<PAGE>
 
                      SECURITIES AND EXCHANGE COMMISSION
                            Washington, D.C. 20549
 
                                 -------------
                                  
                               FORM 10-K/A     
 
                                 -------------
[XAnnual]report pursuant to Section 13 or 15(d) of the Securities Exchange Act
  of 1934 for the fiscal year ended January 30, 1999 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 $28,419,732 as of April 20, 1999.
 
  The number of shares of the Registrant's Common Stock, par value one cent
$(0.01) per share, outstanding on April 20, 1999 was 10,938,548.
 
  Documents incorporated by reference include:
 
    1) Portions of the definitive Proxy Statement expected to be filed with
  the Commission on or about May 10, 1999 with respect to the annual meeting
  of shareholders are incorporated by reference into Part III.
                                 
                              1 of 43 Pages     
                        
                     Exhibit Index appears on page 42     
<PAGE>
 
                       FISCAL YEAR ENDED JANUARY 30, 1999
 
                            FORM 10-K ANNUAL REPORT
 
                               TABLE OF CONTENTS
 
                                     PART I
 
<TABLE>
 <C>      <S>                                                                <C>
 Item 1:  Business........................................................     3
 Item 2:  Properties......................................................     7
 Item 3:  Legal Proceedings...............................................     8
 Item 4:  Submission of Matters to a Vote of Security Holders.............     9
 Item 4a: Executive Officers of the Registrant............................     9
 
                                    PART II
 
          Market for Registrant's Common Equity and Related Shareholder
 Item 5:  Matters.........................................................    10
 Item 6:  Selected Financial Data.........................................    10
          Management's Discussion and Analysis of Financial Condition and
 Item 7:  Results of Operations...........................................    12
 Item 7a: Quantitative and Qualitative Disclosure About Market Risk.......    17
 Item 8:  Financial Statements and Supplementary Data.....................    18
          Changes in and Disagreements with Accountants on Accounting and
 Item 9:  Financial Disclosures...........................................    38
 
                                    PART III
 
 Item 10: Directors and Executive Officers of the Registrant..............    39
 Item 11: Executive Compensation..........................................    39
 Item 12: Security Ownership of Certain Beneficial Owners and Management..    39
 Item 13: Certain Relationships and Related Transactions..................    39
 
                                    PART IV
 
 Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K.    40
</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 89
supermarkets as of fiscal year end 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
Country Market(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, and in certain
stores, prescription medicine, video rental, floral service, in-store banks,
dry-cleaners and coffee shops.
 
   The Company's fiscal year ends on the Saturday closest to January 31st.
Fiscal 1998, 1997, and 1996 were 52-week years ending January 30, 1999,
January 31, 1998, and February 1, 1997, respectively.
 
   Talon Insurance Company ("Talon"), formed in the State of Vermont in 1994
to provide insurance for Eagle's 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 Country Markets represent the Company's full line supermarket format
which was introduced by management in 1991. Of the 88 Eagle Country Markets,
21 have been opened as new stores and 67 have been remodeled or otherwise
converted to the Eagle Country Market format. 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,
prescription medicine, dry-cleaners, coffee shops 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 range in size from 16,500 to 67,500 square
feet, with the majority of the stores ranging from 30,000 to 67,500 square
feet. The pricing strategy in the Eagle Country Markets is to offer overall
lower prices than comparable supermarket competition. The Company also
operates one BOGO's Food and Deals, which uses a limited assortment format
covering approximately 2,000 stock keeping units of groceries, produce, meat,
health and beauty aids, and general merchandise.
 
   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 and selling, subleasing or
otherwise closing underperforming stores.
 
   The Company is pursuing an 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 on factors such as existing competition, demographic
composition and available locations.
 
   The Company opened three new stores in fiscal 1998. The Company opened one
new store subsequent to fiscal year end, currently has two new stores under
construction, and plans to open one additional new store during fiscal 1999.
In addition, the Company is in the process of expanding one store and
completing a major remodel on one store, and plans to expand two additional
stores and complete major remodels on three additional
 
                                       3
<PAGE>
 
stores during fiscal 1999. The Company closed four stores during fiscal 1998,
and plans to close three additional stores during fiscal 1999.
 
   The Company prefers to lease stores from local developers and pursues this
strategy wherever appropriate and cost effective. The Company completed one
sale/leaseback transaction in fiscal 1996, one in 1997, and six in 1998 in
order to reduce the amount of capital committed to real estate. As of year
end, the Company owned 12 of its stores, two of which were classified in
"Property held for resale," and leased 77 operating stores and 17 subleased or
closed stores.
 
   The Company continues to seek opportunities for growth through the
acquisition of other supermarket retail companies or individual stores to
achieve economies of scale relating to office and distribution functions.
 
Store Operations
 
   The Company's geographic market is divided into six districts, each having
a District Manager who is responsible for approximately 15 stores. Districts
and stores operate with a certain degree of autonomy to take advantage of
local market and consumer needs. Districts 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 meetings and
a store management incentive bonus program 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. In connection
with the migration from mainframe to client/server technology, the Company
renegotiated this contract with an effective period from January 27, 1999 to
December 31, 1999. In the fourth quarter of fiscal 1998, the Company accrued
$2.9 million, payable in 12 equal monthly installments in calendar 1999, for
costs associated with the migration from mainframe to client/server
technology. The charge primarily relates to future lease costs relating to the
mainframe, and various related software, software licenses and contracting
costs.
 
   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. Eagle has embraced client/server
technology and successfully completed the replacement of all mainframe-based
legacy systems with new, client/server systems subsequent to the end of the
fiscal year.
 
   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
 
  .  Pricing and Shelf Label Management
 
  .  Eagle Savers Card Promotional Offers
 
  .  Financial Applications including General Ledger, Accounts Payable,
     Accounts
 
   .  Receivable, Fixed Assets, Purchasing and Capital Projects
 
   .  Store Systems Controllers--Operating Systems and Supermarket
Applications
 
   .  Store Applications for Cash Management, DSD Receiving, and Time and
Attendance
 
                                       4
<PAGE>
 
   MCI Systemhouse has identified the scope of work that will need to be
completed to ensure that Eagle's systems are Year 2000 compliant. The primary
systems that need to be upgraded to Year 2000 compliant releases are:
 
   .  Human Resources--Payroll and Benefits
 
   .  Store Systems Controllers--Operating Systems and Supermarket
Applications
 
   .  Purchasing and Inventory Control
 
   .  Warehouse and Distribution
 
   .  Pricing and Shelf Label Management
 
   .  DSD Receiving and Time and Attendance
 
   Eagle expects to complete the implementation and integration of two
additional new client/server systems in 1999:
 
   .  Store Application for Labor Scheduling
 
   .  Category Management/Retail Point-of-Sale Data Mining
 
   The Company is currently converting to IBM 4690 generation software for its
point-of-sale systems. The Company is continuing to utilize a Unix processor
together with database marketing software to store and analyze customer-
specific shopping data for targeted marketing. See "Year 2000 Matters" for
further discussion of computer and information systems.
 
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, as well as incentive programs linked to customer
satisfaction ratings.
 
   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,
general merchandise and specialty department items. 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, prescription medicine, dry-cleaners,
coffee shops 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.
 
                                       5
<PAGE>
 
   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 majority of the Company's stores are located within 200 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 75% 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 25% of the stores' inventory requirements are delivered direct
to the store. The Company's purchasing and warehousing 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 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 Osco, 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.
 
   Supercenters continue to open in trade areas served by the Company. Four
Wal-Mart Supercenters opened in fiscal 1996, followed by six in 1997 and three
more in 1998. Additional supercenter openings by Kmart, Wal-
 
                                       6
<PAGE>
 
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. 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 1998, the Company had 6,495 associates, 341 of whom
were management and administrative associates and 6,154 of whom were hourly
associates. Of the Company's hourly associates, substantially all are
represented by 21 collective bargaining agreements with 17 separate locals
which are associated with two international unions. Store associates are
represented by several locals of the United Food and Commercial Workers;
warehouse associates, warehouse drivers and office and clerical workers are
represented by Teamsters Local 371. Twelve contracts will expire during 1999,
covering 67% of the Company's associates. 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.
 
   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, an associate stock purchase program, preferential discounts and a
401(k) savings plan.
 
Item 2: Properties
 
Stores
 
   The Company operated 89 stores as of the fiscal year end, ranging in size
from 16,500 to 67,500 square feet, with an average size of 38,942 square feet.
Twelve of the Company's stores are owned in fee by the Company, two of which
are classified in "Property held for resale". The Company is the lessee for
the remaining 77 operating stores and 17 subleased or closed stores. The
Company sold and leased back six of its stores in fiscal 1998, one in fiscal
1997 and one in fiscal 1996.
 
                                       7
<PAGE>
 
   Selected statistics on Eagle retail food stores are presented below:
 
<TABLE>
<CAPTION>
                                                     Fiscal Year Ended
                                            -----------------------------------
                                            January 30, January 31, February 1,
                                               1999        1998        1997
                                            ----------- ----------- -----------
   <S>                                      <C>         <C>         <C>
   Average total sq. ft. per store.........   38,942      37,756      37,281
   Average total sq. ft. selling space per
    store..................................   28,694      27,835      27,460
   Stores beginning of year................       90          92          92
   Opened during year......................        3           1           2
   Expansions/major remodels (1)...........        3           5           1
   Closed during year......................        4           3           2
   Stores end of year......................       89          90          92
   Size of stores at end of year:
     Less than 25,000 sq. ft...............        5           5           5
     25,000-29,999 sq. ft..................       22          25          28
     30,000-34,999 sq. ft..................        4           5           5
     35,000-44,999 sq. ft..................       37          38          38
     45,000 sq. ft. or greater.............       21          17          16
   Type of stores:
     Eagle Country Markets.................       88          76          74
     Eagle Food Centers....................      --           13          17
     BOGO's Food and Deals.................        1           1           1
</TABLE>
--------
(1) A major remodeling project which costs $300,000 or more for 1998 and 1997,
    and $100,000 for 1996.
 
   Eagle stores contain various specialty departments such as full service
delicatessen (86 stores), bakery (85 stores), floral (63 stores), video
rentals (49 stores), pharmacy (19 stores), seafood (30 stores), alcoholic
beverages (81 stores), and in-store banks (22 stores).
 
   Most of the leases for the stores contain renewal options for periods
ranging from five to 30 years. The Company is required to pay fixed rent and a
percentage (ranging from 1.0% to 1.5%) of its gross sales in excess of stated
minimum gross sales amounts under 76 of the leases, which includes 14 closed
stores. The Company has subleases on approximately 11 former store locations
and has six 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 operated a central bakery in a 49,000 square foot leased
facility located in Rock Island, Illinois, three miles from the central
distribution facility. The Company sold the bakery operations in fiscal 1998,
realizing a gain of $1.0 million on $1.6 million of proceeds.
 
   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
 
                                       8
<PAGE>
 
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 and all the Plaintiffs have recently reached an agreement
in principal to settle the lawsuit and the parties are awaiting final approval
of the settlement from the Court. 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 1998.     
 
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..........  54 Chairman of the Board of Directors,
                                 Chief Executive Officer, and President
 
   S. Patric Plumley........  50 Senior Vice President--Chief Financial Officer
                                 and Secretary
 
   Byron O. Magafas.........  42 Vice President--Human Resources
</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, Chief
Executive Officer and President 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 36 years of
experience in the supermarket industry.
 
   Mr. Plumley, who was named Senior Vice President--Chief Financial Officer
and Corporate Secretary on March 1, 1999, served the Company as Vice
President--Chief Financial Officer and Secretary from March 30, 1998 and Vice
President and Corporate Controller from September 15, 1997 until his
promotions. 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, Inc. from 1990 to 1994. Mr. Plumley has
26 years of experience in the supermarket industry.
 
   Mr. Magafas joined the Company as Vice President--Human Resources in
November 1997. Prior to November 1997, Mr. Magafas was Director of Human
Resources for the St. Louis Division of SuperValu Inc. from 1993 to 1997. For
the period from 1986 to 1993, Mr. Magafas had been with Wetterau Incorporated,
first as Labor Relations Counsel and then as Director of Labor Relations. Mr.
Magafas has 13 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.
 
                                       9
<PAGE>
 
   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 30, 1999 all
Section 16(a) filing requirements applicable to its officers, directors and
greater than ten-percent beneficial owners were in compliance.
 
                                    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, 1999 there were approximately 2,371 beneficial holders of shares.
 
<TABLE>
<CAPTION>
                                                                   Year Ended
                                                                January 30, 1999
                                                                ----------------
                                                                  High     Low
                                                                -------- -------
      <S>                                                       <C>      <C>
      First Quarter............................................ $4 5/8   $3 3/4
      Second Quarter...........................................  4 15/16  2 7/8
      Third Quarter............................................  3 3/8    1 7/8
      Fourth Quarter...........................................  4 3/16   3
 
<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
</TABLE>
 
   There were no dividends paid in fiscal 1998 or 1997. 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.
 
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 30, 1999.
 
   The selected historical financial data for the five fiscal years ended
January 30, 1999 are derived from the audited consolidated financial
statements of the Company. The three fiscal years ended January 30, 1999 have
been audited by Deloitte & Touche LLP, independent auditors, and are included
in this Form 10-K.
 
                                      10
<PAGE>
 
   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 30, January 31, February 1, February 3,  January 28,
                             1999        1998        1997        1996         1995
                          ----------- ----------- ----------- -----------  -----------
                                                              (53 Weeks)
                                            (Dollars in thousands)
<S>                       <C>         <C>         <C>         <C>          <C>
Consolidated Operating
 Data:
  Sales.................   $943,805    $967,090   $1,014,889  $1,023,664   $1,015,063
  Gross margin..........    232,975     243,644      256,242     254,355      242,452
  Selling, general and
   administrative
   expenses.............    203,220     208,133      218,253     227,460      221,408
  Voluntary severance
   program (1)..........        --          --           --          --         6,917
  Store closing, asset
   revaluation and lease
   termination (2)......      2,925         --         1,700       6,519          --
  Depreciation and
   amortization.........     18,885      19,068       20,494      23,555       23,578
                           --------    --------   ----------  ----------   ----------
Operating income (loss).      7,945      16,443       15,795      (3,179)      (9,451)
Interest expense........     11,870      11,751       12,547      15,497       14,780
                           --------    --------   ----------  ----------   ----------
Earnings (loss) before
 income taxes &
 extraordinary charge...     (3,925)      4,692        3,248     (18,676)     (24,231)
Income taxes (benefit)..        --         (400)         --         (609)      (5,357)
Extraordinary charge
 (3)....................        --          --           --          625          --
                           --------    --------   ----------  ----------   ----------
Net earnings (loss).....   $ (3,925)   $  5,092   $    3,248  $  (18,692)  $  (18,874)
                           ========    ========   ==========  ==========   ==========
Earnings (loss) per
 common share--diluted..   $   (.36)   $    .45   $      .29  $    (1.68)  $    (1.71)
Consolidated Balance
 Sheet Data (at year-
 end):
  Total assets..........   $283,315    $257,619   $  251,124  $  261,218   $  306,994
  Total debt (including
   capital leases)......    138,770     116,147      109,297     117,123      137,872
  Total shareholders'
   equity...............     28,386      32,237       26,688      23,921       42,485
</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 $2.9 million charge related to future lease costs for the
    mainframe, and various related software, software licenses and contracting
    costs in connection with the migration from mainframe to client/server
    technology in fiscal 1998. 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. See Notes B,
    D and H 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.
 
                                      11
<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 30, January 31, February 1, February 3, January 28,
                            1999        1998        1997        1996        1995
                         ----------- ----------- ----------- ----------- -----------
                                                             (53 Weeks)
<S>                      <C>         <C>         <C>         <C>         <C>
Operations Statement
 Data:
  Sales.................   100.00%     100.00%     100.00%     100.00%     100.00%
  Gross margin..........    24.68       25.19       25.25       24.85       23.89
  Selling, general and
   administrative
   expenses.............    21.53       21.52       21.51       22.22       21.81
  Voluntary severance
   program..............      --          --          --          --         0.68
  Store closing, asset
   revaluation and lease
   termination..........     0.31         --         0.17        0.64         --
  Depreciation and
   amortization
   expenses.............     2.00        1.97        2.02        2.30        2.32
                           ------      ------      ------      ------      ------
  Operating income
   (loss)...............     0.84        1.70        1.56       (0.31)      (0.92)
  Interest expense......     1.26        1.22        1.24        1.51        1.46
                           ------      ------      ------      ------      ------
  Earnings (loss) before
   income taxes &
   extraordinary charge.     (.42)       0.48        0.32       (1.83)      (2.38)
  Income taxes
   (benefit)............      --         (.04)        --         (.06)       (.53)
  Extraordinary charge..      --          --          --         0.06         --
                           ------      ------      ------      ------      ------
    Net earnings (loss).     (.42)       0.52        0.32       (1.83)      (1.85)
                           ======      ======      ======      ======      ======
</TABLE>
 
Results of Operations
 
<TABLE>
<CAPTION>
                                           Year Ended   Year Ended   Year Ended
                                           January 30,  January 31,  February 1,
                                              1999         1998         1997
                                           -----------  -----------  -----------
<S>                                        <C>          <C>          <C>
Sales.....................................  $943,805     $967,090    $1,014,889
Percent Change............................      (2.4)%       (4.7)%        (0.9)%
Same Store Change.........................      (2.3)%       (5.2)%         1.7%
</TABLE>
 
   Sales for fiscal 1998 were $943.8 million, a decrease of $23.3 million or
2.4% from fiscal 1997. Same store sales decreased 2.3% from fiscal 1997 to
fiscal 1998. Same store sales decreases are attributed primarily to
competitive store openings during the year. The Company was operating 89
stores as of the end of fiscal 1998 and 90 stores at the end of fiscal 1997.
 
   Sales for fiscal 1997 were $967.1 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.
 
Gross Margin
 
   Gross margin as a percentage of sales decreased to 24.68% in fiscal 1998
from 25.19% in fiscal 1997 and decreased from 25.25% in fiscal 1996. Gross
margin was $10.7 million or 4.4% lower in fiscal 1998 than in fiscal 1997 due
to volume-related decreases of $5.9 million and a $4.8 million decrease
primarily due to increased promotional activity. The decrease in gross margin
in fiscal 1997 is primarily the result of increased promotional activities.
Gross margin included a charge for LIFO in fiscal 1998 of .07% of sales, in
fiscal 1997 of .08% of sales, and in fiscal 1996 of .07% of sales.
 
 
                                      12
<PAGE>
 
Selling, General and Administrative Expenses
 
   Selling, general and administrative expenses as a percentage of sales were
21.53% in fiscal 1998 compared to 21.52% in fiscal 1997 and 21.51% in fiscal
1996. Selling, general and administrative expenses were $4.9 million or 2.4%
lower in fiscal 1998 than fiscal 1997 primarily due to lower sales, increased
associate productivity, a $1.0 million gain on the sale of the bakery and a
$2.1 million temporary reduction in associate benefit costs (health and
welfare), partially offset by increased costs relating to strategic systems
initiatives of $3.4 million. Selling, general and administrative expenses were
$10.1 million or 4.6% lower in fiscal 1997 than 1996 due to lower sales,
increased associate productivity and a one time $2.7 million reduction in
associate benefit costs (pension).
 
Provision for Store Closing, Asset Revaluation and Lease Termination
 
   In the fourth quarter of fiscal 1998, the Company accrued $2.9 million,
payable in 12 equal monthly installments in calendar 1999, for costs
associated with the migration from mainframe to client/server technology. The
charge primarily relates to future lease costs relating to the mainframe, and
various related software, software licenses and contracting costs. Such charge
is included in the caption "Store closing, asset revaluation and lease
termination" in the consolidated statements of operations.
 
   During fiscal 1998 the Company benefited $0.6 million from favorable lease
terminations and changes in estimates for six stores that were included in the
reserve at January 31, 1998, and from $0.2 million in favorable changes in
estimates for stores remaining in the reserve at January 30, 1999.
Additionally during fiscal 1998, the Company added two stores to the reserve
for which $0.8 million was provided for estimated future costs. During fiscal
1997 the costs to close three stores of $0.6 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
$0.3 million of changes in estimates on existing closed stores. (See Note D to
the Company's consolidated financial statements, "Reserve for Closed Stores").
 
   The Company closed four stores during fiscal 1998, three stores during
fiscal 1997, and two stores during fiscal 1996.
 
Depreciation and Amortization Expense
 
   Depreciation and amortization expense as a percentage of sales was 2.00% in
fiscal 1998 as compared to 1.97% in fiscal 1997 and 2.02% in fiscal 1996.
Depreciation and amortization expense was $0.2 million or 1.0% lower in fiscal
1998 than fiscal 1997 due to a number of assets being fully depreciated in
fiscal 1997, offset partially by increased depreciation on capital lease
assets and amortization of software costs. The decrease in depreciation
expense in 1997 primarily relates to a number of assets being fully
depreciated in 1996 and 1997. There were two replacement stores and one new
store opened in fiscal 1998, one new store opened in fiscal 1997 and two new
replacement stores opened in fiscal 1996.
 
Operating Income
 
   Operations for fiscal year 1998 resulted in operating income of $7.9
million or 0.84% of sales compared to operating income of $16.4 million or
1.70% of sales during fiscal 1997 and operating income of $15.8 million or
1.56% of sales in fiscal 1996. Operating income decreased due primarily to
gross margin decreases, increased costs related to strategic systems
initiatives and the charge for costs associated with the migration from
mainframe to client/server technology, partially offset by the reduction in
selling, general and administrative costs. 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 sales reductions resulting from the decrease in sales
volume. The fiscal 1996 loss includes a store closing and asset revaluation
charge of $1.7 million.
 
 
                                      13
<PAGE>
 
Interest Expense
 
   Interest expense increased to 1.26% of sales in fiscal 1998 compared to
1.22% of sales in fiscal 1997 and 1.24% of sales in fiscal 1996. Interest
expense increased in fiscal 1998 due to increased interest on capital lease
obligations, and decreased in fiscal 1997 due to lower weighted average short
term borrowings as compared to the prior fiscal year.
 
Net Earnings (Loss)
 
   The Company recognized a net loss of $3.9 million or $0.36 per share on a
diluted basis for fiscal 1998 compared to net earnings of $5.1 million or
$0.45 per share on a diluted basis for fiscal 1997 and net earnings for fiscal
1996 of $3.2 million or $0.29 per share on a diluted basis. The weighted
average common shares outstanding were 10,936,559, 10,919,720 and 10,863,554
for fiscal years 1998, 1997 and 1996, respectively.
 
   No tax benefit was recognized in fiscal 1998 as the Company is in a net
operating loss carryforward position. The fiscal 1997 and 1996 tax provision
benefited from the utilization of net operating loss carryforwards that were
not previously recognized. 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.)
 
Liquidity and Capital Resources
 
   Net cash flows from operating activities were $21.1 million in fiscal 1998
compared to $8.5 million in fiscal 1997 and $24.2 million in fiscal 1996. The
1998 increase as compared to 1997 is due primarily to a $9.1 million decrease
in inventories, compared to an increase of $8.2 million in 1997. The fiscal
1997 decrease as compared to 1996 related primarily to a $12.4 million
increase in inventory and receivables and other assets compared to a decrease
in such amounts in 1996. Working capital changes provided $2.5 million of cash
in fiscal 1998 compared to a use of $18.4 million of cash in fiscal 1997 and
to a use of $4.8 million of cash in fiscal 1996.
 
   Capital expenditures totaled $39.7 in fiscal 1998, $21.6 million in fiscal
1997, and $12.8 million in fiscal 1996, including $19.2 million, $6.1 million
and $4.6 million invested in property held for resale in fiscal 1998, 1997 and
1996, respectively.
 
   The following table summarizes store development and planned reductions:
 
<TABLE>
<CAPTION>
                                                           Planned
                                                           Fiscal  Fiscal Fiscal
                                                            1999    1998   1997
                                                           ------- ------ ------
      <S>                                                  <C>     <C>    <C>
      New stores..........................................     4      3      1
      Store closings......................................     3      4      3
      Expansions and major remodels.......................     7      3      5
      Store count, end of year............................    90     89     90
</TABLE>
 
   The Company is planning capital expenditures of approximately $55.2 million
in fiscal 1999, 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 12 of its 89 stores as of January 30, 1999, two of which
were included in "Property held for resale," and leased the remainder. Six
stores were sold and leased back providing $31.0 million of proceeds during
fiscal 1998, one store was sold and leased back providing $2.8 million of
proceeds during fiscal 1997 and one store was sold and leased back providing
$3.5 million of proceeds during fiscal 1996.
 
   State insurance reserve requirements for funds held in escrow by third
parties to satisfy claim liabilities recorded for workers' compensation,
automobile and general liability costs have been reduced by $3.8 million.
These funds will be returned to Eagle from November 1, 1998 to October 31,
1999, primarily through the
 
                                      14
<PAGE>
 
elimination of funding requirements for workers' compensation and general
liability loss projections for this period.
 
   The Company completed a three-year agreement in May of 1995 with Congress
Financial Corporation (Central) for a $40 million Revolving Credit Facility,
which replaced its existing revolving credit facility. 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 has been
extended to April 15, 2000, and the terms provide for availability up to a
maximum of $50 million. There were no cash borrowings under the Company's
Revolving Credit Facility at January 30, 1999. See Note F to the consolidated
financial statements.
 
   The following table summarizes borrowing and interest information:
 
<TABLE>
<CAPTION>
                                            Fiscal 1998 Fiscal 1997 Fiscal 1996
                                            January 30, January 31, February 1,
                                               1999        1998        1997
                                            ----------- ----------- -----------
                                                   (Dollars in millions)
      <S>                                   <C>         <C>         <C>
      Borrowed as of year-end..............    $ --        $ 7.2       $ --
      Letters of Credit as of year-end.....    $ --        $ --        $ 1.8
      Maximum amount outstanding during
       year................................    $10.3       $13.8       $11.1
      Average amount outstanding during
       year................................    $ 0.9       $ 1.0       $ 1.4
      Weighted average interest rate.......      9.2%        9.3%        9.3%
</TABLE>
   
   The Company was in compliance with all covenants at January 30, 1999, and
expects to be in compliance with all covenants for fiscal 1999 based on
management's estimates of fiscal 1999 operating results, cash flows and
capital expenditures.     
 
   Working capital and the current ratio were as follows:
 
<TABLE>
<CAPTION>
                                                           Working    Current
                                                           Capital     Ratio
                                                          ----------------------
                                                          (Dollars in millions)
      <S>                                                 <C>       <C>
      January 30, 1999...................................  $   17.4    1.18 to 1
      January 31, 1998...................................  $   13.4    1.14 to 1
      February 1, 1997...................................  $   11.7    1.12 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.
 
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 dependent on computer hardware, software, systems and
processes ("IT Systems") and non-information technology systems such as
telephones, clocks, scales, refrigeration controllers and other
 
                                      15
<PAGE>
 
equipment which may contain embedded microprocessor technology ("Non-IT"
Systems). These systems are used in several critical operating areas including
store and distribution operations, product merchandising and procurement,
inventory and labor management, and accounting and administrative systems.
 
   The Company has been engaged in a comprehensive project under the direction
of the Chief Executive Officer since June 1996 to upgrade or replace its IT
Systems and convert from mainframe to client/server technology. 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
two years, including financial systems, merchandising, distribution, store
ordering, time and attendance, and direct store delivery receiving. The
Company is currently in the process of upgrading or replacing various systems;
including payroll, human resources and personnel systems, store systems,
purchasing and inventory control and warehouse and distribution systems. The
project will include testing all systems critical for day-to-day operations.
 
   The Company is requesting each of its hardware and software vendors for
both the new systems that it has installed or expects to install, as well as
any systems which it does not expect to replace, to certify that their systems
are Year 2000 compliant. Subsequent to year end, the Company requested
certification, and is tracking responses, from companies it has a significant
business relationship with that their systems are Year 2000 compliant. In
addition, the Company is evaluating Year 2000 issues related to Non-IT
systems. The evaluation consists of developing an inventory of all such
systems, testing and taking corrective action on all detected deficiencies.
 
   The Company believes that its efforts will result in Year 2000 compliance.
However, if the Company's new computer system fails with respect to the Year
2000 issue, or if any applications or embedded chips critical to the Company's
operational processes are overlooked, there could be a material adverse impact
on the business operations or financial performance of the Company. The
Company cannot guarantee that hardware and software vendors on whom it has
relied will honor their obligations with respect to Year 2000 compliance, or
that other companies it has a business relationship with will achieve Year
2000 compliance. Additionally, there can be no assurance that the systems of
other companies on which the Company's systems rely will be converted timely,
or that a failure to convert by another company, or a conversion that is
incompatible with the Company's systems, would not have a material adverse
effect on the business operations or financial performance of the Company.
Management believes that, should the Company or any third party with whom the
Company has a significant business relationship have a Year 2000 related
systems failure, the most significant impact would likely be the inability to
conduct operations due to a power failure, to deliver inventory in a timely
fashion, to receive certain products from vendors, process payments or to
process electronically customer sales at the store level.
 
   The Company is in the process of developing contingency plans to provide
alternatives to enable the Company's core business operations to continue in
the event of a Year 2000 failure in its systems or in the systems of other
companies with which it has a relationship. There can be no assurance that the
systems of other companies on which the Company's contingency plans rely will
be converted timely, or that a failure to convert by another company, or a
conversion that is incompatible with the Company's systems, would not also
have a material adverse effect on the business operations or financial
performance of the Company. The Company expects to complete the contingency
plans during the 1999 calendar year.
 
   The Company has expended approximately $15.0 million since June 1996 to
upgrade or replace the majority of systems and convert them to client/server
technology, and expects to incur an additional $5.0 million, for a total of
$20.0 million, to complete the remaining systems. In addition, the Company has
entered into operating leases for equipment with a fair market value of $2.0
million and has purchased equipment for $3.2 million, and expects to purchase
or lease additional equipment with a fair market value of $1.8 million, for a
total of $7.0 million. This includes both Year 2000 upgrades or replacements
and the replacement of systems that are inefficient and in need of replacement
regardless of their Year 2000 readiness. The Company expects to finalize the
upgrade or replacement of all IT Systems, correct any detected deficiencies in
Non-IT Systems and achieve Year 2000 compliance by September 1999.
 
                                      16
<PAGE>
 
   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, adverse effects of
failure to achieve Year 2000 compliance and other risks detailed in the
Company's Securities and Exchange Commission filings.
 
Item 7a: Quantitative and Qualitative Disclosure 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 instruments
which are subject to interest rate risk at January 30, 1999 (dollars in
millions):
 
<TABLE>
<CAPTION>
   Description                    Contract Terms   Interest Rate Cost Fair Value
   -----------                  ------------------ ------------- ---- ----------
   <S>                          <C>                <C>           <C>  <C>
   Senior Notes................ Due April 15, 2000 8 5/8% fixed  $100   $99.5
</TABLE>
 
                                      17
<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 30, 1999 and January 31, 1998,
and the related consolidated statements of operations, equity, and cash flows
for each of the three years in the period ended January 30, 1999. 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 30, 1999 and January 31, 1998, and the results of
their operations and their cash flows for each of the three years in the
period ended January 30, 1999 in conformity with generally accepted accounting
principles.
 
                                          Deloitte & Touche LLP
 
Davenport, Iowa
April 29, 1999
 
                                      18
<PAGE>
 
                            EAGLE FOOD CENTERS, INC.
 
                          CONSOLIDATED BALANCE SHEETS
 
                 (Dollars in thousands, except per share data)
 
<TABLE>   
<CAPTION>
                                                        January 30, January 31,
                                                           1999        1998
                                                        ----------- -----------
<S>                                                     <C>         <C>
ASSETS
Current assets:                                          $ 11,775    $  5,113
  Cash and cash equivalents............................     9,846      10,349
  Restricted assets
  Accounts receivable, net of allowance for doubtful
   accounts of $1.2 million in fiscal 1998 and $0.9
   million in fiscal 1997..............................    16,537      10,826
  Income taxes receivable..............................       926         993
  Inventories..........................................    74,069      83,841
  Prepaid expenses and other...........................     1,392       1,595
                                                         --------    --------
    Total current assets...............................   114,545     112,717
Property and equipment (net)...........................   132,364     109,119
Other assets:
  Deferred debt issuance costs (net)...................       585       1,070
  Excess of cost over fair value of net assets acquired
   (net)...............................................     2,325       2,406
  Property held for resale.............................    20,025      18,769
  Other................................................    13,471      13,538
                                                         --------    --------
    Total other assets.................................    36,406      35,783
                                                         --------    --------
    Total assets.......................................  $283,315    $257,619
                                                         ========    ========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current liabilities:
  Accounts payable.....................................  $ 47,434    $ 43,078
  Payroll and associate benefits.......................    14,318      16,982
  Accrued liabilities..................................    25,353      19,258
  Reserve for closed stores............................     1,302       3,271
  Accrued taxes........................................     7,795       9,131
  Bank revolving credit facility.......................       --        7,208
  Current portion of long term debt....................       991         356
                                                         --------    --------
    Total current liabilities..........................    97,193      99,284
Long term debt:........................................
  Senior Notes.........................................   100,000     100,000
  Capital lease obligations............................    37,779       8,583
                                                         --------    --------
    Total long term debt...............................   137,779     108,583
Other liabilities:
  Reserve for closed stores............................     9,434      10,611
  Other deferred liabilities...........................    10,523       6,904
                                                         --------    --------
    Total other liabilities............................    19,957      17,515
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, 581,202 and
   553,127 shares......................................    (2,309)     (2,259)
  Accumulated other comprehensive income...............        47          82
  Other................................................      (140)       (281)
  Retained earnings (deficit)..........................   (22,663)    (18,756)
                                                         --------    --------
    Total shareholders' equity.........................    28,386      32,237
                                                         --------    --------
    Total liabilities and shareholders' equity.........  $283,315    $257,619
                                                         ========    ========
</TABLE>    
              See notes to the consolidated financial statements.
 
                                       19
<PAGE>
 
                            EAGLE FOOD CENTERS, INC.
 
                     CONSOLIDATED STATEMENTS OF OPERATIONS
 
                 (Dollars in thousands, except per share data)
 
<TABLE>
<CAPTION>
                                          Year Ended   Year Ended   Year Ended
                                          January 30,  January 31,  February 1,
                                             1999         1998         1997
                                          -----------  -----------  -----------
<S>                                       <C>          <C>          <C>
Sales.................................... $   943,805  $   967,090  $ 1,014,889
Cost of goods sold.......................     710,830      723,446      758,647
                                          -----------  -----------  -----------
    Gross margin.........................     232,975      243,644      256,242
Operating expenses:
  Selling, general and administrative....     203,220      208,133      218,253
  Store closing, asset revaluation and
   lease termination.....................       2,925          --         1,700
  Depreciation and amortization..........      18,885       19,068       20,494
                                          -----------  -----------  -----------
    Operating income.....................       7,945       16,443       15,795
Interest expense.........................      11,870       11,751       12,547
                                          -----------  -----------  -----------
Earnings (loss) before income taxes......      (3,925)       4,692        3,248
Income taxes (benefit)...................         --          (400)         --
                                          -----------  -----------  -----------
Net earnings (loss)...................... $    (3,925) $     5,092  $     3,248
                                          ===========  ===========  ===========
Weighted average common shares
 outstanding.............................  10,936,559   10,919,720   10,863,554
Weighted average common and potential
 common shares outstanding...............  11,084,569   11,364,496   11,171,799
Basic earnings (loss) per common share:..
Net earnings (loss)...................... $     (0.36) $       .47  $       .30
                                          ===========  ===========  ===========
Diluted net earnings (loss) per common
 share:..................................
Net earnings (loss)...................... $     (0.36) $       .45  $       .29
                                          ===========  ===========  ===========
</TABLE>
 
 
              See notes to the consolidated financial statements.
 
                                       20
<PAGE>
 
                            EAGLE FOOD CENTERS, INC.
 
                       CONSOLIDATED STATEMENTS OF EQUITY
 
                             (Dollars in thousands)
 
<TABLE>
<CAPTION>
                                                            Common Stock
                          -------------------------------------------------------------------------------------
                                                                                           Accumulated
                                           Capital in    Treasury              Retained       Other
                                      Par  Excess of  ----------------         Earnings   Comprehensive  Total
                            Shares   Value Par Value  Shares   Dollars  Other  (Deficit)  Income (Loss) Equity
                          ---------- ----- ---------- -------  -------  -----  ---------  ------------- -------
<S>                       <C>        <C>   <C>        <C>      <C>      <C>    <C>        <C>           <C>
Balance February 3,
 1996...................  11,500,000 $115   $53,336   554,906  $(2,471) $(281) $(26,935)      $157      $23,921
Comprehensive income
 (loss):
 Net earnings...........                                                          3,248
 Pension liability
  adjustment (net of
  tax)..................                                                                       (19)
 Change in unrealized
  gain (loss) on
  marketable securities.                                                                      (305)
 Total comprehensive
  income (loss).........                                                                                  2,924
Purchase of treasury
 shares.................                               91,200     (171)                                    (171)
Stock options exercised.                              (12,745)      52              (38)                     14
                          ---------- ----   -------   -------  -------  -----  --------       ----      -------
Balance February 1,
 1997...................  11,500,000  115    53,336   633,361   (2,590)  (281)  (23,725)      (167)      26,688
Comprehensive income
 (loss):
 Net earnings...........                                                          5,092
 Pension liability
  adjustment (net of
  tax)..................                                                                       111
 Change in unrealized
  gain (loss) on
  marketable securities.                                                                       138
 Total comprehensive
  income (loss).........                                                                                  5,341
Purchase of treasury
 shares.................                               12,953      (49)                                     (49)
Stock options exercised.                              (93,187)     380             (123)                    257
                          ---------- ----   -------   -------  -------  -----  --------       ----      -------
Balance January 31,
 1998...................  11,500,000  115    53,336   533,127   (2,259)  (281)  (18,756)        82       32,237
Comprehensive income
 (loss):
 Net loss...............                                                         (3,925)
 Pension liability
  adjustment (net of
  tax)..................                                                                      (141)
 Change in unrealized
  gain (loss) on
  marketable securities.                                                                       106
 Total comprehensive
  income (loss).........                                                                                 (3,960)
Purchase of treasury
 shares.................                               50,200     (137)                                    (137)
Forgiveness of officer
 stock sale receivable..                                                                                    141
Stock options exercised.                              (22,125)      87    141        18                     105
                          ---------- ----   -------   -------  -------  -----  --------       ----      -------
Balance January 30,
 1999...................  11,500,000 $115   $53,336   581,202  $(2,309) $(140) $(22,663)      $ 47      $28,386
                          ========== ====   =======   =======  =======  =====  ========       ====      =======
</TABLE>
 
              See notes to the consolidated financial statements.
 
                                       21
<PAGE>
 
                            EAGLE FOOD CENTERS, INC.
 
                     CONSOLIDATED STATEMENTS OF CASH FLOWS
 
                             (Dollars in thousands)
 
<TABLE>   
<CAPTION>
                                                        Years Ended
                                            -----------------------------------
                                            January 30, January 31, February 1,
                                               1999        1998        1997
                                            ----------- ----------- -----------
<S>                                         <C>         <C>         <C>
Cash Flows from Operating Activities:
Net earnings (loss)........................  $ (3,925)   $  5,092    $  3,248
Adjustments to reconcile net earnings
 (loss) to net cash flows from operating
 activities:
  Depreciation and amortization............    18,885      19,068      20,494
  Store closing, asset revaluation and
   lease termination.......................     2,925         --        1,700
  LIFO charge..............................       685         775         731
  Deferred charges and credits.............       893       1,358       1,975
  (Gain) loss on disposal of assets........      (910)        603         883
Changes in assets and liabilities:
  Receivables and other assets.............    (8,015)     (3,902)       (962)
  Inventories..............................     9,087      (8,221)      3,766
  Accounts payable.........................     4,356        (746)      1,799
  Accrued and other liabilities............      (477)     (3,216)      2,766
  Principal payments on reserve for closed
   stores..................................    (2,444)     (2,275)    (12,207)
                                             --------    --------    --------
    Net cash flows from operating
     activities............................    21,060       8,536      24,193
                                             --------    --------    --------
Cash Flows from Investing Activities:
  Additions to property and equipment......   (20,532)    (15,560)     (8,164)
  Sales (purchases) of marketable
   securities, net.........................       609      (1,246)       (231)
  Additions to property held for resale....   (19,150)     (6,069)     (4,629)
  Cash proceeds from sale/leasebacks or
   dispositions of property and equipment..    14,392       3,664       3,884
  Cash proceeds from sale/leasebacks or
   dispositions of property held for
   resale..................................    18,450       2,041         --
                                             --------    --------    --------
    Net cash flows from investing
     activities............................    (6,231)    (17,170)     (9,140)
                                             --------    --------    --------
Cash Flows from Financing Activities:
  Deferred financing costs.................       (50)        --          --
  Principal payments of capital lease
   obligations.............................      (772)     (2,546)     (5,237)
  Net revolving credit (repayment)
   borrowing...............................    (7,208)      7,208      (1,992)
  Purchase of treasury stock...............      (137)        (49)       (171)
                                             --------    --------    --------
    Net cash flows from financing
     activities............................    (8,167)      4,613      (7,400)
                                             --------    --------    --------
      Net Change in Cash and Cash
       Equivalents.........................     6,662      (4,021)      7,653
      Cash and Cash Equivalents at
       Beginning Of Year...................     5,113       9,134       1,481
                                             --------    --------    --------
      Cash and Cash Equivalents at End of
       Year................................  $ 11,775    $  5,113    $  9,134
                                             ========    ========    ========
</TABLE>    
               
            See notes to the consolidated financial statements.     
 
                                       22
<PAGE>
 
                           EAGLE FOOD CENTERS, INC.
 
                NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
 
     YEARS ENDED JANUARY 30, 1999, JANUARY 31, 1998, AND FEBRUARY 1, 1997
 
Note A--Organization
   Eagle Food Centers, Inc. (the "Company"), a Delaware corporation, is
engaged in the operation of retail food stores, with 89 stores 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.
 
Note B--Summary of Significant Accounting Policies
 
   Fiscal Year--The Company's fiscal year ends on the Saturday closest to
January 31st. Fiscal 1998, 1997 and 1996 were 52-week years ending on January
30, 1999, January 31, 1998, and February 1, 1997, respectively.
 
   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.
 
   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 21 collective bargaining agreements with 17 local
unions representing 94% of the Company's associates. Twelve contracts will
expire during 1999, covering 67% of the Company's associates. 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.
 
   Cash and Cash Equivalents--The Company considers all highly liquid
investments with a maturity of three months or less at the time of purchase to
be a cash equivalent.
 
   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 fair value is reported as a separate component
of shareholders' equity until gains and losses are realized. Such amount is a
component in the "Accumulated other comprehensive income" caption of
shareholders' equity.
 
   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 $10.3 million at January 30, 1999 and $9.6 million at January 31,
1998.
 
   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 original 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
 
                                      23
<PAGE>
 
lease is amortized on a straight line basis over the shorter of the estimated
useful life of the property or the original lease term.
 
   Long-Lived Assets--The Company accounts for Long-Lived Assets in accordance
with Statement of Financial Accounting Standards ("SFAS") SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to be Disposed Of." Under SFAS No. 121, 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 an
indication that the carrying amount of assets may not be recoverable.
Impairment charges are included in the caption "Store closing, asset
revaluation and lease termination" of the consolidated statement of
operations.
 
   Debt Issuance Costs--Debt issuance costs, recorded net of accumulated
amortization of $3.3 million at January 30, 1999 and $2.8 million at January
31, 1998, are amortized over the terms of the related debt agreements.
 
   Excess of Cost Over Fair Value of Net Assets Acquired ("Goodwill")--
Goodwill, recorded net of accumulated amortization of $0.9 million at January
30, 1999 and $0.8 million at January 31, 1998, 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.
 
   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/leaseback 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.
 
   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 $12.1 million as of January 30, 1999 and January 31,
1998, respectively; net of accumulated amortization of $2.9 million and $0.4
million, respectively.
 
   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 incurred but not yet reported. Self insurance claim
liabilities of $6.6 million as of January 30, 1999 and $7.5 million as of
January 31, 1998 are included in the "Accrued liabilities" caption of the
balance sheet.
 
   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 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
 
                                      24
<PAGE>
 
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 duration equal to the
average remaining lease term at the time the reserve was established. The
discount rate used for reserves established in fiscal 1998 and 1997 was 4.7%
and 6.0%, 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 Advertising    Co-Op Credits     Net Advertising
                       ------------------ ------------------ ------------------
                       Dollars % of Sales Dollars % of Sales Dollars % of Sales
                       ------- ---------- ------- ---------- ------- ----------
                                        (Dollars in thousands)
   <S>                 <C>     <C>        <C>     <C>        <C>     <C>
   Fiscal 1998........ $17,520    1.8%    $15,488    1.6%    $2,032     0.2%
   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%
</TABLE>
 
   Earnings (Loss) Per Share--Earnings per share ("EPS") are computed in
accordance with 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 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 options for 1997 and
328,925 options for 1996. All outstanding options were excluded from the
earnings (loss) per share calculation for 1998 because they were anti-
dilutive.
 
   Reclassifications--Certain reclassifications were made to prior years'
balances conform with current year presentation.
 
   Segments of a Business--Effective for the fourth quarter of fiscal 1998,
the Company has adopted SFAS No. 131 "Disclosure about Segments of an
Enterprise and Related Information" which supersedes SFAS No. 14 "Financial
Reporting for Segments of a Business Enterprise." SFAS No. 131 establishes new
standards for disclosure of financial and descriptive information by operating
segment in the Company's consolidated financial statements. SFAS 131 utilizes
a management approach to define operating segments along the lines used by
management internally for evaluating the operation of retail food stores
segment performance and deciding resource allocations to segments. The Company
manages and internally reports its operations as one business segment which,
under the criteria of SFAS 131, is a supermarket. As a result, the adoption of
SFAS 131 had no impact on the Company's consolidated financial statement
disclosures.
 
   Comprehensive Income--In the fourth quarter of fiscal 1998, the Company
adopted SFAS No. 130, "Reporting Comprehensive Income." This statement
establishes rules for the reporting of comprehensive income and its
components. Comprehensive income consists of net earnings (loss), minimum
pension liability adjustments, and unrealized gains and losses on certain
investments in debt and equity securities, and is presented in the
Consolidated Statement of Equity. The adoption of SFAS 130 had no impact on
total shareholders' equity. Prior year financial statements have been
reclassified to conform to the SFAS 130 requirements.
 
   Costs of Computer Software Developed or Obtained For Internal Use--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 early adopted SOP 98-1, which did not have
a material impact on the Company's consolidated results of operations or
financial position.
 
                                      25
<PAGE>
 
   Reporting on the Costs of Start-Up Activities--In April 1998, the American
Institute of Certified Public Accountants issued the Statement of Position 98-
5, "Reporting on the Costs of Start-Up Activities" ("SOP 98-5"). SOP 98-5
requires that costs of start-up activities and organization costs be expensed
as incurred and is effective no later than for the first quarter of the
Company's fiscal year commencing January 31, 1999. Since the company does not
have any significant deferred start-up costs as of January 30, 1999, the early
adoption of SOP 98-5 did not have a material impact on its consolidated
results of operations or financial position.
 
   New Accounting Standards--In June 1998 the Financial Accounting Standards
Board issued SFAS No. 133, "Accounting for Derivative Instruments and Hedging
Activities." This new standard establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. It requires that an entity
recognize all derivatives as either assets or liabilities in the statement of
financial position and measure those instruments at fair value. This standard
is effective for the Company's 2000 fiscal year. The Company has not yet
completed its evaluation of this standard or its potential impact on the
Company's reporting requirements.
 
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>
                                                        1998    1997    1996
                                                       ------- ------- -------
                                                       (Dollars in thousands)
   <S>                                                 <C>     <C>     <C>
   Cash paid for interest............................. $11,717 $11,132 $12,009
   Cash paid (received) for income taxes..............      73      52  (2,958)
   Non-cash additions to property and equipment.......  30,603   2,761     --
   Non-cash additions to the capital lease liability..  30,603   2,761     --
   Treasury stock issued..............................      87     380      52
   Non-cash transfer from property and equipment to
    property held for resale..........................     --    1,382     --
   Non-cash transfer from closed store reserve to
    property and equipment............................     676     --      810
</TABLE>
 
Note D--Reserve for Closed Stores
 
   An analysis of activity in the reserve for closed stores for the years
ended January 30, 1999 and January 31, 1998, is as follows:
 
<TABLE>   
<CAPTION>
                                                         January 30, January 31,
                                                            1999        1998
                                                         ----------- -----------
                                                             (In thousands)
   <S>                                                   <C>         <C>
   Balance at beginning of year........................    $13,882     $16,016
   Payments, primarily rental payments, net of sublease
    rentals of $1,123 in fiscal 1998 and $1,272 in
    fiscal 1997........................................     (1,450)     (2,189)
   Lease termination payments..........................     (1,632)       (576)
   Amount classified as a direct reduction of fixed
    assets.............................................       (676)        --
   Interest cost.......................................        612         631
                                                           -------     -------
   Balance at end of year (including $1.3 million and
    $3.3 million, respectively, classified as current).    $10,736     $13,882
                                                           =======     =======
</TABLE>    
 
   During fiscal 1998, the Company benefited $0.6 million from favorable lease
terminations and changes in estimates for six stores that were included in the
reserve at January 31, 1998, and from $0.2 million in favorable
 
                                      26
<PAGE>
 
changes in estimates for stores remaining in the reserve at January 30, 1999.
Additionally, during fiscal 1998, the Company added two stores to the reserve,
for which $0.8 million was provided for estimated future costs and write down
of fixed assets to estimated fair value.
 
   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 for 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.
 
   The reserve at January 30, 1999, represents estimated future cash outflows
primarily related to the present value of net future rental payments. It is
management's opinion that the reserve will be adequate to cover continuing
costs for the existing closed stores and the two stores in the reserve which
are not yet closed.
 
   At the end of fiscal year 1998, the reserve included estimated net future
costs for five closed stores and two stores to be closed, plus sublease
subsidies for nine other closed stores. In addition, there are three closed
stores not included in the reserve because future sublease subsidies will
cover estimated future costs. 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.
 
   A rollforward presentation of the number of stores in the closed store
reserve for fiscal years 1998 and 1997 is as follows:
 
<TABLE>
<CAPTION>
                                                                       1998  1997
                                                                       ----  ----
   <S>                                                                 <C>   <C>
   Number of stores in reserve at beginning of year...................  20    22
   Leases terminated/expired/removed from reserve.....................  (6)   (8)
   Stores added to the closed store reserve...........................   2     6
                                                                       ---   ---
   Number of stores in reserve at end of year.........................  16    20
                                                                       ===   ===
</TABLE>
 
Note E--Property and Equipment
 
   The investment in property and equipment is as follows:
 
<TABLE>
<CAPTION>
                                                         January 30, January 31,
                                                            1999        1998
                                                         ----------- -----------
                                                             (In thousands)
      <S>                                                <C>         <C>
      Land..............................................  $   7,315   $   9,757
      Buildings.........................................     27,168      32,175
      Leasehold costs and improvements..................     36,797      38,624
      Fixtures and equipment............................    139,210     137,940
      Leasehold interests...............................     27,965      29,721
      Property under capital lease......................     42,053      12,214
                                                          ---------   ---------
      Total.............................................    280,508     260,431
      Less accumulated depreciation and amortization....   (148,144)   (151,312)
                                                          ---------   ---------
      Property and equipment (net)......................  $ 132,364   $ 109,119
                                                          =========   =========
</TABLE>
 
   The Company owned 12 of its 89 stores, two of which were classified in
"Property held for resale," as of January 30, 1999 and leased the remainder.
Six stores were sold and leased back providing $31.0 million of
 
                                      27
<PAGE>
 
proceeds during fiscal 1998, one store was sold and leased back providing $2.8
million of proceeds during fiscal 1997 and one store was also sold and leased
back providing $3.5 million of proceeds during fiscal 1996. The leases on
these eight stores, of which six are recorded as a capital leases, have 22-25
year terms with up to six five-year options. The gains on the sale of these
properties have been deferred and are amortized over the life of the original
lease term.
 
   Property under capital leases primarily represents capital leases for land,
buildings and improvements. Amortization of the capital lease assets are
included in the caption "Depreciation and Amortization" in the consolidated
statements of operations.
 
   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>
      <S>                                 <C>
      Buildings.......................... 10-25 years
      Fixtures and Equipment.............  2-12 years
      Leasehold Costs & Improvements.....  5-23 years
      Leasehold interests................ 12-25 years
      Property under capital lease....... Shorter of economic life or lease term
</TABLE>
 
Note F--Debt
 
   Long-term debt consists of the following:
 
<TABLE>
<CAPTION>
                                                         January 30, January 31,
                                                            1999        1998
                                                         ----------- -----------
                                                             (In thousands)
      <S>                                                <C>         <C>
      8 5/8% Senior Notes...............................  $100,000    $100,000
      Capital leases (Note H)...........................    38,770       8,939
                                                          --------    --------
                                                           138,770     108,939
      Less current maturities...........................       991         356
                                                          --------    --------
        Total long-term debt............................  $137,779    $108,583
                                                          ========    ========
</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 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 million. 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, increases the
capital expenditure limit to $75 million per year, increases the permitted
purchase money security interests and purchase money mortgage amounts to a
combined maximum outstanding amount of $50 million, and provides for
reductions in the interest rate and fees. The amended agreement 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
30, 1999, the defined net worth of the Company exceeded the minimum amount by
approximately $33.1 million.
 
 
                                      28
<PAGE>
 
   At January 30, 1999, the Company had no borrowing against the Revolving
Credit Facility and no letters of credit outstanding, resulting in $42.6
million of availability under the amended Credit Agreement. The interest rate
as of January 30, 1999 was 8.25%.
 
   At January 31, 1998, the Company had $7.2 million borrowed against the
Revolving Credit Facility and had no letters of credit outstanding. The
interest rate on the outstanding amount was 9.25% at January 31, 1998.
 
   The Company was in compliance with all the covenants in its debt agreements
at January 30, 1999. The Company expects to be in compliance with all
covenants for fiscal 1999 based on management's estimates of fiscal 1999
operating results, cash flows, planned capital expenditures and capital
leases.
 
Note G--Treasury Stock
 
   The following summarizes the treasury stock activity for the three years in
the period ended January 30, 1999:
 
<TABLE>
<CAPTION>
                                                         Shares  Dollars Average
                                                         ------- ------- -------
                                                         (Dollars in thousands,
                                                              except share
                                                              information)
   <S>                                                   <C>     <C>     <C>
   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
   Purchased............................................  50,200    137    2.73
   Issued...............................................  22,125     87    3.95
                                                         ------- ------
   Outstanding January 20, 1999......................... 581,202 $2,309   $3.97
                                                         ======= ======
</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.
In accordance with Mr. Kelly's employment agreement, $140,625 of the $281,250
note was forgiven in fiscal 1998 and the remainder will be forgiven in fiscal
1999. The fiscal 1998 partial forgiveness of the note was recorded as
compensation expense and is included in the caption "Selling, general and
administrative" in the Company's consolidated statements of operations.
 
   The difference between the average share price of treasury stock and
exercise of stock options is charged/credited to retained earnings.
 
                                      29
<PAGE>
 
Note H--Leases and Long-term Contracts
 
   Seventy-seven operating stores and 17 closed stores were leased at fiscal
year end, many of which have renewal options for periods ranging from five to
30 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 30, January 31, February 1,
                                               1999        1998        1997
                                            ----------- ----------- -----------
                                                      (In thousands)
      <S>                                   <C>         <C>         <C>
      Minimum rent under operating leases..   $16,291     $15,981     $15,387
      Additional rent based on sales.......       109          82         275
      Less rentals received on
       noncancelable subleases.............      (337)       (246)        (39)
                                              -------     -------     -------
                                              $16,063     $15,817     $15,623
                                              =======     =======     =======
</TABLE>
 
   Future minimum lease payments under operating and capital leases as of
January 30, 1999, are as follows:
 
<TABLE>
<CAPTION>
                                                              Operating Capital
                                                               Leases   Leases
                                                              --------- -------
                                                               (In thousands)
      <S>                                                     <C>       <C>
      1999................................................... $ 15,988  $ 4,577
      2000...................................................   15,776    4.577
      2001...................................................   15,027    4,577
      2002...................................................   14,371    4,577
      2003...................................................   13,485    4,498
      Thereafter.............................................  118,668   62,845
                                                              --------  -------
      Total minimum lease payments........................... $193,315   85,651
                                                              ========
      Less minimum lease payments............................            46,881
                                                                        -------
      Present value of minimum capital lease payments,
       including $991 classified as current portion of long-
       term debt.............................................           $38,770
                                                                        =======
</TABLE>
 
   The operating and capital lease future minimum lease payments do not
include gross minimum commitments of $24.8 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."
 
   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.). In connection with the migration from
mainframe to client/server technology, the Company renegotiated this contract
with an effective period from January 27, 1999 to December 31, 1999. In the
fourth quarter of fiscal 1998, the Company accrued $2.9 million, payable in 12
equal installments in calendar 1999, for costs associated with the migration
from mainframe to client/server technology. The charge is primarily for future
lease costs relating to the mainframe, and various software, software licenses
and contracting costs. Such charge is included in the caption "Store closing,
asset revaluation and lease termination" in the consolidated statements of
operations.
 
                                      30
<PAGE>
 
Note I--Income Taxes
 
   The following summarizes significant components of the provision for income
taxes:
 
<TABLE>
<CAPTION>
                                                       Year Ended
                                           -----------------------------------
                                           January 30, January 31, February 1,
                                              1999        1998        1997
                                           ----------- ----------- -----------
                                                     (In thousands)
      <S>                                  <C>         <C>         <C>
      Income taxes (benefit):
        Federal...........................    $--         $(400)      $--
        State.............................     --           --         --
                                              ----        -----       ----
                                              $--         $(400)      $--
                                              ====        =====       ====
      Income taxes (benefit) consists of
       the following:
        Current
          Federal.........................    $--         $(400)      $--
          State...........................     --           --         --
                                              ----        -----       ----
                                              $--         $ --        $--
                                              ====        =====       ====
        Deferred:
          Federal.........................    $--         $ --        $--
          State...........................     --           --         --
                                              ----        -----       ----
                                              $--         $ --        $--
                                              ====        =====       ====
</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 30, January 31, February 1,
                                              1999        1998        1997
                                           ----------- ----------- -----------
                                                     (In thousands)
      <S>                                  <C>         <C>         <C>
      Income taxes (benefit) at statutory
       Federal tax rate of 35%............  $ (1,374)    $ 1,642     $ 1,137
      Surtax exemption....................        39         (47)        (33)
      State income taxes, net of Federal
       benefit............................      (196)        368         213
      Tax credits.........................       --          --          --
      Valuation allowance.................     1,573      (2,576)     (1,350)
      Other...............................       (42)        213          33
                                            --------     -------     -------
        Total.............................  $    --      $  (400)    $   --
                                            ========     =======     =======
</TABLE>
 
                                       31
<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 30, January 31,
                                                           1999        1998
                                                        ----------- -----------
                                                            (In thousands)
      <S>                                               <C>         <C>
      Deferred Tax Assets:
        Store closing, assets revaluation and lease
         termination...................................  $  4,565     $ 4,667
        Accrued reserves...............................     1,857       2,579
        Deferred revenues..............................     2,032       2,282
        Associate benefits.............................     1,441       1,819
        Tax credit and net operating loss
         carryforwards.................................    13,224      13,825
        Valuation allowance............................   (11,096)     (9,523)
                                                         --------     -------
          Total........................................  $ 12,023     $15,649
                                                         ========     =======
      Deferred Tax Liabilities:
        Depreciation...................................  $  9,541     $12,897
        Other, net.....................................     2,482       2,752
                                                         --------     -------
          Total........................................  $ 12,023     $15,649
                                                         ========     =======
      Net deferred tax asset...........................  $    --      $   --
                                                         ========     =======
</TABLE>
 
   Valuation allowances have been established for the entire amount of the net
deferred tax assets as of January 30, 1999 and January 31, 1998, 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 totaled $13,224, with expiration dates as follows: 1999--
$54, 2000--$11, 2001--$62, 2002--$83, 2003--$80, 2005--$58, 2006--$99, 2007--
$158, 2008--$101, 2009--$202, 2010--$5,794, 2011--$755, 2012--$84 and
unlimited--$5,683.
 
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.
 
   In 1998, the Company adopted SFAS No 132, "Employers' Disclosures about
Pensions and Other Postretirement Benefits." The Statement does not change the
measurement or recognition of those plans. It does revise and standardize the
disclosure requirements. Prior years' information has been restated in
conformance with the Statement's requirements.
 
   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 30, 1999, January 31, 1998, and February 1, 1997, pension costs
under the plans totaled $701,000, $713,000, and $706,000, respectively.
 
                                      32
<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 30, 1999, January 31, 1998, and February 1, 1997:
 
<TABLE>
<CAPTION>
                                                         Year Ended
                                             -----------------------------------
                                             January 30, January 31, February 1,
                                                1999        1998        1997
                                             ----------- ----------- -----------
                                                       (In thousands)
      <S>                                    <C>         <C>         <C>
      Service cost..........................    $ 551       $ 504       $ 516
      Interest cost.........................      776         722         657
      Expected return on plan assets........     (663)       (549)       (503)
      Amortization of prior service cost....       37          36          36
                                                -----       -----       -----
        Net periodic pension cost...........    $ 701       $ 713       $ 706
                                                =====       =====       =====
</TABLE>
 
   The amounts included within other comprehensive income arising from a
change in the additional minimum pension liability, net of tax, are a loss of
$141,000 at December 31, 1998, income of $111,000 at December 31, 1997 and a
loss of $19,000 at December 31, 1996.
 
   The accumulated benefit obligation, changes in projected benefit obligation
and plan assets, 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, 1998 and 1997, are as follows:
 
<TABLE>
<CAPTION>
                                                       December 31, December 31,
                                                           1998         1997
                                                       ------------ ------------
      <S>                                              <C>          <C>
      Accumulated Benefit Obligation.................    $ 11,520     $  9,785
                                                         ========     ========
      Change in Projected Benefit Obligation
        Balance at January 1.........................    $ 10,679     $  9,730
        Service cost.................................         551          504
        Interest cost................................         776          722
        Actuarual loss...............................         856           84
        Benefits paid................................        (404)        (361)
                                                         --------     --------
          Balance at December 31.....................    $ 12,458     $ 10,679
                                                         ========     ========
      Change in Plan Assets at Fair Value
        Balance at January 1.........................    $  8,756     $  7,738
        Actual return on plan assets.................         757          942
        Company contributions........................         889          437
        Benefits paid................................        (404)        (361)
                                                         --------     --------
          Balance at December 31.....................    $  9,998     $  8,756
                                                         ========     ========
      Reconciliation of Funded Status to Amounts
      Recognized in Financial Statements
        Funded status at December 31.................    $ (2,460)    $ (1,923)
        Unrecognized (gain) loss.....................         621         (141)
        Unrecognized prior service cost..............         239          276
                                                         --------     --------
          Recognized accured cost....................    $ (1,600)    $ (1,788)
                                                         ========     ========
      Amounts Recognized in the Financial
        Statements at December 31
        Accured benefits liability...................    $ (2,100)    $ (2,090)
        Intangible asset.............................         211          244
        Accumulated other comprehensive income before
         income tax..................................         289           58
                                                         --------     --------
          Net amount recognized......................    $ (1,600)    $ (1,788)
                                                         ========     ========
</TABLE>
 
 
                                      33
<PAGE>
 
   Actuarial assumptions used to develop net periodic pension cost for the
fiscal years 1998, 1997 and 1996 were as follows:
 
<TABLE>
<CAPTION>
                                                                  1998 1997 1996
                                                                  ---- ---- ----
      <S>                                                         <C>  <C>  <C>
      Discount rate.............................................. 7.0% 7.5% 7.5%
      Expected long term rate of return on assets................ 8.5% 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 30, 1999, January 31, 1998, and February 1, 1997, totaled $6.8
million, $4.3 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 $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 and
certain other management personnel. Incentive plans included approximately 233
associates. Provisions for payments to be made under the plans are based
primarily on 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. As of January 30, 1999, there were
829,938 options available for future grants. The Company recognized $60,875 of
compensation expense during fiscal year 1998 as the result of an extension of
an exercise period which resulted in re-measurement. The Company recognized no
compensation expense for fiscal years 1997 or 1996 because the exercise price
was 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 30, 1999:
 
<TABLE>
<CAPTION>
                                                                        Weighted
                                                                        Average
                                                Shares    Option Price  Exercise
                                                Subject    Range Per    Price of
                                               to Option     Share      Options
                                               --------- -------------- --------
      <S>                                      <C>       <C>            <C>
      Outstanding February 3, 1996             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
        Forfeited.............................   108,600 $1.50 -$10.00   $3.69
                                               ---------
      Outstanding February 1, 1997             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
        Forfeited.............................   116,650 $1.50 -$10.00   $3.96
                                               ---------
      Outstanding January 31, 1998             1,367,213 $1.50 -$10.00   $3.52
        Granted...............................    70,000 $2.25 -$4.0625  $3.38
        Exercised.............................    22,125 $1.50 -$3.375   $1.90
        Forfeited.............................   209,238 $1.50 -$10.00   $3.73
                                               ---------
      Outstanding January 30, 1999............ 1,205,850 $1.50 -$10.00   $3.50
                                               =========
</TABLE>
 
                                      34
<PAGE>
 
   Stock options exercisable are as follows:
 
<TABLE>
<CAPTION>
                                                                        Average
                                                              Options   Exercise
                                                            Exercisable  Price
                                                            ----------- --------
      <S>                                                   <C>         <C>
      February 1, 1997.....................................   542,138    $3.23
      January 31, 1998.....................................   734,413    $3.27
      January 30, 1999.....................................   912,684    $3.50
</TABLE>
 
   The following table summarizes stock option information on outstanding and
exercisable shares as of January 30, 1999:
 
<TABLE>
<CAPTION>
                                                    Weighted
                                          Weighted   Average               Weighted
                                          Average   Remaining              Average
                                Options   Exercise Contractual   Options   Exercise
   Range of Exercise Prices   Outstanding  Price      Life     Exercisable  Price
   ------------------------   ----------- -------- ----------- ----------- --------
                                                     (Years)
   <S>                        <C>         <C>      <C>         <C>         <C>
   $1.50...................      157,375   $1.50      6.86       107,178    $1.50
   $2.25-$4.00.............      755,250   $3.32      6.89       557,281    $3.16
   $4.0625-$5.00...........      260,000   $4.51      6.92       215,000    $4.51
   $8.50-$10.00............       33,225   $9.22      2.46        33,225    $9.22
                               ---------                         -------
   Total...................    1,205,850                         912,684
                               =========                         =======
</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 1998, 1997 and 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>
                                                            1998    1997   1996
                                                          -------- ------ ------
                                                          (In thousands, except
                                                             per share data)
   <C>                                <S>                 <C>      <C>    <C>
   Net earnings (loss):                As reported......  $(3,925) $5,092 $3,248
                                       Pro Forma........  $(4,029) $4,474 $3,089
   Basic earnings (loss) per share:    As reported......  $ (0.36) $  .47 $  .30
                                       Pro Forma........  $ (0.37) $  .41 $  .28
   Diluted earnings (loss) per share:  As reported......  $ (0.36) $  .45 $  .29
                                       Pro Forma........  $ (0.37) $  .39 $  .28
</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 59% to 60% in 1998, 61% to 64% in 1997, and
91% to 97% in 1996; risk-free interest rate of 4.7% in 1998, 5.5% in 1997, and
6.0% in 1996; and no dividends during the expected term. Based on this model,
the weighted average fair values of stock options awarded were $1.86, $2.32,
and $3.32 for fiscal year 1998, 1997 and 1996, respectively. 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 1998, 1997,
and 1996 only. The pro forma amounts for compensation cost may not be
indicative of the effects on earnings (loss) and earnings (loss) per share for
future years.
 
                                      35
<PAGE>
 
Note L--Fair Value of Financial Instruments
 
   The carrying amounts and fair values of the Company's financial instruments
as of January 30, 1999 and January 31, 1998 are as follows:
 
<TABLE>
<CAPTION>
                                              January 30, 1999 January 31, 1998
                                              ---------------- ----------------
                                              Carrying  Fair   Carrying  Fair
                                               Amount   Value   Amount   Value
                                              -------- ------- -------- -------
                                                       (In thousands)
   <S>                                        <C>      <C>     <C>      <C>
   Cash and cash equivalents................. $ 11,775 $11,775 $  5,113 $ 5,113
   Marketable securities.....................    9,846   9,846   10,349  10,349
   Bank revolving credit facility............      --      --     7,208   7,208
   Senior Notes..............................  100,000  99,472  100,000  97,840
</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, and estimated fair
values of the Company's marketable securities at January 30, 1999 and January
31, 1998, are as follows:
 
<TABLE>
<CAPTION>
                                                   January 30, 1999
                                         -------------------------------------
                                                 Unrealized Unrealized  Fair
                                          Cost     Gains      Losses    Value
                                         ------- ---------- ---------- -------
                                                    (In thousands)
   <S>                                   <C>     <C>        <C>        <C>
   Money market mutual fund, due within
    one year............................ $ 5,845    $--        $--     $ 5,845
   U.S. Treasury notes..................   2,992      78        --       3,070
   Equity securities....................     785     198         52        931
                                         -------    ----       ----    -------
     Total marketable securities........ $ 9,622    $276       $ 52    $ 9,846
                                         =======    ====       ====    =======
 
<CAPTION>
                                                   January 31, 1998
                                         -------------------------------------
                                                 Unrealized Unrealized  Fair
                                          Cost     Gains      Losses    Value
                                         ------- ---------- ---------- -------
                                                    (In thousands)
   <S>                                   <C>     <C>        <C>        <C>
   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>
 
   The maturity of the U.S. Treasury Notes as of January 30, 1999 is as
follows:
 
<TABLE>
<CAPTION>
                                                                          Fair
                                                                   Cost  Value
                                                                  ------ ------
                                                                       (In
                                                                   thousands)
      <S>                                                         <C>    <C>
      Within one year............................................ $1,000 $1,005
      1-5 years..................................................  1,992  2,065
                                                                  ------ ------
      Total U.S. Treasury notes.................................. $2,992 $3,070
                                                                  ====== ======
</TABLE>
 
Note M--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
 
                                      36
<PAGE>
 
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 and
all the Plaintiffs have recently reached an agreement in principal to settle
the lawsuit and the parties are awaiting final approval of the settlement from
the Court. 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.
 
Note N--Earnings (Loss) Per Share
 
   Earnings (loss) per share disclosures (net of tax) for the three years in
the period ended January 30, 1999 are follows:
 
<TABLE>
<CAPTION>
                                                          Wtd. Ave.
                                             Earnings      Shares     Per Share
                                            (Numerator) (Denominator)  Amount
                                            ----------- ------------- ---------
                                              (In thousands except per share
                                                           data)
   <S>                                      <C>         <C>           <C>
   Year Ended January 30, 1999:
   Basic net loss per share:
   Loss available to common shareholders...   $(3,925)     10,936      $(0.36)
                                              =======                  ======
   Effective of dilutive securities--Stock
    options................................                   --
                                                           ------
   Diluted net loss per share:
   Net loss available to common
    shareholders...........................   $(3,925)     10,936      $(0.36)
                                              =======      ======      ======
   Year Ended January 31, 1998:
   Basic net earnings per share:
   Earnings available to common
    shareholders...........................   $ 5,092      10,920      $  .47
                                              =======                  ======
   Effect of dilutive securities--Stock
    options................................                   444
                                                           ------
   Diluted net earnings per share:
   Net earnings available to common
    shareholders...........................   $ 5,092      11,364      $  .45
                                              =======      ======      ======
   Year Ended February 1, 1997:
   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
                                              =======      ======      ======
</TABLE>
 
                                      37
<PAGE>
 
Note O--Subsequent Events
 
   During April 1999, a store which was classified as "Property held for
resale" was sold and leased back yielding cash proceeds of $5.7 million. The
store is recorded as a capital lease.
 
Note P--Quarterly Financial Data (Unaudited)
 
<TABLE>
<CAPTION>
                                                                   Net Earnings
                                                        Net           (Loss)
                                              Gross   Earnings      Per Share-
                                    Sales     Margin   (Loss)        Diluted
                                  ---------- -------- --------     ------------
                                   (Dollars in thousands, except per share
                                                    data)
 1998
 ----
 <C>      <S>                     <C>        <C>      <C>          <C>
 Quarter: First................   $  231,568 $ 57,724 $   124         $ .01
          Second...............      234,530   59,670     914           .08
          Third................      226,515   58,050     387           .04
          Fourth...............      251,192   57,531  (5,350)(4)      (.49)(4)
                                  ---------- -------- -------         -----
                                  $  943,805 $232,975 $(3,925)        $(.36)
                                  ========== ======== =======         =====
<CAPTION>
 1997
 ----
 <C>      <S>                     <C>        <C>      <C>          <C>
 Quarter: First................   $  239,937 $ 61,987 $ 1,788         $ .16
          Second...............      245,383   62,664   1,378           .12
          Third................      234,200   58,047    (463)(3)      (.04)(3)
          Fourth...............      247,570   60,946   2,389           .21
                                  ---------- -------- -------         -----
                                  $  967,090 $243,644 $ 5,092         $ .45
                                  ========== ======== =======         =====
<CAPTION>
 1996
 ----
 <C>      <S>                     <C>        <C>      <C>          <C>
 Quarter: First................   $  248,139 $ 62,826 $ 1,027         $ .09
          Second...............      257,645   64,865   1,160(2)        .10(2)
          Third................      248,293   62,770     530           .05
          Fourth...............      260,812   65,781     531(1)        .05(1)
                                  ---------- -------- -------         -----
                                  $1,014,889 $256,242 $ 3,248         $ .29
                                  ========== ======== =======         =====
</TABLE>
--------
(1) Net earnings were reduced by a $1.7 million or $0.15 per share charge
    related to closed stores and revaluation of assets.
(2) Amount differs from amount reported on Form 10-Q due to the restatement of
    balances to comply with the provisions of SFAS No. 128 "Earnings Per
    Share."
(3) Net loss attributable to lower gross margin dollars resulting from lower
    sales volume and increased promotional activity, partially offset by lower
    operating costs.
(4) Net loss attributable to decreased margins primarily due to increased
    promotional activity and costs related to the Company's strategic systems
    initiatives, including costs to migrate from mainframe to client/server
    technology.
 
Item 9: Changes in and Disagreements with Accountants on Accounting and
Financial Disclosures
 
   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 30,
1999.
 
                                      38
<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 "Security Ownership of Principal Shareholders and Management" 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
"Certain Transactions" 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.
 
                                      39
<PAGE>
 
                                    PART IV
 
Item 14: Exhibits, Financial Statement Schedules and Reports on Form 8-K
 
(a)The following documents are filed as a part of this report:
 
<TABLE>   
<CAPTION>
                                                                           Page
                                                                           ----
<S>                                                                        <C>
  1.Financial Statements:
 
    --Independent Auditors' Report........................................  18
 
    --Consolidated Balance Sheets as of January 30, 1999 and January 31,
     1998.................................................................  19
 
    --Consolidated Statements of Operations for the years ended January
     30, 1999, January 31, 1998, and February 1, 1997.....................  20
 
    --Consolidated Statements of Equity for the years ended January 30,
     1999, January 31, 1998, and February 1, 1997.........................  21
 
    --Consolidated Statements of Cash Flows for the years ended January
     30, 1999, January 31, 1998, and February 1, 1997.....................  22
 
    --Notes to the Consolidated Financial Statements......................  23
 
  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 42.
</TABLE>    
 
(b)Reports on Form 8-K:
 
   No reports on Form 8-K were filed during the fourth quarter of fiscal 1998.
 
                                       40
<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.
 
                                                 /s/ Robert J. Kelly
                                          By: _________________________________
                                                     Robert J. Kelly
                                                Chairman, Chief Executive
                                                         Officer,
                                                      and President
 
DATED: April 30, 1999
 
   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       April 30, 1999
____________________________________  Officer and President
          Robert J. Kelly             (Principal Executive
                                      Officer)
 
     /s/ S. Patric Plumley           Senior Vice President-Chief     April 30, 1999
____________________________________  Financial Officer and
         S. Patric Plumley            Secretary
 
      /s/ Paul D. Barnett            Director                        April 30, 1999
____________________________________
          Paul D. Barnett
 
      /s/ Peter B. Foreman           Director                        April 30, 1999
____________________________________
          Peter B. Foreman
 
     /s/ Steven M. Friedman          Director                        April 30, 1999
____________________________________
         Steven M. Friedman
 
      /s/ Alain Oberrotman           Director                        April 30, 1999
____________________________________
          Alain Oberrotman
 
      /s/ Jerry I. Reitman           Director                        April 30, 1999
____________________________________
          Jerry I. Reitman
 
     /s/ William J. Snyder           Director                        April 30, 1999
____________________________________
         William J. Snyder
</TABLE>
 
                                      41
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>     <S>
  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 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. 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).
 10.1--  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) (filed as Exhibit 16 to the Company's Form 10-Q
         for the quarter ended April 29, 1995 and incorporated herein by
         reference).
 10.17-- First Amendment to the Loan and Security Agreement dated August 21,
         1995 (filed as Exhibit 17 to the Company's Form 10-Q for the quarter
         ended July 29, 1995 and incorporated herein by reference).
</TABLE>
 
                                       42
<PAGE>
 
<TABLE>
<CAPTION>
 Exhibit
   No.                                 Description
 -------                               -----------
 <C>      <S>
 10.18--  1995 Stock Incentive Plan as approved on June 21, 1995 (filed as
          Exhibit 18 to the Company's Form 10-Q for the quarter ended July 29,
          1995 and incorporated herein by reference).
 10.19--  Employment agreement dated May 10, 1995 between the Company and
          Robert J. Kelly, its President and Chief Executive Officer (filed as
          Exhibit 19 to the Company's Form 10-Q for the quarter ended July 29,
          1995 and incorporated herein by reference).
 10.22--  Agreement between the Company, Lucky Stores, Inc., The Midland
          Grocery Company and Roundy's Inc. to terminate the Westville
          warehouse lease (filed as Exhibit 22 to the Company's Annual Report
          on Form 10-K for the year ended February 3, 1996 and incorporated
          herein by reference).
 10.23--  Employment Agreement dated April 12, 1998 between the Company and
          Robert J. Kelly, Chairman of the Board, President and Chief Executive
          Officer (filed as Exhibit 23 to the Company's Annual Report on Form
          10-K for the year ended January 31, 1998 and incorporated herein by
          reference).
 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) (filed as Exhibit 24 to the Company's
          Annual Report on Form 10-K for the year ended January 31, 1998 and
          incorporated herein by reference).
 10.25--  Employment Agreement dated September 15, 1997 between the Company and
          S. Patric Plumley, its Senior Vice President-Chief Financial Officer
          and Secretary (filed as Exhibit 24 to the Company's Annual Report on
          Form 10-K for the year ended January 31, 1998 and incorporated herein
          by reference).
 10.26--* Employment Agreement dated October 7, 1997, between the Company and
          Byron O. Magafas, its Vice President of Human Resources.
 10.27--* Amended Employment Agreement dated May 10, 1998 between the Company
          and Robert J. Kelly, Chairman of the Board, President and Chief
          Executive Officer.
 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).
</TABLE>
--------
*  Filed herewith.
 
                                       43