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


(Mark One)
 X   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
----  ACT OF 1934
For the quarterly period ended December 31, 1995
                               -----------------
                                        OR

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


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


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


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


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




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



               Class                           Outstanding at February 2, 1996
--------------------------------------         -------------------------------
Membership Common Stock, $25 par value              108,118  shares
  per share



                                       1

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                                      INDEX
<TABLE>
<CAPTION>
                                                                                                           PAGE NO.
                                                                                                           --------
PART I.    FINANCIAL INFORMATION
-------    ---------------------

           <S>                                                                                                     <C>

           Item 1.  Financial Statements (Unaudited)

           Condensed Consolidated Balance Sheets as of December 31, 1995 and June 30, 1995.......................  3

           Condensed Consolidated Statements of Operations and Retained Margin for the three months
           and six months ended December 31, 1995 and December 31, 1994..........................................  4

           Condensed Consolidated Cash Flow Statements for the six months ended December 31, 1995
           and December 31, 1994.................................................................................  5 

           Notes to Condensed Consolidated Financial Statements..................................................  6

           Item 2.  Management's Discussion and Analysis of Financial Condition and Results of Operations........  12

<CAPTION>

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

           <S>                                                                                                     <C>

           Item 1.  Legal Proceedings............................................................................  18

           Item 4.  Submission of Matters to a Vote of Security Holders..........................................  18

           Item 6.  Exhibits and Reports on Form 8-K.............................................................  18


           SIGNATURES............................................................................................  19
</TABLE>














                                       2

<PAGE>



                         PART I. FINANCIAL INFORMATION
                   AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                     CONDENSED CONSOLIDATED BALANCE SHEETS
                            (Thousands of Dollars)
<TABLE>
<CAPTION>
                                                                               December 31,          June 30,
                                                                                  1995                 1995  
                                                                               ------------         -----------
                                                                               (Unaudited)           (Restated)

<S>                                                                            <C>                  <C>
ASSETS
------
Current Assets:
     Trade accounts receivable (including notes receivable of
      $20,889 and $33,491, respectively), less allowance for
       doubtful accounts of $10,459 and $9,716, respectively...........        $    164,891         $   209,949
     Leases receivable, less unearned income of $43,776 and
       $41,523 respectively............................................              98,378              96,165
     Uncollected insurance premiums....................................               9,609              10,261
     Advances and other receivables....................................              31,528              21,808
     Inventories
       Raw materials...................................................              23,078              20,609
       Finished goods..................................................             155,195             129,533
       Goods in transit and supplies...................................               8,464               7,516
                                                                               ------------         -----------
       Total inventories...............................................             186,737             157,658
     Prepaid expenses..................................................              50,465              71,044
                                                                               ------------         -----------
         Total current assets..........................................             541,608             566,885

Marketable securities available for sale...............................              35,904              34,752
Other security investments.............................................              38,897              37,981
Properties and equipment, net..........................................             239,743             248,753
Long-term leases receivable, less unearned income of
  $69,963 and $68,799 respectively.....................................             244,611             236,522
Other assets...........................................................              90,343              85,876
Net assets of discontinued operations..................................                                  15,734
                                                                               ------------         -----------
         Total assets..................................................        $  1,191,106         $ 1,226,503
                                                                               ============         ===========

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
     Notes payable.....................................................        $     85,876         $    70,300
     Current installments of long-term debt and subordinated debt......              70,863              84,620
     Accounts payable..................................................              91,008             118,529
     Unearned insurance premiums.......................................              16,252              17,023
     Other current liabilities.........................................             125,405             122,087
                                                                               ------------         -----------
         Total current liabilities.....................................             389,404             412,559

Long-term debt.........................................................             213,306             219,986
Subordinated debt......................................................             378,221             362,768
Other liabilities......................................................              57,486              58,825
Commitments and contingencies..........................................
Preferred stock, net...................................................              62,215              65,635
Common stock, net......................................................               2,705               2,728
Paid-in capital........................................................                                   1,470
Retained margin........................................................              87,769             102,532
                                                                               ------------         -----------
         Total liabilities and shareholders' equity....................        $  1,191,106         $ 1,226,503
                                                                               ============         ===========
</TABLE>


   See accompanying notes to condensed consolidated financial statements.

                                       3

<PAGE>
<TABLE>
<CAPTION>



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



                                              Three Months Ended                  Six Months Ended
                                                  December 31,                      December 31,  
                                          -----------------------------     -----------------------------
                                              1995             1994             1995             1994
                                          -------------   -------------     -------------    ------------
                                                            (Restated)                         (Restated)

<S>                                       <C>             <C>               <C>              <C> 
Net sales and revenues from:
     Product sales......................  $     344,134   $     342,771     $     647,118    $    670,730
     Leasing operations.................         11,831           9,973            23,045          19,248
     Insurance operations...............          5,973           6,677            12,859          13,361
     Service revenues...................          3,430           4,303             6,967           8,694
                                          -------------   -------------     -------------    ------------
         Total net sales and revenues...        365,368         363,724           689,989         712,033

Cost and expenses from:
     Products and plant operations......        322,217         322,851           611,986         639,047
     Leasing operations.................          5,159           4,445            10,416           8,806
     Insurance operations...............          8,020           3,915            12,811           8,373
     Selling, general and
       administrative activities........         32,859          36,074            66,694          71,555
                                          -------------   -------------     -------------    ------------
         Total costs and expenses.......        368,255         367,285           701,907         727,781

Operating loss..........................         (2,887)         (3,561)          (11,918)        (15,748)
Interest expense, net...................         (7,539)         (7,159)          (14,459)        (13,938)
Other income, net.......................          5,923           1,377             7,885           2,903
                                          -------------   -------------     -------------    ------------
Loss from continuing operations
     before income taxes ...............         (4,503)         (9,343)          (18,492)        (26,783)
Income tax expense (benefit)............            424          (2,884)           (3,103)         (9,055)
                                          -------------   -------------     -------------    ------------
Loss from continuing operations.........         (4,927)         (6,459)          (15,389)        (17,728)

Discontinued operations:

     Gain (loss) on disposal of Hood,
     net of tax expense (benefit) of
     $1,585, $(13,261), $1,624 and
     $(13,261), respectively............          2,284          (6,944)            2,017          (6,944)
     Gain on disposal of Curtice Burns,
     net of tax expense of $19,700......                          4,430                             4,430
                                          -------------   -------------     -------------    ------------
         Margin (loss) from discontinued
             operations.................          2,284          (2,514)            2,017          (2,514)
                                          -------------   -------------     -------------    ------------
Net loss................................  $      (2,643)  $      (8,973)    $     (13,372)   $    (20,242)

Retained Margin:
     Balance at beginning of period.....         91,790         112,171           102,532         123,346
     Dividends..........................         (2,172)         (2,374)           (2,172)         (2,374)
     Adjustment to unrealized gains
         (losses) on available-for-sale
         securities, net of tax.........            794             (17)              781              77
                                          -------------   -------------     -------------    ------------
Balance at end of period................  $      87,769   $     100,807     $      87,769    $    100,807
                                          =============   =============     =============    ============

</TABLE>




   See accompanying notes to condensed consolidated financial statements.

                                       4

<PAGE>



                                    PART I.  FINANCIAL INFORMATION (continued)
                                     AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                                    CONDENSED CONSOLIDATED CASH FLOW STATEMENTS
                                                    (Unaudited)
                                              (Thousands of Dollars)
<TABLE>
<CAPTION>

                                                                                     Six Months Ended
                                                                                       December 31,
                                                                             --------------------------------         
                                                                                  1995              1994       
                                                                             -------------    ---------------     
                                                                                                 (Restated)

<S>                                                                          <C>              <C>
Net cash flows (used in) provided by operating activities..............      $       (358)    $       23,569

Cash flows (used in) provided by investing activities:
     Purchases of property, plant and equipment........................            (7,518)           (16,299)
     Proceeds from disposal of businesses and property, plant and
         equipment.....................................................             1,782              4,296
     Leases originated.................................................           (74,098)           (80,115)
     Leases repaid.....................................................            60,841             45,524
     Proceeds from sale of marketable securities.......................             5,777                715
     Purchases of marketable securities................................            (6,148)            (1,618)
     Other.............................................................              (917)               147
     Proceeds from sale of discontinued operations.....................            15,900             55,786
     Net changes in net assets of discontinued operations..............                               14,511
                                                                             -------------      -------------
Net cash flows (used in) provided by investing activities..............            (4,381)            22,947
Cash flows (used in) provided by financing activities:
     Net change in short-term borrowings...............................            15,576            (23,400)
     Proceeds from long-term debt......................................            19,764             36,205
     Repayment of long-term debt.......................................           (19,585)           (38,155)
     Proceeds from sale of subordinated debt...........................            44,790             31,894
     Maturity and redemption of subordinated debt......................           (49,304)           (47,123)
     Redemption of stock...............................................            (3,448)            (2,536)
     Cash dividends paid...............................................            (2,410)            (2,589)
     Other.............................................................              (644)              (812)
                                                                             -------------      -------------
Net cash flows provided by (used in) financing activities..............             4,739            (46,516)
                                                                             -------------      -------------

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.

                                       5

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

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

1.   BASIS OF PRESENTATION
     ---------------------
     The accompanying unaudited condensed consolidated financial statements of
     Agway  Inc.  (the  "Company")  have  been  prepared  in  accordance  with
     generally   accepted   accounting   principles   for  interim   financial
     information  and with the  instructions  to Form 10-Q and  Article  10 of
     Regulation S-X.  Accordingly,  they do not include all of the information
     and footnotes  required by generally accepted  accounting  principles for
     complete  financial  statements.  In  the  opinion  of  management,   all
     adjustments   (consisting  of  normal  recurring   accruals)   considered
     necessary for a fair presentation  have been included.  Operating results
     for the  six-month  period ended  December  31, 1995 are not  necessarily
     indicative  of the results  that may be expected for the year ending June
     30,  1996  due,  among  other  reasons,  to the sale of H. P.  Hood  Inc.
     ("Hood")  and 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, 1995.

     The financial  statements of Agway Inc. and Agway  Financial  Corporation
     have been restated to reflect Hood, which was previously  consolidated in
     continuing   operations,    as   a   discontinued   operation.    Certain
     reclassifications   have  been  made  to  conform  prior  year  financial
     statements with the current year presentation.

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  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
     absolutely and unconditionally guaranteed by the Company. In an exemptive
     relief granted  pursuant to a "no action letter" issued by 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              Six Months Ended
                                                  December 31,                   December 31,
                                          -----------------------------    -----------------------
                                               1995            1994            1995           1994
                                          -------------   -------------    -------------   ------------
                                                            (Restated)                      (Restated)
     <S>                                  <C>             <C>              <C>             <C>
     Net sales and revenues.............  $    265,432    $    272,006     $    486,861    $   518,395
     Operating margin...................         3,307           4,888            1,933          4,127
     Loss from continuing operations....        (4,943)         (2,880)         (12,376)        (8,330)
     Net margin (loss)..................        (2,658)         (5,393)         (10,359)       (10,843)
</TABLE>
<TABLE>
<CAPTION>
                                                          December 31,        June 30,
                                                              1995              1995
                                                          -------------    -------------
                                                                            (Restated)
     <S>                                                  <C>              <C>
     Current assets....................................   $   565,990      $    546,416
     Properties and equipment, net.....................       166,884           169,368
     Noncurrent assets.................................       331,337           321,152
     Net assets of discontinued operations.............                          15,734
                                                          -------------    -------------
     Total assets......................................   $ 1,064,211      $  1,052,670
                                                          =============    =============

     Current liabilities...............................   $   257,827      $    242,726
     Long-term debt....................................       208,595           217,425
     Subordinated debt.................................       378,221           362,768
     Noncurrent liabilities............................        14,460             8,855
     Shareholder's equity..............................       205,108           220,896
                                                          -------------    -------------
     Total liabilities and
         shareholder's equity..........................   $ 1,064,211      $  1,052,670
                                                          =============    =============
</TABLE>
                                       6

<PAGE>

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

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


3.   BORROWING ARRANGEMENTS
     ----------------------
     As of December 31, 1995,  the Company had available  lines of credit with
     various banking institutions whereby lenders have agreed to provide funds
     up to $89,000 to separately financed units of the Company as follows: AFC
     - $65,000 and Telmark - $24,000,  the same as June 30, 1995. In addition,
     AFC may issue up to  $60,000  of  commercial  paper  under the terms of a
     separate agreement, backed by a letter of credit. Telmark had a committed
     term loan of $125,000  available to be borrowed through February 1, 1996,
     of which  $109,000 was  outstanding  as of December  31, 1995.  Telmark's
     long- and short-term lines of credit were renegotiated effective February
     1, 1996 as discussed below.  Long-term and subordinated  debt outstanding
     amounted to:
<TABLE>
<CAPTION>
                                        Agway & AFC                     Telmark                      Total
                               ----------------------------   ---------------------------   -------------------------- 
                                   12/95            6/95          12/95           6/95         12/95          6/95
                               -------------   ------------   -------------   -----------   -----------   ------------
     <S>                       <C>             <C>            <C>             <C>           <C>           <C>
     Long-term debt..........  $      15,886   $     22,843   $     251,955   $   245,467   $   267,841   $    268,310
     Currently payable.......          4,913         13,702          49,622        34,622        54,535         48,324
                               -------------   ------------   -------------   -----------   -----------   ------------
     Net long-term debt......  $      10,973   $      9,141   $     202,333   $   210,845   $   213,306   $    219,986
                               =============   ============   =============   ===========   ===========   ============

     Subordinated debt.......  $     378,699   $    390,890   $      15,850   $     8,174   $   394,549   $    399,064
     Currently payable.......         16,328         36,296                                      16,328         36,296
                               -------------   ------------   -------------   -----------   -----------   ------------
     Net subordinated debt...  $     362,371   $    354,594   $      15,850   $     8,174   $   378,221   $    362,768
                               =============   ============   =============   ===========   ===========   ============
</TABLE>
     The AFC  available  $65,000  line of credit and  availability  of issuing
     $60,000 of commercial  paper were extended  through February 29, 1996. In
     order to consider the effect of the December 15, 1995 sale of Hood on the
     line of credit requirements, existing lines of credit were extended to
     February   29,  1996.   Longer-term   renewals  are  in  the  process  of
     negotiations.  These AFC short-term lines of credit are collateralized by
     certain  of  the  Company's   accounts   receivable   and   non-petroleum
     inventories  ("collateral").  Amounts  which  can be drawn  under the AFC
     short-term  agreements are limited to a specific  calculation  based upon
     the collateral available.  Adequate collateral has existed throughout the
     fiscal year to permit AFC to borrow  amounts to meet the ongoing needs of
     the  Company and is  expected  to  continue  to do so. 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  net worth.  The  Company has
     ongoing  discussions  with its  lenders  and  expects to continue to have
     appropriate and adequate financing to meet its ongoing needs.

     Telmark  borrows under its  short-term  line of credit  agreement and its
     revolving  term  agreement  from  time to time  to fund  its  operations.
     Short-term  debt serves as interim  financing  between the  issuances  of
     long-term  debt.  The  current  uncommitted  short-term  line  of  credit
     agreement  with one bank  permits  Telmark  to  borrow up to $4,000 on an
     unsecured basis with interest paid upon maturity. The line bears interest
     at money market variable  rates.  As of December 31, 1995,  there were no
     amounts  outstanding  against this line.  Effective February 1, 1996, the
     $20,000  short-term  line of credit and the $125,000 term loan commitment
     were  replaced by a $200,000  revolving  term loan facility from the same
     bank against which Telmark may 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 amounts  outstanding as of December 31, 1995
     on the short-term line and term loan totaled $118,500 and will be applied
     against the new $200,000 revolving term loan facility.

     Telmark  renews its lines of credit  annually.  The $4,000 line of credit
     has been renewed through  December 1996. As described above, the $200,000
     revolving term agreement is available  beginning February 1, 1996 through
     February 1, 1997. The Company  believes  Telmark has sufficient  lines of
     credit in place to meet interim funding needs.



                                       7

<PAGE>



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

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


4.   COMMITMENTS AND CONTINGENCIES
     -----------------------------
     Environmental
     The Company is subject to a number of governmental regulations concerning
     environmental matters,  either directly, or as a result of the operations
     of its  subsidiaries.  The  Company  expects  that it will be required to
     expend funds to remediate  certain  sites,  including  certain  Superfund
     sites and sites with  underground  fuel storage tanks.  In addition,  the
     Company  expects  that it  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. The Company'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 of 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;  however,  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,  changes in legal
     requirements  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.

     As part of its long-term  environmental  protection program,  the Company
     spent  approximately  $4,000  in fiscal  1995 on  capital  projects.  The
     Company estimates that during fiscal 1996 and 1997  approximately  $4,000
     per year will be spent on additional  capital projects for  environmental
     protection.  These estimates recognize the additional capital required to
     comply with  Environmental  Protection Agency (EPA)  Underground  Storage
     Tank  (UST)   regulations   which  become  effective  in  December  1998.
     Presently,  the total  cost to  comply  with the EPA UST  regulations  is
     estimated to be approximately  $5,000. The total capital requirements may
     change due to,  amongst other things,  the actual number of USTs actively
     in use on the effective date.

     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 will
     not have a material  adverse effect on the financial  position or results
     of operations of the Company.


                                       8

<PAGE>



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

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


5.   RESTRUCTURING RESERVES
     ----------------------
     In June 1992, the Company established a $75,000 reserve for the estimated
     net cost to complete a significant  restructuring  of the Company planned
     at  that  time.  Periodically,   management  has  reviewed  its  original
     estimates and has made revisions due to changes in  circumstances  as the
     restructuring plan evolved.  The following schedule details the remaining
     reserves  to  complete  the  restructuring  project  and  their  intended
     purposes,  as well as the actual activity for the six-month  period ended
     December 31, 1995:
<TABLE>
<CAPTION>

                                           Balance   Proceeds           Reductions        Change    Balance
                                                                 ---------------------               
                                             at       Sale of    Divested      Costs       in          at
                                           6/30/95    Assets      Assets      Incurred   Estimate   12/31/95
                                          --------   --------    ---------   ---------   --------   ---------
Restructuring Reserve:
Plant, Store & Business Divestitures
------------------------------------
<S>                             <C>      <C>         <C>         <C>         <C>         <C>        <C>
Proceeds on sale of assets      (A)      $  (1,506)  $  (143)                                       $ (1,363)
Net book value of assets to
   be divested                  (A)            962               $      32                               930
Cost of divestiture (1)         (B)          3,099                           $   1,251                 1,848
                                         ----------  --------    ---------   ---------   ---------  ---------
Loss on divestiture                          2,555      (143)           32       1,251                 1,415
Incremental environmental
   costs                        (C)          3,597                                  56                 3,541
                                         ----------  --------    ---------   ---------   ---------  ---------

TOTAL RESTRUCTURING                      $   6,152   $  (143)    $      32   $   1,307   $       0  $  4,956
                                         ==========  ========    =========   =========   =========  =========
</TABLE>


(1) Includes demolition,  asset transfer costs, and commissions on real estate
transactions.

(A)  Represents  certain  assets  identified  for  disposition  as part of the
     original  restructuring plan which have yet to be sold or closed. Efforts
     to sell the assets and  complete  the  shutdowns  are  ongoing.  Ultimate
     disposition will depend upon successful  negotiations with willing buyers
     for  remaining  properties.  The  Company  anticipates  that the  planned
     activities will be completed in fiscal 1996.

(B)  Cost of  divestitures  includes  shutdown  costs in  connection  with the
     closing and sale of remaining locations. Ultimate disposition will depend
     upon   successful   negotiations   with  willing   buyers  for  remaining
     properties. As operational shutdowns are completed, costs are expected to
     vary from the original  estimates.  The Company anticipates these efforts
     will be completed in fiscal 1996.

(C)  Included in the costs related to business  divestitures are environmental
     remediation  costs,  identified  during the process of asset sales,  that
     primarily  relate to real estate assets retained on energy business sold.
     These  anticipated  cash  outlays  will be part of our  ongoing  programs
     regarding environmental  remediation and are expected to be incurred over
     the next three years.



                                       9

<PAGE>



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

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


6.   DISCONTINUED OPERATIONS
     -----------------------
     In November 1994, the sale of Hood was  anticipated to close shortly in a
     sale to a Hood  management-led  buyout group.  However,  based on changed
     business conditions and financial markets during prolonged  negotiations,
     on January 24,  1995,  Agway and the  management  buyout  group  mutually
     concluded to cease the pursuit of this sale transaction.  While Agway was
     still actively interested in the sale of Hood and while such a sale could
     have been  consummated  in the near  future,  Agway no longer was able to
     estimate with reasonable  certainty whether a sale would occur within the
     next year and,  accordingly,  reclassified Hood to continuing  operations
     for financial  reporting  purposes as of December 31, 1994. Since January
     24, 1995,  Agway has actively  pursued  alternative  buyers for Hood.  As
     previously  reported on Form 8-K on December  18 and 22,  1995,  Hood was
     sold to Catamount  Dairy  Holdings  Limited  Partnership  on December 15,
     1995.

     As a  result  of the  sale of  Hood,  Agway  has  reclassified  Hood as a
     discontinued  operation for financial  reporting  purposes as of December
     31, 1995.  Net sales and revenues  from the  discontinued  operations  of
     Hood,  sold in December 1995,  and Curtice Burns,  sold in November 1994,
     were  approximately  $749,000 and $1,323,000 for the years ended June 30,
     1995 and 1994, respectively.

     A summary of net assets of  discontinued  operations at June 30, 1995 and
     1994, previously reported as continuing operations, is as follows:
<TABLE>
<CAPTION>

                                                     1995                               1994
                                                 -------------    ------------------------------------------------
                                                     H.P.             Curtice           H. P.
                                                     Hood              Burns            Hood              Total
                                                 -------------    --------------    -------------    -------------
     <S>                                         <C>              <C>               <C>              <C>             
     Accounts receivable.......................  $     45,399     $      66,337     $     51,622     $    117,959
     Inventory.................................        20,337           155,259           19,124          174,383
     Property, plant and equipment, net........        62,560           167,516           68,991          236,507
     Other, net................................        17,262            25,352           23,841           49,193
     Accounts payable and other liabilities....       (76,815)         (128,760)         (67,090)        (195,850)
     Structured debt...........................       (53,009)         (237,280)         (60,129)        (297,409)
                                                 -------------    --------------    -------------    -------------
                                                 $     15,734     $      48,424     $     36,359     $     84,783
                                                 =============    ==============    =============    =============
</TABLE>





                                      10

<PAGE>



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

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


6.   DISCONTINUED OPERATIONS (continued)
     -----------------------------------
     As previously discussed,  the financial statements have been reclassified
     to reflect Hood as a discontinued  operation.  A reconciliation to margin
     (loss) from continuing operations as previously reported follows:
<TABLE>
<CAPTION>
                                                        Six Months            Fiscal Year           Fiscal Year
                                                           Ended                 Ended                 Ended
                                                     December 31, 1994       June 30, 1995         June 30, 1994
                                                     -----------------    ------------------      ----------------
     <S>                                             <C>                   <C>                    <C>            

     Impact of reclassification  of loss from
     continuing  operations to margin
     (loss) from discontinued operations:
                         
     Interest expense..........................      $            (891)    $         (1,000)      $        (1,783)
     Transaction costs and allowance...........                (15,884)             (16,724)
     Pre-tax margin (loss) from
         segment operations....................                  2,177               (2,666)               (7,681)
                                                     -----------------     ------------------     ----------------
     Pre-tax (loss) from continuing
         operations............................                (14,598)             (20,390)               (9,464)
     Income tax benefit........................                  5,031                5,406                 3,086
                                                     -----------------     ------------------     ----------------
         Losses to discontinued operations.....                 (9,567)             (14,984)               (6,378)
     Original balance - margin (loss)
         from continuing operations............                (27,295)             (22,962)               (5,682)
                                                     -----------------     ------------------     ----------------
     Reclassified balance - margin (loss)
         from continuing operations............      $         (17,728)    $         (7,978)      $           696
                                                     =================     ==================     ================

<CAPTION>
     A  reconciliation  to loss from  discontinued  operations  as  previously
     reported follows:

                                                        Six Months
                                                     December 31, 1994         June 1995             June 1994
                                                     -----------------     ------------------     ----------------
     <S>                                             <C>                   <C>                    <C>
     Original balance:
         Gain on sale of Curtice Burns,
             net of tax of $19,700..............     $            4,430    $           4,430 
                                                     ==================    ==================
         Previous reclassification to
             reconsolidate Hood, net of tax
             benefit (expense) of $8,230, $8,230
             and $(3,086), respectively.........     $            2,623    $           2,624      $         2,378
         Current reclassification of Hood
             losses to discontinued operations..                 (9,567)             (14,984)              (6,378)
                                                     -------------------   ------------------     -----------------
         Restated balance - Gain (loss) on
             disposal of Hood, net of tax.......     $           (6,944)   $         (12,360)     $        (4,000)
                                                     ===================   ==================     ===================

</TABLE>

7.   INCOME TAXES
     ------------
     The income tax  benefit  from  continuing  operations  and the  resulting
     effective  tax rate for the three- and six-month  periods ended  December
     31, 1995 vary  significantly  from the anticipated  statutory  rates. The
     difference  between the expected tax benefit on current period losses and
     the actual amount recorded in the current year is primarily the result of
     certain patronage losses not being given current tax benefit.




                                      11

<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'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 & Consumer net sales and revenues are traditionally
higher in the spring as  customers  acquire  products to initiate  the growing
season.  Energy  realizes  significantly  higher net sales and revenues in the
winter months due to cold winter conditions.  Financial Services and Corporate
are not materially impacted by seasonal fluctuations.
<TABLE>
<CAPTION>
                              Results by Operating Segment
                              ----------------------------
                                                                Increase (Decrease)
                                                  ----------------------------------------------
                                                   Three Months Ended         Six Months Ended
                                                  ---------------------    ---------------------
                                                  12/31/95 vs. 12/31/94    12/31/95 vs. 12/31/94
                                                  ---------------------    ---------------------
   <S>                                           <C>                       <C>
   Net Sales and Revenues
   ----------------------
     Agriculture & Consumer.................     $              (1,528)    $             (17,358)
     Energy.................................                     2,257                    (7,556)
     Financial Services.....................                       812                     2,602
     Corporate..............................                       103                       268
                                                 ----------------------    ---------------------
                                                 $               1,644     $             (22,044)
                                                 ======================    ======================
   Margin (Loss) from Continuing Operations
   ----------------------------------------
       before Income Taxes
       -------------------
     Agriculture & Consumer.................     $               6,238     $               9,847
     Energy.................................                       726                      (488)
     Financial Services.....................                    (3,598)                   (3,163)
     Corporate..............................                     1,854                     2,616
                                                 ----------------------    ---------------------
     Operating margin (loss) and other
       income (expense), net................                     5,220                     8,812
     Interest (expense), net................                      (380)                     (521)
                                                 ----------------------    ----------------------
                                                 $               4,840     $               8,291
                                                 ======================    =====================
</TABLE>
Numbers in the following  narrative  have been rounded to the nearest  hundred
thousand.

Consolidated Results
--------------------
The sales  decrease for the six months ended December 31, 1995 was in part the
planned result from (1) the sale of the Dairy Route and Installation & Service
businesses  by AAP in fiscal  1995;  (2) the change in  product  mix from high
dollar volume,  low gross margin power  equipment to lower unit value,  higher
gross  margin  consumer  products  which  affected  both AAP and ARS;  (3) the
reduction  of power  fuel  facilities  in the  Energy  segment  for  locations
determined not to be cost beneficial to upgrade; and (4) a reduction of Energy
sales to high volume,  low margin  commercial  accounts.  Sales were adversely
affected in the first quarter by the summer drought  conditions  which reduced
sales of fertilizer,  lime and yard and garden equipment and supplies, as well
as crop and farm store  supplies.  These sales  declines were offset by higher
sales prices in feed and fertilizer products due to an increase in the cost of
these  products;  by volume  increases  in CPG,  particularly  in human edible
sunflower  seeds,  birdseed and turf;  and by increases,  particularly  in the
second quarter due to the colder weather,  in sales of heating oil and propane
for Energy and of winter consumable products and birdseed for ARS.

The pre-tax loss from  continuing  operations was reduced $4,800 for the three
months and $8,300 for the six months ended December 31, 1995. This improvement
was primarily the result of reductions in selling and administration  expenses
in AAP and ARS; an increase in gross margin percent on ARS sales;  an increase
in gross margin dollars on increased CPG sales volume;  increased  margin from
Telmark due to the increase of its net  investment in leases;  a $1,400 second
quarter  gain  on the  sale of an  investment;  and  the  non-reoccurrence  of
reengineering costs incurred in the prior year. These improvements were offset
by a  significant  adverse  claim  experience  in the second  quarter  for the
Insurance operations.
                                       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)

Agriculture & Consumer
----------------------
Agriculture  &  Consumer  consists  of  Agway  Agricultural   Products  (AAP),
Agriculture & Related Services (ARS) and Country  Products Group (CPG).  Total
Agriculture & Consumer net sales and revenues of $206,000 and $413,800 for the
second quarter and six months ended December 31, 1995, respectively, decreased
$1,500 (1%) and $17,400 (4%) as compared to the prior year. Total pre-tax loss
from  continuing  operations  for the second quarter of $4,600 and for the six
months  to  date  of  $11,700   decreased   $6,200  (57%)  and  $9,800  (46%),
respectively, as compared to the prior year. The change from the prior year of
net sales and revenues and pre-tax  margin (loss) from  continuing  operations
for the three-month  and six-month  periods ended December 31, 1995 within the
segment was as follows:
<TABLE>
<CAPTION>
                                                               December 31, 1995 vs 1994
                                                               -------------------------
                                                      Three Months Ended         Six Months Ended
                                                     ----------------------     -------------------
     <S>                                             <C>             <C>        <C>            <C>
     Net sales and revenues:                                $           %             $           %
                                                     -------------   ------     -------------  ----
       AAP.........................................  $      5,328       6%      $     (3,063)   (2%)
       ARS.........................................       (10,367)    (17%)          (22,671)  (18%)
       CPG.........................................         3,511       7%             8,376     9%
                                                     -------------              -------------
           Total...................................  $     (1,528)      1%      $    (17,358)    4%
                                                     =============              =============

     Pre-tax margin (loss) from continuing
       operations:
       AAP.........................................         5,011      55%             6,948    37%
       ARS.........................................         1,781      37%             2,403    37%
       CPG.........................................           585     495%             1,835   163%
       Eliminations................................        (1,139)    (40%)           (1,339)  (28%)
                                                     -------------              -------------
           Total                                     $      6,238      57%      $      9,847    46%
                                                     =============              =============
</TABLE>
Total net sales and revenues of AAP of $101,700 and $201,600 for the three and
six months ended December 31, 1995  approximate 50% of the total segment.  The
sales  levels  during the first six months  have been  reduced  because of the
decision to exit,  during the fourth  quarter of fiscal 1995,  the Dairy Route
and Installation & Service (I&S) businesses of AAP and as the result of summer
drought  conditions,  followed by early winter  conditions  in the  Northeast,
which lowered the demand for fertilizer,  lime, yard and garden  equipment and
supplies  and crop and farm store  supplies.  Increased  sales  dollars in the
second quarter were mainly the result of increased feed and fertilizer product
costs,  which  were  approximately  15%  higher  than in the prior  year,  and
improved wholesale crop sales, particularly in dry fertilizers.

Total net sales and  revenues of ARS of $51,100 and $105,400 for the three and
six months ended December 31, 1995  approximate 25% of the total segment.  ARS
has  experienced  significant  declines (18%) in net sales and revenues during
the  first  six  months of fiscal  1996.  Exiting  of the Dairy  Route and I&S
businesses in the fourth  quarter of fiscal 1995 has reduced sales compared to
the prior year. Further, to improve overall margins, the unit has made product
mix changes and has created  marketing  programs designed to de-emphasize high
dollar  value/lower  margin power  equipment  sales in favor of more  consumer
products  of  smaller  per unit  value,  but with  higher  turnover  rates and
margins.  In addition,  the summer drought  conditions have adversely impacted
the sales in yard and garden product lines,  particularly fertilizers and turf
seeds.

Total net sales and  revenues of CPG of $53,200 and $106,800 for the three and
six months ended December 31, 1995  approximate  25% of the total segment.  As
noted above,  the CPG unit has  experienced  sales growth of 9% over the prior
year six-month  period ended December 31. The increase is mainly the result of
increased sales of sunflower seeds,  both in use for human  consumption and in
the production of birdfoods, and growth in the turf and flour operations.

                                       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)


Agriculture & Consumer (continued)
----------------------------------
Pre-tax  loss for AAP and ARS has shown  significant  improvement  in both the
three-month  (55%  and  37%,   respectively)   and  six-month  (37%  and  37%,
respectively)  periods ending December 31, 1995 as compared to the prior year.
Substantial  improvement  has come from  management's  successful  efforts  to
reduce  selling  and  administrative  expenses  in  the  current  year.  These
improvements  are  after  considering  declines  in gross  margin  dollars  of
approximately $700 (5%) for AAP and $5,000 (14%) for ARS and are the result of
the increased product cost or volume reductions noted previously.

Pre-tax  margin  (loss)  improvement  for CPG is due primarily to gross margin
gains realized from increased  sales volume in sunflower  seeds,  turf and the
flour operation.

Energy
------
Total net sales and  revenues of Energy were  $140,200  and  $237,600  for the
three and six months  ended  December  31, 1995 and  represent  an increase of
$2,200 (2%) for the  three-month  period and a decrease of $7,600 (3%) for the
six-month  period,  respectively.  The sales  reductions  occurring during the
first  six  months  were due to (1)  ongoing  efforts  to close  down  certain
company-owned retail keytrol/cardtrol sites and bulk customer sites determined
not to be cost  beneficial for upgrade to comply with storage tank  regulation
requirements; (2) a regional oversupply of fuel oil from the prior year's warm
winter in Energy's  marketplace  was sold by  competitors  as  commercial  and
retail diesel fuel at bargain prices which reduced  Energy's  volume of diesel
fuel sold;  and (3) a decision to redirect  commercial  diesel fuel sales away
from high volume/low  margin  transport  deliveries  toward higher  margin/low
volume tankwagon sales. However,  sales increases did occur in the three-month
period ended December 31, 1995,  which partially  offset the declines over the
entire  six-month  period.  The  increase  was  substantially  due  to  colder
temperatures than in the prior year which elevated residential heating oil and
propane sales.  Overall,  unit volume decreased 4% in the six-month period and
remained  constant  in the  three-month  period  ended  December  31,  1995 as
compared to the prior year.

Pre-tax margin (loss) from continuing operations for Energy shows a $700 (14%)
improvement  during the second  quarter ended December 31, 1995 as compared to
the prior year. However,  through six months, pre-tax margin has declined $500
(270%)  over the  prior  year.  The  decline  over  the  six-month  period  is
attributable to lower gross margins as a result of lower sales volumes,  lower
gross margins in power fuels due to product mix and competitive  pricing,  and
higher  administrative  costs which were partially  offset by lower amounts of
selling and  distribution  expenses.  During the second  quarter,  the pre-tax
margin improvement relates to a 2% improvement in gross margin being generated
in the  retail  propane  and fuel oil  products  and as the  result of reduced
selling and distribution expenses.


                                       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)


Financial Services
------------------
For segment reporting purposes, Financial Services consists of Telmark, Inc.
("Telmark"), Agway Insurance Company ("Insurance") and Agway General
Agency, Inc. ("General Agency").

Total Financial Services net sales and revenues of $18,500 and $37,300 for the
second quarter and year-to-date,  respectively, increased $800 (5%) and $2,600
(8%),  respectively,  as  compared to the  corresponding  periods in the prior
year.  Telmark  operations  provided $12,200 (66%) and $23,700 (64%) of second
quarter and  six-month net sales and revenues as compared to $10,300 (58%) and
$19,800 (57%), respectively,  in the same periods last year. Telmark continued
to experience  booked volume growth as its net investment in leases  increased
$12,700 (4%) for the six-month  period to $361,100,  but did not change during
the second quarter.  The increase in Telmark's second quarter and year-to-date
net sales and  revenues  of $1,900  (19%) and $3,800  (19%) as compared to the
same periods last year is primarily due to the higher level of net  investment
as well as having  slightly  higher revenue rates on its current  portfolio as
compared to the prior year.  Insurance and General Agency operations  provided
$6,300  (34%) and  $13,600  (36%) of total  Financial  Services  net sales and
revenues for the second quarter and the six-month  period.  This  represents a
decrease of $1,100 (15%) in the second quarter and $1,200 (8%) year-to-date as
compared to the prior year. Due to competitive  price  conditions for personal
lines  business,  Insurance  has  experienced  a  decline  in  direct  written
premiums.

Pre-tax  operating  margins (loss) for Financial  Services  deteriorated  from
$2,800 and $4,900 in the  second  quarter  and for the first six months of the
prior  year,  respectively,  to ($800)  and  $1,700,  respectively.  Telmark's
pre-tax  operating margin increased in the second quarter and in the six-month
period by $900 (44%) and $1,500 (39%), respectively. The increase reflects the
positive  impact of net  investment  growth with  relatively  higher  interest
rates,  which was offset  somewhat by an increase in interest  expense of $700
and $1,600 in the second  quarter and  year-to-date,  respectively,  resulting
from higher  interest rates on new and  replacement  debt.  Insurance  pre-tax
operating  margin was  negatively  impacted by $4,400 and $4,600 in the second
quarter and six months ended December 1995 as compared to the prior year. This
was primarily due to $3,800 of unusually  large  farmowner and auto  liability
casualty losses and loss development during the second quarter.

Corporate
---------
Net sales and revenues of $600 in the second  quarter and $1,200 for the first
six months remained relatively constant as compared to last year and represent
external revenues generated from the Information  Services  Department and the
elimination of sales and revenues between operating segments.

Operating margins of $3,500 in the second quarter and $6,200 for the first six
months  reflect an increase of $1,900 (119%) and $2,600  (72%),  respectively,
from last year.  Prior year  operating  margin  included  reengineering  costs
totaling $900 and $1,600 in the second quarter and  year-to-date.  These costs
were not  incurred  in  fiscal  1996.  Additionally,  in the  second  quarter,
Corporate recorded a $1,400 gain on the sale of a security investment.

                                       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)

LIQUIDITY AND CAPITAL RESOURCES
-------------------------------
Cash flows from  operating  activities  for the six months ended  December 31,
1995  decreased  approximately  $23,900 as compared to the first six months of
the prior year due  primarily to less cash provided  from working  capital.  A
smaller decline in accounts  receivable,  a larger increase in inventory and a
larger decrease in accounts payable during the first six months as compared to
the prior year were the reason for the decreased cash flows.  Net cash used in
investing  activities for the six months was approximately  $4,400 as compared
to net cash provided of  approximately  $22,900 for the same period last year,
primarily due to a reduction in the cash generated  from sale of  discontinued
operations  this year  compared to last year and a reduction in the  financing
required  for growth in the lease  portfolio.  The net cash flows  provided by
financing  activities for the six months were approximately $4,700 as compared
to net cash used of  approximately  $46,500  for the same  period in the prior
year. The majority of the change from  financing  activities was the result of
less net  repayments of long-term debt offset by an increase in net short-term
borrowings  for the  first six  months as  compared  to the  prior  year.  Net
repayments of long-term debt declined  approximately  $18,000 while the change
in short-term borrowings increased $38,000 as compared to the six months ended
December 31, 1994.

The Company  finances its  operations and the operations of all its continuing
businesses  and  subsidiaries,  except  Telmark and Agway  Insurance  Company,
through Agway Financial Corporation (AFC). Telmark and Agway Insurance Company
finance themselves through operations or direct borrowing  arrangements.  Each
is financed with a  combination  of short- and  long-term  credit  facilities.
External  sources  of  short-term  financing  for  the  Company  and  all  its
continuing  operations include revolving credit lines,  letters of credit, and
commercial paper programs.  In addition,  Telmark has occasionally sold blocks
of its lease portfolio. Sources of longer-term financing include the following
as of December 31, 1995:
<TABLE>
<CAPTION>
                                                                   Agway           Telmark            Total
                                                             -------------     -------------    ------------- 
   <S>                                                        <C>               <C>              <C>
   Source of debt
   --------------
   Banks - due 2/96 - 8/99 with interest
     from 5.4% - 8.5%                                                           $     109,000    $     109,000
   Insurance companies - due 3/96 - 11/00
     with interest from 5.7% - 9.2%                                                   142,955          142,955
   Capital leases & other - due 1996-2007
     with interest from 6% - 12%                              $      15,886                             15,886
                                                              -------------     -------------    -------------
       Long-term debt                                                15,886           251,955          267,841
   Subordinated debt - due 10/96 - 10/08
     with interest from 4.5% - 9.5%                                 378,699            15,850          394,549
                                                              --------------    -------------    -------------
       Total debt                                             $     394,585     $     267,805    $     662,390
                                                              ==============    =============    =============
</TABLE>

The AFC available  $65,000 line of credit and  availability of issuing $60,000
of  commercial  paper were  extended  through  February 29, 1996.  In order to
consider  the  effect  of the  December  15,  1995 sale of Hood on the line of
credit  requirements, existing lines of credit were extended to February 29,
1996.  Longer-term  renewals  are in the  process of  negotiations.  These AFC
short-term  lines of credit are  collateralized  by  certain of the  Company's
accounts  receivable and  non-petroleum  inventories  ("collateral").  Amounts
which can be drawn  under  the AFC  short-term  agreements  are  limited  to a
specific calculation based upon the collateral available.  Adequate collateral
has existed throughout the fiscal year to permit AFC to borrow amounts to meet
the  ongoing  needs of the  Company  and is  expected to continue to do so. 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  net worth.  The Company has ongoing
discussions  with its lenders and expects to continue to have  appropriate and
adequate financing to meet its ongoing needs.


                                       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)


LIQUIDITY AND CAPITAL RESOURCES (continued)
-------------------------------------------
Telmark  borrows  under  its  short-term  line  of  credit  agreement  and its
revolving term agreement from time to time to fund its operations.  Short-term
debt serves as interim  financing between the issuances of long-term debt. The
current uncommitted  short-term line of credit agreement with one bank permits
Telmark to borrow up to $4,000 on an unsecured  basis with  interest paid upon
maturity.  The line bears  interest  at money  market  variable  rates.  As of
December  31,  1995,  there were no  amounts  outstanding  against  this line.
Effective  February  1, 1996,  the $20,000  short-term  line of credit and the
$125,000 term loan commitment were replaced by a $200,000  revolving term loan
facility from the same bank against which  Telmark may 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 amounts  outstanding  as of
December 31, 1995 on the  short-term  line and term loan totaled  $118,500 and
will be applied against the new $200,000 revolving term loan facility.

Telmark  renews its lines of credit  annually.  The $4,000  line of credit has
been renewed through December 1996. As described above, the $200,000 revolving
term  agreement is available  beginning  February 1, 1996 through  February 1,
1997. The Company  believes Telmark has sufficient lines of credit in place to
meet interim funding needs.






                                       17

<PAGE>



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


Item 1.  Legal Proceedings
--------------------------
In August 1995, the Environmental  Protection Agency (EPA) notified Agway that
the EPA has reason to believe that Agway is a  potentially  responsible  party
(PRP)  under  the  Comprehensive  Environmental  Response,   Compensation  and
Liability Act (CERCLA) at the Tri-Cities  Barrel Site,  Port Crane,  New York.
The EPA  requested  that  Agway  and other  PRPs  participate  in the  ongoing
Remedial  Investigation/Feasibility  Study (RI/FS) for the  Tri-Cities  Barrel
Site.  Agway believes that its  involvement  at the Tri-Cities  Barrel Site is
minimal.  Agway discussed with other PRPs who have been  participating  in the
RI/FS the terms of possible participation in the ongoing RI/FS and decided not
to participate at this time.

Item 4.  Submission of Matters to a Vote of Security Holders
------------------------------------------------------------
The Company held its annual meeting of  shareholders  on November 29, 1995, at
which a quorum was present in person or by proxy. The following Directors were
elected to three-year terms through December 1998:

        Nominee                   In Favor                Opposed
 ----------------------     ----------------------    ---------------
  William W. Young                   54,246                5,553
  Andrew J. Gilbert                  54,246                5,553
  D. Gilbert Couser                  54,246                5,553
  Thomas E. Smith                    54,246                5,553
  Keith H. Carlisle                  54,246                5,553

Eligible additional votes totaling 26,834 were not received at the time of the
annual  meeting  and are not  included  as either  votes in favor or  opposed.
Additionally,  these  26,834  eligible  additional  votes  may  be  considered
abstentions  and were not included for purposes of determining a quorum at the
annual meeting.

The following is a list of directors whose terms as Directors  continued after
the Annual Meeting:

     Ralph H. Heffner               - Chairman of the Board and Director
     Robert L. Marshman             - Vice Chairman of the Board and Director
     Keith H. Carlisle              - Director
     Vyron M. Chapman               - Director
     D. Gilbert Couser              - Director
     Andrew J. Gilbert              - Director
     Peter D. Hanks                 - Director
     Frederick A. Hough             - Director
     Samuel F. Minor                - Director
     Donald E. Pease                - Director
     Carl D. Smith                  - Director
     Thomas E. Smith                - Director
     Gary K. Van Slyke              - Director
     Joel L. Wenger                 - Director
     Edwin C. Whitehead             - Director
     Christian F. Wolff, Jr.        - Director
     William W. Young               - Director


Item 6.  Exhibits and Reports on Form 8-K
-----------------------------------------
There were two  reports  on Form 8-K  required  to be filed  during the second
quarter ended December 31, 1995.

The first report was filed on December 18, 1995, announcing the sale of H. P.
Hood Inc. to Catamount Dairy Holdings Limited Partnership.

The second report filed on December 22, 1995, included the pro forma financial
information associated with the sale of H. P. Hood Inc. to Catamount Dairy
Holdings Limited Partnership.


                                       18

<PAGE>


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


SIGNATURES
----------

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




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





Date          February 5, 1996                /s/ PETER J. O'NEILL
         --------------------------   ----------------------------------------
                                                 Peter J. O'Neill
                                              Senior Vice President,
                                               Finance & Control,
                                            Treasurer and Controller
                                        (Principal Financial Officer and
                                           Chief Accounting Officer)













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