UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549
                                    FORM 10-Q/A



(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----
 ACT OF 1934
For the quarterly period ended September 30, 1998
                               ------------------
                                       OR

     TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----
EXCHANGE ACT OF 1934
For the transition period from                         to
                               ----------------------     ----------------------
Commission file number 2-22791
                       -------

                                   AGWAY INC.
--------------------------------------------------------------------------------
             (Exact name of registrant as specified in its charter)


DELAWARE                                                              15-0277720
--------------------------------------------------------------------------------
(State or other jurisdiction of                                 (I.R.S. Employer
incorporation or organization)                               Identification No.)


333 Butternut Drive, DeWitt, New York                                      13214
--------------------------------------------------------------------------------
(Address of principal executive offices)                              (Zip Code)


                                  315-449-6431
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)




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 the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.




       Class                              Outstanding at September 10, 1999
------------------------                  ---------------------------------
Membership Common Stock,                          99,728 shares
$25 par value per share




                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                            PAGE NO.
                                                                                                            --------
PART I.    FINANCIAL INFORMATION
-------    ---------------------

<S>        <C>                                                                                                   <C>
           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of September 30, 1998 and June 30, 1998....................   3

           Condensed Consolidated Statements of Operations and Retained Earnings for the three months
           ended September 30, 1998 and September 30, 1997.....................................................   4

           Consolidated Statements of Comprehensive Income for the three months ended
           September 30, 1998 and September 30, 1997...........................................................   5

           Condensed Consolidated Cash Flow Statements for the three months ended September 30, 1998
           and September 30, 1997..............................................................................   6

           Notes to Condensed Consolidated Financial Statements................................................   7

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations......  14

           Item 3.  Quantitative and Qualitative Disclosures About Market Risk.................................  19


PART II.   OTHER INFORMATION
--------   -----------------

           Item 1.  Legal Proceedings..........................................................................  21

           Item 6.  Exhibits and Reports on Form 8-K...........................................................  22


           SIGNATURES..........................................................................................  23



</TABLE>












                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS
                                  (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                                    Restated
                                                                                  September 30,          June 30,
                                                                                      1998                 1998
                                                                                  -------------      --------------
ASSETS
------
<S>                                                                               <C>                <C>
Current Assets:
     Trade accounts  receivable  (including  notes  receivable  of  $45,725  and
         $49,394, respectively), less allowance for doubtful accounts of
         $7,782 and $7,926, respectively........................................  $     169,819      $      203,637
     Leases receivable, less unearned income of $61,350 and
         $65,048, respectively..................................................        153,066             137,493
     Advances and other receivables.............................................         26,449              25,480
     Inventories:
         Raw materials..........................................................          2,623               7,576
         Finished goods.........................................................        128,352             139,861
         Goods in transit and supplies..........................................          3,319               1,777
                                                                                  -------------      --------------
              Total inventories.................................................        134,294             149,214
     Prepaid expenses and other assets..........................................         52,451              52,774
                                                                                  -------------      --------------
         Total current assets...................................................        536,079             568,598

Marketable securities available for sale........................................         36,751              36,412
Other security investments......................................................         51,189              51,761
Properties and equipment, net...................................................        214,683             213,795
Long-term leases receivable, less unearned income of $116,714 and
     $110,721, respectively.....................................................        356,350             357,777
Net pension asset...............................................................        181,692             176,792
Other assets  ..................................................................         19,457              12,159
                                                                                  -------------      --------------
              Total assets......................................................  $   1,396,201      $    1,417,294
                                                                                  =============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable..............................................................  $     51,000       $      65,100
     Current installments of long-term debt.....................................        95,284              99,173
     Current installments of subordinated debt..................................        76,507              75,589
     Accounts payable...........................................................       123,288             114,548
     Other current liabilities..................................................       105,787             114,311
                                                                                  ------------       -------------
         Total current liabilities..............................................       451,866             468,721

Long-term debt..................................................................       246,209             255,356
Subordinated debt...............................................................       395,404             386,607
Other liabilities...............................................................       103,130             100,381
                                                                                  ------------       -------------
         Total liabilities......................................................     1,196,609           1,211,065
Commitments and contingencies...................................................
Shareholders' equity:
     Preferred stock, net.......................................................        46,941              47,871
     Common stock, net..........................................................         2,548               2,571
     Accumulated other comprehensive income.....................................         1,291                 705
     Retained earnings..........................................................       148,812             155,082
                                                                                   ------------       -------------
         Total shareholders' equity.............................................       199,592             206,229
                                                                                  ------------       -------------
              Total liabilities and shareholders' equity........................  $  1,396,201       $   1,417,294
                                                                                  ============       =============


</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
      CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                                           Three Months Ended
                                                                                              September 30,
                                                                                    ------------------------------
                                                                                        1998              1997
                                                                                    ------------     -------------
                                                                                      Restated
<S>                                                                                 <C>              <C>
Net sales and revenues from:
     Product sales (including excise taxes).....................................    $    278,960     $     314,409
     Leasing operations.........................................................          16,913            15,762
     Insurance operations.......................................................           6,966             6,858
                                                                                    ------------     -------------
         Total net sales and revenues...........................................         302,839           337,029

Cost and expenses from:
     Products and plant operations..............................................         271,047           299,167
     Leasing operations.........................................................           7,366             7,049
     Insurance operations.......................................................           4,633             4,200
     Selling, general and administrative activities.............................          35,074            31,565
                                                                                    ------------     -------------
         Total operating costs and expenses.....................................         318,120           341,981

Operating earnings (loss).......................................................         (15,281)           (4,952)
Interest expense, net...........................................................          (7,523)           (6,874)
Other income, net...............................................................          13,254             2,124
                                                                                    ------------     -------------
Loss from operations before income taxes........................................          (9,550)           (9,702)
Income tax benefit .............................................................           3,280             2,078
                                                                                    ------------     -------------
Loss from operations before cumulative effect of an accounting change...........          (6,270)           (7,624)

Cumulative effect on prior years (to June 30, 1997) of an accounting
     change, net of tax expense of $16,500......................................               0            28,956
                                                                                    ------------     -------------
Net earnings (loss).............................................................          (6,270)           21,332

Retained earnings balance, beginning of period..................................         155,082           117,571
                                                                                    ------------     -------------
Retained earnings, end of period................................................    $    148,812     $     138,903
                                                                                    ============     =============

</TABLE>





















     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>

                                                                                         Three Months Ended
                                                                                             September 30,
                                                                                    ------------------------------
                                                                                      Restated
                                                                                        1998              1997
                                                                                    -------------    -------------
<S>                                                                                 <C>              <C>
Net earnings (loss)...............................................................  $      (6,270)   $      21,332

Other comprehensive income, net of tax:
     Unrealized gains (losses) on available-for-sale securities:
         Unrealized holding gains (losses) arising during period..................            540              447
         Less:  Reclassification adjustment for gains (losses) included
                 in net income....................................................            (46)             (22)
                                                                                    -------------    -------------

Other comprehensive income........................................................            586              469

Comprehensive (loss) income.......................................................  $      (5,684)   $      21,801
                                                                                    =============    =============


</TABLE>




































     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                                        Three Months Ended
                                                                                           September 30,
                                                                                ----------------------------------
                                                                                    1998                  1997
                                                                                ------------         -------------
<S>                                                                             <C>                  <C>
Net cash flows provided by operating activities..............................   $     34,780         $       6,671

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................         (8,210)               (8,004)
     Proceeds from disposal of property, plant and equipment.................          1,468                 3,867
     Proceeds from sale of business..........................................         14,150                     0
     Cash paid for acquisitions of businesses................................         (6,720)               (1,458)
     Leases originated.......................................................        (58,593)              (60,869)
     Leases repaid...........................................................         42,743                37,864
     Proceeds from sale of marketable securities.............................            247                 5,676
     Purchases of marketable securities......................................              0                (4,694)
     Net redemption of investments in cooperatives...........................            572                   739
                                                                                ------------         -------------

Net cash flows used in investing activities..................................        (14,343)              (26,879)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................        (14,320)               32,610
     Proceeds from long-term debt............................................          1,921                   354
     Repayment of long-term debt.............................................        (14,945)              (21,789)
     Proceeds from sale of subordinated debt.................................         18,812                30,416
     Maturity and redemption of subordinated debt............................         (9,098)              (12,339)
     Payments on capital leases..............................................            (12)                  (51)
     Redemption of stock, net ...............................................           (954)               (6,844)
     Cash dividends paid.....................................................         (1,841)               (2,149)
                                                                                ------------         -------------

Net cash flows (used in) provided by financing activities....................        (20,437)               20,208
                                                                                ------------         -------------

Net decrease in cash and equivalents.........................................              0                     0
Cash and equivalents at beginning of period..................................              0                     0
                                                                                ------------         -------------

Cash and equivalents at end of period........................................   $          0         $           0
                                                                                ============         =============

</TABLE>














     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the  "Company") have been prepared in accordance with generally
     accepted accounting  principles for interim financial  information and with
     the   instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal recurring  accruals)  considered  necessary for a fair  presentation
     have been  included.  Operating  results for the  three-month  period ended
     September 30, 1998, are not necessarily  indicative of the results that may
     be expected for the year ending June 30, 1999,  due to the seasonal  nature
     of  certain  major  segments  of  the  Company's   business.   For  further
     information,  refer to the  consolidated  financial  statements  and  notes
     thereto  included in the annual report on Form 10-K for the year ended June
     30, 1998.


     Accounting for Derivative Instruments and Hedging Activities
     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards (SFAS) No. 133, "Accounting for Derivative
     Instruments   and   Hedging   Activities."   This   statement   establishes
     comprehensive   accounting  and  reporting   requirements   for  derivative
     instruments  and hedging  activities.  SFAS No. 133  requires  companies to
     record derivatives on the balance sheet as assets or liabilities,  measured
     at fair value. The accounting for gains or losses resulting from changes in
     the  values  of  those  derivatives  would be  dependent  on the use of the
     derivative  and the type of risk being  hedged.  The statement is effective
     for all quarters of fiscal  years  beginning  after June 15,  2000.  At the
     present  time,  the Company has not fully  analyzed the effect or timing of
     the  adoption  of SFAS  No.  133 on the  Company's  consolidated  financial
     statements.


     Comprehensive Income
     Effective  July 1, 1998,  the  Company  adopted  SFAS No.  130,  "Reporting
     Comprehensive  Income." This pronouncement  requires the Company to report,
     among other things,  the effects of unrealized  investment holding gains or
     losses for available-for-sale  securities as "comprehensive income" for all
     periods presented.

     Reclassifications
     Certain  reclassifications  have been made to conform prior year  financial
     statements with the current year presentation.


     Restatement
     On July 8, 1999,  Agway  announced  that it had become aware of  accounting
     irregularities in its grain marketing  department.  As more fully discussed
     in Footnote 5, upon investigation,  Agway has determined that the financial
     statements  as previously  filed for the quarter  ended  September 30, 1998
     required restatement.





                                        7

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)


2.   AGWAY FINANCIAL CORPORATION
     ---------------------------
     Agway  Financial  Corporation  (AFC) is a wholly  owned  subsidiary  of the
     Company whose principal  business  activity is securing  financing  through
     bank borrowings and issuance of corporate debt instruments to provide funds
     for the Company, its subsidiaries,  and AFC's sole wholly owned subsidiary,
     Agway Holdings Inc. (AHI), and AHI's  subsidiaries,  for general  corporate
     purposes.  The payment of principal and interest on this debt is guaranteed
     by the Company.  This  guarantee is full and  unconditional,  and joint and
     several.  In an exemptive  relief granted  pursuant to a "no action letter"
     issued by the staff of the  Securities and Exchange  Commission,  AFC, as a
     separate company,  is not required to file periodic reports with respect to
     these debt securities. However, as required by the 1934 Act, the summarized
     financial  information  concerning AFC and consolidated  subsidiaries is as
     follows:
<TABLE>
<CAPTION>
                                                                                    Three Months Ended
                                                                                       September 30,
                                                                              ------------------------------
                                                                                  1998             1997
                                                                              -------------    -------------
         <S>                                                                  <C>              <C>
         Net sales and revenues............................................   $     209,835    $     232,535
         Operating earnings (loss).........................................          (2,882)             246
         Net loss..........................................................         (12,432)          (7,371)

                                                                              September 30,       June 30,
                                                                                  1998             1998
                                                                             --------------    -------------
         Current assets....................................................  $      513,304    $     524,800
         Properties and equipment, net.....................................         149,311          150,618
         Noncurrent assets.................................................         449,043          451,303
                                                                             --------------    -------------
         Total assets......................................................  $    1,111,658    $   1,126,721
                                                                             ==============    =============

         Current liabilities...............................................  $       29,879    $      15,173
         Short-term notes payable..........................................          51,000           65,100
         Current portion of long-term debt.................................         169,921          170,836
         Long-term debt....................................................         235,983          248,128
         Subordinated debt.................................................         395,404          386,607
         Noncurrent liabilities............................................          26,914           26,474
         Shareholder's equity..............................................         202,557          214,403
                                                                             --------------    -------------
         Total liabilities and shareholder's equity........................  $    1,111,658    $   1,126,721
                                                                             ==============    =============

</TABLE>

                                        8

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

3.   BORROWING ARRANGEMENTS
     ----------------------
     As of September 30, 1998, the Company had certain facilities available with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $377,000 to  separately  financed  units of the  Company as follows:  AFC -
     $75,000 and Telmark - $302,000. In addition, AFC may issue up to $50,000 of
     commercial paper under the terms of a separate agreement,  backed by a bank
     standby letter of credit.

     AFC
     As of September 30, 1998, AFC had bank facilities  available which included
     a $50,000 short-term line of credit and a $25,000 long-term revolver. These
     facilities  and AFC's ability to issue $50,000 of commercial  paper require
     collateralization  using certain of the Company's  accounts  receivable and
     non-petroleum inventories ("collateral").  Amounts which can be drawn under
     these AFC agreements are limited to a specific  calculation  based upon the
     collateral available. Adequate collateral has existed throughout the fiscal
     year to  permit  AFC to borrow  amounts  to meet the  ongoing  needs of the
     Company  and is  expected  to  continue  to do so.  The line of credit  and
     long-term revolver  additionally  require the Company's  investment in bank
     stock as additional collateral. In addition, the agreements include certain
     covenants,  the most  restrictive of which requires the Company to maintain
     specific  quarterly  levels of  interest  coverage  and  monthly  levels of
     tangible  retained  earnings.  There  were  no  amounts  outstanding  as of
     September 30, 1998,  under AFC's  short-term  line of credit and commercial
     paper program,  respectively, as compared to $0 and $30,100,  respectively,
     at June 30,  1998.  AFC's  short-term  line of credit  facility  of $50,000
     continues  through  December  31,  1998,  but  provides  for an increase to
     $75,000,  which became  available  on October 1, 1998,  to assist in paying
     maturing   subordinated   debt.  AFC's  current  commercial  paper  program
     continues  through  December  31, 1998.  The  Company's  $25,000  long-term
     revolving line of credit is available  through January 1, 2000, of which $0
     was  outstanding  at September 30, 1998, and at June 30, 1998. AFC annually
     renews its line of credit and commercial paper program in the quarter ended
     December  31. The  Company is  currently  negotiating  with its lenders and
     expects to continue to have appropriate and adequate  financing to meet its
     ongoing needs.

     In  addition,   Agway,   through  AFC,  offers  subordinated  money  market
     certificates  (and  previously  offered  subordinated  debentures)  to  the
     public.  AFC's subordinated debt is not redeemable by the holder.  However,
     AFC does have a practice  of  repurchasing  at face  value,  plus  interest
     accrued at the stated rate,  certain  subordinated debt whenever  presented
     for repurchase.  The foregoing debt bears interest payable semi-annually on
     January l and July 1 of each  year.  The  money  market  certificates  bear
     interest  at a rate that is the  greater of the stated rate or a rate based
     upon the average discount rate for U.S.  Treasury Bills, with maturities of
     26  weeks.  In  October  1998,   $76,500  of   subordinated   money  market
     certificates  issued by AFC matured.  The Company is refinancing  this debt
     either through a new issuance of subordinated debt, through short-term bank
     borrowings,  or a combination of both. An increase in the short-term credit
     facilities providing this liquidity is described above.  Subordinated money
     market  certificates  due  between  October  1998 and  October  2008 bear a
     weighted average interest rate of 8.2%, while  subordinated  debentures due
     between July 1999 and July 2003 bear a weighted  average  interest  rate of
     8.1%.

     Telmark
     As of September 30, 1998,  Telmark had several credit facilities  available
     from banks which allow  Telmark to borrow up to an  aggregate  of $302,000.
     The  uncommitted  short-term  line of credit  agreements  permit Telmark to
     borrow  up to  $52,000  on an  unsecured  basis  with  interest  paid  upon
     maturity.  The lines  bear  interest  at money  market  variable  rates.  A
     committed  $250,000 partially  collateralized  revolving term loan facility
     permits Telmark to draw short-term  funds bearing  interest at money market
     rates or draw long-term debt at rates  appropriate for the term of the note
     drawn.  The total amount  outstanding  as of September 30, 1998,  under the
     short-term  lines of credit was $42,000 and under the  revolving  term loan
     facility was  $146,000,  of which  $137,000 was  long-term.  As of June 30,
     1998, the total amount  outstanding was $20,000 under the short-term  lines
     of credit and under the revolving term loan facility was $165,000, of which
     $150,000 was long-term.  The uncommitted  lines of credit expire within the
     next 12 months,  and the $250,000 revolving term loan facility is available
     through February 1, 2000.

                                        9

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     Telmark (continued)
     Telmark had balances  outstanding  on  unsecured  senior notes from private
     placements  totaling  $169,000 at September  30 and at June 30,  1998.  The
     principal  bears  interest at fixed rates ranging from 5.90% to 8.88%.  The
     payments  commence  November 1998 with final  installment  due in May 2004.
     Interest is payable  semiannually on each senior note.  Principal  payments
     are both  semiannual  and annual.  The note  agreements  are similar to one
     another and each contains several specific financial covenants.

     Telmark, through a wholly owned special purpose subsidiary, has two classes
     of lease-backed notes outstanding totaling $16,300 and $17,700 at September
     30, 1998, and June 30, 1998, respectively,  payable to insurance companies.
     Interest rates on these classes of notes are 6.58% and 7.01%, respectively.
     The  notes  are  collateralized  by  leases,  which  Telmark  sold  to this
     subsidiary, having an aggregate present value of contractual lease payments
     equal to the principal  balance of the notes.  Final scheduled  maturity of
     these notes is December 2004.

     Telmark offers  subordinated  debentures to the public.  The debentures are
     unsecured and  subordinated to all senior debt at Telmark.  The interest on
     the debt is payable  quarterly  on January 1, April 1, July 1 and October 1
     and is allowed to be reinvested.

     Long-term  and  subordinated  debt  outstanding  at September  30, 1998, as
     compared to June 30, 1998, is as follows:
<TABLE>
<CAPTION>
                                                             AFC
                                     Agway            (excluding Telmark)         Telmark                   Total
                             ---------------------   --------------------   ---------------------   ---------------------
                               9/98       6/98         9/98       6/98        9/98        6/98        9/98       6/98
                             ----------  ---------   ---------  ---------   ---------   ---------   ----------  ---------
     <S>                     <C>         <C>         <C>        <C>         <C>         <C>         <C>         <C>
     Long-term debt........  $   12,096  $  11,154   $   7,074  $   6,698   $ 322,323   $ 336,677   $  341,493  $ 354,529
     Currently payable.....       1,870      3,926       1,424      1,661      91,990      93,586       95,284     99,173
                             ----------  ---------   ---------  ---------   ---------   ---------   ----------  ---------
     Net long-term debt....  $   10,226  $   7,228   $   5,650  $   5,037   $ 230,333   $ 243,091   $  246,209  $ 255,356
                             ==========  =========   =========  =========   =========   =========   ==========  =========

     Subordinated debt.....  $        0  $       0   $ 437,572  $ 428,190   $  34,339   $  34,006   $  471,911  $ 462,196
     Currently payable.....           0          0      76,507     75,589           0           0       76,507     75,589
                             ----------  ---------   ---------  ---------   ---------   ---------   ----------  ---------
     Net subordinated debt.  $        0  $       0   $ 361,065  $ 352,601   $  34,339   $  34,006   $  395,404  $ 386,607
                             ==========  =========   =========  =========   =========   =========   ==========  =========
</TABLE>




                                       10

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


4.   COMMITMENTS AND CONTINGENCIES
     -----------------------------
     Environmental
     The Company is subject to a number of governmental  regulations  concerning
     environmental matters,  either directly or as a result of the operations of
     its  subsidiaries.  The Company  expects that it will be required to expend
     funds to participate in the  remediation of certain sites,  including sites
     where the  Company  has been  designated  by the  Environmental  Protection
     Agency  (EPA)  as  a   potentially   responsible   party  (PRP)  under  the
     Comprehensive  Environmental  Response,   Compensation  and  Liability  Act
     (CERCLA)  and sites with  underground  fuel storage  tanks,  and will incur
     other expenses associated with environmental compliance.

     The Company  continually  monitors its operations with respect to potential
     environmental  issues,  including changes in legally mandated standards and
     remediation   technologies.   Agway's  recorded  liability  reflects  those
     specific  issues where  remediation  activities are currently  deemed to be
     probable and where the cost of remediation  is estimable.  Estimates of the
     extent of the Company's degree of  responsibility  relating to a particular
     site and the method and ultimate  cost of  remediation  require a number of
     assumptions  for  which  the  ultimate  outcome  may  differ  from  current
     estimates.  At September 30, 1998, the Company had been designated as a PRP
     under CERCLA or as a third party to the original PRPs in several  Superfund
     sites.  The liability  under CERCLA is joint and several,  meaning that the
     Company  could  be  required  to pay in  excess  of its pro  rata  share of
     remediation   costs.   The  Company  is  not   indemnified   for   existing
     environmental  cleanup  liability.   The  Company's  understanding  of  the
     financial  strength  of  other  PRPs at  these  Superfund  sites  has  been
     considered,  where  appropriate,  in  the  Company's  determination  of its
     estimated liability. The Company believes that its past experience provides
     a reasonable basis for estimating its liability.  As additional information
     becomes available,  estimates are adjusted as necessary.  While the Company
     does not  anticipate  that any such  adjustment  would be  material  to its
     financial statements,  it is reasonably possible that the result of ongoing
     and/or  future  environmental  studies or other  factors  could  alter this
     expectation and require the recording of additional liabilities. The extent
     or amount of such events,  if any,  cannot be  estimated at this time.  The
     settlement of the reserves  established will cause future cash outlays over
     approximately  five  years  based  upon  current  estimates,  and it is not
     expected that such outlays will materially  impact the Company's  liquidity
     position.

     Year 2000
     The  approach  of  the  year  2000   presents   potential   issues  to  all
     organizations  who use computers in the conduct of their business or depend
     on business partners who use computers. To the extent computer use is date-
     sensitive,  hardware or software that  recognizes  the year by the last two
     digits may erroneously recognize "00" as 1900 rather than 2000, which could
     result in errors or system failures.

     Agway utilizes a number of computers and computer  software  ("systems") in
     the  conduct  of its  business.  Many  systems  are for  specific  business
     segments  and  others  have  broader   corporate-wide   use.   Systems  are
     principally  involved  in  the  flow  of  information  rather  than  in the
     processing, manufacturing, and distributing operations. Agway initiated its
     year 2000  compliance  efforts in January  1996.  The initial  focus of the
     Company's  compliance  efforts was on the  Company's  information  systems,
     including  assessment of the issue,  planning the conversion to compliance,
     plan implementation,  and testing. All systems have been inventoried. Those
     systems  determined to be at risk were  prioritized,  and plans were put in
     place to upgrade  systems by  remediation,  replacements,  outsourcing,  or
     doing without these  systems.  Through  September  1998, the assessment and
     planning phases,  as well as certain portions of the  implementation,  have
     been  completed.  The  remaining  portion of these  plans are in process of
     implementation, with a completion for specific systems scheduled throughout
     this fiscal year and the final implementations scheduled to be completed in
     September  1999.  Testing of systems is being  conducted for each system as
     implemented.  The  interaction  of  updated  systems  will be tested in the
     enterprise-wide testing environment.



                                       11

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)

4.   COMMITMENTS AND CONTINGENCIES (continued)
     ----------------------------------------
     Year 2000 (continued)
     In addition to the information  technology  systems review noted above, the
     Company  has also  initiated  processes  to  review  and to  modify,  where
     appropriate,  other areas impacted by year 2000.  These areas include,  but
     are  not  limited  to,  hardware  and  software  associated  with  end-user
     computing functions, vendor and supplier relationships, external interfaces
     to internal  IT systems,  remote  location  access to IT systems,  facility
     management,  and certain  non-information  technology  issues,  such as the
     extent to which  embedded chips are used in machinery and equipment used in
     business operations.  The Company has completed significant  assessments in
     its major business operations,  continues to assess all of these areas, and
     has  developed  or, in some  cases,  is in the  process of  developing  the
     implementation  plans  to  address  the  issues  identified.   The  Company
     anticipates that solutions to all year 2000 areas above will be implemented
     and tested no later than December 1999.

     The  Company  engaged  an  international  consulting  firm in March 1998 to
     evaluate  the  Company's  approach  to year 2000  plans and  implementation
     compared to industry "best  practices."  Based on this review,  the Company
     has increased the involvement of higher-level  management to assure a focus
     on the implementation timetable and the development of specific contingency
     plans,   and   has   initiated   development   of  a   more   comprehensive
     enterprise-wide  testing  environment  to be in place by December 1998. The
     business continuity plans are expected to be completed by January 1999.

     The year 2000 compliance issue is an uncertainty that is continuously being
     monitored as the Company  implements its plans. Based on the work performed
     to date,  the Company  presently  believes that the  likelihood of the year
     2000 having a material effect on the results of operations,  liquidity,  or
     financial  condition is remote.  Notwithstanding  the foregoing,  it is not
     presently clear that all parts of the country's  infrastructure,  including
     such  things  as  the   national   banking   systems,   electrical   power,
     transportation of goods, communications,  and governmental activities, will
     be fully  functioning  as the year 2000  approaches.  To the extent failure
     occurs in such  activities,  which are outside the  Company's  control,  it
     could affect the Company's  sources of supply and the Company's  ability to
     service its customers with the same degree of effectiveness with which they
     are  served  presently.   The  Company  is  identifying   elements  of  the
     infrastructure  that  are  of  greater   significance  to  its  operations,
     obtaining  information  on an ongoing basis as to their  expected year 2000
     readiness, and determining alternative solutions if required.

     The Company  expects to incur  significant  internal staff costs as well as
     consulting and other expenses related to its year 2000 efforts.  Due to the
     level of  effort  required  to  complete  remediation  for the  year  2000,
     non-business critical system enhancements have been deferred until the year
     2000 efforts have been  completed.  The  conversion and testing of existing
     systems and the  replacement  of systems  are  expected to cost the Company
     approximately  $19,000,  of which  $11,100 has been  incurred and $7,900 is
     expected  to  be  incurred  from  October  1998  through   December   1999.
     Approximately 75% of these estimated costs represent  replacement costs and
     will be  capitalized.  Additionally,  the  Company  estimates  the costs to
     remediate all other areas may approximate $6,000. However, these costs will
     vary as the Company  continues to assess and  implement its plans or if the
     Company  is  required  to invoke  contingency  plans.  The  Company  treats
     non-capital  costs  associated  with year 2000 as period costs and they are
     expensed when incurred.

     Other
     The Company is also subject to various  investigations,  claims,  and legal
     proceedings  covering a wide range of  matters  that arise in the  ordinary
     course of its  business  activities.  Each of these  matters  is subject to
     various uncertainties, and it is possible that some of these matters may be
     resolved  unfavorably to the Company.  The Company has established accruals
     for matters for which payment is probable and amounts reasonably estimable.
     Management  believes  any  liability  that may  ultimately  result from the
     resolution of these matters in excess of amounts  provided  under the above
     stated  policy  will not have a material  adverse  effect on the  financial
     position, results of operations or liquidity of the Company.

                                       12

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

        NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.   RESTATEMENT
     -----------
     On July 8, 1999,  Agway  announced  that it had become aware of  accounting
     irregularities in its grain marketing department.  An investigation,  under
     guidance from external legal counsel and including  internal legal counsel,
     internal financial staff, external auditors, and private investigators, was
     initiated. Reports on the investigation findings have been made directly to
     the Board of Directors.

     The investigation has determined that unauthorized speculative positions in
     commodity  instruments  were taken  within the  department  in violation of
     express policies,  which resulted in losses to Agway. Through falsification
     of market  values on inventory  held and on forward  contracts and improper
     accounting for premiums on options sold,  losses were concealed  within the
     department,  resulting  in  misreported  earnings  by Agway for the  fourth
     quarter of the year ended June 30,  1998,  and the first three  quarters of
     1999.  In  an  effort  to  recover  these  losses,  additional  speculative
     positions  in  commodity  instruments  were  taken  within  the  department
     throughout  1999.  In  addition,   while  the  unauthorized   activity  was
     occurring,   the  department  did  not  hedge  its  inventory  and  forward
     contracts,  in violation of express  policies,  which led to further losses
     from the department's operations.  To reflect these losses and their effect
     on the Company,  Agway has amended its  previously  filed annual  report on
     Form 10-K for the year ended June 30, 1998, and its 1999 quarterly  reports
     on Form  10-Q  with the SEC.  For the year  ended  June 30,  1998,  the net
     earnings of $41,754, as previously  reported,  have been reduced by $609 to
     $41,145  to  reflect  this  restatement.   The  after-tax  effects  of  the
     activities  described above on each of the first three quarters of 1999 are
     as follows:
<TABLE>
<CAPTION>
                                                                         Consolidated Net Earnings (Loss)
                                                              -----------------------------------------------------
                                                                    As            As Previously           Net
     Period                                                      Restated           Reported           Adjustment
     ------                                                   -------------       -------------      --------------
     <S>                                                      <C>                 <C>                <C>

     Three months ended September 1998......................  $      (6,270)      $     (2,570)      $      (3,700)
     Three months ended December 1998.......................         (6,877)            (7,336)                459
     Six-month period ended December 1998...................        (13,147)            (9,906)             (3,241)
     Three months ended March 1999..........................          2,769              3,255                (486)
     Nine-month period ended March 1999.....................        (10,378)            (6,651)             (3,727)
</TABLE>
     The total  pre-tax loss from  department  activities is $8,600 for the year
     ended June 30, 1999.  This compares to a pre-tax loss as restated of $1,100
     in 1998 and a $300 pre-tax loss in 1997. The 1999 loss includes $5,500 from
     unauthorized   speculation  in  commodity   instruments   and  $3,100  from
     operations,  due in part to not hedging  positions in inventory and forward
     contracts.

     The  results  of  operations,  as  restated,  violated  certain  of Agway's
     covenants in its loan agreements,  including an interest  coverage covenant
     as of December  1998,  March 1999,  and June 1999 and a tangible  net worth
     covenant  as  of  November  and  December   1998.   Agway   disclosed   the
     above-referenced  losses  and  restatements,  and  causes  thereof,  to its
     lenders and has obtained waivers for these violations, and the covenants in
     the loan  agreements  have been amended  through the remaining  term of the
     agreements.

     Subsequent to year-end, open unauthorized speculative commodity instruments
     were closed.  In addition,  inventory and open forward  contracts have been
     hedged.  During  the  period  it took to  restructure  and  hedge  the open
     positions of the department,  further market losses of approximately $1,300
     were  incurred,  which will be reflected in Agway's Form 10-Q for the first
     quarter  of  fiscal  2000.  Agway  has  restructured  its  grain  marketing
     activities, substantially  reducing their scope, and requiring that its net
     position at any point in time to be effectively hedged.




                                       13

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)


RESULTS OF OPERATIONS
---------------------
The Company is including the following cautionary statement in this Form 10-Q to
make  applicable  and take  advantage  of the "safe  harbor"  provisions  of the
Private  Securities  Litigation  Reform  Act of 1995  for any  forward-  looking
statement made by, or on behalf of, the Company.  Where any such forward-looking
statement  includes a statement  of the  assumptions  or basis  underlying  such
forward-looking  statement,  the Company  cautions that,  while it believes such
assumptions  or basis to be  reasonable  and makes them in good  faith,  assumed
facts or basis  almost  always vary from  actual  results,  and the  differences
between  assumed  facts or basis and actual  results can be material,  depending
upon the circumstances. Where, in any forward-looking statement, the Company, or
its management,  expresses an expectation or belief as to future  results,  such
expectation  or  belief  is  expressed  in good  faith  and  believed  to have a
reasonable  basis,  but  there  can  be  no  assurance  that  the  statement  of
expectation  or belief will result or be  achieved  or  accomplished.  The words
"believe,"   "expect,"  and  "anticipate"  and  similar   expressions   identify
forward-looking statements.

The  Company's net sales and revenues and  operating  results are  significantly
impacted by seasonal  fluctuations  due to the nature of its  operations and the
geographic  location of its service area,  which is primarily  the  Northeastern
United States.  Agriculture and Retail net sales and revenues are  traditionally
higher in the spring as  customers  acquire  products  to  initiate  the growing
season. Energy generally realizes significantly higher net sales and revenues in
the winter months due to cold winter  conditions.  Leasing and Insurance are not
materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>

                                                                               Results by Operating Segment
                                                                       ---------------------------------------------
                                                                                      Three Months Ended
                                                                       ---------------------------------------------
                                                                         Restated                        $ Increase
                                                                          9/30/98         9/30/97        (Decrease)
                                                                       -------------   -------------   -------------
Net Sales and Revenues
----------------------
<S>                                                                    <C>             <C>             <C>
Agriculture..........................................................  $     146,275   $     159,588   $    (13,313)
Retail...............................................................         58,149          61,515         (3,366)
Energy...............................................................         85,850         103,538        (17,688)
Leasing..............................................................         16,913          15,762          1,151
Insurance............................................................          6,966           6,858            108
Other (a)............................................................        (11,314)        (10,232)        (1,082)
                                                                       -------------   -------------   ------------
                                                                       $     302,839   $     337,029   $    (34,190)
                                                                       =============   =============   ============

Earnings (Loss) from Operations before Income Taxes
---------------------------------------------------
Agriculture..........................................................  $      (1,180)  $     (5,599)   $      4,419
Retail...............................................................         (2,369)            70          (2,439)
Energy...............................................................         (3,966)        (4,829)            863
Leasing..............................................................          3,421          3,158             263
Insurance............................................................              9              6               3
Other (a)............................................................          2,058          4,366          (2,308)
                                                                       -------------   ------------    ------------
Operating earnings (loss), plus other income, net....................         (2,027)        (2,828)            801
Interest (expense), net of interest income...........................         (7,523)        (6,874)           (649)
                                                                       -------------   ------------    ------------
                                                                       $      (9,550)  $     (9,702)   $        152
                                                                       =============   ============    ============
</TABLE>


(a) Represents unallocated corporate items and intersegment eliminations.



                                       14

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Numbers in the  following  narrative  have been  rounded to the nearest  hundred
thousand.

Consolidated Results
--------------------
Consolidated  net sales and  revenues of  $302,800  for the three  months  ended
September  30, 1998,  decreased  $34,200 (10%) as compared to the same period in
the prior year.  The  decrease is the result of a decline in sales in Energy and
Agriculture,  principally  due to  decreases  in  volume  and  pricing  level of
petroleum products and pricing levels of Agriculture feed products.


Restated  net loss from  operations  before taxes of $9,600 for the three months
ended September 30, 1998,  decreased $200 (2%) as compared to the same period in
the  prior  year.  The  decreased  loss can be  attributed  to a gain on sale of
business in the Agriculture segment and improved operating results in Energy and
Leasing  offset by  unauthorized  activities in  Agriculture's  grain  marketing
business,  as  described  further in  Footnote 5,  declines in Retail  operating
results and lower  pension  credits in the first  quarter of 1999 as compared to
the same period in the prior year.


Agriculture
-----------
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products Group (CPG).  Total  Agriculture net sales and revenues of $146,300 for
the three months ended September 30, 1998, decreased $13,300 (8%) as compared to
the same period in the prior year.

AAP net sales and revenues of $108,300 for the three months ended  September 30,
1998,  decreased  $9,600  (8%) as compared to the same period in the prior year.
The AAP sales decrease resulted  principally from the feed and crops businesses.
Despite  increased  feed volume  (11%) and a $3,000  sales  increase  due to the
acquisition  of new  business  during  the first  quarter of 1999 over the prior
year,  the  decrease in pricing  levels of feed  products in the global  markets
resulted  in an overall  decrease in the feed sales for the three  months  ended
September 30, 1998, as compared to the same period in the prior year. Crop sales
for the three months ended September 30, 1998, were lower than crop sales during
the same period in the prior year due to  decreases  in the price of  fertilizer
products.  Additionally,  the low market price of  agricultural  commodities has
negatively  impacted the direct  marketing sales of feed and crop products.  The
decline in price during the first  quarter  continues to show a downward  trend,
which is in line with global market conditions.

CPG net sales and revenues of $38,000 for the three months ended  September  30,
1998,  decreased  $3,700  (9%) as compared to the same period in the prior year.
The CPG sales decrease in the first quarter of this year as compared to the same
period in the prior year resulted mainly from lower prices in the produce market
($1,300),  particularly  potatoes,  and stronger sales from the seed business in
the prior year as compared to the first quarter of this year ($1,500).


The  Agriculture  restated  operating  loss of $1,200 for the three months ended
September 30, 1998, improved $4,400 (80%) as compared to a loss of $5,600 in the
same period in the prior year.

AAP's restated  operating  loss of $13,400 for the three months ended  September
30, 1998, was higher by $6,000 (82%) as compared to the same period in the prior
year. AAP gross margins  declined $4,700 during the three months ended September
30,  1998,  as compared  to the same period in the prior year,  due to losses of
$5,800 in the AAP's grain  marketing  business  principally  from the effects of
unauthorized  speculative  activities,  as  described  further  in  Footnote  5.
Additionally,  losses were experienced from increased  variable costs associated
with the increased feed volume.

CPG's operating earnings plus other income of $12,200 for the three months ended
September 30, 1998,  increased  $10,500 (623%) as compared to the same period in
the prior year.  The increase is  attributable  to the net gain on the sale of a
seed business ($11,100) during the first quarter. This gain was partially offset
by lower  sunflower  earnings,  due to  higher  cost of  product,  and new costs
associated  with the  start-up  of new  operating  activities  during  the first
quarter of 1999 as compared to the prior year.


                                       15

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Retail
------
Total net sales and revenues of $58,100 for the first  quarter  ended  September
30,  1998,  decreased  $3,400  (6%) as  compared to the same period in the prior
year.  The  decline is  substantially  due to a  reduction  in  wholesale  sales
($3,100) due, in part, to the reaction to the  implementation of a new franchise
program. This decline was slightly offset by sales growth from new locations and
growth in the nursery and related  products  business  being  greater  than lost
sales from  discontinued  store  locations  during the first  quarter of 1998 as
compared to the prior year.

Retail's  operating  loss of $2,300 for the first  quarter  ended  September 30,
1998,  represents  a decrease in earnings of $2,400 from net earnings of $100 as
compared to the first quarter in the prior year. Overall gross margins were down
$1,700  and  operating  expenses  increased  $500  in the  first  quarter  ended
September  30,  1998,  as compared to the first  quarter of the prior year.  The
reduced sales level  contributed to the lower margins.  Operating  expenses were
driven up by new locations  that were not in operation  during the first quarter
of the prior year. Finally, other revenue was lower by $200, due mainly to lower
gains on sale of fixed  assets in the first  quarter of this year as compared to
the same period in the prior year.

Energy
------
Net sales and revenues of $85,900 for the three months ended September 30, 1998,
decreased $17,700 (17%) as compared to the same period in the prior year. Energy
commodity  costs  continued  to  be  lower  than  in  the  prior  year,  driving
competitive  prices  lower  during the first  quarter  of this  year.  The lower
selling price decreased sales by $14,900 during the first quarter. Additionally,
sales decreases of $3,500 were experienced from volume reductions,  particularly
in heating oil, during the three months ended September 30, 1998, as compared to
the same period in the prior year. The volume  reductions  resulted  principally
from warmer  weather in the first  quarter  than in the same period in the prior
year.  These sales  reductions were partially offset by a $700 sales increase in
the natural gas and  electricity  marketing  businesses  as compared to the same
period in the prior year.

Operating  loss of $4,000  improved by $900 (18%) as  compared to the  operating
loss in the same period in the prior  year.  Even though  overall  sales  volume
declined,  gross margin rates were  stronger in the first quarter as compared to
the prior year, which increased gross margin dollars by $500. Operating expenses
decreased  $400 in the first  quarter as  compared  to the first  quarter of the
prior year, mainly due to lower distribution expense.

Leasing
-------
Total revenue of $16,900 for the first quarter of 1999  increased by $1,200 (7%)
as  compared  to the first  quarter  of the prior  year.  This  increase  is due
primarily to higher investment in leases and notes. The Company's net investment
in leases and notes  increased by $15,700 (3%) to $538,400 in the first  quarter
of 1999 as compared to a $22,900 (5%)  increase in net  investment  in leases to
$492,700 for the corresponding period in the prior year.

Income from  operations  before  income taxes for the first  quarter of 1999 was
$3,400,  which was an increase of $300 (8%) over the first  quarter of the prior
year.  The  increase in total  revenues  was  partially  offset by  increases in
expenses and provision for credit losses.

Total  expenses  increased $900 (7%) to $13,500 for the first quarter of 1999 as
compared to $12,600 in the corresponding  period in the prior year. The increase
in expenses is  primarily  attributable  to  increases  in interest  expense and
selling,  general and administrative  expenses.  Interest expense increased $300
(5%) to $7,400 for the first  quarter of 1999 as compared  to the  corresponding
period in the prior  year.  The  Company's  higher  average  levels of  interest
bearing debt in the first quarter as compared to the corresponding period in the
previous year,  partly offset by slightly lower interest  rates,  is the primary
reason  for  this   increase  in   interest   expense.   Selling,   general  and
administrative  expenses increased $500 (13%) to $4,600 for the first quarter of
1999 as compared to the corresponding  period of the prior year. These increases
are  attributable  to increased sales and other payroll costs required to manage
the larger portfolio as compared to the corresponding period in the prior year.


                                       16

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)


Leasing (continued)
-------------------
The  provision  for  credit  losses  increased  slightly  to $1,600 in the first
quarter as compared to $1,500 in the corresponding period in the prior year, due
to an increase in the lease volume in the first quarter as compared to the prior
year.

Insurance
---------
Insurance consists of Agway Insurance Company, a property and casualty insurance
subsidiary,  and Agway  General  Agency,  a subsidiary  which  markets  products
designed  by  non-affiliated  companies  for the  agricultural  marketplace  and
provides administrative management services to Agway business units.

Insurance net revenues of $7,000 for the three months ended  September 30, 1998,
increased  $100 (2%) as  compared  to the same  period in the  prior  year.  The
increase for the three-month  period is the result of higher earned premiums and
higher investment income of the Insurance Company.

Operating  earnings  broke even for the three months ended  September  30, 1998,
which was no change as  compared  to the same  period in the prior  year.  Claim
losses increased $400 in the first quarter as compared to the same period in the
prior year due to the  effects of a wind storm in Upstate  New York.  This claim
loss increase was totally offset by lower expenses.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash  generated  from  operations  and external  borrowings  continues to be the
Company's  major  ongoing  source  of funds  to  finance  capital  improvements,
business acquisitions,  shareholder dividends,  and a growing lease portfolio at
Telmark. The following is a summary of net cash flows for the three months ended
September 30:
<TABLE>
<CAPTION>
                                                                                           1998           1997
                                                                                      -------------   -------------
<S>                                                                                   <C>             <C>
Net cash flows provided by (used in)
   Operating activities.............................................................  $      34,780   $       6,671
   Investing activities.............................................................        (14,343)        (26,879)
   Financing activities.............................................................        (20,437)         20,208
                                                                                      -------------   -------------
Net increase (decrease) in cash and equivalents.....................................  $           0   $           0
                                                                                      =============   =============
</TABLE>


Cash Flows Provided By Operating Activities
For the three  months  ended  September  30,  1998,  changes in working  capital
generated  cash of $40,100  compared  to  requiring  cash of $2,700 for the same
period in the prior year.  The biggest  contributors  to this were from a larger
decline in  receivables  and  inventories  during this year (cash  provided)  as
compared to last year, and increased  payables  during the first quarter of this
year as compared to a decrease in the first quarter of the prior year.


Cash Flows Used In Investing Activities
The cash flows required for investing  activities decreased in the first quarter
of 1999 by $12,500 as  compared  to the first  quarter  of the prior  year.  The
reasons for the decrease in cash used were from cash  generated from the sale of
business  (Allied Seed in the Agriculture  segment) and larger lease  repayments
with a smaller  amount of leases  originated  for the quarter  than in the prior
year. Cash paid for acquisition of businesses  increased  $5,300 for the quarter
as compared to the prior year and partially  offset the overall  decline in cash
required.



                                       17

<PAGE>



                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)


LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------

Cash Flows Provided By (Used In) Financing Activities
Financing  activities  for the quarter ended  September 30, 1998,  created a net
cash use of $20,400  compared to cash provided of $20,200 for the same period in
the prior year.  This $40,600  change in cash flows was  substantially  due to a
$14,000  paydown of  short-term  borrowings  in the first quarter as compared to
additional  short-term borrowings of $32,600 during the same period in the prior
year.  Cash  generated  from the sale of businesses in the first quarter of 1999
and cash flow from operations were the biggest reasons for this change.

The Company  finances it operations  and the  operations  of all its  continuing
business and subsidiaries, except Telmark and Insurance, through Agway Financial
Corporation (AFC).  External sources of short-term financing for the Company and
all its other continuing  operations include revolving credit lines,  letters of
credit, and a commercial paper program. Telmark and Insurance finance themselves
through  operations  or  with a  combination  of  short-  and  long-term  credit
facilities.

Sources of longer-term financing include the following as of September 30, 1998:
<TABLE>
<CAPTION>
                                                                                 AFC
                                                                  Agway      (excluding
Source of debt                                                     Inc.       Telmark)      Telmark       Total
--------------                                                  ----------   -----------   -----------   ----------
<S>                                                             <C>          <C>           <C>           <C>
Banks - due 10/98 to 2/01, interest at a weighted average
   rate of 7.2% with a range of 6.6% - 8.4%...................  $        0   $     1,750   $   137,000   $  138,750
Insurance companies - due 10/98 to 5/04, interest at a
   weighted average rate of 7.2% with a range of
   5.9% - 8.9%................................................           0             0       185,323      185,323
Capital leases and other - due 1998 to 2008, interest at a
   weighted average rate of 9.3% with a range of 6% to 12%....      12,096         5,324             0       17,420
                                                                ----------   -----------   -----------   ----------
     Long-term debt...........................................      12,096         7,074       322,323      341,493
Subordinated  money  market  certificates  -
 due 10/98 to 10/08,  interest  at a weighted average rate of
 8.2% with a range of  4.5% - 9.5%............................           0       417,116             0      417,116
Subordinated debentures - due 7/99 to 7/03, interest at a
   weighted average rate of 8.1% with a range of 7.0%
   to 8.5%....................................................           0        20,456        34,339       54,795
                                                                ----------   -----------   -----------   ----------
     Total debt...............................................  $   12,096   $   444,646   $   356,662   $  813,404
                                                                ==========   ===========   ===========   ==========
</TABLE>
For a complete  description  of the  Company's  credit  facilities  available at
September  30, 1998,  see  Footnote 3 to the  condensed  consolidated  financial
statements.

OTHER MATTERS
-------------
Year 2000
See Footnote 4 to the condensed consolidated financial statements.


ACCOUNTING FOR DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
------------------------------------------------------------
See Footnote 1 to the condensed consolidated financial statements.


                                       18
<PAGE>




                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                 (Unaudited)
                             (Thousands of Dollars)




COMMODITY PRICE EXPOSURE
------------------------
In its normal course of operations, Agway has exposure to market risk from price
fluctuations  associated with commodity inventories,  product gross margins, and
anticipated transactions in its Agriculture and Energy businesses. To manage the
risk of market price fluctuations,  Agway uses commodity derivative instruments,
including  exchange-traded  futures  and  option  contracts  and,  in  limited
circumstances, over - the - counter  contracts  with  third  parties  (commodity
instruments). Agway has policies  with  respect  to  the use of these  commodity
instruments  that specify what  they  are  to  be used for and set limits on the
maturity of contracts entered into and the level of exposure to be hedged.

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally for gasoline,  distillate,  and propane.  They are entered into as a
hedge  against the price risk  associated  with Energy's  inventories  or future
purchases and sales of the commodities  used in its operations.  Generally,  the
price risk extends for a period of one year or less. A sensitivity  analysis has
been   prepared   to   estimate   Energy's   exposure  to  market  risk  of  its
exchange-traded  and  over-the-counter   commodity  instrument  position  as  of
September 30, and June 30, 1998.  The fair value of such position is a summation
of the fair values  calculated  for each  commodity  instrument  by valuing each
position at quoted futures prices or, in the  case  of options, a delta-adjusted
calculated price. The market risk of the commodity  position is estimated as the
potential loss in fair value resulting from a hypothetical  10% change in market
prices of the underlying commodities. This estimated  loss  in  fair  value does
not reflect the offsetting impact of market  price  changes  to  the  underlying
commodities  that  the  commodity  instruments  are hedging. As of September 30,
1998, and June 30, 1998, assuming a 10% hypothetical  change  in  the underlying
commodity price,  the  potential  change  in  fair  value  of Energy's commodity
instruments was $400 and $500, respectively.

In  the   Agriculture   segment's  feed  business,   exchange-traded   commodity
instruments are used principally to hedge corn,  soy   complex,  and oats, which
can  be  sold  directly  as  ingredients  or  included  in feed products.  Since
November 1997, all  transactions  involving  derivative financial instruments in
the feed business are required to have a direct  relationship  to the price risk
associated with existing inventories or future purchase or sale of its products.
A sensitivity analysis has been prepared to estimate Agriculture's feed business
exposure  to  market  risk  of  its  exchange-traded  instrument  position as of
September 30, and June 30, 1998. The fair value  of such position is a summation
of the fair values  calculated  for each commodity  instrument  by  valuing each
position at quoted futures prices or, in the  case of options,  a delta-adjusted
calculated price.  The market risk of the commodity position is estimated as the
potential loss in fair value resulting from a hypothetical 10% change  in market
prices of the underlying commodities. This estimated  loss in  fair  value  does
not reflect the offsetting impact of market  price  changes  to  the  underlying
commodities  that  the  commodity  instruments are hedging.  As of September 30,
1998, assuming a 10% hypothetical change  in the underlying commodity price, the
potential  change  in  fair  value  of  Agriculture's  feed  business  commodity
instruments  was  $200.   As  of  June  30,  1998,  assuming  a 10% hypothetical
change in the underlying commodity  price, the potential change in fair value of
Agriculture's feed business commodity instruments was not material.

In the Agriculture segment's grain marketing business, exchange-traded commodity
instruments are used to hedge inventory and forward purchase and sales contracts
for grains,  principally corn, soy complex, oats, and wheat, which are purchased
and sold by the grain  marketing  department  (the  department).  The department
historically  entered into both forward  purchase  contracts  and forward  sales
contracts  (forward  contracts)  with  farmers  and others on a variety of grain
products.  Agway's  policy  requires that the  department  enter into  generally
matched  transactions  (in both  maturity and amount) using  offsetting  forward
contracts or commodity  instruments to hedge against price  fluctuations  in the
market  price  of  grains.  Agway  records  the  grain  marketing  program  on a
mark-to-market  basis by adjusting all outstanding forward contracts,  commodity
instruments, and inventory values to market value.



                                       19

<PAGE>

                    PART I. FINANCIAL INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

       Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
                                 (Unaudited)
                             (Thousands of Dollars)



COMMODITY PRICE EXPOSURE (continued)
------------------------------------
A sensitivity  analysis has been prepared to estimate the department's  exposure
to  market  risk of its  exchange-traded  commodity  instrument  position  as of
September  30,and June 30, 1998.  The fair value of such position is a summation
of the fair values  calculated  for each  commodity  instrument  by valuing each
position at quoted futures prices  or, in  the case of options, a delta-adjusted
calculated price. The market risk of the commodity  position is estimated as the
potential loss in fair value resulting from a hypothetical  10% change in market
prices  of  the  underlying  commodities.  As  noted  above,  grain   marketing
historically enters  into generally matched  transactions to hedge against price
fluctuations. However, as  previously  discussed,  during  the fourth quarter of
1998  and throughout 1999,  unauthorized speculative  positions  were  taken  so
that the commodity  instrument  activity of the  department was not  effectively
hedging the  underlying commodities  and forward contracts.  As of September 30,
and June 30,1998, assuming a 10% hypothetical change in the underlying commodity
price,  the  potential  change  in  fair  value  of  the department's  commodity
instruments was  $1,300  and $700, respectively.



                                       20


<PAGE>



                           PART II. OTHER INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                             (Thousands of Dollars)


Item 1.  Legal Proceedings
--------------------------
The Company and its  subsidiaries are not involved in any material pending legal
proceedings  other than ordinary routine  litigation  incidental to the business
except the following:

In August  1994,  the  Environmental  Protection  Agency  (EPA)  notified  Motor
Transportation Services, Inc. (MTS), a dissolved wholly owned subsidiary of AHI,
that the EPA has reason to believe that MTS is a potentially  responsible  party
(PRP)  under  the  Comprehensive  Environmental  Response,   Compensation,   and
Liability Act (CERCLA) at the Rosen Site, Cortland,  New York. The EPA requested
that   MTS   and   other   PRPs    participate    in   the   ongoing    Remedial
Investigation/Feasibility  Study  (RI/FS) for the Rosen Site.  MTS believes that
its involvement at the Rosen Site, if any, is minimal and responded  accordingly
to the EPA's request. In a related matter,  other PRPs at the Rosen Site, Cooper
Industries,  Inc., et al.,  filed a complaint  under CERCLA against the Company,
MTS and  other  alleged  PRPs at the  Rosen  Site in the  U.S.  District  Court,
Northern District of New York, in June 1992, seeking  reimbursement for the cost
of the ongoing  RI/FS.  The Company and MTS believe the relief  sought by Cooper
Industries,  Inc., et al. is unjustified  and are contesting the  allegations in
the lawsuit. In March 1998, the EPA issued a unilateral  administrative order to
the PRPs, including the Company and MTS, for a removal action at the Rosen Site.
The Company and MTS have  notified  the EPA that they will comply with the order
by  cooperating  with the  other  PRPs to  assure  that the  removal  action  is
performed.  In addition,  the Company and MTS have offered to cooperate with the
other PRPs in performing a Remedial  Design/Remedial Action (RD/RA) for the site
in accordance  with the Record of Decision  (ROD) issued by the EPA. The Company
currently has accrued its best estimate  relative to the cost of any  additional
assessment,  containment, removal or remediation actions regarding the property.
However,  it is reasonably  possible  that the results of ongoing  and/or future
environmental studies or other factors could alter this estimate and require the
recording of additional liabilities.  The extent or amount of such events cannot
be estimated at this time.  However,  Agway  believes  that its past  experience
provides a reasonable basis for its estimates recorded for this matter.

In  December  1985,  it  was  asserted  by  the   Massachusetts   Department  of
Environmental  Protection  (MDEP) that certain real  property  located in Acton,
Massachusetts,  previously owned by Agway is contaminated and that Agway and the
current owner of the property are responsible for the cost of investigating  and
cleaning up  environmental  contamination  at the property.  In September  1993,
Agway  entered into an  Administrative  Consent  Order with the MDEP pursuant to
which Agway performed a phase II comprehensive  site assessment.  In March 1995,
Agway and the current  owner entered into a settlement  agreement  whereby Agway
agreed, at Agway's expense, to complete any additional assessment,  containment,
removal or  remediation  actions at the  property.  The current  owner agreed to
cooperate with Agway in achieving a permanent solution  satisfactory to the MDEP
and in compliance with the MDEP's requirements. Agway prepared a risk assessment
scope  of work  that was  approved  by the  MDEP,  and the  MDEP  also  approved
reclassification  of  the  site.  Agway  finalized,  in  April  1998,  its  risk
characterization  and remedial action plan reports and, in July 1998, its remedy
implementation plan report.  Pursuant to the remedy  implementation  plan, Agway
completed  activities   associated  with  the  installation  of  an  impermeable
vegetated  surface  cover system in October  1998,  will continue a ground water
monitoring  program and is  implementing  an activity  and use  limitation.  The
Company  currently  has  accrued its best  estimate  relative to the cost of any
additional assessment, containment, removal or remediation actions regarding the
property.  However, it is reasonably possible that the results of ongoing and/or
future  environmental  studies or other  factors  could alter this  estimate and
require the  recording of additional  liabilities.  The extent or amount of such
events cannot be estimated at this time.  However,  Agway believes that its past
experience  provides a  reasonable  basis for its  estimates  recorded  for this
matter.

In August 1995,  the EPA notified  Agway that the EPA has reason to believe that
Agway is a PRP under CERCLA at the Tri-Cities Barrel site, Port Crane, New York.
The EPA requested that Agway and other PRPs participate in the ongoing RI/FS for
the Tri-Cities  Barrel site.  Agway continues to participate  with other PRPs in
the ongoing RI/FS. In June 1997, the cooperating  PRPs agreed upon an allocation
of responsibility for past and future investigation and remediation costs. Based
on this  allocation and the cost  estimates for the site,  Agway has accrued its
best estimate for any additional costs at the site.



                                       21

<PAGE>



                     PART II. OTHER INFORMATION (continued)
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                             (Thousands of Dollars)


Item 1.  Legal Proceedings (continued)
--------------------------------------
In April 1997, the EPA notified Agway Petroleum Corporation (APC--predecessor to
Agway Energy  Products LLC) that the EPA has reason to believe that APC is a PRP
under CERCLA at the Friedrichsohn's  Cooperage,  Inc. Superfund Site, Waterford,
NY. In August 1997,  the EPA demanded  that APC and other PRPs  reimburse it for
payment of approximately  $1,800 in cleanup costs. APC and other PRPs are in the
process of  negotiating a Consent  Decree with the EPA which will require APC to
reimburse the EPA a proportionate  share of the cleanup costs.  The Company does
not believe that  adjustments  will be material in relation to the  consolidated
financial position of Agway.

While the Company is not  depending  on  contributions  from  insurance or third
parties in determining its reserves for environmental  clean-up  liability,  the
Company will determine on a site-by-site basis whether such a contribution claim
is warranted.

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
There were no reports on Form 8-K  required to be filed  during the three months
ended September 30, 1998.




                                       22

<PAGE>


SIGNATURES
----------

Pursuant  to the  requirements  of the  Securities  Exchange  Act of  1934,  the
registrant  has duly  caused  this  report  to be  signed  on its  behalf by the
undersigned thereunto duly authorized.




                                                    AGWAY INC.
                                    --------------------------------------------
                                                   (Registrant)





Date     September 10, 1999                   /s/ PETER J. O'NEILL
       -----------------------      ----------------------------------------
                                                 Peter J. O'Neill
                                              Senior Vice President,
                                                Finance & Control,
                                        (Principal Financial Officer and
                                            Chief Accounting Officer)











                                       23