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 December 31, 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 February 4, 2002
------------------------------                   -------------------------------
Membership Common Stock,                                  96,971 shares
$25 par value per share

                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX


                                                                        PAGE NO.
                                                                        --------
PART I.  FINANCIAL INFORMATION
-------  ---------------------
         Item 1.  Financial Statements (Unaudited)

         Condensed Consolidated Balance Sheets as of
         December 31, 2001 and June 30, 2001...................................3

         Condensed Consolidated Statements of Operations
         and Retained Earnings for the three months and six
         months ended December 31, 2001 and December 23, 2000..................4

         Consolidated Statements of Comprehensive Income
         for the three months and six months ended
         December 31, 2001 and December 23, 2000...............................5

         Condensed Consolidated Cash Flow Statements for the
         six months ended December 31, 2001 and December 23, 2000..............6

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

         Item 2.  Management's Discussion and Analysis of
                  Financial Condition and Results of Operations...............18

         Item 3.  Quantitative and Qualitative Disclosures
                  About Market Risk...........................................25

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

           Item 1.  Legal Proceedings.........................................26

           Item 3.  Defaults Upon Senior Securities...........................26

           Item 4.  Submission of Matters to a Vote of
                    Security Holders..........................................27

           Item 6.  Exhibits and Reports on Form 8-K..........................28

           SIGNATURES.........................................................31














                                        2

<PAGE>



                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)
<TABLE>
<CAPTION>

                                                                                  December 31,          June 30,
ASSETS                                                                                2001                2001
------                                                                            -------------      --------------
                                                                                   (Unaudited)
Current Assets:
<S>                                                                               <C>                <C>
     Cash.......................................................................  $     12,903       $           0
     Trade accounts receivable (including notes receivable of $8,069 and
         $9,572, respectively), less allowance for doubtful accounts of
         $9,167 and $10,633, respectively.......................................       122,281             212,793
     Leases receivable, less unearned income of $79,186 and
         $78,126, respectively..................................................       181,297             165,348
     Advances and other receivables.............................................        32,671              19,941
     Inventories:
         Raw materials..........................................................         8,176               6,122
         Finished goods.........................................................        83,010              79,737
         Goods in transit and supplies..........................................         3,130               2,767
                                                                                  -------------      --------------
              Total inventories.................................................        94,316              88,626
     Restricted cash  ..........................................................        11,956               8,306
     Prepaid expenses and other assets..........................................        70,030              66,282
                                                                                  -------------      --------------
         Total current assets...................................................       525,454             561,296
Marketable securities available for sale........................................        36,391              37,556
Other security investments......................................................        51,465              51,829
Properties and equipment, net...................................................       168,092             177,355
Long-term leases receivable, less unearned income of $183,560 and
     $186,795, respectively.....................................................       491,860             502,992
Net pension asset...............................................................       238,290             229,678
Other assets  ..................................................................        29,768              33,785
Net assets of discontinued operations...........................................         3,241               5,414
                                                                                  -------------      --------------
              Total assets......................................................  $  1,544,561       $   1,599,905
                                                                                  =============      ==============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable..............................................................  $    149,987       $     201,980
     Current installments of long-term debt.....................................       110,498             127,946
     Current installments of subordinated debt..................................        45,887              55,948
     Accounts payable...........................................................       119,312              90,684
     Other current liabilities..................................................       115,992             131,209
                                                                                  --------------     --------------
         Total current liabilities..............................................       541,676             607,767
Long-term debt..................................................................       275,806             270,743
Subordinated debt...............................................................       450,337             432,162
Other liabilities...............................................................       123,677             119,903
                                                                                  --------------     --------------
         Total liabilities......................................................     1,391,496           1,430,575
Commitments and contingencies...................................................
Shareholders' equity:
     Preferred stock, net.......................................................        35,903              37,603
     Common stock, net..........................................................         2,427               2,445
     Accumulated other comprehensive income (loss)..............................           574                 (61)
     Retained earnings..........................................................       114,161             129,343
                                                                                  --------------     --------------
         Total shareholders' equity.............................................       153,065             169,330
                                                                                  --------------     --------------
              Total liabilities and shareholders' equity........................  $  1,544,561       $   1,599,905
                                                                                  ==============     ==============
</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                     Six Months Ended
                                               ------------------------------       -------------------------------
                                               December 31,     December 23,         December 31,     December 23,
                                                   2001              2000               2001              2000
                                               -------------  ---------------       -------------    --------------
<S>                                            <C>             <C>                 <C>              <C>
Net sales and revenues from:
     Product sales .........................   $    259,041    $     344,856       $     503,496    $      616,147
     Leasing operations.....................         22,681           21,164              44,609            41,362
     Insurance operations...................          7,371            7,187              14,583            14,159
                                               -------------    -------------       -------------    --------------
         Total net sales and revenues.......        289,093          373,207             562,688           671,668
Cost and expenses from:
     Products and plant operations..........        236,052          314,428             476,356           580,018
     Leasing operations.....................          8,511            9,381              17,455            18,481
     Insurance operations...................          4,312            4,335               8,645             8,647
     Selling, general and administrative
        activities..........................         33,646           33,386              64,911            65,817
                                               -------------    -------------       -------------    --------------
         Total operating costs and expenses.        282,521          361,530             567,367           672,963

Operating income (loss).....................          6,572           11,677              (4,679)           (1,295)
Interest expense, net.......................         (9,179)          (9,472)            (18,224)          (18,483)
Other income, net...........................            279            2,736               2,375             3,725
                                               -------------    -------------       -------------    --------------
Income (loss) before income taxes...........         (2,328)           4,941             (20,528)          (16,053)
Income tax (benefit) expense................          1,260            3,083              (6,698)           (4,943)
                                               -------------    -------------       -------------    --------------
Income (loss) before cumulative effect of an
     accounting change......................         (3,588)           1,858             (13,830)          (11,110)
Cumulative effect of accounting change,
     net of tax benefit of $723.............              0                0                   0            (1,057)
                                               -------------    -------------       -------------    --------------
Net income (loss)...........................         (3,588)           1,858             (13,830)          (12,167)
                                               -------------    -------------       -------------    --------------
Retained earnings, beginning of period......        119,101          127,196             129,343           141,221
                                               -------------    --------------      -------------    --------------
Dividends...................................         (1,352)          (1,429)             (1,352)           (1,429)
                                               -------------    --------------      -------------    --------------
Retained earnings, end of period............   $    114,161    $     127,625       $     114,161    $      127,625
                                               =============   ===============     ==============   ===============
</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                   Six Months Ended
                                                 ------------------------------       -------------------------------
                                                 December 31,     December 23,        December 31,     December  23,
                                                    2001              2000               2001              2000
                                                 -------------    -------------       ------------     --------------

<S>                                              <C>              <C>                 <C>              <C>
Net income (loss)...........................     $     (3,588)    $      1,858        $    (13,830)    $     (12,167)

Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on
       available-for-sale securities:
     Unrealized holding gains (losses)
       arising during period................             (388)             414                 434               709
     Reclassification adjustment for
       (gains) losses included in
       net income...........................              (15)               0                 (20)                0

Deferred gains (losses) on derivatives,
       net of tax:
     Cumulative effect of accounting change                 0                0                   0             3,061
     Holding gains (losses) arising
       during period........................           (1,058)           1,247                (976)            4,649
     Reclassification adjustment for
       (gains) losses included in
       net income...........................            1,224           (3,049)              1,197            (3,714)
                                                 -------------    -------------       -------------    --------------
Other comprehensive income (loss)...........             (237)          (1,388)                635             4,705
                                                 -------------    -------------       -------------    --------------

Comprehensive income (loss).................     $     (3,825)    $        470        $    (13,195)    $      (7,462)
                                                 =============    =============       =============    ==============

</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>

                                                                                             Six Months Ended
                                                                                -----------------------------------
                                                                                December 31,           December 23,
                                                                                    2001                  2000
                                                                                -------------        --------------

<S>                                                                             <C>                  <C>
Net cash flows provided by (used in) continuing operations...................   $     78,408         $      16,640
Net cash flows provided by (used in) discontinued operations.................          2,173                16,734
                                                                                -------------        --------------
Net cash flows provided by (used in) operating activities....................         80,581                33,374

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................         (2,646)               (6,339)
     Proceeds from disposal of property, plant and equipment.................          5,216                 4,170
     Leases originated.......................................................       (119,852)             (128,290)
     Leases repaid...........................................................        110,191               100,653
     Proceeds from sale of marketable securities.............................          7,054                 1,895
     Purchases of marketable securities......................................         (5,475)               (2,755)
     Net purchase (sale) of other security investments.......................         (1,108)                 (294)
                                                                                -------------        --------------

Net cash flows provided by (used in) investing activities....................         (6,620)              (30,960)

Cash flows provided by (used in) financing activities:
     Net change in short-term notes payable..................................        (51,993)               15,594
     Proceeds from long-term debt............................................         48,121                   135
     Repayment of long-term debt.............................................        (60,506)               (1,774)
     Proceeds from sale of subordinated debt.................................         77,022                79,939
     Maturity and redemption of subordinated debt............................        (68,908)             (106,458)
     Payments on capital leases..............................................           (204)                 (582)
     Redemption of stock, net ...............................................         (1,716)               (1,623)
     Cash dividends paid.....................................................         (2,874)               (3,021)
                                                                                -------------        --------------

Net cash flows provided by (used in) financing activities....................        (61,058)              (17,790)
                                                                                -------------        --------------

Net increase (decrease) in cash and equivalents..............................         12,903               (15,376)
Cash and equivalents at beginning of period..................................              0                29,244
                                                                                -------------        --------------

Cash and equivalents at end of period........................................   $     12,903         $      13,868
                                                                                =============        ==============

</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  six-month  period  ended
     December 31, 2001, are not  necessarily  indicative of the results that may
     be expected for the year ending June 30, 2002,  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 30, 2001.

     Fiscal Quarter
     The fiscal quarter-end of Agway Inc.  for the second quarter of the current
     and prior year was  December 31  and  December 23,  respectively. Effective
     July 1, 2001, the fiscal year-end has been changed to June 30 each year for
     the  Company  as a  whole  and for each of its divisions. Quarterly reports
     will be at quarters ended on September 30, December 31, and March 31.

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

     Restricted Cash
     Certain cash accounts amounting to $11,956 and $8,306  at December 31, 2001
     and June 30, 2001, respectively, collateralize Telmark  lease-backed  notes
     payable. This cash is held in segregated cash accounts pending distribution
     and is restricted in its use.


                                        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)


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     ------------------------------------------------------
     Comprehensive Income
     Comprehensive income consists of net earnings (loss),  the  net  change  in
     unrealized gains and losses on available-for-sale  securities,  net of tax,
     and  deferred  gains  and  losses  on cash  flow  hedges,  net of tax.  The
     unrealized  gains  and  losses  on  available-for-sale  securities  in  the
     statement  of  comprehensive  income are net of tax expense of $421and $213
     and $152 and $365 for the three and six months ended  December 31, 2001 and
     December  23,  2000,  respectively.   The  deferred  gains  and  losses  on
     derivatives  in  the  statement  of  comprehensive income are net of tax of
     $(111) and $(1,201) and $147 and $2,664 for the three and six  months ended
     December 31,2001 and December 23, 2000.

     New Accounting Standards
     The  Financial  Accounting  Standards  Board  (FASB)  issued  Statement  of
     Financial Accounting Standards (SFAS) No. 133,  "Accounting  for Derivative
     Instruments and  Hedging  Activities."  SFAS  No. 133 (as  amended  by SFAS
     No. 138) is 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 time value 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 are  designated  and  qualify as cash-flow hedges. See
     Note 6 for further details of the Company's  accounting for derivatives and
     hedging activities.

     In  June  2001, the  FASB  issued  SFAS No. 141,  "Business  Combinations,"
     SFAS No. 142,  "Goodwill  and Other  Intangible  Assets," and SFAS No. 143,
     "Accounting for Asset Retirement  Obligations," which are effective July 1,
     2001, July 1, 2002, and July 1, 2003,  respectively,  for the Company. SFAS
     No. 141 requires  that the purchase  method of  accounting  be used for all
     business  combinations  initiated after June 30, 2001. The adoption of this
     standard has no impact on the financial  statements  of the Company.  Under
     SFAS No. 142, amortization of goodwill, including goodwill recorded in past
     business combinations,  will discontinue upon adoption of this standard. In
     addition,  goodwill recorded as a result of business combinations completed
     after July 1, 2001,  will not be  amortized.  All goodwill  and  intangible
     assets will be tested for  impairment in accordance  with the provisions of
     the  Statement.   SFAS  No.  143  establishes   accounting   standards  for
     recognition  and  measurement  of  a  liability  for  an  asset  retirement
     obligation  and the  associated  asset  retirement  costs.  The  Company is
     currently  reviewing the provisions of these new  accounting  standards and
     assessing  the impact of their  adoption  on July 1, 2002 and July 1, 2003,
     respectively.

     In August 2001, the FASB issued SFAS No.144, "Accounting for the Impairment
     or Disposal of Long-Lived  Assets," which is effective July 1, 2002 for the
     Company.  SFAS No. 121 did not address the  accounting  for a  segment of a
     business  accounted for as a discontinued  operation under APB  Opinion 30,
     resulting  in  two  accounting  models being used to account for long-lived
     assets to be disposed of. This  statement  establishes a single  accounting
     model,  based  on  the  framework  established  in  SFAS  No. 121, for  all
     long-lived  assets  to  be  disposed of  by  sale. The Company is currently
     reviewing the impact of its adoption on July 1, 2002.


                                        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
     ----------------------
     Agway's  senior debt  facility (the Agway Senior Debt) is available for all
     business  operations  except for Agway  Insurance  Company  (Insurance) and
     Telmark and Telmark's 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.

     As of December  31,  2001,  Agway had  certain  facilities  available  with
     various financial institutions whereby lenders have agreed to provide funds
     up to $624,100 to  separately  financed  units of Agway as follows:  Agway,
     excluding Telmark and Insurance, $175,000; and Telmark, $449,100. The Agway
     amount is a $175,000 short- term line of credit, up to $35,000 of which can
     be used for letters of credit.  At  December  31,  2001,  letters of credit
     issued,  primarily to back Agway insurance programs, under the Agway Senior
     Debt totaled  approximately  $28,800.  The carrying  amounts of Agway's and
     Telmark's  short-term  borrowings  approximate their fair value and were as
     follows:
<TABLE>
<CAPTION>
     December 2001                                                 Agway             Telmark              Total
     -------------                                            -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
     Bank lines of credit...................................  $       6,880       $     143,107      $      149,987
                                                              =============       =============      ==============
     Weighted average interest rate.........................          6.50%               3.81%
                                                              =============       =============

     June 2001                                                     Agway             Telmark              Total
     ---------                                                -------------       -------------      --------------
     Bank lines of credit...................................  $      61,342       $     140,638      $      201,980
                                                              =============       =============      ==============
     Weighted average interest rate.........................          7.22%               4.87%
                                                              =============       =============
</TABLE>

     Agway Senior Debt
     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 (and  amended as of  September  14,   2001)
     between Agway,  certain  of  its  subsidiaries  and  a  syndicated group of
     lenders (the Credit Agreement). Interest rates are determined at the option
     of the Company,  as either prime rate, plus 2.00%, or the London  Interbank
     Offered Rate  (LIBOR),  plus 3.50%.  The interest  rate charged on the bank
     line of credit was 6.5% at December 31, 2001. 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.

     As of  December 31, 2001, the collateral borrowing base was $108,300, which
     adequately supported Agway's credit needs which totaled $35,700. 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 for the next twelve months.



                                        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)
     ----------------------------------
     Agway Senior Debt (continued)
     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), as defined
     in  the  Credit  Agreement,  minimum  ratios of EBITDA to fixed charges and
     interest on  senior debt. Agway  violated financial  covenants  requiring a
     minimum level of EBITDA and minimum  ratio of EBITDA to  interest on senior
     debt for the twelve months ended December 31, 2001.  Effective  January 31,
     2002, these covenants for December 31, 2001 were amended and the violations
     were waived.  In  exchange for those amendments, Agway  agreed to  pay  the
     syndicated group of lenders a $125 amendment fee. The Credit Agreement also
     required a minimum  outstanding  balance of preferred  stock,  subordinated
     debt, and certain debt of a subsidiary.  That minimum  outstanding  balance
     requirement,  as amended,  ranges from $455,000 to $465,000  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, our
     subordinated   debt  or  preferred stock.  To avoid these use restrictions,
     the Credit  Agreement  requires  us  to  have  a  minimum  excess borrowing
     capacity as defined in the agreement (collateral  borrowing  base in excess
     of outstanding  loans) of at least $20,000 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  (collateral borrowing base in excess of outstanding  loans)
     increases to $25,000.  Further,  if  we  are in  default  under the  Credit
     Agreement, we are subject to these use restrictions if:

     (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 $455,000 to $465,000;
         or
     (d) the agent under  the Credit Agreement provides us with a written notice
         that such payments are no longer permitted.

     These conditions, if present,  reduce the practical  availability under the
     Agway  Senior  Debt from  $175,000  to  $150,000  or $25,000  less than the
     collateral  borrowing base,  whichever is lower.  The Credit  Agreement was
     designed  in part to allow and enable us to continue  our past  practice of
     repurchasing,  at face value, certain subordinated debt and preferred stock
     when  presented  for  repurchase  prior to maturity.  However (as discussed
     below), we are under no obligation to repurchase subordinated debt prior to
     its maturity and preferred stock when so presented.

     Agway Subordinated Debt
     Agway  registers  with  the  SEC  to  offer  debentures  and  money  market
     certificates  to the  public on a  continuing  basis.  The  debentures  are
     unsecured  and  subordinated  to  all  senior  debt  of  Agway.  The  Agway
     subordinated debt bears interest payable semiannually on January 1 and July
     1 of each year. The interest rates of Agway's money market certificates are
     at 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.
     Agway's  subordinated  debt is not redeemable by the holder,  though Agway,
     historically  has  had a  practice  of  repurchasing  at face  value,  plus
     interest  accrued at the stated rate,  certain  subordinated  debt whenever
     presented  for  repurchase  prior to  maturity.  However,  we are  under no
     obligation  to repurchase  subordinated  debt prior to its maturity when so
     presented,  and may stop or  suspend  this  practice  at any time or may be
     required to stop or suspend such practice if we do not continue to meet the
     conditions of the Credit Agreement, including those described above.


                                       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)


2.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     Telmark Lines of Credit and Revolving Loans
     As of December 31, 2001, Telmark had credit facilities available from banks
     aggregating to $449,100.  Uncommitted  short-term line of credit agreements
     with various lenders permit Telmark to borrow up to $74,100 on an unsecured
     basis with  interest paid upon  maturity.  The lines bear interest at money
     market variable rates. A committed partially  collateralized (by stock in a
     cooperative  bank,  which has a book value of $14,695 at December 31, 2001)
     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.  In  November  2001,  this
     revolving loan facility was increased from $300,000 to $375,000.  The total
     amounts  outstanding  as of  December  31  and  June  30,  2001  under  the
     short-term  lines of credit were  $59,707 and  $71,138,  respectively,  and
     under the  short-term  component of the  revolving  term loan facility were
     $83,400 and $69,500,  respectively.  The portion of the revolving term loan
     that is  long-term  at  December  31 and  June  30,  2001 is  $175,000  and
     $146,000, respectively. Telmark borrows under its short-term line of credit
     agreements  and its revolving term loan 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 $74,100 of uncommitted  lines of credit all have terms expiring  during
     the next 12 months.  One of those lines totaling $10,000 expires on January
     31,  2002,  and will not be  renewed.  The  $375,000  revolving  term  loan
     facility is  available  through  August 1, 2002.

     Telmark  Unsecured  Notes Payable  to  Insurance  Companies
     Telmark  has balances outstanding on uncollateralized  senior note  private
     placements totaling $129,500 and $149,500 at December 31 and June 30, 2001,
     respectively.  Interest  is  payable  semiannually  on  each  senior  note.
     Principal  payments  are  paid  on either a semiannual and an annual basis.
     The principal  bears  interest  at fixed rates ranging from 6.55% to 8.72%.
     The notes  have  various  maturities  through  December  2012.   The   note
     agreements are similar to  each  other  and each contains  several specific
     financial  covenants that must be complied with by Telmark.  As of December
     31, 2001,  Telmark  has  complied  with  all  covenants  contained  in  its
     borrowing agreements.

     Telmark Lease-Backed Notes Payable to Insurance Companies
     Telmark has lease-backed notes, through two wholly owned fully consolidated
     special purpose  funding  subsidiaries,  totaling  $73,259  and  $90,760 at
     December 31 and June 30, 2001, respectively.  The notes are  collateralized
     by leases which were sold to those subsidiaries 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
     principal bears interest at fixed rates ranging from 6.54% to 9.05% and has
     various final scheduled maturities ending in December 2008.





                                       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)


2.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     Telmark Subordinated Debentures

     Telmark  registers  with the SEC to offer  debentures  to the  public  on a
     continuing  basis. The  debentures  are  unsecured  and subordinated to all
     senior debt of Telmark. The interest on the debentures is paid quarterly on
     January  1, April 1, July 1, and  October 1 of each  year  and  may, at the
     holder's  option,  be  reinvested. 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 December 31,
     2001 of $50,741 are  due  through  March 2009  and  bear a weighted average
     interest rate of 8.29%.

     Telmark  conducts  ongoing  discussions  and negotiations with existing and
     potential lenders for future financing  needs.  Telmark has been successful
     in  arranging  its  past financing  needs and  believes  that  its  current
     financial  arrangements  are  adequate  to  meet  its foreseeable operating
     requirements. There can be no assurance, however, that Telmark will be able
     to obtain future financing in amounts, or on terms, that  are  favorable to
     Telmark.

     The Company's long-term  and  subordinated debt outstanding at December 31,
     2001, as compared to June 30, 2001, is as follows:

<TABLE>
<CAPTION>
                                                            AFC
                                     Agway          (excluding Telmark)       Telmark                Total
                             --------------------  --------------------  --------------------  --------------------
                               12/01      6/01       12/01      6/01       12/01      6/01       12/01       6/01
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     <S>                     <C>        <C>        <C>        <C>        <C>        <C>        <C>        <C>
     Long-term debt........  $   8,545  $  10,639  $   *      $   1,790  $ 377,759  $ 386,260  $ 386,304  $ 398,689
     Currently payable.....      1,753      1,307      *            143    108,745    126,496    110,498    127,946
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     Net long-term debt....  $   6,792  $   9,332  $   *      $   1,647  $ 269,014  $ 259,764  $ 275,806  $ 270,743
                             =========  =========  =========  =========  =========  =========  =========  =========

     Subordinated debt.....  $ 445,483  $    *     $   *      $ 449,338  $  50,741  $  38,772  $ 496,224  $ 488,110
     Currently payable.....     37,802       *         *         47,628      8,085      8,320     45,887     55,948
                             ---------  ---------  ---------  ---------  ---------  ---------  ---------  ---------
     Net subordinated debt.  $ 407,681  $    *     $   *      $ 401,710  $  42,656  $  30,452  $ 450,337  $ 432,162
                             =========  =========  =========  =========  =========  =========  =========  =========

</TABLE>

     * Effective  July 1, 2001 the Agway  corporate  structure was simplified by
     merging Agway Financial  Corporation  (AFC) and Agway Holdings,  Inc. (AHI)
     into Agway,  Inc. See Note 19 of Agway Inc.'s Form 10-K dated June 30, 2001
     for more details.




                                       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)


3.   FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
     --------------------------------------------------
     Agway is  an  agricultural  cooperative  directly engaged in manufacturing,
     processing,  marketing and direct distribution of various animal  feeds and
     agronomic products and services for its farmer-members and other customers,
     primarily in the northeastern United States and Ohio. In addition, Agway is
     involved in the manufacturing, processing and  repacking  of a  variety  of
     agricultural   products   marketed   directly   to   consumers,  retailers,
     wholesalers, and processors; is involved in the  distribution  of petroleum
     products;  the installation  and  servicing  of heating,  ventilation,  and
     air-conditioning  equipment;  marketing  of  natural  gas and  electricity,
     where  deregulation makes that possible;  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.

     The  Other category within the summary of business  segments  includes  net
     corporate expenses, pension income,  intersegment  eliminations,  interest,
     and taxes.  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 December 2001
                              ---------------------------------------------------------------------------------------------
                                             Country
                                             Products
                              Agriculture      Group        Energy       Leasing    Insurance     Other        Consolidated
                              ------------  ------------  -----------  -----------  -----------  ------------  ------------
<S>                           <C>           <C>           <C>          <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.     $    77,590   $    44,279   $  137,135   $   22,681   $    7,371   $        37   $   289,093
Intersegment sales and
  revenues...............              21           970          (11)         633            0        (1,613)            0
                              ------------   -----------  -----------  -----------  -----------  ------------  ------------
    Total sales and revenues  $    77,611   $    45,249   $  137,124   $   23,314   $    7,371   $    (1,576)  $   289,093
                              ============  ============  ===========  ===========  ===========  ============  ============

Income (loss) before
   income taxes..........     $    (7,645)  $      (460)  $    4,113   $    6,490   $      448   $    (5,274)  $    (2,328)
                              ============  ============  ===========  ===========  ===========  ============  ============

Total assets.............     $   216,904   $    72,365   $  161,747   $  744,032   $   57,117   $   292,396   $ 1,544,561
                              ============  ============  ===========  ===========  ===========  ============  ============
</TABLE>

<TABLE>
<CAPTION>
                                                                  Three Months Ended December 2000
                              ----------------------------------------------------------------------------------------------
                                             Country
                                             Products
                              Agriculture      Group        Energy       Leasing    Insurance     Other        Consolidated
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
<S>                           <C>           <C>           <C>          <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.     $    91,452   $    43,847   $  209,549   $   21,164   $    7,187   $         8   $    373,207
Intersegment sales and
  revenues...............           1,386           911          136          330            0        (2,763)             0
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
    Total sales and revenues  $    92,838   $    44,758   $  209,685   $   21,494   $    7,187   $    (2,755)  $    373,207
                              ============  ============  ===========  ===========  ===========  ============  =============

Income (loss) before
   income taxes..........     $    (9,143)  $    (1,104)  $   14,928   $    4,848   $      273   $    (4,861)  $      4,941
                              ============  ============  ===========  ===========  ===========  ============  =============

Total assets.............     $   250,585   $    73,402   $  227,884   $  709,475   $   55,392   $   281,746   $  1,598,484
                              ============  ============  ===========  ===========  ===========  ============  =============

</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)


3.           FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (continued)
             --------------------------------------------------------------
<TABLE>
<CAPTION>

                                                                  Six Months Ended December 2001
                           -------------------------------------------------------------------------------------------------
                                             Country
                                             Products
                              Agriculture      Group        Energy       Leasing    Insurance     Other        Consolidated
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
<S>                           <C>           <C>           <C>          <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.     $   169,627   $    87,922   $  245,899   $   44,609   $   14,583   $        48   $    562,688
Intersegment sales and
  revenues...............             323         2,033           67        1,223            0        (3,646)             0
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
    Total sales and revenues  $   169,950   $    89,955   $  245,966   $   45,832   $   14,583   $    (3,598)  $    562,688
                              ============  ============  ===========  ===========  ===========  ============  =============

Income (loss) before
   income taxes..........     $   (15,859)  $      (830)   $  (5,939)  $   11,789   $      753   $   (10,442)  $    (20,528)
                              ============  ============  ===========  ===========  ===========  ============  =============

Total assets.............     $   216,904   $    72,365   $  161,747   $  744,032   $   57,117   $   292,396   $  1,544,561
                              ============  ============  ===========  ===========  ===========  ============  =============
</TABLE>


<TABLE>
<CAPTION>

                                                                  Six Months Ended December 2000
                           -------------------------------------------------------------------------------------------------
                                             Country
                                             Products
                              Agriculture      Group        Energy       Leasing    Insurance     Other        Consolidated
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
<S>                           <C>           <C>           <C>          <C>          <C>          <C>           <C>
Net sales and revenues to
  unaffiliated customers.     $   190,415   $    87,212   $  338,231   $   41,632   $   14,159   $        19   $    671,668
Intersegment sales and
  revenues...............           3,616         2,672          221          406            0        (6,915)             0
                              ------------  ------------  -----------  -----------  -----------  ------------  -------------
    Total sales and revenues  $   194,031   $    89,884   $  338,452   $   42,038   $   14,159   $    (6,896)  $    671,668
                              ============  ============  ===========  ===========  ===========  ============  =============

Income (loss) before
   income taxes..........     $   (18,075)  $    (3,388)  $    6,016   $    9,060   $      444   $   (10,110)  $    (16,053)
                              ============  ============  ===========  ===========  ===========  ============  =============

Total assets.............     $   250,585   $    73,402   $  227,884   $  709,475   $   55,392   $   281,746   $  1,598,484
                              ============  ============  ===========  ===========  ===========  ============  =============

</TABLE>



                                                        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)

4.   DISCONTINUED OPERATIONS
     -----------------------
     In fiscal 2000, the Agway Board of Directors approved a plan to restructure
     the retail store distribution system,  which called for the sale or closure
     of  the  227  Agway  retail properties, and also authorized the sale of the
     wholesale procurement and supply system to Southern States Cooperative,Inc.
     An agreement for the sale 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, constituted a plan to  discontinue  operations of the retail
     services business.  All retail store  operations ceased during fiscal 2001,
     and  the  Company  is  continuing  to  market  the  remaining  former store
     properties for sale.  The  expected  loss  on discontinuance of  the retail
     operation  was  estimated  and  reported in fiscal 2000.  No adjustments to
     those estimates have been required for these discontinued operations during
     the second quarter of fiscal 2002 or 2001.

     There were no  net sales and  revenues from discontinued operations (retail
     services business) during the current fiscal year. For the three months and
     six   months   ended   December 23, 2000,   net  sales  and  revenues  from
     discontinued operations were  approximately $0  and $24,500,  respectively.
     No interest expense was allocated to  discontinued operations for the three
     or six months ended December 31, 2001 and December 23, 2000, respectively.

     A summary of net assets of discontinued operations was as follows:
<TABLE>
<CAPTION>
                                                                      December 31,       June 30,
                                                                           2001            2001
                                                                     -------------    --------------
     <S>                                                             <C>              <C>
     Net accounts/notes receivable..............................     $      1,302     $       1,118
     Property, plant and equipment, net.........................            4,947             8,525
     Other assets, net..........................................            6,728             6,651
     Accounts payable and accrued expenses......................           (8,731)           (9,306)
     Long-term liabilities......................................           (1,005)           (1,574)
                                                                     --------------   --------------
     Net assets of discontinued operations......................     $      3,241     $       5,414
                                                                     ==============   ==============
</TABLE>

5.   AGRICULTURE REALIGNMENT
     -----------------------
     In the second quarter of fiscal 2001, the Agway Board of Directors approved
     a  plan  to  realign  the  Agriculture  segment of  Agway's  business  (the
     Agriculture Plan).   The  Agriculture  Plan  is  intended  to  realign  the
     Agriculture segment with the continuing  concentration of  farming  and our
     member  farmers in the northeastern United States.   The  Agriculture  Plan
     called for the formation of a Feed and Nutrition Division  and  an Agronomy
     Division that have been structured to enable Agway to act  as  a wholesaler
     of  its  agricultural  products  in  its  traditional  marketplace and as a
     retailer of its agricultural products in select  markets.  In  addition  to
     establishing the management and systems support structure, 60  locations to
     date   have   been   converted  to  dealer  operations,  sold,  or  closed.
     Approximately 390 employees at these locations have been paid  severance to
     date.  Sale of closed  facilities  is  estimated to take place through June
     2003.  Gains  on  the  sale  of  properties  are  recognized when realized.
     Inventories  have  been  reduced  to their estimated net realizable values.
     Operating costs during the  transition period are recognized when incurred.
     During  this  transition  period,  we  expect  continued  losses  from  the
     Agriculture segment's operations, due in part to the costs associated  with
     the Agriculture Plan.  The financial impact associated with the Agriculture
     Plan  transactions  incurred  in  the  second  quarter  of  fiscal  2002 is
     summarized   below.  Plan-related  severance  cost  accruals  remaining  at
     December 31, 2001 totaled $500.

<TABLE>
<CAPTION>
                                                      Three Months Ended          Six Months Ended
                                                       December 31, 2001         December  31, 2001
                                                     --------------------     ----------------------
     <S>                                             <C>                      <C>
     Net gain and (loss) on sale of assets........   $              (64)      $                 872
     Gain (loss) on sale/liquidation of inventory.                    6                         635
     Severance cost adjustments...................                    0                         200
     Other transaction costs......................               (1,034)                     (1,235)
                                                     --------------------     ----------------------
     Net gain (loss) on realignment activity......   $           (1,092)      $                 472
                                                     ====================     ======================
</TABLE>
                                       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)

6.   ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
     -------------------------------------------------
     All derivatives are recognized  on the balance  sheet at  their fair value.
     At  the  time  a  derivative contract is entered into,  the Company  either
     designates the derivative as  a  fair  value  or cash flow  hedge. For fair
     value hedge transactions  in which the  Company is hedging  changes in fair
     value of an  asset,  liability,  or  firm  commitment, changes  in the fair
     value of the  derivative will  generally  be offset in the income statement
     by  changes  in  the  hedged  item's  fair  value.  For  cash  flow   hedge
     transactions   in which the  Company is  hedging  the  variability  of cash
     flows  related  to  a  variable-priced  asset,  liability,  commitment,  or
     forecasted transaction,  changes in  the fair  value of the  derivative are
     reported in  other  comprehensive  income. The  gains  and  losses  on  the
     derivatives that are reported in  comprehensive  income  are   reclassified
     as earnings in the periods in which earnings are impacted by the
     variability  of the cash flows of the hedged item.  The ineffective portion
     of  derivatives'  changes in  fair value and the change in fair   value  of
     derivatives  designated  but  not   qualifying  as   effective  hedges  are
     recognized in current- period earnings.

     For  all   derivatives  designated  as  a  hedge,  the   Company   formally
     documents the  relationship  between the hedging  instrument and the hedged
     item, as well as the risk management  objective and strategy for the use of
     the hedging instrument. This documentation includes linking the derivatives
     that are designated as fair value or cash flow hedges to specific assets or
     liabilities   on  the  balance   sheet,   commitments,   or  to  forecasted
     transactions.  The Company  assesses at the time a  derivative  contract is
     entered into and at least quarterly whether the hedge relationship  between
     the  derivative  and the  hedged  item is highly  effective  in  offsetting
     changes  in fair  value or cash  flows.  Any  change  in fair  value of the
     derivative resulting from  ineffectiveness,  as defined by SFAS No. 133, is
     recognized currently in earnings. Further, for derivatives that have ceased
     to be a highly effective hedge, the Company  discontinues  hedge accounting
     prospectively.

     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
     sold 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 December 31, 2001,  Energy had a derivative  asset of $53. An
     after-tax  total of $31 of deferred  net  unrealized  gains on  derivatives
     instruments was accumulated in other  comprehensive  income and is expected
     to be reclassified into earnings during the next twelve 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. A charge to cost of goods sold for
     the  change  in  option  time  value  not used in the  assessment  of hedge
     effectiveness  was  $1,200 and $2,300 and $(500) and $200 for the three and
     six months ended December 31, 2001 and December 23, 2000, respectively.

     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 use natural hedges of purchase and sales  contracts
     whenever possible; 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 contracts;  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.  The impact
     of marking these  derivatives  to market for the three and six months ended
     December 31, 2001, was immaterial.

                                       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.   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.  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.

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

     Insurance Coverage
     The  Company  uses  various  insurance  companies  to  insure  its  primary
     casualty  insurance  risks  as well as to  obtain  various  umbrella/excess
     liability  coverages.  On  October  3,  2001,  the  Commonwealth  Court  of
     Pennsylvania   approved   the  petition  of  the   Pennsylvania   Insurance
     Commissioner  for an Order of Liquidation  for Reliance  Insurance  Company
     (RIC).  Agway has obtained  insurance coverage from RIC in various segments
     of its insurance  programs  since 1991.  Presently,  Agway has four pending
     claims which could be affected by this  liquidation.  Total covered amounts
     by RIC on these  claims are  currently  estimated  at $2,000.  In addition,
     future  claims  could be  affected  by this  liquidation.  The  liquidation
     statute  establishes  certain  priorities  for  payment of  claims.  Direct
     policyholders are one of the top priorities for payment.  To the extent, if
     any, RIC is unable to meet its claim  obligations to its  policyholders and
     other  creditors,  certain  state  insurance  guarantee  funds may  provide
     additional  sources  of claim  payments.  The  Company  cannot at this time
     determine  the  ultimate  outcome  of  this  liquidation,   its  impact  on
     outstanding  and future claims  against RIC policies held by Agway,  or the
     impact on the Company's  financial  results.  It is anticipated that due to
     this proceeding the Company,  at a minimum,  can expect delays in receiving
     cash settlement for claims outstanding under RIC policies.

                                       17

<PAGE>



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

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


RESULTS OF OPERATIONS
---------------------
Agway is including the following  cautionary statement in this Form 10-Q to make
applicable  and take  advantage of the "safe  harbor"  provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking  statement made
by, or on behalf of, 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.  Certain
factors  that  could  cause  actual  results  to differ  materially  from  those
projected  have been  discussed in this report and include the factors set forth
below.  Other  factors  that could  cause  actual  results to differ  materially
include uncertainties of economic, competitive, and market conditions and future
business  decisions,  all of  which  are  difficult  or  impossible  to  predict
accurately   and  many  of  which  are  beyond  our  control.   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 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 $289,100 and $562,700 for the three- and
six-month  periods ended December 31, 2001 decreased  $84,100 (23%) and $109,000
(16%),  respectively,  as  compared to the same  periods in the prior year.  The
decreases in both the three and six-month periods were  substantially the result
of  decreased  sales in Energy and the  Agronomy  component  of the  Agriculture
segment, as more fully discussed below.

Consolidated  pre-tax  losses of $2,300 and $20,500 for the three and  six-month
periods  ended  December  31, 2001  increased  $7,300  (147%) and $4,500 ( 28%),
respectively, as compared to the same periods in the prior year. Improvements in
Agriculture, Country Products Group, Leasing and Insurance were more than offset
by a decline in Energy.  See further  explanation of pre-tax results by business
segment below.

Effective  June 25, 2000,  Agway adopted a new  accounting  requirement  for all
derivative  instruments.  As a  result,  a loss  on  the  cumulative  effect  of
accounting  change,  net of tax, of $1,100 is reflected in the first  quarter of
the prior year.


                                       18

<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
-----------
Total  Agriculture  sales and revenues of $77,600 and $170,000 for the three and
six months ended December 31, 2001,  decreased  $15,200 (16%) and $24,000 (12%),
respectively, as compared to the same periods in the prior year. The decrease in
sales for both the three- and six-month periods was principally due to decreased
sales in the Agronomy business of $10,800 (36%) and $18,000 (26%), respectively.
The decrease in Agronomy sales  resulted  primarily from the closing of Agronomy
locations  as part of a planned  business  realignment  and from a  decrease  in
fertilizer prices as compared to the prior year. Additionally, for the six-month
period, a decrease in sales resulted from a return to normal summer sales levels
in the current year compared to a peak in summer sales last year that was caused
by delayed spring planting in that year. Finally,  there was a decrease in sales
of $2,600 and $4,200 for the three and six months ended  December 31, 2001 which
was the result of closed  Agriculture  farm stores as part of a planned business
realignment. The Feed business sales and revenues of $58,800 decreased $600 (1%)
for the  three-month  period  ending  December  31,  2001,  while  sales for the
six-month period of $116,900 increased $1,300(1%). The increase in sales for the
six-month  period resulted from increased  TSPF(TM) heifer rearing services from
increased  utilization of the facility over the prior year. The average  selling
price of feed for the three- and six-month periods has remained  relatively flat
compared  to the same  periods  in the prior  year.  The  selling  price of feed
products  is  largely  driven by  commodity  prices,  which have  remained  flat
compared to the prior year.

Agriculture  pre-tax  loss of $7,600  and  $15,900  for the three and six months
ended December 31, 2001 decreased  $1,500 (16%) and $2,200 (12%),  respectively,
as compared to a pre-tax  loss of $9,100 and $18,100 for the same periods in the
prior year. The decrease in pre-tax loss resulted from a combination of factors.
A negotiated settlement of $900 was received in the first quarter of fiscal 2002
with no  comparable  amount  received  in the first  quarter of the prior  year.
Additionally,  the impacts of the Agriculture  realignment  plan, along with the
planning  closing of  Agriculture  farm  stores  during the three and six months
ended December 31, 2001,  resulted in reduced operating  expenses as compared to
the prior year periods.  These  improvements were offset by declines in Agronomy
sales resulting from higher Agronomy  commodity pricing as compared to the prior
year and the loss of  revenues  from closed Feed and  Agronomy  locations  which
combined  to reduce  margin  levels in the first half of 2002 as compared to the
same periods in the prior year.

Country Products Group
----------------------
Country Products Group (CPG) total sales and revenues of $45,200 and $90,000 for
the three and six months ended  December 31, 2001  increased  $500 (1%) and $100
(1%),  respectively,  as  compared to the same  periods in the prior  year.  The
increase in sales is  primarily  related to  increased  sales in the  continuing
operations of the Produce Group of $2,400 (8%) and $4,200 (7%), respectively, as
compared to the same  periods in the prior year.  The  sunflower  business  also
experienced an increase in sales of $2,000 (22%) and $3,000 (16%) as a result of
a special  promotion  on bird food  products  and an  increase  in human  edible
sunflower seeds as a result of increased demand for their use in snack foods and
bakery  products.  Finally,  the Investment Group sales increased $500 (79%) and
$1,000  (81%),  respectively,  substantially  due  to  higher  sales  volume  of
Optigen(TM) 1200, a  controlled-release  nitrogen feed product.  These increases
were partially  offset due to the closing of certain business  locations,  which
accounted   for  a  decrease  in  sales  of  $3,900  (70%)  and  $7,000   (61%),
respectively, as compared to the same periods in the prior year.

CPG pre-tax loss of $500 and $800 for the three and  six-months  ended  December
31, 2001 represents an improvement of $600 (58%) and $2,500 (76%), respectively,
as compared to the same  periods in the prior year.  The  combination  of closed
business  locations and  operations to be divested  incurred  losses of $400 and
$1,600 in the three and six month  periods in the prior  year  while  generating
income in the  current  year of $200 and $400  respectively.  In  addition,  the
sunflower business  operation's pre-tax profits increased $400 (137%) and $1,100
(120%),  respectively,  as compared to the same periods in the prior year due to
higher  margins  from new bakery  product  lines  combined  with  lower  margins
experienced  in the first half of the prior year due to high  product  costs and
increased production costs associated with the poor sunflower crop in that year.
These improvements were partially offset by a decrease of $600 and $300 in CPG's
remaining businesses.

                                       19

<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 revenues of $137,100 and $246,000 for the three and six months
ended   December  31,  2001,   decreased   $72,500  (35%)  and  $92,500   (27%),
respectively,  as compared to the same periods in the prior year.  Overall sales
dollar decreases from liquid product volume was $35,800 (19%) and $47,600 (19%),
respectively  as  compared  to the same  periods in the prior  year.  The volume
decreases were the result of warmer weather conditions in our primary markets as
compared to the same periods in the prior year. As a result of market conditions
and a decrease in commodity prices,  Energy  experienced sales dollars decreases
relating to price in its liquid  products of $36,700 (19%) and $47,300 (19%) for
the three- and  six-month  periods.  Additionally,  sales and revenues  from the
electric and natural gas marketing  business  remained flat for the  three-month
period and improved  $2,500  (389%) for the six months ended  December 31, 2001,
while the heating,  ventilation and air  conditioning  installation  and service
business remained constant with the comparable periods in the prior year.

Energy pre-tax  earnings of $4,100 for the three months ended December 31, 2001,
decreased  $10,800  (72%) over the same period in the prior year.  Pre-tax  loss
from operations of $5,900 decreased  $11,900 from pre-tax earnings of $6,000 for
the six months ended  December 31, 2001. In the three and  six-month  periods of
the current year, overall gross margin dollars decreased $8,200 (14%) and $9,000
(10%),  respectively,  over  the  same  periods  in  the  prior  year  and  were
substantially  driven by the  decrease in sales  noted  above.  Additionally,  a
decrease in pre-tax  earnings  for the three and six months  ended  December 31,
2001,  resulted from a $1,700 gain on sale of fixed assets in the second quarter
of the prior  year,  along  with an  increase  of $400  (24%) and $700  (27%) in
interest  expense  incurred  to cover the  increase  in  working  of  capital as
compared to the same periods in the prior year.

Leasing
-------
Total revenue of $23,300 and $45,800 for the three and six months ended December
31, 2001,  increased $1,800 (8%) and $3,800 (9%),  respectively,  as compared to
the same periods in the prior year.  These  increases  were  primarily  due to a
higher average  investment in leases and a higher income rate on the outstanding
portfolio. Telmark's average net investment in leases increased $47,800 (7%) and
$55,200 (8%), for the three and six month periods  ending  December 31, 2001, as
compared to the same periods in the prior year.

Pre-tax  earnings  from  operations  of $6,500 and $11,800 for the three and six
months  ended  December  31,  2001,  increased  $1,600  (34%) and $2,700  (30%),
respectively,  as  compared  to the same  periods in the prior  year.  The total
revenue  increases  noted  above were  partially  offset by an increase in total
expenses  of $200  (1%) and  $1,100  (3%) for the  three  and six  months  ended
December  31,  2001,  as  compared to the same  periods in the prior  year.  The
increase in total expenses resulted from a $600 and $1,100 increase in provision
for  credit  losses,   a  $200  and  $500  increase  in  selling,   general  and
administrative  costs,  and a $700 and $500 decrease in interest  expense due to
lower  interest  rates on the  outstanding  debt compared to the prior year. The
increases can be attributable to the growing lease portfolio.

Insurance
---------
Insurance  Group  total net  revenues  of $7,400 and  $14,600 for the three- and
six-month periods ended December 31, 2001,  increased $200 (3%) and $400 (3%) as
compared to the same periods in the prior year.  These changes were  experienced
in net  premiums  of Agway  Insurance  Company as sales  initiatives  caused the
increase in net premiums over the same periods in the prior year.

Pre-tax  earnings  of the  Insurance  Group of $400 and $800 for the  three- and
six-month periods ended December 31, 2001,  increased $200 (64%) and $300 (70%),
respectively, as compared to the same periods in the prior year. The improvement
in pre-tax earnings for the three and six-month  periods resulted  substantially
from  increased net earned  premiums  discussed  above along with favorable case
reserve experience.


                                       20

<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
-------------------------------
Cash  generated  from external  borrowings  and/or  operations 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 six months ended:
<TABLE>
<CAPTION>
                                                                   December 31,      December 23,       Increase
                                                                       2001             2000           (Decrease)
                                                                  ---------------   --------------   --------------
<S>                                                               <C>               <C>              <C>
Net cash flows provided by (used in):
      Operating activities......................................  $      80,581     $     33,374     $      47,207
      Investing activities......................................         (6,620)         (30,960)           24,340
      Financing activities......................................        (61,058)         (17,790)          (43,268)
                                                                  ---------------   --------------   --------------
Net increase (decrease) in cash and equivalents.................  $      12,903     $    (15,376)    $      28,279
                                                                  ===============   ==============   ==============
</TABLE>
Cash Flows Provided By Operating Activities
Cash flows from  operations  of $81,000  improved  $47,200  over the prior year.
Primarily  these  improvements  are  related to  working  capital  needs.  As of
December 31, 2001,  working  capital  items  generated  cash flows of $78,200 as
compared  to  generating  cash flows of $20,400 for the same period in the prior
year.  The  generation of cash flows from working  capital items was a result of
declines in receivables  and inventory,  principally in Energy and  Agriculture.
Cash flows from discontinued  operations generated cash of $2,200 as of December
31, 2001,  compared to  generating  cash flows of $16,700 for the same period in
the prior year.  The  generation of cash flows from  discontinued  operations is
from the sale of former retail locations.

As discussed  in Note 7 to the  financial  statements,  the Company has obtained
insurance  coverage from Reliance Insurance Company (RIC) in various segments of
its insurance  programs since 1991. Agway currently has four pending claims with
RIC (estimated at  approximately  $2,000) and may make more claims in the future
under  policies  issued by RIC. On October 3, 2001,  the  Commonwealth  Court of
Pennsylvania  approved the petition of the Pennsylvania  Insurance  Commissioner
for an  Order  of  Liquidation  for  RIC.  While  the  impact,  if  any,  of the
liquidation  of RIC on the Company  cannot be predicted at this time,  if RIC is
unable to satisfy, or is delayed in satisfying,  its obligations to the Company,
such failure or delay in paying claims could negatively affect our liquidity.

Cash Flows Used in Investing Activities
The cash flow used in  investing  activities  decreased  in the six months ended
December 31, 2001,  by $24,340 as compared to the same period in the prior year.
The most  significant  use of cash has been in connection  with Agway's  growing
lease  financing  business  (Telmark).  The  cash  requirements  to  fund  lease
origination  growth in excess of lease repayments  decreased $18,000 compared to
the same period in the prior year. In addition,  a $3,700 decrease in the amount
of cash used for the purchase of property,  plant and equipment occurred through
the first six months of this year as compared to last year.  These declines were
the  result of a  decision  by the  Company to reduce  capital  spending  in the
current year.


                                       21

<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 Used in Financing Activities
Financing  activities for the six months ended  December 31, 2001,  used cash of
$61,100  compared to cash used of $17,800 for the same period in the prior year.
This  $43,300  increase  in cash used was  primarily  from  paying down lines of
credit.

Agway's  senior debt  facility  (the Agway  Senior  Debt) is  available  for all
business  operations except for Agway Insurance Company  (Insurance) and Telmark
and  Telmark's   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 below.

Agway Senior Debt
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 (and amended as of September 14, 2001) between Agway,  certain of
its  subsidiaries  and a  syndicated  group of lenders  (the Credit  Agreement).
Interest  rates are  determined  at the option of the  Company,  as either prime
rate, plus 2.00%, or the London Interbank Offered Rate (LIBOR),  plus 3.50%. The
interest  rate charged on the bank line of credit was 6.5% at December 31, 2001.
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.

As of December 31, 2001,  the  collateral  borrowing  base was  $108,300,  which
adequately  supported  Agway's  credit needs which totaled  $35,700.  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 for the next twelve months.

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),  as defined in the
Credit  Agreement,  minimum  ratios of EBITDA to fixed  charges and  interest on
senior debt.  Agway violated  financial  covenants  requiring a minimum level of
EBITDA and  minimum  ratio of EBITDA to  interest  on senior debt for the twelve
months ended December 31, 2001.  Effective January 31, 2002, these covenants for
December 31, 2001 were amended and the violations  were waived.  In exchange for
those  amendments,  Agway agreed to pay the  syndicated  group of lenders a $125
amendment fee. The Credit Agreement also required a minimum  outstanding balance
of preferred stock,  subordinated  debt, and certain debt of a subsidiary.  That
minimum outstanding  balance  requirement,  as amended,  ranges from $455,000 to
$465,000  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, our  subordinated  debt or
preferred stock. To avoid these use restrictions,  the Credit Agreement requires
us to have a minimum  excess  borrowing  capacity  as defined  in the  agreement
(collateral  borrowing base in excess of outstanding  loans) of at least $20,000
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  (collateral  borrowing  base in excess of
outstanding loans) increases to $25,000. Further, if we are in default under the
Credit Agreement, we are subject to these use restrictions if:

                                       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)


BORROWING ARRANGEMENTS (continued)
----------------------------------
Agway Senior Debt (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 $455,000 to $465,000; or
(d)  the agent under the Credit Agreement provides us with a written notice that
     such payments are no longer permitted.

These conditions,  if present, reduce the practical availability under the Agway
Senior  Debt from  $175,000  to  $150,000  or $25,000  less than the  collateral
borrowing base, whichever is lower. The Credit Agreement was designed in part to
allow and enable us to  continue  our past  practice  of  repurchasing,  at face
value,  certain  subordinated  debt  and  preferred  stock  when  presented  for
repurchase  prior to maturity.  However (as  discussed  below),  we are under no
obligation to repurchase  subordinated  debt prior to its maturity and preferred
stock when so presented.

Agway Subordinated Debt
Agway registers with the SEC to offer  debentures and money market  certificates
to  the  public  on  a  continuing  basis.  The  debentures  are  unsecured  and
subordinated  to all senior  debt of Agway.  The Agway  subordinated  debt bears
interest payable semiannually on January 1 and July 1 of each year. The interest
rates of Agway's money market certificates are at 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.  Agway's subordinated debt is not redeemable
by the holder, though Agway,  historically has had a practice of repurchasing at
face value, plus interest accrued at the stated rate, certain  subordinated debt
whenever  presented for repurchase prior to maturity.  However,  we are under no
obligation  to  repurchase  subordinated  debt  prior  to its  maturity  when so
presented,  and may stop or suspend this practice at any time or may be required
to stop or suspend such practice if we do not continue to meet the conditions of
the Credit Agreement, including those described above.



                                       23

<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 Used in Financing Activities (continued)

Sources of Long-Term Financing
Sources of long-term financing include the following as of December 2001:
<TABLE>
<CAPTION>

                                                                                 Agway Inc.
                                                                                (excluding
Source of debt                                                                   Telmark)        Telmark       Total
--------------                                                                 ------------   -----------   -----------
<S>                                                                            <C>            <C>           <C>
Banks - due 7/02 to 2/06, interest at a weighted average
   rate of 6.9% with a range of 4.71% - 7.47% .............................    $         0    $   175,000   $  175,000
Insurance companies - due 4/04 to 12/12, interest at a weighted average
   rate of 7.49% with a range of 6.55% - 8.72%.............................              0        129,500      129,500
Lease-back notes and other - due 2001 to 2018, interest at a
   weighted average rate of 9.3% with a range of 6.54% to 10%..............          8,545         73,259       81,804
                                                                               ------------   ------------  -----------
     Long-term debt........................................................          8,545        377,759      386,304
Subordinated money market certificates - due 10/02 to 10/15, interest at
   a weighted average rate of 8.24% with a range of 5.50% - 9.75%..........        441,677              0      441,677
Subordinated debentures - due 3/02 to 3/09, interest at a weighted average
   rate of 8.19% with a range of 6.25% to 9.00%............................          3,806         50,741       54,547
                                                                               ------------   ------------  -----------
     Total debt............................................................    $   454,028    $   428,500   $  882,528
                                                                               ============   ============  ===========
</TABLE>
For a further  description  of the  Company's  credit  facilities  available  at
December  31,  2001,  see  Note  2  to  the  Condensed   Consolidated  Financial
Statements.

Telmark Liquidity
Telmark's ongoing availability of adequate financing to maintain the size of our
portfolio and to permit lease  portfolio  growth is key to Telmark's  continuing
profitability and stability.  We have principally financed Telmark's operations,
including the growth of its lease portfolio,  through borrowings under its lines
of credit,  private  placements of debt with  institutional  investors and other
term debt, subordinated debentures, lease-backed notes, principal collections on
leases and cash provided from operations.

Virtually all of the cash flows from both  operations  and financing  activities
were invested in growth of the lease  portfolio.  Telmark has been successful in
arranging  its past  financing  needs and  believes  that its current  financing
arrangements are adequate to meet its foreseeable operating requirements.  There
can be no  assurance,  however,  that  Telmark  will be able  to  obtain  future
financing  in amounts or on terms that are  acceptable.  Telmark's  inability to
obtain  adequate   financing  would  have  a  material  adverse  effect  on  its
operations. In addition, Agway's membership interest in Telmark has been pledged
as additional collateral with respect to certain obligations of Agway. While the
terms of the pledge generally do not restrict Telmark's operations,  Telmark has
acknowledged  and agreed to the pledge,  has agreed to  cooperate  with  Agway's
lenders in respect to their rights  under the pledge,  and has agreed to refrain
from  creating  any lien or  encumbrance  with  respect to the equity of Telmark
subsidiaries.  A foreclosure  on the pledge  following an event of default would
result in a change of control,  giving Telmark's senior lenders rights to demand
repayment of existing outstanding debt. Depending upon the financial markets and
Telmark's  financial  circumstances at that time, if the senior lenders chose to
execute  those  rights,  it could have a material  adverse  effect on  Telmark's
results of operations,  liquidity and financial  position.  Management  conducts
ongoing  discussions and  negotiations  with existing and potential  lenders for
future  financing  needs.  See  Note 2 to the  Condensed  Financial  Statements,
"Borrowing Arrangements."

                                       24

<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 the normal  course of our  operations,  we have  exposure to market risk from
price fluctuations  associated with commodities such as corn, soy complex, oats,
gasoline,  distillate and propane.  These price  fluctuations  impact  commodity
inventories,   product  gross  margins,  and  anticipated  transactions  in  our
Agriculture  and  Energy  businesses.   We  manage  the  risk  of  market  price
fluctuations  of  some  of  these  commodities  by  using  commodity  derivative
instruments.  Commodity derivative instruments include  exchange-traded  futures
and option contracts and, in limited circumstances,  over-the-counter  contracts
with third  parties.  We have  policies  that specify what we can use  commodity
derivative  instruments for and set limits on the maturity of contracts we enter
into and the level of exposure to market price  fluctuations  that we are trying
to protect  ourselves  against (or  hedge).  However,  because  the  commodities
markets  are very  volatile,  our gains or losses on these  contracts  might not
fully offset the corresponding change in the prices of the underlying commodity,
which could lower our earnings.

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity  instrument  positions as of December  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  position  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 does not reflect the
offsetting  impact of market price  changes to the  underlying  commodities  for
which the commodity instruments are managing the price risk. As of December 2001
and 2000, assuming a 10% hypothetical adverse change in the underlying commodity
price,  the potential  decrease in fair value of our Energy  business  commodity
instruments  was $1,600 and $3,400,  respectively.  The  potential  loss in fair
value of commodity instruments for Agriculture was immaterial for both periods.

                                       25

<PAGE>



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


Item 1.  Legal Proceedings
--------------------------
On May 5, 2000,  approximately  90 North Dakota  farmers  (Jorgenson,  et al. v.
Agway Inc.) filed a Complaint  against  Agway Inc. in the U.S.  District  Court,
District of North Dakota,  Southeastern Division,  alleging that they bought and
planted a variety of  confection  sunflower  seed during the spring of 1999 from
Agway Inc.  which was  defective.  The  farmers  allege  that as a result of the
defective  seed,  they  are  entitled  to  monetary  damages  in the  amount  of
approximately  $2,900. In addition,  upon referral from the U.S. District Court,
the North  Dakota  Supreme  Court ruled in May 2001 that the farmers may proceed
with their  claims that Agway Inc.  is liable  under the North  Dakota  Consumer
Fraud Act (Act).  Possible  remedies  under the Act include  treble  damages and
attorneys' fees. In October 2001, the U.S. District allowed the farmers to amend
their Complaint to add  approximately 18 additional  farmers,  a claim for fraud
and a claim for  punitive  damages.  Agway Inc.  has  denied  and is  vigorously
contesting  the farmers'  allegations.  While we do not  anticipate any material
adjustments to our financial statements from these claims, it is not possible at
this time to determine what the ultimate outcome of these claims will be.

Item 3.  Defaults Upon Senior Securities
----------------------------------------
As previously reported, based on Agway's June 30, 2001, financial results, Agway
was in violation of certain financial covenants within its Credit Agreement.  On
September 14, 2001,  the lenders agreed to waive these  violations,  and further
agreed to amend the covenants. As discussed in Note 2 of the condensed financial
statements,  Agway violated certain financial  covenants on its Credit Agreement
for the twelve  months  ended  December 31,  2001.  Effective  January 31, 2002,
lenders  agreed to amend and waive (the  Second  Amendment  and Waiver to Credit
Agreement)  certain of the financial  covenants  within the Credit Agreement for
the twelve months ended December 31, 2001. As of December 31, 2001, after giving
effect to this  Credit  Agreement  amendment,  the  Company  has met the amended
covenants and conditions under the Credit Agreement.



                                       26

<PAGE>



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


Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual  meeting of  shareholders  on October 22,  2001,  at
which a quorum was present in person or by proxy.  The following  Directors were
elected:

         Nominee                      In Favor                      Opposed
--------------------------    -------------------------    ---------------------
Stanley J. Burkholder                  48,417                         925
Donald P. Cardarelli                   48,417                         925
John R. Cook                           48,417                         925
Andrew J. Gilbert                      48,417                         925
Thomas G. Hardy                        48,417                         925
John R. Ligo                           48,417                         925
Matt E. Rogers                         48,417                         925
William W.  Young                      48,417                         925

Eligible  additional  votes totaling 19,785 were not received at the time of the
annual  meeting  and are not  included  as  either  votes in  favor or  opposed.
Additionally,   these  19,785  eligible   additional  votes  may  be  considered
abstentions  and were not included for purposes of  determining  a quorum at the
annual meeting.

The following is a list of Directors  whose terms as Directors  continued  after
the October 22, 2001, Annual Meeting:

        Gary K. Van Slyke              - Chairman of the Board and Director
        Andrew J. Gilbert              - Vice Chairman of the Board and Director
        Stanley J. Burkholder          - Director
        Donald P. Cardarelli           - Director
        John R. Cook                   - Director
        Thomas G. Hardy                - Director
        John R. Ligo                   - Director
        Robert L. Marshman             - Director
        Jeffrey B. Martin              - Director
        Samuel F. Minor                - Director
        Matt E. Rogers                 - Director
        Richard H. Skellie             - Director
        Carl D. Smith                  - Director
        Joel L. Wenger                 - Director
        Edwin C. Whitehead             - Director
        Dennis C. Wolff                - Director
        William W. Young               - Director



                                       27

<PAGE>



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


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
(a)  Exhibits

     EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K

     (i) The following required exhibits are hereby incorporated by reference to
         previously filed Registration Statements on Forms S-1, S-2, S-3, or S-7
         or on Form 10-K, 10-Q, or 8-K filed on the dates as specified:

         PLAN  OF  ACQUISITION,  REORGANIZATION,  ARRANGEMENT,  LIQUIDATION,  OR
         SUCCESSION

         2(a)    -  Certificate of  Ownership and Merger merging Agway Financial
                    Corporation  with and into Agway Inc., filed by reference to
                    Exhibit 2(a) of Form 8-K, dated July 2, 2001.

         ARTICLES OF INCORPORATION AND BY-LAWS

         3(a)    -  Restated Certificate  of  Incorporation  dated November  24,
                    1975, filed by reference  to Exhibit 3(a)(4) of Registration
                    Statement on Form S-1, File No. 2-57227, dated September 21,
                    1976.

         3(b)    -  Certificate creating series of preferred stock of Agway Inc.
                    dated July 5, 1977, filed by reference to Exhibit 3(a)(5) of
                    Registration Statement  on Form S-1, File No. 2-59896, dated
                    September 16, 1977.

         3(c)    -  Certificate  creating  series  of  Honorary Member Preferred
                    Stock of Agway Inc. dated June 15, 1981, filed  by reference
                    to Exhibit 1(c)  of  the Registration Statement on Form S-1,
                    File No. 2-73928, dated September 3, 1981.

         3(d)    -  Agway Inc.   By-laws   as   amended  May 4, 2001,  filed  by
                    reference to Exhibit 3ii of Pre-Effective Amendment No. 2 of
                    Form S-3, File No. 333-59808, dated June 25, 2001.

          INSTRUMENTS  DEFINING  THE  RIGHTS  OF  SECURITY  HOLDERS,   INCLUDING
          INDENTURES

         4(a)   -  The Indenture  dated as  of  September 1, 1978 between Agway
                    Inc.  and  First  Trust  and  Deposit  Company  of Syracuse,
                    New York,   Trustee,   including   forms   of   Subordinated
                    Debentures  (Minimum 8.0% per annum) due  July 1, 2003,  and
                    Subordinated Debentures (Minimum 7.5% per annum) due July 1,
                    2003,  filed  by  reference to Exhibit 4 of the Registration
                    Statement (Form S-1),  File No. 2- 62549, dated September 8,
                    1978.

         4(b)    -  The Indenture dated  as  of September 1, 1985, between Agway
                    Inc. and Key Bank of Central New York of Syracuse, New York,
                    Trustee,   including  forms  of  Subordinated  Member  Money
                    Market Certificates  (Minimum 8% per annum) due October  31,
                    2005,  and  Subordinated  Member  Money Market  Certificates
                    (Minimum 7.5% per annum)  due  October 31,  2005,  filed  by
                    reference to Exhibit 4 of the  Registration  Statement (Form
                    S-2), File No. 2-99905, dated August 27, 1985.

         4(c)    -  The Indenture dated as of September 1, 1986, between AFC and
                    Key Bank of Central New York of Syracuse, New York, Trustee,
                    including   forms   of   Subordinated  Member  Money  Market
                    Certificates  (Minimum 6% per annum)  due  October 31, 2006,
                    and Subordinated Money Market Certificates (Minimum 5.5% per
                    annum) due October 31, 2006, filed by reference to Exhibit 4
                    of the  Registration Statement (Form S-3), File No. 33-8676,
                    dated September 11, 1986.

         4(d)    -  The Supplemental  Indenture  dated  as  of  October 1, 1986,
                    among AFC, Agway Inc. and  Key Bank  of  Central New York of
                    Syracuse, New York, Trustee, including forms of subordinated
                    debt  securities  filed  by  reference  to  Exhibit 4 of the
                    Registration Statement (Form S-3), File  No. 33-8676,  dated
                    September 11, 1986.


                                       28

<PAGE>



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


Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------
(a)  Exhibits (continued)

     EXHIBITS REQUIRED BY  SECURITIES  AND  EXCHANGE  COMMISSION  REGULATION S-K
     (CONTINUED)

         INSTRUMENTS   DEFINING   THE  RIGHTS  OF  SECURITY  HOLDERS,  INCLUDING
         INDENTURES (CONTINUED)


         4(e)    -  The  Indenture  dated as of August 24, 1987, between AFC and
                    Key Bank of Central New York of Syracuse, New York, Trustee,
                    including   forms  of   Subordinated   Member  Money  Market
                    Certificates (Minimum 6.5% per annum) due  October 31, 2008,
                    and Subordinated Money  Market  Certificates (Minimum 6% per
                    annum) due October 31, 2008, filed by reference to Exhibit 4
                    of the Registration Statement (Form S-3), File No. 33-16734,
                    dated August 31, 1987.

         4(f)    -  The  Indenture  dated as of August 23, 1988, between AFC and
                    Key Bank of Central New York of Syracuse, New York, Trustee,
                    including  forms   of   Subordinated  Member   Money  Market
                    Certificates  (Minimum 9% per annum)  due  October 31, 2008,
                    and Subordinated Money Market Certificates (Minimum 8.5% per
                    annum) due October 31, 2008, filed by reference to Exhibit 4
                    of the Registration Statement (Form S-3), File No. 33-24093,
                    dated August 31, 1988.

         4(g)    -  The  Supplemental  Indenture  dated  as of October 14, 1988,
                    among  AFC,  Agway  Inc. and  Key  Bank of Central New York,
                    National Association, Trustee, amending the Indentures dated
                    as of August 23, 1988, and August 24, 1988, filed on October
                    18, 1988.

         4(h)    -  The Indenture  dated as of August 23, 1989, among AFC, Agway
                    Inc. and Key Bank of Central New York of Syracuse, New York,
                    Trustee,   including   forms   of  Subordinated Money Market
                    Certificates   and    Subordinated   Member   Money   Market
                    Certificates,  filed  by  reference  to  Exhibit  4  of  the
                    Registration Statement (Form S-3), File No. 33-30808,  dated
                    August 30, 1989.

         4(i)    -  The Supplemental  Indenture  dated  as  of  August 24, 1992,
                    among  AFC,  Agway  Inc.  and Key Bank of New York, Trustee,
                    amending the Indenture dated as of August 23, 1989, filed by
                    reference  to  Exhibit 4 of the Registration Statement (Form
                    S-3), File No. 33-52418, dated September 25, 1992.

         4(j)    -  Agreement of Resignation, Appointment  and  Acceptance among
                    KeyCorp, Key Bank of New  York, AFC and Mellon Bank, F.S.B.,
                    dated  as  of  September 3, 1996,  five agreements, filed by
                    reference to  Exhibit 4(o)  of  the  Registration  Statement
                    (Form S-3), File No. 333-34781, dated September 2, 1997.

         4(k)    -  Letter dated November 14, 1997 from Chase Manhattan Bank, as
                    Successor  Trustee,  to   Mellon   Bank,  F.S.B.,  filed  by
                    reference to Exhibit 4(a) of the Annual Report on Form 10-K,
                    dated September 21, 2000.

         4(l)    -  The  Supplemental Indenture dated as of July 1, 2001 between
                    Agway  Financial  Corporation,  Agway  Inc.,  and  The Chase
                    Manhattan Bank,   amending   the   Indentures   dated  as of
                    September 1, 1986, August 24, 1987, August 23, 1988 (amended
                    by  a  supplemental  indenture dated as of October 14, 1988)
                    and August 23, 1989 (as amended by a supplemental  indenture
                    dated as of August 24, 1992), filed  by reference to Exhibit
                    4(a) of Form 8-K, dated July 2, 2001.



                                       29

<PAGE>



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


Item 6.  Exhibits and Reports on Form 8-K (continued)
-----------------------------------------------------
(a)  Exhibits (continued)

     EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION REGULATION S-K
     (CONTINUED)

         MATERIAL CONTRACTS

         10(a)   -  Credit  Agreement  with  lenders dated March 28, 2001, filed
                    by  reference  to Exhibit 10(a) of Form 10-Q as of March 24,
                    2001, dated May 8, 2001.

         10(b)   -  Security   Agreement   with  lenders  dated  March 28, 2001,
                    filed by reference  to  Exhibit 10(b) of  Form  10-Q  as  of
                    March 24, 2001, dated May 8, 2001.

         10(c)   -  Pledge Agreement with  lenders dated  March 28, 2001,  filed
                    by  reference  to Exhibit 10(c) of Form 10-Q as of March 24,
                    2001, dated May 8, 2001.

         10(d)   -  Intellectual Property Security Agreement with lenders  dated
                    March 28, 2001, filed by reference to  Exhibit 10(d) of Form
                    10-Q as of March 24, 2001, dated May 8, 2001.

         10(e)   -  First  Amendment  and  Waiver  to  Credit  Agreement,  dated
                    September 14, 2001, filed by reference  to Exhibit  10(e) of
                    Form 10-K as of June 30, 2001, dated September 14, 2001.

         10(f)   -  First Amendment  to  Security Agreement, dated September 14,
                    2001, filed by reference to Exhibit 10(f) of Form 10-K as of
                    June 30, 2001, dated September 14, 2001.

         10(g)   -  Pledge  Amendment  with  lenders,  dated September 14, 2001,
                    filed by reference to Exhibit 10(g) of Form 10-K as of  June
                    30, 2001, dated September 14, 2001.

         10(h)   -  Vehicle  Security  and  Escrow Agreement with lenders, dated
                    September 14, 2001, filed by  reference  to Exhibit 10(h) of
                    Form 10-K as of June 30, 2001, dated September 14, 2001.

         10(i)   -  Directors -  Deferred   Compensation   Agreement,  filed  by
                    reference to Exhibit 10(i) of Form 10-K as of June 30, 2001,
                    dated September 14, 2001.

         10(j)   -  Board Officers - Deferred Compensation Agreement,  filed  by
                    reference to Exhibit 10(j) of Form 10-K as of June 30, 2001,
                    dated September 14, 2001.

     (ii) The following exhibits are filed as a separate section of this report:

         MATERIAL CONTRACTS

         10(k)   -  Second  Amendment  and  Waiver  to  Credit  Agreement, dated
                    January 31, 2002, filed herewith.

(b)  Reports on Form 8-K
     There  were  no  reports on Form 8-K filed  during the three  months  ended
     December 31, 2001.
                                       30

<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        February 4, 2002                     /s/ PETER J. O'NEILL
       -------------------------     -------------------------------------------
                                                   Peter J. O'Neill
                                                Senior Vice President,
                                                  Finance & Control
                                           (Principal Financial Officer and
                                                Chief Accounting Officer)










                                       31