year ended January 31, 1998 and February 1,
1997 net of accumulated amortization of $.4 million and $0, respectively.

Earnings (Loss) Per Share - Earnings per share ("EPS") are computed in
accordance with Statement of Financial Accounting Standards ("SFAS") No. 128,
"Earnings per Share." Basic EPS is computed by dividing consolidated net
earnings (loss) by the weighted average number of common shares outstanding.
Diluted EPS is computed by dividing consolidated net earnings (loss) by the sum
of the weighted average number of common shares outstanding and the weighted
average number of potential

                                      25
<PAGE>
 
common shares outstanding. Potential common shares consist solely of outstanding
options under the Company's stock option plans. Outstanding options excluded
from the computation of potential common shares (option price exceeded the
average market price during the period) amounted to 39,975 shares for 1997,
328,925 shares for 1996 and 1,285,250 shares for 1995.

Excess of Cost Over Fair Value of Net Assets Acquired ("Goodwill") - Goodwill,
recorded net of accumulated amortization of $.8 million at January 31, 1998 and
February 1, 1997, is amortized using the straight-line method over 40 years. The
Company continually reviews goodwill to assess recoverability from future
operations using undiscounted cash flows. Impairments would be recognized in
operating results if an other than temporary diminution in value occurred.

Inventories - Inventories are valued at the lower of cost or market; cost is
determined by the last-in, first-out (LIFO) method for substantially all
inventories. The current cost of the inventories was greater than the LIFO value
by $9.6 million at January 31, 1998 and $8.8 million at February 1, 1997.

Long-Lived Assets - The Company accounts for Long-Lived Assets in accordance
with SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to be Disposed Of". Under the standard, if the sum of the
expected future undiscounted cash flows is less than the carrying amount of the
asset, an impairment loss is recognized. The impairment is measured based on the
estimated fair value of the asset.

In determining whether an asset is impaired, assets are grouped at the lowest
level for which there are identifiable cash flows 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. The Company continually monitors under-
performing stores and under-utilized facilities for indication that the carrying
amount of assets may not be recoverable.

Management determined in 1995 that the performance of certain stores was not
expected to improve and an accrual for asset impairment was appropriate due to
new competitive openings during the two prior years which reduced sales and
earnings of such stores. Four of the six stores for which asset impairment was
recognized were relatively new and one store had incurred a comprehensive
remodeling in 1990. It was the opinion of management that the sustained under-
performance of the relatively new and remodeled stores, not any specific event
or circumstance, indicated impairment, resulting in further analysis and accrual
of the impairment loss. The Company recorded a $6.5 million charge in fiscal
1995 to reduce the carrying amounts of fixed assets to their estimated fair
value. Estimated fair values were primarily determined based on independent
appraisals. None of the Company's recorded goodwill related to such stores.
Impairment Charges are included in the caption "Store closing and asset
revaluation" of the income statement.

Store Closing and Asset Revaluation - In the event the performance or
utilization of under-performing stores and under-utilized facilities cannot be
improved, management may decide to close, sell or otherwise dispose of such
stores or facilities. A charge for store closing and asset revaluation is
provided when management has reached the decision to close, sell or otherwise
dispose of such stores within one year and the costs can be reasonably
estimated. The charge for store closing and asset revaluation arises primarily
from (a) the discounted value of future lease commitments in excess of the
discounted value of estimated sublease revenues, (b) store closing costs, (c)
elimination of any goodwill identified with such stores to be closed and (d)
revaluing fixed assets to estimated fair values when assets are impaired, or to
net realizable value for assets to be disposed of (see Long-Lived Assets above).
Discount rates have been determined at the time a store was added to the closed
store reserve and have not been changed to reflect subsequent changes in rates.
The Company's policy is to use a risk-free rate of return for a

                                      26
<PAGE>
 
duration equal to the average remaining lease term at the time the reserve was
established. The discount rate used for reserves established in fiscal 1997 and
1996 were 6.0% and 7.5%, respectively.

Property and Equipment - Property and equipment are stated at cost less
accumulated depreciation and amortization. Depreciation is computed by using the
straight-line method over the estimated useful lives of buildings, fixtures and
equipment. Leasehold costs and improvements are amortized over their estimated
useful lives or the remaining lease term, whichever is shorter. Leasehold
interests are generally amortized over the lease term plus expected renewal
periods or 25 years, whichever is shorter. Property acquired under capital lease
is amortized on a straight-line basis over the shorter of the life of the
property or the lease term.

Property Held for Resale - Property included in this classification represents
land acquired for future development and stores the Company is constructing or
has recently completed which the Company intends to finance through a sale and
lease back transaction and is reported at the lower of cost or estimated market
value. These properties are expected to continue to be operated by the Company,
are not impaired and have not been written down below cost.

Reclassifications - Certain reclassifications were made to prior years' balances
to conform with current year presentation.

Restricted Assets - Restricted assets are comprised of marketable securities and
cash held in escrow by third parties. Marketable securities are restricted to
satisfy state insurance reserve requirements related to claim liabilities
recorded for workers' compensation, automobile and general liability costs;
such claim liability reserves are classified as current.

The Company has classified its entire holdings of marketable securities as
available for sale reflecting management's intention to hold such securities for
indefinite periods of time. Such securities are reported at fair value and the
difference between cost and market value is reported as a separate component of
shareholders' equity until gains and losses are realized. Such amount is a
component in the "Other" caption of shareholders' equity.

Risks and Uncertainties - The preparation of the Company's consolidated
financial statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results could differ
from those estimates.

The Company is party to 24 collective bargaining agreements with 19 local unions
representing substantially all of the Company's associates. Three contracts will
expire during 1999 covering certain Company associates, in addition to a wage 
re-opener in one store. The Company expects to negotiate with the unions and to
enter into new collective bargaining agreements. There can be no assurance,
however, that such agreements will be reached without a work stoppage. A
prolonged work stoppage affecting a substantial number of stores could have a
material adverse effect on results of the company's operations.

Self-Insurance - The Company is primarily self-insured, through its captive
insurance subsidiary, for workers' compensation, automobile and general
liability costs. For the insurance year beginning November 1, 1997, the
automobile liability has been placed with an outside insurance company. The 
self-insurance claim liability is determined actuarially based on claims filed
and an estimate of claims

                                      27
<PAGE>
 
incurred but not yet reported. Self insurance claim liabilities of $7.5 million
as of January 31, 1998 and $7.1 million as of February 1, 1997 are included in
the "Accrued liabilities" caption of the balance sheet.

New Accounting Standards - In June 1997 the Financial Accounting Standards Board
("FASB") issued SFAS No. 130, "Reporting Comprehensive Income." This new
standard requires the reporting of comprehensive income and its components
(revenues, expenses, gains and losses) in a full set of general-purpose
financial statements. This standard is effective for the Company's 1998 fiscal
year and is not expected to have a significant impact on the Company's reporting
requirements.

In June 1997 the FASB issued SFAS No. 131, "Disclosures about Segments of an
Enterprise and Related Information." This new standard requires public business
enterprises to report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. This standard is effective for the
Company's 1998 fiscal year. However, the reporting requirements need not be
applied to interim financial statements in the initial year of application. The
Company is in the process of evaluating its reporting requirements under this
standard.

In March 1998, the American Institute of Certified Public Accountants issued the
Statement of Position ("SOP") 98-1, "Accounting for the Costs of Computer
Software Developed or Obtained for Internal Use". This SOP provides guidance on
accounting for the costs of computer software developed or obtained for internal
use and related disclosures. The SOP is effective for financial statements for
fiscal years beginning after December 15, 1998 and should be applied to internal
use computer software costs incurred in the year of adoption for all projects,
including those projects in progress upon initial application of the SOP. The
Company is in the process of evaluating the potential impact of the adoption of
the SOP on the consolidated financial statements.

Note C - Consolidated Statements of Cash Flows

For purposes of the Consolidated Statements of Cash Flows, the Company considers
all highly liquid debt instruments purchased with a maturity of three months or
less to be cash equivalents. Supplemental cash flow information:

<TABLE>
<CAPTION>
                                                                     1997           1996            1995
     (Dollars in thousands)                            
                                                       
     <S>                                                           <C>            <C>             <C>
     Cash paid for interest                                        $11,132        $12,009         $14,416
     Cash paid (received) for income taxes                              52         (2,958)         (6,374)
     Non-cash additions to property and equipment                    2,761            -             2,843
     Non-cash additions to the capital lease liability               2,761            -               -
     Treasury stock issued                                             380             52             -
     Non-cash transfer from property and equipment to  
       property held for resale                                      1,382            -               -
 
</TABLE>

                                      28
<PAGE>
 
Note D - Reserve for Closed Stores and Warehouse

An analysis of activity in the reserve for closed stores and warehouse for the
years ended January 31, 1998 and February 1, 1997, is as follows:

<TABLE>
<CAPTION>
                                                                            January 31,      February 1,
     (in thousands)                                                            1998             1997
 
<S>                                                                         <C>              <C>
     Balance at beginning of year                                               $11,802         $22,091
                                                                   
     Payments, primarily rental payments net of sublease rentals   
      of $1,272 in fiscal 1997 and $1,596 in 1996                                (2,765)         12,207)
                                                                   
     Asset revaluation reserve reclassified as a direct reduction  
      of fixed assets                                                               -              (810)  

     Interest cost                                                                  631           1,028
      
     Provision for store closing and assets revaluation                             -             1,700  
                                                   
     Balance at end of year (including $3.3  million        
       and $3.0 million, respectively, classified as current)                   $ 9,668        $11,802 
                                                                                =======        ======= 
</TABLE>

During fiscal 1997, the Company benefited from $1.2 million of favorable lease
terminations for five stores that were included in the closed store reserve at
February 1, 1997, and from $1.3 million in favorable changes in estimates for
stores remaining in the reserve at January 31, 1998, based on current
negotiations with the landlord or potential sublessees.  Additionally, during
fiscal 1997, the Company added six stores to the reserve, three of which were
closed in the current year with charges of $0.6 million for lease terminations,
and three of which $1.9 million was provided for estimated future costs.  The
charges for the six stores were offset by the favorable lease terminations and
changes in estimates.

During fiscal 1996, the Company provided $1.7 million for store closing costs
and asset revaluations.  This charge is primarily related to $2.0 million of
costs resulting from sublease cancellations due to bankruptcy by the sublessees,
net of favorable changes in assumptions on existing closed stores.

During 1996, the Company terminated the lease on its Westville, Indiana
warehouse.  The Company incurred a net cash outflow of $9.1 million for the
transaction, which was previously accrued for in the closed store reserve.

The reserve at January 31, 1998, represents estimated future cash outflows
primarily related to the present value of net future rental payments.  The
components of the provision for store closing and asset revaluation relating to
asset revaluation is reclassified as a reduction of fixed assets.  It is
management's opinion that the reserve will be adequate to cover continuing costs
for the existing closed stores and the stores scheduled to be closed in fiscal
1998.

At the end of fiscal year 1997, the reserve included estimated net future costs
for five closed stores and five stores to be closed, plus sublease subsidies for
ten other closed stores.  At the end of fiscal 1996 the reserve included
estimated net future costs for twelve closed stores and two stores to be closed,
plus sublease subsidies for eight other closed stores.

                                       29
<PAGE>
 
A roll forward presentation of the number of stores in the closed store reserve
for fiscal years 1997 and 1996 is as follows:

<TABLE>
<CAPTION>
                                                                                          1997         1996
     <S>                                                                                  <C>          <C>
     Number of stores in reserve at beginning of year                                       22           21
     Leases terminated/expired                                                              (8)          (2)
     Stores added to the closed store reserve                                                6            3
                                                                                          ----         ----
     Number of stores in reserve at end of year                                             20           22
                                                                                          ====         ====
</TABLE>

Note E - Property and Equipment

The investment in property and equipment is as follows:

<TABLE>
<CAPTION>
                                                                               January 31,       February 1,
                                                                                   1998             1997
     <S>                                                                       <C>               <C>
     (In thousands)

     Land                                                                      $     9,757       $    10,485
     Buildings                                                                      32,175            31,261
     Leasehold costs and improvements                                               38,624            38,644
     Fixtures and equipment                                                        137,940           131,816
     Leasehold interests                                                            29,721            32,793
     Property under capital lease                                                   21,506            23,626
                                                                               -----------       -----------
     Total                                                                         269,723           268,625
     Less accumulated depreciation and amortization                               (156,599)         (150,152)
                                                                               -----------       -----------
     Property and equipment (net)                                              $   113,124       $   118,473
                                                                               ===========       ===========
</TABLE>

The Company owned 16 of its 90 stores as of January 31, 1998 and leased or
subleased the remainder. Seven stores have been sold and leased back which
provided $2.8 million of proceeds during fiscal 1997, $3.5 million of proceeds
during fiscal 1996 and $14.0 million in fiscal 1995. The leases on the seven
stores, of which one is recorded as a capital lease, have a 25 year term with
one ten year option and four five year options. The gains or losses on the sale
of these properties have been deferred and amortized over the life of the
original lease term.

Depreciation and amortization are computed using the straight-line method over
the estimated useful lives of the assets. The useful lives of the various
classes of assets are as follows:

<TABLE>
<CAPTION>

<S>                                 <C>            <C>                               <C>
Buildings                           10-25 years    Leasehold interests               3-25 years
Fixtures and Equipment               2-12 years    Property under capital lease      Shorter of economic life
                                                                                     or lease term
Leasehold Costs & Improvements       5-23 years

</TABLE>

                                      30
<PAGE>
 
Note F - Debt

Long-term debt consists of the following:
<TABLE>
<CAPTION>
                                       January 31,      February 1,
                                           1998            1997
<S>                                    <C>              <C>
(In thousands)                      
8 5/8% Senior Notes                       $100,000        $100,000
Capital leases (Note H)                     14,800          14,585
                                          --------        --------
                                           114,800         114,585
Less current maturities                        841           2,502
                                          --------        --------
Total long-term debt                      $113,959        $112,083
                                          ========        ========
</TABLE>

The Company's 8 5/8% Senior Notes are due April 15, 2000.  The indenture
relating to the 8 5/8% Senior Notes contains provisions as well as certain
restrictions relating to certain asset dispositions, sale/leaseback
transactions, payment of dividends, repurchase of equity interests, incurrence
of additional indebtedness and liens, and certain other restricted payments.

The Company entered into a Credit Agreement with Congress Financial Corporation
(Central) on May 25, 1995. The agreement is a $50 million facility which
provides for revolving credit loans and letters of credit. No more than an
aggregate of $20.0 million of the total commitment may be drawn by the Company
as letters of credit. Total availability under the Credit Agreement is based on
percentages of allowable inventory up to a maximum of $50.0 million. The Credit
Agreement, as amended, terminates on May 31, 1998 but on April 1, 1998 was
extended (see Note P) and is secured by a first priority security interest in
all inventories of the Company located in its stores and distribution center in
Milan, Illinois. Loans made pursuant to the Credit Agreement bear interest at a
fluctuating interest rate based, at the Company's option, on a margin over the
base interest rate or a margin over the London Interbank Offered Rate multiplied
by the applicable reserve requirement (the adjusted LIBOR Rate). The Credit
Agreement has one financial covenant related to minimum net worth as defined by
the agreement. At January 31, 1998, the defined net worth of the Company exceeds
the minimum amount by approximately $37 million.

At January 31, 1998, the Company had $7.2 million borrowed against the revolving
credit facility and had no letters of credit outstanding, resulting in $39.0
million of availability under the Credit Agreement.  The interest rate on the
outstanding amount was 9.25% at January 31, 1998.

At February 1, 1997, the Company had no borrowings against the revolving credit
facility and had $1.8 million in letters of credit outstanding resulting in
$41.0 million of availability under the Credit Agreement.  The interest rate on
the outstanding amount would have been 9.25% at February 1, 1997.

The Company was in compliance with all the covenants in its debt agreements at
January 31, 1998.  The Company expects to be in compliance with all covenants
for fiscal 1998 based on management's estimates of fiscal 1998 operating results
and cash flows.

                                       31
<PAGE>
 
Note G - Treasury Stock

The following summarizes the treasury stock activity for the three years in the
period ended January 31, 1998:
<TABLE>
<CAPTION>
                                                             Shares         Dollars       Average
(Dollars in thousands)
 
<S>                                                      <C>             <C>            <C>
Outstanding January 28, 1995                                    448,006         $2,850        $6.36
Purchased                                                       231,900            416         1.79
Issued                                                          125,000            795         6.36
 
Outstanding February 3, 1996                                    554,906          2,471         4.45
Purchased                                                        91,200            171         1.88
Issued                                                           12,745             52         4.08
 
Outstanding February 1, 1997                                    633,361          2,590         4.09
Purchased                                                        12,953             49         3.83
Issued                                                           93,187            380         4.08
                                                                -------         ------        -----
 
Outstanding January 31, 1998                                    553,127         $2,259        $4.09
                                                                =======         ======        =====
 
</TABLE>

During fiscal 1995 the Company sold 125,000 shares of treasury stock to its
Chief Executive Officer Robert J. Kelly for $2.25 per share (market value at
date of sale) in exchange for a note receivable, which is recorded in the
"Other" caption of shareholder's equity and deducted from equity until paid (see
Note P).  The difference between the average share price of treasury stock and
exercise of stock options is charged to retained earnings.

Note H - Leases and Long-term Contracts

Most of the retail stores are leased.  Many of the leases have renewal options
for periods ranging from five to thirty years.  Some provide the option to
acquire the property at certain times during the initial lease term for
approximately its estimated fair market value at that time, and some require the
Company to pay taxes and insurance on the leased property.  The Company also
leases its central distribution facility under a lease expiring in 2007.  Rent
expense consists of:

<TABLE>
<CAPTION>
                                                                            Year Ended
                                                             -----------------------------------------------
                                                                January 31,     February 1,     February 3,
                                                                    1998            1997            1996
<S>                                                             <C>             <C>             <C>
(In thousands)
Minimum rent under operating leases                                $19,578         $19,570         $21,461
Additional rent based on sales                                          82             275             249
Less rentals received on noncancelable subleases                    (2,536)         (2,477)         (2,432)
                                                                   -------         -------         -------
                                                                   $17,124         $17,368         $19,278
                                                                   =======         =======         =======
</TABLE>

                                       32
<PAGE>
 
Future minimum lease payments under operating and capital leases as of January
31, 1998 are as follows:

<TABLE>
<CAPTION>
                                                    Operating        Capital
                                                      Leases         Leases
<S>                                               <C>             <C>
(In thousands)                                 
                                               
1998                                                    $ 15,967        $ 2,560
1999                                                      15,973          2,560
2000                                                      15,747          2,560
2001                                                      15,092          2,560
2002                                                      14,407          2,510
Thereafter                                               127,996         15,580
                                                        --------        -------
Total minimum lease payments                            $205,182         28,330
                                                        ========        
Less amount representing interest                                        13,530
                                                                        -------
Present value of minimum capital lease payments, 
 including $841 classified as current portion of 
 long-term debt                                                         $14,800
                                                                        =======
</TABLE>


The operating lease future minimum lease payments do not include gross minimum
commitments of $19.6 million for closed stores, the present value of which (net
of estimated sublease payments) is included in the consolidated balance sheet
caption "Reserve for closed stores and warehouse".

On February 1, 1996, the Company entered into a ten year contract for
outsourcing its information system function with MCI Systemhouse, Inc. (formerly
SHL Systemhouse, Inc.). The contract may be terminated by the Company for
convenience effective at the end of the forty-second month following the
commencement date, or may be terminated for cause by either party as a result of
specific reasons set forth in the contract. In either event, there are
descending termination charges payable by the Company. The convenience
termination charge at August 1, 1999 is $4.2 million, descending to $1.3 million
at February 1, 2005. The termination charge for cause at February 1, 1998 is
$3.3 million, descending to $.4 million at February 1, 2005.


                                      33

<PAGE>
 
Note I - Income Taxes

The following summarizes significant components of the provision for income
taxes:

<TABLE>
<CAPTION>
                                                                          Year Ended
                                                        ----------------------------------------------
                                                        January 31,       February 1,      February 3,
                                                            1998             1997              1996
<S>                                                     <C>               <C>              <C>
(In thousands)                                                                         
                                                                                       
 Income taxes (benefit):                                                               
  Federal                                                     $(400)            $   -          $  (609)
  State                                                           -                 -                -
                                                              -----       -----------          -------
                                                              $(400)            $   -          $  (609)
                                                              =====       ===========          =======
 Income taxes (benefit) consists of the following:                                     
  Current:                                                                             
    Federal                                                   $(400)            $   -          $(1,734)
    State                                                         -                 -             (222)
                                                              -----       -----------          -------
                                                              $(400)            $   -          $(1,956)
                                                              =====       ===========          =======
  Deferred:                                                                            
    Federal                                                   $   -             $   -          $ 1,125
    State                                                         -                 -              222
                                                              -----       -----------          -------
                                                              $   -             $   -          $ 1,347
                                                              =====       ===========          =======
</TABLE>

The differences between income taxes (benefit) at the statutory Federal income
tax rate and income taxes (benefit) reported in the consolidated statements of
operations are as follows:


<TABLE> 
<CAPTION> 
                                                                          Year Ended
                                                        ----------------------------------------------
                                                        January 31,       February 1,      February 3,
                                                            1998             1997              1996
<S>                                                     <C>               <C>              <C>
(In thousands)
 
Income taxes (benefit) at statutory Federal
  tax rate of 35%                                           $ 1,642         $ 1,137         $(6,537)
Surtax exemption                                                (47)            (33)            187
State income taxes, net of Federal benefit                      368             213            (934)
Tax credits                                                       -               -               -
Valuation allowance                                          (2,576)         (1,350)          6,662
Other                                                           213              33              13
                                                            -------         -------         -------
           Total                                            $  (400)        $     -         $  (609)
                                                            =======         =======         =======
 
</TABLE>

                                      34
<PAGE>
 
Deferred tax assets and liabilities arise because of differences between the
financial accounting bases for assets and liabilities and their respective tax
bases. Deferred income tax assets and liabilities are comprised of the following
significant temporary differences:

<TABLE>
<CAPTION>
                                                     January 31,     February 1,
                                                        1998            1997
<S>                                                <C>             <C>
(In thousands)                                     
                                                   
Deferred Tax Assets:                               
 Store closing and asset revaluation                     $ 6,353        $  7,207
 Accrued reserves                                          1,636           2,611
 Deferred revenues                                         2,282           2,946
 Associate benefits                                        1,819           1,516
 Tax credit and net operating loss carryforwards          13,825          16,332
 Valuation allowance                                      (9,523)        (12,099)
                                                         -------        --------
           Total                                         $16,392        $ 18,513
                                                         =======        ========
 
Deferred Tax Liabilities:
 Depreciation                                            $13,640        $ 15,557
 Other, net                                                2,752           2,956
                                                         -------        --------
           Total                                         $16,392        $ 18,513
                                                         =======        ========
 
Net deferred tax asset                                   $     -        $      -
                                                         =======        ========
</TABLE>


Valuation allowances have been established for the entire amount of the net
deferred tax assets as of January 31, 1998 and February 1, 1997 due to the
uncertainty of future recoverability.

The tax benefit of tax credit carryforwards available, in thousands of dollars,
primarily related to the alternative minimum tax and net operating loss
carryforwards, totaling $13,825, and expiration dates are as follows: 1998 -$57,
1999 - $54, 2000 - $11, 2001 - $104, 2002 - $60, 2005 - $58, 2006 - $99, 2007 -
$158, 2008 - $101, 2009 - $450, 2010 - $6,790, 2011 - $28, 2012 - $165 and
unlimited - $5,690. 

Note J - Associate Benefit Plans

Retirement Plans
----------------

Substantially all associates of the Company are covered by trusteed, non-
contributory retirement plans of the Company or by various multi-employer
retirement plans under collective bargaining agreements.

The Company's defined benefit plans covering salaried and hourly associates
provide benefits that are based on associates' compensation during years of
service. The Company's policy is to fund no less than the minimum required under
the Employee Retirement Income Security Act of 1974. During the years ended
January 31, 1998, February 1, 1997, and February 3, 1996, pension costs under
the plans totaled $713,000, $706,000, and $736,000, respectively.


                                      35
<PAGE>
 
Net periodic pension cost under the Milan Office and Non-Foods Warehouse
Retirement Plan (Milan Plan) and the Eagle Food Centers, Inc. Associate Pension
Plan (Eagle Plan) includes the following benefit and cost components for the
years ended January 31, 1998, February 1, 1997, and February 3, 1996:

<TABLE>
<CAPTION>
                                                                              Year Ended
                                                               -----------------------------------------
                                                                January 31,   February 1,   February 3,
                                                                    1998          1997          1996
<S>                                                             <C>           <C>           <C>
(In thousands)
 
Service cost                                                          $ 504         $ 516       $   505
Interest cost                                                           722           657           583
Actual return on plan assets                                           (942)         (553)       (1,001)
Net amortization and deferral                                           429            86           649
                                                                      -----         -----       -------
Net periodic pension cost                                             $ 713         $ 706       $   736
                                                                      =====         =====       =======
 
</TABLE>

The funded status and amounts recognized in the Company's consolidated balance
sheets for the Milan Plan and Eagle Plan, as of the measurement dates of
December 31, 1997 and 1996, are as follows:

<TABLE>
<CAPTION>
                                                                      December 31,          December 31,
                                                                          1997                  1996
<S>                                                                  <C>                   <C>
(In thousands)
 
Plan assets at market value                                               $  8,756               $ 7,738
Actuarial present value of projected benefit obligation                    (10,679)               (9,730)
                                                                          --------               -------
Funded status                                                               (1,923)               (1,992)
Unrecognized net loss                                                          135                   459
Minimum pension liability recognized                                          (302)                 (520)
                                                                          --------               -------
Accrued pension cost                                                      $ (2,090)              $(2,053)
                                                                          ========               =======
 
</TABLE>

The actuarial present value of the Company's vested benefit obligation for the
Milan Plan and Eagle Plan was $9.4 million and $8.4 million and the accumulated
benefit obligation was $9.8 million and $9.0 million at December 31, 1997 and
1996, respectively. Plan assets are held in a trust and include corporate and
U.S. government debt securities and common stocks.

Actuarial assumptions used to develop net periodic pension cost for the fiscal
years 1997, 1996 and 1995 were as follows:

<TABLE>
<CAPTION>
                                                                     1997          1996          1995
<S>                                                              <C>           <C>           <C>
Discount rate                                                        7.5%          7.5%          7.5%
Expected long term rate of return on assets                          8.0%          8.0%          8.0%
Rate of increase in compensation levels                              4.0%          4.0%          4.0%
 
</TABLE>

The Company also participates in various multi-employer plans. The plans provide
for defined benefits to substantially all unionized workers. Amounts charged to
pension cost and contributed to the plans for the years ended January 31, 1998,
February 1, 1997, and February 3, 1996, totaled $4.3 million, $6.4 million, and
$6.4 million, respectively. During 1997 the Company received the benefit of a
pension contribution moratorium from one union local covering seven months for a
total reduction in costs of

                                      36
<PAGE>
 
$2.1 million. Under the provisions of the Multi-employer Pension Plan Amendments
Act of 1980, the Company would be required to continue contributions to a multi-
employer pension fund to the extent of its portion of the plan's unfunded vested
liability if it substantially or totally withdraws from such plans. Management
does not intend to terminate operations that would subject the Company to such
liability.


Incentive Compensation Plans
----------------------------

The Company has incentive compensation plans for store management, department
heads and certain other management personnel. Incentive plans included
approximately 700 associates. Provisions for payments to be made under the plans
are based upon achievement of sales and earnings in excess of specific
performance targets.

Non-qualified stock option plans were ratified by stockholders and implemented
in 1990 and 1995 for key management associates. Stock options have a ten year
life beginning at the grant date. Options granted under the 1990 plan were
generally vested at 12 months following the grant date. For the options granted
under the 1995 Stock Option Plan vesting provisions generally provide for 25% of
the shares vesting at each of the first four anniversaries following the date of
the grant. Certain specific employment agreements provide for different vesting
schedules. The number of shares outstanding and exercisable is shown in the
following table. As of January 31, 1998, there were 721,500 options available
for future grants. The Company recognized no compensation expense for fiscal
year 1997, 1996, or 1995 because the exercise price is at or above the market
value at the date of grant.

The following table sets forth the stock option activity for the three years in
the period ended January 31, 1998:

<TABLE>
<CAPTION>
                                                                                 Weighted
                                                                 Option           Average
                                          Shares                 Price           Exercise
                                          Subject                Range           Price of
                                         to Option             Per Share          Options
<S>                                  <C>                     <C>                  <C>
Outstanding 1/28/95                        345,350          $3.375 - $10.00         $4.36
  Granted                                1,016,050          $  1.50 - $4.50         $2.92
  Exercised                                   -                         -            -
  Cancelled or expired                      76,150          $3.375 - $10.00         $4.27
                                                                              
Outstanding 2/3/96                       1,285,250          $ 1.50 - $10.00         $3.23
  Granted                                   82,500          $ 4.375 - $6.75         $5.50
  Exercised                                 14,600          $ 1.50 - $3.375         $3.06
  Cancelled or expired                     108,600          $ 1.50 - $10.00         $3.69
                                                                              
Outstanding 2/1/97                       1,244,550          $ 1.50 - $10.00         $3.35
  Granted                                  332,500          $  4.00 - $5.00         $4.11
  Exercised                                 93,187          $ 1.50 - $3.375         $2.77
  Cancelled or expired                     116,650          $ 1.50 - $10.00         $3.96
 
Outstanding 1/31/98                      1,367,213          $ 1.50 - $10.00         $3.52
</TABLE>

                                      37
<PAGE>
 
Stock options exercisable are as follows:

<TABLE>
<CAPTION>
                               Weighted
                               Average
                    Options    Exercise
                  Exercisable   Price

<S>               <C>          <C>
February 3, 1996    271,200     $4.22
February 1, 1997    542,138     $3.23
January 31, 1998    734,413     $3.27
</TABLE>

The following table summarizes stock option information on outstanding and
exercisable shares as of January 31, 1998.

<TABLE>
<CAPTION>
                                      Weighted
                           Weighted    Average                 Weighted
  Range of                 Average    Remaining                Average
  Exercise      Options    Exercise  Contractual    Options    Exercise
   Prices     Outstanding   Price       Life      Exercisable   Price
                                       (Years)
<S>           <C>          <C>       <C>          <C>          <C>
$1.50            198,813    $1.50       7.86        87,263      $1.50
$2.50-$4.00      828,425    $3.35       8.19       588,425      $3.09
$4.375-$5.00     300,000    $4.55       7.74        18,750      $4.68
$8.50-$10.00      39,975    $9.23       2.99        39,975      $9.23
               ---------                           -------
Total          1,367,213                           734,413
               =========                           =======
</TABLE>

Note K - Stock Based Compensation

Eagle accounts for stock option grants and awards under its stock based
compensation plans in accordance with APB Opinion No. 25. If compensation cost
for stock option grants and awards had been determined based on fair value at
the grant dates for fiscal 1997 and fiscal 1996 consistent with the method
prescribed by Statement of Financial Accounting Standards No. 123, "Accounting
for Stock Based Compensation" (SFAS No. 123), the Company's net earnings (loss)
and earnings (loss) per share would have been adjusted to the pro forma amounts
indicated below:

<TABLE>
<CAPTION>
                                                1997    1996     1995

<S>                               <C>          <C>     <C>     <C>
Net earnings (loss):              As reported  $5,092  $3,248  $(18,692)
                                  Pro Forma    $4,474  $3,089  $(19,492)

Basic earnings (loss) per share:  As reported  $  .47  $  .30  $  (1.68)
                                  Pro Forma    $  .41  $  .28  $  (1.75)

Diluted earnings (loss) per       As reported  $  .45  $  .29  $  (1.68)
 share:
                                  Pro Forma    $  .39  $  .28  $  (1.75)

</TABLE>

The Company's calculations were made using the Black-Scholes option pricing
model with the following weighted average assumptions: five years expected
option life; stock volatility of 61% to 64% in 1997, 91% to 97% in 1996 and 89%
in 1995; risk-free interest rate of 5.5% in 1997 and 6.0% in 1996 and 1995; and
no dividends during the expected term. Based on this model, the weighted average
fair values of stock options awarded were $2.32, $3.32 and $.88 for fiscal year
1997, 1996 and 1995, respectively.

                                      38
<PAGE>

During the initial phase-in period, as required by SFAS No. 123, the proforma
amounts were determined based on stock option grants and awards in fiscal 1997,
1996, and 1995 only. The pro forma amounts for compensation cost may not be
indicative of the effects on net earnings (loss) and net earnings (loss) per
share for future years.

Note L - Extraordinary Charge

The extraordinary charge in fiscal 1995 relates to the refinancing of the
Revolving Credit Facility (net of applicable income taxes).

Note M - Fair Value of Financial Instruments

The carrying amounts and fair values of the Company's financial instruments as
of January 31, 1998 and February 1, 1997 are as follows:

<TABLE>
<CAPTION>


                                                  January 31, 1998                     February 1, 1997
                                               -----------------------             ------------------------
                                               Carrying         Fair               Carrying          Fair
                                                Amount          Value               Amount           Value
<S>                                           <C>              <C>                <C>               <C>
           (In thousands)

           Cash and cash equivalents           $  5,113        $ 5,113              $  9,134        $ 9,134
           Marketable securities                 10,349         10,349                 8,965          8,965
           Bank revolving credit facility         7,208          7,208                     -              -
           Senior Notes                         100,000         97,840              $100,000         98,380
</TABLE>
The fair value of cash and cash equivalents approximated its carrying value due
to the short-term nature of these instruments.  The fair value of marketable
securities is based on quoted market prices.  The fair value of the Bank
Revolving Credit Facility approximated its carrying value due to its floating
interest rate.  The fair value of the Senior Notes is based on quoted market
prices.

The amortized cost, gross unrealized gains and losses, estimated fair values an
maturities of the Company's marketable securities at January 31, 1998, are as
follows:
<TABLE>
<CAPTION>
                                                                          January 31, 1998
                                                         --------------------------------------------------
                                                                    Unrealized        Unrealized     Fair
                                                            Cost      Gains            Losses        Value
<S>                                                      <C>             <C>          <C>           <C>
(In thousands)

Restricted cash, due within one year                     $   891      $     -      $       -        $   891
Money market mutual fund, due
  within one year                                          3,752            -              -          3,752
U.S. Treasury notes                                        4,985           69              -          5,054
Equity securities                                            603           61             12            652
                                                         -------      -------      ---------        -------
Total marketable securities                              $10,231      $   130      $      12        $10,349
                                                         =======      =======      =========        =======

</TABLE>

                                       39


<PAGE>
 
The maturity of the U.S. Treasury Notes as of January 31, 1998 are as follows:


<TABLE>
<CAPTION>

<S>                                                             <C>      <C>
                                                                          Fair
                                                                Cost      Value
(In thousands)

Within one year                                                $1,999    $ 1,999
1 - 5 years                                                     2,986      3,055
                                                               ------    -------
Total U.S. Treasury notes                                      $4,985    $ 5,054
                                                               ======    =======
</TABLE>
 
<TABLE>
<CAPTION>
                                                     February 1, 1997
                                         ---------------------------------------
                                                Unrealized   Unrealized   Fair
                                         Cost      Gains       Losses     Value
(In thousands)
<S>                                     <C>     <C>          <C>         <C>
Restricted cash due within one year     $   185   $     -      $     -   $   185
Money market mutual fund, due within 
  one year                                  774         -            -       774
Municipal bonds, due from 5 to 10 years   8,026         -           20     8,006
                                        -------   -------      -------   -------
Total marketable securities             $ 8,985   $     -      $    20   $ 8,965
                                        =======   =======      =======   =======
</TABLE>

Note N - Litigation

A complaint alleging discrimination in employment was filed against the Company
in 1994 in the United States District Court for the Central District of Illinois
by two current and one former associates individually and as representative of a
class of all individuals who are similarly situated. The Plaintiffs moved for
class certification and their motion was granted. In 1997, the Court granted the
Company's motion to narrow the scope of the class. The Company denies all
substantive allegations of the Plaintiffs and of the class. The Company is
subject to various other unresolved legal actions which arise in the normal
course of its business. It is not possible to predict with certainty the outcome
of these unresolved legal actions or the range of the possible loss.





                                      40

<PAGE>
 
Note O - Earnings Per Share

Earnings per share disclosures (net of tax) for the three years in the period
ended January 31, 1998 are follows:

<TABLE>
<CAPTION>
       (In thousands except per share data)
                                                                             Earnings            Shares           Per-Share
                                                                            (Numerator)       (Denominator)         Amount
       <S>                                                                  <C>               <C>                 <C>
       Year Ended 1/31/98:
       Basic net earnings per share:
       Earnings available to common shareholders                             $  5,092             10,920            $  .47
                                                                             ========             ======            ======

       Effect of dilutive securities - Stock options                                                 445
                                                                                                  ------

       Diluted net earnings per share:
       Net earnings available to common shareholders                         $  5,092             11,365            $  .45
                                                                             ========             ======            ======

       Year Ended 2/1/97:
       Basic net earnings per share:
       Net earnings available to common shareholders                         $  3,248             10,864            $  .30

       Effect of dilutive securities - Stock options                                                 308
                                                                                                  ------

       Diluted Net Earnings per share:
       Net earnings available to common shareholders                         $  3,248             11,172            $  .29
                                                                             ========             ======            ======

       Year Ended 2/3/96:
       Basic net loss per share:
       Net loss available to common shareholders                              (18,692)            11,121            $(1.68)

       Effect of dilutive securities - Stock options                                                 -
                                                                                                  ------

       Diluted net loss  per share (1):
       Net loss available to common shareholders                             $(18,692)            11,121            $(1.68)
                                                                             ========             ======            ======

      (1) Includes the impact of extraordinary charge of $609 or $.06 per share.

</TABLE>

Note P - Subsequent Events

In April 1998, the Company extended the employment agreement of Mr. Robert
Kelly, President, Chief Executive Officer, and Chairman of the Board, to extend
his employment through December 31, 1999.  The terms of the agreement include a
$500,000 signing bonus, forgiveness of a promissory note and interest to the
Company, totaling $281,250, reimbursement for certain moving costs and an
extension of the exercise period for each group of stock options.  The agreement
also contains a one year non-competition restriction following the termination 
of Mr. Kelly's employment with the Company.

In April 1998, the Company extended the terms of the Revolving Credit Facility.
The amended agreement terminates April 15, 2000.  The terms of the amendment
provide total availability up to a maximum of $50 million, increase the
capital expenditure limit to $75 million per year, increase the permitted
purchase money security interests and purchase money mortgage amounts to a
combined maximum outstanding amount of $50 million, and provide for reductions
in the interest rate and fees.

During April 1998, two stores, which were recorded in property held for resale, 
were sold and leased back yielding cash proceeds of $10.8 million.

                                      41

<PAGE>
 

Note Q - Quarterly Financial Data (Unaudited)

<TABLE>
<CAPTION>
                                                                    Net
                                                                 Earnings
                                                      Net         (Loss)
                                        Gross       Earnings    Per Share -
                         Sales          Margin       (Loss)       Diluted
<S>                    <C>             <C>          <C>         <C>

(Dollars in thousands, except per share data)

1997
Quarter: First         $  239,937      $ 61,987     $  1,788         $  .16
         Second           245,383        62,664        1,378            .12
         Third            234,200        58,047         (463)          (.04) (7)
         Fourth           247,570        60,946        2,389            .21
                       ----------      --------     --------         ------
                       $  967,090      $243,644     $  5,092         $  .45
                       ==========      ========     ========         ======

1996
Quarter: First         $  248,139      $ 62,826     $  1,027         $  .09
         Second           257,645        64,865        1,160            .10  (6)
         Third            248,293        62,770          530            .05
         Fourth           260,812        65,781          531  (1)       .05  (1)
                       ----------      --------     --------         ------
                       $1,014,889      $256,242     $  3,248         $  .29
                       ==========      ========     ========         ======

1995
Quarter: First         $  245,530      $ 61,425     $ (4,483)        $ (.41)
         Second           249,045        62,100       (5,291) (4)      (.47) (4)
         Third            246,201        61,836       (2,643)          (.24)
         Fourth (2)       282,888        68,994       (6,275) (5)      (.56) (5)
                       ----------      --------     --------         ------
         TOTAL(3)      $1,023,664      $254,355     $(18,692)        $(1.68)     
                       ==========      ========     ========         ======
</TABLE>
 
(1)  Net earnings reduced by a $1.7 million or $.15 per share charge related to
     closed stores and revaluation of assets.
(2)  Fourteen week quarter.
(3)  Fifty-three week year.
(4)  Net loss increased by an extraordinary charge of $625,000 or $.06 per share
     related to the refinancing of the Revolving Credit Facility.
(5)  Net loss increased by a $6.5 million or $.59 per share charge related to
     the revaluation of certain assets (SFAS 121).
(6)  Amount differs from amount reported on Form 10Q due to the restatement of
     balances to comply with the provisions of SFAS 128 "Earnings Per Share".
(7)  Net loss attributable to lower gross margin dollars resulting from lower
     sales volume levels and increased promotional activity, partially offset by
     lower operating costs.

ITEM 9: CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

There have been no disagreements on accounting principles or practices or
financial statement disclosures between the Company and its independent
certified public accountants during the two fiscal years ended January 31, 1998.

                                      42
<PAGE>
 

                                   PART III
                                        
ITEM 10: DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item concerning directors is set forth under
"Election of Directors" in the definitive proxy statement filed by the Company
with the Securities and Exchange Commission and is hereby incorporated by
reference into this 10-K. Certain information concerning the Company's executive
officers is included in Item 4(a) of Part I of this report.

ITEM 11:  EXECUTIVE COMPENSATION

The information required by this item is set forth in the section entitled
"Executive Compensation" in the definitive proxy statement filed by the Company
with the Securities and Exchange Commission and is hereby incorporated by
reference into this Form 10-K.

ITEM 12:  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

The information required by this item is set forth in the tabulation of the
amount and nature of beneficial ownership of the Company's Common Stock under
the heading "Principal Shareholders and Election of Directors" in the definitive
proxy statement filed by the Company with the Securities and Exchange Commission
and is hereby incorporated by reference into this Form 10-K.

ITEM 13:  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this item is set forth in the section entitled
"Compensation of Directors" in the definitive proxy statement filed by the
Company with the Securities and Exchange Commission and is hereby incorporated
by reference into this Form 10-K.

                                      43
<PAGE>
 

                                    PART IV

ITEM 14: EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K

<TABLE> 
<CAPTION> 
                                                                            Page
                                                                            ----
<S>                                                                         <C> 
(a)  The following documents are filed as a part of this report:

     1.   Financial Statements:

          - Independent Auditors' Report                                      20
 
          - Consolidated Balance Sheets as of January 31, 1998 
            and February 1, 1997                                              21

          - Consolidated Statements of Operations for the years 
            ended January 31, 1998, February 1, 1997, and 
            February 3, 1996                                                  22
 
          - Consolidated Statements of Equity for the years 
            ended January 31, 1998, February 1, 1997, and                     
            February 3, 1996                                                  23
 
          - Consolidated Statements of Cash Flows for the 
            years ended January 31, 1998, February 1, 1997,                  
            and February 3, 1996                                              24
 
          - Notes to the Consolidated Financial Statements                    25

     2.   Financial Statement Schedules:

          All schedules are omitted because they are not applicable or not
          required, or because the information required therein is included in
          the consolidated financial statements or the notes thereto.

     3.   Exhibits - see Exhibit Index on page 46.

(b)  Reports on Form 8-K:

          No reports on Form 8-K were filed during the fourth quarter of fiscal
          1997.
</TABLE> 

                                      44
<PAGE>
 

                                  SIGNATURES
                                        
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Company has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.

                           EAGLE FOOD CENTERS, INC.


                            By: /s/ Robert J. Kelly
                                -------------------
                                Robert J. Kelly
                      Chairman, Chief Executive Officer


DATED: April 30, 1998


Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons in the capacities and on the
dates indicated:

<TABLE>
<CAPTION>
       Signature                          Title                        Date
       ---------                          -----                        ----
<S>                          <C>                                  <C>

/s/ Robert J. Kelly          Chairman, Chief Executive Officer    April 30, 1998
------------------------     (Principal Executive Officer)
Robert J. Kelly

/s/ S. Patric Plumley        Vice President-Chief Financial       April 30, 1998
------------------------     Officer and Secretary
S. Patric Plumley            (Principal Financial and
                             Accounting Officer)


/s/ Peter B. Foreman         Director                             April 30, 1998
------------------------
Peter B. Foreman

/s/ Steven M. Friedman       Director                             April 30, 1998
------------------------
Steven M. Friedman

/s/ Michael J. Knilans       Director                             April 30, 1998
------------------------
Michael J. Knilans

/s/ Alain Oberrotman         Director                             April 30, 1998
------------------------
Alain Oberrotman

/s/ William J. Snyder        Director                             April 30, 1998
------------------------
William J. Snyder

/s/ Paul D. Barnett          Director                             April 30, 1998
------------------------
Paul D. Barnett
</TABLE>

                                      45
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number     Description
-------    -----------
<S>        <C>
3.1--      Certificate of Incorporation of the Company (filed as Exhibit 3.1 to
             the Registration Statement on Form S-1 No. 33-29404 and
             incorporated herein by reference).

3.2--      By-laws of the Company (filed as Exhibit 3.2 to the Registration
             Statement on Form S-1 No. 33-29404 and incorporated herein by
             reference).

4.1--      Form of Note (filed as Exhibit 4.3 to the Registration Statement on
             Form S-1 No. 33-59454 and incorporated herein by reference).

4.2--      Form of Indenture, dated as of April 26, 1993, between the Company
             and First Trust National Association, as trustee (filed as Exhibit
             4.4 to the Registration Statement on Form S-1 No. 33-59454 and
             incorporated herein by reference).

10.1--     Transaction Agreement, dated as of October 9, 1987, between EFC and
             Lucky Stores, Inc. (filed as Exhibit 10.8 to the Registration
             Statement on Form S-1 No. 33-20450 and incorporated herein by
             reference).

10.2--     Assignment and Assumption Agreement, dated November 10, 1987, among
             EFC, Lucky Stores, Inc. and Pasquale V. Petitti regarding the
             Deferred Compensation Agreement (filed as Exhibit 10.11 of the
             Registration Statement on Form S-1 No. 33-20450 and incorporated
             herein by reference).

10.3--     Trademark License Agreement, dated November 10, 1987, between Lucky
             Stores, Inc. and EFC (filed as Exhibit 10.19 to the Registration
             Statement on Form S-1 No. 33-20450 and incorporated herein by
             reference).

10.4--     Letter Agreement, dated June 10, 1988, between the Company's
             predecessor and Lucky Stores, Inc. amending the Trademark License
             Agreement (filed as Exhibit 10.20 to the Company's Annual Report on
             Form 10-K for the year ended January 28, 1989 (the "1988 10-K") and
             incorporated herein by reference).

10.5--     Management Information Services Agreement, dated November 10, 1987,
             between Lucky Stores, Inc. and the Company's predecessor (filed as
             Exhibit 10.20 to the Registration Statement on Form S-1 No. 
             33-20450 and incorporated herein by reference).

10.6--     Letter Agreement, dated June 10, 1988, between the Company's
             predecessor and Lucky Stores, Inc. Stores, Inc. amending the
             Management Information Services Agreement (filed as Exhibit 10.22
             to the Company's Annual Report on Form 10-K for the year ended
             January 28, 1989 and incorporated herein by reference).

10.7--     Non-Competition Agreement, dated November 10, 1987, between the
             Company's predecessor and Lucky Stores, Inc. (filed as Exhibit
             10.21 to the Registration Statement on Form S-1 No. 33-20450 and
             incorporated herein by reference).

10.9--     Letter Agreement, dated April 28, 1988, among American Stores
             Company, the Company's predecessor and Odyssey Partners (filed as
             Exhibit 10.29 to the Registration Statement on Form S-1 No. 
             33-20450 and incorporated herein by reference).
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S>        <C>
10.10--    Eagle Food Centers, Inc. Stock Incentive Plan, adopted in June 1990
             (filed as Exhibit 19 to the Company's Annual Report on Form 10-K
             for the year ended February 1, 1992 and incorporated herein by
             reference).

10.16--    Loan and Security Agreement, dated as of May 22, 1995, among the
             Company, as borrower, and the lender party thereto, Congress
             Financial Corporation (Central).

10.17--    First Amendment to the Loan and Security Agreement dated August 21,
             1995.

10.18--    1995 Stock Incentive Plan as approved on June 21, 1995.

10.19--    Employment agreement dated May 10, 1995 between the Company and
             Robert J. Kelly, its President and Chief Executive Officer.

10.20--    Employment agreement dated July 10, 1995 between the Company and
             David S. Norton, its Senior Vice President-Retailing.

10.21--    Employment agreement dated November 14, 1995 between the Company and
             John N.A. Turley, its Vice President-Grocery.

10.22--    Agreement between the Company, Lucky Stores, Inc., The Midland
             Grocery Company and Roundy's Inc. to terminate the Westville
             warehouse lease.

10.23--*   Employment Agreement dated April 12, 1998 between the Company and
             Robert J. Kelly, its President and Chief Executive Officer.

10.24--*   Amended Loan and Security Agreement, dated April 1, 1998, between the
             Company, as borrower, and the lender party thereto, Congress
             Financial Corporation (Central).

10.25--*   Employment Agreement dated September 15, 1997 between the Company and
             S. Patric Plumley, its Vice President-Chief Financial Officer and 
             Secretary.

12.1--     Computation of Ratio of Earnings to Fixed Charges (filed as Exhibit
             12.1 to the Registration Statement on Form S-1 No. 33-59454 and
             incorporated herein by reference).

21--*      Subsidiaries of the Registrant.

27--*      Financial Data Schedule (for SEC use only).

27.1--*    Restated Financial Data Schedule for the Fiscal Year ended February
             1, 1997 (for SEC use only).

27.2--*    Restated Financial Data Schedule for the Quarter ended August 3, 1996
             (for SEC use only).

27.3--*    Restated Financial Data Schedule for the Quarter ended November 2,
             1996 (for SEC use only).

27.4--*    Restated Financial Data Schedule for the Quarter ended August 2, 1997
             (for SEC use only).

27.5--*    Restated Financial Data Schedule for the Quarter ended November 1,
             1997 (for SEC use only).

</TABLE>
*Filed herewith.

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