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



(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----
ACT OF 1934
For the quarterly period ended March 24, 2001
                               --------------

                                       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 May 4, 2001
-------------------------                           --------------------------
Membership Common Stock,                                    97,862 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 March 24, 2001 and June 24, 2000..........................   3

           Condensed Consolidated Statements of Operations and Retained Earnings for the three months
           and nine months ended March 24, 2001 and March 25, 2000...............................................   4

           Consolidated Statements of Comprehensive Income for the three months and nine months ended
           March 24, 2001 and March 25, 2000.....................................................................   5

           Condensed Consolidated Cash Flow Statements for the nine months ended March 24, 2001
           and March 25, 2000....................................................................................   6

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

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations........  26

           Item 3.  Quantitative and Qualitative Disclosures About Market Risk...................................  32

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

           Item 6.  Exhibits and Reports on Form 8-K.............................................................  33

           SIGNATURES............................................................................................  34


</TABLE>












                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                             March 24,       June 24,
ASSETS                                                                         2001           2000
------                                                                      -----------    -----------
                                                                            (Unaudited)
<S>                                                                         <C>            <C>
Current Assets:
     Cash ...............................................................   $         0    $    19,141
     Trade accounts receivable (including notes receivable of $19,942 and
         $38,755, respectively), less allowance for doubtful accounts of
         $9,678 and $7,204, respectively ................................       188,878        210,598
     Leases receivable, less unearned income of $74,858 and
         $71,944, respectively ..........................................       152,887        152,255
     Advances and other receivables .....................................        24,415         22,401
     Inventories:
         Raw materials ..................................................         9,055          7,982
         Finished goods .................................................       138,726        101,859
         Goods in transit and supplies ..................................         3,020          2,099
                                                                            -----------    -----------
              Total inventories .........................................       150,801        111,940
     Restricted cash ....................................................         8,234         10,103
     Prepaid expenses and other assets ..................................        46,850         48,143
                                                                            -----------    -----------
         Total current assets ...........................................       572,065        574,581
Marketable securities available for sale ................................        38,401         36,254
Other security investments ..............................................        53,263         51,472
Properties and equipment, net ...........................................       170,917        175,784
Long-term leases receivable, less unearned income of $181,326 and
     $167,414, respectively .............................................       497,127        470,595
Net pension asset .......................................................       226,099        213,455
Other assets ............................................................        35,618         21,710
Net assets of discontinued operations ...................................        10,263         34,278
                                                                            -----------    -----------
              Total assets ..............................................   $ 1,603,753    $ 1,578,129
                                                                            ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable ......................................................   $   133,065    $   177,576
     Current installments of long-term debt .............................       120,260        136,211
     Current installments of subordinated debt ..........................        54,376         57,125
     Accounts payable ...................................................       124,661         94,046
     Other current liabilities ..........................................       124,734        122,060
                                                                            -----------    -----------
         Total current liabilities ......................................       557,096        587,018
Long-term debt ..........................................................       331,662        281,678
Subordinated debt .......................................................       429,551        417,749
Other liabilities .......................................................       110,085        109,093
                                                                            -----------    -----------
         Total liabilities ..............................................     1,428,394      1,395,538
Commitments and contingencies
Shareholders' equity:
     Preferred stock, net ...............................................        37,738         39,695
     Common stock, net ..................................................         2,449          2,473
     Accumulated other comprehensive income (loss) ......................          (256)          (798)
     Retained earnings ..................................................       135,428        141,221
                                                                            -----------    -----------
         Total shareholders' equity .....................................       175,359        182,591
                                                                            -----------    -----------
              Total liabilities and shareholders' equity ................   $ 1,603,753    $ 1,578,129
                                                                            ===========    ===========
</TABLE>
     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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

Item 1.  CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                   Three Months Ended             Nine Months Ended
                                                --------------------------    --------------------------
                                                 March 24,      March 25,      March 24,      March 25,
                                                   2001           2000           2001           2000
                                                -----------    -----------    -----------    -----------
<S>                                             <C>            <C>            <C>            <C>
Net sales and revenues from:
     Product sales (including excise taxes)     $   416,930    $   393,587    $ 1,065,822    $   926,098
     Leasing operations .....................        21,584         19,265         63,622         56,592
     Insurance operations ...................         6,943          6,629         21,102         20,589
                                                -----------    -----------    -----------    -----------
         Total net sales and revenues .......       445,457        419,481      1,150,546      1,003,279

Cost and expenses from:
     Products and plant operations ..........       374,710        349,142        987,786        859,041
     Leasing operations .....................         8,555          6,921         27,712         22,801
     Insurance operations ...................         4,794          3,809         13,441         12,153
     Selling, general and administrative
         activities .........................        34,792         33,610        100,590        101,121
                                                -----------    -----------    -----------    -----------
         Total operating costs and expenses .       422,851        393,482      1,129,529        995,116

Operating income (loss) .....................        22,606         25,999         21,017          8,163
Interest expense, net .......................        (8,132)        (7,953)       (26,615)       (22,177)
Other income, net ...........................           374          4,269          4,393          9,400
                                                -----------    -----------    -----------    -----------
Earnings (loss) from continuing
     operations before income taxes .........        14,848         22,315         (1,205)        (4,614)
Income tax expense (benefit) ................         7,045          9,358          2,102            286
                                                -----------    -----------    -----------    -----------

Earnings (loss) from continuing operations ..         7,803         12,957         (3,307)        (4,900)

Discontinued operations:
     Loss from operations, net of tax benefit
         of $0 and $2,344 and $0 and
         $6,672, respectively ...............             0         (4,294)             0        (12,218)
     Loss on disposal of retail .............             0              0              0              0
                                                -----------    -----------    -----------    -----------
     Loss from discontinued operations ......             0         (4,294)             0        (12,218)

Earnings (loss) before cumulative effect
     of an accounting change ................         7,803          8,663         (3,307)       (17,118)

Cumulative effect of accounting change,
         net of tax benefit of $723 .........             0              0         (1,057)             0
                                                -----------    -----------    -----------    -----------

Net earnings (loss) .........................         7,803          8,663         (4,364)       (17,118)

Retained earnings, beginning of period ......       127,625        126,409        141,221        153,763
Dividends ...................................             0              0         (1,429)        (1,573)
                                                -----------    -----------    -----------    -----------
Retained earnings, end of period ............   $   135,428    $   135,072    $   135,428    $   135,072
                                                ===========    ===========    ===========    ===========
</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

        Item 1. CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                   Three Months Ended          Nine Months Ended
                                                 ----------------------      -----------------------
                                                 March 24,     March 25,     March 24,     March 25,
                                                   2001          2000          2001          2000
                                                 --------      --------      --------      --------
<S>                                              <C>           <C>           <C>           <C>
Net earnings (loss) ........................     $  7,803      $  8,663      $ (4,364)     $(17,118)

Other comprehensive income (loss), net of
  tax:

Unrealized gains (losses) on available-for-
  sale securities:
     Unrealized holding gains (losses)
         arising during period .............          295           (93)        1,004          (634)
     Reclassification adjustment for (gains)
         Losses included in net earnings ...          (15)           46           (15)           48

Unrealized gains (losses) on derivatives:
     Cumulative effect of accounting change,
         net of tax expense of $2,041 ......            0            --         3,061            --
     Unrealized holding gains (losses)
         arising during period .............       (2,245)           --         2,404            --

     Reclassification adjustment for (gains)
         losses included in net earnings ...       (2,198)           --        (5,912)           --
                                                 --------      --------      --------      --------

Other comprehensive income (loss), net of
   tax .....................................       (4,163)          (47)          542          (586)
                                                 --------      --------      --------      --------

Comprehensive gain (loss) ..................     $  3,640      $  8,616      $ (3,822)     $(17,704)
                                                 ========      ========      ========      ========
</TABLE>





















     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



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

               Item 1. CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                   (Unaudited)
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
                                                                                             Nine Months Ended
                                                                                -----------------------------------
                                                                                  March 24,             March 25,
                                                                                    2001                  2000
                                                                                -------------        --------------
<S>                                                                             <C>                  <C>
Net cash flows provided by (used in) continuing operations...................   $     21,518         $      (2,345)
Net cash flows provided by (used in) discontinued operations.................         24,015                 8,482
                                                                                -------------        --------------
Net cash flows provided by (used in) operating activities....................         45,533                 6,137

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................         (9,784)              (21,660)
     Proceeds from disposal of property, plant and equipment.................          4,755                   813
     Cash paid for acquisition of business...................................              0                (4,950)
     Leases originated.......................................................       (208,569)             (203,635)
     Leases repaid...........................................................        165,210               153,246
     Proceeds from sale of marketable securities.............................          3,301                 2,319
     Purchases of marketable securities......................................         (4,460)               (4,345)
     Net purchase of investments in cooperatives.............................         (2,218)               (1,477)
                                                                                -------------        --------------

Net cash flows used in investing activities..................................        (51,765)              (79,689)

Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................        (44,511)               78,588
     Proceeds from long-term debt............................................         28,511                75,989
     Repayment of long-term debt.............................................           (862)              (75,412)
     Proceeds from sale of subordinated debt.................................        163,763               111,929
     Maturity and redemption of subordinated debt............................       (154,709)             (109,026)
     Payments on capital leases..............................................            (99)               (2,685)
     Redemption of stock, net ...............................................         (1,981)               (2,556)
     Cash dividends paid.....................................................         (3,021)               (3,275)
                                                                                -------------        --------------

Net cash flows provided by (used in) financing activities....................        (12,909)               73,552
                                                                                -------------        --------------

Net increase (decrease) in cash and equivalents..............................        (19,141)                    0
Cash and equivalents at beginning of period..................................         19,141                     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

          Item 1. 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 nine-month period ended March
     24,  2001,  are not  necessarily  indicative  of the  results  that  may be
     expected for the year ending June 30, 2001,  due to the seasonal  nature of
     certain major segments of our 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 24, 2000.

     New Accounting Standard
     The Financial  Accounting  Standards Board issued SFAS No. 133, "Accounting
     for  Derivative  Instruments  and  Hedging  Activities."  SFAS No.  133 (as
     amended  by SFAS No.  137) was  effective  for all fiscal  quarters  of all
     fiscal  years  beginning  after  June 15,  2000,  (June 25,  2000,  for the
     Company). SFAS No. 133 requires that all derivative instruments be recorded
     on the  balance  sheet at their  fair  value.  Changes in the fair value of
     derivatives  are  recorded  each  period  in  current   earnings  or  other
     comprehensive  income,  depending on whether a derivative  is designated as
     part of a hedge transaction and, if it is, the type of hedge transaction.

     On June 25, 2000,  upon  adoption of SFAS No. 133,  the Company  recorded a
     net-of-tax  cumulative-effect loss of $1,100 to recognize at fair value the
     component of all option  contracts  associated  with the  Company's  Energy
     segment which is excluded from the  assessment  of hedge  effectiveness  as
     allowed  by the new  standard.  The  Company  also  recorded  a  net-of-tax
     cumulative-effect gain of $3,100 in other comprehensive income to recognize
     at fair value all derivative  instruments  in the Company's  Energy segment
     that were  designated  and  qualified as cash-flow  hedges.  See Note 6 for
     further  details of the Company's  accounting for  derivatives  and hedging
     activities.

     Fiscal Quarter
     The fiscal  quarter-end  of Agway Inc. for the third quarter of the current
     and  prior  year was  March  24 and  March  25,  respectively.  The  fiscal
     quarter-end  of certain of Agway's  subsidiaries,  including  Agway  Energy
     Products  LLC,  Telmark LLC,  and Agway  Insurance  Company,  for the third
     quarter of the current  and prior year is March 31, and these  subsidiaries
     are consolidated on that basis.

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





                                        7

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   BORROWING ARRANGEMENTS
     ----------------------
     Agway  finances its  operations and the operations of all of its businesses
     and subsidiaries  through Agway Financial  Corporation (AFC). AFC typically
     renews  its  lines  of  credit  annually  in the  fiscal  quarter  ended in
     December.  This past year,  Agway's  existing banks  expressed  interest in
     participating  in a new  facility  at reduced  levels  from  their  current
     commitments.  In January  2001,  Agway signed a  commitment  letter with an
     agent for a syndicated senior collateralized  revolving credit facility for
     $175,000,  including letters of credit. In addition,  in February 2001, the
     Company's  $50,000  commercial  paper  program was paid down and the amount
     available under that program converted to a short-term line of credit. As a
     result of the  timing  required  to  finalize a new  credit  facility,  the
     Company  requested and received  extensions from its existing banks for its
     short-term lines of credit through March 31, 2001.

     Effective  March 28,  2001,  Agway and AFC  established  a new senior  debt
     facility (the "Agway Senior Debt") for all business  operations  except for
     Agway Insurance  Company and Telmark LLC and its subsidiaries  ("Telmark").
     The Agway Insurance  Company is independently  financed through  operations
     and liquidity provided by its investment portfolio. Telmark finances itself
     through a series of credit arrangements that are independent from the Agway
     Senior Debt.  Each of those  arrangements  is more fully  described in this
     footnote.

     The Agway Senior Debt is a syndicated three-year asset-based revolving line
     of credit for up to $175,000  pursuant  to the terms of a credit  agreement
     dated March 28,  2001  between  Agway,  certain of its  subsidiaries  and a
     syndicated group of lenders (the "Credit Agreement"). Up to $35,000 of this
     line of credit can be  designated  for use as  letters  of credit.  In this
     asset-based line of credit,  the amount available to Agway is the lesser of
     the "collateral  borrowing base" or the $175,000 upper limit of the line of
     credit.  The  collateral  borrowing  base  consists  of  certain of Agway's
     eligible  accounts  receivable  and  inventory (as defined under the Credit
     Agreement).  Certain covenants and conditions of the Credit  Agreement,  as
     more  fully  discussed  below,  restrict  the use of funds and  reduce  the
     practical  availability  of financing  under the  agreement by $25,000 to a
     maximum of $150,000.  The credit facilities that this senior debt financing
     replaces  amounted to a total  availability for letters of credit and lines
     of credit of up to $148,000.  Amounts owed under the former facilities have
     been repaid and those facilities have been terminated.  Management believes
     that  adequate  collateral  exists and will  continue  to exist so that the
     Agway senior debt  financing is, and will continue to be,  adequate to meet
     the ongoing needs of Agway.

     The Credit Agreement has a number of financial covenants which restrict our
     capital  spending  and  require us to maintain  minimum  levels of earnings
     before interest, taxes, depreciation,  and amortization ("EBITDA"), minimum
     ratios  of EBITDA to fixed  charges  and  interest  on senior  debt,  and a
     minimum  outstanding  balance of preferred  stock,  subordinated  debt, and
     certain debt of a subsidiary.  That minimum balance requirement ranges from
     $440,000 to $450,000  throughout the year.  (This minimum amount of capital
     we must maintain is referred to as the "Minimum Capital.")

     Other   conditions  of  the  Credit   Agreement   prevent  us,  in  certain
     circumstances, from using funds we borrow under the Credit Agreement to pay
     interest or  dividends  on, or  repurchase  or repay  principal  of,  AFC's
     subordinated   debt  or  Agway's   preferred  stock.  To  avoid  these  use
     restrictions,  the Credit  Agreement  requires us to have a minimum  excess
     borrowing  capacity as defined in the  agreement  of at least  $20,000 more
     than the loan amount  outstanding if we are not in default under the Credit
     Agreement.  If we are in default under the Credit Agreement, to avoid these
     use  restrictions,  the minimum excess borrowing  capacity we must maintain
     increases to $25,000 more than the loan amount outstanding.  Further, if we
     are in default  under the  Credit  Agreement,  we are  subject to these use
     restrictions if:


                                        8

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     (a) we default on our payment of principal, interest  or  other amounts due
         to the lenders under the Credit Agreement;

     (b) we fail to maintain the cash management procedures we agree to with the
         lenders under the Credit Agreement;

     (c) we do not maintain the Minimum Capital balance of $440,000 to $450,000;
         or

     (d) the agent under the Credit Agreement  provides us with a written notice
         that such payments are no longer permitted.

     These conditions  reduce the practical  availability  under the senior debt
     financing from $175,000 to $150,000.  The Credit  Agreement was designed in
     part to allow and enable  Agway and AFC to  continue  the past  practice of
     repurchasing,  at face value, certain subordinated debt and preferred stock
     when presented for repurchase prior to maturity.  However,  while it is the
     current intent of Agway and AFC to continue this historic  practice,  Agway
     and AFC are under no obligation to  repurchase  subordinated  debt prior to
     its maturity and preferred stock when so presented, and may stop or suspend
     this  practice  at any  time or may be  required  to stop or  suspend  such
     practice if Agway does not  continue to meet the  conditions  of the Credit
     Agreement, including those described above.

     As of March 28, 2001, the total amount borrowed under the Credit  Agreement
     was  $95,200,  of  which  $22,400  was  designated  to  letters  of  credit
     principally in support of Agway  insurance  programs under the Agway Senior
     Debt.  Interest rates are determined at the option of the Company, as prime
     rate,  plus 1.75%, or as the London  Interbank  Offering Rate (LIBOR) rate,
     plus 3.25%. These rates are comparable to the rates which were available to
     Agway in its prior senior debt financing arrangements.

     Telmark Debt
     At March 31,  2001,  Telmark  had credit  facilities  available  from banks
     aggregating to $387,700.  Uncommitted  short-term line of credit agreements
     permit  Telmark to borrow up to $87,700 on an  uncollateralized  basis with
     interest  paid upon  maturity.  The lines  bear  interest  at money  market
     variable rates. A committed $300,000 partially  collateralized (by stock in
     a cooperative  bank)  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 amounts
     outstanding  as of March 31,  2001 and June 30,  2000 under the  short-term
     lines of credit  were  $46,700  and  $75,200,  respectively,  and under the
     revolving term loan facility were $196,200 and $164,500,  respectively. The
     portion of the revolving term loan that is short term at March 31, 2001 and
     June 30, 2000 is $15,200 and $500, respectively.  Telmark borrows under its
     short-term  line of credit  agreement and its revolving term agreement from
     time to time to fund its  operations.  Short-term  debt  serves as  interim
     financing between the issuances of long-term debt. Telmark renews its lines
     of credit annually.  The $87,700  short-term lines of credit all have terms
     expiring  during  the next 12  months.  The  $300,000  revolving  term loan
     facility is available through August 1, 2002.



                                        9

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


2.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     In November  2000,  Telmark  issued  $61,000 of  unsecured  senior notes to
     institutional investors. The terms of the note agreement are similar to the
     terms of other unsecured senior notes.  Telmark had balances outstanding on
     all unsecured  senior notes from private  placements  totaling  $159,000 at
     March 31, 2001, and $122,000 at June 30, 2000. The principal bears interest
     at fixed rates ranging from 6.7% to 8.7%. Interest is payable  semiannually
     on each senior note.  Principal  payments  are on both a semiannual  and an
     annual basis. The notes have various  maturities through December 31, 2012.
     The note  agreements  are similar to one another and each contains  several
     specific financial covenants that must be complied with by us.

     Telmark,  through two wholly owned special purpose  subsidiaries,  has four
     classes of lease-backed notes outstanding  totaling $98,900 and $118,300 at
     March 31, 2001 and June 30, 2000,  respectively,  payable to  institutional
     investors.  Interest  rates on these  classes  of notes  range from 6.5% to
     9.1%. The notes are  collateralized  by leases having an aggregate  present
     value of contractual  lease payments equal to or greater than the principal
     balance  of the  notes,  and the notes are  further  collateralized  by the
     residual values of these leases and by segregated cash accounts.  The final
     scheduled  maturity of these notes is in varying  amounts and dates through
     December 2008.

     Telmark  registers  with the SEC to offer  debentures  to the  public.  The
     Telmark  debentures  are unsecured and  subordinated  to all senior debt at
     Telmark.  The  interest  on the debt is paid on January 1, April 1, July 1,
     and October 1 of each year and may, at the holder's option,  be reinvested.
     The offering of the  debentures  is not  underwritten,  and there can be no
     guarantee  as to the  amount  of  debentures,  if any,  that  will be sold.
     Telmark's  subordinated  debentures  bear  interest  at a rate  that is the
     greater of the stated  rate or a rate based upon an average  discount  rate
     for U.S.  Government  Treasury Bills, with maturities of 26 weeks.  Telmark
     debentures  outstanding as of March 31, 2001, of approximately  $40,700 are
     due at  various  dates  through  March  2009  and bear a  weighted  average
     interest rate of 8.0%.

     The Company's long-term and subordinated debt outstanding at March 2001, as
     compared to June 2000, is as follows:
<TABLE>
<CAPTION>
                                                             AFC
                                     Agway            (excluding Telmark)             Telmark                      Total
                           ---------------------     ---------------------     -----------------------     -----------------------
                             3/01         6/00         3/01         6/00         3/01          6/00          3/01          6/00
                           --------     --------     --------     --------     ---------     ---------     ---------     ---------
<S>                        <C>          <C>          <C>          <C>          <C>           <C>           <C>           <C>
Long-term debt .......     $ 11,256     $ 11,336     $  1,744     $  2,297     $ 438,922     $ 404,256     $ 451,922     $ 417,889
Currently payable ....        4,835        2,812           98          626       115,327       132,773       120,260       136,211
                           --------     --------     --------     --------     ---------     ---------     ---------     ---------
Net long-term debt ...     $  6,421     $  8,524     $  1,646     $  1,671     $ 323,595     $ 271,483     $ 331,662     $ 281,678
                           ========     ========     ========     ========     =========     =========     =========     =========

Subordinated debt ....     $      0     $      0     $443,229     $437,476     $  40,698     $  37,398     $ 483,927     $ 474,874
Currently payable ....            0            0       49,068       51,628         5,308         5,497        54,376        57,125
                           --------     --------     --------     --------     ---------     ---------     ---------     ---------
Net subordinated debt      $      0     $      0     $394,161     $385,848     $  35,390     $  31,901     $ 429,551     $ 417,749
                           ========     ========     ========     ========     =========     =========     =========     =========
</TABLE>


                                       10

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


3.   COMMITMENTS AND CONTINGENCIES
     -----------------------------
     Environmental
     We are  subject to various  laws and  governmental  regulations  concerning
     environmental  matters.  We  expect  to be  required  to  expend  funds  to
     participate in the  remediation of certain sites,  including sites where we
     have 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 at sites  with
     underground   fuel  storage  tanks.  We  will  also  incur  other  expenses
     associated with environmental compliance.

     We are designated as a PRP under CERCLA or as a third party by the original
     PRPs in several  Superfund  sites.  The liability under CERCLA is joint and
     several, meaning that we could be required to pay in excess of our pro rata
     share of remediation costs. Agway's understanding of the financial strength
     of  other  PRPs  at  these  Superfund  sites  has  been  considered,  where
     appropriate,  in determination of its estimated  liability.  As a result of
     the use and handling of hazardous  substances in our normal operations,  an
     unexpected  environmental  event or  significant  changes in  environmental
     compliance  requirements  could  have  a  material  adverse  impact  on our
     financial condition and results of operations.

     We   continually   monitor  our   operations   with  respect  to  potential
     environmental   issues,   including  changes  in  legal   requirements  and
     remediation   technologies.   Our  recorded   liability  in  our  financial
     statements  reflects  those  specific  issues  where we  think  remediation
     activities  are likely and where we can estimate  the cost of  remediation.
     Estimating the extent of our  responsibility  for a particular site and the
     method and ultimate cost of remediation of that site require that we make a
     number of assumptions.  As a result, the ultimate outcome of remediation of
     a site may differ from our  estimates.  However,  we believe  that our past
     experience   provides  us  with  a  reasonable  basis  for  estimating  our
     liability.  When we receive additional  information we adjust our estimates
     as necessary.  While we do not anticipate  that any such adjustment will be
     material to our financial  statements,  the result of ongoing and/or future
     environmental  studies or other  factors could alter this  expectation  and
     require that we record additional liabilities. We currently can't determine
     whether we will incur  additional  liabilities  in the future or, if we do,
     the extent or amount of such additional liabilities.  The settlement of the
     liabilities  established  will cause future cash outlays over at least five
     years  based  upon  current  estimates,  and it is not  expected  that such
     outlays will materially impact Agway's liquidity position.

     Other
     Agway had a Master  Equipment  Lease Agreement with a leasing company under
     which  Agway  had a  total  operating  lease  obligation  of  approximately
     $11,300.  The leasing  company had the right to terminate this agreement if
     Agway did not meet the  performance  criteria  specified in the  agreement.
     Agway did not meet the specified criteria, and in January 2001, the leasing
     company  exercised its right to terminate.  This  obligation was settled in
     April 2001 by the  acquisition  of the assets under the lease in accordance
     with the terms of the  agreement.  A portion  of the lease  obligation  was
     replaced with a capital lease through Telmark totaling $6,800.

     We are subject to various  investigations,  claims,  and legal  proceedings
     covering a wide range of matters that arise in the  ordinary  course of our
     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 us. We have  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 Agway.


                                       11

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


4.   AGRICULTURE REALIGNMENT
     -----------------------
     On  December  7,  2000,  the Agway  Board of  Directors  approved a plan to
     realign the Agriculture segment of Agway's business (the "Plan").  The Plan
     is  intended  to  realign  the  Agriculture  segment  with  the  continuing
     concentration of farming and our member farmers in the northeastern  United
     States and to convert the segment's historic operating losses to profits by
     fiscal 2003.  The Plan calls for the  formation  of a Feed  Division and an
     Agronomy  Division  that will be  structured  to  enable  Agway to act as a
     wholesaler of its agricultural products in its traditional  marketplace and
     as a retailer in select markets.  It is expected that this realignment will
     take 18 months to complete and will involve the conversion of some existing
     Agway-owned facilities to dealer operations, as well as the sale or closing
     of some existing Agway-owned facilities.  It is probable that there will be
     costs for such items as severance pay and inventory  liquidation which will
     contribute  to losses during the  transition  period.  Further,  it is also
     expected  there will be gains,  and possibly  losses,  related to the sale,
     shut-down or  conversion of  facilities.  The level of gain or loss will be
     determined on a transaction-by-transaction basis over the transition period
     and cannot  presently be reasonably  estimated.  Once costs associated with
     these plans can be reasonably  estimated,  these costs will be accrued and,
     to the extent material, disclosed when appropriate.  During this transition
     period,   we  expect  continued  losses  from  the  Agriculture   segment's
     operations,  potentially  at higher  levels  in fiscal  2001 than in fiscal
     2000,  due in part to the costs  associated  with the Plan. In fiscal 2002,
     while still in the transition  phase, the Agriculture  segment's  operating
     losses in total will likely continue, but we expect substantial improvement
     in the  Agriculture  Segment's  operating  results  to begin.  In the third
     quarter ended March 24, 2001, the Agriculture  realignment efforts resulted
     in the following impacts on the financial statements:
<TABLE>
<CAPTION>
                                                                                     Three and
                                                                                    Nine Months
                                                                                       Ended
                                                                                    March 24, 2001
                                                                                  ----------------
<S>                                                                               <C>
     Net gain (loss) on sale of assets..........................................  $            53
     Loss on sale/liquidation of inventory......................................              (15)
     Impairment on long-lived assets............................................             (260)
     Severance costs............................................................             (897)
     Other transaction costs....................................................              (11)
                                                                                  ----------------
         Net loss on realignment activity.......................................  $        (1,130)
                                                                                  ================
</TABLE>


                                       12

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.   DISCONTINUED OPERATIONS
     -----------------------
     In  October  1999,  the  Agway  Board  of  Directors  approved  a  plan  to
     restructure the retail store distribution  system. This plan called for the
     sale or  closure  of the 227  Agway  retail  properties  over a  period  of
     approximately  1 1/2  years.  In the  spring of 2000,  the  Agway  Board of
     Directors  authorized  the sale of the  wholesale  procurement  and  supply
     system to Southern  States  Cooperative,  Inc. An agreement was executed on
     June 20, 2000, and the sale closed on July 31, 2000.

     The sale of the wholesale procurement and supply system, when combined with
     the  sale  and  closure  of the  Agway-owned  or  operated  retail  stores,
     constitutes  a  plan  to  discontinue  operations  of the  retail  services
     business. For financial reporting purposes, the measurement date upon which
     this  discontinued  operation  plan  became  effective  was June 20,  2000.
     Operating results of the retail services business,  including restructuring
     activity which took place through that date, were included in the operating
     loss from discontinued  operations in the financial statements for the year
     ended June 2000. The anticipated gains and losses after June 20, 2000, from
     the future anticipated sale of the wholesale procurement and supply system,
     which was  consummated  on July 31,  2000,  and the sale or  closure of the
     remaining  Agway-owned or operated retail store properties,  as well as the
     results of their future  operations  through the anticipated dates of sale,
     were  included in the loss on disposal of the retail  services  business in
     the fiscal year-end June 2000 statement of operations.  No adjustments were
     required  for  discontinued  operations  for the first nine  months of this
     year.  Financial results for all periods in the prior fiscal year have been
     reclassified  to reflect the retail  services  business  as a  discontinued
     operation.

     The net sales and revenues for  discontinued  operations  (retail  services
     business)  for the three  months  ended March 24, 2001 and March 25,  2000,
     were $851 and  $46,042  and for the nine  months  ended  March 24, 2001 and
     March 25,  2000,  were  $25,341 and  $159,820,  respectively.  Net interest
     expense  allocated to  discontinued  operations  for the three months ended
     March 24, 2001 and March 25, 2000,  totaled $0 and $1,054, and for the nine
     months  ended  March 24,  2001 and March 25,  2000,  totaled $0 and $3,414,
     respectively.

     A summary of net assets of discontinued operations was as follows:
<TABLE>
<CAPTION>
                                                                                       March 24,        June 24,
                                                                                         2001             2000
                                                                                    -------------    ------------
     <S>                                                                            <C>              <C>
     Accounts receivable..........................................................  $      9,682     $   22,982
     Inventory....................................................................             0         18,408
     Property, plant and equipment, net...........................................         9,171         18,989
     Other assets, net............................................................         9,562         23,370
     Accounts payable and accrued expenses........................................       (18,152)       (49,413)
     Long-term liabilities........................................................             0            (58)
                                                                                    -------------    ------------
     Net assets of discontinued operations........................................  $     10,263     $   34,278
                                                                                    =============    ============
</TABLE>

                                       13

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


6.   ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
     -------------------------------------------------
     The Company's  Energy segment enters into a combination of  exchange-traded
     futures  and options  contracts  and,  in certain  circumstances,  over the
     counter  options  (collectively  derivatives)  to  manage  the  price  risk
     associated with future purchases of the commodities used in its operations,
     principally  heating  oil  and  propane.   Energy  has  fair  value  hedges
     associated  with its fixed price  purchase  contracts and cash flows hedges
     for  its  variable   priced   purchase   contracts.   The  derivatives  are
     specifically  matched  in volume and  maturity  with the  various  purchase
     commitments  of the business and generally  expire within a year. The value
     of option  contracts that Energy enters into has two  components,  time and
     intrinsic value. The intrinsic value is the value by which the option is in
     the money.  The remaining  amount of option value is  attributable  to time
     value.  Energy does not include the time value of option  contracts  in its
     assessment of hedge effectiveness and therefore records changes in the time
     value  component of its options  currently in earnings.  At March 31, 2001,
     Energy had a derivative  liability of $700.  An after-tax  total of $400 of
     deferred net unrealized losses on derivatives  instruments were accumulated
     in other  comprehensive  income and are  expected to be  reclassified  into
     earnings  during the next six months.  The pre-tax  earnings impact for the
     time  value   component  of  option  value  not  used  in  assessing  hedge
     effectiveness  totaled $1,800 upon the initial  adoption of SFAS No. 133 at
     July 1, 2000,  and is  included,  net of tax, in the  cumulative  effect of
     accounting change. For the three and nine months ended March 31, 2001, $800
     and $3,300, respectively,  is included in cost of goods sold for the change
     in option time value not used in the assessment of hedge effectiveness.

     In the Agriculture  segment,  the purchase of corn, soy complex,  and oats,
     which can be sold directly as ingredients or included in feed products sold
     by Agriculture,  creates price risk for this business.  Agriculture intends
     to match its purchase and sales contracts  whenever possible to hedge price
     risk; however,  exchange-traded  commodity instruments are used principally
     to manage the price risk associated with unmatched  commodity  purchases or
     sales.  Agriculture matches all derivative  contracts with their underlying
     purchase or sale contract;  however,  due to the differences in the changes
     in the commodity cash price at an Agriculture  location  versus the Chicago
     Board of Trade, a highly effective hedging relationship (as defined by SFAS
     No.  133)  has  not  been  achieved.  Therefore,  the  derivatives  used in
     Agriculture are marked to market currently in earnings.

     In the Country Products Group segment,  exchange-traded soybean oil futures
     contracts are used  principally  to manage the price risk of confection and
     bakery kernel  sunflower  seeds which are purchased from growers by CPG and
     sold to customers.  Foreign currency forward  contracts are entered into to
     manage  fluctuations in foreign currency  denominated  sales  transactions.
     Because  the  commodity   instrument  used  by  CPG  (soybean  oil  futures
     contracts)  does not create a highly  effective  hedging  relationship  (as
     defined by SFAS No. 133) with the sunflower  seed purchase  contracts,  and
     because the timing of the  foreign  currency  contracts  does not match the
     associated  sales  contracts,   these  derivatives  are  marked  to  market
     currently in earnings.

                                       14

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.   CONSOLIDATING FINANCIAL STATEMENTS
     ----------------------------------
     Agway Financial  Corporation  (AFC) is a wholly owned  subsidiary of Agway.
     AFC's principal  business  activities consist of securing financing through
     bank borrowings and issuance of corporate debt instruments. Those funds are
     used to provide  funds for  general  corporate  purposes of Agway and AFC's
     wholly owned  subsidiary,  Agway Holdings Inc. (AHI),  and certain of AHI's
     subsidiaries.  Major holdings of AHI include Agway Energy  Products LLC and
     Agway  Energy  Services  Inc.  (Energy),  Telmark LLC and its  subsidiaries
     (Leasing),  and Agway  Insurance  Company  and Agway  General  Agency  Inc.
     (Insurance).  Agway guarantees the payment of principal and interest on the
     AFC debt. This guarantee is full and unconditional,  and joint and several,
     which means that Agway is  obligated to pay the full amount of the AFC debt
     if AFC fails to pay. Telmark and Insurance finance their activities through
     their own  operations  or  through a  combination  of their own  short- and
     long-term credit facilities.

     On April 24, 2001,  the Agway Board of Directors  authorized the mergers of
     AFC and AHI into Agway.  Those mergers are expected to be effective July 1,
     2001. On the effective  date,  Agway will assume all the liabilities of AFC
     and AHI,  including all  obligations  of AFC relating to AFC's  issuance of
     corporate  debt  instruments.  All assets and  liabilities  of AFC and AHI,
     including AHI's subsidiaries,  will become assets and liabilities of Agway.
     There will be no material change in the consolidated  financial position or
     results of  operations  of Agway  Inc.  as a result of these  mergers.  The
     mergers are expected to result in a more efficient administrative structure
     for the Company.

     The following summarized condensed consolidating  financial information for
     the Company presents the financial information for AFC, Agway Inc.  (parent
     company only),  and other direct  subsidiaries of Agway Inc.,  which do not
     guarantee any  obligations of AFC or Agway.  Subsidiaries of Agway Inc. and
     AFC are reported on the equity basis. Debt and goodwill have been allocated
     to subsidiaries.

                                       15

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.  CONSOLIDATING FINANCIAL STATEMENTS (continued)
    ----------------------------------------------
<TABLE>
<CAPTION>
                                                             Three Months Ended March 2001
                                          ---------------------------------------------------------------
                                                       Agway Inc.      All
                                             AFC      (Parent Co.)   Others        Elims     Consolidated
                                          ---------    ---------    ---------    ---------   ------------
<S>                                       <C>          <C>          <C>          <C>          <C>
Net sales and revenues from:
   Product sales (including excise
      taxes) ..........................   $ 276,192    $ 120,983    $  24,968    $  (5,213)   $ 416,930
   Leasing operations .................      21,862            0            0         (278)      21,584
   Insurance operations ...............       6,943            0            0            0        6,943
                                          ---------    ---------    ---------    ---------    ---------
     Total net sales and revenues .....     304,997      120,983       24,968       (5,491)     445,457

Cost and expenses from:
   Products and plant operations ......     246,091      110,568       23,202       (5,151)     374,710
   Leasing operations .................       8,555            0            0            0        8,555
   Insurance operations ...............       4,794            0            0            0        4,794
   Selling, general and admin
      activities ......................      15,864       15,872        3,056            0       34,792
                                          ---------    ---------    ---------    ---------    ---------
     Total operating costs and expenses     275,304      126,440       26,258       (5,151)     422,851

Operating income (loss) ...............      29,693       (5,457)      (1,290)        (340)      22,606
Interest expense, net .................      (4,037)      (3,742)        (631)         278       (8,132)
Other income, net .....................      (4,819)       5,155           38            0          374
                                          ---------    ---------    ---------    ---------    ---------
Earnings (loss) from continuing
   operations before income taxes .....      20,837       (4,044)      (1,883)         (62)      14,848
Income tax expense (benefit) ..........       8,826       (1,782)           0            1        7,045
                                          ---------    ---------    ---------    ---------    ---------

Earnings (loss) before equity in
   unconsolidated subsidiaries ........      12,011       (2,262)      (1,883)         (63)       7,803
Equity in earnings from subsidiaries ..           0       10,065            0      (10,065)           0
                                          ---------    ---------    ---------    ---------    ---------

Earnings from continuing operations ...      12,011        7,803       (1,883)     (10,128)       7,803

Discontinued operations:
   Loss from operations, net of tax
     benefit of $0 ....................           0            0            0            0            0
                                          ---------    ---------    ---------    ---------    ---------

Earnings (loss) before cumulative
   effect of an accounting change .....      12,011        7,803       (1,883)     (10,128)       7,803

Cumulative effect of accounting
   change, net of tax benefit of $0 ...           0            0            0            0            0
                                          ---------    ---------    ---------    ---------    ---------

Net earnings (loss) ...................   $  12,011    $   7,803    $  (1,883)   $ (10,128)   $   7,803
                                          =========    =========    =========    =========    =========
</TABLE>




                                       16

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7. CONSOLIDATING FINANCIAL STATEMENTS (continued)
   ----------------------------------------------
<TABLE>
<CAPTION>
                                                             Three Months Ended March 2000
                                            ---------------------------------------------------------------
                                                         Agway Inc.       All
                                               AFC      (Parent Co.)    Others       Elims     Consolidated
                                            ---------    ---------    ---------    ---------   ------------
<S>                                         <C>          <C>          <C>          <C>          <C>
Net sales and revenues from:
   Product sales (including excise taxes)   $ 251,985    $ 123,059    $  23,931    $  (5,388)   $ 393,587
   Leasing operations ...................      19,320          (15)           0          (40)      19,265
   Insurance operations .................       6,629            0            0            0        6,629
                                            ---------    ---------    ---------    ---------    ---------
     Total net sales and revenues .......     277,934      123,044       23,931       (5,428)     419,481

Cost and expenses from:
   Products and plant operations ........     219,588      112,133       22,549       (5,128)     349,142
   Leasing operations ...................       6,921            0            0            0        6,921
   Insurance operations .................       3,809            0            0            0        3,809
   Selling, general and admin activities       12,733       17,499        3,379           (1)      33,610
                                            ---------    ---------    ---------    ---------    ---------
     Total operating costs and expenses .     243,051      129,632       25,928       (5,129)     393,482

Operating income (loss) .................      34,883       (6,588)      (1,997)        (299)      25,999
Interest expense, net ...................      (4,580)      (2,833)        (579)          39       (7,953)
Other income, net .......................      (4,824)       9,185          (93)           1        4,269
                                            ---------    ---------    ---------    ---------    ---------
Earnings (loss) from continuing
   operations before income taxes .......      25,479         (236)      (2,669)        (259)      22,315
Income tax expense (benefit) ............      10,366         (993)         (15)           0        9,358
                                            ---------    ---------    ---------    ---------    ---------

Earnings (loss) before equity in
   unconsolidated subsidiaries ..........      15,113          757       (2,654)        (259)      12,957
Equity in earnings from subsidiaries ....           0       12,200            0      (12,200)           0
                                            ---------    ---------    ---------    ---------    ---------

Earnings from continuing operations .....      15,113       12,957       (2,654)     (12,459)      12,957

Discontinued operations:
   Loss from operations, net of tax
     benefit of $2,344 ..................           0       (4,294)           0            0       (4,294)
                                            ---------    ---------    ---------    ---------    ---------

Earnings (loss) before cumulative
   effect of an accounting change .......      15,113        8,663       (2,654)     (12,459)       8,663

Cumulative effect of accounting
   change, net of tax benefit of $0 .....           0            0            0            0            0
                                            ---------    ---------    ---------    ---------    ---------

Net earnings (loss) .....................   $  15,113    $   8,663    $  (2,654)   $ (12,459)   $   8,663
                                            =========    =========    =========    =========    =========
</TABLE>




                                       17

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.  CONSOLIDATING FINANCIAL STATEMENTS (continued)
    ----------------------------------------------
<TABLE>
<CAPTION>
                                                                Nine Months Ended March 2001
                                         ------------------------------------------------------------------------
                                                         Agway Inc.        All
                                             AFC       (Parent Co.)      Others          Elims       Consolidated
                                         -----------    -----------    -----------    -----------    ------------
<S>                                      <C>            <C>            <C>            <C>            <C>
Net sales and revenues from:
   Product sales (including excise
      taxes) .........................   $   675,453    $   332,222    $    68,151    $   (10,004)   $ 1,065,822
   Leasing operations ................        64,286              0              0           (664)        63,622
   Insurance operations ..............        21,102              0              0              0         21,102
                                         -----------    -----------    -----------    -----------    -----------
     Total net sales and revenues ....       760,841        332,222         68,151        (10,668)     1,150,546

Cost and expenses from:
   Products and plant operations .....       627,693        304,884         65,357        (10,148)       987,786
   Leasing operations ................        27,712              0              0              0         27,712
   Insurance operations ..............        13,441              0              0              0         13,441
   Selling, general and admin
     activities ......................        47,475         43,744          9,370              1        100,590
                                         -----------    -----------    -----------    -----------    -----------
     Total operating costs and
        expenses .....................       716,321        348,628         74,727        (10,147)     1,129,529

Operating income (loss) ..............        44,520        (16,406)        (6,576)          (521)        21,017
Interest expense, net ................       (14,551)       (10,949)        (1,781)           666        (26,615)
Other income, net ....................       (10,861)        15,085            171             (2)         4,393
                                         -----------    -----------    -----------    -----------    -----------
Earnings (loss) from continuing
   operations before income taxes ....        19,108        (12,270)        (8,186)           143         (1,205)
Income tax expense (benefit) .........         8,763         (6,598)           (63)             0          2,102
                                         -----------    -----------    -----------    -----------    -----------

Earnings (loss) before equity in
   unconsolidated subsidiaries .......        10,345         (5,672)        (8,123)           143         (3,307)
Equity in earnings from subsidiaries .             0          1,308              0         (1,308)             0
                                         -----------    -----------    -----------    -----------    -----------

Earnings from continuing operations ..        10,345         (4,364)        (8,123)        (1,165)        (3,307)

Discontinued operations:
   Loss from operations, net of tax
     benefit of $0 ...................             0              0              0              0              0
                                         -----------    -----------    -----------    -----------    -----------

Earnings (loss) before cumulative
   effect of an accounting change ....        10,345         (4,364)        (8,123)        (1,165)        (3,307)

Cumulative effect of accounting
   change, net of tax benefit of $723         (1,057)             0              0              0         (1,057)
                                         -----------    -----------    -----------    -----------    -----------

Net earnings (loss) ..................   $     9,288    $    (4,364)   $    (8,123)   $   (1,165)    $    (4,364)
                                         ===========    ===========    ===========    ===========    ===========
</TABLE>




                                       18

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.  CONSOLIDATING FINANCIAL STATEMENTS (continued)
    ----------------------------------------------
<TABLE>
<CAPTION>
                                                                Nine Months Ended March 2000
                                          ------------------------------------------------------------------------
                                                         Agway Inc.         All
                                              AFC       (Parent Co.)      Others          Elims       Consolidated
                                          -----------    -----------    -----------    -----------    ------------
<S>                                       <C>            <C>            <C>            <C>            <C>
Net sales and revenues from:
   Product sales (including excise
      taxes) ..........................   $   543,194    $   334,772    $    57,509    $    (9,377)   $   926,098
   Leasing operations .................        56,654            (15)             0            (47)        56,592
   Insurance operations ...............        20,589              0              0              0         20,589
                                          -----------    -----------    -----------    -----------    -----------
     Total net sales and revenues .....       620,437        334,757         57,509         (9,424)     1,003,279

Cost and expenses from:
   Products and plant operations ......       503,975        308,707         55,844         (9,485)       859,041
   Leasing operations .................        22,801              0              0              0         22,801
   Insurance operations ...............        12,153              0              0              0         12,153
   Selling, general and admin
      activities ......................        39,238         52,580          9,303              0        101,121
                                          -----------    -----------    -----------    -----------    -----------
     Total operating costs and expenses       578,167        361,287         65,147         (9,485)       995,116

Operating income (loss) ...............        42,270        (26,530)        (7,638)            61          8,163
Interest expense, net .................       (14,332)        (6,353)        (1,540)            48        (22,177)
Other income, net .....................       (10,341)        19,536            206             (1)         9,400
                                          -----------    -----------    -----------    -----------    -----------
Earnings (loss) from continuing
   operations before income taxes .....        17,597        (13,347)        (8,972)           108         (4,614)
Income tax expense (benefit) ..........         7,579         (7,293)             0              0            286
                                          -----------    -----------    -----------    -----------    -----------

Earnings (loss) before equity in
   unconsolidated subsidiaries ........        10,018         (6,054)        (8,972)           108         (4,900)
Equity in earnings from subsidiaries ..             0          1,154              0         (1,154)             0
                                          -----------    -----------    -----------    -----------    -----------

Earnings from continuing operations ...        10,018         (4,900)        (8,972)        (1,046)        (4,900)

Discontinued operations:
   Loss from operations, net of tax
     benefit of $6,672 ................             0        (12,218)             0              0        (12,218)
                                          -----------    -----------    -----------    -----------    -----------

Earnings (loss) before cumulative
   effect of an accounting change .....        10,018        (17,118)        (8,972)        (1,046)       (17,118)

Cumulative effect of accounting
   change, net of tax benefit of $0 ...             0              0              0              0              0
                                          -----------    -----------    -----------    -----------    -----------

Net earnings (loss) ...................   $    10,018    $   (17,118)   $    (8,972)   $    (1,046)   $   (17,118)
                                          ===========    ===========    ===========    ===========    ===========
</TABLE>




                                       19

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.  CONSOLIDATING FINANCIAL STATEMENTS (continued)
    ----------------------------------------------
<TABLE>
<CAPTION>
                                                                       March 2001
                                         ------------------------------------------------------------------------
                                                        Agway Inc.         All
                                             AFC       (Parent Co.)      Others          Elims       Consolidated
                                         -----------    -----------    -----------    -----------    ------------
<S>                                      <C>            <C>            <C>            <C>            <C>
Current Assets:
   Cash ..............................   $   (16,609)   $       662    $     2,330    $    13,617    $         0
   Trade accounts receivable, net ....       104,133         68,567         16,178              0        188,878
   Leases receivable, net ............       153,206              0              0           (319)       152,887
   Operating advance receivable ......       339,872              0              0       (339,872)             0
   Advances and other receivables ....        11,418         24,507             72        (11,730)        24,267
   Inventories .......................        25,446         92,912         32,894           (451)       150,801
   Restricted cash ...................         8,234              0              0              0          8,234
   Prepaid expenses and other assets .        32,444         14,320             86              0         46,850
                                         -----------    -----------    -----------    -----------    -----------
     Total current assets ............       658,144        200,968         51,560       (338,755)       571,917
Marketable securities available for
   sale ..............................        38,401              0              0              0         38,401
Other security investments ...........        49,080        246,118              1       (241,788)        53,411
Properties and equipment, net ........        76,438         83,192         11,286              1        170,917
Long-term leases receivable, net .....       510,717              0              0        (13,590)       497,127
Net pension asset ....................             0        226,099              0              0        226,099
Other assets .........................        59,718        (33,757)         9,657              0         35,618
Net assets of discontinued operations              0         10,263              0              0         10,263
                                         -----------    -----------    -----------    -----------    -----------
       Total assets ..................   $ 1,392,498    $   732,883    $    72,504    $  (594,132)   $ 1,603,753
                                         ===========    ===========    ===========    ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
   Notes payable .....................   $   133,065    $         0    $         0    $         0    $   133,065
   Current installments of long-term
     debt and subordinated debt ......       169,801            909          4,245           (319)       174,636
   Operating advance payable .........            12        339,458         (1,274)      (338,196)             0
   Accounts payable ..................         3,807         27,571         15,500         77,783        124,661
   Other current liabilities .........        99,108         84,537         19,108        (78,019)       124,734
                                                        -----------    -----------    -----------    -----------
     Total current liabilities .......       405,793        452,475         37,579       (338,751)       557,096
Long-term debt .......................       325,235         14,212          5,798        (13,583)       331,662
Subordinated debt ....................       429,551              0              0              0        429,551
Other liabilities ....................        19,499         90,836           (243)            (7)       110,085
                                         -----------    -----------    -----------    -----------    -----------
     Total liabilities ...............     1,180,078        557,523         43,134       (352,341)     1,428,394

Shareholders' equity:
   Preferred stock, net ..............             0         37,738              0              0         37,738
   Common stock, net .................             2          2,450              0             (3)         2,449
   Retained earnings .................       212,418        135,172         29,370       (241,788)       135,172
                                         -----------    -----------    -----------    -----------    -----------
     Total shareholders' equity ......       212,420        175,360         29,370       (241,791)       175,359
                                         -----------    -----------    -----------    -----------    -----------
       Total liabilities and
         shareholders' equity ........   $ 1,392,498    $   732,883    $    72,504    $  (594,132)   $ 1,603,753
                                         ===========    ===========    ===========    ===========    ===========
</TABLE>
                                       20

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7. CONSOLIDATING FINANCIAL STATEMENTS (continued)
   ---------------------------------------------
<TABLE>
<CAPTION>
                                                                       June 2000
                                         ----------------------------------------------------------------------
                                                        Agway Inc.        All
                                             AFC       (Parent Co.)     Others         Elims       Consolidated
                                         -----------    -----------   -----------   -----------    ------------
<S>                                      <C>            <C>           <C>           <C>            <C>
Current Assets:
   Cash ..............................   $   (14,339)   $    23,508   $     6,875   $     3,097    $    19,141
   Trade accounts receivable, net ....        67,214        105,796        37,587             1        210,598
   Leases receivable, net ............       152,785              0             0          (530)       152,255
   Operating advance receivable ......       400,894              0             0      (400,894)             0
   Advances and other receivables ....        13,926          6,651         3,430        (1,013)        22,994
   Inventories .......................        33,805         62,199        16,531          (595)       111,940
   Restricted cash ...................        10,103              0             0             0         10,103
   Prepaid expenses and other assets .        32,016         16,117             9             1         48,143
                                         -----------    -----------   -----------   -----------    -----------
     Total current assets ............       696,404        214,271        64,432      (399,933)       575,174
Marketable securities available for
    sale .............................        36,254              0             0             0         36,254
Other security investments ...........        48,739        242,221             1      (240,082)        50,879
Properties and equipment, net ........        79,178         84,812        11,793             1        175,784
Long-term leases receivable, net .....       473,753              0             0        (3,158)       470,595
Net pension asset ....................             0        213,455             0             0        213,455
Other assets .........................        59,557          8,005        10,186       (56,038)        21,710
Net assets of discontinued operations              0         34,278             0             0         34,278
                                         -----------    -----------   -----------   -----------    -----------
       Total assets ..................   $ 1,393,885    $   797,042   $    86,412   $  (699,210)   $ 1,578,129
                                         ===========    ===========   ===========   ===========    ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
   Notes payable .....................   $   177,576    $         0   $         0   $         0    $   177,576
   Current installments of long-term
     debt and subordinated debt ......       190,524          1,104         2,237          (529)       193,336
   Operating advance payable .........             0        379,977        20,006      (399,983)             0
   Accounts payable ..................        16,376         21,184         4,630        51,856         94,046
   Other current liabilities .........        95,883         63,071        13,788       (50,682)       122,060
                                         -----------    -----------   -----------   -----------    -----------
     Total current liabilities .......       480,359        465,336        40,661      (399,338)       587,018
Long-term debt .......................       273,146          3,775         7,908        (3,151)       281,678
Subordinated debt ....................       417,749              0             0             0        417,749
Other liabilities ....................        20,041        145,340           349       (56,637)       109,093
                                         -----------    -----------   -----------   -----------    -----------
     Total liabilities ...............     1,191,295        614,451        48,918      (459,126)     1,395,538

Shareholders' equity:
   Preferred stock, net ..............             0         39,695             0             0         39,695
   Common stock, net .................             1          2,474             0            (2)         2,473
   Retained earnings .................       202,589        140,422        37,494      (240,082)       140,423
                                         -----------    -----------   -----------   -----------    -----------
     Total shareholders' equity ......       202,590        182,591        37,494      (240,084)       182,591
                                         -----------    -----------   -----------   -----------    -----------
       Total liabilities and
         shareholders' equity ........   $ 1,393,885    $   797,042   $    86,412   $  (699,210)   $ 1,578,129
                                         ===========    ===========   ===========   ===========    ===========
</TABLE>
                                       21

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7.  CONSOLIDATING FINANCIAL STATEMENTS (continued)
    ----------------------------------------------
<TABLE>
<CAPTION>
                                                              Nine Months Ended March 2001
                                          ----------------------------------------------------------------
                                                       Agway Inc.       All
                                             AFC      (Parent Co.)    Others       Elims      Consolidated
                                          ---------    ---------    ---------    ---------    ------------
<S>                                       <C>          <C>          <C>          <C>          <C>
Net cash flows provided by (used in)
     continuing operations ............   $  51,145    $ (20,204)   $     806    $ (10,229)   $  21,518
Net cash flows provided by (used in)
     discontinued operations ..........           0       24,015            0            0       24,015
                                          ---------    ---------    ---------    ---------    ---------
Net cash flows provided by (used in)
     operating activities .............      51,145        3,811          806      (10,229)      45,533

Cash flows provided by (used in)
   investing activities:
     Purchases of property, plant
       and equipment ..................      (4,802)      (4,183)        (799)           0       (9,784)
     Proceeds from disposal of
   property, plant and equipment ......       1,020        3,640           95            0        4,755
     Cash paid for acquisition of
       business .......................           0            0            0            0            0
     Leases originated ................    (208,569)           0            0            0     (208,569)
     Leases repaid ....................     165,210            0            0            0      165,210
     Proceeds from sale of marketable
       securities .....................       3,301            0            0            0        3,301
     Purchases of marketable securities      (4,460)           0            0            0       (4,460)
     Net purchase of investments in
     cooperatives .....................        (768)      (1,450)           0            0       (2,218)
                                          ---------    ---------    ---------    ---------    ---------

Net cash flows used in investing
    activities ........................     (49,068)      (1,993)        (704)           0      (51,765)

Cash flows provided by (used in)
    financing activities:
     Net change in short-term
       borrowings .....................     (44,511)       3,780            0       (3,780)     (44,511)
     Proceeds from long-term debt .....      28,511            0            0            0       28,511
     Repayment of long-term debt ......       5,679            0         (102)      (6,439)        (862)
     Proceeds from sale of subordinated
       debt ...........................     163,763            0            0            0      163,763
     Maturity and redemption of
       subordinated debt ..............    (154,709)           0            0            0     (154,709)
     Payments on capital leases .......         (99)           0            0            0          (99)
     Redemption of stock, net .........        (711)      (2,577)           0        1,307       (1,981)
     Cash dividends paid ..............           0       (3,021)           0            0       (3,021)
                                          ---------    ---------    ---------    ---------    ---------

Net cash flows provided by (used in)
     financing activities .............      (2,077)      (1,818)        (102)      (8,912)     (12,909)

Net increase (decrease) in cash and
    equivalents .......................           0            0            0      (19,141)     (19,141)
Cash and equivalents at beginning of
    period ............................           0            0            0       19,141       19,141
                                          ---------    ---------    ---------    ---------    ---------

Cash and equivalents at end of period .   $       0    $       0    $       0    $       0    $       0
                                          =========    =========    =========    =========    =========
</TABLE>


                                       22

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


7. CONSOLIDATING FINANCIAL STATEMENTS (continued)
   ----------------------------------------------
<TABLE>
<CAPTION>
                                                                  Nine Months Ended March 2000
                                              ----------------------------------------------------------------
                                                           Agway Inc.      All
                                                 AFC      (Parent Co.)   Others        Elims      Consolidated
                                              ---------    ---------    ---------    ---------    ------------
<S>                                           <C>          <C>          <C>          <C>          <C>
Net cash flows provided by (used in)
     continuing operations ................   $ (23,410)   $  14,424    $   2,456    $   4,185    $  (2,345)
Net cash flows provided by (used in)
     discontinued operations ..............           0        8,482            0            0        8,482
                                              ---------    ---------    ---------    ---------    ---------
Net cash flows provided by (used in)
     operating activities .................     (23,410)      22,906        2,456        4,185        6,137

Cash flows provided by (used in)
    investing activities:
     Purchases of property, plant
       and equipment ......................      (4,995)     (11,695)      (1,266)      (3,704)     (21,660)
     Proceeds from disposal of property,
       plant and equipment ................         731       (3,937)         286        3,733          813
     Cash paid for acquisition of
        business ..........................      (2,900)           0       (2,050)           0       (4,950)
     Leases originated ....................    (203,635)           0            0            0     (203,635)
     Leases repaid ........................     153,246            0            0            0      153,246
     Proceeds from sale of marketable
       securities .........................       2,319            0            0            0        2,319
     Purchases of marketable securities ...      (4,345)           0            0            0       (4,345)
     Net purchase of investments in
     cooperatives .........................      (1,574)      (1,953)           0        2,050       (1,477)
                                              ---------    ---------    ---------    ---------    ---------

Net cash flows used in investing
    activities ............................     (61,153)     (17,585)      (3,030)       2,079      (79,689)

Cash flows provided by (used in)
    financing activities:
     Net change in short-term
       borrowings .........................      78,588          511            0         (511)      78,588
     Proceeds from long-term debt .........      75,989            0            0            0       75,989
     Repayment of long-term debt ..........     (70,680)           0       (1,476)      (3,256)     (75,412)
     Proceeds from sale of subordinated
       debt ...............................     111,929            0            0            0      111,929
     Maturity and redemption of
       subordinated debt ..................    (109,026)           0            0            0     (109,026)
     Payments on capital leases ...........      (2,685)           0            0            0       (2,685)
     Redemption of stock, net .............         448       (2,557)       2,050       (2,497)      (2,556)
     Cash dividends paid ..................           0       (3,275)           0            0       (3,275)
                                              ---------    ---------    ---------    ---------    ---------

Net cash flows provided by (used in)
     financing activities .................      84,563       (5,321)         574       (6,264)      73,552

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

Cash and equivalents at end of period .....   $       0    $       0    $       0    $       0    $       0
                                              =========    =========    =========    =========    =========
</TABLE>



                                       23

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


8.   FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
     --------------------------------------------------
     We are an agricultural  cooperative owned by approximately 70,000 Northeast
     farmer-members.  We are  directly  engaged  in  manufacturing,  processing,
     distributing  and marketing  agricultural  products (seeds and fertilizers)
     and services for our farmer-members  and other customers,  primarily in the
     northeastern  United States and Ohio.  We are also involved in  repackaging
     and marketing produce and processing and marketing sunflower seeds. Through
     certain  of our  subsidiaries,  we are  involved  in  the  distribution  of
     petroleum products; the installation and servicing of heating, ventilation,
     and air-conditioning  equipment; lease financing; the underwriting and sale
     of certain types of property and casualty insurance; and the sale of health
     insurance.  Agway  reports  its  operations  principally  in five  business
     segments.  Total sales and revenues of each industry  segment  includes the
     sale of products and services to unaffiliated customers, as reported in the
     Agway  consolidated  statements  of  operations,  as well as sales to other
     segments of Agway which are  competitively  priced. As disclosed in Note 5,
     the retail services business is classified as a discontinued  operation and
     therefore is not reported in the segment information below.

     The Other  category  within  the  summary  of  business  segments  includes
     intersegment  eliminations  and  interest.  The category  also includes net
     corporate  expenses and pension  income.  Finally,  interest income for the
     Leasing segment is reported as net sales and revenues and interest  expense
     is reported as cost and expenses from leasing operations (cost of sales).
<TABLE>
<CAPTION>
                                                                  Three Months Ended March 2001
                               ---------------------------------------------------------------------------------------------
                                              Country
                                              Products
                               Agriculture     Group         Energy       Leasing    Insurance      Other(a)    Consolidated
                               ----------    ----------    ----------   ----------   ----------    ----------    ----------
<S>                            <C>           <C>           <C>          <C>          <C>           <C>           <C>
Net sales and revenues to
  unaffiliated customers ...   $  105,504    $   52,627    $  259,078   $   21,295   $    6,943    $       10    $  445,457
Intersegment sales and
  revenues .................        2,370           717           306          289            0        (3,682)            0
                               ----------    ----------    ----------   ----------   ----------    ----------    ----------
    Total sales and revenues   $  107,874    $   53,344    $  259,384   $   21,584   $    6,943    $   (3,672)   $  445,457
                               ==========    ==========    ==========   ==========   ==========    ==========    ==========

Earnings (loss) from
   continuing operations
   before income taxes .....   $   (6,758)   $   (2,213)   $   22,396   $    6,285   $     (575)   $   (4,287)   $   14,848
                               ==========    ==========    ==========   ==========   ==========    ==========    ==========

Total assets ...............   $  271,946    $   77,028    $  209,439   $  708,840   $   55,827    $  280,673    $1,603,753
                               ==========    ==========    ==========   ==========   ==========    ==========    ==========
<CAPTION>
                                                               Three Months Ended March 2000
                               --------------------------------------------------------------------------------------------
                                              Country
                                              Products
                               Agriculture     Group         Energy      Leasing     Insurance     Other(a)    Consolidated
                               ----------    ----------    ----------   ----------   ----------   ----------    ----------
<S>                            <C>           <C>           <C>          <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers ...   $  105,325    $   51,240    $  237,078   $   19,184   $    6,629   $       25    $  419,481
Intersegment sales and
  revenues .................        6,733         2,113           130           80            0       (9,056)            0
                               ----------    ----------    ----------   ----------   ----------   ----------    ----------
    Total sales and revenues   $  112,058    $   53,353    $  237,208   $   19,264   $    6,629   $   (9,031)   $  419,481
                               ==========    ==========    ==========   ==========   ==========   ==========    ==========

Earnings (loss) from
   continuing operations
   before income taxes .....   $   (4,513)   $   (1,636)   $   25,158   $    5,845   $       78   $   (2,617)   $   22,315
                               ==========    ==========    ==========   ==========   ==========   ==========    ==========

Total assets ...............   $  269,513    $   88,188    $  191,784   $  636,223   $   55,001   $  309,456    $1,550,165
                               ==========    ==========    ==========   ==========   ==========   ==========    ==========
</TABLE>
(a)   Represents unallocated net corporate costs and intersegment eliminations.

                                       24

<PAGE>



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

    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


8.   FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
     --------------------------------------------------

<TABLE>
<CAPTION>

                                                                   Nine Months Ended March 2001
                               ---------------------------------------------------------------------------------------------------
                                                Country
                                               Products
                               Agriculture       Group         Energy        Leasing      Insurance      Other(a)     Consolidated
                               -----------    -----------    -----------   -----------   -----------    -----------    -----------
<S>                            <C>            <C>            <C>           <C>           <C>            <C>            <C>
Net sales and revenues to
  unaffiliated customers ...   $   295,919    $   139,840    $   630,729   $    62,928   $    21,102    $        28    $ 1,150,546
Intersegment sales and
  revenues .................         5,986          3,388            528           694             0        (10,596)             0
                               -----------    -----------    -----------   -----------   -----------    -----------    -----------
    Total sales and revenues   $   301,905    $   143,228    $   631,257   $    63,622   $    21,102    $   (10,568)   $ 1,150,546
                               ===========    ===========    ===========   ===========   ===========    ===========    ===========

Earnings (loss) from
   continuing operations
   before income taxes .....   $   (24,833)   $    (5,601)   $    28,412   $    15,345   $      (131)   $   (14,397)   $    (1,205)
                               ===========    ===========    ===========   ===========   ===========    ===========    ===========

Total assets ...............   $   271,946    $    77,028    $   209,439   $   708,840   $    55,827    $   280,673    $ 1,603,753
                               ===========    ===========    ===========   ===========   ===========    ===========    ===========

<CAPTION>
                                                                  Nine Months Ended March 2000
                               --------------------------------------------------------------------------------------------------
                                               Country
                                               Products
                               Agriculture       Group         Energy        Leasing      Insurance     Other(a)     Consolidated
                               -----------    -----------    -----------   -----------   -----------   -----------    -----------
<S>                            <C>            <C>            <C>           <C>           <C>           <C>            <C>
Net sales and revenues to
  unaffiliated customers ...   $   281,762    $   137,056    $   507,343   $    56,501   $    20,589   $        28    $ 1,003,279
Intersegment sales and
  revenues .................        13,505          9,229            330            91             0       (23,155)             0
                               -----------    -----------    -----------   -----------   -----------   -----------    -----------
    Total sales and revenues   $   295,267    $   146,285    $   507,673   $    56,592   $    20,589   $   (23,127)   $ 1,003,279
                               ===========    ===========    ===========   ===========   ===========   ===========    ===========

Earnings (loss) from
   continuing operations
   before income taxes .....   $   (27,498)   $    (2,326)   $    19,267   $    14,244   $        71   $    (8,372)   $    (4,614)
                               ===========    ===========    ===========   ===========   ===========   ===========    ===========

Total assets ...............   $   269,513    $    88,188    $   191,784   $   636,223   $    55,001   $   309,456    $ 1,550,165
                               ===========    ===========    ===========   ===========   ===========   ===========    ===========
</TABLE>
(a)   Represents unallocated net corporate costs and intersegment eliminations.


                                       25

<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
---------------------
We are 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, Agway. Where any such forward-looking  statement includes a
statement of the assumptions or basis underlying such forward-looking statement,
Agway  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, Agway, 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 "intend,"  "believe,"  "expect," and  "anticipate"  and
phrases  "it is  probable"  and "it is  possible"  or  similar  words or phrases
identify forward-looking statements.

Agway'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  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
the higher product demand from cold winter  conditions.  Country Products Group,
Leasing, and Insurance are not materially impacted by seasonal fluctuations.

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

Consolidated Results
--------------------
Consolidated net sales and revenues of $445,500 and $1,150,500 for the three and
nine months ended March 24,  2001,  increased  $26,000 (6%) and $147,300  (15%),
respectively,  as compared to the same periods in the prior year.  The increases
in both the three-month and nine-month  periods were substantially the result of
increased sales in the Energy and Leasing  segments.  The increase in Energy was
principally due to significant  increases in the cost of petroleum products over
the prior year  combined  with  increases  in heating  oil and  propane  product
volume. The increase in Leasing revenues was primarily from the continued growth
of the lease  portfolio as compared to the prior year.  The  consolidated  sales
were further  increased  over the prior year for the nine months ended March 24,
2001, in the Agriculture  segment from increases in the agronomy business sales.
See further explanation by business segment below.

Consolidated  pre-tax  earnings of $14,800 for the three  months ended March 24,
2001,   decreased  $7,500  (34%)  over  the  same  period  in  the  prior  year.
Consolidated  pre-tax  loss of $1,200 for the nine months  ended March 24, 2001,
improved $3,400 (74%) as compared to a pre-tax loss of $4,600 in the same period
in the prior  year.  For the three-  month  period,  an  improvement  to pre-tax
results in  Leasing  was more than  offset by  decreases  in pre-tax  results in
Agriculture,  Country Products Group, Energy, and Insurance.  For the nine-month
period,  improvements in Energy,  Leasing, and Agriculture were partially offset
by the decreases in pre-tax results of the Country Products Group and Insurance.
See detailed  business segment  discussion  below. Net corporate costs of $4,300
and $14,400 for the three and nine months ended March 24, 2001, increased $1,700
(64%) and increased $6,000 (72%), respectively,  as compared to the same periods
in the prior year.  The  increase in  corporate  costs in the current year was a
result of higher corporate insurance costs, higher professional  services costs,
higher total interest costs from overall higher average  short-term  borrowings,
and higher debt fees in the current  year than in the same  periods in the prior
year.



                                       26

<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)


Consolidated Results (continued)
--------------------------------
Effective  June 25, 2000,  Agway  adopted new  accounting  requirements  for all
derivative  instruments.  As a  result,  a loss  on  the  cumulative  effect  of
accounting  change,  net of tax of  $1,100,  has been  recorded  (See Note 1 for
further  details.)  Also,  as detailed in Note 5, the former  retail  segment is
reported as a discontinued operation and the $4,300 and $12,200 after-tax losses
on retail  operations  for the  three  and nine  months  ended  March 25,  2000,
respectively,  have been so  reclassified.  For the nine months  ended March 24,
2001, no further  adjustments were required to be recorded for this discontinued
operation.

Agriculture
-----------
Total  Agriculture  sales and revenue of $107,900 and $301,900 for the three and
nine months ended March 24, 2001,  decreased  $4,200 (4%) and  increased  $6,600
(2%), respectively, as compared to the same periods in the prior year.

For the three-month period,  Agriculture experienced a decline of $3,600 (7%) in
agronomy sales due to delays in the start of the historical planting season as a
result of the prolonged winter weather  conditions in the Northeast.  Feed sales
declined in the  three-month  period by $800 (1%) as compared to the same period
in the prior  year,  substantially  due to the  planned  exiting  of the  direct
marketing  of grains which  reduced  sales by $1,400  during the  quarter.  This
decline was partially  offset by a $600 (1%) increased  enterprise feed sales as
our  customers  have  reacted  favorably  to  expected  improved  milk prices by
increasing their purchases of feed products.

The increase in sales for the nine- month period was  primarily  from  increased
sales in the agronomy  business and from increased  sales in the tested specific
pathogen free (TSPF(TM)) heifer-rearing services. These increases were partially
offset by decreased  year-to-date  sales in the enterprise feed business.  Total
agronomy sales increased  $12,300 (12%) during the nine-month period as compared
to the same period in the prior year. The  weather-related  delay in spring 2000
plantings  resulted in the sale of agronomy products,  such as fertilizer,  crop
protectants,  and lime,  that normally would have occurred in the fourth quarter
of the prior year,  occurring in the first  quarter of the current  year.  These
increased  sales in the first quarter were greater than sales decline,  from the
weather-related  delays noted above,  experienced  in the third  quarter of this
year. The TSPF(TM)  heifer-rearing service sales continue to grow from increased
utilization  of the  heifer-rearing  facilities.  As a result,  sales  increased
$1,900  (238%) for the  nine-month  period as compared to the same period in the
prior year. These increases were partially offset by a decrease in feed sales of
$7,500 (4%),  half of which  resulted  from the planned  exiting from the direct
marketing  of  grains  and  the  other  half  from  a   combination   of  market
consolidation,  increased competition, and lower milk prices over the nine-month
period, which adversely impacted farmers' feed buying decisions.

Agriculture  pre-tax  loss of $6,800 and  $24,800  for the three and nine months
ended  March 24,  2001,  increased  $2,200  (50%) and  decreased  $2,700  (10%),
respectively, as compared to the same periods in the prior year. The increase in
pre-tax  loss in the  three-month  period as  compared to the same period in the
prior  year  resulted  from  $1,100  of costs  associated  with the  Agriculture
realignment  efforts  taking place in the third  quarter of this year which were
more than offset by a decrease of $2,000 in overall support/administrative costs
substantially  from  savings  relating  to the  realignment  efforts.  Operating
results from agronomy increased $400 and feed decreased $200. Additionally,  the
prior  year  third  quarter  included  revenue   associated  with  a  negotiated
settlement of $3,300.



                                       27

<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)


Agriculture (continued)
-----------------------
The  improvement in pre-tax results for the nine months ended March 24, 2001, as
compared  to the same  period  in the prior  year  resulted  primarily  from the
agronomy business. The improvements to agronomy pre-tax earnings of $3,400 (22%)
over the same period in the prior year resulted primarily from increased product
margins  from the result of a delay in the spring  2000  planting  season  noted
above.  Additionally,  costs incurred in the prior year, relating to the exiting
of the direct marketing of grains, resulted in improved results of $2,300 in the
current year. These improvements to the nine-month results were partially offset
by the costs of $1,100  associated with the Agriculture  realignment  efforts in
the current year, a $600 (5%) decline in enterprise feed operating results,  and
a $900 (67%) decrease in earnings of the TSPF(TM)  heifer-rearing  services. The
enterprise feed results  declined as a result of the adverse  factors  mentioned
above.  The  decrease  in  TSPF(TM)  operating  results as compared to last year
relates to the new  facilities not having reached full capacity as of the end of
the third quarter of this year.

Country Products Group
----------------------
Country  Products  Group  (CPG)  total  sales and  revenue  of  $53,300  for the
three-month period ending March 24, 2001,  remained flat as compared to the same
period in the prior year.  The total sales and revenue of $143,200 for the nine-
month period  decreased  $3,100 (2%) as compared to the same period in the prior
year.  The decline in CPG sales for the nine months  ended March 24,  2001,  was
primarily from the Business Group, where sales decreased $7,000 (17%) during the
nine-month  period.  The decline in the Business Group sales resulted  primarily
from lower  sunflower  seed  product  sales of $3,700  (12%) for the  nine-month
period and from  reduced  sales of $3,900 from the sale of the pastry flour mill
in the fourth  quarter of the prior year. A poor sunflower seed crop in the fall
of 1999 adversely impacted sunflower seed product sales during the first quarter
of this year and a combination of lower product demand,  low commodity  pricing,
and  international  pricing  competition has lowered sales levels as compared to
the prior year for the new seed harvest. The decline in Business Group sales for
the nine-month  period was partially  offset by an increase in the Produce Group
sales of $3,300  (3%) as  compared  to the same  period in the prior  year.  The
increase in the Produce  Group sales for the nine months  ended March 24,  2001,
resulted  from a  mixture  of  activity,  including  increased  sales  from  new
customers offset by a decline in potato sales from depressed market pricing from
an oversupply of potatoes.  The Investment  Group sales  increased $700 (55%) as
compared to the same period in the prior year  primarily  due to the  commercial
sale of Optigen(TM) 1200, a controlled-release  nitrogen feed product, which was
not available  until the second quarter of the prior year.  For the  three-month
period ended March 24, 2001,  increases in sunflower  seed product sales of $500
(4%) and in produce  sales of $900 (0%),  in each case as  compared  to the same
period in the prior year,  were fully offset from  reduced  sales in the quarter
due to the sale of the pastry mill noted above.

CPG  pre-tax  losses of $2,200 and $5,600  for the three and nine  months  ended
March 24,  2001,  increased  $600  (35%) and  $3,300  (141%),  respectively,  as
compared to the same periods in the prior year. The decrease in pre-tax  results
for the three  months was  related to the Produce  Group,  which  declined  $600
(126%) as  compared to the same  period in the prior year  primarily  due to the
write-off  of advances  provided  to foreign  growers.  The  decrease in pre-tax
results for the nine-month period related to the Business Group,  which declined
$1,500  (1,500%) as compared to the same period in the prior year.  The Business
Group's  sunflower  operations  continued to experience  low margins due to high
product cost from the carryover of the poor sunflower seed crop from the fall of
1999 and also experienced  lower margins than in the prior year for the new seed
harvest as a result of lower  product  demand,  excess  industry  capacity,  and
international  competition  which has suppressed  margins.  The pre-tax  results
related to the  Produce  Group  decreased  $1,800  (81%) as compared to the same
period in the prior year due to adverse  weather  conditions  which impacted the
quality and timing of produce  crops and the  write-off of advances  provided to
foreign growers.



                                       28

<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)

Energy
------
Energy  sales and revenue of $259,400 and $631,300 for the three and nine months
ended March 31, 2001,  increased $22,300 (9%) and $123,600 (24%),  respectively,
as  compared  to the same  periods  in the  prior  year.  Overall  sales  dollar
variances  from  product  volume  decreased  $3,200 (1%) during the  three-month
period and increased $6,700 (1%) during the nine-month period, respectively,  as
compared  to  the  same  periods  in  the  prior  year.  Volume  increases  were
experienced  in the retail sales of heating oil and propane and wholesale  sales
of fuel oil in both the three- and nine- month  periods as compared to the prior
year, which are a result of colder weather in the Northeast in the current year.
These volume  increases were more than offset during the three-month  period and
partially  offset in the nine  months  ended March 31,  2001,  by  decreases  in
gasoline  volume.  A  combination  of  increased  price  competition  at our gas
stations  and lower  contracted  commercial  gasoline  sales  caused  the volume
declines over the prior year.

Overall sales dollar  increases from product price  increases in liquid products
were  $17,600  (7%) and $99,400  (20%) for the three and nine months ended March
31, 2001,  respectively,  as compared to the same periods in the prior year. The
petroleum  industry  continued to  experience  significantly  higher  pricing of
product in the three- and  nine-month  periods ended March 31, 2001, as compared
to the prior  year,  primarily  due to pressure  on global  supply of  products.
Additionally, sales increases in the three and nine months ended March 31, 2001,
of $6,900 (85%) and $14,100  (101%),  respectively,  resulted from the continued
sales  growth in the  electric  and natural  gas  marketing  business.  Finally,
continued  growth of  revenues  in  heating,  ventilation  and  air-conditioning
installation  and service  increased  sales in the three and nine  months  ended
March 31, 2001, by $1,000 (7%) and $3,400 (8%), respectively, as compared to the
same periods in the prior year.

Energy  pre-tax  earnings  of $22,400  and $28,400 for the three and nine months
ended  March 31,  2001,  decreased  $2,800  (11%) and  increased  $9,100  (47%),
respectively,  as compared to the same periods in the prior year.  In the three-
and nine-month periods,  overall gross margin dollars on product sales decreased
$400 (1%) and increased $11,500 (8%), respectively, over the same periods in the
prior year and were driven by the product  volume as  discussed  above.  Pre-tax
results were reduced by an increase in distribution costs of $1,600 (4%) for the
three  months  and  $2,800  (2%) for the  nine  months  ended  March  31,  2001,
associated  with  increased  volume  of  delivered  products  in these  periods.
Finally,  during the third quarter, a drop of $600 was experienced in throughput
revenues that were  generated in the prior year from terminals that were sold at
the end of the prior year.

Leasing
-------
Total revenue of $21,600 and $63,600 for the three- and nine-month periods ended
March 31,  2001,  increased  $2,300  (12%) and $7,000  (12%),  respectively,  as
compared to the same periods in the prior year.  These  increases were primarily
due to a higher  average  investment in leases which was  partially  offset by a
lower  income  rate  on  new  and  replacement  leases.  Telmark's  average  net
investment  in leases  increased  $76,700  (13%) in the  three-month  period and
$78,400  (13%) in the  nine-month  period as compared to the same periods in the
prior year.

Pre-tax  earnings  from  operations of $6,300 and $15,300 for the three and nine
months ended March 31, 2001, increased $400 (8%) and $1,100 (8%),  respectively,
as  compared  to the same  periods in the prior  year.  The  increase in pre-tax
earnings is due primarily to the total revenue increases noted above, which were
partially  offset by an increase in total expenses of $2,000 (15%) for the three
months and $6,000 (14%) for the nine months ended March 31, 2001, as compared to
the same  periods in the prior year.  The  increase in total  expenses  for both
periods was  substantially  due to  increased  interest  expense  and  increased
selling,  general and  administrative  (SGA)  expense.  The increase in interest
expense is due to an  increase  in the amount of debt  required  to finance  the
increase in the lease  portfolio  as  compared to the same  periods in the prior
year, along with higher interest rates on new and replacement debt. The increase
in SGA  expense is due to  incentives,  paid to certain  employees  relating  to
overall profitability, retention of business, and profitability of new business.

                                       29

<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)


Insurance
---------
Insurance Group (Agway Insurance  Company and Agway General Agency) net revenues
of $6,900  and  $21,100  for the three and nine  months  ended  March 31,  2001,
increased $300 (5%) and $500 (3%), respectively, as compared to the same periods
in the prior year.  These changes were experienced in net earned premiums of the
Agway  Insurance  Company  as  sales  initiatives  caused  the  increase  in net
premiums.

Pre-tax  loss of the  Insurance  Group of $600 and $100 for the  three  and nine
months ended March 31, 2001,  is compared to pre-tax  earnings of $100 and $100,
respectively,  for the same  periods in the prior year.  The  Insurance  Company
experienced a pre-tax loss of $600 and $100 for the three- and nine-months ended
March 31,  2001.  The major  contributor  to these losses was  increased  claims
losses  during the third  quarter as  compared  to the same  period in the prior
year.  Numerous roof  collapses from the heavy winter snows in the Northeast and
an above  average  number of farm fires were  reported  during the quarter.  The
Agway General Agency (Agency)  experienced a pre-tax break-even position for the
three and nine months ended March 31, 2001, which represents an increase of $100
and $400, respectively, for the same periods in the prior year. The improvements
in pre-tax  earnings for both periods was primarily due to lower expenses in the
Agency.

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash  generated from  operations  and/or  external  borrowings are Agway's major
ongoing sources 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 nine months ended:
<TABLE>
<CAPTION>
                                                                     March 24,        March 25,         Increase
Net cash flows provided by (used in):                                  2001             2000           (Decrease)
-------------------------------------                             ---------------   -------------    ---------------
<S>                                                               <C>               <C>              <C>
      Operating activities                                        $      45,533     $      6,137     $       39,396
      Investing activities                                              (51,765)         (79,689)            27,924
      Financing activities                                              (12,909)          73,552            (86,461)
                                                                  ---------------   -------------    ---------------
Net increase (decrease) in cash and equivalents                   $     (19,141)    $          0     $      (19,141)
                                                                  ===============   =============    ===============
</TABLE>

Cash Flows Provided By Operating Activities
The increase in cash flows provided by operating  activities for the nine months
ended March 24, 2001, of $39,400 included a net earnings  increase of $12,500 as
compared to the same period in the prior year, the generation of cash flows from
working  capital of $8,500  compared  to $1,000 for the same period in the prior
year,  and an  increase  in the  net  cash  flows  generated  from  discontinued
operations of $15,500.

Cash Flows Used in Investing Activities
The net cash  flows used in  investing  activities  decreased  in the first nine
months of this year by $27,900 as compared to the first nine months of the prior
year.  Cash of  $5,000  was used  during  the first  half of the prior  year for
business acquisitions,  while no business acquisitions occurred during the first
nine months of the current  year.  Proceeds  received from the sale of equipment
were $4,000 greater than the prior year. In addition,  a $11,900 decrease in the
amount of cash used for the purchase of property,  plant and equipment  occurred
through  the first nine  months of this year as  compared  to last  year.  These
declines  were the  results  of a  decision  by the  Company  to reduce  capital
spending in the current  year.  Leases  originated in the prior year used $7,000
more of net cash than in the current year.



                                       30

<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 nine months ended March 24, 2001, netted cash used
of $12,900 compared to cash provided of $73,600 for the same period in the prior
year.  This $86,500  decrease in cash provided from financing was  substantially
from decreased short-term borrowings as a result of the changed requirements for
cash for operations and investing activities.

The Company  finances its  operations  and the  operations of all its continuing
business  and  subsidiaries,   except  Insurance  and  Telmark,  through  or  in
conjunction  with  Agway  Financial   Corporation  (AFC).  External  sources  of
short-term financing for Agway and all its other continuing operations include a
revolving credit line and letters of credit,  as more fully described in Note 2,
Borrowing  Arrangements,  to the condensed  financial  statements.  As described
above,  Agway  believes  it will  continue  to  have  appropriate  and  adequate
financing to meet its ongoing needs. Insurance is independently financed through
operations and liquidity provided by its investment portfolio. Telmark's finance
arrangements are also explained in Note 2.

Sources of longer-term financing include the following as of March 2001:
<TABLE>
<CAPTION>
                                                                                 AFC
                                                                  Agway       (excluding
                                                                   Inc.         Telmark)      Telmark        Total
                                                                 ---------     ---------     ---------     ---------
<S>                                                              <C>           <C>           <C>           <C>
Source of debt
Banks - due 4/01 to 4/04, interest at a weighted average
   rate of 6.8% with a range of 5.6% - 7.5% ................     $       0     $       0     $ 181,000     $ 181,000
Insurance companies - due 4/01 to 12/12, interest at a
   weighted average rate of 7.2% with a range of
   6.5% - 9.1% .............................................             0             0       159,000       159,000
Capital leases and other - due 2001 to 2018, interest at a
   weighted average rate of 9.3% with a range of 7.5% to 10%        11,256         1,744        98,922       111,922
                                                                 ---------     ---------     ---------     ---------
     Long-term debt ........................................        11,256         1,744       438,922       451,922
Subordinated  money  market  certificates  - due 10/01 to
     10/15, interest at a weighted average rate of 8.2%
       with a range of 4.5% - 9.8% .........................             0       436,361             0       436,361
Subordinated debentures - due 2001 to 2009, interest at a
   weighted average rate of 8.0% with a range of 6.0%
   to 9.0% .................................................             0         6,868        40,698        47,566
                                                                 ---------     ---------     ---------     ---------
     Total debt ............................................     $  11,256     $ 444,973     $ 479,620     $ 935,849
                                                                 =========     =========     =========     =========
</TABLE>
For a further description of the Company's credit facilities  available at March
24, 2001, see Note 2 to the Condensed Consolidated Financial Statements.


                                       31

<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 Energy, Agriculture,  and Country Products Group
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
outstanding in relation to the value of the commodity.

In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally  for  heating  oil and  propane.  They are  entered  into as a hedge
against  the  price  risk  associated  with  Energy's  future  purchases  of the
commodities  used in its  operations.  Generally,  the price risk  extends for a
period  of one  year  or  less.  In the  Agriculture  segment's  feed  business,
exchange-traded  commodity  instruments are used principally to manage the price
risk of corn, soy complex,  and oats,  which can be sold directly as ingredients
or included in feed products.  In the Country Products Group, due to a change in
governmental  subsidy  programs  during fiscal 2000,  exchange-traded  commodity
instruments  were entered into principally to manage the price risk of sunflower
seeds which are purchased from growers by CPG and sold to customers.

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity  instrument  positions as of March 2001 and 2000. 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  positions is estimated as the potential loss in fair value  resulting
from a  hypothetical  10%  adverse  change  in market  prices of the  underlying
commodities. This estimated loss in fair value of the commodity instruments does
not reflect the offsetting  impact of the market price changes to the underlying
value of the commodities. As of March 2001 and 2000, assuming a 10% hypothetical
adverse change in the underlying commodity price, the potential decrease in fair
value of Agway's commodity instruments was as follows:

                                                          March
                                              -------------------------------
                                                  2001              2000
                                              -------------    --------------

Energy......................................  $         800    $          300
Country Products Group......................        *                 -
Agriculture.................................        *                 *
Grain Marketing (1).........................        -                 *

*    The potential loss in fair value of commodity  instruments resulting from a
     hypothetical  10% change in market prices of the  underlying  commodity was
     immaterial.

(1) Grain marketing  activity was discontinued  during fiscal 2000, as disclosed
    in the June 24, 2000 Form 10-K.



                                       32

<PAGE>



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


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
Agway filed reports on Form 8-K during the third quarter ended March 24, 2001 or
prior to filing this Form 10-Q as follows:

1.     On January 11, 2001 to announce a new process for nominating and electing
       Directors.

2.     On  March  1,  2001  to  disclose  that  it had  requested  and  received
       extensions  from  its  existing  banks  through  March  31,  2001 for its
       short-term lines of credit.

3.     On  March 30, 2001  to  announce  the  establishment  of  new senior debt
       financing.


Exhibit 10.  Material Contracts
-------------------------------
a.     Credit Agreement
b.     Security Agreement
c.     Pledge Agreement
d.     Intellectual Property Security Agreement






                                       33

<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     May 7, 2001                            /s/ PETER J. O'NEILL
      -----------------                -----------------------------------------
                                                   Peter J. O'Neill
                                                 Senior Vice President,
                                                    Finance & Control,
                                           (Principal Financial Officer and
                                                Chief Accounting Officer)










                                       34

<PAGE>