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



(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
---
ACT OF 1934
For the quarterly period ended March 31, 1999
                               --------------
                                       OR

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

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

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


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


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




Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the  preceding  12 months (or for  such  shorter  period that the registrant was
required  to  file  such  reports), and (2)  has  been  subject  to  such filing
requirements for the past 90 days.
Yes   X    No
    ----      ----
Indicate the number of shares  outstanding  of each of the  issuer's  classes of
common stock, as of the latest practicable date.




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




                                        1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX

<TABLE>
<CAPTION>

                                                                                                             PAGE NO.
                                                                                                             --------
PART I.    FINANCIAL INFORMATION
-------    ---------------------
<S>        <C>                                                                                                    <C>


           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of March 31, 1999 and June 30, 1998.........................   3

           Condensed Consolidated Statements of Operations and Retained Earnings for the three months
           and nine months ended March 31, 1999 and March 31, 1998..............................................   4

           Consolidated Statements of Comprehensive Income for the three months and nine months ended
           March 31, 1999 and March 31, 1998....................................................................   5

           Condensed Consolidated Cash Flow Statements for the nine months ended March 31, 1999
           and March 31, 1998...................................................................................   6

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


           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations.......  13

           Item 3.  Quantitative and Qualitative Disclosures About Market Risk..................................  22


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



           Item 1.  Legal Proceedings...........................................................................  24

           Item 6.  Exhibits and Reports on Form 8-K............................................................  25

           SIGNATURES...........................................................................................  26




</TABLE>






                                        2

<PAGE>




                          PART I. FINANCIAL INFORMATION
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                  Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
                                   (Unaudited)
                             (Thousands of Dollars)


<TABLE>
<CAPTION>
                                                                                    Restated         Restated
                                                                                    March 31,         June 30,
                                                                                      1999              1998
                                                                                  ------------      ------------
ASSETS
------
<S>                                                                               <C>               <C>
Current Assets:
     Trade accounts  receivable  (including  notes  receivable  of  $15,587  and
         $49,394, respectively), less allowance for doubtful accounts of
         $7,807 and $7,926, respectively.......................................   $   132,815       $   203,637
     Leases receivable, less unearned income of $61,637 and
         $65,048, respectively..................................................      139,851           137,493
     Advances and other receivables.............................................       12,449            25,480
     Inventories:
         Raw materials..........................................................       11,483             7,576
         Finished goods.........................................................      194,626           139,861
         Goods in transit and supplies..........................................        7,001             1,777
                                                                                  -----------       -----------
              Total inventories.................................................      213,110           149,214
     Prepaid expenses and other assets..........................................       40,631            52,774
                                                                                  -----------       -----------
         Total current assets...................................................      538,856           568,598

Marketable securities available for sale........................................       36,880            36,412
Other security investments......................................................       51,673            51,761
Properties and equipment, net...................................................      214,280           213,795
Long-term leases receivable, less unearned income of $126,545 and
     $110,721, respectively.....................................................      381,366           357,777
Net pension asset...............................................................      192,542           176,792
Other assets  ..................................................................       24,403            12,159
                                                                                  -----------       -----------
              Total assets......................................................  $ 1,440,000       $ 1,417,294
                                                                                  ===========       ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable.............................................................   $    96,400       $    65,100
     Current installments of long-term debt.....................................      102,090            99,173
     Current installments of subordinated debt..................................       79,309            75,589
     Accounts payable...........................................................      155,940           114,548
     Other current liabilities..................................................      104,647           114,311
                                                                                  -----------       -----------
         Total current liabilities..............................................      538,386           468,721

Long-term debt..................................................................      199,040           255,356
Subordinated debt...............................................................      408,963           386,607
Other liabilities...............................................................      104,415           100,381
                                                                                  -----------       -----------
         Total liabilities......................................................    1,250,804         1,211,065
Commitments and contingencies
Shareholders' equity:
     Preferred stock, net.......................................................       43,047            47,871
     Common stock, net..........................................................        2,520             2,571
     Accumulated other comprehensive income.....................................          617               705
     Retained earnings..........................................................      143,012           155,082
                                                                                  -----------       -----------
         Total shareholders' equity.............................................      189,196           206,229
                                                                                  -----------       -----------
              Total liabilities and shareholders' equity........................  $ 1,440,000       $ 1,417,294
                                                                                  ===========       ===========

</TABLE>

     See accompanying notes to condensed consolidated financial statements.

                                        3

<PAGE>



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

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


<TABLE>
<CAPTION>
                                                      Three Months Ended                 Nine Months Ended
                                                            March 31,                         March 31,
                                               ------------------------------       -----------------------------
                                                   1999              1998               1999              1998
                                               -------------    -------------       -------------    ------------
                                                 Restated                              Restated
<S>                                            <C>              <C>                 <C>              <C>
Net sales and revenues from:
     Product sales (including excise taxes)    $     333,247    $     356,898       $     904,606    $  1,004,908
     Leasing operations......................         17,269           16,210              51,765          48,318
     Insurance operations....................          6,505            6,658              21,068          20,482
                                               -------------    -------------       -------------    ------------
         Total net sales and revenues........        357,021          379,766             977,439       1,073,708

Cost and expenses from:
     Products and plant operations...........        296,728          322,992             840,344         937,918
     Leasing operations......................          5,610            5,654              20,164          19,801
     Insurance operations....................          4,082            4,174              13,539          12,840
     Selling, general and admin. activities..         37,217           34,164             111,100          96,979
                                               -------------    -------------       -------------    ------------
         Total operating costs and expenses..        343,637          366,984             985,147       1,067,538

Operating earnings (loss)....................         13,384           12,782              (7,708)          6,170

Interest expense, net........................         (8,155)          (8,824)            (23,892)        (22,835)
Other income, net............................          l,904            5,522              19,194          10,276
                                               -------------   --------------       -------------    ------------
Earnings (loss) before income taxes..........          7,133            9,480             (12,406)         (6,389)
Income tax benefit (expense) ................         (4,364)          (5,430)              2,028            (847)
                                               -------------   --------------       -------------    -------------

Earnings (loss) before cumulative effect
     of an accounting change.................          2,769            4,050             (10,378)         (7,236)

Cumulative effect on prior years of an
     accounting change, net of tax
     expense of $16,500......................              0                0                   0          28,956
                                               -------------   --------------       -------------    ------------
Net earnings (loss)..........................          2,769            4,050             (10,378)         21,720

Retained earnings balance, beginning of
     period..................................        140,243          133,450             155,082         117,571
Dividends....................................              0               (3)             (1,692)         (1,794)
                                               -------------   --------------       -------------    ------------
Retained earnings, end of period.............  $     143,012   $      137,497      $      143,012    $    137,497
                                               =============   ==============       =============    ============


</TABLE>










     See accompanying notes to condensed consolidated financial statements.

                                        4

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                   Three Months Ended                    Nine Months Ended
                                                         March 31,                            March 31,
                                               ------------------------------       -----------------------------
                                                   1999              1998               1999              1998
                                               -------------   --------------       -------------   -------------
                                                 Restated                             Restated
<S>                                            <C>             <C>                  <C>             <C>
Net earnings (loss)........................    $       2,769   $        4,050       $     (10,378)  $      21,720

Other comprehensive income, net of tax:
     Unrealized gains (losses) on
       available-for-sale securities:
         Unrealized holding gains (losses)
           arising during period............            (405)              62                (108)            562
         Reclassification adjustment
           for (gains) losses included in
           net income.......................               5               46                  20              45
                                               -------------   --------------       -------------   -------------

Other comprehensive income..................            (400)             108                 (88)            607

Comprehensive (loss) income................    $       2,369   $        4,158       $     (10,466)  $      22,327
                                               =============   ==============       =============   =============


</TABLE>










     See accompanying notes to condensed consolidated financial statements.

                                        5

<PAGE>



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

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

<TABLE>
<CAPTION>
                                                                                        Nine Months Ended
                                                                                             March 31,
                                                                                   -----------------------------
                                                                                      1999              1998
                                                                                   ----------        -----------
<S>                                                                                <C>               <C>
Net cash flows provided by operating activities.............................       $   46,664        $    27,370

Cash flows provided by (used in) investing activities:
     Purchases of property, plant and equipment..............................         (17,486)           (23,026)
     Proceeds from disposal of property, plant and equipment.................           1,977              6,879
     Proceeds from sale of business..........................................          14,150                298
     Cash paid for acquisitions of business..................................          (7,090)            (2,631)
     Leases originated.......................................................        (176,672)          (165,272)
     Leases repaid...........................................................         145,232            131,707
     Proceeds from sale of marketable securities.............................           5,790             11,742
     Purchases of marketable securities......................................          (6,345)           (12,537)
     Net purchase of investments in cooperatives.............................            (950)            (2,980)
                                                                                   ----------         ----------

Net cash flows used in investing activities..................................         (41,394)           (55,820)


Cash flows provided by (used in) financing activities:
     Net change in short-term borrowings.....................................          31,080             38,510
     Proceeds from long-term debt............................................          13,273             62,857
     Repayment of long-term debt.............................................         (67,106)           (82,181)
     Proceeds from sale of subordinated debt.................................         128,629            106,288
     Maturity and redemption of subordinated debt............................        (102,553)           (83,210)
     Payments on capital leases..............................................            (186)              (520)
     Redemption of stock, net ...............................................          (4,875)            (9,351)
     Cash dividends paid.....................................................          (3,532)            (3,943)
                                                                                   ----------         ----------

Net cash flows (used in) provided by financing activities....................          (5,270)            28,450
                                                                                   ----------         ----------

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

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


</TABLE>









     See accompanying notes to condensed consolidated financial statements.

                                        6

<PAGE>



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

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


1.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
     ------------------------------------------
     Basis of Presentation
     The accompanying  unaudited condensed  consolidated financial statements of
     Agway Inc. (the  "Company") have been prepared in accordance with generally
     accepted accounting  principles for interim financial  information and with
     the   instructions   to  Form  10-Q  and  Article  10  of  Regulation  S-X.
     Accordingly,  they do not  include  all of the  information  and  footnotes
     required by generally accepted accounting principles for complete financial
     statements.  In the opinion of management,  all adjustments  (consisting of
     normal recurring  accruals)  considered  necessary for a fair  presentation
     have been included. Operating results for the nine-month period ended March
     31,  1999,  are not  necessarily  indicative  of the  results  that  may be
     expected for the year ending June 30, 1999,  due to the seasonal  nature of
     certain major segments of the Company's business.  For further information,
     refer to the consolidated  financial  statements and notes thereto included
     in the annual report on Form 10-K for the year ended June 30, 1998.


     Future Accounting Requirements
     In June 1998, the Financial  Accounting Standards Board issued Statement of
     Financial  Accounting  Standards (SFAS) No. 133, "Accounting for Derivative
     Instruments   and   Hedging   Activities."   This   statement   establishes
     comprehensive   accounting  and  reporting   requirements   for  derivative
     instruments  and hedging  activities.  SFAS No. 133  requires  companies to
     record derivatives on the balance sheet as assets or liabilities,  measured
     at fair value. The accounting for gains or losses resulting from changes in
     the values of those  derivatives  is dependent on the use of the derivative
     and the type of risk being  hedged.  The  statement  is  effective  for all
     quarters of fiscal  years  beginning  after June 15,  2000.  At the present
     time,  the Company is currently  evaluating the impact that the adoption of
     SFAS No. 133 will have on its consolidated financial statements.


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

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

     Restatement
     On July 8, 1999, Agway announced  that  it  had  become aware of accounting
     irregularities in its grain marketing department.  As more fully  discussed
     in Footnote 6, upon investigation, Agway has determined that the  financial
     statements  as  previously  filed  for  the  quarter  ended  March 31, 1999
     required restatements.



                                        7

<PAGE>



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

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


2.   AGWAY FINANCIAL CORPORATION
     ---------------------------
     Agway  Financial  Corporation  (AFC) is a wholly  owned  subsidiary  of the
     Company whose principal  business  activity is securing  financing  through
     bank borrowings and issuance of corporate debt instruments to provide funds
     for the Company, its subsidiaries,  and AFC's sole wholly owned subsidiary,
     Agway Holdings Inc. (AHI), and AHI's  subsidiaries,  for general  corporate
     purposes.  The payment of principal and interest on this debt is guaranteed
     by the Company.  This  guarantee is full and  unconditional,  and joint and
     several.  In an exemptive  relief granted  pursuant to a "no action letter"
     issued by the staff of the  Securities and Exchange  Commission,  AFC, as a
     separate company,  is not required to file periodic reports with respect to
     these debt securities. However, as required by the 1934 Act, the summarized
     financial  information  concerning AFC and consolidated  subsidiaries is as
     follows:
<TABLE>
<CAPTION>
                                                 Three Months Ended                Nine Months Ended
                                                     March 31,                         March 31,
                                          -------------------------------    -------------------------------
                                               1999             1998              1999             1998
                                          -------------     -------------    -------------     -------------
         <S>                              <C>               <C>              <C>               <C>
         Net sales and revenues.........  $     260,382     $     268,572    $     705,310     $     766,947
         Operating earnings.............         22,163            20,225           25,478            33,649
         Net earnings (loss)............          1,297               399          (18,386)           (9,335)
</TABLE>


<TABLE>
<CAPTION>
                                                                               March 31,          June 30,
                                                                                  1999              1998
                                                                             -------------     -------------
         <S>                                                                 <C>               <C>
         Current assets....................................................  $     473,964     $     524,800
         Properties and equipment, net.....................................        145,659           150,618
         Noncurrent assets.................................................        475,913           451,303
                                                                             -------------     -------------
         Total assets......................................................  $   1,095,536     $   1,126,721
                                                                             =============     =============

         Current liabilities...............................................  $       2,727     $      15,173
         Short-term notes payable..........................................         96,400            65,100
         Current installments of long-term debt............................        100,013            95,247
         Current installments of subordinated debt.........................         79,309            75,589
         Long-term debt....................................................        186,615           248,128
         Subordinated debt.................................................        408,963           386,607
         Noncurrent liabilities............................................         25,580            26,474
         Shareholder's equity..............................................        195,929           214,403
                                                                             -------------     -------------
         Total liabilities and shareholder's equity........................  $   1,095,536     $   1,126,721
                                                                             =============     =============

</TABLE>

                                        8

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS
     ----------------------
     As of March 31, 1999,  the Company had certain  facilities  available  with
     banking  institutions  whereby  lenders have agreed to provide  funds up to
     $377,000 to  separately  financed  units of the  Company as follows:  AFC -
     $75,000 and Telmark - $302,000. In addition, AFC may issue up to $50,000 of
     commercial paper under the terms of a separate agreement,  backed by a bank
     standby letter of credit.



     AFC
     As of March 31, 1999, AFC's available bank facilities included a short-term
     line of credit and a long-term  revolving line of credit.  These facilities
     and AFC's ability to issue commercial paper require collateralization using
     certain of the Company's accounts receivable and non-petroleum  inventories
     ("collateral").  The  maximum  amounts  which can be drawn  under these AFC
     agreements  are  subject to a  limitation  based on a specific  calculation
     relating  to the  collateral  available.  Adequate  collateral  has existed
     throughout  the  fiscal  year to permit  AFC to borrow  amounts to meet the
     ongoing needs of the Company and is expected to continue to do so. The line
     of credit and long-term revolving line of credit  additionally  require the
     Company's investment in bank stock as additional  collateral.  In addition,
     the agreements  include certain  covenants,  the most  restrictive of which
     requires  the Company to  maintain  specific  quarterly  levels of interest
     coverage and monthly levels of tangible retained earnings.  As described in
     Footnote 6, due to the  restatement  of financial  results,  Agway violated
     certain of its  covenants in its loan  agreements,  including  the interest
     coverage  covenant as of  December  1998,  March 1999,  and June 1999 and a
     tangible  net worth  covenant  as of  November  and  December  1998.  Agway
     disclosed the above-referenced losses and restatements, and causes thereof,
     to its  lenders and has  obtained  waivers  for these  violations,  and the
     covenants in the loan  agreements  have been amended  through the remaining
     term  of the  agreements.  AFC  annually  renews  its  line of  credit  and
     commercial  paper  program in the quarter  ended  December  31. The Company
     expects to continue to have appropriate and adequate  financing to meet its
     ongoing needs.

     The specifics of these arrangements are as follows:
<TABLE>
<CAPTION>
                                                                       Outstanding
                                                   Available    ---------------------------
                                                    3/31/99       3/31/99          6/30/98     Term Expires
                                                  ----------    ----------      -----------    ------------
     <S>                                          <C>           <C>             <C>                <C>
     Short-term line of credit*................   $ 50,000      $        0      $         0        12/31/99
     Long-term revolving line of credit........   $ 25,000      $        0      $         0        01/01/01
     Commercial paper..........................   $ 50,000      $    1,400      $    30,100        12/31/99

</TABLE>

     *AFC's  short-term  line of credit  facility  provides  for an  increase to
     $75,000,  which will  become  available  on  October 1, 1999,  to assist in
     refinancing maturing subordinated debt.

     In  addition,   Agway,   through  AFC,  offers  subordinated  money  market
     certificates  (and  previously  offered  subordinated  debentures)  to  the
     public.  AFC's subordinated debt is not redeemable by the holder.  However,
     AFC does have a practice  of  repurchasing  at face  value,  plus  interest
     accrued at the stated rate,  certain  subordinated debt whenever  presented
     for repurchase.  The foregoing debt bears interest payable semi-annually on
     January l and July 1 of each  year.  The  money  market  certificates  bear
     interest  at a rate that is the  greater of the stated rate or a rate based
     upon the average discount rate for U.S.  Treasury Bills, with maturities of
     26 weeks.  Subordinated money market  certificates due between October 1999
     and  October  2013 bear a weighted  average  interest  rate of 8.0%,  while
     subordinated debentures due between July 1999 and July 2003 bear a weighted
     average interest rate of 8.1%.



                                        9

<PAGE>



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

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


3.   BORROWING ARRANGEMENTS (continued)
     ----------------------------------
     Telmark
     As of March 31, 1999,  Telmark's  available  credit  facilities  from banks
     allow  Telmark  to  borrow  up to an  aggregate  of  $302,000.  Uncommitted
     short-term line of credit agreements permit Telmark to borrow up to $52,000
     on an  uncollateralized  basis with interest paid upon maturity.  The lines
     bear  interest  at  money  market  variable  rates.  A  committed  $250,000
     partially  collateralized  revolving line of credit permits Telmark to draw
     short-term  funds bearing  interest at money market rates or draw long-term
     debt at rates  appropriate for the term of the note drawn. The total amount
     outstanding as of March 31, 1999,  under the short-term lines of credit was
     $52,000 and under the revolving  term loan facility was $151,000,  of which
     $108,000 was long-term.  As of June 30, 1998, the total amount  outstanding
     was $20,000  under the  short-term  lines of credit and under the revolving
     term loan  facility was  $165,000,  of which  $150,000 was  long-term.  The
     uncommitted  lines of credit  expire  within  the next 12  months,  and the
     $250,000 revolving term loan facility is available through August 1, 2000.

     Telmark had  balances  outstanding  on  uncollateralized  senior notes from
     private placements totaling $160,000 and $169,000 at March 31, 1999, and at
     June 30, 1998,  respectively.  The principal  bears interest at fixed rates
     ranging from 6.5% to 8.9%.  The principal  payments  commence May 1999 with
     final installment due in May 2004. Interest is payable semiannually on each
     senior note.  Principal  payments are both semiannual and annual.  The note
     agreements  are similar to one another and each contains  several  specific
     financial covenants.

     Telmark, through a wholly owned special purpose subsidiary, has two classes
     of lease-backed notes outstanding totaling $11,800 and $17,700 at March 31,
     1999,  and June 30, 1998,  respectively,  payable to  insurance  companies.
     Interest rates on these classes of notes are 6.58% and 7.01%, respectively.
     The  notes  are  collateralized  by  leases,  which  Telmark  sold  to this
     subsidiary, having an aggregate present value of contractual lease payments
     equal to the principal  balance of the notes. The final scheduled  maturity
     of these notes is December 2004.

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


     The Company's  long-term and  subordinated  debt  outstanding  at March 31,
     1999, as compared to June 30, 1998, is as follows:
<TABLE>
<CAPTION>
                                                               AFC
                                     Agway             (excluding Telmark)               Telmark                   Total
                             ----------------------   ----------------------   -----------------------   -----------------------
                                3/99         6/98        3/99        6/98          3/99        6/98          3/99         6/98
                             ---------   ----------   ----------   ---------   ----------   ----------   ----------   ----------
  <S>                        <C>         <C>          <C>          <C>         <C>          <C>          <C>          <C>
     Long-term debt ......   $  14,502   $   11,154   $    6,818   $   6,698   $  279,810   $  336,677   $  301,130   $  354,529
     Currently payable.....      2,077        3,926        1,167       1,661       98,846       93,586      102,090       99,173
                             ---------   ----------   ----------   ---------   ----------   ----------   ----------   ----------
     Net long-term debt...   $  12,425   $    7,228   $    5,651   $   5,037   $  180,964   $  243,091   $  199,040   $  255,356
                             =========   ==========   ==========   =========   ==========   ==========   ==========   ==========

     Subordinated debt....   $       0   $        0   $  451,147   $ 428,190   $   37,125   $   34,006   $  488,272   $  462,196
     Currently payable.....          0            0       61,109      75,589       18,200            0       79,309       75,589
                             ---------   ----------   ----------   ---------   ----------   ----------   ----------   ----------
     Net subordinated debt   $       0   $        0   $  390,038   $ 352,601   $   18,925   $   34,006   $  408,963   $  386,607
                             =========   ==========   ==========   =========   ==========   ==========   ==========   ==========
</TABLE>




                                       10

<PAGE>



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

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


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

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

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

5.   SUBSEQUENT EVENT
     ----------------
     On  April  8,  1999,  the  Company  announced  that  it  is  combining  its
     agricultural  products and retail  services  businesses.  See  Management's
     Discussion  and Analysis of Financial  Condition  and Results of Operations
     for further details.


                                       11

<PAGE>


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

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

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

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

     Three months ended September 1998......................  $      (6,270)      $     (2,570)      $      (3,700)
     Three months ended December 1998.......................         (6,877)            (7,336)                459
     Six-month period ended December 1998...................        (13,147)            (9,906)             (3,241)
     Three months ended March 1999..........................          2,769              3,255                (486)
     Nine-month period ended March 1999.....................        (10,378)            (6,651)             (3,727)
</TABLE>

     The total  pre-tax loss from  department  activities is $8,600 for the year
     ended June 30, 1999.  This compares to a pre-tax loss as restated of $1,100
     in 1998 and a $300 pre-tax loss in 1997. The 1999 loss includes $5,500 from
     unauthorized   speculation  in  commodity   instruments   and  $3,100  from
     operations,  due in part to not hedging  positions in inventory and forward
     contracts.

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

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



                                       12


<PAGE>



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

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


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

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

<TABLE>
<CAPTION>
                                                                Results by Operating Segment
                                  -------------------------------------------------------------------------------
                                            Three Months Ended                        Nine Months Ended
                                  ------------------------------------    ---------------------------------------
                                   Restated                 $ Increase     Restated                    $ Increase
                                    3/31/99      3/31/98    (Decrease)      3/31/99      3/31/98        (Decrease)
                                  ---------    ---------    ----------    ---------    -----------    ------------
<S>                               <C>          <C>          <C>           <C>          <C>            <C>
Net Sales and Revenues
----------------------
Agriculture..................     $ 154,023    $ 166,471    $  (12,448)   $ 438,150    $   470,795    $    (32,645)
Energy ......................       147,851      155,632        (7,781)     352,277        410,477         (58,200)
Retail ......................        43,755       48,285        (4,530)     149,684        162,057         (12,373)
Leasing......................        17,269       16,210         1,059       51,765         48,318           3,447
Insurance....................         6,505        6,658          (153)      21,068         20,482             586
Other (a)....................       (12,382)     (13,490)        1,108      (35,505)       (38,421)          2,916
                                  ---------   ----------    ----------    ---------    -----------    ------------
                                  $ 357,021   $  379,766    $  (22,745)   $ 977,439    $ 1,073,708    $    (96,269)
                                  =========   ==========    ==========    =========    ===========    ============

Earnings (Loss) from
--------------------
 Operations before Income Taxes
 ------------------------------
Agriculture.................      $  (6,412)  $   (1,245)   $   (5,167)   $ (10,865)   $   (17,080)   $      6,215
Energy.......................        23,006       15,514         7,492       22,841         17,890           4,951
Retail.......................        (9,036)      (4,688)       (4,348)     (18,617)        (8,243)        (10,374)
Leasing......................         5,757        4,568         1,189       13,199         11,231           1,968
Insurance....................            37         (107)          144         (144)            60            (204)
Other (a)....................         l,936        4,262        (2,326)       5,072         12,588          (7,516)
                                  ---------   ----------    ----------    ---------     ----------    ------------
Operating earnings (loss),
   plus other income, net....        15,288       18,304        (3,016)      11,486         16,446          (4,960)
Interest (expense), net of
   interest income...........        (8,155)      (8,824)          669      (23,892)       (22,835)         (1,057)
                                  ---------   ----------    ----------    ---------     ----------    ------------
                                  $   7,133   $    9,480    $   (2,347)   $ (12,406)    $   (6,389)   $     (6,017)
                                  =========   ==========    ==========    =========     ==========    ============
</TABLE>

(a) Represents unallocated corporate items and intersegment eliminations.

                                       13

<PAGE>



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

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


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

Consolidated Results
--------------------
Consolidated  net sales and  revenues of $357,000 and $977,400 for the three and
nine months  ended March 31,  1999,  decreased  $22,700  (6%) and $96,300  (9%),
respectively,  as compared to the same periods in the prior year.  The decreases
were substantially the result of a decline in sales in the Agriculture,  Energy,
and Retail segments.  The decrease in Energy was principally due to decreases in
volume and pricing level of petroleum products.  The decrease in Agriculture was
principally due to the pricing level of agricultural feed products.  The decline
in Retail  was due to  reduced  sales to  wholesale  dealers.  See the  detailed
business segment discussion below.


Restated consolidated net earnings from operations before income taxes of $7,100
for the three months ended March 31, 1999, decreased $2,300 (25%) as compared to
the  same  period  in the  prior  year.  Consolidated  restated  net  loss  from
operations  before  income  taxes of $12,400 for the nine months ended March 31,
1999, was $6,000 (94%) higher as compared to the same period in the prior year.

The decrease in the restated  consolidated  pre-tax operating earnings of $2,300
from the prior year for the  three-month  period ended March 31, 1999,  resulted
principally  from  offsetting  improvements  and  declines in  business  segment
results and a $2,500 (49%)  reduction in the level of pension income offset by a
$700 (8%)  decrease in net  interest  expense.  The Company  amended its defined
benefit pension plan effective July 1, 1998. The amendment increased the cost of
benefits,  the plan benefit  obligations,  and the related  interest costs which
reduced net pension  income  recognized  by the Company in the third  quarter of
1999 as compared to the same period in the prior year.

The increase in the consolidated  restated pre-tax  operating loss of $6,000 for
the nine  months  ended  March 31,  1999,  as compared to the same period in the
prior  year,  reflects a net  increase  in earnings of $9,200 from the sale of a
seed business,  which amount was more than offset by a net reduction in business
unit operating results of $7,800 (discussed by business segment below).  The net
reduction in business unit operating results for the nine months ended March 31,
1999, was substantially due to losses of $5,900 in the grain marketing business,
principally  from the  effects  of  unauthorized  activities,  as  described  in
Footnote 6. Additionally, a decline in pension credits of $7,100 (32%) increased
net corporate costs of $400 (37%),  and increased net interest expense of $1,100
(5%)  depressed  pre-tax  operating  results  during  the  nine-month  period as
compared to the same period in the prior year.  The increase in total  corporate
costs was a result of new systems  costs and  professional  services  associated
with  several  projects,  including  year 2000  readiness.  The  increase in net
interest expense was due to a decline in interest revenue earned from receivable
balances  combined with an increase in interest  expense from a slightly  higher
average interest rate on outstanding debt.

Agriculture
Agriculture  consists  of Agway  Agricultural  Products  (AAP)  and the  Country
Products Group (CPG).  Total  Agriculture net sales and revenues of $154,000 and
$438,200 for the three and nine months ended March 31, 1999,  decreased  $12,400
(8%) and $32,600  (7%),  respectively,  as  compared to the same  periods in the
prior year.  The  Agriculture  restated  loss from  operations of $6,400 for the
third quarter ended March 31, 1999,  increased  $5,100 (415%) as compared to the
same period in the prior year. The Agriculture  restated loss from operations of
$10,900 for the nine months ended March 31, 1999,  is an  improvement  of $6,200
(36%) as compared to the same period in the prior year.






                                       14

<PAGE>



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

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

Agriculture (continued)
-----------------------
AAP net sales and  revenues  of  $112,300  and  $317,400  for the three and nine
months  ended  March  31,  1999,   decreased   $5,100  (4%)  and  $19,500  (6%),
respectively,  as compared to the same periods in the prior year.  The AAP sales
decrease results  principally from the AAP enterprise feed business as sales for
the three- and  nine-month  periods ended March 31, 1999,  decreased  $1,000 and
$12,900,  respectively.  A decline in the pricing levels of feed products in the
global markets caused the overall  decrease in feed sales.  The declining  price
level  of feed  products  was  partially  offset  by  volume  improvements.  AAP
experienced  an  increase  in feed unit  volume of 8% and 11%  during  the three
months and the nine months ended March 31, 1999, as compared to the same periods
in the prior  year.  The  increase in volume was from the  acquisition  of a new
business during the first quarter of this year combined with improved feed sales
volume in the AAP enterprises.

In addition to the sales declines in the feed business,  direct  marketing sales
declined $1,100 and $4,100 and AAP enterprise  agronomy sales  decreased  $2,700
and  $600  for  the  three   months  and  nine  months  ended  March  31,  1999,
respectively,  as  compared to the same  periods in the prior year.  These sales
declines are principally due to these operations  being  negatively  impacted by
the low market price of agricultural commodities in feed and crops products. The
sales declines noted above were partially offset by sales improvements of $1,100
and $2,100 in both the three and nine months in the  commercial  vegetable  seed
business.

CPG net sales and revenues of $41,700 and $120,700 for the three and nine months
ended March 31, 1999, decreased $7,400 (15%) and $13,100 (10%), respectively, as
compared to the same periods in the prior year.  The decrease in both periods is
substantially  due to the sale of a seed  business in the first  quarter of this
year. Sales were $10,100 and $14,700 lower in the three- and nine-month periods,
respectively,  as compared to the same periods in the prior year,  due primarily
to the sold business. The lost sales from sold business were partially offset by
increased  sales in  ongoing  operations  of $2,700 and $1,600 for the three and
nine months ended March 31, 1999, as compared to the prior year. The improvement
to  ongoing  operations  in the  third  quarter  was  principally  due to  CPG's
sunflower  operations.  Sales in the sunflower  operations increased $2,100 over
last year from  increased  bird food sales and with the help of increased  human
food capacity from a new processing  plant that was not operational in the first
nine months of the prior year.


AAP's  restated  operating  loss  of  $6,600  and  $25,500  for the  three-  and
nine-month  periods ended March 31, 1999,  increased  $3,100 (84%) for the three
months and increased $1,800 (7%) for the nine months, respectively,  as compared
to the same periods in the prior year.  The  increase in operating  loss for the
third quarter resulted  principally from lower patronage income partially offset
by improved gross margins.  The lower patronage income of $4,200, as compared to
the prior  year,  was due  principally  to lower  patronageable  earnings at the
Company's primary fertilizer supplier. The gross margin improvement in the third
quarter  resulted  from a  combination  of  increased  feed volume and  improved
pricing strategies as compared to the same period in the prior year.

The decline of operating results over the nine-month  period, as compared to the
same period in the prior year, is substantially due to gross margin improvements
of $5,000 (7%) being more than offset by increased  operating expenses of $4,300
and lower other revenues of $2,400.  The gross margin improvement over the prior
year is partly due to unfavorable experience with exchange-traded futures in the
AAP feed business in the prior year and partly due to the feed volume  increases
and improved  pricing over the first nine months of the current year as compared
to the prior year. These gross margin  improvements were negatively  impacted by
the effects of  unauthorized  speculative  activities  in AAP's grain  marketing
business,  as  described in Footnote 6.  Increased  operating  expenses  related
mainly to increased  cost of  distributing  and selling a greater volume of feed
products.  The  decrease  in other  revenues,  as  compared  to the prior  year,
resulted from lower patronage income in the third quarter of this year, as noted
above.  The decline was partially  offset by increases in other rebates received
by AAP.

                                       15

<PAGE>



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

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


Agriculture (continued)
----------------------
CPG's operating earnings plus other income of $200 and $14,600 for the three and
nine months ended March 31, 1999,  decreased  $2,200 (93%) and increased  $8,000
(121%),  respectively,  as compared to the same  periods in the prior year.  The
decrease in the three-month period, as compared to the prior year, is due mainly
to increased  costs  associated  with  developing and marketing new products and
lost revenues from the sale of a seed business in the first quarter.

The increase in operating  earnings during the nine-month period, as compared to
the prior year, is  attributable  to the net  improvements  in results of $9,200
from the sale of a seed business and a $1,200 improvement in ongoing operations,
principally produce. These improvements were partially offset by increased costs
associated with new product development.

Energy
------
Energy  earnings  from  operations of $23,000 and $22,800 for the three and nine
months ended March 31, 1999,  represent an earnings increase of $7,500 (48%) and
$5,000 (28%),  respectively,  as compared to the same periods in the prior year.
In the three months ended March 31, 1999, sales volume  increased,  particularly
in heating oil and propane, a total of $10,700 as compared to the same period in
the prior year and was partially offset by the sales decline due to pricing.  In
the nine months ended March 31, 1999,  overall  sales  volume  declined  $6,000,
substantially due to lower heating oil volumes. The above fluctuations in volume
result  from a  combination  of the  changes  in  heating  degree-days  and  the
non-renewal  of an annual  commercial  contract  over the three- and  nine-month
periods as compared  to the same  periods in the prior year.  The  imbalance  of
supply and demand has driven  competitive  prices  lower  during the first three
quarters  of this year and is expected to  continue  for the  remainder  of this
year.  The lower  selling  prices  decreased  sales as  compared to last year by
$20,100 during the third quarter and $56,800 for the nine months ended March 31,
1999.  Finally,  greater  emphasis on heating,  ventilation and air conditioning
(HVAC)  installation and service increased these sales $1,800 and $4,000 for the
three- and  nine-month  periods  ended March 31,  1999,  as compared to the same
periods in the prior year.

Energy  commodity  costs  continue  to be lower  than in the prior year and have
helped  overall gross margins on all products  increase by $10,600 for the third
quarter and $10,300 for the nine months ended March 31, 1999, as compared to the
same periods in the prior year. The improvements in gross margins were partially
offset by increases  in  distribution  expense,  principally  labor  costs,  and
increases  in  administrative  expenses,  principally  information  systems cost
related to year 2000 readiness.

Retail
------
Total net sales and  revenues  of $43,800  and  $149,700  for the three and nine
months  ended  March  31,  1999,   decreased   $4,500  (9%)  and  $12,400  (8%),
respectively,  as compared to the same periods in the prior year.  The decreases
in sales and  revenues  for the three- and  nine-month  periods  ended March 31,
1999, were primarily in wholesale sales due principally to the conversion of the
historical  Agway  representative  retail store system to a new system including
Agway  franchisees  and  Agway  wholesale  dealer  relationships.  Many  of  the
wholesale dealers are presently purchasing non-Agway-branded products from other
sources of supply which they had in the prior year  purchased from Agway. A loss
in sales  volume due to this  change is  expected  to  continue at some level at
least  through this fiscal year.  This change in buying  pattern has changed the
mix of products purchased, resulting in a lower average gross margin.



                                       16

<PAGE>



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

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


Retail (continued)
-----------------
Retail  operating loss of $9,000 and $18,600 for the three and nine months ended
March 31, 1999,  increased  $4,300 (93%) and $10,400  (126%),  respectively,  as
compared to the same periods in the prior year. The decline in operating results
was primarily from reduced gross margin dollars, which declined $1,900 (15%) and
$5,400 (12%), and increased  operating expenses of $2,500 (14%) and $5,200 (10%)
for the three- and  nine-month  periods ended March 31, 1999, as compared to the
same periods in the prior year. The reduction in wholesale  sales and the change
in the mix of products purchased have lowered margin dollars. Operating expenses
increased from new locations which were not operational in the first nine months
of the prior year and from an increase in administrative  expenses  attributable
to higher  labor  costs and  accrued  costs for the  unification  of the  retail
business into the agriculture business*.

*See Subsequent Event section of the MD&A for further description.

Leasing
-------
Total  revenue of $17,300 and $51,800 for the three and nine months  ended March
31, 1999,  increased $1,100 (7%) and $3,400 (7%),  respectively,  as compared to
the same periods in the prior year. These increases, which were partly offset by
a lower income rate on new and replacement  leases,  are primarily due to higher
investment in leases.  The company's  average net investment in leases increased
$51,700 (10%) and $50,500 (10%) in the third quarter and nine months ended March
31, 1999, as compared to the same periods in the prior year.

Pre-tax earnings from operations of $5,800 and $13,200 for the third quarter and
nine months  ended March 31,  1999,  increased  $1,200  (26%) and $2,000  (18%),
respectively,  as compared to the same periods in the prior year.  Total revenue
increases noted above were  supplemented by a decrease in total expenses of $100
(1%) for the third quarter and partially offset by an increase in total expenses
of $1,500 (4%) for the  nine-month  period ended March 31, 1999,  as compared to
the same  period in the prior  year.  These  increases  in total  expenses  were
substantially  due to increased  payroll costs which were partly offset by lower
professional  services,  as  some  information  technology  services  are  being
provided  internally  rather  than  being  outsourced,  and by higher  levels of
deferred initial costs associated with the new lease volume.

Insurance
---------
Insurance net revenues of $6,500 and $21,100 for the three and nine months ended
March 31, 1999,  decreased $200 (2%) and increased $600 (3%),  respectively,  as
compared  to the same  periods in the prior year.  Net earned  premiums of Agway
Insurance  Company in the third quarter  decreased  $200 as compared to the same
period during last year,  while for the nine-month  period,  net earned premiums
increased by $500 as compared to the same period in the prior year.

The operating  results were unchanged for the three months and an operating loss
of $100 for the nine months ended March 31, 1999. This represents an increase in
earnings of $100 (135%) for the three  months and a decrease in earnings of $200
(340%) for the nine months ended March 31, 1999, as compared to the same periods
in the prior year.  Claims  losses  during the third  quarter were  unchanged as
compared to the same period last year,  but increased $500 in the nine months as
compared  to the prior year due to the  effects of a  windstorm  in Upstate  New
York.  Operating expenses decreased $200 in the third quarter and increased $100
for the nine months as compared to the prior year due to  fluctuations in direct
commissions and increases in data processing costs.


                                       17

<PAGE>



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

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


LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash  generated  from  operations  and external  borrowings  continues to be the
Company's  major  ongoing  source  of funds  to  finance  capital  improvements,
business acquisitions,  shareholder dividends,  and a growing lease portfolio at
Telmark.  The following is a summary of net cash flows for the nine months ended
March 31:
<TABLE>
<CAPTION>
                                                                                           1999            1998
                                                                                      -------------    ------------
<S>                                                                                   <C>              <C>
Net cash flows provided by (used in):
   Operating activities............................................................   $      46,664    $     27,370
   Investing activities.............................................................        (41,394)        (55,820)
   Financing activities.............................................................         (5,270)         28,450
                                                                                      -------------    ------------
Net increase (decrease) in cash and equivalents....................................   $           0    $          0
                                                                                      =============    ============
</TABLE>

Cash Flows Provided By Operating Activities
For the nine months ended March 31,  1999,  net  earnings  decreased  $28,400 as
compared  to the same  period in the prior year and  changes in working  capital
generated  cash of $63,600  compared to generating  cash of $20,800 for the same
period in the prior  year.  The  biggest  contributors  to the change in working
capital  were from a larger  decline in  receivables  and a smaller  increase in
inventories  during  this year  (cash  provided)  as  compared  to last year due
principally  to the lower prices of feed and  petroleum  products in the current
market environment.


Cash Flows Used In Investing Activities
The cash flows  required for  investing  activities  decreased in the first nine
months of 1999 by $14,400  as  compared  to the first  nine  months of the prior
year.  The principal  reason for the decrease in cash used during the first nine
months of 1999 as compared to the prior year was from the receipt of proceeds of
$14,200 on the sale of a seed business in the Agriculture segment,  which amount
was partially  offset by a $4,500  increase in cash paid for the  acquisition of
businesses for the first nine months of 1999 as compared to the prior year.

Cash Flows Provided By (Used In) Financing Activities
Financing activities for the nine months ended March 31, 1999, resulted in a net
cash use of $5,300 compared to cash provided by financing  activities of $28,500
for the same period in the prior year.  This $33,800  reduction in cash provided
from financing was substantially due to a higher net repayment of long-term debt
of $34,500 in the first nine  months of 1999 as  compared  to the same period in
the  prior  year.  The  increased  level  of cash  generated  from  the  sale of
businesses  as  compared  to the same  period  in the  prior  year and the large
decline in working capital requirements in Company operations as compared to the
same  period in the prior  year were the  biggest  reasons  for this  decline in
borrowings.

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



                                       18

<PAGE>



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

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


LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Sources of longer-term financing include the following as of March 31, 1999:
<TABLE>
<CAPTION>
                                                                                AFC
                                                                   Agway     (excluding
Source of debt                                                      Inc.      Telmark)      Telmark       Total
--------------                                                  --------      ---------    ---------    ---------
<S>                                                             <C>           <C>          <C>          <C>
Banks - due 5/99 to 8/01, interest at a weighted average
   rate of 6.9% with a range of 5.6% - 8.6%..................   $      0      $   1,400    $ 108,000    $ 109,400
Insurance companies - due 4/99 to 5/04, interest at a
   weighted average rate of 7.1% with a range of
   6.5% - 8.9%...............................................          0              0      171,810      171,810
Capital leases and other - due 1999 to 2008, interest at a
   weighted average rate of 9.3% with a range of 6% to 12%        14,502          5,418            0       19,920
                                                                --------      ---------    ---------    ---------
     Long-term debt..........................................     14,502          6,818      279,810      301,130
Subordinated  money  market  certificates  -
  due 10/99 to 10/13, interest at a weighted average rate of
  8.0% with a range of 4.5% - 9.5%...........................          0        431,320            0      431,320
Subordinated debentures - due 7/99 to 7/03, interest at a
   weighted average rate of 8.1% with a range of 6.5%
   to 8.5%...................................................          0         19,827       37,125       56,952
                                                                --------      ---------    ---------    ---------
     Total debt..............................................   $ 14,502      $ 457,965    $ 316,935    $ 789,402
                                                                ========      =========    =========    =========
</TABLE>

For a further description of the Company's credit facilities  available at March
31, 1999, see Footnote 3 to the condensed consolidated financial statements.

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

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

                                       19

<PAGE>



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

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


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

The Company engaged an  international  consulting firm in March 1998 to evaluate
the  Company's  approach  to year 2000  plans  and  implementation  compared  to
industry "best practices." Year 2000 readiness  responsibility has been assigned
to high-level  management  within each business segment and for the Company as a
whole.  This includes  periodic reports to the Board of Directors  regarding the
implementation  timetable and the development of contingency  plans. The Company
has been developing  business continuity plans since October of 1998 and expects
to complete them by June 1999.

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

The  Company  expects  to  incur  significant  internal  staff  costs as well as
consulting and other expenses related to its year 2000 efforts. Due to the level
of effort  required  to  complete  remediation  for the year 2000,  non-business
critical system enhancements have been deferred until the year 2000 efforts have
been  completed.  The  conversion  and  testing  of  existing  systems  and  the
replacement of systems are expected to cost the Company  approximately  $18,400,
of which  $14,900 has been  incurred and $3,500 is expected to be incurred  from
March 1999 through  December 1999.  Approximately  75% of these  estimated costs
represent replacement costs and will be capitalized.  Additionally,  the Company
estimates  the costs to remediate  all other areas may  approximate  $4,200,  of
which $600 has been  incurred  and $3,600 is expected to be incurred  from March
1999  through  December  1999.  However,  these  costs will vary as the  Company
continues  to assess and  implement  its plans or if the  Company is required to
invoke  contingency  plans. The Company treats non-capital costs associated with
year 2000 as period costs and they are expensed when incurred.

The year 2000  statements set forth above are designated as "Year 2000 Readiness
Disclosures"  pursuant to the Year 2000 Information and Readiness Disclosure Act
(P.L. 105-271).

                                       20

<PAGE>



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

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


OTHER MATTERS (continued)
------------------------
Subsequent Event
On April 8, 1999, the Company  announced  that it is combining its  agricultural
products and retail services  businesses to better leverage the Company's talent
in serving  the needs of existing  and new  customers.  As a result,  the retail
store system will be managed  through the  Company's  six  geographically  based
agricultural  enterprises.  Additionally,  as a result of this unification,  the
recent conversion of the historical Agway representative  retail store system to
a new franchisee and wholesale dealer relationship will be modified.  Management
anticipates  the adverse trend in earnings in Retail will  continue  through the
fourth  quarter of this year.  The cost savings  anticipated in the current year
from  this  unification  will be partly or fully  offset  by  one-time  costs to
implement this change.


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



                                       21

<PAGE>



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

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




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



In the Energy segment,  exchange-traded  commodity  instruments  and, in certain
circumstances,   over-the-counter   contracts   with  third   parties  are  used
principally for gasoline,  distillate,  and propane.  They are entered into as a
hedge  against the price risk  associated  with Energy's  inventories  or future
purchases and sales of the commodities  used in its operations.  Generally,  the
price risk extends for a period of one year or less. A sensitivity  analysis has
been   prepared   to   estimate   Energy's   exposure  to  market  risk  of  its
exchange-traded and  over-the-counter  commodity instrument position as of March
31,  1999 and June 30, 1998.  The fair value of such position is a summation  of
the fair values  calculated  for  each  commodity  instrument  by  valuing  each
position at quoted futures prices or, in the case of  options,  a delta-adjusted
calculated price. The market risk of the commodity position is  estimated as the
potential loss in fair value resulting from a hypothetical  10% change in market
prices of the underlying commodities. This estimated loss in fair value does not
reflect  the  offsetting  impact  of  market  price  changes  to  the underlying
commodities that the commodity instruments are hedging.  As  of  March  31, 1999
and June 30,1998, assuming a 10% hypothetical change in the underlying commodity
price, the potential change in fair  value of Energy's commodity instruments was
$700  and $500, respectively.

In  the   Agriculture   segment's  feed  business,   exchange-traded   commodity
instruments  are used  principally  to  hedge   corn,  soy  complex,  and  oats,
which can  be  sold directly as ingredients or included in feed products.  Since
November 1997, all  transactions  involving  derivative financial instruments in
the feed business are required to have a direct  relationship  to the price risk
associated with existing inventories or future purchase or sale of its products.
A sensitivity analysis has been prepared to estimate Agriculture's feed business
exposure to market  risk  of its exchange-traded instrument position as of March
31, 1999 and June 30, 1998. The  fair  value  of  such  position  is a summation
of  the fair values calculated for each  commodity  instrument by  valuing  each
position at quoted futures  prices  or, in the case of options, a delta-adjusted
calculated  price. The  market risk of the  commodity position is  estimated  as
the  potential loss in fair value  resulting  from a hypothetical 10%  change in
market prices of the underlying commodities.  This estimated  loss in fair value
does  not  reflect  the  offsetting  impact of  market  price  changes  to   the
underlying  commodities that the commodity  instruments are hedging. As of March
31, 1999,  assuming  a  10%  hypothetical  change  in  the underlying  commodity
price,  the  potential  change  in  fair  value  of  Agriculture's feed business
commodity instruments was $100. As of June 30, 1998, assuming a 10% hypothetical
change in  the  underlying  commodity  price, the potential change in fair value
of  Agriculture's feed business commodity instruments was not material.

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


                                       22

<PAGE>


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

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



COMMODITY PRICE EXPOSURE (continued)
------------------------------------
A sensitivity  analysis has been prepared to estimate the department's  exposure
to market risk of its exchange-traded  commodity instrument position as of March
31,  1999 and June 30, 1998.  The  fair  value of such  position is a  summation
of the fair values calculated  for each  commodity  instrument  by  valuing each
position at quoted futures  prices or, in the case of options,  a delta-adjusted
calculated   price. The market risk  of the  commodity   position  is  estimated
as  the  potential loss in fair value resulting from a  hypothetical  10% change
in market prices of the underlying commodities.  As noted above, grain marketing
historically enters  into generally matched transactions to  hedge against price
fluctuations.  However, as  previously  discussed,  during  the  fourth  quarter
of  1998  and throughout 1999,  unauthorized speculative  positions  were  taken
so that the commodity instrument activity of the department  was not effectively
hedging  the  underlying  commodities  and forward  contracts. As  of  March 31,
1999  and  June 30, 1998, assuming a 10% hypothetical  change  in the underlying
commodity  price, the  potential  change  in  fair  value  of  the  department's
commodity instruments  was  $3,600  and $700, respectively.



                                       23

<PAGE>




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


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

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

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



                                       24

<PAGE>



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


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

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

Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
There were no reports on Form 8-K  required to be filed  during the three months
ended March 31, 1999.

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<PAGE>


SIGNATURES

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




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






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










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