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



(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 For the quarterly period ended March 31, 2003
                                           --------------

                                       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.
                              (DEBTOR-IN-POSSESSION
                             AS OF OCTOBER 1, 2002)
--------------------------------------------------------------------------------
             (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)


                                  315-449-6715
              (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
    -----     -------------

Indicated by check mark whether the registrant is an accelerated filer.
Yes      No  X
   -----   -----

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




        Class                                        Outstanding at May 16, 2003
---------------------------------                    ---------------------------
Membership Common Stock,                                    96,446 shares
$25 par value per share

                                       1
<PAGE>


                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

                                      INDEX


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

         Condensed Consolidated Balance Sheets as of March 31, 2003
         and June 30, 2002.....................................................3

         Condensed Consolidated Statements of Operations and Retained Earnings
         (Deficit) for the three months and nine months ended March 31, 2003
         and March 31, 2002....................................................4

         Condensed Consolidated Statements of Comprehensive  Income  (Loss)  for
         the three months and nine months ended March 31, 2003 and
         March 31, 2002........................................................5

         Condensed Consolidated Cash Flow Statements for the nine months ended
         March 31, 2003 and March 31, 2002.....................................6

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

         Item 2.  Management's Discussion and Analysis of Financial Condition
         and Results of Operations............................................27

         Item 3.  Quantitative and Qualitative Disclosures About Market Risk..43

         Item 4.  Controls & Procedures.......................................44

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

         Item 1.   Legal Proceedings..........................................45

         Item 2.  Changes in Securities and Use of Proceeds...................45

         Item 3.   Defaults Upon Senior Securities............................45

         Item 6.  Exhibits and Reports on Form 8-K............................46

         SIGNATURES...........................................................53

         Certifications Under New Exchange Act Rules 13a-14 and 15d-14 of the
         Exchange Act of 1934.................................................54














                                       2
<PAGE>


                          PART I. FINANCIAL INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES
                                   (Unaudited)
                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                             (Thousands of Dollars)

<TABLE>
<CAPTION>
ASSETS                                                                               March 31,          June 30,
                                                                                        2003              2002
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
Current Assets:
     Cash.........................................................................  $      93,458    $            0
     Trade accounts receivable (including notes receivable of $2,379 and
         $1,988, respectively), less allowance for doubtful accounts of $5,989
         and $4,723, respectively.................................................        121,405            76,733
     Advances and other receivables (including notes receivable of $14,953 and
         $0, respectively), less allowance for doubtful accounts of $11,881 and
         $0, respectively                                                                  30,571             4,757

     Inventories:
         Raw materials............................................................            240               954
         Finished goods...........................................................         27,267            26,322
         Goods in transit and supplies............................................          1,364             1,902
                                                                                    -------------    --------------
              Total inventories...................................................         28,871            29,178
     Deferred tax assets..........................................................         37,974            27,056
     Prepaid expenses and other assets............................................          8,391             8,754
                                                                                    -------------    --------------
         Total current assets.....................................................        320,670           146,478
Restricted cash...................................................................         41,988                 0
Security investments, net.........................................................         21,994            11,125
Properties and equipment, net.....................................................         99,356           123,685
Net pension asset.................................................................        191,963           223,649
Other assets  ....................................................................          9,197            14,817
Total assets of discontinued operations...........................................              0         1,049,340
                                                                                    -------------    --------------
         Total assets.............................................................  $     685,168    $    1,569,094
                                                                                    =============    ==============

LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
Current Liabilities:
     Notes payable................................................................  $           0            34,180
     Current installments of long-term debt.......................................            157             1,842
     Current installments of subordinated debt:
         Agway....................................................................             -             36,917
36,917
         Telmark..................................................................         45,533               -
     Accounts payable.............................................................         28,464            49,015
     Trade receivables with credit balances.......................................         15,551            28,079
     Other current liabilities....................................................         31,110            51,976
                                                                                    -------------    --------------
         Total current liabilities................................................        120,815           202,009
Long-term debt....................................................................          1,443            17,143
Subordinated debt - Agway.........................................................        -                 388,449
Deferred tax liabilities..........................................................         42,855            31,897
Other liabilities.................................................................          4,405            60,350
Liabilities of discontinued operations ...........................................              0           805,144
                                                                                    -------------    --------------
         Total liabilities not subject to compromise..............................        169,518         1,504,992
Liabilities subject to compromise.................................................        532,066                 0
Commitments and contingencies.....................................................
Shareholders' equity (deficit):
     Preferred stock, net.........................................................         31,997            32,057
     Common stock, net............................................................          2,411             2,413
     Accumulated other comprehensive income (loss)................................           (200)            1,195
     Retained earnings (deficit)..................................................        (50,624)           28,437
                                                                                    -------------    --------------
         Total shareholders' equity (deficit).....................................        (16,416)           64,102
                                                                                    -------------    --------------
              Total liabilities and shareholders' equity (deficit)................  $     685,168    $    1,569,094
                                                                                    =============    ==============
</TABLE>



     See accompanying notes to condensed consolidated financial statements.

                                       3
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                       Three Months Ended                 Nine Months Ended
                                                 -------------------------------    ------------------------
                                                   March 31,         March 31,        March 31,        March 31,
                                                     2003              2002             2003              2002
                                                 -------------    --------------    -------------    --------------
<S>                                              <C>              <C>               <C>              <C>
Net sales and revenues.........................  $     349,827    $      261,338    $     798,364    $      692,361

Cost and expenses from:
     Products and plant operations.............        351,734           220,961          770,015           625,731
     Selling, general and administrative
       activities..............................         21,320            20,221           57,982            51,426
                                                 -------------    --------------    -------------    --------------
         Total operating costs and expenses....        373,054           241,182          827,997           677,157

Operating income (loss)........................        (23,227)           20,156          (29,633)           15,204
Interest expense, net..........................           (229)           (3,813)          (5,103)          (13,622)

Other income (expense), net....................          3,020               490            3,425             2,448
                                                 -------------    --------------    -------------    --------------
Earnings (loss) from continuing operations before
   reorganization expenses and income taxes....        (20,436)           16,833          (31,311)            4,030

Reorganization expenses .......................          2,967                 0            5,944                 0

Income tax expense (benefit)...................            105             6,610              231             1,964
                                                 -------------    --------------    -------------    --------------

Earnings (loss) from continuing operations.....        (23,508)           10,223          (37,486)            2,066

Discontinued operations:
     Earnings (loss) from operations,
        net of tax expense (benefit) of $83,
        $966, $333, and $(1,087), respectively.          6,729              (576)           3,448            (6,249)
     Loss on disposal, net of tax expense
       (benefit) of $0, $(14,871), $0 and
       $(14,871), respectively.................        (23,081)          (26,460)         (40,517)          (26,460)
                                                 -------------    --------------    -------------    --------------
     Loss from discontinued operations.........        (16,352)          (27,036)         (37,069)          (32,709)

Cumulative effect of accounting changes, net
     of tax expense (benefit) of $0, $0, $0,
     and $0, respectively......................              0                 0           (4,506)                0
Net loss ......................................        (39,860)          (16,813)         (79,061)          (30,643)
                                                 -------------    --------------    -------------    --------------
Retained earnings (deficit), beginning of period       (10,764)          114,161           28,437           129,343
                                                 --------------   --------------    -------------    --------------

Dividends......................................              0                 0                0            (1,352)
                                                 -------------    --------------    -------------    --------------
Retained earnings (deficit), end of period.....  $     (50,624)   $       97,348    $     (50,624)   $       97,348
                                                 =============    ==============    =============    ==============

</TABLE>






     See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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

<TABLE>
<CAPTION>

                                                       Three Months Ended                 Nine Months Ended
                                                 -------------------------------    ------------------------
                                                   March 31,         March 31,        March 31,        March 31,
                                                     2003              2002             2003              2002
                                                 -------------    --------------    -------------    --------------

<S>                                              <C>              <C>               <C>              <C>
Net loss ......................................  $     (39,860)   $      (16,813)   $     (79,061)   $      (30,643)

Other comprehensive income (loss), net of tax:

     Unrealized gains (losses) on
         available-for-sale securities
         held in discontinued operations.......              0              (256)               0               178
     Reclassification adjustment for
         gains (losses) included in net
         earnings..............................              0               (10)            (570)              (30)

     Deferred gains (losses) on cash flow
         hedges, net of tax:
         Holding gains (losses) arising
         during period.........................          2,691            (2,005)           7,870            (2,981)
         Reclassification adjustment for
         (gains) losses included in net
         earnings..............................         (6,739)            2,486           (8,695)            3,683
                                                 --------------   --------------    --------------   --------------

Other comprehensive income (loss)..............         (4,048)              215           (1,395)              850
                                                 --------------   --------------    --------------   --------------

Comprehensive loss.............................  $     (43,908)   $      (16,598)   $     (80,456)   $      (29,793)
                                                 ==============   ===============    =============   ===============

</TABLE>





















     See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


<TABLE>
<CAPTION>
                                                                                           Nine Months Ended
                                                                                    -------------------------------
                                                                                      March 31,         March 31,
                                                                                        2003              2002
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
Net cash flows provided by (used in) continuing operations before reorganization
   items, net of effects of residual assets and liabilities reclassified from
   discontinued operations........................................................  $     (28,332)   $       58,284
Reorganization items (excluding non-cash charges of $2,558).......................         (3,386)                0
                                                                                    -------------    --------------
Net cash flows provided by (used in) continuing operating activities..............        (31,718)           58,284

Cash flows provided by (used in) investing activities, net of effects of
   residual assets and liabilities reclassified from discontinued operations:
     Purchases of property, plant and equipment...................................         (9,343)           (5,125)
     Proceeds from sale of businesses/assets - Agway..............................        105,928                 0

     Proceeds from sale of assets - Telmark.......................................        604,360                 0
     Proceeds from disposal of property, plant and equipment......................          1,272             8,813
     Net purchase (sale) of other security investments............................           (292)              104
                                                                                    -------------    --------------

Net cash flows provided by (used in) investing activities:........................        701,925             3,792

Cash flows provided by (used in) financial activities, net of effects of
   residual assets and liabilities reclassified from discontinued operations:
     Net change in short-term notes payable.......................................        (34,180)          (50,617)
     Proceeds from long-term debt.................................................            235                 0
     Repayment of long-term debt..................................................            (90)             (195)
     Repayment of Telmark debt....................................................       (538,839)                0
     Proceeds from sale of Agway subordinated debt................................              -            79,200
     Maturity and redemption of Agway subordinated debt...........................         (1,856)          (86,088)
     Net change in capital leases.................................................         (1,521)           (4,366)
     Redemption of stock, net.....................................................            (62)           (3,302)
     Cash dividends paid..........................................................         (1,307)           (2,874)
                                                                                    -------------    --------------

Net cash flows provided by (used in) financing activities.........................       (577,620)          (68,242)

Net cash flows provided by (used in) discontinued operations......................            871             6,166
                                                                                    -------------    --------------

Net increase (decrease) in cash and equivalents...................................         93,458                 0
Cash and equivalents at beginning of period.......................................              0                 0
                                                                                    -------------    --------------

Cash and equivalents at end of period.............................................  $      93,458    $            0
                                                                                    =============    ==============
</TABLE>






     See accompanying notes to condensed consolidated financial statements.


                                       6
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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" or "Agway") 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,  or those normally made in the Company's  annual report on Form
     10-K.  Accordingly,  the  reader of this Form 10-Q may wish to refer to the
     Company's  annual  report on Form 10-K for the  fiscal  year ended June 30,
     2002 for further information. In the opinion of management, all adjustments
     (consisting of normal recurring accruals)  considered  necessary for a fair
     presentation  have been  included.  Operating  results  for the  nine-month
     period ended March 31, 2003, are not necessarily  indicative of the results
     that may be expected for the year ending June 30, 2003, due to the seasonal
     nature of our Energy business.

     Chapter 11  Proceedings:  On October  1, 2002,  Agway Inc.  and five of its
     subsidiaries  (collectively  the "Debtors")  filed  voluntary  petitions to
     reorganize  under Chapter 11 of the U.S.  Bankruptcy Code in order to allow
     it to continue running its businesses  without  interruption while it gains
     the time needed to  reorganize  its financial  obligations.  See Note 2 for
     further details of the Chapter 11 filings.

     The accompanying consolidated financial statements as of and for the period
     ended March 31,  2003 have been  prepared on a going  concern  basis.  As a
     result of the Debtors  entering into Chapter 11  Proceedings  on October 1,
     2002, Agway's unaudited condensed consolidated financial statements for the
     quarter ended March 31, 2003 have been  prepared in  accordance  with AICPA
     Statement of Position  ("SOP")  90-7,  "Financial  Reporting by Entities in
     Reorganization  under the  Bankruptcy  Code,"  and will  continue  to apply
     generally accepted  accounting  principles as a going concern which assumes
     the  realization  of assets and the payment of  liabilities in the ordinary
     course of business.

     SOP  90-7  requires  that  pre-petition  liabilities  that are  subject  to
     compromise  be  segregated  in  Agway's  unaudited  Condensed  Consolidated
     Balance  Sheet as  "Liabilities  Subject  to  Compromise"  (which  are more
     specifically  detailed  in Note 2) and that  revenues,  expenses,  interest
     income, realized gains and losses, and provisions for losses resulting from
     the reorganization of the Debtors be reported  separately as reorganization
     items,  except for those  revenues and expenses  required to be reported as
     discontinued operations, in the unaudited Condensed Consolidated Statements
     of  Operations.  Finally,  a condensed  combined  financial  statement that
     includes all Debtors in the Bankruptcy has been presented in Note 2.

     As  debtors-in-possession,  the  Debtors,  subject  to any  required  court
     approval,  may elect to assume or reject  real  estate  leases,  employment
     contracts, personal property leases, service contracts, and other unexpired
     executory  pre-petition  contracts.  We  cannot  presently  determine  with
     certainty the ultimate aggregate liability that will result from the filing
     and  settlement  of claims  related  to any  rejected  contracts,  and as a
     result, no allowance has been recorded for these items.


                                       7
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     -----------------------------------------------------

     Basis of Presentation (continued)

     Discontinued Operations: On March 6, 2002, the Company announced details of
     a comprehensive plan designed to refocus capital resources on four selected
     businesses:  Animal Feed and Nutrition (the principal  operation within the
     Agriculture  segment),  Energy  Products  (Energy  segment),  Produce,  and
     Agricultural  Technologies  (operations  within the Country  Products Group
     segment).  This  plan  also  disclosed  our  intentions  to  divest of four
     business  operations:  Telmark  (Leasing  segment),  Agway  Insurance  (the
     principal operation within the Insurance segment), and Agronomy and Seedway
     (components of the Agriculture segment).  After this plan was announced, as
     part of its ongoing  strategic  assessment of remaining Agway businesses in
     June 2002, the Agway Board of Directors affirmed management's intentions to
     actively pursue a sale of Agway's sunflower business (an operation formerly
     included  within the  Country  Products  Group  segment).  As  required  by
     generally  accepted  accounting   principles,   the  financial   statements
     separately  reflect the business  operations  planned for  divestiture,  or
     actually divested, as discontinued operations for all periods reported. For
     further information on these discontinued operations, refer to Note 4.

     As of February 28, 2003, the above  described  divestiture  plans have been
     substantially completed. On August 28, 2002, Agway announced the completion
     of the sale of its  wholly  owned  insurance  subsidiary,  Agway  Insurance
     Company,  to United Farm Family Mutual Insurance Company.  On September 16,
     2002,  Agway  completed  the sale of its  sunflower  business (an operation
     historically  included within the Country  Products Group segment) to Cenex
     Harvest  States  Cooperatives.  On December 3, 2002,  Agway  announced  the
     completion of the sale of its Agronomy and Seedway  businesses  and related
     assets to GROWMARK.  On February 28, 2003,  Agway,  Telmark and Wells Fargo
     Financial   Leasing,   Inc.,   ("Wells   Fargo")   announced  the  sale  of
     substantially  all of the assets of Telmark to Wells Fargo. As of March 31,
     2003, any remaining  residual  assets and  liabilities  from these divested
     businesses have been reclassified and are included in continuing operations
     in this  filing.  Residual  assets of Telmark are  described in Note 2. All
     other residual  assets,  principally accounts receivable,  totaled $16,600
     and  residual  liabilities   totaled  $20,300  of    which   $14,200   is
     liabilities  Subject  to Compromise

     Impairment  of  Long-Lived  Assets
     SFAS No. 144,  "Accounting  for the  Impairment  or Disposal of  Long-Lived
     Assets,"  was  early  adopted  by the  Company  on  January  1,  2002,  and
     supersedes  SFAS No. 121,  "Accounting  for the  Impairment  of  Long-Lived
     Assets and for Long-Lived  Assets to be Disposed of," while  retaining many
     of the  requirements  of SFAS No.  121.  In  accordance  with SFAS No. 144,
     long-lived  assets to be held and used by an entity are to be reviewed  for
     impairment  whenever events or changes in  circumstances  indicate that the
     carrying  amount  of an  asset  may not be  recoverable.  If the sum of the
     expected future undiscounted cash flows is less than the carrying amount of
     the asset,  an impairment loss is recognized by reducing the recorded value
     to fair value.  The pre-tax  charge for  impairment  is included in cost of
     products and plan operations on the  consolidated  statements of operations
     and totaled  $21,300 in the three and nine months  ended March 31, 2003 and
     $100 in the three and nine months ended March 31, 2002.

     Subsequent Event
     On April 21, 2003,  the Company  announced that it will  immediately  begin
     exploring the  potential  sale of each of its  remaining  businesses  while
     exploring other strategic  opportunities that could result in greater value
     for Agway's creditors.  Given the events through March 31, 2003, the likely
     sale  of  each  of  the  Company's  remaining   businesses   constitutes  a
     curtailment  of the  Company's  pension  plan.  As of March 31,  2003,  the
     Company recognized a curtailment loss totaling approximately $24,300, which
     is recorded in operating costs and expenses.  In addition,  the likely sale
     of remaining businesses triggered a review of loss impairment of long-lived
     assets under FAS 144, which resulted in the above-mentioned  recognition of
     $21,300 of loss  impairment in the Company's  Agriculture  segment in March
     2003.


                                       8
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
   ------------------------------------------------------

     Basis of Consolidation
     The consolidated  financial  statements  include the accounts of all wholly
     owned subsidiaries.  All significant intercompany transactions and balances
     have  been  eliminated  in  consolidation  except  for  certain  items  for
     intercompany  transactions  between continuing and discontinued  operations
     principally  related  to  leases  between  Telmark   (discontinued  Leasing
     segment) and the continuing operations or other discontinued operations.

     Restricted Cash
     Certain  continuing  operations  cash is held in  segregated  cash accounts
     pending  distribution  and is  restricted  in its use.  At March 31,  2003,
     restricted cash relates to $15,000 in cash collateral  requirements per the
     terms of the DIP Facility to support the Company's  outstanding  letters of
     credit, $25,700 pending resolution of Surety claims against Telmark and AEP
     (see Note 6), and  miscellaneous  segregated cash accounts per the terms of
     the sale of the Agronomy and Seedway businesses.

     Income Taxes
     Agway is subject to income taxes on all income not  distributed  to patrons
     as patronage  refunds and provides for income taxes in accordance  with the
     provisions  of SFAS No.  109,  "Accounting  for  Income  Taxes."  Under the
     liability  method  specified  by SFAS No.  109,  deferred  tax  assets  and
     liabilities are based on the difference between the financial statement and
     tax basis of assets and  liabilities  as measured by the tax rates that are
     anticipated to be in effect when these  differences  reverse.  The deferred
     tax  provision  generally  represents  the net  change  in the  assets  and
     liabilities for deferred tax. A valuation  allowance is established when it
     is necessary to reduce deferred tax assets to amounts for which realization
     is more likely than not. The provision for income taxes has been  allocated
     between  continuing  and  discontinued  operations  for all  periods  where
     discontinued operations were reported separately.

     For the nine months ended March 31, 2003,  an  assessment of the changes in
     tax timing  items and income or losses  generated  additional  deferred tax
     assets.  Due to the  uncertainty of sufficient  future taxable income being
     generated to reasonably  assure  realization  of these deferred tax assets,
     additional  valuation allowance  adjustments of $28,500 and $31,300 for the
     three- and  nine-month  periods ended March 31, 2003 were  recorded.  As of
     March 31, 2003,  Agway had gross deferred  assets  recorded of $130,000 and
     gross deferred  liabilities of $78,400.  The total  valuation  allowance on
     deferred tax assets total  $56,500.  As previously  stated in Note 1, as of
     February 28, 2003, the divestiture plans announced in fiscal 2002 have been
     substantially completed. Any remaining residual assets and liabilities have
     been reclassified and are included in continuing operations.  This includes
     all deferred taxes.

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

     Comprehensive Income
     Comprehensive  income  consists of net earnings  (loss)  related to the net
     change in  unrealized  gains and  losses on  available-for-sale  securities
     (relating to Agway Insurance and included in discontinued operations),  net
     of tax,  and the net  change  in  deferred  gains  and  losses on cash flow
     hedges,  net of tax. The  deferred  gains and losses on cash flow hedges in
     the statement of comprehensive  income are net of tax expense  (benefit) of
     $2,699 and $143 for the three  months and $930 and $567 for the nine months
     ended March 31, 2003 and March 31, 2002, respectively.



                                       9
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     ------------------------------------------------------

     New Financial Accounting Standards
     SFAS No. 142,  "Goodwill and Other  Intangible  Assets," was issued in June
     2001. Under SFAS No. 142, amortization of goodwill,  including goodwill and
     intangible   assets  with  indefinite   lives  recorded  in  past  business
     combinations,  discontinues  upon adoption of this  standard.  In addition,
     goodwill recorded as a result of business combinations completed after July
     1, 2001, is not amortized. Instead, all goodwill and intangible assets with
     indefinite lives are tested for impairment annually,  or more frequently if
     circumstances  indicate potential impairment,  through a comparison of fair
     value to its carrying amount. We adopted this standard on July 1, 2002, and
     completed the first step impairment test under the new standard.  The first
     step  impairment test requires the  determination  of the fair value of the
     reporting  unit  which  is then  compared  to the  carrying  value  of that
     reporting unit. If the carrying value exceeds the fair value, a second step
     impairment  test is  required  to  measure  the amount of  impairment.  The
     results of our first step impairment test indicated potential impairment in
     our Feed reporting unit. During the third quarter ended March 31, 2003, the
     second step impairment  test was completed.  The results of our second step
     impairment test resulted in an impairment loss on goodwill of $4,500 in our
     Feed reporting unit. Fair value was determined  using the expected  present
     value of future cash flows.

     Based  on  the  conclusion  of  the  second  step  impairment  test  and in
     accordance with SFAS No. 142, the impairment loss of $4,500 was booked as a
     cumulative  effect of  accounting  change at the  beginning  of the current
     year.  Due to the  uncertainty  of sufficient  future  taxable income being
     generated to utilize any more income tax  benefits,  a valuation  allowance
     was booked to offset the income tax benefits associated with the impairment
     loss.

     The changes in the  carrying  amount of goodwill  for the nine months March
     31, 2003 are as follows:
<TABLE>

                                                                Agriculture       Country Products
                                                                  Segment         Group Segment           Total
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
     Balance as of June 30, 2002............................  $       4,506       $       1,603      $        6,109
     Goodwill acquired during the year......................              0                   0                   0
     Impairment losses......................................         (4,506)                  0              (4,506)
     Goodwill written off related to
     sale of business unit..................................              0                 (79)                (79)
                                                              -------------       -------------      --------------
     Balance as of March 31, 2003...........................  $           0       $       1,524      $        1,524
                                                              =============       =============      ==============

</TABLE>

     The prior year  adjusted  net income  for the three and nine  months  ended
     March 31, 2002, if no amortization had been deducted for goodwill, would be
     as follows:

<TABLE>
<CAPTION>
                                                                                    Three Months     Nine Months
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
     As originally reported.......................................................  $     (16,813)   $      (30,643)
     Amortization, net of tax.....................................................            257               794
                                                                                    -------------    --------------
     As adjusted..................................................................  $     (16,556)   $      (29,849)
                                                                                    =============    ==============
</TABLE>

     As  of  March  31,  2003,  the  Company  held  acquired  intangible  assets
     consisting of customer lists, trademarks,  and non-competes with a carrying
     amount of  $1,769.  Intangible  assets  like these  with  finite  lives are
     amortized. The aggregate amortization for the three- and nine-month periods
     ended March 31, 2003 totaled $172 and $310,  respectively.  As of March 31,
     2003,  the  estimated  amortization  expense in each of the next five years
     will be immaterial.


                                       10

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
     ------------------------------------------------------

     New Financial Accounting Standards (continued)
     SFAS No.  146,  "Accounting  for Costs  Associated  with  Exit or  Disposal
     ---------------------------------------------------------------------------
     Activities,"  was issued  June 2002 and is  effective  for exit or disposal
     ------------
     activities  initiated  after  December  31,  2002.  SFAS No. 146  addresses
     financial  accounting  and  reporting  for  costs  associated  with exit or
     disposal  activities and nullified  Emerging Issues Task Force (EITF) Issue
     No. 94-3, "Liability  Recognition for Certain Employee Termination Benefits
     and Other Costs to Exit an Activity  Including  Certain Costs Incurred in a
     Restructuring."  The adoption of this  standard  currently has no impact on
     the financial statements of the Company.


     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
                                           -------------------------------------
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     ---------------------------------------------------------------------------
     Guarantees of  Indebtedness of Others," or FIN 45. FIN 45 elaborates on the
     --------------------------------------
     existing  disclosure  requirements  for  most  guarantees,  including  loan
     guarantees.  It  also  clarifies  that  at the  time  a  company  issues  a
     guarantee,  the company must  recognize an initial  liability  for the fair
     value, or market value, of the obligations it assumes under that guarantee.
     However,  the provisions related to recognizing a liability at inception of
     the guarantee for the fair value of the  guarantor's  obligations  does not
     apply to product warranties or to guarantees  accounted for as derivatives.
     The initial  recognition  and  initial  measurement  provisions  apply on a
     prospective basis to guarantees issued or modified after December 31, 2002.
     The  disclosure   requirements  of  FIN  45  are  effective  for  financial
     statements of interim or annual periods ending after December 15, 2002.

     SFAS No. 149,  "Amendment of Statement 133 on  Derivative  Instruments  and
     ---------------------------------------------------------------------------
     Hedging  Activities,"  was  issued in April  2003.  SFAS No. 149 amends and
     -------------------
     clarifies  financial  accounting and reporting for  derivative  instruments
     embedded in other contracts and for hedging  activities under SFAS No. 133,
     "Accounting for Derivative  Instruments and Hedging  Activities."  SFAS No.
     149 will be  applicable  for us in our third quarter 2003. We are reviewing
     SFAS No. 149 to determine its impact, if any, on future reporting periods.

2.   CHAPTER 11 FILINGS
     ------------------
     Background
     On  October  1, 2002 (the  "Petition  Date"),  Agway  Inc.  and five of its
     subsidiaries  (collectively,  the "Debtors")  filed voluntary  petitions to
     reorganize  under  Chapter 11 of the  United  States  Bankruptcy  Code (the
     "Chapter 11  Proceedings")  in the United States  Bankruptcy  Court for the
     Northern District of New York in Utica, New York (the "Bankruptcy  Court").
     The Chapter 11 Proceedings have been  consolidated for procedural  purposes
     only and are being administered jointly under case numbers 02-65872 through
     02-65877 pursuant to an order of the Bankruptcy Court entered on October 1,
     2002. The subsidiaries that were included in the Chapter 11 Proceedings are
     Feed Commodities  International LLC, Country Best-DeBerry LLC, Country Best
     Adams, LLC, Brubaker  Agronomic  Consulting  Service LLC, and Agway General
     Agency, Inc.

     Four wholly owned Agway Inc.  subsidiaries  are not included in the Chapter
     11  Proceedings:  Agway Energy Products LLC, Agway Energy  Services,  Inc.,
     Agway  Energy  Services-PA,  Inc.  and Telmark  LLC. In  addition,  Telmark
     debenture   holders  are  not  subject  to  the  Chapter  11   Proceedings.
     Cooperative  Milling,  Inc., a company 50% owned by Agway Inc. was also not
     included in the Chapter 11  Proceedings.  Finally,  the Agway dealer stores
     are  not  included  in  the  Chapter  11   Proceedings   because  they  are
     independently owned and are not affiliated with Agway Inc. in any way.



                                       11
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


2.   CHAPTER 11 FILINGS (continued)
     ----------------------------------

     Background (continued)
     Agway  Energy  Products is a separate  subsidiary  which  historically  has
     generated, and is expected to continue to generate, sufficient cash to meet
     its needs.  Agway Energy Products requires  short-term  borrowings from the
     Company to meet seasonal  working  capital  requirements.  Such  short-term
     financing will be made  available to Agway Energy  Products as a non-debtor
     borrower on an ongoing basis by the Company or, as required,  by our senior
     lenders  as part of a  $100,000  Debtor-in-Possession  financing  agreement
     ("DIP Facility"). The details of the DIP Facility are discussed in Note 3.

     As discussed in Note 1 to the condensed consolidated financial statements,
     on February 28, 2003, Agway announced the completion of the sale of
     substantially all of the assets of Telmark to Wells Fargo. Telmark has
     retained sufficient cash to meet its ongoing needs. As of March 31, 2003,
     Telmark has total assets of $112,400 which includes cash of $56,800,
     restricted cash of $25,700, and other residual assets, including holdbacks
     from the sale, stock investment in CoBank and unsold leases, net of
     reserves, totaling $29,900. Telmark also has outstanding debentures of
     $45,500 and miscellaneous other liabilities of $8,300. As it winds up its
     business activities, Telmark LLC will continue to be financed and to be
     operated separately from Agway Inc. and is not included in the Agway Inc.
     Chapter 11 Proceedings.

     Chapter 11 Process
     Each of the Debtors  operates  its  business  and manages its property as a
     Debtor-in-Possession   pursuant  to  sections   1107(a)  and  1108  of  the
     Bankruptcy  Code. As  Debtors-in-Possession,  the Debtors are authorized to
     operate  their  business  but may not engage in  transactions  outside  the
     ordinary course of business  without the approval of the Bankruptcy  Court.
     The  Bankruptcy  Court entered  orders on October 1, 2002 granting  various
     initial requests of Agway, including payment of employee wages and salaries
     on schedule,  continuation  of Feed and Agronomy  customer  pre-pay product
     programs, and interim access to cash funding.

     Also, on October 1, 2002, the Bankruptcy Court entered an order authorizing
     the  Company  to pay  vendors  in the  ordinary  course  for all  goods and
     services received on or after October 1, 2002. We also agreed to terms of a
     DIP  Facility  with our present  senior  lender group to provide a $125,000
     facility  over a term of 18  months.  With the sale of certain  assets,  as
     defined in the DIP agreement,  the DIP Facility is reduced to $100,000.  We
     believe the DIP Facility provides adequate cash resources for Agway to meet
     future operating requirements while we restructure the business. On October
     4, 2002, the Bankruptcy Court approved the DIP Facility on an interim basis
     and on October 22, 2002,  approved the Company's motion for final access to
     the full amount of the DIP Facility. Upon obtaining final approval from the
     Bankruptcy  Court,  the DIP Facility  replaced Agway's existing senior debt
     and the credit  agreement.  See Note 3 for terms and  conditions  including
     covenants under the DIP Facility.




                                       12

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


2.   CHAPTER 11 FILINGS (continued)
     -----------------------------

     Chapter 11 Process (continued)
     On  October 9,  2002,  the United  States  Trustee  appointed  an  official
     committee  of  unsecured  creditors  (the  "Creditors'   Committee").   The
     Creditors'  Committee and its legal  representatives from time to time take
     positions  on matters  that come  before the  Bankruptcy  Court and, at the
     appropriate  time,  will  negotiate  with  Agway  the  terms  of a plan  of
     reorganization.  On October 11,  2002,  the  Creditors'  Committee  filed a
     motion seeking  reconsideration of all the first day motions entered by the
     Bankruptcy  Court  on  October  1,  2002.  As  part of its  motion  seeking
     reconsideration  of all first day orders,  the Creditors'  Committee sought
     reconsideration  of  certain of the  Company's  employee  compensation  and
     benefit programs.  Following lengthy  negotiations  between the Company and
     the  Creditors'  Committee,  the  Company  filed  a  motion  ("Compensation
     Motion") with the Court on March 7, 2003 requesting  certain  modifications
     to the Company's  compensation  programs for  executives  and certain other
     management  employees.  The  Compensation  Motion  also  provides  that for
     employees  who leave  employment  with  Agway and are  eligible  to receive
     unused and  accrued  vacation  payments,  in  general,  unused and  accrued
     vacation  earned  prior to October  1, 2002 will be  treated  as  unsecured
     claims against Agway. As compared with the Company's employee  compensation
     and  benefit  programs  in effect as of October 1, 2002,  the  Compensation
     Motion is designed to result in an aggregate  savings to Agway's  estate of
     approximately $5,000 - 5,500.  The Compensation  Motion was approved by
     the Bankruptcy Court on May 9, 2003.

     On January 30, 2003, the  Bankruptcy  Court granted a motion by the Company
     to extend the exclusivity period for filing a plan or reorganization by 120
     days to May 30, 2003. This reserves the right under  bankruptcy law for the
     Company to be the only party allowed to file a plan of reorganization  with
     the Bankruptcy Court. On May 12, 2003, the Company filed a motion to extend
     the exclusivity period for filing a plan of reorganization by an additional
     120 days to September 27, 2003.  This motion is expected to be heard by the
     Bankruptcy Court on May 27, 2003.

     At this stage,  we cannot  predict the impact of the Chapter 11 Proceedings
     on our financial condition and results of operations. However, until a plan
     of  reorganization  is developed and confirmed by the Bankruptcy  Court and
     our  creditors,   we  will  be  prohibited  from  paying  all  pre-petition
     indebtedness,   including  principal,   interest,  and  maturities  on  our
     outstanding debt securities and various other obligations or claims against
     the Company such as pending  litigation  and  environmental  claims without
     Bankruptcy  Court approval.  Accordingly,  the $33,100 maturity and related
     interest  on  subordinated  debt due on  November  1,  2002  was not  paid.
     Treatment of our pre-petition obligations will be determined by the plan of
     reorganization that is confirmed by the Bankruptcy Court.

     Historically,   the  Company   voluntarily   repurchased   certain  of  its
     securities,  including its subordinated  debentures,  when requested by the
     holders.  The Company  ceased that  practice in June 2002 and initiated the
     Chapter 11 Proceedings on October 1, 2002. To the Company's knowledge,  the
     Company's  securities do not currently have an established  trading market.
     Fair market value of the Company's securities is not presently determinable
     and it is  not  presently  known  when  such  fair  market  value  will  be
     determined.  Even though the ultimate  impact on the value of the Company's
     securities cannot be determined  currently,  it is likely that, as a result
     of the Chapter 11 Proceedings,  the value of the Company's  securities will
     be adversely impacted and this impact could be material.



                                       13
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


2.   CHAPTER 11 FILINGS (continued)
     ------------------------------

     Reorganization Costs
     Under SOP 90-7,  once a company  has filed  petitions  with the  Bankruptcy
     Court, any revenues,  expenses,  interest income, realized gains and losses
     and provisions for losses resulting from the  reorganization of the Debtors
     should be reported  separately as  reorganization  items,  except for those
     required to be reported as  discontinued  operations,  on the  statement of
     operations.  During the  three-month  period ended  September  30, 2002, we
     recorded $2,200 in pre-petition  reorganization  expenses which is recorded
     in the  selling,  general and  administrative  activities  line item of our
     statement of operations.  During the post-petition period beginning October
     1, 2002,  for the three and six months  ended March 31,  2003,  we recorded
     post-petition  reorganization expenses of $2,967 and $5,944,  respectively,
     which is disclosed as a separate  line in our statement of  operations,  as
     required  by SOP  90-7.  Reorganization  expenses  principally  related  to
     professional   services  fees  associated  with  pre-petition   contingency
     planning  and  post-petition  activities  associated  with the  Chapter  11
     Proceedings.

     Liabilities Subject to Compromise
     As a result of the Chapter 11 Proceedings,  substantially  all pre-petition
     indebtedness  of the Debtors is subject to  compromise  or other  treatment
     under  the  plan  of  reorganization.  Generally,  actions  to  enforce  or
     otherwise  effect payment of  pre-petition  liabilities  are stayed.  These
     claims are reflected in the March 31, 2003 unaudited  consolidated  balance
     sheet as liabilities  subject to compromise.  Although  pre-petition claims
     are  generally  stayed,  as part of the first  day  orders  and  subsequent
     motions  granted by the Bankruptcy  Court,  the  Bankruptcy  Court approved
     Debtors' motions to pay certain pre-petition  obligations essential for the
     ongoing  operation  of  the  Debtors'  business.  Certain  employee  wages,
     benefits and  reimbursements,  which were approved for payment as a part of
     first  day  orders,  have not been  reflected  as  liabilities  subject  to
     compromise.  The Debtors have been and intend to continue to pay undisputed
     post-petition claims of all vendors and suppliers in the ordinary course of
     business.

     As of March 31, 2003, the Debtors have liabilities subject to compromise of
     $532,066. The major classifications are as follows:

     Subordinated debt..........................................  $      423,567
     Self-insurance reserves....................................          30,027
     Miscellaneous liabilities subject to compromise............          25,634
     Medical benefit liabilities................................          20,205
     Accounts payable - trade...................................          13,423
     Deferred compensation benefits.............................          11,806
     Accrued liabilities - interest.............................           7,404
                                                                  --------------
                                                                  $      532,066
                                                                  --------------
                                                                  --------------

     Since the  filing  of the  Chapter  11  Proceedings  on  October  1,  2002,
     contractual  interest on liabilities subject to compromise of approximately
     $7,500 and  $15,000  was not  accrued  for the  three-month  and  six-month
     periods ended March 31, 2003.



                                       14
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


2.   CHAPTER 11 FILINGS (continued)
    ------------------------------

     Liabilities Subject to Compromise (continued)
     The unaudited  condensed combined  financial  statements of the Debtors are
     presented below. These statements reflect the financial  position,  results
     of operations and cash flows of the combined debtor subsidiaries, including
     certain amounts and activities between debtors and non-debtor  subsidiaries
     of the Company which are eliminated in the unaudited condensed consolidated
     financial statements.

                    Debtors' Condensed Combined Balance Sheet

<TABLE>
<CAPTION>
                                                                                                        March 31,
                                                                                                          2003
                                                                                                     --------------
<S>                                                                                                  <C>
     Cash..........................................................................................  $       33,553
     Trade notes and accounts receivable, net......................................................          35,428
     Advances and other receivables................................................................          20,040
     Inventories...................................................................................          13,348
     Other current assets..........................................................................          38,364
                                                                                                     --------------
     Current assets................................................................................  $      140,733
     Restricted cash...............................................................................          16,288
     Other security investments, including investments in subsidiaries of $106,166.................         126,790
     Property, plant and equipment, net............................................................          24,642
     Other long-term assets........................................................................             972
     Intercompany operating advance receivable from Energy and Telmark.............................          49,792
     Pension asset.................................................................................         191,963
                                                                                                     --------------
         Total assets..............................................................................  $      551,180
                                                                                                     ==============

     Current liabilities...........................................................................           8,546
     Liabilities subject to compromise.............................................................         532,066
     Long-term liabilities.........................................................................          26,984
     Preferred stock...............................................................................          31,997
     Common equity.................................................................................         (48,413)
                                                                                                     --------------
         Total liabilities and shareholders' equity................................................  $      551,180
                                                                                                     ==============
</TABLE>

                                       15
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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

2.   CHAPTER 11 FILINGS (continued)
     ------------------------------

               Debtors' Condensed Combined Statement of Operations
<TABLE>
<CAPTION>
                                                                                                     For the Period
                                                                                   For the Quarter   October 1, 2002
                                                                                        Ended            through
                                                                                      March 31,         March 31,
                                                                                        2003              2003
                                                                                    -------------    --------------
<S>                                                                                 <C>              <C>
     Net sales and revenues.......................................................  $      78,029    $      159,158
     Total operating costs and expenses...........................................        129,989           215,425
                                                                                    -------------    --------------
         Operating income (loss)..................................................        (51,960)          (56,267)
     Other operating, non-operating expenses (revenues) and tax (benefit) expense.         (5,509)           (8,840)
     Reorganization expenses......................................................          2,967             5,944
                                                                                    -------------    --------------
     Income (loss) from debtor continuing operations..............................        (49,418)          (53,371)
     Equity earnings of continuing non-debtor subsidiaries........................         25,909            33,393
     Loss from discontinued operations............................................        (16,351)          (31,804)
                                                                                    -------------    --------------
     Net income (loss)............................................................  $     (39,860)   $      (51,782)
                                                                                    =============    ==============
</TABLE>

               Debtors' Condensed Combined Statement of Cash Flows
<TABLE>
<CAPTION>
                                                                                                     For the Period
                                                                                                     October 1, 2002
                                                                                                         through
                                                                                                        March 31,
                                                                                                          2003
<S>                                                                                                  <C>
     Net cash flows provided by (used in) continuing operations....................................  $       (1,651)
     Reorganization items (excluding non-cash charges of $2,558)...................................          (3,386)
                                                                                                     --------------
     Net cash flows provided by (used in) operating activities.....................................          (5,037)

     Cash flows provided by (used in) investing activities:
         Purchases of property, plant and equipment................................................          (1,413)
         Proceeds from disposal of property, plant and equipment...................................             893
         Proceeds from disposal of discontinued operations.........................................         105,928
         Net purchase (sale) of other security investments.........................................              (4)
                                                                                                     --------------

     Net cash flows provided by (used in) investing activities:....................................         105,404

     Cash flows provided by (used in) financial activities:
         Net change in short-term notes payable....................................................         (30,233)
         Repayment of long-term debt...............................................................            (337)
         Maturity and redemption of subordinated debt..............................................          (1,856)
         Net change in capital leases..............................................................            (768)
                                                                                                                   -
         Cash dividend from Telmark................................................................          25,000
                                                                                                     --------------

     Net cash flows provided by (used in) financing activities.....................................          (8,194)

     Net cash flows provided by (used in) discontinued operations..................................         (65,645)
                                                                                                     --------------

     Net increase (decrease) in cash and equivalents...............................................          26,528
     Cash and equivalents at beginning of period...................................................           7,025
                                                                                                     --------------
     Cash and equivalents at end of period.........................................................  $       33,553
                                                                                                      =============
</TABLE>

                                       16
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


3.   BORROWINGS
     ----------

     Notes Payable
     Agway has  available  under its DIP Facility  (described  below) a $100,000
     short-term  line of credit,  up to $85,000 of which can be used for letters
     of credit.  Due to the third quarter sale of certain assets,  as defined in
     the DIP agreement, the upper limit of the line of credit was decreased from
     $125,000 to $100,000  during the quarter ended March 31, 2003. At March 31,
     2003,  there were no  outstanding  borrowings on the line of credit.  As of
     that date, the letters of credit issued,  primarily to back Agway insurance
     programs, totaled approximately $29,800.

                                              March 31,                 June 30,
                                               2003                      2002
                                           -------------         ---------------
     Borrowings on line of credit.......   $           0         $     34,180
                                           =============         ===============
     Weighted average interest rate.....          -                        5.89%
                                           =============         ===============

     Agway Senior Debt
     As more fully  described  below,  as a result of the  Company's  Chapter 11
     Proceedings,  the Agway  Senior  Debt  Agreement  ("Senior  Debt") has been
     replaced by the DIP Facility.  During the first quarter ended September 30,
     2002,  the Company had  available  under its Senior  Debt,  an  asset-based
     revolving  line of credit  for up to  $150,000  pursuant  to the terms of a
     credit  agreement  dated  March  28,  2001  between  Agway  Inc.,   certain
     subsidiaries,  and a syndicated group of lenders (the "Credit  Agreement").
     During  the first  quarter,  we sold the Agway  Insurance  Company  and the
     Sunflower  division of our CPG segment for gross proceeds of  approximately
     $42,100,  which had the  impact  of  reducing  the  commitment  level  from
     $150,000  to  $125,000.  The  Credit  Agreement  had a number of  financial
     covenants which had restricted capital spending and required us to maintain
     minimum  levels of  earnings  before  interest,  taxes,  depreciation,  and
     amortization  (EBITDA),  as  defined in the Credit  Agreement  and  minimum
     ratios of EBITDA to fixed  charges and  interest of Senior  Debt.  Prior to
     June 30,  2002,  this  Credit  Agreement  had been  amended  three times in
     response to violations  of financial  covenants.  In connection  with those
     amendments,  those  violations  were  waived  and  certain  covenants  were
     modified.  As of September 30, 2002,  Agway was in default under the Credit
     Agreement, and it was necessary to obtain a waiver regarding those covenant
     violations.  Those covenant  violations were permanently waived on November
     14, 2002, and as a result,  Agway no longer has any  obligations  under the
     Credit  Agreement.  The Senior Debt was  collateralized by a variety of our
     assets,  including the outstanding  limited  liability  company  membership
     interest of Telmark.  Interest  rates were  determined as either prime rate
     plus 2.5% or the London Interbank Offered Rate (LIBOR) plus 4%.

     On October  22,  2002,  the  Bankruptcy  Court  granted  Agway and  certain
     subsidiaries  including the non-debtor  borrowers,  final approval to enter
     into an 18-month term DIP Facility of $125,000 with its existing lenders to
     fund  working  capital  requirements  of the Debtors  during the Chapter 11
     Proceedings, and to fund the working capital requirements of the non-debtor
     borrowers.   As  in  the  former  Credit  Agreement,   interest  rates  are
     determined,  at the option of Agway,  as either prime rate plus 2.5% or the
     London Interbank Offered rate (LIBOR) plus 4%.

     The amount  available to Agway under this DIP Facility is the lesser of the
     "collateral  borrowing  base" or the  $100,000  upper  limit of the line of
     credit.  The  collateral  borrowing  base  consists  of  certain of Agway's
     eligible (as defined in the DIP Facility) accounts receivable and inventory
     as well as $15,000  of cash  collateral  and the pledge of Agway's  limited
     liability  membership  interest in Telmark. As of March 31, 2003, Agway had
     $70,200 available under the DIP Facility.


                                       17

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


3.   BORROWINGS (continued)
     ----------------------

     Agway Senior Debt (continued)
     On December 3, 2002,  Agway  announced  the  completion  of the sale of its
     Agronomy  and  Seedway  business  to GROWMARK  Inc.  for gross  proceeds of
     approximately  $57,000,  which  reduced to zero the  outstanding  revolving
     credit  balance  with our  secured  lender  and  provided  $15,000  of cash
     collateral  to  support  the  Company's  outstanding  letters  of credit as
     required per the terms of the DIP Facility.

     The DIP  Facility has a number of financial  covenants  which  restrict our
     capital  spending  and  require us to maintain  minimum  levels of earnings
     before  interest,  taxes,  depreciation,  amortization,  and  restructuring
     charges (EBITAR),  as well as a maximum level of restructuring  charges. As
     of March 31, 2003 and April 30, 2003, Agway was in violation of a financial
     covenant  that  requires  Agway to meet a minimum  level of EBITDAR for the
     rolling  12-month  periods  ended  March 31, 2003 and April 30,  2003.  The
     Company recognized  substantial  continuing operations non-cash losses from
     the required adoption of a change in accounting for goodwill,  $4,500,  and
     in relation to the potential  sale of its  businesses,  which included loss
     impairment on long-lived  assets of $21,400 and pension  charges of $24,300
     from  curtailment  of the  pension  plan.  The  Company  has also  incurred
     settlement charges related to its pension plan resulting from the amount of
     settlements incurred in the past year, including $2,700 from its continuing
     operations.  Without  these losses,  the Company met the required  level of
     EBITDAR.  On May 19, 2003, the senior lenders waived the March 31, 2003 and
     April 30, 2003  covenant  violation and amended the document to exclude the
     above losses  recognized in the March 31, 2003 financial  statements,  from
     future financial covenant calculations of EBITDAR.

     Agway Subordinated Debt
     Agway  previously  registered  with the Securities and Exchange  Commission
     (SEC) to offer debentures and money market  certificates to the public.  As
     previously  disclosed,   since  March  6,  2002,  the  Company  temporarily
     suspended its active capital  raising  efforts  through the sale of Company
     securities pending the filing of certain financial  information  related to
     its decision to sell certain  subsidiaries.  However, due to the unexpected
     failed  sale of Telmark in May 2002 and the related  uncertainty  caused by
     the  failed  sale,  Agway did not  recommence  its active  capital  raising
     efforts even though the relevant  financial  information had been filed. At
     this stage, we do not expect to sell any additional  securities in the near
     future,  if at all.  The  debentures  and  money  market  certificates  are
     unsecured and subordinated to all senior debt of Agway.  Furthermore,  as a
     result of the  Chapter 11  Proceedings  since  October 1, 2002,  payment of
     interest and maturities on these  securities are  prohibited.  Accordingly,
     the $33,100  maturity of subordinated  debt due on November 1, 2002 was not
     paid and all of the outstanding  Agway  subordinated debt of $423,600 as of
     October 1, 2002 has been classified as liabilities subject to compromise.

     Telmark Subordinated Debt
     In connection with the sale of substantially  all of its assets on February
     28, 2003,  Telmark paid all its  outstanding  long-term and short-term debt
     except for $45,500 of subordinated  debt. The subordinated  debt was called
     effective March 31, 2003 and is payable thereafter upon proper presentation
     of  securities  by  investors.  As of  May  12,  2003,  Telmark  debentures
     representing  $43,955 of principal  balance have surrendered to the Company
     in exchange for the redemption payment.  Furthermore,  as a result of these
     redemptions,  Telmark now has less than 300  debenture  holders and Telmark
     has filed a Form 15 with the  Securities and Exchange  Commission  (SEC) in
     order to terminate its reporting  obligations.  Telmark will no longer fill
     annual, quarterly, or other periodic reports with the SEC.


                                       18
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


4.   DISCONTINUED OPERATIONS
     -----------------------

     On March 6, 2002, the Company  announced  details of a  comprehensive  plan
     designed to refocus capital resources on four selected  businesses:  Animal
     Feed  and  Nutrition  (the  principal   operation  within  the  Agriculture
     segment),  Energy Products  (Energy  segment),  Produce,  and  Agricultural
     Technologies  (operations within the Country Products Group segment).  This
     plan also  disclosed our  intentions  to divest four  business  operations:
     Telmark  (the  former  Leasing  segment),   Agway  Insurance  Company  (the
     principal operation within the former Insurance segment),  and Agronomy and
     Seedway (formerly components of the Agriculture  segment).  After this plan
     was  announced,  as part of its ongoing  strategic  assessment of remaining
     Agway  businesses,  in June 2002,  the Agway  Board of  Directors  affirmed
     management's  intentions  to  actively  pursue a sale of Agway's  sunflower
     business (an operation  formerly included within the Country Products Group
     segment).

     With the announcement of our March 6, 2002 restructuring  plan, our ongoing
     strategic assessment, and our adoption of SFAS No. 144, we were required to
     separately  report the combined  results of businesses  that we were taking
     steps to sell as discontinued  operations and to immediately  recognize any
     estimated  losses directly  related to the sales of those  businesses.  The
     results of  operations  of all  discontinued  businesses  are  reported  in
     discontinued operations in the periods in which they occurred. Discontinued
     business  operations  results are reported in the income statement,  net of
     tax, in earnings  (loss) from operations of  discontinued  operations.  The
     recognition  of  estimated  losses  directly  related to the sales of these
     businesses  is  reported  in the income  statement,  net of taxes,  in gain
     (loss)  on  disposal  of  discontinued   operations.   The  sale  of  these
     discontinued  operations  was  completed on February  28, 2003.  During the
     period of sale,  the  total  assets of  discontinued  operations  and total
     liabilities of discontinued  operations are separately reported on the face
     of the  consolidated  balance  sheet.  As of March 31, 2003,  all remaining
     residual  assets and liabilities  from these divested  businesses have been
     reclassified to continuing operations.

     For  the  businesses   noted  above  that  are  reflected  in  discontinued
     operations,  a summary  of net sales and  revenues  and  pre-tax  operating
     results for the three months and nine months ended March 31, 2003 and March
     31, 2002,  respectively,  and total assets of  discontinued  operations and
     total liabilities of discontinued  operations at June 30, 2002 are detailed
     below.  A portion of the Company's  interest  expense has been allocated to
     discontinued  operations  based on the  outstanding  debt  attributable  to
     holding  these  discontinued  operations.  Finally,  income taxes have been
     allocated  between  continuing and discontinued  operations for all periods
     that present separately the results of discontinued operations.

     The income  statement  items listed below  primarily  represent the current
     year  activity  through  the  date of  sale  for  each of the  discontinued
     business units. Any remaining residual activity from the date of final sale
     is reported in continuing operations.

<TABLE>
<CAPTION>
                                                            Three Months Ended                  Nine Months Ended
                                                   -------------------------------    -------------------------------
                                                   March 31,         March 31,        March 31,         March 31,
                                                     2003              2002             2003              2002
                                                   -----------       -----------      -----------    ---------------

<S>                                                <C>                <C>             <C>               <C>
     Total sales and revenues                      $    14,112        $ 86,744        $ 113,517         $    223,607
     Pre-tax income (loss) before interest
       and taxes                                        6,812            4,924            6,305                3,745
     Interest expense allocated to discontinued
     operations                                             0            4,534            2,524               11,081
     Income (loss) from operations, before tax          6,812              390            3,781               (7,336)
</TABLE>




                                       19
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


4. DISCONTINUED OPERATIONS (continued)

                                                                      June 30,
     Discontinued Assets:                                               2002
                                                                  --------------
       Cash.....................................................  $        5,932
       Restricted cash..........................................           6,014
       Accounts receivable and notes receivable, net............         102,425
       Total lease receivables, net.............................         716,499
       Inventories..............................................          42,909
       Prepaid and other current assets.........................          51,199
       Marketable securities available for sale.................          39,826
       Other security investments...............................          41,483
       Property, plant and equipment............................          35,342
       Other assets.............................................           7,711
                                                                  --------------
           Total assets of discontinued operations..............  $    1,049,340
                                                                  ==============

     Discontinued Liabilities:
       Notes payable............................................  $      204,263
       Current portion of long-term debt.........................        126,485
       Accounts payable..........................................         22,909
       Other current liabilities.................................        161,232
       Long-term debt............................................        258,569
       Other long-term liabilities...............................         31,686
                                                                  --------------
              Total liabilities of discontinued operations....... $      805,144
                                                                  --------------
       Liabilities subject to compromise.........................              0
                                                                  --------------
                Total liabilities ..............................  $      805,144
                                                                  ==============

     The loss on  disposal  of  discontinued  operations,  net of tax,  has been
     adjusted to the current estimated loss at March 31, 2003 as follows:

<TABLE>
<CAPTION>
                                                                          Adjustments
                                                                  ------------------------------
                                                                    Three Months  Nine Months        Life-to-Date
                                                                       Ended         Ended
                                                                  ------------------------------
                                                   June 30,                                            March 31,
                                                     2002               March 31, 2003                   2003
                                                 -----------      --------------------------         --------------
<S>                                              <C>              <C>               <C>             <C>
     Impairment on long-lived assets and
         other reserves                          $     (71,633)   $      (10,284)   $     (23,324)  $       (94,957)
     Direct costs of sale......................        (18,181)           (3,300)          (5,841)          (24,022)
     Benefit plans curtailment/costs...........        (13,422)           (9,497)         (11,352)          (24,774)
                                                 -------------    --------------    -------------    --------------
     Pre-tax loss..............................       (103,236)          (23,081)         (40,517)         (143,753)
     Income tax benefit........................         17,800                 0                0            17,800
                                                 -------------    --------------    -------------    --------------
     Net loss on disposal of discontinued
       operations..............................  $     (85,436)   $      (23,081)   $     (40,517)   $     (125,953)
                                                 =============    ==============    =============    ==============
</TABLE>


     The  adjustments  during the three  months and nine months  ended March 31,
     2003 were the result of the finalization of the sale of  substantially  all
     of the assets of Telmark LLC and the  recognition  of certain  costs in the
     pension plan.

     The above net loss on disposal of discontinued  operations could be further
     adjusted  (either  increased or  decreased)  in future  periods for changes
     experienced  from  the  current  estimate  for  net  loss  on  disposal  of
     discontinued operations.

                                       20
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES
    Item 1. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
                                   (Unaudited)
                             (Thousands of Dollars)


5.   ACCOUNTING FOR DERIVATIVES AND HEDGING ACTIVITIES
     -------------------------------------------------

     The Company's  Energy segment enters into a combination of  exchange-traded
     futures  and options  contracts  and,  in certain  circumstances,  over the
     counter  options  (collectively  "derivatives")  to manage  the price  risk
     associated with future purchases of the commodities used in its operations,
     principally  heating  oil  and  propane.   Energy  has  fair  value  hedges
     associated with its fixed price purchase contracts and cash flow 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. Under SFAS No. 133, the value
     of option  contracts that Energy enters into has two  components:  time and
     intrinsic  value.  The intrinsic  value is the value by which the option is
     "in the money." The  remaining  amount of option value is  attributable  to
     time value.  Energy does not include the time value of option  contracts in
     its assessment of hedge  effectiveness and therefore records changes in the
     time value  component of its options  currently  in earnings.  At March 31,
     2003,  Energy had a derivative asset of $541. An after-tax total of $100 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 increase  (decrease)  to cost of goods
     sold for the  change in option  time  value not used in the  assessment  of
     hedge  effectiveness  was  $(2,600)  and  $(2,200) for the three months and
     $(1,100)  and $100 for the nine  months,  ended  March  31,  2003 and 2002,
     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 match its purchase and sales contracts  whenever possible to hedge price
     risk; however,  exchange-traded  commodity instruments are used principally
     to manage the price risk associated with unmatched  commodity  purchases or
     sales.  Agriculture matches all derivative  contracts with their underlying
     purchase or sale 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 nine months  ended
     March 31, 2003, was immaterial.

6.   COMMITMENTS AND CONTINGENCIES
     -----------------------------
     As of the  October 1, 2002  bankruptcy  petition  date,  substantially  all
     pending litigation against the debtors was stayed and, absent further order
     of the  Bankruptcy  Court,  no party  may take any  action  to  recover  on
     pre-petition  claims against the debtors. We cannot predict what action, if
     any,  the  Bankruptcy  Court may take with  respect to pending  litigation.
     Litigation  against  the  Company's  non-debtor  subsidiaries  has not been
     stayed.

     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  claims  which  could be
     affected by this liquidation.  Total covered amounts by RIC on these claims
     as of March 31, 2003 are  estimated at $3,200.  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.  However,  it is  anticipated  that due to the RIC, the
     Company,  at a minimum,  can expect delays in receiving cash settlement for
     claims  outstanding  under RIC  policies  and that we will not receive full
     value for such  claims.  Therefore,  the Company has  established  a $1,500
     allowance for loss on amounts reimbursable from RIC.


                                       21
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


6.   COMMITMENTS AND CONTINGENCIES (continued)
     -----------------------------------------
     Insurance Coverage (continued)
     In July 2002,  our surety  bond  provider  ("Surety")  issued  cancellation
     notices  relative  to  $23,900 of surety  bonds  supporting  our  insurance
     programs.  This has no impact on our insurance  coverage,  but it does give
     our insurance carriers the right to demand payment of the collateral amount
     provided by the bonds from the issuer of the bonds.  If our Surety  chooses
     to pay cash to our  insurers  rather than reissue  bonds,  our Surety would
     have a right to make a claim  against us for such amounts in the Chapter 11
     Proceedings.  It is our understanding that the Surety has paid or is in the
     process of paying the current demands of two of our insurers, totaling $720
     to date.  A third  insurer  has made  demand  upon the  Surety for the full
     amount of its bonds in the amount of $7,500;  however,  we understand  that
     the Surety has currently taken the position that a demand on these bonds is
     not appropriate.

     On January 29,  2003,  the Surety  filed a suit  demanding  $3,176  against
     Telmark,  LLC and AEP (Agway Energy  Products,  LLC, Agway Energy Services,
     Inc.,  Agway Energy  Services-Pa,  Inc).  The complaint  alleges that these
     non-debtor  subsidiaries  of  Agway  are  indemnitors  under  an  indemnity
     agreement  signed by Agway Inc.  in relation  to the surety  bonds  against
     which  demands are being made.  It is too early to determine  the merits of
     these claims and the impact, if any, on the financial  statements.  Agway's
     and these  subsidiaries'  anticipated  claim losses are fully reserved on a
     discounted  basis by Agway  and are  included  in  Liabilities  Subject  to
     Compromise.  The  resolution of this Surety claim will  determine,  to some
     degree,  the timing of when cash gets paid and how much gets paid  relative
     to  these  claims.  In  connection  with  the  finalization  of the sale of
     substantially  all of the assets of Telmark,  Agway has agreed that Telmark
     will either  retain  $25,700 of the proceeds from the sale or will transfer
     $25,700 to Agway under terms of an Account  Control  Agreement  restricting
     use of those funds pending  resolution of the Surety claims against Telmark
     and AEP. As of March 31, 2003, this restricted cash is held in Telmark LLC.

     Under a  Settlement  Agreement  signed  April 17, 2003 and  approved by the
     Bankruptcy  Court on May 6, 2003,  Agway and its current  primary  casualty
     program  insurer  reached  an  agreement  whereby  Agway  would  honor  the
     financial  obligations of payments within its deductible for insured claims
     occurring during the policy period from June 30, 2002 through September 30,
     2002, subject to a maximum aggregate  deductible  obligation for the period
     of $2,500.  The  insurer  agreed to pay claims  within the  deductible  for
     insured  claims  occurring in the policy periods from June 30, 2000 to June
     30, 2002 and recover its  payments  from the  collateral  provided by Agway
     prior to its filing  for  bankruptcy.  This  insurer  and the  Surety  also
     reached  agreement to extend the $10,300 bond providing  collateral for the
     policy  periods  beginning  June 30, 2000 and ending June 30, 2003 from its
     current  expiration  date of June 30, 2003 to an expiration date of October
     30, 2003.

     Note Receivable
     The sale of the Company's  former  wholesale  procurement and supply system
     was  completed  on  July  31,  2000  and  was  paid  for in  part by a note
     receivable  in the  original  amount of  $13,300  that was due and  payable
     January 2003. In connection  with a refinancing  of the obligor in December
     2001,  we agreed to extend the  $12,500  remaining  outstanding  balance to
     August  12,  2003  under  certain  conditions.   In  connection  with  this
     agreement, we became a secured party in an intercreditor agreement with the
     obligor's bank group. In January 2003, the obligor  renegotiated its entire
     financial obligations with its secured bank group and Agway Inc., extending
     the due date to October 31, 2003 of the bank and Agway debt.  The March 31,
     2003 gross outstanding  balance of $9,500 due Agway is included in advances
     and other  receivables on the balance sheet,  net of a bad-debt  reserve of
     $3,000.  The  collectibility  of that note  receivable  is  subject  to the
     ongoing successful  operation of the obligor or our ability,  if necessary,
     to realize value from the security under the intercreditor agreement.

                                       22
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


6.   COMMITMENTS AND CONTINGENCIES (continued)
     -----------------------------------------

     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.

     Net Pension Asset
     The net pension  asset on the balance sheet has been reported in accordance
     with FAS 87 and FAS 88. In  connection  with the likely sale of each of the
     Company's remaining  businesses,  presently  unrecognized  actuarial losses
     will be recognized as  settlement  losses upon the  separation of employees
     and the  settlement  of the  plan.  From June 30,  2002 to March 31,  2003,
     long-term  interest rates have increased the projected benefit  obligations
     of the plan and market value of plan assets has decreased, which materially
     increases unrecognized losses as of March 31, 2003. The ultimate settlement
     losses are  expected  to be material  but depend upon market  value of plan
     assets and interest rates at time of settlement.

     Indemnification
     In November  2002,  the FASB  issued  Interpretation  No. 45,  "Guarantor's
     Accounting and Disclosure  Requirements for Guarantees,  Including Indirect
     Guarantees of  Indebtedness of Others," or FIN 45. FIN 45 elaborates on the
     existing  disclosure  requirements  for  most  guarantees,  including  loan
     guarantees.  It  also  clarifies  that  at the  time  a  company  issues  a
     guarantee,  the company must  recognize an initial  liability  for the fair
     value, or market value, of the obligations it assumes under that guarantee.
     However,  the provisions related to recognizing a liability at inception of
     the guarantee for the fair value of the  guarantor's  obligations  does not
     apply to product warranties or to guarantees  accounted for as derivatives.
     The initial  recognition  and  initial  measurement  provisions  apply on a
     prospective basis to guarantees issued or modified after December 31, 2002.
     The  disclosure   requirements  of  FIN  45  are  effective  for  financial
     statements of interim or annual periods ending after December 15, 2002.


                                       23
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


6.   COMMITMENTS AND CONTINGENCIES (continued)
     ----------------------------------------

     Indemnification (continued)
     The  following is a summary of our  agreements  that we have  determined is
     within  the  scope of FIN 45:  When we sell  certain  assets or we sell the
     stock or substantially all of the assets and liabilities of a business,  we
     enter into  agreements  whereby we  indemnify  the buyers  with  respect to
     provisions  of the  agreement and  representations  made in the  agreement.
     Depending upon the nature of the provision or the representations made, the
     term  of the  indemnification  can be for a  period  of time  fixed  in the
     agreement,  fixed by relevant  statute of law, or may be for an  indefinite
     term. The maximum  potential amount of future payments differs by agreement
     and by provision or representation within the agreement and, in some cases,
     are not  limited.  We  recognize  the  liability  at the  inception  of the
     indemnity for the estimated fair value of the obligation assumed.

     In addition, as permitted under Delaware law, we have agreements whereby we
     indemnify  officers and directors for certain events or  occurrences  while
     the officer or director  is, or was, at our request in such  capacity.  The
     term of the  indemnification  period  is for the  officer's  or  director's
     lifetime.  The  maximum  potential  amount of future  payments  we could be
     required  to make under  these  indemnification  agreements  is  unlimited;
     however,  we have a director and officer  insurance  policy that limits our
     exposure and enables us to recover a portion of any future amounts paid.

     On or  about  May  12,  2003,  an  action was  brought  by certain security
     holders against the Company's former President and Chief Executive Officer,
     Donald P.  Cardarelli,  the Company's  Chief  Financial  Officer,  Peter J.
     O'Neill,  and the Company's  independent  certified  public  accountants,
     PricewaterhouseCoopers,  LLP, alleging  among other  things that the
     characterization  of the  financial
     condition  of the Company in the annual  reports for the fiscal years ended
     June 30, 2001 and June 24, 2000 is in  violation of the  Securities  Act of
     1933.  The suit was brought in the Supreme  Court of the State of New York,
     County of  Onondaga.  The Company  may have to  indemnify  the  individuals
     pursuant to agreements  between the Company and its officers and directors.
     It is premature to determine  the extent of loss,  if any, the Company will
     incur with regard to this matter.

     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 and which may arise due to the Chapter 11
     Proceedings. 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
     has  been  adequately  reflected  in these  accruals.  However,  given  the
     uncertainty  with  respect  to  resolution  in  bankruptcy,   the  ultimate
     resolution may have a material adverse effect on the results of operations,
     financial position, or liquidity of Agway.



                                       24
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


7.   FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING
     --------------------------------------------------
     Agway is an agricultural  cooperative  directly  engaged in  manufacturing,
     processing,  marketing and direct  distribution of various animal feeds and
     services  for its  farmer-members  and other  customers,  primarily  in the
     northeastern United States. In addition, Agway is involved in fresh produce
     repacking  operations,  the exploration and development of new technologies
     to benefit agricultural and food businesses;  the sale and delivery of fuel
     oil,  kerosene,  propane,  gasoline  and diesel  fuel;  the  marketing  and
     servicing  of heating,  ventilation,  and  air-conditioning  equipment  and
     marketing of natural gas and  electricity,  where  deregulation  makes that
     possible.  Agway reports its  continuing  operations  principally  in three
     business  segments.  Total  sales and  revenues  of each  industry  segment
     include 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, the Agway General Agency, pension income,  intersegment
     eliminations,  interest,  and the activity of all remaining residual assets
     and liabilities  from the sold businesses that were previously  reported in
     discontinued operations, as discussed in Note 4.

     As  discussed  in Note 4, as a result  of the  discontinuation  of  certain
     businesses, the following changes to segments, as previously reported, have
     been made:  The  Agriculture  segment  no longer  includes  the  results of
     Agronomy and Seedway;  the Leasing segment has been removed;  the Insurance
     segment  (Agway  Insurance)  was  removed,  and the  General  Agency is now
     combined in the Other  segment.  As stated above,  all  remaining  residual
     assets and liabilities  from the sale of the four businesses that were part
     of the  March 6,  2002  restructuring  plan are now  reported  in the Other
     category below.

<TABLE>
<CAPTION>
                                                                  Three Months Ended March 31, 2003
                                               -------------------------------------------------------------------------------------
                                                                      Country
                                                                      Products
                                                 Agriculture           Group            Energy            Other        Consolidated
                                               ---------------      ------------   ---------------    -------------    -------------

<S>    <C>                                     <C>               <C>               <C>                <C>              <C>
       Net sales and revenues to
         unaffiliated customers.......         $       57,450    $        20,573   $       271,782    $          22    $    349,827
       Intersegment sales and revenues                      0                676                20             (696)              0
                                               --------------        -----------   ---------------    -------------    ------------
           Total sales and revenues....        $       57,450    $        21,249   $       271,802    $        (674)   $    349,827
                                               ==============    ===============   ===============    =============    ============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....         $      (21,942)   $         (699)   $        28,378    $     (26,173)   $    (20,436)
                                               ==============    ===============   ===============    =============    ============

       Total assets...................         $       54,541   $       26,159     $       198,112    $     406,356    $    685,168
                                               ==============   ==============     ===============    =============    ============
</TABLE>

<TABLE>
<CAPTION>

                                                              Three Months Ended March 31, 2002
                                               -------------------------------------------------------------------------------------
<S>    <C>                                     <C>               <C>               <C>                <C>              <C>
                                                                  Country
                                                                  Products
                                                 Agriculture       Group            Energy                Other        Consolidated
                                               ---------------  --------------     ---------------    -------------    ------------
       Net sales and revenues to
         unaffiliated customers.......         $      56,334     $      35,389     $       169,474    $         141    $    261,338
       Intersegment sales and revenues                     0               978                  38           (1,016)              0
                                               --------------    -------------     ---------------    -------------    ------------
           Total sales and revenues            $      56,334     $      36,367     $       169,512    $        (875)   $    261,338
                                               ==============    =============     ===============    =============    ============
       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....         $      (2,178)    $        (233)    $       21,998     $      (2,754) $       16,833
                                               =============     =============     ===============    =============  ==============

       Total assets...................         $      75,851     $      39,041     $      156,998     $   1,318,537  $    1,590,427
                                               =============     =============     ===============    =============  ==============

</TABLE>


                                       25
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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



7.   FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (continued)
     --------------------------------------------------------------

<TABLE>
<CAPTION>
                                                               Nine Months Ended March 31, 2003
                                               -------------------------------------------------------------------------------------
<S>    <C>                                     <C>               <C>               <C>                <C>              <C>
                                                                     Country
                                                                     Products
                                               Agriculture             Group          Energy          Other             Consolidated
                                               ---------------   ---------------   --------------      ------------       --------

       Net sales and revenues to
         unaffiliated customers.......         $      171,917    $        77,373   $     548,847      $         227    $    798,364
       Intersegment sales and revenues                      0              2,231              22             (2,253)              0
                                               --------------    ---------------   --------------        ----------    -------------
          Total sales and revenues.....        $       171,917   $        79,604   $     548,869      $      (2,026)   $    798,364
                                               ===============   ===============   =============      =============    =============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....         $      (22,802)   $        (190)    $     28,962       $     (37,281)     $  (31,311)
                                               ==============    ==============    ============       =============      ===========

       Total assets...................         $       54,541    $       26,159    $    198,112       $     406,356      $  685,168
                                               ==============    ==============    ============       =============      ==========
</TABLE>

<TABLE>
<CAPTION>

                                                                 Nine Months Ended March 31, 2002

                                               -------------------------------------------------------------------------------------
<S>                                           <C>                 <C>              <C>              <C>                 <C>
                                                                      Country
                                                                      Products
                                               Agriculture             Group        Energy           Other             Consolidated
                                               ---------------       --------       ---------        ---------           --------

       Net sales and revenues to
         unaffiliated customers.......        $      174,503      $     102,052    $    415,374     $         432       $    692,361
       Intersegment sales and revenues                     0              3,011             105            (3,116)                 0

                                               -------------      -------------    ------------     -------------       ------------
       .............................
         .....Total sales and revenues         $     174,503      $     105,063    $    415,479     $      (2,684)      $    692,361
                                               =============      =============    ============     =============       ============

       Earnings (loss) from continuing
         operations before reorganization
         expenses and income taxes....         $      (4,089)     $     (1,254)    $     16,059     $     (6,686)       $     4,030
                                               =============      ==============   =============    =============       ============

       Total assets...................         $      75,851      $     39,041     $    156,998     $  1,318,537        $ 1,590,427
                                               =============      ==============   =============    =============       ============


</TABLE>






                                       26


<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


Cautionary Statement for Purposes of the "Safe Harbor" Provisions of the Private
Securities Litigation Reform Act of 1995

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.

Background
On  October  1,  2002  (the  "Petition  Date"),  Agway  Inc.  and  five  of  its
subsidiaries   (collectively,   the  "Debtors")  filed  voluntary  petitions  to
reorganize  under Chapter 11 of the United States  Bankruptcy Code (the "Chapter
11 Proceedings") in the United States Bankruptcy Court for the Northern District
of New  York in  Utica,  New York  (the  "Bankruptcy  Court").  The  Chapter  11
Proceedings have been  consolidated  for procedural  purposes only and are being
administered jointly under case numbers 02-65872 through 02-65877 pursuant to an
order of the Bankruptcy Court entered on October 1, 2002. The subsidiaries  that
were included in the Chapter 11 Proceedings were Feed Commodities  International
LLC, Country  Best-DeBerry  LLC,  Country Best Adams,  LLC,  Brubaker  Agronomic
Consulting Service LLC, and Agway General Agency, Inc.

Four wholly  owned Agway Inc.  subsidiaries  are not  included in the Chapter 11
Proceedings:  Agway Energy  Products LLC,  Agway Energy  Services,  Inc.,  Agway
Energy Services-PA, Inc. and Telmark LLC. In addition, Telmark debenture holders
are not subject to the Chapter 11  Proceedings.  Cooperative  Milling,  Inc.,  a
company  50%  owned  by Agway  Inc.  was also not  included  in the  Chapter  11
Proceedings. Finally, the Agway dealer stores are not included in the Chapter 11
Proceedings,  because they are  independently  owned and are not affiliated with
Agway Inc. in any way.

Agway Energy Products is a separate subsidiary which historically has generated,
and is  expected to continue  to  generate,  sufficient  cash to meet its needs.
Agway Energy Products  requires  short-term  borrowings from the Company to meet
seasonal and working capital  requirements.  Such  short-term  financing will be
made available to Agway Energy  Products as a non-debtor  borrower on an ongoing
basis by the  Company  or,  as  required,  by our  senior  lenders  as part of a
$100,000 Debtor-in-Possession  financing agreement ("DIP Facility"). The details
of the  DIP  Facility  are  discussed  in Note 3 to the  condensed  consolidated
financial statements. However, Agway Energy Products will continue to operate as
it has in the past and is not included in the Agway Inc. Chapter 11 Proceedings.

As discussed in Note 1 to the condensed  consolidated  financial statements,  on
February 28, 2003,  Agway announced the completion of the sale of  substantially
all of the assets of Telmark to Wells  Fargo.  Telmark has  retained  sufficient
cash to meet its ongoing needs. As it winds up its business activities,  Telmark
LLC will continue to be financed and to be operated  separately  from Agway Inc.
and is not included in the Agway Inc. Chapter 11 Proceedings.

                                       27
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


Chapter 11 Process
Each of the  Debtors  operates  its  business  and  manages  its  property  as a
Debtor-in-Possession  pursuant  to sections  1107(a) and 1108 of the  Bankruptcy
Code.  As  Debtors-in-Possession,  the Debtors are  authorized  to operate their
business  but may not engage in  transactions  outside  the  ordinary  course of
business  without the approval of the Bankruptcy  Court.  The  Bankruptcy  Court
entered orders on October 1, 2002 granting  various  initial  requests of Agway,
including  payment of employee wages and salaries on schedule,  continuation  of
Feed and Agronomy customer pre-pay product programs,  and interim access to cash
funding.  Also,  on October  1,  2002,  the  Bankruptcy  Court  entered an order
authorizing  the Company to pay vendors in the ordinary course for all goods and
services  received on or after October 1, 2002. We also agreed to terms of a DIP
Facility  with our present  senior  lender group to provide a $125,000  facility
over a term of 18 months. With the sale of certain assets, as defined in the DIP
agreement,  the DIP Facility is reduced to $100,000. We believe the DIP Facility
provides adequate cash resources for Agway to meet future operating requirements
while we restructure  the business.  On October 4, 2002,  the  Bankruptcy  Court
approved the DIP Facility on an interim basis and on October 22, 2002,  approved
the  Company's  motion for final access to the full amount of the DIP  Facility.
Upon  obtaining  final  approval  from the  Bankruptcy  Court,  the DIP Facility
replaced  Agway's existing senior debt and the credit  agreement.  See Note 3 of
the  condensed  consolidated  financial  statements  for  terms  and  conditions
including covenants under the DIP Facility.

On October 9, 2002, the United States Trustee appointed an official committee of
unsecured creditors (the "Creditors'  Committee").  The Creditors' Committee and
its legal  representatives from time to time take positions on matters that come
before the Bankruptcy  Court and, at the  appropriate  time, will negotiate with
Agway the terms of a plan of reorganization. On October 11, 2002, the Creditors'
Committee  filed a motion seeking  reconsideration  of all the first day motions
entered  by the  Bankruptcy  Court on  October  1,  2002.  As part of its motion
seeking reconsideration of all first day orders, the Creditors' Committee sought
reconsideration  of certain of the Company's  employee  compensation and benefit
programs.  Following lengthy negotiations between the Company and the Creditors'
Committee,  the Company filed a motion ("Compensation Motion") with the Court on
March 7, 2003 requesting  certain  modifications  to the Company's  compensation
programs for executives and certain other management employees. The Compensation
Motion also provides that for employees who leave  employment with Agway and are
eligible to receive unused and accrued vacation payments, in general, unused and
accrued  vacation  earned  prior to October 1, 2002 will be treated as unsecured
claims against Agway. As compared with the Company's  employee  compensation and
benefit  programs in effect as of October 1, 2002,  the  Compensation  Motion is
designed to result in an aggregate  savings to Agway's  estate of  approximately
$5,000 - 5,500.  The  Compensation  Motion  was  approved  by  the  Bankruptcy
Court on May 9, 2003.

On January 30, 2003,  the  Bankruptcy  Court  granted a motion by the Company to
extend the exclusivity period for filing a plan of reorganization by 120 days to
May 30, 2003. This reserves the right under bankruptcy law for the Company to be
the only party  allowed  to file a plan of  reorganization  with the  Bankruptcy
Court.  On May 12, 2003,  the Company  filed a motion to extend the  exclusivity
period  for  filing  a plan  of  reorganization  by an  additional  120  days to
September 27, 2003. This motion is expected to be heard by the Bankruptcy  Court
on May 27, 2003.

At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our
financial  condition  and  results  of  operations.  However,  until  a plan  of
reorganization  is  developed  and  confirmed  by the  Bankruptcy  Court and our
creditors,  we will be  prohibited  from paying all  pre-petition  indebtedness,
including principal, interest, and maturities on our outstanding debt securities
and various  other  obligations  or claims  against the Company  such as pending
litigation  and   environmental   claims  without   Bankruptcy  Court  approval.
Accordingly,  the $33,100 maturity and related interest on subordinated debt due
on November 1, 2002 was not paid. Treatment of our pre-petition obligations will
be determined by the plan of reorganization  that is confirmed by the Bankruptcy
Court.



                                       28

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
         AGWAY INC. (DEBTOR-IN-POSSESSION) AND CONSOLIDATED SUBSIDIARIES
       Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
                            AND RESULTS OF OPERATIONS
                                   (Unaudited)
                             (Thousands of Dollars)

Chapter 11 Process (continued)
Historically,  the Company  voluntarily  repurchased  certain of its securities,
including its subordinated debentures.  The Company ceased that practice in June
2002 and  initiated  the  Chapter 11  Proceedings  on  October  1, 2002.  To the
Company's  knowledge,   the  Company's  securities  do  not  currently  have  an
established trading market. Fair market value of the Company's securities is not
presently determinable and it is not presently known when such fair market value
will be  determined.  Even  though  the  ultimate  impact  on the  value  of the
Company's  securities  cannot be determined  currently,  it is likely that, as a
result of the Chapter 11 Proceedings, the value of the Company's securities will
be adversely impacted and this impact could be material.

On or about May 12,  2003,  an action was  brought  by certain  security holders
against the Company's  former President and Chief Executive  Officer,  Donald P.
Cardarelli,  the Company's Chief Financial  Officer,  Peter J. O'Neill,  and the
Company's independent certified public accountants, PricewaterhouseCoopers, LLP,
alleging among other things that the characterization of the financial condition
of the Company in the annual  reports  for the fiscal  years ended June 30, 2001
and June 24, 2000 is in violation of the  Securities  Act of 1933.  The suit was
brought in the Supreme Court of the State of New York,  County of Onondaga.  The
Company may have to indemnify the individuals pursuant to agreements between the
Company and its officers and directors.  It is premature to determine the extent
of loss, if any, the Company will incur with regard to this matter.

RESULTS OF OPERATIONS
---------------------
Agway's  continuing  operations 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.  Energy generally realizes  significantly higher
net sales and  revenues  in the winter  months due to the higher  demand for its
products from cold winter conditions.  The Agriculture feed business and Country
Products  Group net sales and revenues and operating  results are not materially
impacted by seasonal fluctuations.

Discontinued Operations
On March 6, 2002, the Company announced details of a comprehensive plan designed
to refocus  capital  resources  on four  selected  businesses:  Animal  Feed and
Nutrition (the  principal  operation  within the  Agriculture  segment),  Energy
Products (Energy segment),  Produce, and Agricultural  Technologies  (operations
within  the  Country  Products  Group  segment).  This plan also  disclosed  our
intentions to divest of four business  operations:  Telmark  (Leasing  segment),
Agway  Insurance (the principal  operation  within the Insurance  segment),  and
Agronomy and Seedway  (components of the Agriculture  segment).  After this plan
was announced,  as part of its ongoing  strategic  assessment of remaining Agway
businesses  in June 2002,  the Agway Board of  Directors  affirmed  management's
intentions to actively pursue a sale of Agway's sunflower business (an operation
formerly  included within the Country  Products Group  segment).  As required by
generally accepted accounting  principles,  the financial statements  separately
reflect the business  operations planned for divestiture,  or actually divested,
as discontinued  operations for all periods reported. For further information on
these discontinued operations, refer to Note 4.

As of  February  28,  2003,  the  above  described  divestiture  plans  had been
substantially  completed.  On August 28, 2002, Agway announced the completion of
the sale of its wholly owned insurance  subsidiary,  Agway Insurance Company, to
United Farm Family  Mutual  Insurance  Company.  On September  16,  2002,  Agway
completed the sale of its sunflower business (an operation historically included
within the Country Products Group segment) to Cenex Harvest States Cooperatives.
On December 3, 2002,  Agway announced the completion of the sale of its Agronomy
and Seedway  businesses  and related  assets to GROWMARK.  On February 28, 2003,
Agway and Wells Fargo Financial  Leasing,  Inc.,  ("Wells Fargo")  announced the
sale of  substantially  all of the assets of Telmark to Wells Fargo. As of March
31, 2003,  any remaining  residual  assets and  liabilities  from these divested
businesses have been reclassified and are included in continuing operations.

On  April  21,  2003,  the  Company  announced  that it will  immediately  begin
exploring the potential sale of each of its remaining businesses while exploring
other  strategic  opportunities  that could result in greater  value for Agway's
creditors.

                                       29
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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

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

Consolidated Results
--------------------
Consolidated  continuing  operations  net sales and  revenues  of  $349,800  and
$798,400 for the three- and  nine-month  periods ended March 31, 2003  increased
$88,500 (34%) and $106,000 (15%), respectively,  as compared to the same periods
in the prior year. The increases in both the three- and nine-month  periods were
substantially  the result of increased  sales in Energy as more fully  discussed
below.

The  consolidated  final net losses of $39,900  and  $79,100  for the three- and
nine-month  periods ended March 31, 2003  increased  $23,000  (137%) and $48,400
(158%),  respectively,  as compared to the same periods in the prior year.  This
increase in losses includes the following (increases) decreases:
<TABLE>
<CAPTION>
                                                                                   Periods
                                                                            Ended March 31, 2003
                                                                       -------------------------------
                                                                        Three Months      Nine Months
                                                                       --------------   --------------
<S>                                                                    <C>              <C>
Net discontinued operations..........................................  $     (10,700)   $        4,400
Pre-tax continuing operations........................................         37,300            35,300
Reorganization expenses..............................................          2,900             5,900
Change in continuing operations taxes................................         (6,500)           (1,700)
Cumulative effect of change in accounting............................              0             4,500
                                                                       -------------    --------------
     Increase in final net loss......................................  $      23,000    $       48,400
                                                                       =============    ==============
</TABLE>

Consolidated pre-tax losses from continuing  operations of $20,400 for the three
months  ended March 31, 2003 have  increased  $37,300 and the pre-tax  loss from
continuing  operations  of $31,300 for the nine months ended March has increased
$35,300.  Due to activities  through March 31, 2003, in March 2003,  the company
recognized $45,600 in non-cash losses in relation to its decision to explore the
potential sales of its remaining businesses.  These charges,  affecting both the
three-month  and  nine-month  periods  ending  March  31,  2003,  included  loss
impairment  on  long-lived  assets of $21,300  in the  Agriculture  segment  and
corporate  pension  charges of $24,300  from  curtailment  of the pension  plan.
Excluding  these  charges,  consolidated  pre-tax  earnings for the  three-month
period ended March 31, 2003 were $25,200,  an  improvement of $8,300 (49.4%) and
for the  nine-month  period ended March 31, 2003 were $14,300 on  improvement of
$10.300 (254.6%). The improvements in both periods are due to increased earnings
in  Energy  and   increased   earnings   in   Agriculture,   exclusive   of  the
above-mentioned  $21,300  recognition of loss  impairment.  The Country Products
Group  earnings  declined  in the  three-month  period  but  improved  over  the
nine-month period as compared to the prior year. Net corporate costs,  exclusive
of the $24,300  pension  curtailment  charge,  were  $1,900 for the  three-month
period  ended March 31,  2003,  a decrease of $900 (320%)  compared to the prior
year,  and were $13,000 for the nine months ended March 31, 2003, an increase of
$6,300  (94.2%).   The  net  corporate  cost  increase  results  from  increased
professional  service expenses  related to services  rendered in connection with
the Chapter 11 Proceedings and reduced pension income  resulting from amendments
made last fiscal year, as previously disclosed in the Agway Form 10-K as of June
30, 2002.

The change in continuing operations taxes is due to the reduced earnings for the
three- and  nine-month  periods ended March 31, 2003 compared to the prior year,
offset by the  recognition  of valuation  allowances  due to the  uncertainty of
generating  sufficient  future taxable income to assure  realization of deferred
tax assets.

As more fully  discussed in Note 1, the Company  adopted FAS No. 142,  "Goodwill
and  Other  Intangible  Assets,"  effective  July  1,  2002  and in  March  2003
recognized  a  $4,500  cumulative  effect  impairment  loss  charge  related  to
goodwill.  The change in  operations  for the remaining  businesses  and for the
discontinued operations is more fully discussed below.

                                       30

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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 $57,500 and $171,900 for the three and
nine  months  ended March 31, 2003  increased  $1,100 (2%) for the three  months
ended March 31, 2003 and  decreased  $2,600 (2%) for the nine months ended March
31, 2003.

The feed sales and revenues increased $900 (2%) for the three months ended March
31, 2003. The increase for the three months was  substantially  the result of an
increase in commodity  prices compared to the same period in the prior year. The
feed sales and revenues  decreased  $2,400 (1%) for the nine-month  period ended
March 31, 2003. The decline was  substantially  the result of reduced volumes in
manufactured  dairy and  poultry  feeds.  These  reductions  are a result of the
overall general decrease in the farm economy compared to the same periods in the
prior year.  Additionally,  sales  decreased  $1,300  (100%) for the nine months
ended  March 31,  2003 as a result of closed  Agriculture  farm stores that were
part of the planned  business  realignment  which began in mid-fiscal  2001. The
declines in sales noted above were partially offset by increased tested specific
pathogen free ("TSPF") heifer rearing service  revenues of $200 (11%) and $1,200
(22%) for the three- and nine month-periods ended March 31, 2003 compared to the
same period in the prior year from the result of  increased  utilization  of the
facilities this year compared to the same periods in the prior year.

Agriculture  pre-tax  loss of $21,900 and $22,800 for the three- and  nine-month
periods  ended  March 31, 2003  increased  $19,200  (907%) and  $18,700  (458%),
respectively, as compared to the same periods in the prior year. The decrease in
pre-tax loss resulted primarily from an impairment loss of $21,300 on long-lived
assets.  Impairment loss was tested and measured for long-lived assets likely to
be sold.  The majority of the impairment  loss  recognized is in relation to the
TSPF heifer-rearing  facilities.  Exclusive of the impairment loss,  Agriculture
had a pre-tax  loss of $600 and $1,500 for the  three-  and  nine-month  periods
ended March 31, 2003, a decrease of $1,600 and $2,600, respectively, compared to
the same periods in the prior year. The decrease in pre-tax loss resulted from a
combination  of factors.  For the  nine-month  period,  Agway received a royalty
payment  of $900  for the use of  Agway's  name in  connection  with the sale of
agricultural  products.  Additionally,  there was a reduction in  administration
expenses for the three- and  nine-month  periods  ending March 31, 2003 from the
impact of the planned  closing of  Agriculture  locations in the prior year. The
feed  business also reduced  transportation  costs by $1,800 for the nine months
ended March 31, 2003. This reduction in  transportation  costs was primarily the
result of the  optimization  of feed mills  that  resulted  in  closing  certain
locations  to  reduce  costs.  The  pre-tax  loss  for the TSPF  heifer  rearing
facilities  decreased  $200  (26%) and $300  (10%) for the three  months and the
nine-month  period  ended  March  31,  2003.  The  decrease  in the  three-  and
nine-month  periods  was a  result  of an  increase  in the  utilization  of the
facilities, along with an increase in service revenue fees earned per heifer.

Country Products Group
----------------------
Country Products Group (CPG) total sales and revenues of $21,200 and $79,600 for
the three and nine  months  ended  March 31, 2003  decreased  $15,200  (42%) and
$25,500 (24%), respectively,  as compared to the same periods in the prior year.
Sales in CPG ongoing  operations  decreased  $11,100 (34%) and $15,300 (16%) for
the three and nine months ended March 31, 2003 and sales decreased $4,000 (100%)
and $10,200  (93%) for the three and nine  months  ended March 31, 2003 from the
closing or selling of a number of CPG business  operations.  A decrease in sales
in the  continuing  operations of the Produce Group of $11,100 (34%) and $15,800
(18%), for the three and nine months ended March 31, 2003, resulted  principally
from a decrease in the volume of potatoes and empire sweets onions sold.  Potato
volume was down due to competitive conditions and empire sweets onion volume was
down due to a planned  reduction in acres  planted.  Additionally,  sales in CPG
Technologies  decreased  $200 (61%) and $100 (16%) for the three and nine months
ended March 31, 2003. The above  decrease in sales were  partially  offset by an
increase  in sales in CPG  Nutrients  of $200 (32%) and $600 (21%) for the three
and nine months ending March 31, 2003, as compared to the prior year.


                                       31

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


Country Products Group (continued)
---------------------------------
CPG pre-tax  loss of $700 for the three  months  ended March 31, 2003  increased
$500 (203%) over the same period in the prior year. Pre-tax loss of $200 for the
nine  months  ended  March 31,  2003  decreased  $1,000  (85%).  The ongoing CPG
operations  generated  pre-tax  losses of $900 and $1,300 for the three and nine
months ended March 31, 2003.  These losses were  primarily a result of decreased
produce sales mentioned above in both the three- and nine-month  periods. In the
three-month  period,  we also  incurred a decrease in margins in potatoes due to
competition  in the  market.  Additionally,  Apex  Bag was sold in  August  2002
generating a gain on the sale of $900,  which created a $700 favorable  variance
in the pre-tax  earnings for the nine months ended March 31, 2003. The remaining
combination of closed business locations and operations to be divested generated
pre-tax  income for the three and nine  months  ended March 31, 2003 of $200 and
$200, respectively.

Energy
------
Energy sales and revenues of $271,800 and $548,900 for the three and nine months
ended March 31, 2003, increased $102,300 (60%) and $133,400 (32%), respectively,
as  compared  to the same  periods  in the  prior  year.  Overall  sales  dollar
increases  from liquid  product  volume  were  $25,100  (17%) and $26,200  (6%),
respectively,  as  compared to the same  periods in the prior  year.  The volume
increases  were  primarily  the  result of higher  volumes  in  heating  oil and
propane,  which  are a result of  colder  winter  weather  in the  Northeast  as
compared  to the same  periods in the prior  year.  The  heating oil and propane
volume  increases were partially  offset by a decrease in volume for power fuels
(gasoline and diesel).  The generally weaker economic conditions compared to the
same periods in the prior year have  lowered the demand for power  fuels.  Sales
dollar  increases  relating to price in liquid products were  substantially  the
result of an  increase  in  commodity  prices  during the three- and  nine-month
periods and were $60,100 (41%) and $79,900 (19%),  respectively,  as compared to
the same periods in the prior year.  Additionally,  sales and revenues  from the
electric and natural gas marketing  business  improved $14,400 (10%) and $19,700
(5%) for the three and nine  months  ended  March 31,  2003.  The  electric  and
natural  gas  increases  are  primarily  a result  of  increase  volume in these
businesses.  Finally, the heating, ventilation and air conditioning installation
and  service  increased  sales by $2,700  (2%) and $7,700 (2%) for the three and
nine months  ended  March 31,  2003,  compared to the same  periods in the prior
year, resulting from an effort to grow this segment of the business.

Energy  pre-tax  earnings  of $28,400  and $29,000 for the three and nine months
ended March 31, 2003, increased $6,400 (29%) and $12,900 (80%), respectively, as
compared to the same periods in the prior year.  Overall  gross  margin  dollars
increased  $17,500 (26%) and $27,100 (19%)  primarily  from the increased  sales
mentioned  above.  Pre-tax  earnings were  partially  offset from an increase in
operating  expenses of $10,900  (25%) and  $15,000  (12%) for the three and nine
months ended March 31, 2003.  These  increases  resulted from higher payroll and
insurance  costs.  Interest  expense  increased  $200 (13%) for the three months
ended March 31, 2003 and  decreased  $700 (16%) for the nine months  ended March
31,  2003,  respectively,  as compared to the same period in the prior year as a
result of changes in working capital.


                                       32
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


Discontinued Operations
-----------------------
The  following   discussion   represents  the  operational  results  of  Agway's
discontinued  operations  for the three and nine months ended March 31, 2003 and
2002, respectively.
<TABLE>
<CAPTION>
                                                              Three Months Ended
March 31, 2003              Leasing        Insurance      Sunflower      Agronomy(1)      Other (2)        Total
--------------           -------------  -------------  --------------   ------------   -------------  --------------
<S>                      <C>            <C>            <C>              <C>            <C>            <C>
Total sales & revenue.   $      14,129  $           0  $            0   $          0   $        (17)  $      14,112
Pre-tax earnings (loss)
from operations.......   $       6,981  $           0  $            0   $          0   $       (169)  $       6,812
March 31, 2002
Total sales & revenue.   $      22,080  $       7,154  $       11,073   $     46,347   $     -        $      86,744
Pre-tax earnings (loss)
from operations.......   $       7,004  $         105  $         (362)  $     (1,782)  $     (4,575)  $         390

<CAPTION>
                                                               Nine Months Ended
March 31, 2003              Leasing        Insurance      Sunflower     Agronomy(1)      Other (2)        Total
--------------           -------------  -------------  --------------  -------------   -------------  --------------
<S>                      <C>            <C>            <C>              <C>            <C>            <C>
Total sales & revenue.   $      58,308  $       4,806  $       10,352   $     40,069   $        (17)  $     113,518
Pre-tax earnings (loss)
from operations.......   $      19,504  $         108  $         (485)  $    (13,269)  $     (2,077)  $       3,781

March 31, 2002
Total sales & revenue.   $      67,912  $      21,446  $       32,331   $    101,918   $      -       $     223,607
Pre-tax earnings (loss)
from operations.......   $      18,793  $         894  $         (172)  $    (15,730)  $    (11,120)  $      (7,335)
</TABLE>


(1)      Includes the  Agronomy,  Seedway,  and Brubaker  Consulting  businesses
         formerly part of the Agriculture business segment.

(2)      The Other column  includes the  elimination of  intercompany  sales and
         revenues between discontinued  operations  components and other pre-tax
         earnings  (loss) impacts of the  discontinued  operations,  principally
         interest allocated to the net investment in discontinued operations.

Leasing (Telmark)
-----------------
Leasing  total  revenues  of $14,100  and  $58,300 for the three and nine months
ended March 31, 2003  decreased  $8,000 (36%) and $9,600 (14%) compared to total
revenues of $22,100 and $67,900, respectively, for the same periods in the prior
year.  On February 28, 2003,  Telmark  sold  substantially  all of its assets to
Wells Fargo Financial Leasing, Inc., and therefore,  the sales decreased because
there is one month less activity in the respective periods compared to the prior
year.

Pre-tax earnings from continuing  operations of $7,000 and $19,500 remained flat
for the three months and increased $700 (3%) for the nine months ended March 31,
2003 compared to the same periods in the prior year.  Improved earnings were the
result of lower costs of borrowing  that more than offset the shorter time frame
due to the sale of substantially all the assets.


                                       33
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


Insurance
---------
Agway  Insurance  Company  net  revenues of $0 and $4,800 for the three and nine
months  ended  March 31,  2003,  decreased  $7,200  (100%)  and  $16,600  (77%),
respectively,  as  compared  to the same  periods in the prior  year.  The Agway
Insurance  Company was sold on August 28,  2002 to United Farm Mutual  Insurance
Company,  and therefore,  there was no activity for the three-month period ended
March 31, 2003. For the nine-month  period, the decrease in sales is due to only
two months of activity prior to the date of sale in the current year compared to
nine months of activity in the same period in the prior year.

Pre-tax earnings of the Agway Insurance Company of $0 and $100 for the three and
nine months ended March 31, 2003  decreased  $100 (100%) and $800 (87%) compared
to the same  periods in the prior year due  principally  to the August 28,  2002
sale of the company noted above.

Sunflower (Operation of the Country Products Group)
---------------------------------------------------
The Sunflower operation was previously a component of the Country Products Group
segment. Total sales and revenue of $0 and $10,400 for the three and nine months
ended March 31, 2003,  decreased $11,100 (100%) and $22,000 (68%) for the three-
and  nine-month  periods,  respectively,  as compared to the same periods in the
prior year.  The  sunflower  operation  was sold on September  16, 2002 to Cenex
Harvest States Cooperative.

Sunflower's  pre-tax  earnings of $0 increased  $400 (100%) for the three months
ended March 31, 2003, compared to the same period in the prior year. The pre-tax
loss of $500  increased  $300  (183%)  from a pre-tax  loss of $200 for the nine
months ended March 31, 2003, as compared to the same period in the prior year.

Discontinued Agriculture Components
-----------------------------------
Agronomy,  Seedway and Brubaker Consulting services were all previously reported
as part of the  Agriculture  segment.  Total sales and revenue of $0 and $40,100
for the three and nine months ended March 31, 2003 decreased  $46,400 (100%) and
$61,900 (60%), respectively, compared to the same periods in the prior year. The
decrease  in sales  resulted  from a decrease  in sales in  Agronomy  of $25,100
(100%) and $34,700  (52%),  a decrease in sales in Seedway of $21,200  (100) and
$26,400 (77%) and a decrease in sales in Brubaker of $100 (100%) and $800 (100%)
for the three- and  nine-month  periods  ended March 31,  2003,  compared to the
sales in  Agronomy,  Seedway,  and  Brubaker,  respectively,  during in the same
periods in the prior year. Sales were eliminated for the three-month  period due
principally  to the sale of the Agronomy and Seedway  components  on December 3,
2002 to GROWMARK Inc,  therefore  reporting no sales in the current quarter.  In
addition to having four months of fewer  sales,  the  decreases in sales for the
nine  months  ended  March  31,  2003  are  attributable  to dryer  than  normal
conditions  that  existed in the summer of 2002 which  caused a reduction in the
number of acres planted by our customers.  When normal summer  conditions exist,
many customers that purchase both the Agronomy and Seedway  products are able to
plant a second crop;  however,  due to the drought  conditions  in the summer of
2002,  this second  planting  generally did not occur.  The Brubaker  Consulting
operation was shut down in fiscal 2001.

Agriculture's  discontinued components pre-tax earnings of $500 increased $2,200
(125%) for the three months ended March 31, 2003  compared to the same period in
the prior year. Pre-tax loss of $13,200 for the nine months ended March 31, 2003
decreased  $2,500  (16%)  compared  to the same  period in the prior  year.  The
decrease  in pre-tax  losses for the nine months  ended March 31, 2003  resulted
from a reduction of losses for the four months we no longer owned the  business,
as  well  as  a   reduction   in   packaging   and   distribution   expenses  of
Agronomy-related  products  during the five months that we had  ownership of the
business.  These  reductions were partially  offset by inventory  write-downs of
seasonal seed products that were not sold due to the adverse weather  conditions
noted above.




                                       34
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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
-------------------------------
As discussed in more detail below, due to the Company's  projected level of cash
from  operations  and the  status  of its  previously  announced  plan to divest
certain of its businesses, the Company determined in the quarter ended September
30, 2002 that it would have difficulty in satisfying its anticipated  short-term
and long-term  liquidity  needs. As described in more detail below,  the Company
agreed to terms of a DIP Facility with its then existing  lender group and filed
for an order of protection under Chapter 11 of the United States Bankruptcy Code
on October 1, 2002.  Subsequent  to October 1, 2002,  the Company has  generated
cash from sale of discontinued operations,  sale of assets, and from operations.
As of March 31,  2003,  the Company  has  unrestricted  cash of  $93,000.  It is
currently expected that the cash on hand and the DIP Facility the Company has in
place is sufficient to pay the $45,500 called Telmark  subordinated  debt and to
meet the liquidity needs of the Company during the Chapter 11 Proceedings.

At this stage, we cannot predict the impact of the Chapter 11 Proceedings on our
financial  condition  and  results  of  operations.  However,  until  a plan  of
reorganization  is  developed  and  approved  by the  Bankruptcy  Court  and our
creditors,  we will be  prohibited  from paying all  pre-petition  indebtedness,
including principal, interest, and maturities on our outstanding debt securities
and various  other  obligations  or claims  against the Company  such as pending
litigation and  environmental  claims without  Bankruptcy  Court approval.  As a
result of the Chapter 11 Proceedings,  the $33,100 maturity and related interest
on  subordinated  debt  due  on  November  1,  2002  was  not  paid.   Following
confirmation by the Bankruptcy Court of a plan of  reorganization,  treatment of
our pre-petition obligations will be determined by the terms of that plan.

Cash Flows for Nine Months Ended March 31, 2003 and 2002
During the nine months ended March 31, 2003 and 2002,  cash  generated from sale
of  discontinued  operations and from sale of assets was a major source of funds
to finance capital improvements, to redeem debt of non-debtor subsidiaries,  and
to meet Court  authorized  obligations of debtors.  During the nine months ended
March 31, 2003,  the cash flows  generated  also provided for increased  working
capital needs.
<TABLE>
<CAPTION>
                                                  March 31,             March 31,              Increase
                                                    2003                  2002                (Decrease)
                                             ------------------     -----------------      ------------------
<S>                                          <C>                    <C>                    <C>
Net cash flows provided by (used in):
     Continuing operating activities......   $          (31,718)    $          58,284      $          (90,002)
     Investing activities of continuing
       operations.........................              701,925                 3,792                 698,133
     Financing activities of continuing
       operations.........................             (577,620)              (68,242)               (509,378)
     Discontinued operating activities....                  871                 6,166                  (5,295)
                                             ------------------     -----------------      ------------------
Net increase (decrease) in cash
     and equivalents......................   $           93,458     $               0      $           93,458
                                             ==================     =================      ===================
</TABLE>
Cash Flows from Continuing Operating Activities
Cash flows from continuing  operations for the three months ended March 31, 2003
used cash of $31,700, compared to generation cash of $58,300 for the same period
in the prior year.  The  fluctuations  in continuing  operations  cash flows are
substantially  the result of  fluctuations  in the cash required to fund working
capital.  Due to the commodities used in our Energy and Agriculture  businesses,
inventory, receivables and payables are significantly impacted by changes in the
commodity  prices.  The increased  energy commodity prices and the colder winter
weather in the Northeast during the quarter ended March 31, 2003, as compared to
the same period in the prior year,  has  increased the use of cash in the Energy
business  to fund  working  capital.  Additionally,  cash used for  pre-petition
services  associated with the contingency  planning which ultimately resulted in
the Chapter 11 Proceedings,  as well as post-petition  Chapter 11 reorganization
activities, totaled $6,300 during the nine months ended March 31, 2003.

                                       35
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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  from  Investing   Activities  of  Continuing   Operations   Capital
expenditures required cash of $9,300 and $5,100 for the three months ended March
31, 2003 and 2002,  respectively.  The increase in capital  expenditures  in the
current  year  reflects a decline in the amount of Energy  assets  leased  under
operating  leases.  Cash flows used in investing were  partially  funded by cash
generated from the proceeds from the disposal of property and  equipment,  which
amounted  to $1,300 and $8,800 for the three  months  ended  March 31,  2003 and
2002,  respectively.  Additionally,  the sale of certain discontinued operations
generated cash of $710,300 for the nine months ended March 31, 2003.

Cash Flows from  Financing  Activities  of  Continuing  Operations  For the nine
months ended March 31, 2003, the financing obligations of the Company, including
short-term notes payable and subordinated  debentures,  were reduced by $576,300
principally  through  net  cash  proceeds  received  from  the  sale of  certain
discontinued  operations.  The following details the Company's current financing
activities:

 Agway Senior Debt
Agway  has  available  under  its DIP  Facility  (described  below)  a  $100,000
short-term  line of credit,  up to  $85,000 of which can be used for  letters of
credit.  Due to the third quarter sale of certain assets,  as defined in the DIP
agreement,  the upper limit of the line of credit was decreased from $125,000 to
$100,000 during the quarter ended March 31, 2003. At March 31, 2003,  there were
no outstanding borrowings on the line of credit. As of that date, the letters of
credit issued, primarily to back Agway insurance programs, totaled approximately
$29,800.

As  more  fully  described  below,  as a  result  of the  Company's  Chapter  11
Proceedings,  the Agway Senior Debt Agreement  ("Senior Debt") has been replaced
by the DIP  Facility.  During the first quarter  ended  September 30, 2002,  the
Company had available  under its Senior Debt, an  asset-based  revolving line of
credit for up to  $150,000  pursuant  to the terms of a credit  agreement  dated
March 28, 2001 between Agway Inc., certain subsidiaries,  and a syndicated group
of lenders (the "Credit Agreement"). During the first quarter, we sold the Agway
Insurance  Company  and the  Sunflower  division  of our CPG  segment  for gross
proceeds  of  approximately  $42,100,  which  had the  impact  of  reducing  the
commitment level from $150,000 to $125,000. The Credit Agreement had a number of
financial  covenants  which had restricted  capital  spending and required us to
maintain minimum levels of earnings before interest,  taxes,  depreciation,  and
amortization  (EBITDA), as defined in the Credit Agreement and minimum ratios of
EBITDA to fixed  charges and  interest of Senior  Debt.  Prior to June 30, 2002,
this Credit  Agreement had been amended three times in response to violations of
financial covenants. In connection with those amendments,  those violations were
waived and certain covenants were modified.  As of September 30, 2002, Agway was
in default under the Credit  Agreement,  and it was necessary to obtain a waiver
regarding those covenant violations.  Those covenant violations were permanently
waived  on  November  14,  2002,  and as a  result,  Agway  no  longer  has  any
obligations under the Credit Agreement.  The Senior Debt was collateralized by a
variety of our assets,  including  the  outstanding  limited  liability  company
membership  interest of Telmark.  Interest rates were determined as either prime
rate plus 2.5% or the London Interbank Offered Rate (LIBOR) plus 4%.

On October 22, 2002, the Bankruptcy Court granted Agway and certain subsidiaries
including the  non-debtor  borrowers,  final  approval to enter into an 18-month
term DIP Facility of $125,000 with its existing  lenders to fund working capital
requirements of the Debtors during the Chapter 11  Proceedings,  and to fund the
working  capital  requirements  of the  non-debtor  borrowers.  As in the former
Credit  Agreement,  interest rates are  determined,  at the option of Agway,  as
either  prime rate plus 2.5% or the London  Interbank  Offered rate (LIBOR) plus
4%.



                                       36

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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 from Financing Activities of Continuing Operations (continued)

Agway Senior Debt (continued)
The  amount  available  to Agway  under this DIP  Facility  is the lesser of the
"collateral  borrowing  base" or the $100,000 upper limit of the line of credit.
The  collateral  borrowing  base  consists  of certain of Agway's  eligible  (as
defined  in the DIP  Facility)  accounts  receivable  and  inventory  as well as
$15,000  of  cash  collateral  and  the  pledge  of  Agway's  limited  liability
membership  interest  in  Telmark.  As of March  31,  2003,  Agway  had  $70,200
available under the DIP Facility.

 On December 3, 2002, Agway announced the completion of the sale of its Agronomy
 and Seedway  business  to GROWMARK  Inc.  for gross  proceeds of  approximately
 $57,000,  which reduced to zero the outstanding  revolving  credit balance with
 our  secured  lender and  provided  $15,000 of cash  collateral  to support the
 Company's  outstanding  letters of credit as required  per the terms of the DIP
 Facility.

 The DIP Facility has a number of financial covenants which restrict our capital
 spending and require us to maintain minimum levels of earnings before interest,
 taxes, depreciation,  amortization, and restructuring charges (EBITAR), as well
 as a maximum level of restructuring charges. As of March 31, 2003 and April 30,
 2003,  Agway was in violation of a financial  covenant that  requires  Agway to
 meet a minimum  level of EBITDAR for the rolling  12-month  periods ended March
 31, 2003 and April 30,  2003.  The Company  recognized  substantial  continuing
 operations non-cash losses from the required adoption of a change in accounting
 for goodwill,  $4,500, and in relation to the potential sale of its businesses,
 which  included loss  impairment  on  long-lived  assets of $21,400 and pension
 charges of $24,300 from  curtailment  of the pension plan. The Company has also
 incurred  settlement  charges  related to its pension plan  resulting  from the
 amount of  settlements  incurred  in the past year,  including  $2,100 from its
 continuing operations. Without these losses, the Company met the required level
 of EBITDAR.  On May 19, 2003,  the senior lenders waived the March 31, 2003 and
 April 30, 2003 covenant violation and amended the document to exclude the above
 losses  recognized  in the March 31,  2003  financial  statements,  from future
 financial covenant calculations of EBITDAR.

Agway Subordinated Debt
 Agway previously  registered with the Securities and Exchange  Commission (SEC)
 to offer debentures and money market  certificates to the public. As previously
 disclosed,  since March 6, 2002, the Company  temporarily  suspended its active
 capital  raising  efforts  through the sale of Company  securities  pending the
 filing of certain financial information related to its decision to sell certain
 subsidiaries. However, due to the unexpected failed sale of Telmark in May 2002
 and the related uncertainty caused by the failed sale, Agway did not recommence
 its  active  capital  raising  efforts  even  though  the  relevant   financial
 information  had  been  filed.  At this  stage,  we do not  expect  to sell any
 additional  securities in the near future,  if at all. The debentures and money
 market certificates are unsecured and subordinated to all senior debt of Agway.
 Furthermore, as a result of the Chapter 11 Proceedings, payment of interest and
 maturities on these  securities are  prohibited.  As a result of the Chapter 11
 Proceedings,  the $33,100 maturity of subordinated debt due on November 1, 2002
 was not paid.



                                       37

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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 from Financing Activities of Continuing Operations (continued)

Telmark Subordinated Debt
In connection with the sale of  substantially  all of its assets on February 28,
2003, Telmark paid all its outstanding  long-term and short-term debt except for
$45,500 of subordinated  debt. The subordinated  debt was called effective March
31, 2003 and is payable  thereafter  upon proper  presentation  of securities by
investors.  As of May 12,  2003,  Telmark  debentures  representing  $43,955  of
principal balance have surrendered to the Company in exchange for the redemption
payment.  Furthermore,  as a result of these  redemptions,  Telmark now has less
than 300 debenture  holders and Telmark has filed a Form 15 with the  Securities
and Exchange  Commission (SEC) in order to terminate its reporting  obligations.
Telmark will no longer fill annual,  quarterly,  or other periodic  reports with
the SEC.

Surety Liquidity Risk
In July 2002, our surety bond provider  ("Surety") issued  cancellation  notices
relative to $23,900 of surety bonds supporting our insurance programs.  This has
no impact on our insurance coverage, but it does give our insurance carriers the
right to demand payment of the collateral  amount provided by the bonds from the
issuer of the bonds.  If our Surety  chooses to pay cash to our insurers  rather
than reissue bonds, our Surety would have a right to make a claim against us for
such amounts in the Chapter 11  Proceedings.  It is our  understanding  that the
Surety has paid or is in the process of paying the current demands of two of our
insurers, totaling $720 to date. A third insurer has made demand upon the Surety
for the full amount of its bonds in the amount of $7,500; however, we understand
that the Surety has currently taken the position that a demand on these bonds is
not appropriate.

On January 29, 2003, the Surety filed a suit demanding  $3,176 against  Telmark,
LLC and AEP (Agway Energy  Products,  LLC, Agway Energy  Services,  Inc.,  Agway
Energy   Services-Pa,   Inc).  The  complaint   alleges  that  these  non-debtor
subsidiaries of Agway are  indemnitors  under an indemnity  agreement  signed by
Agway Inc. in relation to the surety bonds against which demands are being made.
It is too early to determine the merits of these claims and the impact,  if any,
on the financial statements.  Agway's and these subsidiaries'  anticipated claim
losses are fully  reserved on a  discounted  basis by Agway and are  included in
Liabilities  Subject to  Compromise.  The  resolution  of this Surety claim will
determine,  to some degree,  the timing of when cash gets paid and how much gets
paid relative to these claims.  In connection with the  finalization of the sale
of  substantially  all of the assets of Telmark,  Agway has agreed that  Telmark
will  either  retain  $25,700  of the  proceeds  from the sale or will  transfer
$25,700 to Agway under terms of an Account Control Agreement  restricting use of
those funds pending  resolution of the Surety claims against Telmark and AEP. As
of March 31, 2003, this restricted cash is held in Telmark LLC.

Under  a  Settlement  Agreement  signed  April  17,  2003  and  approved  by the
Bankruptcy  Court on May 6, 2003, Agway and its current primary casualty program
insurer reached an agreement whereby Agway would honor the financial obligations
of payments within its deductible for insured claims occurring during the policy
period from June 30,  2002  through  September  30,  2002,  subject to a maximum
aggregate deductible  obligation for the period of $2,500. The insurer agreed to
pay claims  within the  deductible  for insured  claims  occurring in the policy
periods  from June 30, 2000 to June 30, 2002 and recover its  payments  from the
collateral  provided by Agway prior to its filing for  bankruptcy.  This insurer
and the Surety  also  reached  agreement  to extend the $10,300  bond  providing
collateral  for the policy  periods  beginning June 30, 2000 and ending June 30,
2003 from its current  expiration date of June 30, 2003 to an expiration date of
October 30, 2003.


                                       38

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


CRITICAL ACCOUNTING POLICIES
----------------------------

Critical  accounting  policies  are  those  accounting  policies  that  are very
important to the  portrayal of the  Company's  financial  condition  and results
which require  management's  most  difficult,  subjective or complex  judgments,
often as a result of the need to make estimates about the effect of matters that
are inherently uncertain.  The Company believes the following to be critical and
could result in materially  different  amounts being  reported  under  different
conditions or using different assumptions.

Financial Reporting by Entities in Reorganization  Under the Bankruptcy Code SOP
90-7 requires that  pre-petition  liabilities  that are subject to compromise be
segregated  in  Agway's  unaudited  Condensed   Consolidated  Balance  Sheet  as
"Liabilities  Subject  to  Compromise"  and that  revenues,  expenses,  interest
income,  realized gains and losses, and provisions for losses resulting from the
reorganization of the Debtors be reported  separately as  reorganization  items,
except for those revenues and expenses  required to be reported as  discontinued
operations, in the unaudited Condensed Consolidated Statements of Operations.

Impairment of Long-Lived Assets
SFAS No. 144,  "Accounting for the Impairment or Disposal of Long-Lived Assets,"
was early  adopted by the Company on January 1, 2002,  and  supersedes  SFAS No.
121,  "Accounting  for the  Impairment of Long-Lived  Assets and for  Long-Lived
Assets to be Disposed of," while retaining many of the  requirements of SFAS No.
121. In accordance with SFAS No. 144,  long-lived  assets to be held and used by
an entity  are to be  reviewed  for  impairment  whenever  events or  changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If the sum of the expected future  undiscounted cash flows is less
than the carrying  amount of the asset,  an  impairment  loss is  recognized  by
reducing the recorded value to fair value.  The pre-tax charge for impairment is
included in cost of products and plan operations on the consolidated  statements
of operations  and totaled  $21,300 in the three and nine months ended March 31,
2003 and $100 in the three and nine months ended March 31, 2002.

Disposal of Long-Lived  Assets/Discontinued  Operations With the announcement of
our March 6, 2002 plan, our ongoing  strategic  assessment,  and our adoption of
SFAS No.  144, we are  required to  separately  report the  combined  results of
businesses  that we are taking steps to sell as  discontinued  operations and to
immediately  recognize any  estimated  losses  directly  related to the sales of
those  businesses.  Actual  gains,  if any,  realized  on  sale of  discontinued
operations  are not reported  until  realized.  The results of operations of all
discontinued  businesses are reported in discontinued  operations in the periods
in which they occur.  Discontinued  business  operations results are reported in
the  income  statement,  net of tax,  in  earnings  (loss)  from  operations  of
discontinued  operations.  The  recognition  of any  estimated  losses  directly
related to the sales of these  businesses are reported in the income  statement,
net of taxes,  in gain  (loss)  on  disposal  of  discontinued  operations.  The
estimation  of any loss on  disposal,  including  the direct  costs to sell,  is
dependent  on numerous  factors  that  continuously  change as we proceed in our
negotiations  to sell  these  operations.  This  creates a  situation  where our
estimate can change  frequently  and could differ  significantly  from period to
period.


                                       39
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


CRITICAL ACCOUNTING POLICIES (continued)
---------------------------------------

Commodity Instruments
SFAS No. 133,  "Accounting for Derivative  Instruments and Hedging  Activities,"
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.  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  instrument are generally  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,   or  a  forecasted
transaction, changes in the fair value of the derivative instrument are reported
in other comprehensive income. The gains and losses on the derivative instrument
that are reported in other 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 all hedges are  recognized  in
current-period earnings.

The  Company's  Energy  segment  enters into a  combination  of  exchange-traded
futures and options  contracts and, in certain  circumstances,  over-the-counter
options  (collectively  "derivatives")  to manage the price risk associated with
future purchases of the commodities used in its operations,  principally heating
oil and propane.  Energy has fair value hedges  associated  with its fixed price
purchase  contracts  and cash  flow  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.  Under SFAS No. 133, 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.

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

Liability for Self-Insurance
The Company is primarily self-insured for workers compensation, general and auto
liability and certain group health and welfare costs. Self-insurance liabilities
are  actuarially  calculated  based on claims  filed and an  estimate  of claims
incurred but not yet reported. Projection of losses concerning these liabilities
is  subject  to a high  degree  of  variability  due to  factors  such as  claim
settlement patterns, litigation trends, legal interpretations,  future levels of
health care costs and the selection of discount rates.




                                       40

<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


CRITICAL ACCOUNTING POLICIES (continued)
----------------------------------------

Employee Benefit Plans
The   actuarial   determination   of  Agway's   obligations   and   expense  for
Company-sponsored  pension  and  postretirement  benefits  is  dependent  on the
Company's  selection of assumptions  including the remaining  future life of the
plan as a  Company-sponsored  plan, the rate of retention of Company  employees,
the discount rate,  expected  long-term rate of return on plan assets,  rates of
compensation increase and health care cost trend rate.  Significant  differences
between our actual  experience or  significant  changes in our  assumptions  may
materially affect our pension income and net periodic postretirement  obligation
expense.

Revenue Recognition
We record revenue from product sales when the goods are shipped,  title and risk
of loss passes to the  customer,  and when  collection  is  reasonably  assured.
Revenue from service contracts is accounted for when the services are provided.

Income Taxes
Agway is subject to income  taxes on all  income not  distributed  to patrons as
patronage  refunds  and  provides  for  income  taxes  in  accordance  with  the
provisions of SFAS No. 109,  "Accounting  for Income Taxes." Under the liability
method specified by SFAS No. 109,  deferred tax assets and liabilities are based
on the  difference  between the financial  statement and tax basis of assets and
liabilities  as measured by the tax rates that are  anticipated  to be in effect
when these differences  reverse. The deferred tax provision generally represents
the net change in the assets and  liabilities  for  deferred  tax.  The  Company
records a valuation allowance when it is necessary to reduce deferred tax assets
to amounts for which  realization  is more likely than not.  The  provision  for
income taxes has been allocated between  continuing and discontinued  operations
for all periods where discontinued operations were reported separately.

Environmental Remediation Costs
Agway accrues for losses associated with environmental  remediation  obligations
when such losses are probable and reasonably  estimable.  Accruals for estimated
losses from environmental  remediation  obligations  generally are recognized no
later than  completion  of the remedial  feasibility  study.  Such  accruals are
adjusted as further  information  develops  or  circumstances  change.  Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties (primarily other PRPs and state  environmental  funds) are considered in
determining the Company's accrual for these losses.

New Accounting Pronouncements
In November 2002, the FASB issued Interpretation No. 45, "Guarantor's Accounting
                                  ----------------------------------------------
and Disclosure  Requirements for Guarantees,  Including  Indirect  Guarantees of
--------------------------------------------------------------------------------
Indebtedness of Others," or FIN 45. FIN 45 elaborates on the existing disclosure
-----------------------
requirements for most guarantees,  including loan guarantees.  It also clarifies
that at the time a company  issues a guarantee,  the company  must  recognize an
initial  liability for the fair value,  or market value,  of the  obligations it
assumes under that guarantee.  However,  the provisions related to recognizing a
liability at inception of the  guarantee  for the fair value of the  guarantor's
obligations does not apply to product warranties or to guarantees  accounted for
as derivatives. The initial recognition and initial measurement provisions apply
on a prospective basis to guarantees issued or modified after December 31, 2002.
The disclosure  requirements of FIN 45 are effective for financial statements of
interim or annual periods ending after December 15, 2002.


                                       41
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

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


CRITICAL ACCOUNTING POLICIES (continued)
---------------------------------------

New Accounting Pronouncements (continued)
SFAS No. 149, "Amendment of Statement 133 on Derivative  Instruments and Hedging
--------------------------------------------------------------------------------
Activities,"  was  issued  in  April2003.  SFAS No.  149  amends  and  clarifies
-----------
financial accounting and reporting for derivative  instruments embedded in other
contracts  and for  hedging  activities  under  SFAS No.  133,  "Accounting  for
Derivative  Instruments and Hedging Activities." SFAS No. 149 will be applicable
for us in our third quarter 2003. We are reviewing SFAS No. 149 to determine its
impact, if any, on future reporting periods.



                                       42
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          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  continuing  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 March 31, 2003 and 2002.  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 March 31,
2003 and 2002,  assuming a 10%  hypothetical  adverse  change in the  underlying
commodity  price,  the potential  decrease in fair value of our Energy  business
commodity  instruments  was $400 and $800,  respectively.  The potential loss in
fair value of commodity  instruments  for  Agriculture  was  immaterial for both
periods.


                                       43
<PAGE>


                    PART I. FINANCIAL INFORMATION (continued)
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES

                         Item 4. CONTROLS AND PROCEDURES


CONTROLS AND PROCEDURES
-----------------------
Within the 90-day period prior to the filing date of this quarterly report,  the
chief  executive  officer and chief  financial  officer of Agway Inc.  evaluated
Agway's disclosure controls and procedures related to the recording, processing,
summarization and reporting of information in Agway's reports that it files with
the Securities and Exchange  Commission  (SEC).  These  disclosure  controls and
procedures have been designed to ensure that (a) material  information  relating
to Agway,  including  its  consolidated  subsidiaries,  is made known to Agway's
management,  including  their  officers,  by other  employees  of Agway  and its
subsidiaries,  and (b) this  information  is  recorded,  processed,  summarized,
evaluated and reported, as applicable,  within the time periods specified in the
SEC's rules and forms. Based upon this evaluation, these officers concluded that
the design of the disclosure controls and procedures is sufficient to accomplish
their purpose.

There have been no  significant  changes in Agway's  internal  controls or other
factors that could significantly affect these controls subsequent to the date of
their  evaluation,  including any corrective  actions with regard to significant
deficiencies and material weaknesses.


                                       44

<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


Item 1.  Legal Proceedings
--------------------------
On January 29, 2003, the Surety filed a suit in the United States District Court
for the District of Maryland (and was moved to the United States  District Court
in the Northern  District of New York on April 9, 2003) demanding $3,176 against
Telmark, LLC and AEP (Agway Energy Products,  LLC, Agway Energy Services,  Inc.,
Agway Energy  Services-Pa,  Inc).  The complaint  alleges that these  non-debtor
subsidiaries of Agway are  indemnitors  under an indemnity  agreement  signed by
Agway Inc. in relation to the surety bonds against which demands are being made.
It is too early to determine the merits of these claims and the impact,  if any,
on the financial statements.  Agway's and these subsidiaries'  anticipated claim
losses are fully  reserved on a  discounted  basis by Agway and are  included in
Liabilities  Subject to  Compromise.  The  resolution  of this Surety claim will
determine,  to some degree,  the timing of when cash gets paid and how much gets
paid relative to these claims.  In connection with the  finalization of the sale
of  substantially  all of the assets of Telmark,  Agway has agreed that  Telmark
will  either  retain  $25,700  of the  proceeds  from the sale or will  transfer
$25,700 to Agway under terms of an Account Control Agreement  restricting use of
those funds pending  resolution of the Surety claims against Telmark and AEP. As
of March 31, 2003, this restricted cash is held in Telmark LLC.

On or about May 12,  2003,  an action was  brought by certain  security  holders
against the Company's  former President and Chief Executive  Officer,  Donald P.
Cardarelli,  the Company's Chief Financial  Officer,  Peter J. O'Neill,  and the
Company's independent certified public accountants, PricewaterhouseCoopers, LLP,
alleging among other things that the characterization of the financial condition
of the Company in the annual  reports  for the fiscal  years ended June 30, 2001
and June 24, 2000 is in violation of the  Securities  Act of 1933.  The suit was
brought in the Supreme Court of the State of New York,  County of Onondaga.  The
Company may have to indemnify the individuals pursuant to agreements between the
Company and its officers and directors.  It is premature to determine the extent
of loss, if any, the Company will incur with regard to this matter.

Item 2.  Changes in Securities and Use of Proceeds
--------------------------------------------------
As noted  elsewhere  in this  report  on Form  10-Q,  Agway and  certain  of its
subsidiaries  have filed for Chapter 11 under the U.S.  Bankruptcy Code. At this
stage,  the ultimate  impact of the Chapter 11 Proceedings  on Agway's  existing
securities cannot be determined.

Item 3.  Defaults Upon Senior Securities
----------------------------------------
On October 1, 2002, Agway Inc. and certain of its  subsidiaries  filed voluntary
petitions to reorganize under Chapter 11 of the U. S. Bankruptcy Code. Under the
Chapter  11  Proceedings,   we  are  prohibited  from  paying  all  pre-petition
indebtedness,  including principal,  interest, and maturities on our outstanding
debt  securities  and various other  obligations  or claims against the Company.
Accordingly,  the $33,100 maturity of subordinated  debt due on November 1, 2002
was not paid.

As of March  31,  2003 and April  30,  2003,  Agway  had  violated  its  EBITDAR
covenants  under  its  DIP  Facility.  These  covenant  violations  were  waived
effective May 19, 2003, with the third amendment to the DIP Facility.


                                       45
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

(a) 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.

         2(b)   - Asset  Purchase  Agreement  Between Agway,  Inc. (Seller)  And
                  GROWMARK,  INC.  (Buyer) dated  September  27, 2002,  filed by
                  reference to Exhibit 2.1 of Form 8-K, dated December 18, 2002.

         2(c)   - Amendment  to  Asset Purchase  Agreement  Between Agway,  Inc.
                  (Seller) And  GROWMARK,  INC.  (Buyer),  filed by reference to
                  Exhibit 2.2 of Form 8-K, dated December 18, 2002.

         2(d)   - Approval  of  Schedules  and Exhibits and Second  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.3 of
                  Form 8-K, dated December 18, 2002.

         2(e)   - Approval of  Schedules  and  Exhibits and  Third  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.4 of
                  Form 8-K, dated December 18, 2002.

         2(f)   - Approval  of  Schedules  and Exhibits and Fourth  Amendment to
                  Asset  Purchase  Agreement  Between Agway,  Inc.  (Seller) And
                  GROWMARK,  INC. (Buyer),  filed by reference to Exhibit 2.5 of
                  Form 8-K, dated December 18, 2002.

         2(g)   - Asset  Purchase  Agreement  dated  as  of December 20, 2002 By
                  and Among Wells Fargo  Financial  Leasing,  Inc.,  Agway Inc.,
                  Telmark,  LLC,  Telmark Lease  Funding II, LLC,  Telmark Lease
                  Funding III, LLC and Telease Financial  Services,  Ltd., filed
                  by reference to Exhibit  2(a) of Form 8-K,  dated  February 6,
                  2003.

         2(h)   - Amendment To Asset Purchase  Agreement dated  January 8, 2003,
                  filed by reference to Exhibit 2(b) of Form 8-K, dated February
                  6, 2003.

         2(i)   - Second  Amendment  To  Asset Purchase  Agreement dated January
                  10,  2003,  filed by  reference  to Exhibit  2(c) of Form 8-K,
                  dated February 6, 2003.

         2(j)   - Addendum  To  Asset Purchase Agreement dated January 15, 2003,
                  filed by reference to Exhibit 2(d) of Form 8-K, dated February
                  6, 2003.

         2(k)   - Letter  agreement  amongst counsel  to Agway,  Telmark,  Wells
                  Fargo Financial Leasing and the Creditors' Committee regarding
                  changes to be made to the Telmark  Asset  Purchase  Agreement,
                  filed by reference to Exhibit 2(e) of Form 8-K, dated February
                  6, 2003.

         2(l)   - Bankruptcy  Court  Order authorizing and scheduling an auction
                  and hearing to consider  approval of proposed  sale  resulting
                  from the  auction,  filed by reference to Exhibit 2(f) of Form
                  8-K, dated February 6, 2003.

                                       46
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

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

         ARTICLES OF INCORPORATION AND BY-LAWS

         3(a)   - 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(b)   - 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(c)   - Agway Inc.  By-Laws,  as  amended to January 24,  2003,  filed
                  by reference to Exhibit 3 of Form 8-K, dated February 6, 2003.

         3(d)   - Restated  Certificate  of Incorporation dated October 3, 1989,
                  filed by  reference to Exhibit 3(d) of Form10-K as of June 30,
                  2002, dated.

         INSTRUMENTS   DEFINING  THE  RIGHTS  OF  SECURITY  HOLDERS,   INCLUDING
         INDENTURES. (SEE ALSO 3(A), (B) AND (C) ABOVE.)

         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  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.

         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.

                                       47
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

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

         INSTRUMENTS  DEFINING  THE  RIGHTS  OF  SECURITY  HOLDERS,  INCLUDING
         INDENTURES.  (SEE ALSO 3(A), (B) AND (C) ABOVE.)(CONTINUED)

         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.

         MATERIAL CONTRACTS

         10(a)  - Senior Secured,  Super-Priority   Debtor-in-Possession  Credit
                  Agreement  with  lenders  dated  October  4,  2002,  filed  by
                  reference to Exhibit 99.4 of Form 8-K, dated October 15, 2002.

         10(b)  - Security  Agreement  with lenders dated October 4, 2002, filed
                  by reference to Exhibit  99.5 of Form 8-K,  dated  October 15,
                  2002.

         10(c)  - Pledge  Agreement  with  lenders dated October 4, 2002,  filed
                  by reference to Exhibit  99.6 of Form 8-K,  dated  October 15,
                  2002.


                                       48
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

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

          MATERIAL CONTRACTS (CONTINUED)

         10(d)  - Intellectual  Property  Security  Agreement with lenders dated
                  October 4, 2002,  filed by  reference  to Exhibit 99.7 of Form
                  8-K, dated October 15, 2002.

         10(e)  - 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(f)  - 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(g)  - 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(h)  - 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(i)  - 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(j)  - 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(k)  - 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(l)  - 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(m)  - Second  Amendment  and  Waiver  to  Credit  Agreement,   dated
                  January 31, 2002,  filed by reference to Exhibit 10(k) of Form
                  10-Q as of December 31, 2001, dated February 4, 2002.

         10(n)  - Third  Amendment  and Waiver to Credit Agreement,  dated April
                  3, 2002,  filed by reference to Exhibit  10(l) of Form 10-Q as
                  of March 31, 2002, dated May 15, 2002.

         10(o)  - Waiver  to  Credit  Agreement,  dated May 13,  2002,  filed by
                  reference to Exhibit  10(m) of form 10-Q as of March 31, 2002,
                  dated May 15, 2002.

         10(p)  - Consent  and  Fourth Amendment to Credit Agreement, dated July
                  30, 2002,  filed by reference to Exhibit 10(l) of Form 10-K as
                  of June 30, 2002, dated September 30, 2002.

         10(q)  - Consent  and  Fifth  Amendment  to  Credit   Agreement,  dated
                  September  13, 2002,  filed by  reference to Exhibit  10(m) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(r)  - Directors  -  Deferred  Compensation  Agreement,  filed  by
                  reference  to Exhibit  10(n) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

         10(s)  - Board  Officers - Deferred  Compensation  Agreement,  filed by
                  reference  to Exhibit  10(o) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

                                       49
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

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

          MATERIAL CONTRACTS (CONTINUED)

         10(t) -  Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(p) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(u) -  Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(q) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(v) -  Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Michael R.  Hopsicker,  filed by reference to Exhibit 10(r) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(w) -  Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Michael R.  Hopsicker,  filed by reference to Exhibit 10(s) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(x) -  Letter  dated  October  26,  2001  between  Mr.  Michael  R.
                  Hopsicker and Mr. Donald P. Cardarelli,  filed by reference to
                  Exhibit  10(t)  of  Form  10-K  as of  June  30,  2002,  dated
                  September 30, 2002.

         10(y) -  Letter dated April 20, 2001 between Mr. Roy Lubetkin and Mr.
                  Donald P.  Cardarelli,  filed by reference to Exhibit 10(u) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(z) -  Indemnification agreement dated April 30, 2001 between Agway
                  and Mr. Roy  Lubetkin,  filed by reference to Exhibit 10(v) of
                  Form 10-K as of June 30, 2002, dated September 30, 2002.

         10(aa) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Roy Lubetkin, filed by reference to Exhibit 10(w) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

         10(ab) - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Roy Lubetkin, filed by reference to Exhibit 10(x) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

         10(ac) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Dan Edinger,  filed by reference to Exhibit 10(y) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

         10(ad) - Incentive  plans for period  beginning  July 1, 2002 for Mr.
                  Dan Edinger,  filed by reference to Exhibit 10(z) of Form 10-K
                  as of June 30, 2002, dated September 30, 2002.

         10(ae) - Letter  dated  September  26, 2002 to Mr. D. J. Edinger from
                  Mr.  Donald  P.  Cardarelli  concerning  stay  pay,  filed  by
                  reference to Exhibit  10(aa) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

         10(af) - Incentive  plans for period  beginning  July 1, 2001 for Mr.
                  Jerry  Seeber,  filed by reference  to Exhibit  10(ab) of Form
                  10-K as of June 30, 2002, dated September 30, 2002.

         10(ag) - Letter  dated  January 14, 2002 to Mr. G. R. Seeber from Mr.
                  Donald P.  Cardarelli  concerning stay pay, filed by reference
                  to  Exhibit  10(ac)  of Form 10-K as of June 30,  2002,  dated
                  September 30, 2002.

         10(ah) - Stock Purchase  Agreement Between Agway Inc. and United Farm
                  Family Mutual Insurance Company, dated June 14, 2002, filed by
                  reference to Exhibit  10(ad) of Form 10-K as of June 30, 2002,
                  dated September 30, 2002.

                                       50
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

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

         MATERIAL CONTRACTS (CONTINUED)

         10(ai) - Asset  Purchase  Agreement  By and Between  Agway,  Inc. and
                  Cenex Harvest States  Cooperatives,  dated as of September 10,
                  2002,  filed by reference to Exhibit 10(ae) of Form 10-K as of
                  June 30, 2002, dated September 30, 2002.

         10(aj) - First   amendment   to   Senior   Secured,   Super-Priority
                  Debtor-in-Possession   Credit  Agreement  with  lenders  dated
                  November 14, 2002, filed herewith.

         10(ak) - License Agreement Between Agway, Inc. (Seller) And GROWMARK,
                  INC.  (Buyer) dated September 27, 2002,  filed by reference to
                  Exhibit 10 of Form 8-K, dated December 18, 2002.

         10(al) - Second   Amendment   to  Senior   Secured,   Super-Priority
                  Debtor-in-Possession   Credit  Agreement  with  lenders  dated
                  January 23, 2003, filed by reference to Exhibit 10(al) of Form
                  10-Q, dated February 14, 2003.

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

         10(am) - Third    Amendment   to   Senior    Secured,    Super-Priority
                  Debtor-in-Possession  Credit  Agreement with lenders dated May
                  19, 2003, filed herein.

         10(an) - Letter  dated  March 7, 2003 to Mr.  Donald  P.  Cardarelli,
                  former Chief  Executive  Officer,  from Mr. Gary K. Van Slyke,
                  Chairman of the Board of Directors,  concerning termination of
                  employment from Agway Inc., filed herein.

         10(ao) - Letter dated March 7, 2003 to Mr.  Michael R. Hopsicker from
                  Mr.  Gary K.  VanSlyke  concerning  proposed  modification  to
                  incentive and benefits programs, filed herein.

         10(ap) - Letter dated May 16, 2003 to Mr.  Michael R.  Hopsicker from
                  Mr. Gary K. VanSlyke  concerning  modifications  to incentives
                  and benefits programs, filed herein.

         10(aq) - Letter  dated  March 7, 2003 to Mr.  Roy  Lubetkin  from Mr.
                  Michael  R.  Hopsicker  concerning  proposed  modification  to
                  incentive and benefits programs, filed herein.

         10(ar) - Letter  dated May 16, 2003 to Mr. Roy S.  Lubetkin  from Mr.
                  Michael R. Hopsicker  concerning  modifications  to incentives
                  and benefits programs, filed herein.

         99    -  Sarbanes-Oxley   Act  of  2002   Certifications
                  -- 99.1  Certification of Chief Executive Officer
                  -- 99.2  Certification of Chief Financial Officer

                                       51
<PAGE>


                           PART II. OTHER INFORMATION
                        AGWAY INC. (DEBTOR-IN-POSSESSION)
                          AND CONSOLIDATED SUBSIDIARIES


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

(b) REPORTS ON FORM 8-K

     AGWAY  FILED  REPORTS ON FORM 8-K DURING THE THREE  MONTHS  ENDED MARCH 31,
2003, AS FOLLOWS:

     January 17, 2003
     ----------------
     To announce  that Donald P.  Cardarelli  will  resign as  President,  Chief
     Executive Officer and a Director of Agway Inc.  effective April 1, 2003 and
     to  announce  that  Michael R.  Hopsicker  has been named  Chief  Operating
     Officer  effective  immediately  and will succeed Mr.  Cardarelli  upon his
     resignation.

     February 6, 2002
     ----------------
     To announce the  resignation  of Dennis Wolff as a member of the Agway Inc.
     Board of  Directors  and the  Company's  decision  to amend its  by-laws to
     decrease the minimum  required  board  members from 12 to 10 and to suspend
     the Board of Director nomination procedures for 2003.

     February 6, 2002
     ----------------
     To file a copy of the definitive  agreement to sell  substantially  all the
     assets of  Telmark,  including  amendments  thereto,  between  Agway  Inc.,
     Telmark LLC and Wells Fargo  Financial  Leasing,  Inc.,  dated December 23,
     2002.

     March 3, 2003
     --------------
     To announce the sale of  substantially  all of the assets of Telmark LLC to
     Wells Fargo Financial  Leasing,  Inc.,  including a copy of the Amended and
     Restated Asset Purchase Agreement, dated February 26, 2003.

     AGWAY FILED REPORTS ON FORM 8-K  SUBSEQUENT TO MARCH 31, 2003, BUT PRIOR TO
     FILING OF THIS FORM 10-Q FOR THE QUARTER ENDED MARCH 31, 2003, AS FOLLOWS:

     April 21, 2003
     --------------
     To announce that the Company will immediately begin exploring the potential
     sale  of  each of its  businesses  while  also  exploring  other  strategic
     opportunities that could result in greater value for Agway's creditors.




                                       52

<PAGE>


SIGNATURES

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




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




Date          May 20, 2003                      /s/ PETER J. O'NEILL
         ---------------------         -----------------------------------------
                                                   Peter J. O'Neill
                                                Senior Vice President,
                                                  Finance & Control
                                           (Principal Financial Officer and
                                                Chief Accounting Officer)





                                       53
<PAGE>


               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13a-14
               --------------------------------------------------

                     AND 15d-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------

I, Michael R. Hopsicker, certify that:

1.   I have reviewed this quarterly report on Form 10-Q  for  the  period  ended
     March 31, 2003 of Agway Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  Designed  such  disclosure  controls  and  procedures  to  ensure  that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b)  Evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)  all  significant  deficiencies  in the design or  operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves  management  or other
         employees who have a significant  role  in  the  registrant's  internal
         controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date:    May 20, 2003
         ---------------------------

         /s/  Michael R. Hopsicker
         ---------------------------
         Michael R. Hopsicker
         President and Chief Executive Officer



                                       54
<PAGE>


               CERTIFICATIONS UNDER NEW EXCHANGE ACT RULES 13a-14
               --------------------------------------------------

                     AND 15d-14 OF THE EXCHANGE ACT OF 1934
                     --------------------------------------

I, Peter J. O'Neill, certify that:

1.   I have reviewed this quarterly report on Form 10-Q  for  the  period  ended
     March 31, 2003 of Agway Inc.;

2.   Based on my knowledge,  this  quarterly  report does not contain any untrue
     statement of a material fact or omit to state a material fact  necessary to
     make the statements  made, in light of the  circumstances  under which such
     statements  were made, not misleading with respect to the period covered by
     this quarterly report;

3.   Based on my  knowledge,  the  financial  statements,  and  other  financial
     information  included  in this  quarterly  report,  fairly  present  in all
     material respects the financial  condition,  results of operations and cash
     flows of the  registrant  as of, and for,  the  periods  presented  in this
     quarterly report;

4.   The  registrant's  other  certifying  officer  and  I are  responsible  for
     establishing and maintaining disclosure controls and procedures (as defined
     in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

     a)  Designed  such  disclosure  controls  and  procedures  to  ensure  that
         material  information   relating  to  the  registrant,   including  its
         consolidated  subsidiaries,  is made known to us by others within those
         entities, particularly during the period in which this quarterly report
         is being prepared;

     b)  Evaluated the effectiveness of the registrant's disclosure controls and
         procedures as of a date within 90 days prior to the filing date of this
         quarterly report (the "Evaluation Date"); and

     c)  Presented  in  this  quarterly   report  our   conclusions   about  the
         effectiveness  of the disclosure  controls and procedures  based on our
         evaluation as of the Evaluation Date;

5.   The registrant's  other certifying  officer and I have disclosed,  based on
     our most recent  evaluation,  to the  registrant's  auditors  and the audit
     committee of  registrant's  board of directors (or persons  performing  the
     equivalent functions):

     a)  all  significant  deficiencies  in the design or  operation of internal
         controls  which  could  adversely  affect the  registrant's  ability to
         record,   process,   summarize  and  report  financial  data  and  have
         identified  for the  registrant's  auditors any material  weaknesses in
         internal controls; and

     b)  any fraud, whether or not material, that involves  management  or other
         employees who have a significant  role  in  the  registrant's  internal
         controls; and

6.   The  registrant's  other  certifying  officer and I have  indicated in this
     quarterly  report  whether  there  were  significant  changes  in  internal
     controls  or in other  factors  that could  significantly  affect  internal
     controls  subsequent to the date of our most recent  evaluation,  including
     any corrective actions with regard to significant deficiencies and material
     weaknesses.



Date:    May 20, 2003
         ------------------------

         /s/  Peter J. O'Neill
         ------------------------
         Peter J. O'Neill
         Senior Vice President, Finance and Control