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                UNITED STATES SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549
                                    FORM 10-K
(MARK ONE)
  X   ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF  THE  SECURITIES EXCHANGE
-----
      ACT OF 1934
      For the fiscal year ended June 30, 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 AND ZIP CODE)

        REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 315-449-6436

SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:

 TITLE OF EACH CLASS                   NAME OF EACH EXCHANGE ON WHICH REGISTERED
 -------------------                   -----------------------------------------
        None                                            None

SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
                                 None

      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.
                                                   X
                                                  ---        ----
                                                  Yes         No

      INDICATE BY CHECK MARK IF DISCLOSURE OF DELINQUENT FILERS PURSUANT TO ITEM
405 OF REGULATION S-K IS NOT CONTAINED HEREIN, AND WILL NOT BE CONTAINED, TO THE
BEST OF REGISTRANT'S KNOWLEDGE, IN ANY DEFINITIVE PROXY ORINFORMATION STATEMENTS
INCORPORATED BY REFERENCE IN PART III OF THIS FORM 10-K OR ANY AMENDMENT TO THIS
FORM 10-K.    X
             ---
      STATE THE  AGGREGATE  MARKET  VALUE OF THE  VOTING AND  NON-VOTING  COMMON
EQUITY HELD BY NON-AFFILIATES OF THE REGISTRANT AS OF SEPTEMBER 10, 1999.

               Membership Common Stock, $25 Par Value - $2,493,200

      INDICATE  THE  NUMBER OF SHARES  OUTSTANDING  OF EACH OF THE  REGISTRANT'S
CLASSES OF COMMON STOCK, AS OF THE LATEST PRACTICABLE DATE.

           CLASS                               OUTSTANDING AT SEPTEMBER 10, 1999
Membership Common Stock, $25 Par Value                    99,728 Shares

--------------------------------------------------------------------------------
--------------------------------------------------------------------------------



<PAGE>



                         FORM 10-K ANNUAL REPORT - 1999
                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES

                              CROSS REFERENCE SHEET
<TABLE>
<CAPTION>
                                                                                                               Page

                                                       PART I
<S>                  <C>                                                                                         <C>
Items 1 & 2          Business and Properties
                         General...............................................................................   3
                         Agriculture...........................................................................   4
                         Country Products Group................................................................   6
                         Energy................................................................................   8
                         Leasing...............................................................................   8
                         Insurance.............................................................................   9
                         Human Resources.......................................................................   9
                         Administrative........................................................................   9
                         Regulation............................................................................   9
                         Stockholder Membership and Control of Agway...........................................  10
                         Retained Earnings.....................................................................  11
                         Patronage Refunds.....................................................................  11
Item 3.              Legal Proceedings.........................................................................  12
Item 4.              Submission of Matters to a Vote of Security Holders.......................................  13

                                                      PART II

Item 5.              Market for the Registrant's Common Equity and Related Stockholder Matters.................  13
Item 6.              Selected Financial Data...................................................................  13
Item 7.              Management's Discussion and Analysis of Financial Condition and Results of Operations.....  14
Item 7a.             Quantitative and Qualitative Disclosures about Market Risk................................  31
Item 8.              Financial Statements and Supplementary Data...............................................  34
Item 9.              Changes in and Disagreements with Accountants on Accounting and Financial Disclosure......  34

                                                     PART III

Item 10.             Directors and Executive Officers of the Registrant........................................  68
Item 11.             Executive Compensation....................................................................  71
Item 12.             Security Ownership of Certain Beneficial Owners and Management............................  74
Item 13.             Certain Relationships and Related Transactions............................................  74

                                                      PART IV

Item 14.             Exhibits, Financial Statement Schedules and Reports on Form 8-K...........................  75

                     Signatures................................................................................  85


</TABLE>
                                                         2

<PAGE>



                                                      PART I

ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


GENERAL

Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in DeWitt,  New York. Agway is an agricultural  cooperative
directly  engaged in  manufacturing,  processing,  distribution and marketing of
agricultural feed and agronomic products and services for its farmer-members and
other  customers,  primarily  in the  northeastern  United  States and Ohio.  In
addition, Agway is involved in retail and wholesale sales of farm supplies, yard
and garden  products,  pet food and  pet  supplies;  repackaging  and marketing
produce; and processing and marketing sunflower seeds. Agway, through certain of
its subsidiaries,  is involved in the distribution of petroleum products;  lease
financing;  the  underwriting and sale of certain types of property and casualty
insurance; and the sale of health insurance. In this Form 10-K, unless otherwise
indicated,  the  "Company,"  "Agway," "we," or "our" refer to Agway Inc. and its
subsidiaries.

Operating as a  cooperative,  Agway is eligible to pay patronage  refunds to its
members and  "contract  patrons"  from  earnings on sales of patronage  eligible
products and services.  For income tax  purposes,  Agway is subject to corporate
income  tax at  applicable  tax  rates on all  taxable  income  remaining  after
deductions for patronage refunds, if paid.

Agway reports its operations principally in five business segments: Agriculture,
Country  Products  Group,  Energy,  Leasing,  and Insurance.  Agway modified its
segment  reporting  in 1999 by  combining  the former  Retail  segment  with the
Agriculture segment in light of a consolidation of these two operations in April
1999, as explained further under Agriculture.  Additionally,  as required by new
accounting standards, the Country Products Group was broken into its own segment
in 1999 to align our disclosure with how our business is managed.

Agway,  as one of the largest  agricultural  cooperatives  in the United States,
deals in a wide  variety  of  product  lines and  market  segments.  Many of its
high-volume  products  are sold in  highly  competitive  markets  where  product
differentiation  is difficult to achieve.  Agway strives to  distinguish  itself
through superior customer service, product selection, and product knowledge.

Agway  Financial  Corporation  (AFC), a wholly owned  subsidiary of Agway,  is a
Delaware  corporation  incorporated  in 1986 with  principal  executive  offices
located in Wilmington,  Delaware. AFC's principal business activities consist of
securing  financing  through bank  borrowings  and  issuance of  corporate  debt
instruments to provide funds for general  corporate  purposes to Agway and AFC's
wholly owned subsidiary, Agway Holdings Inc. (AHI), and AHI's subsidiaries.  The
payment of principal and interest on this AFC debt is guaranteed by Agway.  This
guarantee  is  full  and  unconditional, and  joint  and  several.  Telmark  and
Insurance finance their activities  through  operations  or  with a  combination
of short- and long-term credit facilities.

Major  holdings  of AHI  include  Agway  Energy  Products  LLC and Agway  Energy
Services Inc. (Energy),  Telmark LLC and its subsidiaries  (Leasing),  and Agway
Insurance Company and Agway General Agency Inc. (Insurance).  Effective June 26,
1999, Agway Consumer Products Inc., a Delaware corporation and former holding of
AHI, was merged into Agway Inc. Agway Consumer Products Inc. held the assets and
business operations of the former Retail segment and certain assets and business
operations of the Country Products Group and Agriculture. This merger into Agway
aligns the legal  structure more closely with the management  structure of Agway
and facilitates the ability to manage these assets and businesses prospectively.

In exemptive relief granted pursuant to a "no action letter" issued by the staff
of the SEC, AFC is not required to file periodic reports with the SEC for itself
but does report summarized financial  information in Agway's financial statement
footnotes.



                                        3

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


AGRICULTURE

Agriculture  is comprised  principally  of six  geographically-based  enterprise
units. Each unit is responsible for management,  operations, sales, billing, and
customer  service  within  its  geographic  territory.   In  April  1999,  Agway
consolidated  the  former  Agway  Retail  Services  into the Agway  Agricultural
Products  enterprise-based system, creating the new Agriculture and Retail Group
(Agriculture).  The stores  and  franchisee  dealer  system  previously  managed
centrally and as a separate business activity is now integrated into and managed
by  the  enterprise  units  in  their  respective  geographic  territories.  The
agricultural  business is focused on animal feed, agronomic and farm services to
farmers in their  specific  geographic  markets.  The retail  business  is being
refocused as a distribution channel promoting Agway-branded products,  augmented
by non-branded  products that broaden and complement  product offerings in three
primary categories:  farm-related  products,  yard and garden products,  and pet
food and pet supplies.

ANIMAL  FEEDS:  Agriculture  operates  15  feed  mills  and  15  grind  and  mix
facilities, principally in New York, Pennsylvania, and Vermont. These operations
manufacture  livestock and poultry feeds under Agway formula.  Products are sold
primarily through an Agway sales force, which actively calls on farmer-customers
and responds to customer inquiries.  In August 1998, Agriculture acquired a feed
manufacturer  located in Vermont and combined  one of its  existing  feed plants
into the operations. The acquisition significantly increased our market presence
in  Vermont.  We  expect  that  production  capacity  of  animal  feeds  will be
sufficient to meet market needs of the enterprise  units. In addition,  in 1999,
Agriculture constructed a farm in Elba, New York, which, on a contract basis for
farmers, custom raises heifers that test free of specific pathogens.

AGRONOMY:  Agriculture  operates  109  agronomic  blending  plants  and  storage
facilities.  These operations  manufacture,  process,  and procure  crop-related
products to be sold as direct  shipments to  farmer-customers,  farmer- dealers,
non-farmer customers,  and wholesale accounts. The fertilizer operations in York
and East Berlin,  Pennsylvania,  manufacture yard and garden fertilizers sold to
dealers and  distributors on the East Coast.  At East  Liverpool,  Ohio, we have
fertilizer   grading  equipment  through  which  we  sell  fertilizer  to  other
commercial  customers.  Agriculture sources  substantially all of its fertilizer
needs  through CF  Industries,  Inc., a  cooperative  of which Agway is a member
eligible for patronage refunds.  Agriculture has a significant  investment in CF
Industries.

Crop-related products sold primarily for farm use include plant nutrients, lime,
crop  protectants,  and various seed  products.  The  agronomic  operations  are
seasonal in nature,  with the  majority  of sales and demand on working  capital
generated at the  beginning of a growing  season which in the  Northeast is late
winter  and  spring.  Agway  believes  that  production  capacity  is  currently
sufficient to meet the agronomic needs of Agway's market.

RETAIL:  Agriculture  conducts retail sales and distribution  activities through
162 Agway-owned stores and 306 dealer stores located throughout the northeastern
United  States.  Agriculture  has a long-term  agreement  with a third-party  to
manage its distribution of products,  which includes two  distribution  centers,
located  in  Elizabethtown,  Pennsylvania,  and  Westfield,  Massachusetts.  The
emphasis of the retail  business is on  farm-related  products,  yard and garden
products, and pet food and pet supply products manufactured or branded by Agway.
The  dealer  stores  are  authorized  to sell  Agway  products  and,  along with
Agway-owned  stores,  are  located in areas  where a retail  market  presence is
deemed desirable.

Agriculture  additionally  generates sales of animal health products directly to
farmers through a mail-order  catalog service which complements the Agway retail
system.  The  farm-related  and yard and garden products are seasonal,  with the
majority  of sales and demand on working  capital  generated  in late winter and
spring.



                                        4

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

RETAIL (CONT.): In 1999, the former Agway Retail Services attempted to implement
a new franchise program in an attempt to gain a consistent representation of the
Agway  brand   throughout   the  entire   retail  store   system.   During  this
implementation  period, the retail business experienced a sharp decline in sales
to the dealer store network as a result of dealer  dissatisfaction with this new
program and Agway suffered  significant  losses from operations.  In April 1999,
the former Agway Retail Services was consolidated  into  Agriculture,  where the
retail  business  is  being  refocused  as  a  distribution   channel  promoting
Agway-branded  products  augmented  by  non-branded  products  that  broaden and
complement  its product  offerings.  Agriculture  terminated  the new  franchise
program and has  implemented  a  simplified  dealer  agreement  which to date is
resulting in improved  relations and increased  sales to dealers.  Additionally,
Agriculture's geographic enterprise units assumed the responsibility of managing
the retail  operations,  including  the  dealer  relationships,  and  anticipate
expanding  the  wholesale-branded  distribution  channel by regaining  sales and
growing dealer business with Agway. Finally, Agriculture will continue to review
and assess the  financial  condition  of all retail  operations  and will modify
these operations,  as deemed necessary, in order to improve the results of these
operations prospectively.

OTHER ACTIVITIES:  In addition to the  enterprise-managed  business  activities,
Agriculture has direct  marketing  operations  involved in the processing,  bulk
storage,  and retail and wholesale sales of seeds and bulk storage and wholesale
sales of fertilizer  products;  and a grain marketing  business that, until July
1999,  consisted of a central grain marketing department (the department) and 11
elevators  in  New  York,  Pennsylvania,   and  New  Jersey.  Historically,  the
department, on behalf of farmers and others, bought and sold grains, principally
corn,  soy  complex,   oats,   wheat,   barley,   and  canola.  In  response  to
irregularities  discovered  in the  operation  of  the  department,  as  further
described in Management's  Discussion and Analysis (MD&A)(Item 7) and in Note 17
to the financial statements, in July 1999, management  of  the daily  operations
of the elevators was decentralized and reassigned to the agricultural enterprise
units  in  the  elevators'  respective  geographic  areas;  the  duties  of  the
department were narrowed,  reorganized,  and assigned to new management; and the
business activity  curtailed from an active solicitation of business, to meeting
the grain marketing needs of local farmers and  meeting the need for local grain
by our own feed mills.

RESEARCH AND APPLIED TECHNOLOGY:  Agway's membership in the Cooperative Research
Farms with other cooperatives  continues to provide research on new products. In
addition,  the  six  geographically-based   enterprises  each  conduct  research
pertinent to their market.

In 1999,  Agriculture  announced the creation of Agway Coordinated Dairy Systems
Company (CDS). CDS is responsible for coordinating Agway's involvement, from the
producer to the consumer, in the production of dairy food products. For example,
CDS will provide the technical knowledge to Agway's Agriculture  enterprises for
custom raising heifers that test specific-pathogen-free (TSPF). In addition, CDS
will  collaborate  with  LifeRight  Foods,  LLC, a Country  Products Group joint
venture  involved  in the  development  of  nutritionally  enriched  dairy  food
products for retail markets.

During the years ended June 30, 1999, 1998 and 1997, net expenditures of $1,300,
$400 and $700,  respectively,  were made on agricultural  research activities by
Agriculture.

COMPETITION:  In the animal  feed  business,  we are one of the largest in sales
volume  in  the  northeastern  United  States.   (Feed  Management,   Jan  1998)
Competition  exists with large national and regional feed  manufacturers as well
as with local  independent  mills. The market position held by Agway in the feed
business is significant,  resulting from  performance,  quality of its products,
research,   an  established   manufacturing  and  distribution   system,  and  a
knowledgeable work force.





                                        5

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

COMPETITION (CONT.): In the agronomic business,  our plant nutrient,  seed, crop
protectant,  and lime products  compete in the commercial farm market.  Although
there are  substantial  regional  variations  in market share,  our  competitive
position  is  strong  in  the  commercial   farm  market.   Competition   varies
significantly  by product line and consists of  independent  dealers and several
nationally  integrated  corporations.  We  compete  on the  basis  of  technical
expertise and field application services,  product performance,  crop management
practices developed by Agway, and expert assistance to the farmer in making crop
management decisions.

In the retail business,  competition varies by product line and location and our
competitors  consist of larger yard and garden  chains,  smaller yard and garden
nurseries,  building material stores, home center stores, large discounters, and
specialty  pet stores.  Wholesale  competition  to dealer  stores also varies by
product  line  and  consists  of  national,   regional  and  local  wholesalers;
independent  distributors;  and pet  food  manufacturers.  The  retail  business
competes on the basis of product  quality,  product  knowledge,  expertise,  and
customer service.

COUNTRY PRODUCTS GROUP

In  1999,   Agway's  Country  Products  Group  (CPG)  reorganized  its  business
operations into three divisions - The Produce Group, The Business Group, and The
Investment Group. Agway believes that all operations have sufficient capacity to
meet their operating requirements.  During 1999, CPG divested of the forage seed
operation located in Nampa, Idaho and Powell, Wyoming.

THE PRODUCE GROUP: The Produce Group (generally  marketed under the name Country
Best)  operates a network of sixteen  offices/facilities.  Facilities in DeWitt,
Elba,  Sterling and Chittenango,  NY; Winder,  Georgia;  and Plant City, Florida
specialize  in sizing  and  packing  potatoes,  onions  and corn  into  consumer
packages for sale to grocery store and food service  outlets.  A second facility
in Plant City,  Florida  specializes in handling and selling fresh  strawberries
and other  vegetables  primarily from Florida.  There are three farmers'  market
locations (Forest Park, Georgia; and Tampa and Plant City, Florida) which sell a
wide variety of produce to food service  distributors and grocery store outlets.
Produce brokerage  locations operate out of Calverton,  New York; Vero Beach and
Pompano,  Florida;  and Idaho Falls, Idaho; and market a wide variety of produce
across the United States.  Truck  brokerage  offices are located in Forest Park,
Georgia and Presque Isle,  Maine;  and a seed and  tablestock  potato  marketing
office is also located in Presque Isle, Maine.

THE BUSINESS GROUP:  The Business Group consists of a wide variety of operations
involved in commodity  processing and repack  operations,  and  manufacturing of
bags and pet and animal feeds.  The commodity  processing and repack  operations
purchase certain commodities  produced by Agway farmer-members and other farmers
and conduct processing and repacking operations as well as marketing, sales, and
distribution of the end products.  Principal  commodities  processed,  sold, and
distributed  include edible dry beans,  human edible  sunflower seed, bird food,
and  flour.  Edible dry bean  processing  plants are  located at  Caledonia  and
Geneva,  New York.  Sunflower  processing  and  storage  facilities,  located at
Grandin,  North Dakota,  produce and market human edible sunflower seed,  hulled
millet, wild bird food, and related products. A major expansion of the sunflower
facility  was put into  service  during  1999. A pastry flour mill is located in
Churchville, New York.

A  multi-walled  bag printing and  manufacturing  plant,  located in Wapakoneta,
Ohio,  supplies bags used by internal Agway  operations and external  customers,
including  Pro-Pet,  LLC, a pet food  manufacturer,  and Buckeye  Feeds, a large
animal feed company, in which Agway has minority interests.

                                        6

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


COUNTRY PRODUCTS GROUP (CONTINUED)

THE INVESTMENT GROUP:   The  Investment  Group  consists  of  several businesses
involved in new technologies to benefit agricultural and food businesses.

CPG Technologies  International Inc.,  headquartered in Blue Bell, Pennsylvania,
invests in food technologies such as the preservation of fruits and vegetables.

LifeRight Foods, LLC,  headquartered in Philadelphia,  Pennsylvania,  is a joint
venture  owned 45% by CPG.  The balance is owned 45% and 10% by two  independent
entities.  The  purpose of  LifeRight  Foods is to develop  and market  branded,
nutritionally  enriched  food  products  for the  retail  market.  This is to be
accomplished  through the  development  or license of animal feed products which
produce  enhanced food  products.  LifeRight  Foods will also  collaborate  with
Agriculture's   Coordinated  Dairy  Systems  Company  to  develop  nutritionally
enriched dairy food products for retail markets.

CPG Nutrients, a division of CPG headquartered in DeWitt, New York, is exploring
opportunities to apply new technologies  within the agricultural  industry,  and
where  feasible and  practical,  to introduce  those products and market them to
national and  international  agricultural  customers.  A facility in Kittanning,
Pennsylvania  is  currently  being  equipped  to begin  production  of the first
product, OptigenTM 1200, a new controlled release nitrogen source.

CPG worked with Cornell University and New York State Electric & Gas Corporation
to invest in a new hydroponics  greenhouse in Ithaca,  New York where testing is
being done on controlled environment agriculture.

In 1999, CPG, through AHI, purchased approximately 16% of the outstanding common
stock  of  a  publicly  traded  company,   Planet  Polymer   Technologies   Inc.
(Planet)(NASDAQ Small Cap-POLY),  San Diego,  California,  and received warrants
that,  if fully  exercised,  would allow CPG to own as much as a total of 36% of
Planet's  outstanding  common stock. In addition,  CPG entered into an agreement
with  Planet  for an  exclusive  worldwide  license  to all  current  and future
products  that  utilize  Planet's   polymer   technology  for  agricultural  and
food-related   purposes  (other  than  products   already  covered  by  existing
agreements).  Under the terms of the agreement,  CPG has the exclusive  right to
grant licenses and  sublicenses on the technology  developed under the agreement
to  other  parties.  In  return  for the  rights  granted  to CPG,  CPG will pay
royalties to Planet in accordance with the terms of the license agreement.

During the year ended June 30, 1999, The Investment Group incurred approximately
$400 in research and development expenditures.

COMPETITION: CPG competes with a large number of firms of all sizes and types in
most of its product  categories.  The principal  factors of competition in these
operations  are  product   quality,   efficiencies   in  product   distribution,
concentration in selected markets, technology and current market pricing. In the
Produce  Group and in the dry beans,  flour and bag printing  and  manufacturing
product  lines of the Business  Group,  CPG does not occupy a major  position in
national  markets.  The bird food products are  primarily  marketed to the Agway
retail  store and dealer  system and other  cooperatives,  and compete  based on
product quality.  The human edible sunflower seed and hulled millet are marketed
internationally and compete on the basis of product variety and quality.




                                        7

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


ENERGY

Agway Energy  Products LLC (AEP), a Delaware  limited  liability  company wholly
owned by AHI, is a full-service energy solutions provider to residential,  farm,
and commercial customers principally in New York, Pennsylvania,  New Jersey, and
Vermont. AEP serves the majority of its customer base by providing home comfort,
particularly in the area of heating,  ventilation,  and air conditioning  (HVAC)
equipment and fuels to power these systems.  AEP installs and services all types
of whole-house warm and cool air systems (furnaces,  boilers, air conditioners),
air cleaners, humidifiers,  de-humidifiers, hearth products, space heaters, room
air  conditioners,  and  water  systems.  Services  such as duct  cleaning,  air
balancing,  and energy audits are also offered.  AEP is also engaged in the sale
and  delivery of fuel oil,  kerosene,  propane,  gasoline  and diesel fuel (both
delivered direct to users and distributed  through AEP's service  stations),  as
well as natural gas and electricity where de-regulation  makes that possible.  A
product emphasis on oil and propane heating fuels creates seasonal  increases in
sales and  working  capital  requirements  in the fall and  winter  months.  All
products are purchased from numerous suppliers or through open-market purchases.

During  1999,  AEP owned and  operated,  within  its  geographic  territory,  95
distribution  and  sales  centers  and 7  terminals  with  storage  capacity  of
approximately  2.3 million  barrels of product.  AEP also  distributes  products
through  approximately 80 distributors and resellers.  Agway believes that these
facilities  are  sufficient to meet the current  operating  requirements  of the
business.

COMPETITION: The HVAC, fuel oil, propane, and power fuel industries in which AEP
competes  are  generally  fragmented  and  consist  of a large  number  of small
businesses.  Some  consolidation  in HVAC and  propane  has  created a number of
larger  competitors in these industries.  Power fuel competition  includes major
oil companies as well as smaller,  independent businesses.  Also, several large,
fully-integrated  competitors  have  emerged  offering  a similar  range of home
comfort  products  and  services.  These  competitors  have evolved from utility
companies  in the face of  deregulation  and the  corresponding  threat to their
traditionally captive customer base.

LEASING

Telmark LLC (Telmark), a Delaware limited liability company wholly owned by AHI,
and its consolidated subsidiaries finance equipment,  buildings, and vehicles to
farmers and other  customers in rural  communities.  Telmark  operates a captive
sales force as its primary  distribution  system in 29 states in the eastern and
midwestern  United States.  Telmark also transacts  business in the  continental
United States and Canada through a separate division, Telease Financial Services
(TFS),  which generates  business  directly from farm equipment dealers and from
brokers.  TFS Limited is a Canadian  corporation  which  conducts  certain lease
transactions with Canadian  customers.  Telmark Lease Funding I, LLC and Telmark
Lease  Funding  II,  LLC,  both  Delaware  limited  liability  companies,   were
established solely to enable lease securitization financings entered into during
1997 and 1999, respectively.

As of June 30, 1999,  Telmark had approximately  $569,300 of leases  outstanding
with persons other than Agway and its subsidiaries, net of unearned interest and
finance charges of approximately  $199,000.  Telmark finances its operations and
lease portfolio  growth through  borrowings  under its lines of credit,  private
placements  of debt with  institutional  investors,  sales of  debentures to the
public, or lease  securitizations.  As a result of Telmark issuing  subordinated
debentures  to the  public,  it  files  its own  periodic  reports  with the SEC
pursuant to the Securities Exchange Act of 1934.

COMPETITION:  Telmark  competes  with other  financing  companies in addition to
traditional  agricultural  lenders.  Other  major  sources  of  competition  are
manufacturers'  finance and lease programs and regional banks offering financing
products to their  customers.  The Farm  Credit  System,  the major  independent
competitor presently active in the agricultural market,  offers a complete array
of traditional loan programs as well as lease financing.

                                        8

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


INSURANCE

Agway  Insurance  Company  (Insurance)  is a  New  York  property  and  casualty
insurance  company  wholly  owned by AHI.  This company is  authorized  to write
insurance as specified in the New York Insurance Law, Sections 1113 and 4102(c),
and  currently  writes  insurance  in  10  eastern  states  from  the  Insurance
headquarters in DeWitt,  New York.  Lines of insurance sold include  farmowners,
homeowners, farm commercial and personal auto liability and physical damage, and
miscellaneous  commercial  policies that support the  agricultural  marketplace.
Agway General Agency Inc.  (Agency)  markets  medical,  long-term care, life and
other  products  designed  by  non-affiliated  companies  for  the  agricultural
marketplace.  In addition, Agency provides administrative management services to
Agway business units including  claims,  risk,  facilities,  data processing and
payroll/benefits management.

COMPETITION:  Insurance  competes  with major direct  writers,  national  agency
companies,  and  smaller  regional  insurance  carriers.  Insurance  utilizes an
independent agency distribution system to market insurance products and services
for the  benefit  of the farm and rural  community.  Growth  opportunities  come
through the development of specialty  products for the  agricultural  community,
professional  agency  recruitment,  and  dedication  of  marketing  resources to
targeted rural markets.

HUMAN RESOURCES

Agway and its subsidiaries employ approximately 7,200 persons, 2,700 of whom are
part-time.  There are approximately  130 employees  represented by two different
unions with six existing union contracts.  We enjoy satisfactory  relations with
both our union and nonunion  employees as a result of competitive wage,  health,
and benefit programs.

ADMINISTRATIVE

Our principal administrative office is located at 333 Butternut Drive in DeWitt,
New York. It occupies  approximately  180,000 square feet under terms of a lease
with 8 remaining years with two 10-year renewal options. Agway also rents 80,000
square feet of administrative office space at 301 Plainfield Road, Syracuse, New
York.  Agway has not renewed this lease,  which expires  December  1999,  and is
relocating personnel to the principal administrative office or to an Agriculture
enterprise  office.  Agway  believes  that  the  combination  of  its  principal
administrative office and other satellite business unit locations are sufficient
for its operations.

REGULATION

Agway  and its  subsidiaries  are  subject  to  various  laws  and  governmental
regulations  concerning  employee  health,  product  safety,  and  environmental
matters.  These laws and regulations are enforced by federal government agencies
such as the Occupational Safety and Health  Administration  (OSHA), the Food and
Drug  Administration  (FDA) and the Environmental  Protection Agency (EPA). OSHA
monitors  employee safety and health  matters.  The FDA sets standards for foods
and other  products sold to consumers,  and the EPA creates rules to protect the
environment,  such as rules to  control  pollution  and to  reduce  exposure  to
chemicals.  Many states have  adopted  similar laws and  regulations,  which are
enforced by state agencies and some of which may be more burdensome than similar
federal requirements.

Agway believes its business,  as currently conducted,  is not adversely affected
by any of these laws and  regulations.  However,  these laws and regulations are
constantly changing and may impose greater requirements and expense on Agway and
its  subsidiaries in the future.  Currently,  Agway is negotiating  with various
government  agencies  concerning  the clean up of hazardous  waste sites.  These
sites  are   commonly   known  as  Superfund   sites  under  the   Comprehensive
Environmental Response, Compensation, and Liability Act of 1980 (CERCLA).

                                        9

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY

Agway members are farmers or cooperative  organizations  of farmers who hold one
share of Agway's  Membership Common Stock and who purchase farm supplies or farm
services,  or market farm products  through Agway,  Agway dealer stores or other
authorized  dealers.  Currently,  there are approximately  71,000 members.  Each
share of  Membership  Common  Stock is entitled to one vote for the  election of
directors and for other corporate actions.

The  Membership  Common  Stock,  $25 par  value,  is held only by  active  Agway
members.  Agway also has preferred  stock.  Four different  series of Cumulative
Preferred  Stock  (Series A, Series B, Series B-1 and Series C), $100 par value,
is held by Agway members,  the Agway, Inc. Employees' Thrift Investment Plan and
the general public.  Honorary Member Preferred Stock (Series HM), $25 par value,
is held only by former Agway  members (see Note 12 of the  financial  statements
for further details of preferred stock).

Ownership of Membership Common Stock is different than ownership of common stock
in typical business  corporations because Agway is an agricultural  cooperative.
Membership  Common  Stock may only be  purchased by persons who qualify as Agway
members and is transferrable only with Agway's consent.  Membership Common Stock
indicates  membership  in Agway  rather than  indicating  a  significant  equity
interest in Agway. A holder of Membership Common Stock is limited to the $25 par
value of the  security,  plus  dividends  declared  and unpaid,  if any, for the
current year.  Dividends are limited to 8% of the par value of Membership Common
Stock and may be declared at the discretion of the Agway Board of Directors each
fiscal  year.  The  residual  equity in the net  assets of Agway is held for the
benefit of past and present member-patrons of Agway.

The  Board of  Directors  controls  the  affairs  and  business  of  Agway.  All
stockholder actions, except as otherwise provided by law, including the election
of  directors,  are  determined  by the vote of Agway  members  present by proxy
(another  person  authorized  by the  member to vote) or in person at the annual
meeting  (or  special  meetings)  of  members.  There are 90  geographic  member
committees representing the members in the 15 districts.  There are currently 15
directors  on the  Board of  Directors.  One  director  is  nominated  from each
district by the member  committees in that  district.  Once elected,  a director
holds office for a term of 3 years.  Members elect 5 directors  each year at the
annual meeting to fill  vacancies  resulting from the expiration of the terms of
certain district directors.  Although the directors are nominated by the members
of each  district,  the  directors  are elected to the Board of Directors by the
vote of all members.

Each geographic  member  committee  elects a chairperson for the committee.  The
chairperson plus one other member of the committee  appointed by the chairperson
become members of the Agway Council. Removal of the chairperson by the committee
automatically  removes  that person from the Agway  Council.  The Agway  Council
meets with the Board of Directors annually,  and serves as a contact between the
Board of Directors,  management of Agway, and the chairperson's  committee.  The
purpose of the Agway Council is to improve member communications and to increase
the effectiveness of the committees.




                                       10

<PAGE>



ITEMS 1 AND 2.  BUSINESS AND PROPERTIES
(THOUSANDS OF DOLLARS)


RETAINED EARNINGS

Retained Earnings (also sometimes  referred to as retained margins) are held for
the benefit of past and present  Agway  members.  Retained  Earnings are all net
earnings (gross receipts  reduced by all operating  expenses) of Agway remaining
after  payment  of income  taxes,  dividends  on issued and  outstanding  stock,
patronage  refunds,  and  all net  earnings  from  the  business  activities  of
predecessors in interest  (companies who were acquired by or merged into Agway),
kept as reasonable reserves. Retained Earnings consist of :

(1)   The portion of Member  Earnings (net earnings based only on purchases from
      members) undistributed to members.

(2)   Net earnings based on nonmember purchases and marketing operations.

(3)   All other income,  including earnings from non-agricultural  divisions and
      subsidiaries of Agway, dividends and interest from investments.

The Retained  Earnings of Agway will only be  distributed  to Agway members upon
dissolution  of  Agway.   According  to  the  By-laws  adopted  by  Agway,  upon
dissolution,  the Retained  Earnings will be distributed  proportionately  among
Agway's past and present members in accordance with their  interests,  after all
debts  are paid in full and any  amounts  due to  holders  of  preferred  stock,
revolving fund certificates, and common stock are paid.

PATRONAGE REFUNDS

The By-laws of Agway  provide that,  after the end of each fiscal year,  members
shall be paid  patronage  refunds in cash,  in an amount  equal to the  earnings
realized on a tax basis by Agway after  deduction  for  reasonable  reserves for
future operating expenses and amounts paid or set aside for payment of dividends
on issued and outstanding  stock of Agway. The total amount of patronage refunds
paid  must  not  exceed  the  total  earnings  attributable  to the sale of farm
supplies by Agway to members during the fiscal year. These patronage refunds are
based on sales of feed, agronomic products,  and selected eligible farm supplies
to members for the fiscal year. Each member's total patronage refund is based on
the  proportion of his/her  purchases of farm supplies made directly from Agway,
Agway dealer stores or other  authorized  dealers during the fiscal year, to the
total farm  supply  purchases  made by all  members in such year.  No  patronage
refunds are payable with  respect to the purchase of services for the  marketing
of farm  products  through  Agway,  unless  specified in a contract  between the
member and Agway.

The By-laws of Agway also allow the Board of Directors to authorize  the payment
of patronage refunds to certain contract  patrons.  Contract patrons are persons
or  businesses,  other than  members,  who purchase  eligible farm supplies from
Agway. Payment of patronage refunds to contract patrons must be made on the same
terms and conditions as those specified above for members.  Examples of contract
patrons may be certain departments or agencies of state governments, the federal
government,  and charitable,  religious or educational  institutions that use or
produce  agricultural   products.   Business  with  contract  patrons  currently
represents less than 1% of Agway's annual sales volume.




                                       11

<PAGE>



ITEM 3.  LEGAL PROCEEDINGS

Agway 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 Agway,  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.  Agway 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  Agway and MTS,  for a
removal action at the Rosen Site.  Agway 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,  Agway  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 Consent Decree has been entered by the Court as of May 1999. Agway
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  has   negotiated  a  resolution  of  MDEP's  claim  for  past
response/oversight  costs and interest  related to the site. Agway 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 August 1995,  the EPA notified  Agway that the EPA has reason to believe that
Agway is a PRP under CERCLA at the Tri-Cities Barrel site, Port Crane, New York.
The EPA requested that Agway and other PRPs participate in the ongoing RI/FS for
the Tri-Cities  Barrel site. The Removal  Action has been  completed,  and Agway
continues to participate with other PRPs in the ongoing RI/FS. In June 1997, the
cooperating PRPs agreed upon an allocation of responsibility for past and future
investigation  and  remediation  costs.  Based on this  allocation  and the cost
estimates for the site,  Agway has accrued its best estimate for any  additional
costs at the site.

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

                                       12

<PAGE>



ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY  HOLDERS There were no items
submitted  to a vote of  security  holders for the three  months  ended June 30,
1999.

                                     PART II

ITEM 5.  MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
         STOCKHOLDER MATTERS

(a)   Principal Market:
      There is no market for the equity  securities  of Agway other than through
      its current practice of repurchasing  outstanding  securities at par ($25)
      whenever registered holders thereof elect to tender them for redemption.
(b)   Approximate Numbers of Holders of Common Stock:
      The number of holders of record of Agway's  Common Stock,  as of September
      10, 1999,  is 99,728,  of which  29,172  shares have been called for those
      holders no longer  meeting  the  membership  eligibility  requirements  as
      identified in Section 2.1(a) in the By-Laws of Agway Inc.
(c)   Dividends Paid:
      An annual 6%  dividend,  or $1.50 per share,  was paid on  Agway's  Common
      Stock in 1999  and 1998.
(d)   Limitations on Ownership and  Availability  of Net  Earnings to Membership
      Common Stockholders: Refer to Stockholder Membership and Control of Agway
      and Patronage Refunds under Business and Properties (Items 1 and 2).

ITEM 6.  SELECTED FINANCIAL DATA

The following Selected Financial Data of Agway and Consolidated Subsidiaries has
been   derived   from    consolidated    financial    statements    audited   by
PricewaterhouseCoopers LLP, whose report for the three years ended June 30, 1999
is included  elsewhere in the Form 10-K, and should be read in conjunction  with
the full consolidated financial statements of Agway and notes thereto.
<TABLE>
<CAPTION>
                                                     (In Thousands of Dollars Except Per Share Amounts)
                                 -----------------------------------------------------------------------------------
                                                                    Years Ended June 30
                                 -----------------------------------------------------------------------------------
                                                     Restated
                                     1999              1998              1997             1996              1995
                                 -------------     -------------    --------------    -------------    -------------
<S>                              <C>               <C>              <C>               <C>              <C>
Net sales and revenues.......    $  1,484,362      $   1,562,943    $  1,671,714      $   1,663,085    $   1,592,857
Earnings (loss) from
   continuing operations (1)(2)  $      1,795      $      12,189    $     10,670      $      11,147    $      (7,800)
Net earnings (loss)(1)(2)(3)(4)  $      1,795      $      41,145    $     10,670      $      12,662    $     (15,730)
Total assets (1) ............    $  1,477,051      $   1,417,294    $  1,300,261      $   1,245,891    $   1,225,193
Total long-term debt.........    $    374,116      $     354,529    $    330,371      $     291,666    $     268,310
Total subordinated debt......    $    486,303      $     462,196    $    438,127      $     414,927    $     399,064
Cash dividends per share
   of common stock ..........    $       1.50      $        1.50    $       1.50      $        1.50    $        1.50
</TABLE>

(1)  The 1998 data is restated to correct  information  regarding  Agriculture's
     grain marketing activities as previously reported.  As a result of recently
     disclosed  losses  in  connection  with  these  activities,  earnings  from
     continuing operations, net earnings, and total assets as currently reported
     for 1998 are  lower  than  originally  reported  by  $600,  $600 and  $900,
     respectively.  See Management's  Discussion and Analysis on pages 14 and 16
     and Note 17 to the financial statements.
(2)  The data reflects a net improvement  from the sale of Allied Seed of $9,600
     in 1999 and a credit before taxes from business  restructuring of $3,248 in
     1995 and $1,943 in 1996.
(3)  The 1995  data  reflects  an  after-tax  loss of  $12,360  in  discontinued
     operations  related to the sale of H.P.  Hood,  Inc. Hood) and an after-tax
     gain on the sale of  Curtice  Burns  Foods Inc.  of  $4,430;  and 1996 data
     reflects an after-tax gain on the sale of Hood of $1,515,  net of operating
     losses until the time of sale.
(4)  Effective  July 1,  1997,  Agway  changed  its  method of  determining  the
     market-related  value of its  plan  assets  under  Statement  of  Financial
     Accounting Standards (SFAS) No. 87, "Accounting for Pensions." A cumulative
     effect adjustment, net of tax, of $28,956 increased net earnings in 1998.

                                       13

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


The following discussion refers to Agway Inc. and Consolidated  Subsidiaries and
should be read in  conjunction  with  Selected  Financial  Data (Item 6) and the
Consolidated   Financial  Statements  of  Agway  and  Notes  thereto  (Item  8),
specifically  Financial Information  Concerning Segment Reporting (Note 14). The
purpose of this discussion is to outline the most significant  factors having an
impact upon the results of operations,  the liquidity, and the capital resources
of the Company for the three years ended June 30, 1999.

Agway reports its operations principally in five business segments: Agriculture,
Country  Products  Group,  Energy,  Leasing,  and Insurance.  Agway modified its
segment  reporting  in 1999 by  combining  the former  Retail  segment  with the
Agriculture  segment,  in light of a  consolidation  of these two  operations in
April 1999.  Additionally,  the Country  Products  Group was broken into its own
segment to align our disclosure with how our business is managed,  in accordance
with the  adoption,  as of June 30, 1999,  of Statement of Financial  Accounting
Standards No. 131,  "Disclosures  about  Segments of an Enterprise  and Relative
Information." All prior year  presentations  have been restated to reflect these
changes.

RESULTS OF OPERATIONS

1999 COMPARED WITH 1998

CONSOLIDATED RESULTS

Agway's net earnings of $1,800 for 1999 decreased by $39,300 (96%) from restated
net earnings of $41,100 in 1998. The 1998 net earnings  included  $29,000 net of
tax income from the cumulative effect of a pension accounting change and $12,100
after-tax  earnings from 1998 business  activity.  The $10,400 reduction in 1999
earnings  from  business  activity  includes  an  $18,300  reduction  in pre-tax
earnings  offset by a $7,900  decrease in taxes in 1999  compared  to 1998.  The
pre-tax earnings  decrease is principally a result of increased losses of $7,500
in  Agriculture's  grain marketing  department,  a $10,500 increase in losses in
Agriculture's  retail  business  activities,  and $10,500 in  decreased  pension
income.  These decreases are partially offset by a $9,600 net increase in income
from the sale of  Country  Products  Group's  Allied  seed  business  in 1999 as
compared  to  earnings  from  Allied's  operation  in 1998  as well as  improved
earnings in most of Agway's other business  activities,  as discussed below. The
decrease  in pre-tax  earnings  and the  effects of legal  entity  restructuring
caused the reduction to tax expense for 1999.

On July  8,  1999,  Agway  announced  that it had  become  aware  of  accounting
irregularities in its grain marketing department (the department) and that Agway
had  initiated  an  investigation.  It has  been  determined  that  unauthorized
speculative positions in commodity instruments were taken within the  department
in violation of express policies which resulted in losses to Agway.  In addition
to losses from this activity in 1999, as more fully described in the Agriculture
segment discussion below, after-tax losses of $600 related to grain marketing in
1998 were  concealed  within the  department  through  improper  accounting  for
premiums  on options  sold.  To  reflect  these  losses and their  effect on the
Company,  Agway  has  filed an  amended  Form  10-K for  1998 and  restated  its
financial results.

Consolidated net sales and revenues of $1,484,400 decreased $78,600 (5%) in 1999
compared to $1,563,000 in 1998. The decrease was  substantially  the result of a
$93,600  decrease in the sales of agricultural  feed and energy products used in
Agway's business,  which in turn resulted from a decrease in world market prices
for those products.  Additionally,  sales declined in 1999 by $21,900 due to the
sale of CPG's Allied seed business in the first quarter of 1999 and by $6,500 in
the Agriculture  direct marketing and retail operations.  These declines,  among
others,  were  partially  offset by sales  increases  of  $24,700  due to volume
improvements in the agricultural feed and energy businesses;  increased sales of
$7,500 in CPG,  principally in the sunflower and produce  operations;  increased
revenue of $6,900 from Energy's HVAC  installation  and service sales and growth
in electric and gas marketing  sales; and a $4,500 increase in lease revenues at
Telmark.



                                       14

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CONSOLIDATED RESULTS (CONTINUED)

Consolidated operating expenses of $1,465,900 decreased $55,300 (4%) compared to
$1,521,200 in 1998. The decrease is primarily due to decreased costs of products
and plant  operations of $77,400 (6%) primarily from lower  commodity  costs, as
noted above. The decline was partially offset by increased selling, general, and
administrative  (SG&A) expenses of $20,800 (16%)  substantially due to increased
labor costs,  increased  marketing  costs and  increased  professional  services
associated with several projects including year 2000 readiness.

Other  income,  net, of $19,800  increased  $6,400  (48%) in 1999 as compared to
$13,400 in 1998.  The  increase is due to the gain on sale of CPG's  Allied seed
business,  which  was  partially  offset  by  lower  patronage  income  from  CF
Industries in 1999 as compared to 1998.

Income tax  expense of $4,200 in 1999 and $12,100 in 1998  results in  effective
tax rates of 70% and 50%,  respectively.  The  increase  in the  effective  rate
results  substantially  from state  taxes.  Agway  does not file a  consolidated
return for state tax  purposes and  therefore  cannot  recognize  the benefit of
operating losses of certain subsidiaries. This fact combined with an increase in
non-deductible  goodwill  in 1999  increased  the  effective  rate  for  1999 as
compared  to the  effective  rate for  1998.  Tax  expense  associated  with the
cumulative effect adjustment in 1998 totaled $16,500 and is reflected in the net
cumulative effect amount.

AGRICULTURE

Total  Agriculture  sales and revenues of $775,700 in 1999  decreased by $19,500
(3%)  compared  to  $795,200  in  1998.  Volume  increases  in  enterprise  feed
operations of $21,700 were more than offset by pricing decreases in the feed and
agronomy sales of  Agriculture's  enterprise units in 1999 compared to 1998. The
pricing   decreases   reflect  the  world  market   conditions  of  agricultural
commodities.  The overall  enterprise  feed unit volume  increase of 10% in 1999
compared to 1998  reflects the  acquisition  of a new feed business in the first
quarter of 1999. The agronomy business unit volume increased in 1999 compared to
1998 and is led by  increased  seed corn units (5%) and soybean seed units (4%).
The service revenues in feed and agronomy  businesses  increased $700 in 1999 as
compared to 1998.

Direct  marketing  sales in 1999 decreased  $2,900 (5%) as compared to 1998. The
sales decrease was attributable to a decrease in grain marketing sales of $3,100
due to lower  wheat sales and lower  commodity  pricing as noted above and lower
sales in the  fertilizer  operations  of $5,400 due  substantially  to the lower
commodity  prices.  The sales  declines in grain  marketing  and the  fertilizer
operations  were  partially  offset by a $5,600  improvement  in the direct seed
operations as a result of the continued growth in the commercial  vegetable seed
business.

Retail operations sales declined $3,600 (1%) in 1999 as compared to 1998. Retail
store sales increased $4,200 (2%) in 1999 as compared to 1998. Improved sales of
mulches and nursery  products and increased  sales from new store locations were
partially  offset by decreases in sales from closed  store  locations  and lower
bagged feed sales.  The net  increase in retail store sales was more than offset
by the declines in wholesale sales. A number of our franchise dealers resisted a
proposed change in the historical dealer  relationship by sourcing some of their
product  elsewhere,  which  reduced the  wholesale  sales and changed the mix of
product  sold  to  products  with  overall  lower  gross  margins.  This  dealer
relationship  was  modified  in the  fourth  quarter  of fiscal  1999 to address
concerns identified.

The Agriculture segment pre-tax loss of $32,900 in 1999 is $16,600 (102%) higher
than the  restated  $16,300  loss in 1998.  Of the  $16,600  increase in losses,
$7,500  is from the  grain  marketing  department  and  $10,500  is from  retail
operations.  As  discussed  more  fully  below,  Agriculture's  grain  marketing
department  produced  $8,600 in pre-tax  losses in 1999  compared  to a restated
$1,100  loss in 1998.  Also,  as more fully  disclosed  below,  losses in retail
operations  increased $10,500 to $22,200 in 1999 from $11,700 in 1998. The above
increased  losses  more than  offset  the  improved  operating  results  in 1999
achieved by the  agricultural  enterprises  from the sales of feed and  agronomy
products and services.


                                       15

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

On June 28, 1999,  it was disclosed to Agway's  management  by personnel  within
Agriculture's  grain marketing  department (the  department) that records within
the department had been falsified to conceal losses from unauthorized  activity.
An  investigation,  under  guidance  from  external  legal counsel and including
internal legal counsel, internal financial staff, external auditors, and private
investigators,  has been conducted.  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 fiscal  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.
The 1999  loss  includes  $5,500  from  unauthorized  speculation  in  commodity
instruments and $3,100 from operations, due in part to violating Agway policy by
not hedging  positions  in inventory  and forward  contracts.  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. To assure adherence to policies on
use of  commodity  instruments,  Agway  has  since  reorganized  the  operating,
control,  and reporting  structures  of the  department,  reassigned  management
responsibility,  and reduced the scope of its business activity. However, during
the period it took to close the unauthorized  speculative  commodity  instrument
positions and hedge the open inventory and forward contract  positions,  further
market losses of approximately $1,300 were incurred,  which will be reflected in
Agway's Form 10-Q for the first quarter of 2000.

Gross margins in the Agriculture retail operations  decreased $4,600 as a result
of the  wholesale  margins  decreasing  $1,900 from the lower sales noted above.
Additionally,  improved margins in the  nursery-related  products were more than
offset by declining  margins in all other product lines.  Operating  expenses of
Agriculture's  retail operation increased $4,400 from new locations added during
the year and from increased labor costs. Additional costs of $1,400, principally
related to severance,  were incurred in connection with the consolidation of the
retail business into Agriculture. Agriculture continues to review and assess the
financial  condition of all retail  operations and will modify these operations,
as deemed necessary, in order to improve the results of these operations.

Overall,  Agriculture  operations  product  margins in 1999 improved $7,100 (5%)
over 1998.The feed and agaronomy businesses improved product margins $9,400(10%)
in 1999 as compared to 1998. Feed product  margins  increased as a result of the
combined  increased feed tonnage,  improved pricing  strategies during 1999, and
the  acquisition  of a new feed business in the first quarter of 1999.  Agronomy
product  margins  increased  from  improved  margins  in  fertilizers,  lime and
pesticides.  The product margin improvements in the feed and agronomy businesses
were  partially  offset by a decline  of  $1,600  in  direct  marketing  product
margins. A $7,600 decrease in grain marketing margins due to the grain marketing
losses noted above is partially  offset by improved margins from the direct seed
operations and by absence this year of the prior year's  unfavorable  experience
with exchange-traded futures in our feed procurement business.

Agriculture  operations  expenses  increased  $9,100 (7%) in 1999 as compared to
1998.  The increase is  substantially  due to increased  costs  associated  with
increased unit volume sales in the feed and agronomy businesses ($7,500) and the
seed and fertilizer operations ($2,500) of direct marketing.

Finally,  other  revenues  declined  $3,300 (49%) mainly due to lower  patronage
refunds from CF Industries,  and interest costs  increased $800 (11%) due to the
increased costs of carrying higher asset levels in 1999 as compared to 1998.



                                       16

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


COUNTRY PRODUCTS GROUP

Total sales and revenues of $171,700 in 1999 decreased  $14,400 (8%) compared to
$186,100 in 1998.  The sales and  revenues  from the  continuing  operations  of
Country  Products  Group (CPG)  showed a net  increase of $7,500 (5%) in 1999 as
compared to 1998.  The majority of the growth in sales came from two  divisions:
The Business Group ($5,600) and The Produce Group ($1,800). The Business Group's
sunflower  seed operation  experienced  increased bird food sales over the prior
year and increased  volume of human edible  sunflower  seed sales from increased
capacity from a new  processing  plant that became  operational  in 1999.  These
improvements were partially offset by lower sales in the flour operations due to
low wheat prices and in bean  operations  due to lower export  demand in 1999 as
compared to 1998.  The Produce  Group sales growth is  substantially  due to the
acquisition  of new  produce  businesses  during  the second  half of 1999.  The
overall  decrease  in CPG sales for 1999 is the result of the sale of the Allied
seed business in the first  quarter of 1999,  which lowered sales in the current
year by $21,900.

CPG pre-tax  earnings of $12,100 in 1999  increased  $5,900 (95%) from $6,200 in
1998.  The  increase in 1999  pre-tax  earnings  includes a net  improvement  in
pre-tax  earnings  of $9,600  from the sale of Allied  Seed which was  partially
offset by $2,300 in start-up costs  incurred in 1999 related to initiatives  for
future  growth in CPG's  Investment  Group and a $900  charge to reflect  equity
accounting for CPG's investment in Planet Polymer. The Business Group's bean and
flour operations and the Produce Group  operations  realized  increased  pre-tax
earnings of $900 due to stronger  gross margins during 1999 as compared to 1998.
Finally,  despite the increase in sales in the Business  Group's  sunflower seed
operation  noted  above,  higher cost of product in 1999 as compared to 1998 and
new expenses being incurred from the  implementation of the new processing plant
lowered pre-tax results in this business by $1,100.

ENERGY

Total Energy sales and revenues of $451,900 in 1999  decreased  $53,200 (11%) as
compared to $505,100 in 1998.  The excess of supply in the world energy  markets
has driven competitive pricing down and reduced sales dollars by $62,900 in 1999
as  compared to 1998.  The  reduced  Energy  sales were  partially  offset by an
increase  in revenue of $6,900  from HVAC  installation  and  service  sales and
continued  growth in the new electric and gas marketing  business.  In addition,
sales increased  $3,000 from increased unit volume of liquid  petroleum  product
sales.  A 23%  increase  in sales of power  fuels to  commercial  customers  was
substantially  reduced by the  results of a decision  not to renew a  low-margin
commercial  contract  in heating oil and a  reduction  in sales of retail  power
fuels.  A planned  reduction in the number of retail  storage  tanks in place in
1999 as compared to 1998 decreased retail sales of power fuels.

Pre-tax earnings from operations of $13,000 for 1999 increased $5,000 (63%) from
$8,000 in 1998.  The same  imbalance  of supply and demand  noted above  reduced
energy  commodity  costs in 1999 over 1998 and along with increased HVAC and new
business  revenues  provided for increased overall gross margins on all products
of $12,300 (8%) as compared to 1998. The  improvements  to gross margins in 1999
were partially offset by a $9,000 (6%) increase over the prior year in operating
expenses.  The operating expense increase  resulted from increased  distribution
labor costs,  increased  marketing  costs and  increased  administrative  costs,
principally  information systems costs related to year 2000 readiness.  Interest
expense  declined  $2,800  in  1999  due to  lower  asset  levels  (particularly
inventory  and  receivables)  during 1999 as compared  to 1998.  Other  revenues
generated  from thruput  product in Energy's  system  decreased  $700 in 1999 as
compared to 1998.

LEASING

Total revenues of $70,000 in 1999  increased  $4,500 (7%) as compared to $65,500
in 1998. The increase is attributable in part to a $55,400 (11%) increase in net
leases  and  notes  during  1999 as  compared  to 1998.  Increases  in the lease
portfolio  from new  booked  volume of  $252,100  in 1999 and  $227,300  in 1998
exceeded  lease  reductions  from  collection and provision for credit losses of
$196,700  and $177,400 in 1999 and 1998,  respectively.  The net increase in new
booked  volume  has the  effect of  increasing  revenues.  Total  revenues  as a
percentage of average net leases and notes decreased from 13.5% in 1998 to 13.1%
in 1999.

                                       17

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


LEASING (CONTINUED)

Pre-tax earnings of $18,200 in 1999 increased $2,800 (18%) from $15,400 in 1998.
The 1999  increase  in total  revenues  noted  above  was  partially  offset  by
increases in interest  costs,  SG&A costs and in the provision for credit losses
in 1999 as compared to 1998.  While the  average  cost of interest  paid on debt
decreased from 7.2% to 6.9%,  the interest costs of $27,600  increased $800 (3%)
in 1999 as compared to 1998 due to increased  borrowings required to finance the
growth of the lease portfolio noted above.  The SG&A expenses of $16,200 in 1999
increased $500 (4%) from1998,  primarily the result of additional  personnel and
incentive  costs  relating to additional  new leases  booked.  The provision for
credit losses of $8,000 in 1999 increased $400 (6%) as compared to 1998 based on
Telmark's   analysis   of  reserves   required  to  provide  for   uncollectible
receivables.   Monthly,   Telmark   reviews  its  allowance  for  credit  losses
considering an analysis of delinquent  accounts,  current  economic  conditions,
estimated residual values and the creditworthiness of Telmark customers. At June
30,  1999,  the  total  value of  non-earning  accounts  increased  to $4,900 as
compared to $3,000 in 1998.

INSURANCE

Total net revenues of $28,000 in 1999 increased $700 (2%) as compared to $27,300
in 1998.  The  increase  was  experienced  in the net earned  premiums  of Agway
Insurance  Company.  A reduction in the frequency  and severity of  catastrophic
claims and favorable claims development in the 1995 experience rated reinsurance
contract  resulted in lower  reinsurance  premium cost incurred by the Insurance
Company in 1999 as compared to 1998.  In Agency,  1999 revenues were at the same
levels as in 1998.

Pre-tax  earnings of the Insurance  Company of $1,000 increased $800 (400%) from
$200 in 1998. The improved earnings  resulted  principally from a return to more
historical  levels of  commission  expense as  compared  to a large  increase in
commission  expense in 1998.  The Agency  experienced  a pre-tax loss of $500 in
1999 and 1998.  This is  principally  related to  expenses  associated  with the
Agency's  provision  of  administrative  management  services to Agway  business
units.


RESULTS OF OPERATIONS

1998 COMPARED WITH 1997

CONSOLIDATED RESULTS

Agway's restated net earnings of $41,100 for 1998 increased  $30,400 (284%) from
net earnings of $10,700 in 1997. The $30,400 increase  includes a net cumulative
effect adjustment for a pension accounting change of $29,000 (see Note 13 to the
consolidated  financial  statements) and a $1,500 (14%) increase in net earnings
as compared to 1997.  The net  earnings  increase  represents  a $7,700  pre-tax
increase  from 1997  offset by a $6,200  increase  in tax expense as compared to
1997.

The net business unit pre-tax  operating  results  decreased by $5,100 (27%) and
are discussed below by business  segment.  Additionally,  net corporate  pre-tax
expenses  in 1998  increased  $2,500  as  compared  to the prior  year.  The net
corporate  expense  increase  was  principally  due to a net $2,000  increase in
corporate  self-insurance  costs  based  on  liability  claims  outstanding  and
actuarial estimates of reserve development. The decline in net corporate pre-tax
expenses was more than offset by the growth of the net pension asset  recognized
in the income  statement during 1998, which was higher by $16,200 as compared to
1997.  Of the  pension-related  increase,  $15,000  was  due to  the  change  in
accounting noted previously.



                                       18

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CONSOLIDATED RESULTS (CONTINUED)

Consolidated  net sales and revenues of  $1,562,900  decreased  $108,800 (7%) in
1998 compared to $1,671,700 in 1997.  The decrease is primarily  from the Energy
segment  ($102,000) due to a combination of reduced costs for petroleum products
resulting  in lower  selling  prices and reduced  volume from the warmer  winter
season in 1998 as compared to 1997. The Agriculture  segment  experienced  lower
sales ($46,800) due to decreases in pricing levels of feed and crop products and
a refocus of the retail business to exit specific product lines. These decreases
to sales were partially  offset by increased  revenues at Country Products Group
($27,500) and increased lease revenues in Telmark ($8,600).

Consolidated  operating  expenses of $1,521,200 in 1998 decreased  $121,700 (7%)
compared to $1,642,900  in 1997.  The decrease is primarily due to the decreased
product costs and the reduced  variable  operational  costs  associated with the
lower sales  levels  noted  above.  These  decreases  were  partially  offset by
additional  costs  associated with volume growth in the lease portfolio in 1998.
Selling, general and administrative (SG&A) expenses in 1998 were consistent with
1997 levels.

Other income, net, of $13,400 decreased $5,400 (29%) in 1998 compared to $18,800
in 1997. The decline was  substantially  due to receiving less patronage  refund
from a cooperative supplier in 1998 as compared to 1997.

Income  tax  expense  of  $12,100  and  $5,900 in 1998 and  1997,  respectively,
resulted in effective  tax rates of 50% and 36%,  respectively.  The increase in
the effective rate is mainly  attributable to the change in adjustments  made in
the prior  years'  tax  liabilities  (see Note 8 to the  consolidated  financial
statements).  Tax  expense  associated  with the  cumulative  effect  adjustment
totaled $16,500 and is reflective in the net adjustment amount.

AGRICULTURE

Total  Agriculture  sales and revenues of $795,200 in 1998  decreased by $46,800
(6%) compared to $842,000 in 1997.  Despite  increased feed volume (5%) over the
prior year,  the  decrease  in pricing  levels of feed  products  resulted in an
overall  decrease in total feed sales  compared to 1997.  Agronomy sales in 1998
declined compared to 1997, largely due to a similar decrease in pricing level of
agronomy products as was experienced in the feed business.  Even though agronomy
sales dollars were down in 1998,  volume increases were experienced  principally
in fertilizer (8%), seed corn units (7%), and soybean seed units (37%).

Total  sales and  revenues of the retail  operations  of  Agriculture  decreased
$21,500.  The  decrease  was the result of a  continued  focus on three  primary
product categories: yard and garden, pet food and pet supplies, and farm-related
products.  An outcome of this focus was  reduced  sales of $12,600  during  1998
through a planned  reduction  of the power  equipment  business  at most  retail
locations and the discontinuation of the frozen food product line. Additionally,
sales  associated with bagged feed and  fertilizers  and farm supplies  declined
$8,000,  principally  due to a decline  in  demand  for  these  products  and an
increased  emphasis  on  bagged  feed  delivery  routes.  Increased  sales  were
experienced  from  several  nursery  acquisitions  during  1998  ($5,900).  This
increase was  partially  offset  ($5,000) by reduced  sales from closed  stores,
lower dealer volume,  which was negatively  impacted by the  implementation of a
new  franchisee  program  which  began in 1998,  and a net  decline in all other
primary product categories.

Agriculture  restated  pre-tax  operating  loss of $16,300 in 1998  represents a
higher loss by $8,400 (106%) than the operating loss of $7,900 in 1997. The 1998
pre-tax   results  have  been  restated  to  reflect   losses  from   accounting
irregularities  in  the  Agriculture  grain  marketing  department,  as  further
described in the 1999 Management's Discussion and Analysis (MD&A) and in Note 17
to the financial  statements.  The retail  operations  pre-tax results decreased
$9,400 in 1998 as compared to 1997 and Agriculture  pre-tax results  improved by
$1,000.



                                       19

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


AGRICULTURE (CONTINUED)

Agriculture  pre-tax improvement of $1,000 was due to improved results in direct
marketing  which  decreased its pre-tax  losses in 1998 by $6,600 as compared to
1997. The  improvement to these  operations was principally in gross margins due
to  lower  unfavorable  experience  with  exchange-traded  futures  in the  feed
business  and improved  margins in the seed  business as the result of growth in
the commercial vegetable seed business. These improvements were partly offset by
increased  pre-tax losses in enterprise  operations of $4,400 due principally to
reduced margins in feed and agronomy sales from the low commodity prices in 1998
as compared to 1997. Additionally, net support costs increased $1,300 in 1998 as
compared  to 1997.  The  increase in net support  costs are due  principally  to
reduced  patronage  income of $5,100 due to lower CF Industries  Inc.  earnings,
offset by: (1)  $1,500 in  increased  costs in 1997 due to a charge in the first
quarter of 1997 for the adoption of a new  accounting  policy on  impairment  of
long-lived  assets  and (2)  overall  lower  support  costs in 1998 of $2,300 as
compared to 1997.

The  Agriculture  retail  operations  had increased  losses of $9,400 in 1998 as
compared to 1997.  Overall,  retail gross  margins  decreased  $2,800 in 1998 as
compared to 1997  principally due to the planned  product line reductions  noted
above. The growth in margins in the nursery product lines,  particularly through
acquisitions  in 1998,  was offset by declines  in margins of all other  primary
product  lines.  Despite  the lower  gross  margin  dollars,  the  gross  margin
percentage  improved  2% in 1998 as  compared  to 1997.  Service  revenues  also
decreased  in  1998  as  compared  to  1997  by  $400,  principally  from  lower
maintenance fees on power equipment. Total expenses increased $4,400 in 1998 due
principally  to  increased  costs  from  new  locations,   non-recurring   costs
associated  with business  restructure in Retail and increased  costs in payroll
and depreciation of operating continuing store locations. Finally, other revenue
in retail operations declined $1,300 in 1998 as compared to 1997 as the gains on
the sale of surplus property in 1997 were greater than in 1998.

COUNTRY PRODUCTS GROUP

Total CPG sales and  revenues of  $186,100  increased  $27,500  (17%) in 1998 as
compared to $158,600 in 1997.  The  increase in CPG sales  resulted  from strong
sales growth in its produce  operations of $32,000 (44%) compared to 1997.  This
growth in produce resulted  substantially  from an acquisition of a business and
the  formation  of a new  produce  operation  during the first  quarter of 1998.
Additionally,  an increasing  customer base at the seed  operation,  principally
other  cooperative and wholesale  businesses,  increased sales in 1998 by $6,200
(39%) as  compared  to 1997.  Sales  growth at CPG was  partially  offset by the
elimination  of sales from the pet food  business by $11,400,  which was sold in
1997 to Pro-Pet LLC, a company in which CPG has a minority interest.

CPG's pre-tax  earnings of $6,200 in 1998  increased  $3,600 (138%) from pre-tax
earnings of $2,600 in 1997. Operating  improvements in a variety of CPG business
operations  during 1998 resulted in increased  margins over 1997. In the produce
operation,  pre-tax earnings increased $2,600 principally from potatoes,  onions
and  strawberries  product lines.  The Pro-Pet LLC investment and net charges in
1997 on the sale of the pet food  manufacturing  brands and businesses  improved
pre-tax earnings in 1998 over 1997 by $1,500 as the benefits of better inventory
management and cost savings from the joint venture were realized.  All other CPG
business had a net  improvement in pre-tax  earnings  ($100) over 1997.  Initial
start-up costs associated with new operations decreased pre-tax earnings by $600
in 1998.



                                       20

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


ENERGY

Total sales and revenues of $505,100 in 1998  decreased  $102,000 (17%) compared
to  $607,100  in 1997.  Reduced  commodity  cost for  petroleum  products in the
current year allowed for reduced selling prices to customers.  The lower selling
prices in 1998 decreased  sales by $54,100  compared to 1997.  Total unit volume
sold of all products  decreased  10.5% in 1998,  resulting in a sales decline of
$56,200,  mostly in the  residential  sales of heating  oils and  propane.  This
decline was mainly  caused by the current  year's winter season being 8% warmer,
based on degree-days,  compared to 1997.  These declines were slightly offset by
increases  in sales of $8,300 from a growing  natural gas product  line for both
residential and commercial customers and from an increase in service revenues as
Energy  continues  to emphasize  its  technical  strength in servicing  heating,
ventilating, and air-conditioning equipment.

Energy's  pre-tax earnings of $8,000 in 1998 decreased $2,800 (26%) from $10,800
in 1997.  The lower sales  dollars,  noted above,  partially  offset by stronger
gross margin  rates,  reduced  overall  gross margin  dollars on all products by
$6,900 in 1998 as compared  to 1997.  Operating  expenses  declined by $1,700 in
1998 as compared to 1997. Total distribution costs were lower in part due to the
decline in volume and in part due to  initiatives to lower its delivery costs of
products and to reorganize  how Energy  manages the markets it serves.  Interest
expense  declined  $1,700  in 1998  due to lower  asset  levels  during  1998 as
compared to 1997.  Finally,  increased  thruput and storage  revenues  increased
other revenue by $700 in 1998 as compared to 1997.

LEASE FINANCING

Total revenues of $65,500 in 1998 increased  $8,600 (15%) compared to $56,900 in
1997.  The increase is  attributable  in part to a $49,900 (11%) increase in net
leases  and  notes  during  1998 as  compared  to 1997.  Increases  in the lease
portfolio  resulting  from new booked volume of $227,300 in 1998 and $231,000 in
1997 exceeded lease  reductions  from collection and provision for credit losses
of $177,400 and $159,800 in 1998 and 1997, respectively. The net increase in new
booked  volume has the  effect of  increasing  revenues.  Total  revenues,  as a
percentage  of average net leases and notes,  decreased  slightly  from 13.7% in
1997 to 13.5% in 1998.

Pre-tax earnings of $15,400 in 1998 increased $2,400 (19%) from $13,000 in 1997.
The increase in total  revenues  noted above was  partially  offset by increased
interest  cost of $3,400  (14%),  increased  SG&A  costs of  $3,100  (25%) and a
decrease in the  provision for credit losses of $300 (5%) in 1998 as compared to
1997.  While the average cost of interest  paid on debt  decreased  from 7.5% to
7.2%, the interest costs of $26,900 in 1998 increased $3,400 (14%) from 1997 due
to increased  borrowings  required to finance the growth of the lease  portfolio
noted  above.  The SG&A  expenses of $15,600 in 1998  increased  $3,100 (25%) as
compared to 1997,  primarily  the result of  additional  personnel and incentive
costs relating to the additional new business booked and increased  travel costs
as Telmark  expands its territory.  The provision for credit losses of $7,600 in
1998  decreased  $400 (5%) as  compared to 1997 based on  Telmark's  analysis of
reserves required to provide for uncollectible receivables. Telmark periodically
reviews its allowance for credit  losses  considering  an analysis of delinquent
accounts,  current  economic  conditions,  estimated  residual  values,  and the
creditworthiness  of its customers.  During 1998, the total value of non-earning
accounts  increased  only  slightly  to $3,000 in 1998 as  compared to $2,700 in
1997.



                                       21

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


INSURANCE

Total net revenues of $27,300 in 1998 increased $300 (1%) compared to $27,000 in
1997. From 1997 to 1998, sales of the Insurance Company's core product offerings
increased 3%, while  depopulation of mandatory  assigned risk  automobile  pools
resulted in a 27% decrease in premiums  allocated to the Insurance  Company.  In
Agency,  1998 sales of long-term care and other insurance  products continued to
increase,  while  revenue  related to medical  products  continued  to decrease.
Ongoing healthcare  regulatory activity and rising medical costs are expected to
depress future medical product sales.

Insurance  Company  pre-tax  earnings  of $200 in 1998  decreased  $1,000  (83%)
compared to $1,200 in 1997.  The 1998 results were  impacted  principally  by an
increase in commission expense of $900. In addition, net claims losses increased
slightly in 1998 compared to 1997.  This  resulted  from lower 1998  reinsurance
recoveries as the Insurance  Company  experienced more favorable claims severity
and frequency results in 1998 compared to 1997. The Agency experienced a pre-tax
loss  of $500 in  1998  and  1997.  This  is  principally  related  to  expenses
associated with the Agency's provision of administrative  management services to
Agway business  units.  The $300 decrease in 1998 Agency net revenues from sales
of medical products was offset by a $300 decrease in SG&A expenses  attributable
to the medical product.

FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

Cash generated from operations and external  borrowings  continues to be Agway's
major  ongoing  source  of  funds  to  finance  capital  improvements,  business
acquisitions,  shareholder dividends,  and a growing lease portfolio at Telmark.
During the years ended June 30, 1997 and 1999,  significant  additional cash was
generated from the sale of businesses, particularly at CPG.
<TABLE>
<CAPTION>
                                                                       1999             1998              1997
                                                                  --------------    -------------    --------------
<S>                                                               <C>               <C>              <C>
Net cash flows from (used in):
      Operating activities......................................  $      30,499     $     43,856     $      24,234
      Investing activities......................................        (81,503)         (82,331)          (77,014)
      Financing activities......................................         51,004           38,475            52,780
                                                                  --------------    -------------    --------------
Net increase (decrease) in cash and equivalents                   $           0     $          0     $           0
                                                                  ==============    =============    ==============
</TABLE>
CASH FLOWS FROM OPERATIONS

The decline in net cash flows from  operating  activities  of $13,400 in 1999 as
compared to 1998 is due to a decrease in cash from earnings of $31,200 offset by
a $17,800 decrease in demand for cash to fund working capital. The lower working
capital demand for cash was from a larger decrease in receivable balances during
1999 (cash provided) as compared to 1998.

The increase in cash flow from operating  activities in 1998 as compared to 1997
is due in part ($9,900) to a lesser demand for cash to fund working  capital and
in part ($9,700) due to increased cash from earnings. The biggest contributor to
the lower demand was from a decline in receivables  during 1998 (cash  provided)
as compared to increased receivable balances in 1997.



                                       22

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM INVESTING

The  most  significant  use of cash  over  the  past  three  years  has  been in
connection  with Agway's growing lease financing  business  (Telmark).  The cash
requirements  to fund  lease  origination  growth in excess of lease  repayments
amounted to $63,500,  $57,400 and $79,200 in 1999, 1998 and 1997,  respectively.
Capital expenditures and business acquisitions required cash of $38,300, $33,900
and  $27,900  for 1999,  1998 and 1997,  respectively.  Agway  anticipates  that
capital  expenditures  and  acquisitions  will  continue  to increase as profits
increase from planned growth in many of its business units.

Cash  flow  used in  investing  was  partially  funded  by cash  generated  from
investing  activities,  principally  the proceeds from the disposal of business,
which  amounted  to a total of $14,200,  $0 and $22,000 in 1999,  1998 and 1997,
respectively.

CASH FLOWS FROM FINANCING

Agway  finances its  operations  and the  operations of all its  businesses  and
subsidiaries  through Agway Financial  Corporation  (AFC).  External  sources of
short-term  financing for Agway and all its other continuing  operations include
revolving  credit  lines,  letters of credit,  and a commercial  paper  program.
Insurance  finances its activities  through  operations or with a combination of
short- and long-term  credit  facilities.  Telmark's  finance  arrangements  are
explained  below. As of June 30, 1999,  Agway had certain  facilities  available
with banking  institutions  whereby  lenders have agreed to provide  funds up to
$380,000 to separately  financed units of the Company as follows:  AFC - $65,000
and Telmark - $315,000.  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 June 30, 1999, AFC's available bank facilities  included a short-term line
of credit  and a term  revolving  line of  credit.  These  facilities  and AFC's
ability to issue  commercial  paper require  collateralization  using certain of
Agway's accounts receivable and non-petroleum inventories (collateral).  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  existed  throughout 1999 to permit AFC to borrow amounts to meet the
ongoing  needs of Agway and is expected to continue to do so. The line of credit
and term revolving line of credit  additionally  require  Agway's  investment in
bank stock as additional collateral. In addition, the agreements include certain
covenants,  the most  restrictive of which  requires Agway to maintain  specific
quarterly  levels of interest  coverage and monthly levels of tangible  retained
earnings.  At June 30, 1999, Agway violated its interest  coverage  covenant but
has subsequently  obtained waivers from its lenders for June 1999 and amendments
through the term of the  agreements.  In  addition,  due to the  restatement  of
financial  results,  as  described  in the MD&A and in Note 17 to the  financial
statements,  Agway  violated certain  of  its covenants  in its loan agreements,
including the interest coverage covenant  as of December 1998 and March 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.  AFC annually renews its line of
credit and commercial  paper program in the quarter  ended  December  31.  Agway
expects to continue  to  have  appropriate and  adequate  financing  to meet its
ongoing needs, although the terms of this financing cannot be determined at this
time.



                                       23

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED)

AFC (continued)
The specifics of these AFC arrangements are as follows:
<TABLE>
<CAPTION>
                                                                          Outstanding
                                                   Available      ------------------------------
                                                    6/30/99           6/30/99          6/30/98       Term Expires
                                                 ------------     -------------     ------------     ------------
<S>                                              <C>              <C>               <C>                 <C>
Short-term line of credit*.....................  $     50,000     $           0     $          0        12/31/99
Term revolving line of credit..................  $     15,000     $           0     $          0        12/31/99
Commercial paper...............................  $     50,000     $      38,500     $     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 provide a facility  for
interim funding, if necessary, for 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.
AFC's 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.
Government   Treasury  Bills  (T-Bills),   with  maturities  of  26  weeks.  AFC
subordinated  money market  certificates  as of June 30,  1999,  are due between
October 1999 and October 2013 and 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%.

In October 1999, $58,800 of subordinated money market certificates issued by AFC
will mature.  Agway expects to refinance this debt either through a new issue of
subordinated debt, through short-term bank borrowings, or a combination of both.

Telmark
Telmark finances its operations and lease portfolio growth  principally  through
payments  received on existing  leases,  which  totaled  $188,600,  $169,800 and
$151,900 in 1999,  1998 and 1997,  respectively.  Additionally,  Telmark's  cash
flows from  operations,  which were $22,800,  $21,200 and $15,200 for 1999, 1998
and 1997,  respectively,  as well as borrowings  under lines of credit,  private
placements  of debt with  institutional  investors,  sales of  debentures to the
public,  sales of leases,  and  lease-backed  asset  securitization  all provide
financing sources for Telmark.

At June 30, 1999,  Telmark has several  credit  facilities  available from banks
which  allow  Telmark  to borrow up to an  aggregate  of  $315,000.  Uncommitted
short-term line of credit  agreements  permit Telmark to borrow up to $65,000 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 term loan facility  permits Telmark to draw short-term
funds  bearing  interest at money market rates or draw  long-term  debt at rates
appropriate for the term of the note drawn. The total amounts  outstanding as of
June 30, 1999 and 1998,  under the short-term  lines of credit and the revolving
term  loan  facility  were  $35,000  and  $156,300  and  $20,000  and  $165,000,
respectively.  The portion of the revolving term loan that is short term at June
30, 1999 and 1998, was $8,300 and $15,000,  respectively.  Telmark borrows under
its  short-term  line of credit  agreement and its revolving term agreement from
time  to time to fund  its  operations.  Short-  term  debt  serves  as  interim
financing  between the issuances of long-term debt.  Telmark renews its lines of
credit annually.  The $65,000 lines of credit all have terms expiring during the
next 12 months.  The $250,000  revolving term loan facility is available through
August 1, 2000.



                                       24

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

CASH FLOWS FROM FINANCING ACTIVITIES (CONTINUED)

Telmark (continued)
At June 30, 1999, Telmark also had balances outstanding on unsecured senior note
private placements totaling $146,000.  Interest is payable  semiannually on each
senior  note.  Principal  payments  are both  semiannual  and  annual.  The note
agreements are similar to each other  and each contains financial covenants, the
most  restrictive of which prohibit (i) tangible net worth,  defined as tangible
assets less total  liabilities  (excluding any notes payable to Agway  Holdings,
Inc.),  from being less than $75,000,  (ii) the ratio of total  liabilities less
subordinated notes payable to Agway Holdings,  Inc. to shareholder's equity plus
subordinated notes payable to Agway Holdings, Inc. from exceeding 5:1, (iii) the
ratio of earnings  available for fixed charges from being less than 1.25:1,  and
(iv) dividend  distributions and restricted investments made after September 30,
1997,  that exceed 75% of  consolidated  net income for the period  beginning on
October 1, 1997,  through the date of determination,  inclusive.  As of June 30,
1999,  $13,000 of Telmark's member equity was free of this restriction.  Telmark
complied with all its covenants contained in its borrowing arrangements.

Telmark, through two wholly owned special purpose subsidiaries, has four classes
of lease-backed notes outstanding  totaling $58,800 and $17,700 at June 30, 1999
and 1998, respectively,  payable to insurance companies. Interest rates on these
classes  of notes  range  from 6.5% to 7.6%.  The notes  are  collateralized  by
leases,  which Telmark sold to these  subsidiaries,  having an aggregate present
value of contractual lease payments equal to the principal balance of the notes,
and the notes are further collateralized by the residual values of these leases.
The scheduled maturity of these notes is December 2007.

Telmark  registers  with  the SEC  from  time to time  to  offer  to the  public
debentures.  The debentures are  unsecured,  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 of each relevant year and may, at the holder's option,  be
reinvested. The offering of the debentures is not underwritten, and there can be
no  guarantee as to the amount of  debentures,  if any,  that will be sold.  The
proceeds of the  offerings are used to provide  financing for Telmark's  leasing
activities.  Telmark's  subordinated  debentures bear interest at a rate that is
the greater of the stated rate or a rate based upon the  average  discount  rate
for T-Bills,  with  maturities  of 26 weeks.  Telmark  debentures as of June 30,
1999,  are due  between  March 2000 and March  2003 and bear a weighted  average
interest rate of 8.1%. As of June 30, 1999,  approximately $37,600 of debentures
were outstanding under these offerings.

Telmark  conducts  ongoing   discussions  and  negotiations  with  existing  and
potential  lenders for future  financing  needs.  Agway  believes  Telmark  will
continue to have appropriate and adequate  short-term and long-term financing to
meet its ongoing needs.

Sources of  longer-term  financing of Agway include the following as of June 30,
1999:
<TABLE>
<CAPTION>
Source of debt                                              Agway           AFC           Telmark           Total
--------------                                         -------------   ------------   --------------    ------------
<S>                                                    <C>             <C>            <C>               <C>
Banks - due 8/99 to 4/04 with interest
     from 6.26% to 8.58%.............................  $           0   $      1,225   $      148,000    $   149,225
Insurance companies - due 7/99 to 3/07
     with interest from 6.4% to 7.64%................              0              0          204,801        204,801
Capital leases and other - due 1999 to 2018
     with interest from 7.5% to 10%..................         17,827          2,263                0         20,090
                                                       --------------  ------------   --------------    ------------
         Long-term debt..............................         17,827          3,488          352,801        374,116
Subordinated money market certificates - due
     10/99 to 10/13 with interest from 4.5% to 9.5%..              0        428,959                0        428,959
Subordinated debentures - due 1999 to 2003
     with interest at 7.0% to 8.5%...................              0         19,711           37,633         57,344
                                                       --------------  ------------   --------------    ------------
         Total subordinated debt.....................              0        448,670           37,633        486,303
                                                       --------------  ------------   --------------    ------------
              Total debt.............................  $      17,827   $    452,158   $      390,434    $   860,419
                                                       ==============  ============   ==============    ============
</TABLE>
                                       25

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


OTHER MATTERS

CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995

Agway is including the following  cautionary statement in this Form 10-K to make
applicable  and take  advantage of the "safe  harbor"  provisions of the Private
Securities Litigation Reform Act of 1995 for any forward-looking  statement made
by, or on behalf of, Agway. Where any such forward-looking  statement includes a
statement of the assumptions or basis underlying such forward-looking statement,
Agway  cautions  that,  while  it  believes  such  assumptions  or  basis  to be
reasonable  and makes them in good faith,  assumed  facts or basis almost always
vary from actual results, and the differences between assumed facts or basis and
actual  results  can be  material,  depending  upon the  circumstances.  Certain
factors  that  could  cause  actual  results  to differ  materially  from  those
projected  have been  discussed  herein and include the factors set forth below.
Other  factors  that could cause  actual  results to differ  materially  include
uncertainties of economic,  competitive and market decisions and future business
decisions,  all of which are difficult or impossible to predict  accurately  and
many of which are beyond the control of Agway.  Where,  in any forward-  looking
statement,  Agway, or its  management,  expresses an expectation or belief as to
future  results,  such  expectation  or belief is  expressed  in good  faith and
believed to have a  reasonable  basis,  but there can be no  assurance  that the
statement of expectation  or belief will result or be achieved or  accomplished.
The words "believe," "expect," and "anticipate" and similar expressions identify
forward-looking statements.

ENVIRONMENTAL ISSUES

Agway  and its  subsidiaries  are  subject  to  various  laws  and  governmental
regulations concerning environmental matters. We expect to be required to expend
funds to participate in the remediation of certain sites,  including sites where
we have  been  designated  by the  Environmental  Protection  Agency  (EPA) as a
potentially  responsible  party  (PRP)  under  the  Comprehensive  Environmental
Response, Compensation, and Liability Act (CERCLA) and at sites with underground
fuel  storage  tanks.  We  will  also  incur  other  expenses   associated  with
environmental  compliance.  As part of its  long-term  environmental  protection
program,  Agway spent  approximately  $100 in 1999 on capital  projects  related
principally to the removal of underground  storage tanks.  Agway expects to have
approximate expenses in the amount of $400 during 2000.

At June 30, 1999,  Agway 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 we could be required to pay in excess of our pro
rata share of remediation costs. Agway's understanding of the financial strength
of other PRPs at these Superfund sites has been considered,  where  appropriate,
in the determination of our estimated liability.

We continually  monitor our 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  our  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, we believe that past experience provides
a reasonable  basis for  estimating  our  liability.  As additional  information
becomes  available,  estimates  are  adjusted  as  necessary.  While  we do  not
anticipate  that  any  such  adjustment  would  be  material  to  our  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 Agway's liquidity position.



                                       26

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


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.  In addition, in some business segments, computer chips are
embedded in the automation of certain processing or manufacturing operations.

Agway initiated its year 2000 compliance  efforts in January 1996. The year 2000
compliance  effort has been  comprehensive,  including each business  segment as
well as corporate-level  activities.  Agway engaged an international  consulting
firm  in  March  1998 to  evaluate  Agway'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 Agway as a whole. This includes periodic reports to the Board of
Directors  regarding  the  implementation   timetable  and  the  development  of
contingency plans. In the systems area, the effort has included (1) inventorying
all critical  information  systems; (2) prioritizing those systems determined to
be at risk; (3) planning the upgrade  through system  remediation,  replacement,
outsourcing,  or disposal;  (4) testing and  implementation of upgraded systems;
and (5)  testing of the  critical  upgraded  systems in a year 2000  environment
created for that purpose.  While upgraded  systems are  individually  tested for
year 2000 compliance prior to  implementation,  the year 2000 environment allows
us to not only test them in a simulated year 2000  environment  but also to test
the interaction of critical systems on an "enterprise-wide" basis in a simulated
year 2000 environment.

The  prioritization of Agway's year 2000 compliance work considers,  among other
things, the seasonal business cycles of certain Agway business segments to allow
for  implementation  of and  training on major new systems  during the non- peak
portion of each  segment's  business  cycle.  Through July 1999,  the inventory,
prioritization,  and planning stages for all  information  systems are complete.
The  testing  and  implementation  stage is  complete  for most  systems and the
majority of information systems selected for  enterprise-wide  testing have also
been  completed.  As of the end of July  1999,  there is,  however,  still  some
information  system  work to be  completed.  The  outstanding  issues  and their
scheduled completion dates are discussed below:

-     In June 1999, the Energy and Insurance segments  completed  implementation
      of a new general  ledger  accounts  payable and fixed asset set of systems
      which had been implemented  corporately and by the Agriculture and Leasing
      segments at the beginning of 1999. This set of systems was enterprise-wide
      tested in August 1999.

-     The wholesale  information  systems  within the  Agriculture  segment have
      largely been replaced with a new system.  One remaining critical module is
      scheduled  for   implementation  in  September  1999.  Other  non-critical
      modules,  which will improve  operational  efficiency,  are  scheduled for
      implementation by October 1999.  Enterprise-wide testing of this wholesale
      system  is  scheduled  for   completion  in  October  1999.  The  accounts
      receivable  system  for  the  wholesale  business  is also  scheduled  for
      replacement by October 1999.

-     The Agway  Energy  segment is replacing  its retail operations information
      system.  Rollout  of  this  new  system  into each  of the Energy business
      operating  plants  started  in  February 1999, after  last  year's  winter
      season.  Over 70% of the plants are presently operating on this new system
      and  the  remaining  plants  are scheduled  for implementation from August
      through October 1999.  Since this system was modified for Agway's use, the
      vendor  is  performing  further  year  2000 compliance testing and Agway's
      internal enterprise-wide testing of the system interfaces is scheduled for
      October 1999.  In addition, the Energy segment has upgraded its wholesale
      accounts  receivable  system  and  is  in  process  of  training users for
      implementation, which is scheduled for September 1999.

                                       27

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


YEAR 2000 (CONTINUED)

Based on the work to date, we believe that these  remaining  information  system
projects will be implemented on a timely basis as scheduled.

In  addition to the  information  systems  review  noted  above,  Agway 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  (personal  computers),
information  technology  (IT)  vendor  relationships,   external  interfaces  to
internal IT systems,  remote  location  access to IT systems,  and certain  non-
information  technology  issues such as supplier year 2000  readiness,  facility
year  2000  readiness,  and the  extent  to  which  embedded  chips  are used in
machinery and equipment used in business  operations.  In the IT-related  areas,
Agway has completed significant assessments in its major business operations and
has developed and implemented plans to address the critical issues. With respect
to suppliers, Agway has initiated dialogue, both in writing and with key vendors
by interview,  regarding their year 2000 readiness.  These  communications  will
continue to the extent  useful  through  December  1999. In the case of embedded
chips in manufacturing and processing operations,  the review,  assessment,  and
remediation are complete in the Country Products Group and Energy segments.  The
Agriculture  segment has determined that the only facilities  requiring  further
consideration are the feed mills, which are currently under review.  Remediation
of embedded  chips in these mills,  if any, is expected to be moderate and to be
completed by October 1999.

The year 2000  compliance  issue is an uncertainty  that is  continuously  being
monitored as Agway  implements  its plans.  Based on the work performed to date,
Agway 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 Agway's  control,  it could affect Agway's sources of supply and Agway's
ability to service  its  customers  with the same degree of  effectiveness  with
which  they  are  served  presently.   Agway  has  identified  elements  of  the
infrastructure  that  are  of  greater  significance  to its  operations  and is
obtaining  information  on an  ongoing  basis as to  their  expected  year  2000
readiness.

Each of Agway's  business  segments has either completed or is in the process of
completing  business  contingency  and continuity  plans in the event of unusual
business  developments  due to entering into the year 2000. The methodology used
for this planning  process was common for each business area. Each business unit
identified its business  processes and assessed each process on the basis of its
importance to the conduct of business and the  probability  of its having a year
2000-generated  problem.  Processes  identified  as  critical  to the conduct of
business  with a  moderate  or  higher  probability  of  exposure  to year  2000
disruption were then investigated for work-around alternatives.  Those processes
for which  alternatives were not readily available were then considered  further
for establishment of business contingency and continuity plans.

Our  business  contingency  and  continuity  plans were set to provide  the best
possible  assurance  first for those services we provide  customers that involve
human health and safety, i.e.,  principally delivery of energy products;  second
for those services that involve animal life and welfare, principally delivery of
animal feeds; and third for those business  activities that provide cash flow to
Agway to permit us to meet our obligations.



                                       28

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


YEAR 2000 (CONTINUED)

Based on these  priorities,  the most severe difficulty that we could face would
be  either  the  disruption  of supply of our  energy  or feed  products  to the
Northeast or power  failures which would disrupt  ability to deliver  product to
our customer  base.  In both our energy and feed  businesses,  we have  multiple
locations  throughout our market  territory and will store product to the extent
possible prior to December 31, 1999, as a contingency plan. In the normal course
of business, we have multiple suppliers so that alternative supply is available.
If primary  transportation of bulk product to the Northeast,  i.e., pipelines or
rail, is impaired,  we would move to  alternative  transportation  to the extent
available, move product from locations with higher stored inventory to locations
experiencing  shortages  and,  if  necessary,  particularly  in Energy,  move to
allocation programs which are part of our standard business continuity programs.
Similarly,  in the event of  localized  power  failures,  we have the ability in
emergency  conditions  to move product from  non-affected  locations to affected
locations.

Finally,  we have  established a command center that makes use of the telephones
and work space in our existing  overnight call center. A back-up generator is in
place with capacity to provide power to this command  center,  Agway's  computer
center,  and limited  additional space.  Business units have been allocated work
space in this area to monitor and react to critical business  interruptions just
prior and subsequent to the millennium date change.

Agway has incurred  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 Agway  approximately  $18,100,  of which  $14,900 has been
incurred and $3,200 is expected to be incurred  from July 1999 through  December
1999. Approximately 85% of these estimated costs represent replacement costs and
will be  capitalized.  Additionally,  Agway estimates the costs to remediate all
other areas, as well as costs to create corporate-level testing environments and
contingency  planning  efforts,  approximate  $3,500,  of which  $2,300 has been
incurred and $1,200 is expected to be incurred  from July 1999 through  December
1999. However,  these costs will vary as Agway continues to assess and implement
its plans or if Agway is  required to invoke  contingency  plans.  Agway  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).

AGRICULTURAL ECONOMY AND OTHER FACTORS

The financial  condition of Agway can be directly  affected by factors affecting
the agricultural economy, since these factors impact the demand for our products
and the ability of our customers to make payments for products already purchased
through  credit  extended  by us.  These  factors  may  include:  (i) changes in
government  agricultural  programs that may adversely affect the level of income
of  customers  of Agway  (e.g.,  milk  marketing  orders and  acreage  reduction
programs);  (ii)  weather-related  conditions which  periodically occur that can
impact the  agricultural  productivity and income of the customers of Agway; and
(iii) the relationship of demand relative to supply of agricultural  commodities
produced  by  customers   of  Agway.   Agway  can  also  be  affected  by  major
international  events, like the downturn in foreign economies,  which can affect
such things as the price of  commodities we use in our operations as well as the
general level of interest rates.








                                       29

<PAGE>



ITEM 7.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
         OF OPERATIONS
                             (THOUSANDS OF DOLLARS)


AGRICULTURAL ECONOMY AND OTHER FACTORS (CONTINUED)

Federal  agricultural  legislation,  formally  known as The Federal  Agriculture
Improvement  and Reform Act of 1996,  replaced  the former  program of  variable
price-linked  deficiency  payments with fixed  payments to farmers which decline
over a seven-year  period.  This  legislation  also eliminated  federal planting
restrictions and acreage controls allowing farmers more flexibility to plant for
the market. The impact of this legislation on the agricultural  economy,  and on
the  financial  condition  of Agway,  is not expected to be  significant  in the
short-term.  The longer-term  impact on our financial  condition of such a major
change in the federal  government's  role in agriculture  cannot be predicted at
this time.

Agway Energy  Products is impacted by factors such as weather  conditions in the
Northeast  and the  relationship  of supply and demand  for  petroleum  products
worldwide as well as within Agway's  market.  Agway's  agricultural,  retail and
insurance  businesses  can be  impacted  by weather  conditions  as well as from
fluctuations in the economy in the northeastern  United States that, in general,
affect consumer demand for products.  To the extent that these factors adversely
affect our  customers,  the  financial  condition  of Agway  could be  adversely
affected.

FUTURE ACCOUNTING REQUIREMENTS

See Note 1 to consolidated financial statements.


                                       30

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)


Market risk represents the risk of loss that may impact the financial  position,
results  of  operations,  or cash  flows  of Agway  due to  adverse  changes  in
financial and commodity  market prices and rates.  We are exposed to market risk
in the areas of  interest  rates  and  commodity  prices.  These  exposures  are
directly  related to our normal funding and investing  activities and to our use
of agricultural and energy commodities in the operation of our business.

INTEREST RATE EXPOSURE

We do not use  derivatives or other interest rate  instruments to hedge interest
rate risk due to the fixed rate nature of the majority of our debt  obligations.
The following table provides  information about the other financial  instruments
that are sensitive to changes in interest  rates.  The table presents  principal
cash flows and related  weighted  average  interest  rates by expected  maturity
dates.
<TABLE>
<CAPTION>
                                                                                                                        Fair Value
                                     2000        2001        2002        2003        2004     Thereafter     Total       6/30/99
                                  ---------   ---------   ---------   ---------   ---------   ----------   ----------   ----------
<S>                               <C>         <C>         <C>         <C>         <C>         <C>          <C>          <C>
ASSETS
Available-for-sale securities     $   3,040   $   3,501   $   4,883   $   4,282   $   2,235   $   18,451   $   36,392   $   36,438
Weighted average interest rate..      6.18%       6.40%       6.21%       6.35%       6.39%        6.34%

LIABILITIES
Bank lines of credit - Telmark       43,300                                                                    43,300       43,300
Weighted average interest rate..      5.79%

Long-term debt, including
  current portion - Telmark.....     91,461      84,431      68,581      48,608      57,529        2,191      352,801      361,086
Weighted average interest rate..      7.05%       6.75%       6.67%       6.70%       6.65%        6.62%

Subordinated debentures,
  including current
  portion - Telmark.............     18,200       3,766       4,650      11,017                                37,633       37,887
Weighted average interest rate..      8.23%       7.49%       7.29%       8.00%

Commercial paper - AFC..........     38,500                                                                    38,500       38,500
Weighted average interest rate..      5.02%

Long-term debt, including
  current portion - Agway & AFC.      2,984       5,611       7,560         239         196        1,645       18,235       18,230
Weighted average interest rate..      8.47%       8.52%       8.50%       7.95%       8.06%        6.92%

Subordinated debentures,
  including current
  portion - AFC.................     11,632                   3,234                   4,845                    19,711       19,681
Weighted average interest rate..      8.34%                   7.38%                   7.88%

Subordinated money market
  certificates, including
  current portion - AFC.........     47,136      49,278      48,731      36,036      39,007      208,771      428,959      424,207
Weighted average interest rate..      7.63%       9.15%       8.25%       6.92%       8.10%        7.80%
</TABLE>
Telmark, Agway's leasing business, endeavors  to limit the effects of changes in
interest  rates by matching as closely as  possible,  on an ongoing  basis,  the
maturity and repricing  characteristics  of funds  borrowed to finance its lease
activities  with  the  maturity  and  repricing  characteristics  of  its  lease
portfolio.  However,  a rise in interest  rate would  increase  the cost of that
portion of debt which is not  precisely  matched to the  characteristics  of the
portfolio.  Telmark  has a  formal  risk  management  policy  which  limits  the
short-term  exposure  to an  amount  which  is  immaterial  to  the  results  of
operations or cash flows.  Telmark  subordinated  debentures  bear interest at a
rate that is the  greater  of the stated  rate or a rate based upon the  average
discount rate for T-Bills, with maturities of 26 weeks. Based on the T-Bill rate
of 4.9% as of June 30, 1999,  as compared to the stated rates of the  debentures
which range from 6.0% to 8.5% at June 30,  1999,  we believe  that a  reasonably
possible  near-term  change in interest  rates and the  conversion  of debt to a
variable rate would not cause material  near-term  losses in future  earnings or
cash flows.  Finally,  for the portion of debt which is not precisely matched as
of June 30, 1999, we do not believe that reasonably  possible  near-term changes
in interest  rates will  result in a material  effect on future  earnings,  fair
values, or cash flows of Agway.

                                       31

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)


INTEREST RATE EXPOSURE (CONTINUED)

AFC's subordinated money market certificates bear interest at a rate that is the
greater of the stated  rate or a rate based upon the  discount  rate of T-Bills,
with maturities of 26 weeks.  Based on the T-Bill rate of 4.9% at June 30, 1999,
as it compares to the stated rates of the money market  certificates which range
from 4.5% to 9.5% at June 30, 1999, we believe a reasonably  possible  near-term
change in T-Bill rates and the  conversion  of AFC debt to a variable rate would
not cause material near-term losses in future earnings or cash flows.

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 June
30,  1999 and 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  by  market  price  changes  to  the  underlying
commodities that the commodity  instruments  are  hedging.  As  of June 30, 1999
and 1998, assuming a 10% hypothetical change  in the underlying commodity price,
the potential change in fair value of Energy's commodity instruments was  $1,100
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 June
30, 1999 and 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  by  market  price  changes  to  the underlying
commodities that the commodity  instruments are hedging. As of June 30, 1999 and
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.









                                       32

<PAGE>



ITEM 7A.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
(THOUSANDS OF DOLLARS)


COMMODITY PRICE EXPOSURE (CONTINUED)

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.

A sensitivity  analysis has been prepared to estimate the department's  exposure
to market risk of its exchange-traded  commodity  instrument position as of June
30,  1999 and 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 June 30, 1999 and 1998,
assuming  a  10%  hypothetical  change  in  the  underlying commodity price, the
potential change in fair value of  the department's  commodity  instruments  was
$2,900  and  $700,  respectively.  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.

                                       33

<PAGE>



ITEM 8.  FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

<TABLE>
<CAPTION>
                          INDEX TO FINANCIAL STATEMENTS

                                                                                                              PAGES
                                                                                                              -----
AGWAY INC. AND CONSOLIDATED SUBSIDIARIES:
      <S>                                                                                                        <C>
      Agway Inc. Report on Financial Statements..............................................................    35

      Report of Independent Accountants......................................................................    36

      Consolidated Balance Sheets, June 30, 1999 and 1998....................................................    37

      Consolidated Statements of Operations, fiscal years ended June 30, 1999, 1998 and 1997.................    38

      Consolidated Statements of Comprehensive Income, fiscal years ended June 30, 1999,
           1998 and 1997.....................................................................................    39

      Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended June 30,
           1999, 1998 and 1997...............................................................................    40

      Consolidated Statements of Cash Flow, fiscal years ended June 30, 1999, 1998 and 1997..................    41

      Notes to Consolidated Financial Statements.............................................................    42

</TABLE>
ITEM 9. CHANGES  IN  AND  DISAGREEMENTS  WITH  ACCOUNTANTS  ON  ACCOUNTING  AND
        FINANCIAL DISCLOSURE

      There were no changes in or  disagreements  with accountants on accounting
      and financial disclosure.



                                       34

<PAGE>



                    AGWAY INC. REPORT ON FINANCIAL STATEMENTS


The  accompanying  consolidated  financial  statements  have  been  prepared  in
conformity with generally  accepted  accounting  principles by the Company.  The
integrity and objectivity of the data in these financial  statements,  including
estimates  and  judgments,  are the  responsibility  of  Agway,  as is all other
information included in this annual report.

The   consolidated   financial   statements  of  Agway  Inc.  and   Consolidated
Subsidiaries  have  been  audited  by  PricewaterhouseCoopers  LLP,  independent
auditors,    whose    report    follows.    Agway   has   made    available   to
PricewaterhouseCoopers  LLP all of the Company's  financial  records and related
data, as well as the minutes of Directors' meetings. Furthermore, Agway believes
that all  representations  made to  PricewaterhouseCoopers  LLP during its audit
were valid and appropriate.

Agway  maintains a system of internal  accounting  controls  intended to provide
reasonable  assurance,  given the inherent  limitations of all internal  control
systems, at appropriate costs, that transactions are executed in accordance with
Company  authorization,  are properly  recorded  and  reported in the  financial
statements, and that assets are adequately safeguarded.

The Budget & Audit  Committee of the Board of Directors,  which  consists of six
directors who are not  employees,  meets  periodically  with  management and the
independent  auditors  to review the manner in which they are  performing  their
responsibilities  and to discuss auditing,  internal  accounting  controls,  and
financial  reporting matters.  The independent  auditors have free access to the
Budget & Audit Committee.

As discussed  in  Management's  Discussion  and Analysis and in the Notes to the
Consolidated  Financial  Statements,  on June 28, 1999,  Agway discovered it had
incurred   losses  from   unauthorized   speculative   activities  in  commodity
instruments,  which were concealed within Agway's grain marketing department. As
a result, the previously reported financial  information as of June 1998 and for
the quarters ended  September  1998,  December 1998, and March 1999 did not take
into account such losses.  We have amended  reports filed with the SEC for these
periods,  and the  restated  financial  information  has been  included  in this
report.  An  investigation,  under  guidance  from  external  legal  counsel and
including internal legal counsel,  internal financial staff,  external auditors,
and  private  investigators,  has  been  conducted.  Individuals  identified  as
involved  in the  unauthorized  speculative  activity or  concealment  have been
terminated from  employment.  The  responsibilities  of the department have been
reassigned,   the  operating,   control,  and  reporting  structures  have  been
reorganized,  and the scope  of  its  business  activity  has been reduced.  The
results of the investigation  of the grain marketing activities   were  reported
to the  entire  Board of  Directors.

                                                      AGWAY INC.


                                                        /s/ DONALD P. CARDARELLI
                                                         BY DONALD P. CARDARELLI
                                                               President and CEO
                                                               September 2, 1999



                                                            /s/ PETER J. O'NEILL
                                                             BY PETER J. O'NEILL
                                                           Senior Vice President
                                                               Finance & Control
                                                               September 2, 1999

                                       35

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS


To the Board of Directors of Agway Inc.:

In our  opinion,  the  consolidated  financial  statements  listed  in the index
appearing  under Item  14(a)(1) on page  75  present  fairly,  in  all  material
respects,  the financial position of Agway Inc. and its subsidiaries at June 30,
1999 and 1998, and the result of their  operations and their cash flows for each
of the three  years in the  period  ended  June 30,  1999,  in  conformity  with
generally  accepted  accounting  principles.  In addition,  in our opinion,  the
financial  statement schedules listed in the index appearing under Item 14(a)(2)
on page 75 present fairly, in all material  respects,  the information set forth
therein  when  read in  conjunction  with  the  related  consolidated  financial
statements. These financial statements and financial statement schedules are the
responsibility of the Company's management;  our responsibility is to express an
opinion on these financial statements and financial statement schedules based on
our audits.  We conducted  our audits of these  statements  in  accordance  with
generally accepted auditing standards which require that we plan and perform the
audit to obtain reasonable  assurance about whether the financial statements are
free of material  misstatement.  An audit includes  examining,  on a test basis,
evidence  supporting the amounts and  disclosures  in the financial  statements,
assessing the  accounting  principles  used and  significant  estimates  made by
management,  and evaluating the overall  financial  statement  presentation.  We
believe  that our audits  provide a reasonable  basis for the opinion  expressed
above.

The 1998 financial  statements  have been restated to correct for the accounting
effect of the irregularities as described in Note 17.

As  discussed  in Note 13, the Company  changed its  accounting  for pensions in
1998.




/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP

Syracuse, New York
September 2, 1999



                                       36

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             JUNE 30, 1999 AND 1998
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>

                                 ASSETS                                                                 RESTATED
                                                                                      1999                1998
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Current assets:
     Trade accounts receivable (including notes receivable of
         $45,960 and $49,394, respectively), less allowance for
         doubtful accounts of $7,155 and $7,926, respectively...................  $     185,536      $      203,637
     Leases receivable, less unearned income of $64,330 and $65,048,
         respectively...........................................................        131,431             137,493
     Advances and other receivables.............................................         23,456              25,480
     Inventories................................................................        146,066             149,214
     Prepaid expenses and other assets..........................................         52,341              52,774
                                                                                  -------------      --------------
         Total current assets...................................................        538,830             568,598
Marketable securities...........................................................         35,099              36,412
Other security investments......................................................         51,010              51,761
Properties and equipment, net...................................................        215,425             213,795
Long-term leases receivable, less unearned income of $134,623 and
     $110,721, respectively.....................................................        419,444             357,777
Net pension asset...............................................................        198,160             176,792
Other assets....................................................................         19,083              12,159
                                                                                  -------------      --------------
         Total assets...........................................................  $   1,477,051      $    1,417,294
                                                                                  =============      ==============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

                                                                                                        RESTATED
                                                                                      1999                1998
                                                                                  -------------      --------------
Current liabilities:
     Notes payable..............................................................  $      81,800      $       65,100
     Current installments of long-term debt.....................................         94,699              99,173
     Subordinated debt, current.................................................         76,968              75,589
     Accounts payable...........................................................        115,350             114,548
     Other current liabilities..................................................        115,865             114,311
                                                                                  -------------      --------------
         Total current liabilities..............................................        484,682             468,721
Long-term debt..................................................................        279,417             255,356
Subordinated debt...............................................................        409,335             386,607
Other liabilities...............................................................        104,670             100,381
                                                                                  -------------      --------------
         Total liabilities......................................................      1,278,104           1,211,065
Commitments and contingencies...................................................
Shareholders' equity:
     Preferred stock, less amount held in Treasury..............................         42,917              47,871
     Common stock ($25 par--300,000 shares authorized; 172,706 and 172,265
         shares issued, less amount held in Treasury)...........................          2,506               2,571
     Accumulated other comprehensive income (loss)..............................           (239)                425
     Retained earnings..........................................................        153,763             155,362
                                                                                  -------------      --------------
         Total shareholders' equity.............................................        198,947             206,229
              Total liabilities and shareholders' equity........................  $   1,477,051      $    1,417,294
                                                                                  =============      ==============
</TABLE>

   The  accompanying  notes are an integral part of the  consolidated  financial
   statements.

                                       37

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                    RESTATED
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net sales and revenues from:
     Product sales (including excise taxes)...............    $   1,386,388       $   1,470,132      $    1,587,751
     Leasing operations...................................           70,006              65,476              56,943
     Insurance operations.................................           27,968              27,335              27,020
                                                              -------------       -------------      --------------
         Total net sales and revenues.....................        1,484,362           1,562,943           1,671,714
                                                              -------------       -------------      --------------

Cost and expenses from:
     Products and plant operations........................        1,268,899           1,346,276           1,471,885
     Leasing operations...................................           27,626              26,871              23,486
     Insurance operations.................................           17,152              16,653              16,437
     Selling, general and administrative activities.......          152,221             131,413             131,116
                                                              -------------       -------------      --------------
         Total operating costs and expenses...............        1,465,898           1,521,213           1,642,924
                                                              -------------       -------------      --------------

Operating earnings........................................           18,464              41,730              28,790
Interest expense, net of interest income of $9,140,
     $10,032, and $9,976, respectively....................          (32,286)            (30,825)            (30,970)
Other income, net.........................................           19,790              13,361              18,763
                                                              -------------       -------------      --------------
Earnings from operations before income taxes..............            5,968              24,266              16,583
Income tax expense........................................           (4,173)            (12,077)             (5,913)
                                                              -------------       -------------      --------------

Earnings before cumulative effect of an accounting
     change...............................................            1,795              12,189              10,670
                                                              -------------       -------------      --------------

Cumulative effect of accounting change, net of tax
     expense of $16,500...................................                0              28,956                   0
                                                              -------------       -------------      --------------

Net earnings..............................................    $       1,795       $      41,145      $       10,670
                                                              =============       =============      ==============

</TABLE>
















The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       38

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                    RESTATED
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net earnings .............................................    $      1,795        $     41,145       $      10,670

Othercomprehensive   income,   net  of  tax:
   Unrealized gains (losses)  on available-for-sale
   securities:
         Unrealized holding gains (losses) arising
             during period................................            (685)                660                 413
         Reclassification adjustment for losses included
             in  net income...............................              21                  45                  11
                                                              -------------       -------------      --------------
Other comprehensive income(loss) .........................            (664)                705                 424
                                                              -------------       -------------      --------------

Comprehensive income......................................    $      1,131        $     41,850       $      11,094
                                                              =============       =============      ==============



</TABLE>































 The  accompanying  notes are an  integral  part of the  consolidated  financial
 statements.

                                       39

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                 ACCUMULATED
                                                COMMON STOCK                        OTHER
                                               (PAR VALUE $25)      PREFERRED    COMPREHENSIVE      RETAINED
                                              SHARES     AMOUNT       STOCK       INC (LOSS)        EARNINGS         TOTAL
                                            ---------   ----------  -----------  -------------     ----------    -------------
<S>                                         <C>         <C>         <C>          <C>               <C>           <C>
Balance June 30, 1996.....................   107,574    $   2,689   $   59,319   $       (704)     $  111,418    $     172,722

      Net earnings........................                                                             10,670           10,670
      Dividends declared..................                                                             (4,237)          (4,237)
      Redeemed, net.......................    (2,022)         (50)      (1,778)                                         (1,828)
      Other comprehensive income..........                                                424               0              424
                                            ---------   ----------  -----------  -------------     ----------    -------------

Balance June 30, 1997.....................   105,552        2,639       57,541           (280)        117,851          177,751

      Net earnings, as restated...........                                                             41,145           41,145
      Dividends declared..................                                                             (3,634)          (3,634)
      Redeemed, net.......................    (2,714)         (68)      (9,670)                                         (9,738)
      Other comprehensive income..........                                                705               0              705
                                            ---------   ----------  -----------  -------------     -----------   --------------

Balance June 30, 1998, as restated........   102,838        2,571       47,871            425         155,362          206,229

      Net earnings........................                                                              1,795            1,795
      Dividends declared..................                                                             (3,394)          (3,394)
      Redeemed, net.......................    (2,597)         (65)      (4,954)                                         (5,019)
      Other comprehensive income..........                                               (664)              0             (664)
                                            ---------   ----------  -----------  -------------     -----------   --------------

Balance June 30, 1999.....................   100,241    $   2,506   $   42,917   $       (239)     $  153,763    $     198,947
                                            =========   ==========  ===========  =============     ===========   ==============

</TABLE>
Common shares,  purchased at par value, held in Treasury at June 30 were: 72,465
in 1999;  69,427 in 1998;  66,240 in 1997. A common stock  dividend per share of
$1.50 was declared for 1999, 1998 and 1997.  Dividend payments are restricted to
a maximum of 8% of par value per annum. See Note 12 for the details of preferred
stock activity.




















The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       40

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                    RESTATED
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
   Net earnings ..........................................    $      1,795        $     41,145       $      10,670
   Adjustments to reconcile earnings to net cash:
       Depreciation and amortization......................          26,676              28,797              29,831
       Receivables and other asset provisions.............          11,194              11,390              10,341
       Net pension income.................................         (21,368)            (31,909)            (14,871)
       Cumulative effect of accounting change, net of tax.               0             (28,956)                  0
       Patronage refund received in stock.................            (992)             (2,494)             (4,984)
       Deferred income tax expense........................           4,251              25,768               4,795
       (Gain) loss on disposition of:
           Businesses......................................        (11,097)                  0                (360)
           Other security investments.....................           1,267                   0                   0
           Properties and equipment.......................            (401)             (1,210)             (2,613)
       Changes in assets and liabilities,  net of effects
       of businesses acquired or sold:
           Receivables....................................          18,020               7,962                (210)
           Inventory......................................           1,225               2,042               6,048
           Payables.......................................             335                 814              (3,278)
           Other..........................................            (406)             (9,493)            (11,135)
                                                              -------------       -------------      --------------
Net cash flows from operating activities..................          30,499              43,856              24,234

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of properties and equipment..................         (30,250)            (30,952)            (25,745)
   Cash paid for acquisitions.............................          (8,030)             (2,969)             (2,178)
   Disposition of properties and equipment................           4,972               8,770              11,429
   Purchases of marketable securities available for sale..          (6,333)            (12,529)            (25,084)
   Sale of marketable securities available for sale.......           6,982              12,407              24,037
   Leases originated......................................        (252,107)           (227,270)           (231,006)
   Leases repaid..........................................         188,637             169,827             151,851
   Purchases of investments in related cooperatives.......          (2,172)             (2,601)             (4,657)
   Proceeds from sale of investments in related
   cooperatives...........................................           2,648               2,986               2,381
   Proceeds from disposal of businesses...................          14,150                   0              21,958
                                                              -------------       -------------      --------------
Net cash flows used in investing activities...............         (81,503)            (82,331)            (77,014)

CASH FLOWS FROM FINANCING ACTIVITIES:
   Net change in short-term borrowing.....................          16,480               5,510              (3,000)
   Proceeds from long-term debt...........................         113,852             133,837             132,771
   Repayment of long-term debt............................         (94,722)           (110,644)            (91,394)
   Proceeds from sale of subordinated debentures..........         133,948             118,371              63,086
   Redemption of subordinated debt........................        (109,842)            (94,302)            (39,887)
   Payments on capitalized leases.........................            (161)               (617)             (2,671)
   Proceeds from sale of stock............................              45                  18               2,291
   Redemption of stock....................................          (5,064)             (9,755)             (4,119)
   Cash dividends paid....................................          (3,532)             (3,943)             (4,297)
                                                              -------------       -------------      --------------

Net cash flows from financing activities..................          51,004              38,475              52,780
                                                              -------------       -------------      --------------
Net increase (decrease) in cash and equivalents...........               0                   0                   0
Cash and equivalents at beginning of year.................               0                   0                   0
                                                              -------------       -------------      --------------
Cash and equivalents at end of year.......................    $          0        $          0       $           0
                                                              =============       =============      ==============

</TABLE>

The  accompanying  notes  are an  integral  part of the  consolidated  financial
statements.

                                       41

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization
Agway Inc. was incorporated  under the Delaware General  Corporation Law in 1964
and is headquartered in DeWitt,  New York. Agway is an agricultural  cooperative
directly  engaged in  manufacturing,  processing,  distribution and marketing of
agricultural feed and agronomic products and services for its farmer-members and
other  customers,  primarily  in the  northeastern  United  States and Ohio.  In
addition, Agway is involved in retail and wholesale sales of farm supplies, yard
and garden  products,  pet food  and  pet  supplies;  repackaging  and marketing
produce; and processing and marketing sunflower seeds. Agway, through certain of
its subsidiaries,  is involved in the distribution of petroleum products;  lease
financing;  the  underwriting and sale of certain types of property and casualty
insurance; and the sale of health insurance.

Fiscal Year
The fiscal  year-end is on the last  Saturday in June.  Fiscal  years ended June
1999, 1998 and 1997 were comprised of 52 weeks.

Basis of Consolidation
The consolidated  financial  statements include the accounts of all wholly owned
subsidiaries.  All significant intercompany  transactions and balances have been
eliminated in consolidation.

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

Cash and Equivalents
Agway  considers  all  investments  with a maturity of three months or less when
purchased to be cash equivalents.

Leases Receivable
Telmark lease  contracts,  which qualify as direct  finance leases as defined by
Statement of  Financial  Accounting  Standards  (SFAS) No. 13,  "Accounting  for
Leases," are  accounted  for by recording on the balance  sheet the total future
minimum lease  payments  receivable,  plus the estimated  unguaranteed  residual
value of leased  equipment,  less the  unearned  interest  and finance  charges.
Unearned  interest and finance charges  represent the excess of the total future
minimum lease payments plus the estimated  unguaranteed  residual value expected
to be  realized  at the end of the  lease  term  over  the  cost of the  related
equipment. Interest and finance charge income is recognized as revenue, by using
the interest  method over the term of the lease,  which for most  commercial and
agricultural  leases  is 60 months or less  with a  maximum  of 180  months  for
buildings.  Income recognition is suspended on all leases and notes which become
past due greater than 120 days.  Initial direct costs incurred in consummating a
lease are  capitalized  as part of the  investment in direct  finance leases and
amortized over the lease term as a reduction in the yield. Provisions for credit
losses are charged to income in amounts  sufficient to maintain the allowance at
a level considered adequate to cover losses in the existing  portfolio.  The net
investment  in a lease is charged  against the  allowance for credit losses when
determined to be uncollectible, generally within one year of becoming past due.

Inventories
Inventories  are  stated  at the  lower  of cost or  market,  except  for  grain
inventories  associated with Agriculture's  grain marketing  program,  which are
marked to market.  For those inventories stated at cost, we use the average unit
cost or the first-in, first-out method.


                                       42

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Commodity Instruments
Commodity  instrument  contracts designated at inception as a hedge, where there
is a direct  relationship  to the  price  risk  associated  with the  underlying
exposure,  are  accounted for under the deferral  method,  with gains and losses
from hedging  activity and premiums  paid for option  contracts  included in the
cost of  sales  as  those  inventories  are  sold or as the  anticipated  hedged
transaction  occurs.  Gains  and  losses  on  early  terminations  of  commodity
instrument  contracts  designated as hedges are deferred and included in cost of
sales  in the  same  period  as the  hedged  transaction.  Commodity  instrument
contracts not designated as effective  hedges of firm commitments or anticipated
underlying transactions are marked to market at the end of the reporting period,
with the resulting gains or losses recognized in cost of sales.

Marketable Securities
All  marketable  debt  securities,  which relate  entirely to Agway's  Insurance
operations,  are  classified  as  available  for sale and carried at fair value.
Unrealized  gains and losses,  net of tax,  are  reported in  accumulated  other
comprehensive income (loss).

Other Security Investments
Other security  investments  consist of capital stock of a cooperative  bank and
other cooperative  suppliers  acquired at par or stated value. This stock is not
traded and is  historically  redeemed on a periodic basis by the issuer at cost.
By its nature,  this stock is held to  redemption  and is  reported at cost.  We
believe it is not  practical  to  estimate  the fair value of these  investments
since there is no established  market and it is inappropriate to estimate future
cash flows which are largely  dependent  on future  earnings of the  cooperative
bank and other cooperative suppliers.

Patronage refunds received from the cooperative bank are recorded as a reduction
of interest expense and totaled  approximately $1,400, $1,600 and $1,200 for the
years  ended  June 30,  1999,  1998 and 1997,  respectively.  Patronage  refunds
received on the stock of other cooperatives are reflected in other income.

Properties and Equipment
Properties and equipment are recorded at cost. Depreciation and amortization are
charged to operations,  principally on a straight-line basis, over the estimated
useful lives of the properties and equipment, and over the term of the lease for
capital  leases.  Ordinary  maintenance and repairs are charged to operations as
incurred.  Gains and losses on disposition or retirement of assets are reflected
in income as incurred.

Other Assets
Other assets include approximately $15,000 and $9,100 at June 30, 1999 and 1998,
respectively,  of  costs in  excess  of the fair  value of net  tangible  assets
acquired in purchase  transactions  (goodwill)  as well as acquired  non-compete
agreements, customer lists, and trademarks. Goodwill and other intangible assets
are amortized on a straight-line  basis ($2,900 over 1 to 10 years,  $8,900 over
15 to 20 years,  and $3,200 over 40 years).  Amortization  included in operating
results totaled  approximately $1,700, $1,400 and $1,100 for fiscal years ending
June 30,  1999,  1998 and 1997,  respectively.  Other  assets are  reviewed  for
impairment, as described under Impairment of Long-Lived Assets below.

Impairment of Long-Lived Assets
Long-lived assets and certain identifiable intangibles to be held and used by an
entity  are  to be  reviewed  for  impairment  whenever  events  or  changes  in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If the sum of the expected future  undiscounted cash flows is less
than the carrying amount of the asset, an impairment loss is recognized.  Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less cost to sell.  The  pre-tax  charge for  impairment  is  included  in other
income,  net, on the  consolidated  statements of  operations  and totaled $700,
$2,200 and $1,700 in 1999, 1998 and 1997, respectively.


                                       43

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Environmental Remediation Costs
Agway accrues for losses associated with environmental  remediation  obligations
when such losses are probable and reasonably  estimable.  Accruals for estimated
losses from environmental  remediation  obligations  generally are recognized no
later than  completion  of the remedial  feasibility  study.  Such  accruals are
adjusted as further  information  develops  or  circumstances  change.  Costs of
future expenditures for environmental remediation obligations are not discounted
to their present value. Recoveries of environmental remediation costs from other
parties are  recorded as assets when their  receipt is deemed  probable  and the
amount is reasonably estimable.

Excise Taxes
Excise taxes included in product sales were approximately  $25,300,  $28,900 and
$31,400 for the years ended June 30, 1999, 1998 and 1997, respectively.

Advertising/Research and Development Costs
Agway  expenses  advertising  and  research  and  development  costs as they are
incurred.  Advertising  expense for the years ended June 30, 1999, 1998 and 1997
was approximately $8,300,  $11,800 and $10,800,  respectively.  Net research and
development costs were approximately  $1,800,  $400 and $700 for the years ended
June 30, 1999, 1998 and 1997, respectively.

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

Patronage Refunds
Patronage  refunds  are  declared  and paid at the  discretion  of the  Board of
Directors in accordance  with the  provision of the By-laws of Agway.  Patronage
refunds are based on taxable earnings on patronage  business and, when declared,
are paid in cash.

Use of Estimates
The preparation of financial  statements in conformity  with generally  accepted
accounting principles requires management to make estimates and assumptions that
affect  the  reported  amounts  of assets  and  liabilities  and  disclosure  of
contingent  assets and  liabilities at the date of the financial  statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.

Future Accounting Requirements
In June 1998,  the  Financial  Accounting  Standards  Board issued 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.  In June 1999,  SFAS No. 137 was issued,  which  deferred the
effective date of SFAS No. 133 to all fiscal  quarters of fiscal years beginning
after June 15, 2000. At the present time, Agway has not completed its evaluation
of the impact that the  adoption  of SFAS No. 133 will have on its  consolidated
financial statements.


                                       44

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Comprehensive Income
Effective  July 1, 1998,  Agway adopted SFAS No. 130,  "Reporting  Comprehensive
Income." This statement  requires a 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.

2.  AGWAY FINANCIAL CORPORATION

Agway  Financial  Corporation  (AFC), a wholly owned  subsidiary of Agway,  is a
Delaware  corporation  incorporated  in 1986 with  principal  executive  offices
located in Wilmington,  Delaware. AFC's principal business activities consist of
securing  financing  through bank  borrowings  and  issuance of  corporate  debt
instruments to provide funds for general  corporate  purposes to Agway and AFC's
wholly owned subsidiary, Agway Holdings Inc. (AHI), and AHI's subsidiaries.  The
payment of principal and interest on this AFC debt is guaranteed by Agway.  This
guarantee  is  full  and  unconditional,  and  joint  and  several.  Telmark and
Insurance finance their activities  through  operations  or  with a  combination
of short- and long-term credit facilities.

Major  holdings  of AHI  include  Agway  Energy  Products  LLC and Agway  Energy
Services  Inc. (Energy), Telmark LLC and its subsidiaries  (Leasing),  and Agway
Insurance Company and Agway General Agency Inc. (Insurance).  Effective June 26,
1999, Agway Consumer Products Inc., a Delaware corporation and former holding of
AHI, was merged into Agway Inc. Agway Consumer Products Inc. held the assets and
business operations of the former Retail segment and certain assets and business
operations of the Country Products Group and Agriculture. This merger into Agway
aligns the legal  structure more closely with the management  structure of Agway
and facilitates the ability to manage these assets and businesses prospectively.
The 1998 and 1997 results as shown  below  have  been  restated  to reflect this
merger.

In exemptive relief granted pursuant to a "no action letter" issued by the staff
of the SEC, AFC is not required to file periodic reports with the SEC for itself
but does report summarized financial  information in Agway's financial statement
footnotes.  However,  as  required  by the 1934 Act,  the  summarized  financial
information concerning AFC and consolidated subsidiaries,  as of the fiscal year
ended June 30, is as follows:
<TABLE>
<CAPTION>
                                                                                    Restated             Restated
                                                                   1999               1998                1997
                                                               -------------      -------------      --------------
<S>                                                            <C>                <C>                <C>
Net sales and revenues......................................   $     580,883      $     625,555      $      698,021
Operating earnings..........................................          46,120             46,248              37,876
Net earnings (loss).........................................          (6,659)              (765)             11,053

                                                                                     Restated
                                                                   1999               1998
                                                               -------------      -------------
Current assets..............................................   $     567,602      $     561,999
Properties and equipment, net...............................          86,018             90,487
Noncurrent assets...........................................         557,688            446,885
                                                               -------------      -------------
Total assets................................................   $   1,211,308      $   1,099,371
                                                               =============      =============

Current liabilities.........................................   $      67,391      $       8,725
Short-term notes payable....................................          81,800             65,100
Current portion of long-term debt...........................         169,236            170,477
Long-term debt..............................................         264,021            245,819
Subordinated debt...........................................         409,335            386,607
Noncurrent liabilities......................................          23,262             22,757
Shareholder's equity........................................         196,263            199,886
                                                               -------------      -------------
Total liabilities and shareholder's equity                     $   1,211,308      $   1,099,371
                                                               =============      =============
</TABLE>

                                       45

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


3.  LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Net investments in leases at June 30 were as follows:
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  -------------      -------------
<S>                                                                               <C>                <C>
Leases (minimum payments):
     Commercial and agricultural................................................  $     739,866      $     667,050
     Retail.....................................................................         28,349             21,464
                                                                                  -------------      -------------
         Total leases...........................................................        768,215            688,514
Unearned interest and finance charges...........................................       (198,953)          (175,769)
Net deferred origination costs..................................................         11,591              9,596
                                                                                  -------------      -------------
     Net investment.............................................................        580,853            522,341
Allowance for credit losses.....................................................        (29,978)           (27,071)
                                                                                  -------------      -------------
     Net leases receivable......................................................  $     550,875      $     495,270
                                                                                  =============      =============
</TABLE>
Included within the above are estimated  unguaranteed  residual values of leased
property   approximating  $82,100  and  $72,400  at  June  30,  1999  and  1998,
respectively.  Additionally,  as of June 30, 1999 and 1998,  the  recognition of
interest income was suspended on approximately $4,900 and $3,000,  respectively,
of net leases.

Contractual maturities of leases (minimum payments) over the next five years and
thereafter were as follows at June 30, 1999: $220,000 in 2000; $171,400 in 2001;
$126,500 in 2002; $83,500 in 2003; $51,800 in 2004; and $115,000 thereafter.


4.  INVENTORIES

Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>

                                                                                      1999                1998
                                                                                 --------------      -------------
<S>                                                                              <C>                 <C>
Finished goods................................................................   $     137,348       $     139,861
Raw materials.................................................................           6,892               7,576
Supplies......................................................................           1,826               1,777
                                                                                 --------------      -------------
     Total inventories........................................................   $     146,066       $     149,214
                                                                                 ==============      =============
</TABLE>




                                       46

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


5.  MARKETABLE SECURITIES

All marketable debt securities relate entirely to Agway's  insurance  operations
and are  classified as  available-for-sale  marketable  securities.  At June 30,
1999,  we did not hold any debt from a single issuer that exceeded 10 percent of
shareholders' equity. Marketable securities are summarized as follows:
<TABLE>
<CAPTION>
                                                                            Gross        Gross
                                                          Amortized      Unrealized    Unrealized        Fair
                                                            Cost            Gains        Losses          Value
                                                         -----------     ----------   -----------    ------------
<S>                                                      <C>             <C>          <C>            <C>
June 30, 1999
-------------
U.S. government securities and obligations.........      $     3,842     $       12   $      (95)    $     3,759
Mortgage-backed securities.........................           13,116             40         (136)         13,020
Corporate securities...............................           18,504             36         (220)         18,320
                                                         -----------     ----------   -----------    ------------
    Total available-for-sale marketable securities.      $    35,462     $       88   $     (451)    $    35,099
                                                         ===========     ==========   ===========    ============


                                                                            Gross        Gross
                                                          Amortized      Unrealized    Unrealized        Fair
                                                            Cost            Gains        Losses          Value
                                                         -----------     ----------   -----------    ------------
June 30, 1998
-------------
U.S. government securities and obligations               $     3,211     $       18   $      (32)    $     3,197
Mortgage-backed securities.........................           12,937            284            0          13,221
Corporate securities...............................           19,621            388          (15)         19,994
                                                         -----------     ----------   -----------    ------------
    Total available-for-sale marketable securities.      $    35,769     $      690   $      (47)    $    36,412
                                                         ===========     ==========   ===========    ============
</TABLE>
The cost of  securities  sold is based on the  specific  identification  method.
Realized gains and losses, declines in value judged to be  other-than-temporary,
and interest and dividends are included in income.  Gross gains of approximately
$4, $81 and $200 were  realized on sales of debt  securities  in 1999,  1998 and
1997,  respectively.  Gross losses realized on sales of debt securities  totaled
approximately $36, $150 and $200 in 1999, 1998 and 1997, respectively.

The amortized cost and the fair value of  available-for-sale  debt securities at
June 30, 1999, by contractual  maturity,  are shown below.  Expected  maturities
will differ from contractual  maturities because borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties.
<TABLE>
<CAPTION>
                                                                                         Amortized        Fair
                                                                                           Cost           Value
                                                                                      -------------   -------------
<S>                                                                                   <C>             <C>
Due within one year or less.......................................................    $         65    $         65
Due after one year through five years.............................................           6,557           6,553
Due after five years through ten years............................................          12,195          12,009
Due after ten years...............................................................          16,645          16,472
                                                                                      -------------   -------------
                                                                                      $     35,462    $     35,099
                                                                                      =============   =============
</TABLE>

                                       47

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


6.  OTHER SECURITY INVESTMENTS

Other security investments at June 30 consist of the following:
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  -------------      -------------
<S>                                                                               <C>                <C>
CF Industries, Inc..............................................................  $     25,260       $      25,260
CoBank, ACB.....................................................................        17,445              18,940
Other...........................................................................         8,305               7,561
                                                                                  -------------      -------------
                                                                                  $     51,010       $      51,761
                                                                                  =============      =============
</TABLE>

7.  PROPERTIES AND EQUIPMENT

Properties and equipment,  at cost,  including  capital  leases,  consist of the
following at:
<TABLE>
<CAPTION>
                                                                   Owned             Leased             Combined
                                                              --------------      -------------      -------------
<S>                                                           <C>                 <C>                <C>
June 30, 1999
-------------
Land and land improvements..................................  $      35,599       $          0       $      35,599
Buildings and leasehold improvements........................        139,398              5,968             145,366
Machinery and equipment.....................................        333,185                473             333,658
Capital projects in progress................................         19,042                  0              19,042
                                                              --------------      -------------      -------------
                                                                    527,224              6,441             533,665
Less: accumulated depreciation and amortization.............        314,502              3,738             318,240
                                                              --------------      -------------      -------------

Properties and equipment, net...............................  $     212,722       $      2,703       $     215,425
                                                              ==============      =============      =============


                                                                   Owned             Leased             Combined
                                                              --------------      -------------      -------------
June 30, 1998
-------------
Land and land improvements..................................  $      35,290       $          0       $      35,290
Buildings and leasehold improvements........................        136,163              5,350             141,513
Machinery and equipment.....................................        326,351                780             327,131
Capital projects in progress................................         11,966                  0              11,966
                                                              --------------      -------------      -------------
                                                                    509,770              6,130             515,900

Less: accumulated depreciation and amortization.............        298,355              3,750             302,105
                                                              --------------      -------------      -------------

Properties and equipment, net...............................  $     211,415       $      2,380       $     213,795
                                                              ==============      =============      =============
</TABLE>
Depreciation  and  amortization  expense  relating to  properties  and equipment
amounted to approximately  $24,900,  $27,400 and $28,800 in 1999, 1998 and 1997,
respectively.


                                       48

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


8.  INCOME TAXES

The provision for income taxes as of June 30 consists of the following:
<TABLE>
<CAPTION>
                                                                                    Restated
                                                                   1999               1998                1997
                                                              -------------       -------------      -------------
<S>                                                           <C>                 <C>                <C>
Continuing operations:
     Current:
         Federal..........................................    $      (1,255)      $     (1,131)      $      (2,226)
         State............................................            1,177              3,940               3,344
     Deferred.............................................            4,251              9,268               5,676
     (Decrease) increase in valuation allowance...........                0                  0                (881)
                                                              -------------       -------------      --------------
                                                              $       4,173       $     12,077       $       5,913
                                                              =============       =============      ==============
</TABLE>
The deferred tax provision on the cumulative effect of accounting change in 1998
was $16,500.

The effective  income tax rate on earnings from  operations  before income taxes
differs from the federal statutory regular tax rate as of June 30 as follows:
<TABLE>
<CAPTION>
                                                                                    Restated
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Statutory federal income tax rate.........................            35.0%              35.0%               35.0%

Tax effects of:
     State income taxes, net of federal benefit (1).......            22.3               14.1                14.0
     Nondeductible items (2)..............................            13.6                2.6                 2.2
     Adjustment to prior years' tax liabilities...........            (3.4)              (2.2)              (10.8)
     Other items..........................................             2.4                0.3                (4.7)
                                                              -------------       -------------      --------------
         Effective income tax rate........................            69.9%              49.8%               35.7%
                                                              =============       =============      ==============
</TABLE>
(1)      For state income tax purposes,  Agway does not file combined income tax
         returns and is therefore unable to recognize the benefit of certain net
         operating losses incurred by subsidiaries.

(2) Nondeductible items are principally related to goodwill amortization.

                                       49

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


8.  INCOME TAXES (CONTINUED)

The components of the deferred tax assets and  liabilities as of June 30 were as
follows:
<TABLE>
<CAPTION>
                                                                                                       Restated
                                                                                      1999                1998
                                                                                  ------------       -------------
<S>                                                                               <C>                <C>
Deferred tax assets:
     Net operating loss (NOL) carryforward......................................  $     15,324       $       8,771
     Other liabilities and reserves.............................................        12,501              14,849
     Medical reserves...........................................................         9,517               9,477
     Self-insurance reserves....................................................         8,268               7,190
     Alternative minimum tax (AMT) credit carryforward..........................         6,005               6,960
     Deferred compensation......................................................         4,977               4,647
     Inventory reserves.........................................................         4,351               4,250
     Accounts receivable........................................................         2,681               3,025
     Environmental reserve......................................................         2,261               3,066
     Investment tax credit (ITC) carryforward...................................         1,604               2,072
     Leases receivable..........................................................         1,123               3,043
                                                                                  ------------       -------------
         Total net deferred tax asset...........................................        68,612              67,350
                                                                                  ------------       -------------

Deferred tax liabilities:
     Pension assets.............................................................        71,231              63,551
     Excess of tax over book depreciation.......................................        14,970              16,233
     Prepaid medical expenses...................................................         6,212               6,522
     Other assets...............................................................         1,684               2,278
                                                                                  ------------       -------------
         Total deferred tax liability...........................................        94,097              88,584
                                                                                  -------------      -------------
              Net deferred tax liability........................................  $    (25,485)      $     (21,234)
                                                                                  =============      =============
</TABLE>
Agway's  net  deferred  tax  (liability)  asset at June 30,  1999 and  1998,  of
$(25,485)  and  $(21,234),  respectively,  consists  of a net  current  asset of
$24,858 and $23,693 included in prepaid  expenses and a net long-term  liability
of $50,343 and $44,927  included  in other  liabilities  as of June 30, 1999 and
1998,  respectively.  Based on  Agway's  history  of  taxable  earnings  and our
expectations  for the future,  management has determined  that operating  income
will likely be sufficient to recognize all of its deferred tax asset.

At June 30, 1999,  the federal AMT credit can be carried  forward  indefinitely.
The  net  operating  loss  (NOL)  carryforward  expires  in  2019,  and  the ITC
carryforward expires in 2002 and 2003.


                                       50

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  SHORT-TERM NOTES PAYABLE

As of June 30,  1999,  Agway  had  certain  facilities  available  with  various
financial  institutions  whereby  lenders  have  agreed to  provide  funds up to
$380,000 to  separately  financed  units of Agway as follows:  AFC - $65,000 and
Telmark - $315,000.  The AFC amount is a $50,000 short-term line of credit and a
$15,000 term  revolver.  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.  The bank has agreed to increase AFC's  short-term  line of credit to
$75,000 on October 1, 1999,  to  provide a  facility  for  interim  funding,  if
necessary,  for maturing subordinated debt. Letters of credit of $28,100,  which
are primarily used to back general liability claims,  are also available to AFC.
At June 30, 1999, letters of credit issued totaled  approximately  $18,300.  The
carrying amounts of Agway's short-term  borrowings  approximate their fair value
and were as follows:
<TABLE>
<CAPTION>
                                                                    AFC
                                                                (excluding
                                                                 Telmark)            Telmark              Total
                                                              -------------       ------------       -------------
<S>                                                           <C>                 <C>                <C>
June 30, 1999
-------------
Bank lines of credit........................................  $          0        $     43,300       $      43,300
Commercial paper............................................        38,500                   0              38,500
                                                              -------------       ------------       -------------
                                                              $     38,500        $     43,300       $      81,800
                                                              =============       ============       =============
Weighted average interest rate..............................          5.0%                5.8%
                                                              =============       ============

                                                                    AFC
                                                                (excluding
                                                                 Telmark)            Telmark              Total
                                                              -------------       ------------       -------------
June 30, 1998
-------------
Bank lines of credit........................................  $          0        $     35,000       $      35,000
Commercial paper............................................        30,100                   0              30,100
                                                              -------------       ------------       -------------
                                                              $     30,100        $     35,000       $      65,100
                                                              =============       ============       =============
Weighted average interest rate..............................          5.6%                6.3%
                                                              =============       ============
</TABLE>
The interest rate charged on commercial paper  outstanding was 5.02% at June 30,
1999, and ranged from 5.56% to 5.62% at June 30, 1998.

The $50,000  short-term line of credit and the $50,000 commercial paper facility
available  to AFC at  June  30,  1999,  as well as the  term  revolver,  require
collateralization using certain of Agway's accounts receivable and non-petroleum
inventories  (collateral).  Amounts that can be drawn under these AFC agreements
are  subject to a  limitation  based on a specific  calculation  relating to the
collateral available.  Adequate collateral existed throughout 1999 to permit AFC
to borrow  amounts to meet the  ongoing  needs of Agway.  The line of credit and
term revolver additionally require Agway's investment in bank stock, which had a
book  value of $4,700  and $7,100 at June 30,  1999 and 1998,  respectively,  as
additional  collateral.  In addition,  the agreements include certain covenants,
the most  restrictive  of which requires  Agway to maintain  specific  quarterly
levels of interest coverage and monthly levels of tangible retained earnings. At
June  30,  1999,  Agway  violated  its  interest   coverage   covenant  but  has
subsequently  obtained  waivers  from its lenders  for June 1999 and  amendments
through the term of the  agreements.  In  addition,  due to the  restatement  of
financial  results,  as described in the  Management's  Discussion  and Analysis
(MD&A)  and in Note 17 to the financial statements,  Agway  violated  certain of
its covenants in its loan agreements, including the interest  coverage  covenant
as  of  December 1998 and March  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.  AFC annually renews its line of credit and commercial  paper
program in the quarter ended December 31.  AFC  bank  lines of credit (short and
long-term) and  commercial  paper  facilities  are  available  to  Agway through
December 1999.

                                       51

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


9.  SHORT-TERM NOTES PAYABLE (CONTINUED)

Telmark  borrows under  short-term  line of credit  agreements 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 agreements permit Telmark to borrow up to
$65,000 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 term loan facility  permits Telmark to draw short-term
funds  bearing  interest at money market rates or draw  long-term  debt at rates
appropriate for the term of the note drawn.  The facility is  collateralized  by
Telmark's  investment  in the bank stock,  which has a book value of $12,800 and
$11,900 at June 30, 1999 and 1998, respectively. The $65,000 lines of credit all
have terms expiring during the next 12 months. The total amounts  outstanding as
of June 30,  1999 and  1998,  under  the  short-term  lines  of  credit  and the
short-term component of the revolving term loan facility were $35,000 and $8,300
and $20,000 and $15,000,  respectively.  The portion of the revolving  term loan
that is long  term at June  30,  1999  and  1998,  was  $148,000  and  $150,000,
respectively.

10.  DEBT

Long-Term Debt:

Long-term debt consists of the following at June 30, 1999:
<TABLE>
<CAPTION>
                                                                            AFC
                                                                        (excluding
                                                            Agway        Telmark)         Telmark         Total
                                                       --------------  -------------  -------------   ------------
<S>                                                    <C>             <C>            <C>             <C>
Notes payable - banks (a)...........................   $           0   $      1,225   $    148,000    $    149,225
Notes payable - insurance companies (b)(c)..........               0              0        204,801         204,801
Other...............................................          14,747          2,263              0          17,010
                                                       --------------  -------------  -------------   ------------
Subtotal long-term debt, excluding capital leases...          14,747          3,488        352,801         371,036
Obligations under capital leases....................           3,080              0              0           3,080
                                                       --------------  -------------  -------------   ------------
Total long-term debt................................          17,827          3,488        352,801         374,116
Less: current portion...............................           2,431            807         91,461          94,699
                                                       --------------  -------------  -------------   ------------
                                                       $      15,396   $      2,681   $    261,340    $    279,417
                                                       ==============  =============  =============   ============

Long-term debt consists of the following
 at June 30, 1998:

                                                                         Restated*
                                                                            AFC
                                                          Restated*      (excluding
                                                            Agway         Telmark)         Telmark         Total
                                                       --------------  -------------  -------------   ------------
Notes payable - banks ..............................   $           0   $      1,925   $    150,000    $    151,925
Notes payable - insurance companies.................               0              0        186,660         186,660
Other...............................................          11,216          2,105              0          13,321
                                                       --------------  -------------  -------------   ------------
Subtotal long-term debt, excluding capital leases...          11,216          4,030        336,660         351,906
Obligations under capital leases....................           2,606              0             17           2,623
                                                       --------------  -------------  -------------   ------------
Total long-term debt................................          13,822          4,030        336,677         354,529
Less: current portion...............................           4,285          1,302         93,586          99,173
                                                       --------------  -------------  -------------   ------------
                                                       $       9,537   $      2,728   $    243,091    $    255,356
                                                       ==============  =============  =============   ============
</TABLE>

*See Note 2.

                                       52

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


10.  DEBT (CONTINUED)

(a)  Under Telmark's revolving term loan facility at June 30, 1999, principal of
     $148,000  bears  interest  at fixed  rates  ranging  from  5.56% to  7.67%,
     payments  commencing August 1999 with final installments due in April 2004.
     The facility is collateralized  by Telmark's  investment in the bank stock,
     which has a book value of $12,800  and  $11,900 at June 30,  1999 and 1998,
     respectively.

     As of June 30, 1999,  under an AFC loan agreement  bearing an interest rate
     of 8.58%,  principal of $1,225 is payable in quarterly installments of $175
     commencing  August 1999 and ending in February  2001. The AFC bank notes of
     $1,225, the term revolver, and amounts outstanding on AFC's short-term line
     of credit and commercial  paper facility are  collateralized  by certain of
     Agway's  accounts  receivable  and  non-petroleum  inventories  as  well as
     Agway's  investment in the bank stock (see Note 9). The AFC debt agreements
     contain a number of restrictive  financial covenants,  the most restrictive
     of which requires Agway to maintain  specific  quarterly levels of interest
     coverage  and monthly  levels of tangible  retained  earnings.  At June 30,
     1999,  Agway violated its interest  coverage  covenant but has subsequently
     obtained waivers from its lenders for June 1999 and amendments  through the
     term of the  agreement.  In addition,  due to the  restatement of financial
     results, as described in the MD&A and in Note 17, Agway violated certain of
     its  covenants in its loan  agreements,  including  the  interest  coverage
     covenant  as of  December  1998 and  March  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.  The AFC  loan
     agreement and the term revolver component of AFC's line of credit have loan
     covenants that are integrated with the short-term facilities.

(b)  Under Telmark loan agreements with various insurance  companies,  principal
     of $146,000 bears  interest  at  fixed  rates  ranging  from  6.5% to 7.6%,
     payments commencing November 1999 with  final  installment due in May 2004.
     The note  agreements are similar to each other and  each  contain financial
     covenants,  the most restrictive of which prohibit  Telmark from having (1)
     tangible net worth  less  than  $75,000;  (2)  a  debt-to-equity  ratio (as
     defined)  which exceeds 5:1; (3) a ratio of earnings  available  for  fixed
     charges   less  than  1.25:1;  and  (4)  dividend  distributions   after
     September 30, 1997,  that  exceed  75%  of consolidated  net income for the
     period October 1, 1997,  through the date of determination.

(c)  Telmark,  through a wholly owned special purpose subsidiary,  Telmark Lease
     Funding  I,  LLC,   originally   issued  $24,000  of  Class  A lease-backed
     notes  and  $2,000  of  Class  B lease-backed  notes  to  three  insurance
     companies.  The  subsidiary  pays  interest at 6.6% on the  Class  A  notes
     and 7.0% on the Class B  notes.  The  notes  are collateralized  by  leases
     having  an  aggregate  present  value  of contractual lease payments  equal
     to the principal balance of the notes. The notes are further collateralized
     by  the  residual  values  of these leases. Final scheduled maturity of the
     notes is December 2004.

     In June 1999,  Telmark,  through a wholly owned special purpose subsidiary,
     Telmark  Lease  Funding  II,  LLC,  initially  issued  $44,800  of  Class A
     lease-backed notes and $3,600 of Class B lease-backed notes to an insurance
     company. The subsidiary pays interest at 6.5% on the Class A notes and 7.6%
     on the  Class B notes.  The notes are  collateralized  by leases  having an
     aggregate  present  value  of  contractual  lease  payments  equal  to  the
     principal balance of the notes. The notes are further collateralized by the
     residual value of these leases.  Final  scheduled  maturity of the notes is
     December 2007.



                                       53

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)

10.  DEBT (CONTINUED)

Subordinated Debt:
Subordinated debt consists of the following at June 30, 1999:
<TABLE>
<CAPTION>
                                                                    AFC
                                                                (excluding
                                                                 Telmark)            Telmark              Total
                                                              -------------       ------------       -------------
<S>                                                           <C>                 <C>                <C>
Subordinated debentures, due 1999 to 2003,
     interest at a weighted average rate of 8.1%
     with a range of 7.0% to 8.5%...........................  $      19,711       $     37,633       $      57,344
Subordinated money market certificates,
     due 1999 to 2013, interest at a weighted average
     rate of 8.0% with a range of 4.5% to 9.5%..............        428,959                  0             428,959
                                                              -------------       ------------       -------------
Total long-term subordinated debt...........................        448,670             37,633             486,303
Less:  current portion......................................         58,768             18,200              76,968
                                                              -------------       ------------       -------------
                                                              $     389,902       $     19,433       $     409,335
                                                              =============       ============       =============

Subordinated debt consists of the following at
 June 30, 1998:
                                                                    AFC
                                                                (excluding
                                                                 Telmark)            Telmark              Total
                                                              -------------       ------------       -------------
Subordinated debentures, due 1999 to 2003,
     interest at a weighted average rate of 8.1%
     with a range of 7.0% to 8.5%...........................  $      20,702       $     34,006       $      54,708
Subordinated money market certificates,
     due 1998 to 2008, interest at a weighted average
     rate of 8.2% with a range of 4.5% to 9.5%..............        407,488                  0             407,488
                                                              -------------       ------------       -------------
Total long-term subordinated debt...........................        428,190             34,006             462,196
Less:  current portion......................................         75,589                  0              75,589
                                                              -------------       ------------       -------------
                                                              $     352,601       $     34,006       $     386,607
                                                              =============       ============       =============
</TABLE>
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 AFC
subordinated debt bears interest payable semiannually on January 1 and July 1 of
each year and for  Telmark is payable  quarterly  on January 1, April 1, July 1,
and October 1 of each  relevant  year.  The  interest  rates of AFC money market
certificates and Telmark's debentures are at the greater of the stated rate or a
rate based upon the  discount  rate for U.S.  Government  Treasury  Bills,  with
maturities of 26 weeks.

Maturities:
Aggregate annual  maturities on long-term debt during the next five years ending
June 30 and thereafter are as follows:
<TABLE>
<CAPTION>
                                              Capital                                                 Subordinated
                                              Leases            Borrowings            Total               Debt
                                          ------------        -------------       ------------       -------------
<S>                                       <C>                 <C>                 <C>                <C>
2000....................................  $        456        $      94,445       $     94,901       $      76,968
2001....................................           456               90,042             90,498              53,044
2002....................................           457               76,141             76,598              56,615
2003....................................           458               48,847             49,305              47,053
2004....................................           459               57,725             58,184              43,852
Thereafter..............................         2,527                3,836              6,363             208,771
Imputed interest........................        (1,733)                   0             (1,733)                  0
                                          ------------        -------------       ------------       -------------
Total...................................  $      3,080        $     371,036       $    374,116       $     486,303
                                          ============        =============       ============       =============
</TABLE>
                                       54

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


11.  COMMITMENTS AND CONTINGENCIES

Environmental
Agway  and its  subsidiaries  are  subject  to  various  laws  and  governmental
regulations concerning environmental matters. We expect to be required to expend
funds to participate in the remediation of certain sites,  including sites where
we have  been  designated  by the  Environmental  Protection  Agency  (EPA) as a
potentially  responsible  party  (PRP)  under  the  Comprehensive  Environmental
Response, Compensation, and Liability Act (CERCLA) and at sites with underground
fuel  storage  tanks.  We  will  also  incur  other  expenses   associated  with
environmental compliance.

At June 30, 1999,  Agway 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 we could be required to pay in excess of our pro
rata share of remediation costs. Agway's understanding of the financial strength
of other PRPs at these Superfund sites has been considered,  where  appropriate,
in the determination of our estimated liability.

We continually  monitor our 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  our  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, we believe that past experience provides
a reasonable  basis for  estimating  our  liability.  As additional  information
becomes  available,  estimates  are  adjusted  as  necessary.  While  we do  not
anticipate  that  any  such  adjustment  would  be  material  to  our  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 Agway's liquidity position.

As  part  of  its  long-term  environmental   protection  program,  Agway  spent
approximately  $100 in 1999  on  capital  projects  related  principally  to the
removal of underground storage tanks. Agway expects to have approximate expenses
in the amount of $400 in 2000.

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

Commitments  to extend  credit  at  Agway's  leasing  subsidiary,  Telmark,  are
agreements  to  lend to a  customer  as long as  there  is no  violation  of any
condition  established  in  the  contract.   Commitments  generally  have  fixed
expiration dates or other termination clauses. Since some of the commitments are
expected to expire without being drawn upon, the total commitment amounts do not
necessarily  represent  future cash  requirements.  Outstanding  commitments  to
extend lease financing at June 30, 1999, approximated $12,600.

In 1996,  Agway entered into a long-term  agreement with a third party to manage
its two  retail  distribution  centers.  The  amount of annual  service  fees is
dependent upon the services  provided,  volume of activities  required,  and the
number of  shipping  destinations.  The  estimated  annual  expense  under  this
agreement is approximately $10,000.

                                       55

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


11.  COMMITMENTS AND CONTINGENCIES (CONTINUED)

Rent expense for the years ended June 30, 1999, 1998 and 1997 was  approximately
$17,100,  $14,000 and  $12,000,  respectively.  Future  minimum  payments  under
noncancelable operating leases approximate $14,000,  $12,500,  $12,300,  $12,000
and $11,700 for the years ending June 30, 2000 through 2004,  respectively,  and
approximately $13,500 thereafter.

12.  PREFERRED STOCK

Values are whole numbers except where noted as (000).
<TABLE>
<CAPTION>
                                                                        Preferred Stock
                                      ---------------------------------------------------------------------------
                                                          Cumulative
                                      --------------------------------------------------   Honorary     Dollar
                                           6%           8%           8%         7%         Member       Amount
                                       Series A     Series B     Series B-1   Series C     Series HM    in 000s
                                      -----------  -----------  -----------  -----------  -----------  ----------
<S>                                   <C>          <C>          <C>          <C>          <C>          <C>
Par Value...........................  $      100   $      100   $      100   $      100   $       25
                                      ===========  ===========  ===========  ===========  ===========
Shares Authorized...................     350,000      250,000      140,000      150,000       80,000
                                      ===========  ===========  ===========  ===========  ===========
Shares Outstanding:
   Balance June 30, 1996............     232,911      224,122       19,110      116,443        2,428   $   59,319
     Issued (redeemed), net.........      (2,972)      13,105         (750)     (27,201)         126       (1,778)
                                      -----------  -----------  -----------  -----------  -----------  -----------
   Balance June 30, 1997............     229,939      237,227       18,360       89,242        2,554       57,541
     Issued (redeemed), net.........     (76,763)      (1,081)        (350)     (18,506)          27       (9,670)
                                      -----------  -----------  -----------  -----------  -----------  -----------
   Balance June 30, 1998............     153,176      236,146       18,010       70,736        2,581       47,871
     Issued (redeemed), net.........     (19,405)      (1,357)           0      (28,782)           3       (4,954)
                                      -----------  -----------  -----------  -----------  -----------  -----------
   Balance June 30, 1999............     133,771      234,789       18,010       41,954        2,584   $   42,917
                                      ===========  ===========  ===========  ===========  ===========  ===========
<CAPTION>

                                                        Preferred Stock
                                      -------------------------------------------------------------
                                                          Cumulative
                                      --------------------------------------------------   Honorary
                                           6%          8%           8%           7%        Member
                                        Series A    Series B    Series B-1   Series C      Series HM
                                      ----------   ----------   ----------   ----------   ----------
<S>                                   <C>          <C>          <C>          <C>          <C>
Annual Dividends Per Share:
   June 30, 1997....................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50
   June 30, 1998....................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50
   June 30, 1999....................  $     6.00   $     8.00   $     8.00   $     7.00   $     1.50

Shares Held in Treasury (purchased
at par value):
   June 30, 1997....................     120,061       12,773      121,640       60,758          812
   June 30, 1998....................     196,823       13,854      121,990       79,274          970
   June 30, 1999....................     216,228       23,565      121,990      108,056        1,070
</TABLE>
There are 10,000 shares of authorized preferred stock undesignated as to series,
rate,  and other  attributes.  The Series A preferred  stock has  priority  with
respect to the payment of dividends. Agway maintains the practice of providing a
market by repurchasing,  at par,  preferred stock as the holders elect to tender
the  securities for  repurchase,  subject to Board of Directors'  approval.  The
Series HM preferred  stock may be issued only to former  members of Agway and no
more than one share of such stock may be issued to any one person. The preferred
stock has no pre-emptive or conversion rights.

                                       56

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS

Effective for 1999, Agway adopted SFAS No. 132,  "Employers'  Disclosures  about
Pensions and Other  Postretirement  Benefits."  The  provisions  of SFAS No. 132
revised employers'  disclosures about pension and other  postretirement  benefit
plans.  The statement  does not change the  measurement  or recognition of these
plans. The 1998 disclosures were restated for comparative  purposes, as required
by the statement.

Pension Plan
The  Employees'  Retirement  Plan of Agway Inc.  is a  non-contributory  defined
benefit pension plan covering the majority of employees of Agway Inc. The plan's
benefit  formulae  through June 30,  1998,  based  payment to retired  employees
generally  upon  years  of  credited  service  and a  percentage  of  qualifying
compensation  during the final years of employment.  Effective July 1, 1998, the
plan's  benefit  formulae base payment on a  pension  equity  formula  and also
include   incentive  compensation  as  pensionable  earnings for all  employees.
Generally, pension costs are funded annually at no less than the amount required
by law and no more than the maximum  allowed by federal  income tax  guidelines.
The vested  benefit  obligation is based on the  actuarial  present value of the
benefits that the employee would be entitled to at the expected retirement date.

The majority of the plan's  investments  consist of U.S.  government  and agency
securities,  U.S.  corporate bonds, U.S. and foreign  equities,  equity and bond
funds and  temporary  investments  (short-term  investments  in demand notes and
money market funds). At June 30, 1999 and 1998,  retirement plan assets included
Agway debt  securities and preferred stock with estimated fair values of $18,600
and $10,000, respectively.

The Employees'  Retirement Plan of Agway Inc. has assets that exceed the benefit
obligation.  The following table sets forth the plan's funded status and amounts
recognized  in Agway's  consolidated  financial  statements  at June 30 as a net
pension asset:
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year.........................................  $     332,719      $      301,769
Service cost (with interest)....................................................          9,835               5,373
Interest cost...................................................................         23,948              22,547
Amendments......................................................................         24,772                   0
Special termination benefits....................................................              0                 626
Actuarial (loss) gain...........................................................        (11,042)             25,771
Benefits paid...................................................................        (34,315)            (23,367)
                                                                                  -------------      --------------
Benefit obligation at end of year...............................................  $     345,917      $      332,719
                                                                                  =============      ==============

Change in Plan Assets
---------------------
Fair value of plan assets at beginning of year..................................  $     582,988      $      538,433
Actual return on plan assets....................................................         30,302              67,922
Benefits paid...................................................................        (34,315)            (23,367)
                                                                                  -------------      --------------
Fair value of plan assets at end of year........................................  $     578,975      $      582,988
                                                                                  =============      ==============

Funded status...................................................................  $     233,058      $      250,269
Unrecognized prior service cost.................................................         31,621              11,415
Unrecognized net gain...........................................................        (61,814)            (75,482)
Unrecognized net transition obligation..........................................         (4,705)             (9,410)
                                                                                  -------------      --------------
Net pension asset...............................................................  $     198,160      $      176,792
                                                                                  =============      ==============
</TABLE>
                                       57

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Pension Plan (continued)
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  -------------      -------------
<S>                                                                               <C>                <C>
Components of Net Pension Income
--------------------------------
Service cost (with interest)....................................................  $      9,835       $      5,373
Interest cost...................................................................        23,948             22,547
Expected return on plan assets..................................................       (53,682)           (54,078)
Amortization of:
    Transition obligation.......................................................        (4,705)            (4,705)
    Prior service cost..........................................................         4,566              2,314
    Actuarial gains and losses..................................................        (1,330)            (3,360)
                                                                                  -------------      -------------
Net pension income..............................................................  $    (21,368)      $    (31,909)
                                                                                  =============      =============

Weighted-Average Assumptions as of June 30
------------------------------------------
Discount rate...................................................................          7.50%              7.00%
Expected return on plan assets..................................................          9.50%             10.25%
Rate of compensation increase...................................................          5.00%              5.00%
</TABLE>
Effective  July 1, 1998,  Agway  amended its  pension  plan to include a pension
equity formula,  as well as to recognize  incentive  compensation as pensionable
compensation for all employees.  This amendment increased the benefit obligation
and unrecognized  prior service cost by approximately  $24,800.  The net pension
income for 1999 and in future years is reduced as a result of this amendment.

Effective  July  1,  1997,   Agway  changed  its  method  of   determining   the
market-related   value  of  the  retirement  plan  assets  under  SFAS  No.  87,
"Accounting for Pensions," from a calculated value (one that recognized  changes
in fair market  value of assets  over a number of years) to a fair market  value
method,  which is considered a preferable method to that previously applied. The
cumulative effect of this change in accounting  principle in 1998, net of tax of
$16,500, was $28,956.

Pro forma amounts  (unaudited),  assuming the new accounting  method was applied
during all periods presented, are shown with a comparison to actual results:
<TABLE>
<CAPTION>
                                                                                          Year Ended June 30
                                                                                  ---------------------------------
                                                                                    Restated
                                                                                      1998                1997
                                                                                  ------------       --------------
<S>                                                                               <C>                <C>
Earnings from operations:
     As reported................................................................  $     12,189       $      10,670
     Pro forma..................................................................  $     12,189       $      18,410

Net earnings:
     As reported................................................................  $     41,145       $      10,670
     Pro forma..................................................................  $     12,189       $      18,410
</TABLE>

                                       58

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits
Agway  provides  postretirement  health  care and  life  insurance  benefits  to
eligible  retirees and their  dependents.  Eligibility for benefits depends upon
age and years of service.  Agway's  postretirement benefit plans are not funded.
The accrued  postretirement benefit cost expected to be paid in the next year is
in other current  liabilities,  while the remaining  amount is included in other
liabilities.   The   reconciliation  of  funded  status  and  the  net  periodic
postretirement   benefit  cost  recognized  in  Agway's  consolidated  financial
statements at June 30 were as follows:
<TABLE>
<CAPTION>
                                                                                      1999                1998
                                                                                  -------------     -------------
<S>                                                                               <C>               <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year.........................................  $    (43,985)     $    (42,037)
Service cost (with interest)....................................................          (699)             (601)
Interest cost...................................................................        (3,028)           (3,110)
Plan participant contributions..................................................        (1,563)           (1,551)
Actuarial loss..................................................................          (528)           (2,363)
Benefits paid...................................................................         5,866             5,677
                                                                                  -------------     -------------
Benefit obligation at end of year...............................................  $    (43,937)     $    (43,985)
                                                                                  =============     =============

Funded status...................................................................  $    (43,937)     $    (43,985)
Unrecognized prior service cost.................................................         1,261             1,393
Unrecognized net loss...........................................................           717               189
Unrecognized net transition obligation..........................................        17,583            18,838
                                                                                  -------------     -------------
Accrued postretirement benefit cost.............................................  $    (24,376)     $    (23,565)
                                                                                  =============     =============


                                                                                       1999              1998
                                                                                  -------------     -------------
Components of Net Periodic Postretirement Benefit Cost
------------------------------------------------------
Service cost (with interest)....................................................  $        699      $        601
Interest cost...................................................................         3,028             3,110
Amortization of:
    Transition obligation.......................................................         1,255             1,255
    Prior service cost..........................................................           132               132
    Gains and losses............................................................             0                 0
                                                                                  -------------     -------------
Net periodic postretirement expense.............................................  $      5,114      $      5,098
                                                                                  =============     =============
</TABLE>
In determining the benefit  obligation,  the weighted average discount rate used
was 7.5% and 7.0% at June 30, 1999 and 1998,  respectively.  Assumed health care
cost trend  rates have a  significant  effect on the  amounts  reported  for the
health care plans. A one percentage point change in the assumed health care cost
trend rates would have the following effect:
<TABLE>
<CAPTION>
                                                                                    1% Point          1% Point
                                                                                    Increase          Decrease
                                                                                  ------------      -------------
<S>                                                                               <C>               <C>
As of June 30, 1999
-------------------
Effect on total of services and interest cost components........................  $      200        $       (200)
Effect on year-end benefit obligation...........................................       1,400              (1,200)
</TABLE>


                                       59

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


13.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits (continued)
For  measurement  purposes,  the  assumed  health  care cost  trend rate used to
measure Agway's  accumulated  benefit  obligation was, for persons under age 65,
7.5% for June 30, 1999 and 1998.  For persons  over age 65, Agway has an insured
medical program limiting  Agway's subsidy to a per month/per  retiree basis. The
health care cost trend rate  assumption  for fiscal 2000 and forward at June 30,
1999,  decreases  gradually until the year 2002, when the ultimate trend rate is
then fixed at 5%.

Employees' Thrift Investment Plan
The Agway Inc. Employees' Thrift Investment Plan is a defined  contribution plan
covering a  substantial  majority of  employees  of Agway and its  subsidiaries.
Under the plan, each  participant may invest up to 15% of his or her salary,  of
which a maximum of 6% qualifies for Agway  matching.  Participant  contributions
are invested at the option of the participant in any combination of four funds.

Agway will  contribute an amount of at least 10%, but not more than 50%, of each
participant's regular  contributions,  as defined, up to 6% of his or her salary
on an annual basis.  Agway  contributions  to this plan for years ended June 30,
1999, 1998 and 1997, were approximately $1,300, $1,300 and $1,200, respectively.
For the years ended June 30,  1999,  1998 and 1997,  the Board of  Directors  of
Agway approved an additional match of 20% to supplement the minimum contribution
level of 10%.

                                       60

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING

Agway  is  an  agricultural   cooperative  directly  engaged  in  manufacturing,
processing,  distribution,  and  marketing of  agricultural  feed and  agronomic
products and services for its farmer-members  and other customers,  primarily in
the   northeastern   United  States  and  Ohio.  Agway  reports  its  operations
principally in five business  segments.  Agway modified its segment reporting in
1999 by combining the former Retail  segment with the  Agriculture  segment,  in
light of a  consolidation  of these two  operations  in April 1999.  The Country
Products Group was broken into its own segment to align our disclosure  with how
our business is managed, in accordance with the adoption, as of June 30,1999, of
SFAS  No.  131,  "Disclosures  about  Segments  of an  Enterprise  and  Relative
Information."  The new segment  disclosure  now reports  earnings  (loss) before
income taxes and other details not previously  shown by segment.  All prior year
presentations have been restated to reflect these changes.

(1)    AGRICULTURE  engages in the  manufacturing,  processing,  marketing,  and
       direct distribution of various animal feeds, crop inputs, fertilizers and
       farm  supplies and through a retail  store  system  engages in the retail
       marketing of agricultural  products and supplies,  yard and garden items,
       and pet  food  and pet  supplies,  as  well  as the  wholesale  purchase,
       warehousing,  and  distribution  of these  products and supplies to Agway
       dealer representatives and other businesses.

(2)    COUNTRY  PRODUCTS  GROUP  engages in the  manufacturing,  processing  and
       repacking  of a variety of  agricultural  products  marketed  directly to
       consumers, retailers,  wholesalers and processors. Country Products Group
       also is involved in the exploration  and development of new  technologies
       to benefit agricultural and food businesses.

(3)    ENERGY operates a full-service  energy company which markets and services
       heating,  ventilation  and  air-conditioning  equipment.  Energy  is also
       engaged in the sale and delivery of fuel oil, kerosene, propane, gasoline
       and  diesel  fuel,  as  well  as  natural  gas  and   electricity   where
       de-regulation makes that possible.

(4)    LEASING,  through Telmark LLC, is principally  engaged in the business of
       leasing  agricultural-related   equipment,  vehicles,  and  buildings  to
       farmers and other customers in rural communities. Interest income for the
       Leasing segment is reported as "Net Sales and Revenues."

(5)    INSURANCE,  through Agway  Insurance  Company,  underwrites  property and
       casualty  insurance.  Agway  General  Agency Inc.,  also  included in the
       Insurance  segment,  markets medical,  long-term care, and life and other
       products  designed  by  non-affiliated  companies  for  the  agricultural
       marketplace.  In  addition,  Agency  provides  administrative  management
       services to Agway business units,  including  claims,  risk,  facilities,
       data processing, and payroll/benefits management.

Total sales and revenues of each industry  segment includes the sale of products
and services to unaffiliated  customers,  as reported in the Agway  consolidated
statements of operations,  as well as sales to other segments of Agway which are
competitively priced.

The Other category within the summary of business segments includes intersegment
eliminations,  interest and taxes.  The  category  also  includes net  corporate
expenses and pension income.






                                       61

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
                                                      Country
                                                      Products
Year ended June 30, 1999             Agriculture       Group        Energy       Leasing     Insurance     Other(a)    Consolidated
------------------------           -------------     -----------   ----------   ----------   ---------    ----------   ------------
<S>                                <C>               <C>           <C>          <C>          <C>          <C>          <C>
Net sales and revenues to
  unaffiliated customers.          $    774,968      $   160,152   $  451,284   $   70,006   $  27,968    $     (16)   $  1,484,362
Intersegment sales and
  revenues...............                   692           11,572          613            0           0      (12,877)              0
                                   -------------     -----------   ----------   ----------   ---------    ----------   ------------
    Total sales and revenues       $    775,660      $   171,724   $  451,897   $   70,006   $  27,968    $ (12,893)   $  1,484,362
                                   =============     ===========   ==========   ==========   =========    ==========   ============

Operating earnings (loss)          $    (23,658)     $     2,950   $   12,992   $   18,202   $     130    $   7,848    $     18,464
Interest income..........                 6,965               10          614            0           0        1,551           9,140
Interest expense.........               (19,211)          (2,239)      (5,120)           0         (12)     (14,844)        (41,426)
Other income, net........                 3,012           11,355        4,538          (43)        378          550          19,790
                                   -------------     -----------   ----------   ----------   ---------    ----------   ------------
Earnings (loss) before
  income taxes...........          $    (32,892)     $    12,076   $   13,024   $   18,159   $     496    $  (4,895)   $      5,968
                                   =============     ===========   ==========   ==========   =========    ==========   ============

Total assets.............          $    396,611      $    64,365   $  133,624   $  596,905   $  55,578    $ 229,968    $  1,477,051
Depreciation and
   amortization..........                12,195            3,959        8,506          493          92        1,431          26,676
Capital expenditures.....                17,030            4,707        5,002          511          89        2,911          30,250
</TABLE>

<TABLE>
<CAPTION>
                                                       Country
                                                       Products
Year ended June 30, 1998            Agriculture         Group        Energy      Leasing     Insurance     Other(a)    Consolidated
------------------------           -------------     -----------   ----------   ----------   ---------    ----------   ------------
<S>                                <C>               <C>           <C>          <C>          <C>          <C>          <C>
Net sales and revenues to
  unaffiliated customers.          $    795,056      $   170,398   $  504,702   $   65,445   $  27,335    $       7    $  1,562,943
Intersegment sales and
  revenues...............                   164           15,686          398           31           0      (16,279)              0
                                   -------------     -----------   ----------   ----------   ---------    ----------   ------------
   Total sales and revenues        $    795,220      $   186,084   $  505,100   $   65,476   $  27,335    $ (16,272)   $  1,562,943
                                   =============     ===========   ==========   ==========   =========    ==========   ============

Operating earnings (loss)          $    (11,676)     $     7,702   $    9,879   $   15,412   $    (436)   $  20,849    $     41,730
Interest income..........                 7,631              182          778            0           0        1,441          10,032
Interest expense.........               (18,975)          (2,825)      (7,884)           0          (7)     (11,166)        (40,857)
Other income, net........                 6,755            1,170        5,272            0         173           (9)         13,361
                                   ------------      -----------   ----------   ----------   ---------    ----------   ------------
Earnings (loss) before
  income taxes...........          $    (16,265)     $     6,229   $    8,045   $   15,412   $    (270)   $   11,115   $     24,266
                                   ============      ===========   ==========   ==========   =========    ==========   ============

Total assets.............          $    393,877      $    61,743   $  141,469   $  524,797   $  56,014    $  239,394   $  1,417,294
Depreciation and amortization            15,436            2,947        8,668          607          78         1,061         28,797
Capital expenditures.....                16,534            4,539        5,631          471         297         3,480         30,952
</TABLE>

(a) Represents unallocated net corporate items and intersegment eliminations.


                                       62

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


14.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)
<TABLE>
<CAPTION>
                                                       Country
                                                       Products
Year ended June 30, 1997             Agriculture        Group          Energy      Leasing    Insurance     Other(a)    Consolidated
------------------------             ------------    ------------   -----------   ---------   ---------   -----------   ------------
<S>                                  <C>             <C>            <C>           <C>         <C>         <C>           <C>
Net sales and revenues to
  unaffiliated customers.            $    841,801    $    139,153   $   606,800   $  56,908   $  27,020   $       32    $ 1,671,714
Intersegment sales and
  revenues...............                     147          19,449           305          35           0      (19,936)             0
                                     ------------    ------------   -----------   ---------   ---------   -----------   ------------
   Total sales and revenues          $    841,948    $    158,602   $   607,105   $  56,943   $  27,020   $  (19,904)   $ 1,671,714
                                     ============    ============   ===========   =========   =========   ===========   ============

Operating earnings (loss)            $     (9,908)   $      5,040   $    14,961   $  12,992   $     512   $    5,193    $    28,790
Interest income..........                   7,180             211           963           0           0        1,622          9,976
Interest expense.........                 (18,111)         (2,844)       (9,683)          0          (3)     (10,305)       (40,946)
Other income, net........                  12,923             182         4,576          11         181          890         18,763
                                     ------------    ------------   -----------   ---------   ---------   -----------   ------------
Earnings (loss) before
  income taxes...........            $     (7,916)   $      2,589   $    10,817   $  13,003   $     690   $   (2,600)   $    16,583
                                     ============    ============   ===========   =========   =========   ===========   ============

Total assets.............            $    391,659    $     55,403   $   165,242   $ 477,252   $  53,942   $   156,763   $ 1,300,261
Depreciation and amortization              15,383           2,936         9,591         529          55         1,337        29,831
Capital expenditures                       13,551           6,670         4,632         540           0           352        25,745

</TABLE>
(a) Represents unallocated net corporate items and intersegment eliminations.



                                       63

<PAGE>



                                     AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                                    NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                                              (THOUSANDS OF DOLLARS)


15.  OTHER INCOME (EXPENSE)

The  components  of  other  income  (expense)  for the  year  ended  June 30 are
summarized below:
<TABLE>
<CAPTION>
                                                                   1999               1998                1997
                                                              -------------       -------------      -------------
<S>                                                           <C>                 <C>                <C>
Patronage refund income.....................................  $      1,231        $      4,344       $       9,534
Rent and storage revenue....................................         4,304               4,636               4,063
Gain (loss) on disposition of:
     Businesses.............................................        11,097                   0                 360
     Other security investments.............................        (1,267)                  0                   0
     Properties and equipment...............................           401               1,210               2,613
Other, net..................................................         4,024               3,171               2,193
                                                              -------------       -------------      -------------
                                                              $     19,790        $     13,361       $      18,763
                                                              =============       =============      =============


16.  SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS

                                                                   1999                1998               1997
                                                              -------------       -------------      -------------
Additional disclosure of operating cash flows:
    Cash paid during the year for:
         Interest...........................................  $     41,999        $     40,807       $      39,812
                                                              =============       =============      =============
         Income taxes.......................................  $      2,586        $      3,253       $       3,661
                                                              =============       =============      =============

Additional disclosure for non-cash investing and financing
activities:
     Dividends declared but unpaid at June 30...............  $      1,702        $      1,840       $       2,149

                                                              =============       =============      =============
</TABLE>
17.  FINANCIAL AND COMMODITY INSTRUMENTS

FINANCIAL INSTRUMENTS

Fair Value
Carrying amounts of trade notes and accounts receivable,  financial  instruments
included in other  assets and other  liabilities,  notes  payable,  and accounts
payable  approximate  their fair values because of the short-term  maturities of
these  instruments.  The fair value of Agway's  long-term debt and  subordinated
debentures  is  estimated  based on  discounted  cash  flow  computations  using
estimated  borrowing  rates available to Agway ranging from 6.2% to 9.0% in 1999
and 5.9% to 8.8% in 1998.

The carrying amounts and estimated fair values of Agway's significant  financial
instruments held for purposes other than trading at June 30 were as follows:
<TABLE>
<CAPTION>
                                                              1999                           1998
                                                 -----------------------------    ---------------------------
                                                   Carrying            Fair         Carrying         Fair
                                                    Amount             Value         Amount          Value
                                                 ------------       ----------    ----------       ----------
<S>                                              <C>                <C>           <C>              <C>
Liabilities:
Long-term debt  (excluding capital leases)       $    371,036       $  379,316    $  351,906       $  357,869
Subordinated debentures........................       486,303          481,775       462,196          469,789
</TABLE>
                                       64

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


17.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

FINANCIAL INSTRUMENTS (CONTINUED)

Fair Value (continued)
Agway  determines the fair value of its  exchange-traded  contracts based on the
settlement  prices for open contracts,  which are established by the exchange on
which the  instruments  are traded.  The fair value of Agway's  over-the-counter
contracts is determined  based on quotes from brokers.  The margin  accounts for
open commodity futures and option contracts,  which reflect daily settlements as
market values change, are recorded in advances and other receivables. The margin
account  represents  Agway's basis in those  contracts.  As of June 30, 1999 and
1998, the carrying and fair value of Agway's investment in commodity futures and
option contracts was $1,800 and $2,200, respectively.

Off-Balance-Sheet Risk
In the normal  course of  business,  Agway has  letters  of credit,  performance
contracts,  and other  guarantees  that are not  reflected  in the  accompanying
consolidated  balance sheets. In the past, no significant  claims have been made
against these financial instruments.  Management believes that the likelihood of
performance under these financial instruments is minimal and expects no material
losses and/or cash requirements to occur in connection with these instruments.

Agway's leasing subsidiary,  Telmark,  is a party to financial  instruments with
off-balance-sheet  risk in the normal  course of business to meet the  financing
needs  of  its  leasing  customers.   These  financial  instruments  consist  of
commitments to extend credit not  recognized in the balance sheet.  In the event
of  nonperformance  by the other party to the financial  instrument,  the credit
risk is limited to the  contractual  amount of  Telmark's  commitment  to extend
credit.  Telmark  uses  the  same  credit  and  collateral  policies  in  making
commitments as it does for on-balance-sheet instruments.

Credit and Market Risk
Agway, operating as an agricultural  cooperative primarily in the Northeast, has
a  concentration  of  accounts  and lease  receivables  due from  farmer-members
throughout the region.  This concentration of agricultural  customers may affect
Agway's overall credit risk in that the repayment of  farmer-member  receivables
may be affected  by  inherent  risks  associated  with (1) the overall  economic
environment of the region; (2) the impact of adverse regional weather conditions
on crops;  and (3)  changes  in the  level of  government  expenditures  on farm
programs and other changes in government  agricultural  programs that  adversely
affect the level of income of  farmers.  Agway  mitigates  this  credit  risk by
analyzing farmer-member credit positions prior to extending credit and requiring
collateral on long-term arrangements and for the underlying asset in the case of
Telmark's lease contracts.

Energy  extends  unsecured  credit  to  petroleum  wholesalers  and  residential
fuel-oil customers.  Agriculture's retail business extends working capital lines
of credit,  secured by inventory and accounts  receivable,  to its dealers.  The
credit function within the Energy and Agriculture businesses manages credit risk
associated  with these trade  receivables  by routinely  assessing the financial
strength of its customers.

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.




                                       65

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


17.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

COMMODITY INSTRUMENTS

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.

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.

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.

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.




                                       66

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                             (THOUSANDS OF DOLLARS)


17.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

COMMODITY INSTRUMENTS (CONTINUED)

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 fiscal 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
                                                                 Restated           Reported            Adjustment
                                                              -------------       -------------       ------------
<S>                                                           <C>                 <C>                 <C>
Period
------
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.






                                       67

<PAGE>



                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS

The  directors of Agway  determine  Agway policy and are nominated on a district
representation  basis by committees  representing  members within each district.
Each of the  following  directors is a full-time  farmer and has been engaged in
full-time farming during the past five years:
<TABLE>
<CAPTION>
                                                                                          Year
                                                                                         Became
                                                                                            A
         Name                  Age    Office                    Name of Farm              Director    Term Expires
         ----                  ---    ------                    ------------              --------    ------------
<S>                            <C>    <C>                       <C>                         <C>       <C>
Ralph H. Heffner(1)            61     Chairman of the           Jersey Acres Farms Inc.     1973      November 2000
                                      Board and Director
Gary K. Van Slyke              56     Vice Chairman of the      VanSlyke's Dairy Farm       1994      November 2000
                                      Board and Director
Kevin B. Barrett               43     Director                  Heavenly View Farm          1996      November 1999
Keith H. Carlisle              57     Director                  Carlisle Bros., Inc.        1995      November 2001
D. Gilbert Couser              58     Director                  Shawangunk View Farm        1995      November 2001
Andrew J. Gilbert              40     Director                  Adon Farms                  1995      November 2001
Peter D. Hanks                 51     Director                  Big Green Farms, Inc.       1984      November 1999
Robert L. Marshman             60     Director                  Marshman Farms              1989      November 1999
Jeffrey B. Martin              40     Director                  Martin Farms                1997      November 2000
Samuel F. Minor                61     Director                  The Spring House            1987      November 2000
Carl D. Smith                  64     Director                  Hillacre Farms              1984      November 1999
Thomas E. Smith                64     Director                  Lazy Acres Dairy            1986      November 2001
Joel L. Wenger                 68     Director                  Weng-Lea Farms              1987      November 1999
Edwin C. Whitehead             58     Director                  White Ayr Farms             1994      November 2000
William W. Young               46     Director                  Will-O-Crest Farm           1989      November 2001
</TABLE>
Ralph H. Heffner,  Chairman of the Board of Directors, was paid $54,600 and Gary
K. Van Slyke,  Vice  Chairman of the Board of  Directors,  was paid  $44,350 for
their  services for the year ended June 30, 1999.  Effective  July 1, 1998,  the
Chairman is paid at an annual effective rate of $60,000 and the Vice-Chairman is
paid at an annual  effective rate of $45,000.  All other  directors will receive
$25,000 per year, paid quarterly,  for participation on the Agway Inc. Board. In
addition, each Board Committee Chairman earned an additional annual retainer fee
of $3,000 and each  director  of Agway  Inc.  who was also a member of the Agway
Insurance Company or Telmark LLC Board of Directors earned an additional $400 or
$1,000,  respectively;  a fee of $200 was also earned by such directors for each
day where the Agway Inc. Board of Directors is not in session. Expenses of Board
members incurred in connection with Company business are reimbursed by Agway.

Any  director of Agway may elect to defer  compensation  for  distribution  at a
later date.  Deferred  amounts earn interest and may be paid in a lump sum or in
annual installments over a period of up to 20 years.

A retirement  benefit plan for Board members requires annual payments to retired
or permanently  disabled  directors who served a minimum of six full years.  The
benefit is  computed  at $250 for each full year of  service  and is paid to the
director or surviving spouse for a period equal to the years served on the Board
through December 31, 1995, the date the plan was terminated. All earned benefits
as of December 31, 1995, will be paid when due. As of June 30, 1999, the present
value of accumulated benefits under this plan was approximately $500,000.

(1)   All correspondence in relation to operational  matters should be addressed
      to D.P.  Cardarelli,  President and Chief Executive  Officer,  Agway Inc.,
      P.O. Box 4933, Syracuse, New York 13221.

                                       68

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS

The  executive  officers  of Agway  provide  operating  control to carry out the
policies  established  by the Board of Directors and serve at the  discretion of
the Board with no guarantee  of  employment.  There are no  full-time  executive
officers  of Agway who are  members  of the Board of  Directors.  The  principal
occupation  of all  executive  officers  of the Agway  for the past five  years,
except for Mr.  Feeney,  has been as an officer or  employee  of the Agway.  The
following is a listing of these officers as of July 1, 1999:
<TABLE>
<CAPTION>
                                                                                                  Years Served
          Name                      Age      Office                                                As Officer
          ----                      ---      ------                                                ----------
<S>                                 <C>      <C>                                                      <C>
Donald P. Cardarelli                43       President and Chief Executive Officer                     8
Daniel J. Edinger                   48       President, Telmark LLC                                    1
John F. Feeney                      38       Corporate Controller                                      -
Robert A. Fischer, Jr.              51       President, Agriculture & Retail Group                     4
David M. Hayes                      55       Senior Vice President, General Counsel
                                               and Secretary                                          18
Stephen H. Hoefer                   44       Senior Vice President, Public Affairs                     5
Michael R. Hopsicker                34       President, Agway Energy Products LLC                      3
Karen A. Johnson                    37       Treasurer                                                 -
Dennis J. LaHood                    53       President, Country Products Group                         4
Peter J. O'Neill                    52       Senior Vice President, Finance & Control                 10
William L. Parker                   52       Vice President and Chief Information Officer              4
Robert D. Sears                     58       Vice President, Membership                                5
Gerald R. Seeber                    52       Senior Vice President, Administrative Services and
                                               President, Agway Insurance Group                        1
G. Leslie Smith                     56       Vice President and Chief Investment Officer               2
</TABLE>
Mr. Cardarelli served as Vice President,  Treasurer of the Company from May 1992
to August 1994; as Executive  Vice  President and Chief  Operating  Officer from
August 1994 to January  1995;  and as General  Manager and CEO from January 1995
and President from February 1995 to July 1, 1999.

Mr. Edinger served as President, Telmark LLC, from February 1988 to July 1,1999.

Mr. Feeney  served as Manager,  External  Reporting,  from November 1994 to June
1995; as Director,  Corporate  Reporting,  from July 1995 to August 1998; and as
Corporate  Controller  from August 1998 to July 1, 1999.  For the period  August
1983 to November 1994, Mr. Feeney worked for Ernst & Young.

Mr.  Fischer has served as President,  Milford  Fertilizer  Company,  since June
1970; as Executive  Director,  Crops from October 1994 to February 1995; as Vice
President,  Agway Agricultural Products,  from February 1995 to July 1, 1997; as
President,  Agway  Agricultural  Products,  from July 1997 to March 1999; and as
President, Agriculture & Retail Group from March 1999 to July 1, 1999.

Mr. Hayes  served as Senior Vice President, General  Counsel  and Secretary from
July 1992 to July 1, 1999.

Mr.  Hoefer served as Vice  President,  Public  Affairs,  from June 1994 to July
1997; and as Senior Vice President,  Public  Affairs,  from July 1997 to July 1,
1999.

Mr. Hopsicker served as Director, Planning & Operations, AEP, from November 1992
to December  1994;  as Director,  Financial  Planning,  Finance & Control,  from
December  1994 to October  1995; as Director,  Business  Development,  ARS, from
October 1995 to April 1996; as Vice President, Agway Energy Products, from April
1996 to July 1997; and as President,  Agway Energy  Products LLC, from July 1997
to July 1, 1999.

Ms. Johnson  served  as  Assistant Treasurer from September 1992 to August 1998;
and as Treasurer from August 1998 to July 1, 1999.



                                       69

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS (CONTINUED)

Mr.  LaHood  served as President,  Country  Foods,  from October 1992 to October
1994; as Executive  Director,  Country Foods and Seed  Operations,  from October
1994 to February 1995; as Vice President,  Country Products Group, from February
1995 to July 1997; and as President,  Country Products Group,  from July 1997 to
July 1, 1999.

Mr. O'Neill  served as Senior Vice  President,  Finance & Control,  from October
1992 to November 1994; as Senior Vice  President,  Finance & Control,  Treasurer
and Controller, from November 1994 to August 1998; and as Senior Vice President,
Finance & Control, from August 1998 to July 1, 1999.

Mr.  Parker  served as Director of New Project  Management  from January 1993 to
September 1994; as Vice President,  Information Services, from September 1994 to
May 1996; and as Vice President,  Chief  Information  Officer,  from May 1996 to
July 1, 1999.

Mr. Sears served as Vice President, Membership, from June 1994 to July 1, 1999.

Mr. Seeber served as President, Agway Insurance Group, from October 1993 to July
1997; and as Senior Vice President, Administrative Services and President, Agway
Insurance Group, from July 1997 to July 1, 1999.

Ms. Smith served as Director,  Trust  Investments,  from September 1993 to April
1997; and as Vice President and Chief  Investment  Officer from May 1997 to July
1, 1999.



                                       70

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

The  following  table  sets forth  information  regarding  annual and  long-term
compensation  for services in all  capacities  to Agway for the years ended June
30, 1999,  1998 and 1997 of those persons who served as (i) the chief  executive
officer  (CEO) at any time during the year,  and (ii) the other four most highly
compensated executive officers of Agway (other than the CEO) who were serving in
such capacity at June 30, 1999.
<TABLE>
<CAPTION>
                                            SUMMARY COMPENSATION TABLE
------------------------------------------------------------------------------------------------------------
                                             Annual Compensation (4)
                                             -----------------------
Name and                                                                                  ALL OTHER
Principal Position              YEAR            SALARY(1)      BONUS(1)(2)             COMPENSATION(3)
------------------------------------------------------------------------------------------------------------
<S>                             <C>              <C>              <C>                               <C>
Donald P. Cardarelli            1999             $478,276         $154,530                          $18,057
   President and CEO            1998              425,390          327,600                           11,500
                                1997              387,024           80,000                            3,925

Daniel J. Edinger               1999              199,710          155,040                            3,764
   President,                   1998              178,853          105,240                            3,033
   Telmark LLC                  1997              130,619           52,801                            2,807

Robert A. Fischer, Jr.          1999              316,442           40,000                           63,480
   President,                   1998              294,423          124,000                          116,476
   Agriculture & Retail         1997              220,000           44,000                          118,411
   Group

Michael R. Hopsicker            1999              218,087          171,000                            3,864
   President,                   1998              202,312          105,000                            2,987
   Agway Energy                 1997              170,014           34,001                            2,873
   Products LLC

Dennis J. LaHood                1999              252,639          211,800                            3,009
   President,                   1998              220,407          175,515                            2,998
   Country Products             1997              178,293           88,000                            2,877
   Group

</TABLE>

(1)   Salary and bonus are used in determining  the average annual  compensation
      pursuant to Agway's Retirement Plan, effective July 1, 1998 (see page 72).
      This amount includes all deferred amounts under the Agway Inc.  Employees'
      Thrift Investment Plan, Agway Inc.  Employees' Benefit  Equalization Plan,
      and the Milford  Fertilizer  Company Employees' Profit Sharing and Savings
      Plan.
(2)   Members  of the chief  executive  officer's  staff  and  other  executives
      designated   by  Agway's   chief   executive   officer  are  eligible  for
      participation in the Agway Inc.  management  incentive policy.  Contingent
      upon each individual's performance as determined by the President and CEO,
      Agway's  net  earnings,  and  other  performance  factors,  each  eligible
      executive  may be paid a bonus.  Bonuses are  reflected in the fiscal year
      earned regardless of payment date.
(3)   Amounts shown for all officers,  except Mr. Fischer, include contributions
      made by Agway to the Agway Inc.  Employees'  Thrift  Investment  Plan, the
      Agway Inc. Employees' Benefit Equalization Plan, the Agway Inc. Employees'
      Deferred  Compensation  Program,  and any other payments not appropriately
      characterized  as salary or bonus.  With respect to Mr.  Fischer,  amounts
      include  payments  to the Milford  Fertilizer  Company  Employees'  Profit
      Sharing and Savings Plan,  term life  insurance  premiums,  and reportable
      savings interest.
(4)   There were no perquisites paid by Agway in excess of the lesser of $50,000
      or 10% of an executive's total salary and bonus for the years disclosed.

                                       71

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN

The  Employees'  Retirement  Plan of  Agway  Inc.  (the  Retirement  Plan)  is a
non-contributory  defined  benefit  plan  covering  nearly  all  employees.  The
Retirement Plan was amended  effective July 1, 1998, to include a pension equity
formula,  as  well  as  to  recognize  incentive   compensation  as  pensionable
compensation for all employees. It provides for retirement benefits,  based upon
average annual compensation received during the highest 36 consecutive months in
the last 10 years of service and credits earned for years of service with Agway.
Full credits are earned for service on and after July 1, 1998, and credits equal
to approximately 3/4 of the full credits are earned for service prior to July 1,
1998. The benefit is defined as an account balance and can be paid out as a lump
sum or an annuity.  An employee is 100% vested in his benefit after completing 5
years of service or attaining age 55 after completing one year of service.

The following  table shows  estimated  annual  benefits  payable upon retirement
using the credit  formula in effect for service  after June 30,  1998,  based on
certain 3-year average remuneration levels and years-of-service classifications.
Under  the  formula,  base  credits  are  applied  to the total  average  annual
compensation  and excess credits are applied to the average annual  compensation
in excess of one-half the Social  Security Wage Base. In developing  this table,
both base and  excess  credits  have been  applied to the total  average  annual
compensation.  Further,  the table was developed assuming a normal retirement at
age 65 and an annuity conversion factor based on a 6% interest rate.
<TABLE>
<CAPTION>
                                                PENSION PLAN TABLE
                                                   (NEW FORMULA)
                                             YEARS OF CREDITED SERVICE
------------------------------------------------------------------------------------------------------------------------------
   3-YEAR AVERAGE
    REMUNERATION           5              10             15             20             25              30             35
------------------------------------------------------------------------------------------------------------------------------
     <S>                   <C>            <C>           <C>            <C>            <C>              <C>            <C>

     $300,000              $21,200        $ 40,300      $  59,400      $  77,100      $  94,800        $111,000       $127,300
      350,000               24,800          47,000         69,300         89,900        110,600         129,500        148,500
      400,000               28,300          53,700         79,200        102,800        126,400         148,000        169,700
      450,000               31,800          60,500         89,100        115,600        142,100         166,500        190,900
      500,000               35,400          67,200         99,000        128,500        157,900         185,100        212,200
      550,000               38,900          73,900        108,900        141,300        173,700         203,600        233,400
      600,000               42,400          80,600        118,800        154,200        189,500         222,100        254,600
      650,000               46,000          87,300        128,700        167,000        205,300         240,600        275,800
      700,000               49,500          94,100        138,600        179,900        221,100         259,100        297,000
      750,000               53,000         100,800        148,500        192,700        236,900         277,600        318,200
      800,000               56,600         107,500        158,400        205,600        252,700         296,100        339,500
      850,000               60,100         114,200        168,300        218,400        268,500         314,600        360,700
      900,000               63,600         120,900        178,200        231,300        284,300         333,100        381,900
      950,000               67,200         127,700        188,100        244,100        300,100         351,600        403,100
</TABLE>
Active  participants  are  entitled  to  receive no less than the value of their
benefits  accrued  under the old  Retirement  Plan benefit  formula which was in
effect through June 30, 1998. in addition,  most active  participants  whose age
plus  service  totaled 55 years or more as of July 1,  1998,  will  receive  the
greater of the benefit  determined under the new formula described above, or the
benefit determined had the old formula remained in effect (grandfathered).

The  old  Retirement   Plan  benefit   formula  is  based  upon  average  annual
compensation  received  during the highest 60 consecutive  months in the last 10
years of service and credited years of service.  Optional earlier retirement and
other  benefits are also  provided.  The old formula  pays a monthly  retirement
benefit based on the greater amount  calculated under two formulas.  The benefit
amount under one formula is subject to an offset for Social Security benefits.



                                       72

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

EMPLOYEES' RETIREMENT PLAN (CONTINUED)

The following  table shows  estimated  annual  benefits under the old Retirement
Plan formula in effect for service before July 1, 1998,  based on certain 5-year
average remuneration levels and years-of-service classifications.  The table was
developed  assuming a normal retirement at age 65 and does not reflect an offset
for up to 50% of  the  Social  Security  benefit,  subject  to  certain  minimum
benefits.
<TABLE>
<CAPTION>
                                                PENSION PLAN TABLE
                                                   (OLD FORMULA)
                                             YEARS OF CREDITED SERVICE
------------------------------------------------------------------------------------------------------------------------------
   5-YEAR AVERAGE
    REMUNERATION           5             10             15              20             25             30             35
------------------------------------------------------------------------------------------------------------------------------
     <S>                   <C>          <C>            <C>             <C>             <C>            <C>            <C>
     $300,000              $24,000      $  48,000      $  72,000       $  96,000       $120,000       $144,000       $168,000
      350,000               28,000         56,000         84,000         112,000        140,000        168,000        196,000
      400,000               32,000         64,000         96,000         128,000        160,000        192,000        224,000
      450,000               36,000         72,000        108,000         144,000        180,000        216,000        252,000
      500,000               40,000         80,000        120,000         160,000        200,000        240,000        280,000
      550,000               44,000         88,000        132,000         176,000        220,000        264,000        308,000
      600,000               48,000         96,000        144,000         192,000        240,000        288,000        336,000
      650,000               52,000        104,000        156,000         208,000        260,000        312,000        364,000
      700,000               56,000        112,000        168,000         224,000        280,000        336,000        392,000
      750,000               60,000        120,000        180,000         240,000        300,000        360,000        420,000
      800,000               64,000        128,000        192,000         256,000        320,000        384,000        448,000
      850,000               68,000        136,000        204,000         272,000        340,000        408,000        476,000
      900,000               72,000        144,000        216,000         288,000        360,000        432,000        504,000
      950,000               76,000        152,000        228,000         304,000        380,000        456,000        532,000
</TABLE>
Amounts  under the  Retirement  Plan may be subject to reduction  because of the
limitations imposed under the Internal Revenue Code; however,  the extent of any
reduction will vary in individual cases according to  circumstances  existing at
the  time  pension  payments  commence.   The  Agway  Inc.   Employees'  Benefit
Equalization  Plan has been  established  to provide  for the amount of any such
reduction in annual pension benefits under the Retirement Plan.

The benefits  shown are computed on a straight  life basis and do not reflect an
offset for up to 50% of the Social Security benefit,  subject to certain minimum
benefits.  Also,  the benefits are based on  continuing  the  Retirement  Plan's
benefit  formulas  as in  effect  on June 30,  1999.  As of June 30,  1999,  the
officers  and their  respective  number of credited  years of service  under the
Retirement Plan were as follows: Messrs.  Cardarelli, 14; Hopsicker, 10; Lahood,
29; and Edinger, 20. Mr. Fischer does not participate in the Retirement Plan nor
any other long-term incentive programs of Agway. However, he participates in the
Milford   Fertilizer   Company  Employees'  Profit  Sharing  and  Savings  Plan.
"Compensation"  is defined as the  regular  salary or wages,  as reported in the
Salary column of the Summary  Compensation  Table,  which is paid to an employee
for  services  rendered  to Agway Inc.,  including  overtime,  vacation  pay, or
special  pay and  bonuses  as  reported  in the Bonus  column  of the  Executive
Compensation disclosure on page 71.




                                       73

<PAGE>



ITEM 11.  EXECUTIVE COMPENSATION

DIRECTOR COMPENSATION

For a discussion of director compensation,  see Directors and Executive Officers
of the Registrant (Item 10) of this Form 10-K.


COMPENSATION COMMITTEE INTERLOCKS AND INSIDE PARTICIPATION

Agway has  a committee  of  certai  directors,  including  the Chairman and Vice
Chairman of the Board of Directors, which  determines the compensation of Donald
P. Cardarelli, President and CEO of Agway Inc.  The  compensation of  the  other
executive  officers  of Agway Inc. is determined by Mr. Cardarelli.  Salaries of
all executive officers are included  in  the  annual operating  budget, which is
approved by the entire Board of Directors of Agway Inc.

None of the executive  officers or directors  who  participate  in  establishing
compensation   policies  had  interlocks  reportable  under  Section  402(J)  of
Regulation S-K.


ITEM 12.  SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

None  of  the  executive  officers  of  Agway,  either  individually  or in  the
aggregate,  own greater than 1% of any class of equity  securities of Agway Inc.
or its  subsidiaries.  Agway  is an  agricultural  cooperative  and  each of its
members,  including each director, owns one share of $25 par value common stock.
None of the directors, either individually or in the aggregate, own greater than
1% of any class of equity security of Agway Inc. or its subsidiaries.


ITEM 13.  CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Agway's  members,  including  its  directors,  are customers of Agway and/or its
subsidiaries.  They  purchase  products  from  Agway  in the  normal  course  of
operating  their farm businesses and may sell certain  agricultural  products to
Agway at market  prices.  The prices,  terms,  and conditions of any purchase or
sale transaction are on the same basis for all of Agway's members.




                                       74

<PAGE>



                                     PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>
                                                                                                               PAGE
                                                                                                             LOCATION
                                                                                                             --------
     (A)  INDEX TO DOCUMENT LIST
         <S>                                                                                                       <C>
         (1)  FINANCIAL STATEMENTS

              Among  the  responses  to this  Item  14(a)(1)  are the  following
              financial statements, which are included in Item 8 on page 34:

              (i)     Report of Independent Accountants..........................................................  36

              (ii)    Consolidated Balance Sheets, June 30, 1999 and 1998........................................  37

              (iii)   Consolidated Statements of Operations, fiscal years ended June 30, 1999, 1998 and 1997.....  38

              (iv)    Consolidated Statements of Comprehensive Income, fiscal years ended
                      June 30, 1999, 1998 and 1997...............................................................  39

              (v)     Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended
                      June 30, 1999, 1998 and 1997...............................................................  40

              (vi)    Consolidated Statements of Cash Flow, fiscal years ended June 30, 1999, 1998 and 1997......  41

              (vii)   Notes to Consolidated Financial Statements.................................................  42

         (2)  FINANCIAL STATEMENT SCHEDULES

              (i)     The following schedules are presented:

                      Schedule I    -    Condensed Financial Information of Registrant, each of the
                                         three years in the period ended June 30, 1999...........................  76

                      Schedule II   -    Valuation and Qualifying Accounts, fiscal years ended
                                         June 30, 1999, 1998 and 1997............................................  81
</TABLE>

Schedules  other  than  these  listed  above  have been  omitted as they are not
required,   inapplicable,  or  the  required  information  is  included  in  the
consolidated financial statements or notes thereto.



                                       75

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                            CONDENSED BALANCE SHEETS
                             JUNE 30, 1999 AND 1998
                             (THOUSANDS OF DOLLARS)

                                     ASSETS
<TABLE>
<CAPTION>
                                                                                                        RESTATED
                                                                                      1999                1998
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Current assets:
     Trade accounts  receivable  (including  notes  receivable  of  $42,390  and
         $46,173, respectively), less allowance for doubtful
         accounts of $4,597 and $5,486, respectively............................  $     115,335      $      126,540
     Inventories................................................................        114,837             118,308
     Other current assets.......................................................         52,488              59,256
                                                                                  -------------      --------------
         Total current assets...................................................        282,660             304,104

Investments in subsidiaries.....................................................        231,829             172,580

Properties and equipment, net...................................................        117,017             111,735

Net pension asset...............................................................        198,160             176,792

Other assets....................................................................          8,130               6,520
                                                                                  --------------     --------------

         Total assets...........................................................  $     837,796      $      771,731
                                                                                  ==============     ==============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable...........................................................  $      33,653      $       48,200
     Operating advances payable to subsidiaries, net............................        395,077             329,373
     Other current liabilities..................................................         75,006             113,022
                                                                                  --------------     --------------
         Total current liabilities..............................................        503,736             490,595

Other liabilities...............................................................        135,113              74,907

Shareholders' equity............................................................        198,947             206,229
                                                                                  --------------     --------------

         Total liabilities and shareholders' equity.............................  $     837,796      $      771,731
                                                                                  ==============     ==============
</TABLE>



                                       76

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
            CONDENSED STATEMENTS OF OPERATIONS AND RETAINED EARNINGS
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)


<TABLE>
<CAPTION>
                                                                                    RESTATED            RESTATED
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net sales and revenues from:
     Product sales..........................................  $     793,530       $     874,841      $      896,111
     Other services.........................................         18,426              17,607              15,614
                                                              -------------       -------------      --------------
         Total net sales and revenues.......................        811,956             892,448             911,725
Cost and expenses from:
     Products and plant operations..........................        743,143             812,439             837,623
     Selling, general and administrative activities.........         96,454              85,844              84,573
                                                              -------------       -------------      --------------
         Total operating costs and expenses.................        839,597             898,283             922,196
                                                              -------------       -------------      --------------

Operating income (loss).....................................        (27,641)             (5,835)            (10,471)
Interest expense, net.......................................        (11,528)             (7,788)            (10,213)
Other income, net...........................................         36,014              27,949              21,500
                                                              -------------       -------------      --------------
Earnings (loss) from operations before income taxes
     and equity in earnings of subsidiaries.................         (3,155)             14,326                 816
Income tax benefit (expense)................................        (12,173)              7,073               6,821
                                                              -------------       -------------      --------------
Income (loss) before equity in earnings of subsidiaries.....         (9,018)             21,399               7,637
Equity in earnings (loss) of unconsolidated subsidiaries....         (7,223)             (9,210)              3,033
                                                              -------------       -------------      --------------
Earnings before cumulative effect of an accounting change...          1,795              12,189              10,670
Cumulative effect of accounting change, net of tax
     expense of $16,500.....................................              0              28,956                   0
                                                              -------------       -------------      --------------
Net earnings................................................          1,795              41,145              10,670
Retained earnings - beginning of year.......................        155,362             117,851             111,418
Dividends...................................................         (3,394)             (3,634)             (4,237)
                                                              -------------       -------------      --------------
Retained earnings - end of year.............................  $     153,763       $     155,362      $      117,851
                                                              =============       =============      ==============
</TABLE>


                                       77

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                        CONDENSED STATEMENTS OF CASH FLOW
                 FISCAL YEARS ENDED JUNE 30, 1999, 1998 AND 1997
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                                    RESTATED            RESTATED
                                                                   1999               1998                1997
                                                              -------------       -------------      -------------
<S>                                                           <C>                 <C>                <C>
Net cash flows from operating activities....................  $     23,593        $     34,519       $     19,670
Cash flows from investing activities:
     Purchases of property, plant and equipment                    (19,793)            (21,913)           (17,169)
     Proceeds from disposal of business.....................        14,150                   0                  0
     Other..................................................        (9,111)                884              4,639
                                                              -------------       -------------      -------------
Net cash flows used in investing activities                        (14,754)            (21,029)           (12,530)
Cash flows from financing activities:
     Payments on capitalized leases.........................          (243)               (526)              (832)
     Cash dividends paid....................................        (3,532)             (3,943)            (4,297)
     Other..................................................        (5,064)             (9,021)            (2,011)
                                                              -------------       -------------      -------------
Net cash flows used in financing activities                         (8,839)            (13,490)            (7,140)
Net increase in cash and equivalents........................             0                   0                  0
Cash and equivalents at beginning of year                                0                   0                  0
                                                              -------------       -------------      -------------
Cash and equivalents at end of year.........................  $          0        $          0       $          0
                                                              =============       =============      =============
</TABLE>



                                       78

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                             (THOUSANDS OF DOLLARS)


BASIS OF PRESENTATION
In the preceding  condensed  financial  statements,  which  represent the parent
company only,  Agway's  investment in subsidiaries is stated at cost plus equity
in undistributed  earnings of subsidiaries since the date of acquisition.  These
financial  statements  should be read in conjunction  with Agway's  consolidated
financial statements.

As discussed in Note 2 to the consolidated financial statements,  effective June
26,  1999,  Agway  Consumer  Products  Inc., a Delaware  corporation  and former
holding of AHI, was merged into Agway Inc. Agway Consumer Products Inc. held the
assets and business  operations of the former Retail  segment and certain assets
and business  operations of the Country  Products  Group and  Agriculture.  This
merger into Agway aligns the legal  structure  more closely with the  management
structure  of Agway and  facilitates  the  ability  to manage  these  assets and
businesses prospectively.  The 1998 and 1997 results as shown have been restated
to reflect this merger.

The  1998  results  have  been  restated to correct for the accounting effect of
the irregularities  as  described  in  Note  17  to  the Agway Inc. consolidated
financial statements.

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

INVENTORIES
Inventories at June 30 consist of the following:
<TABLE>
<CAPTION>
                                                                                                        Restated
                                                                                      1999                1998
                                                                                  -------------      --------------
<S>                                                                               <C>                <C>
Raw materials...................................................................  $      6,892       $       7,293
Finished goods..................................................................       106,332             109,451
Supplies........................................................................         1,613               1,564
                                                                                  -------------      --------------
                                                                                  $    114,837       $     118,308
                                                                                  =============      ==============
</TABLE>

DEBT
Debt capital for Agway is supplied by its wholly owned  subsidiary,  AFC,  which
secures  financing  through  bank  borrowings  and  issuance of  corporate  debt
instruments.   The  payment  of   principal   and   interest  on  this  debt  is
unconditionally  guaranteed by Agway. This guarantee is full and  unconditional,
and joint and several. The total debt of AFC guaranteed by Agway is disclosed in
Note 10.

RELATED PARTY TRANSACTIONS
Transactions  between  Agway I nc. and  its  unconsolidated  subsidiaries are as
follows:
<TABLE>
<CAPTION>
                                                                                  YEARS ENDED JUNE 30
                                                              -----------------------------------------------------
                                                                                    Restated            Restated
                                                                   1999               1998                1997
                                                              -------------       -------------      --------------
<S>                                                           <C>                 <C>                <C>
Net sales and revenues......................................  $      5,297        $     36,555       $      15,919
Product and plant operation expenses........................        19,648              12,638               4,020
Recovery of selling, general and administrative expenses....        19,072              19,051              19,207
Interest expense, net.......................................        17,509              14,306              15,284
</TABLE>


                                       79

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT
           ----------------------------------------------------------

                          AGWAY INC. (PARENT CO. ONLY)
                    NOTES TO CONDENSED FINANCIAL INFORMATION
                             (THOUSANDS OF DOLLARS)


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



                                       80

<PAGE>



ITEM 14(A)(2).  FINANCIAL STATEMENT SCHEDULES

                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                   COL. A                              COL. B               COL. C                 COL. D        COL. E
------------------------------------------------------------------------------------------------------------------------
                                                                           ADDITIONS
                                                                     ------------------------
                                                       BALANCE       CHARGED TO    CHARGED TO                   BALANCE
                                                     AT BEGINNING     COSTS AND     OTHER                        AT END
                 DESCRIPTION                          OF PERIOD       EXPENSES     ACCOUNTS      DEDUCTIONS    OF PERIOD
------------------------------------------------------------------------------------------------------------------------
------------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 30, 1999
------------------------------------------------------------------------------------------------------------------------

<S>                                                  <C>             <C>           <C>           <C>           <C>
Reserves deducted in the balance sheet from assets
to which they apply:
     Allowance for doubtful notes and accounts
         receivable (current)......................  $   7,926       $   1,467     $       0     $2,238(a)     $   7,155
                                                     =========       =========     =========     =========     =========
     Allowance for doubtful leases receivable......  $  27,071       $   9,727     $       0     $6,820(a)     $  29,978
                                                     =========       =========     =========     =========     =========
     Reserve for other security investments........  $       0       $   1,010     $       0     $    0        $   1,010
                                                     =========       =========     =========     =========     =========
     Reserve for obsolete and slow moving inventory  $     591       $     135     $       0     $    0        $     726
                                                     =========       =========     =========     =========     =========
     Surplus property reserve......................  $     789       $       0     $       0     $   91(b)     $     698
                                                     =========       =========     =========     =========     =========
     Income tax valuation allowance................  $       0       $       0     $       0     $    0        $       0
                                                     =========       =========     =========     =========     =========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 30, 1998
------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>           <C>           <C>           <C>
Reserves deducted in the balance sheet from assets
to which they apply:
     Allowance for doubtful notes and accounts
         receivable (current)......................  $   7,864       $   1,820     $       0     $1,758(a)     $   7,926
                                                     =========       =========     =========     =========     =========
     Allowance for doubtful leases receivable......  $  24,014       $   9,570     $       0     $6,513(a)     $  27,071
                                                     =========       =========     =========     =========     =========
     Reserve for obsolete and slow moving inventory  $   2,362       $     100     $       0     $1,871        $     591
                                                     =========       =========     =========     =========     =========
     Surplus property reserve......................  $     856       $       0     $       0     $   67(b)     $     789
                                                     =========       =========     =========     =========     =========
     Income tax valuation allowance................  $       0       $       0     $       0     $    0        $       0
                                                     =========       =========     =========     =========     =========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------
                                         for the year ended June 30, 1997
------------------------------------------------------------------------------------------------------------------------
<S>                                                  <C>             <C>           <C>           <C>            <C>
Reserves deducted in the balance sheet from assets
to which they apply:
     Allowance for doubtful notes and accounts
         receivable (current)......................  $  10,062       $     623     $       0     $ 2,821(a)     $   7,864
                                                     =========       =========     =========     ==========     =========
     Allowance for doubtful leases receivable......  $  19,776       $   9,718     $       0     $ 5,480(a)     $  24,014
                                                     =========       =========     =========     ==========     =========
     Reserve for obsolete and slow moving inventory  $   2,547       $     385     $       0     $   570        $   2,362
                                                     =========       =========     =========     ==========     =========
     Surplus property reserve......................  $   1,428       $      66     $       0     $   638(b)     $     856
                                                     =========       =========     =========     ==========     =========
     Income tax valuation allowance................  $     881       $       0     $       0     $  (881)       $       0
                                                     =========       =========     =========     ==========     =========
</TABLE>
(a) Accounts charged off, net of recoveries.
(b) Locations sold.


                                       81

<PAGE>



ITEM 14(B).       REPORTS ON FORM 8-K
                  No  reports  on Form 8-K for the three  months  ended June 30,
                  1999,  have been  filed.  Agway did file a Form 8-K on July 8,
                  1999,  reporting  that it was  disclosed to Agway that records
                  had been  falsified  during  the year to conceal  losses  from
                  unauthorized  speculative  activities in  Agriculture's  grain
                  marketing business.

ITEM 14(C)(1).    EXHIBITS  REQUIRED  BY  SECURITIES  AND  EXCHANGE  COMMISSION
                  REGULATION S-K

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

                      ARTICLES OF INCORPORATION AND BY-LAWS

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

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

                      3(c)  -  By-Laws of Agway  Inc.,  as  amended  April 28,
                               1999,  filed by  reference  to  Exhibit 3 of Form
                               10-K, dated August 27, 1998.

                      INSTRUMENT  DEFINING  THE  RIGHTS  OF  SECURITY  HOLDERS,
                      INCLUDING INDENTURES

                      4(a)  -  The Indenture dated as of October 1, 1974 between
                               Agway Inc. and First Trust and Deposit Company of
                               Syracuse,  New  York, Trustee, including forms of
                               Subordinated Debentures (Minimum 8% per annum)due
                               July 1,1999, and Subordinated Debentures (Minimum
                               8.5%  per  annum) due  July  1, 1999,  filed  by
                               reference  to  Exhibit  4  of  the  Registration
                               Statement  (Form S-7),  File No.  2-52179  dated
                               November 21, 1974.

                      4(b)  -  The  Indenture  dated  as  of  September  1, 1976
                               between Agway Inc. and  First  Trust and  Deposit
                               Company of Syracuse, New York, Trustee, including
                               forms of Subordinated  Debentures (Minimum 7% per
                               annum)due July 1,2001,and Subordinated Debentures
                               (Minimum 7.5% per annum) due July 1, 2001,  filed
                               by reference to Exhibit 4  of  the   Registration
                               Statement (Form S-1),  File  No. 2-57227,  dated
                               September 21, 1976.

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

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



                                       82

<PAGE>



ITEM 14(C)(1).  EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION
                REGULATION S-K

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

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

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

                     4(h)  -  The Indenture dated as of August 23, 1988, between
                              AFC and Key Bank of Central  New York of Syracuse,
                              New York, Trustee, including forms of Subordinated
                              Member Money Market Certificates (Minimum 9.5% per
                              annum)  due  October  31, 2000,  and  Subordinated
                              Member  Money  Market Certificates (Minimum 9% per
                              annum)due October 31, 2008, and Subordinated Money
                              Market Certificates (Minimum 9%  per   annum)  due
                              October 31, 2000,  and  Subordinated  Money Market
                              Certificates  (Minimum 8.5% per annum) due October
                              31, 2008, filed by reference to Exhibit 4 of   the
                              Registration  Statement  (Form S-3),  File  No.
                              33-24093, dated August 31, 1988.

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

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

                     4(k)  -  Agway  Board of Directors resolutions authorizing
                              the issuance of Honorary Member  Preferred  Stock,
                              Series  HM  and   Membership   Common   Stock  and
                              authorizing AFC to issue Money Market Certificates
                              under  Indentures  dated as of  August  23,  1989,
                              filed herein.

                     4(l)  -  AFC  Board of Directors  resolutions  authorizing
                              the  issuance of Money Market  Certificates  under
                              Indentures  dated  as  of  August 23, 1989 , filed
                              herein.

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



                                       83

<PAGE>



ITEM 14(C)(1).  EXHIBITS REQUIRED BY SECURITIES AND EXCHANGE COMMISSION
                REGULATION S-K

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

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

                     10   -   MATERIAL CONTRACTs
                              (a) Directors - Deferred Compensation Agreement
                              (b) Board Officers-Deferred Compensation Agreement

                     12   -   STATEMENT RE COMPUTATION OF RATIOS

                     21   -   SUBSIDIARIES OF THE REGISTRANT

                     23   -   CONSENTS OF EXPERTS AND COUNSEL

                     27   -   FINANCIAL DATA SCHEDULE*

                     99   -   ADDITIONAL EXHIBITS
                              The Annual Report on Form 11-K for the year ended
                              June 30, 1999 of the Agway Inc. Employees' Thrift
                              Investment Plan.


* Included with electronic filing only.

                                       84

<PAGE>



                                   SIGNATURES

      Pursuant  to the  requirements  of Section  13 or 15(d) 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)

                                   By              /s/ Donald P. Cardarelli
                                         ---------------------------------------
                                                     DONALD P. CARDARELLI
                                                     PRESIDENT AND CHIEF
                                                      EXECUTIVE OFFICER
                                                 (PRINCIPAL EXECUTIVE OFFICER)

                                   Date             September 10, 1999
                                        ----------------------------------------

      Pursuant to the requirements of the Securities  Exchange Act of 1934, this
report  has  been  signed  below  by the  following  persons  on  behalf  of the
registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
                      SIGNATURE                        TITLE                                           DATE
                      ---------                        -----                                           ----
             <S>                                       <C>                                       <C>
             /s/ Donald P. Cardarelli                  President and Chief Executive Officer     September 10, 1999
              (DONALD P. CARDARELLI)                         (Principal Executive Officer)


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



             /s/ Ralph H. Heffner                      Chairman of the                           September 10, 1999
              (RALPH H. HEFFNER)                           Board and Director



             /s/ Gary K. Van Slyke                     Vice Chairman of the                      September 10, 1999
              (GARY K. VAN SLYKE)                          Board and Director



             /s/ Kevin B. Barrett                      Director                                  September 10, 1999
              (KEVIN B. BARRETT)



             /s/ Keith H. Carlisle                     Director                                  September 10, 1999
              (KEITH H. CARLISLE)



             /s/ D. Gilbert Couser                     Director                                  September 10, 1999
              (D. GILBERT COUSER)
</TABLE>
                                       85

<PAGE>

<TABLE>
<CAPTION>

                   SIGNATURE                             TITLE                                       DATE
                   ---------                             -----                                       ----

             <S>                                       <C>                                       <C>
             /s/ Andrew J. Gilbert                     Director                                  September 10, 1999
              (ANDREW J. GILBERT)



             /s/ Peter D. Hanks                        Director                                  September 10, 1999
               (PETER D. HANKS)



             /s/ Robert L. Marshman                    Director                                  September 10, 1999
              (ROBERT L. MARSHMAN)



             /s/ Jeffrey B. Martin                     Director                                  September 10, 1999
              (JEFFREY B. MARTIN)



             /s/ Samuel F. Minor                       Director                                  September 10, 1999
              (SAMUEL F. MINOR)



             /s/ Carl D. Smith                         Director                                  September 10, 1999
              (CARL D. SMITH)



             /s/ Thomas E. Smith                       Director                                  September 10, 1999
              (THOMAS E. SMITH)



             /s/ Joel L. Wenger                        Director                                  September 10, 1999
              (JOEL L. WENGER)



             /s/ Edwin C. Whitehead                    Director                                  September 10, 1999
              (EDWIN C. WHITEHEAD)



             /s/ William W. Young                      Director                                  September 10, 1999
              (WILLIAM W. YOUNG)
</TABLE>

                                       86

<PAGE>


SUPPLEMENTAL  INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION
15(D) OF THE ACT BY REGISTRANTS WHICH HAVE NOT REGISTERED SECURITIES PURSUANT TO
SECTION 12 OF THE ACT.

As of the date of this filing on Form 10-K, the Registrant has not had available
to be sent to security  holders the annual report for fiscal year ended June 30,
1999. Subsequent to the filing of the annual report on Form 10-K, the Registrant
shall furnish security holders with annual reports.





                                       87
<PAGE>

                                   AGWAY INC.
                                   FORM 10-K
                                  JUNE 30, 1999
                                  EXHIBIT INDEX


Exhibit
Number       Title
-------      -----

(10)         Material contracts
             (a)           Directors - Deferred Compensation Agreement
             (b)           Board Officers - Deferred Compensation Agreement

(12)         Statements re computation of ratios

(21)         Subsidiaries of registrant

(23)         Consent of experts and counsel

(27)         Financial data schedule*

(99)         Additional exhibits
                  Annual report on Form 11-K for the year ended June 30, 1999 of
                  the Agway Inc. Employees' Thrift Investment Plan


*Included with electronic filing only.