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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, 2001
                                       OR
      TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
----
      EXCHANGE ACT OF 1934
      For the transition period from         to
      Commission file number 2-22791
                                   AGWAY INC.
             (EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

       DELAWARE                                       15-0277720
(STATE OR OTHER JURISDICTION             (I.R.S. EMPLOYER IDENTIFICATION NO.)
OF INCORPORATION OR ORGANIZATION)

                   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  OR  INFORMATION
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 14, 2001.

               Membership Common Stock, $25 Par Value - $2,434,750

      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 14, 2001
           -----                            ---------------------------------
     Membership Common Stock,
        $25 Par Value                               97,390 Shares

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



<PAGE>



                         FORM 10-K ANNUAL REPORT - 2001
                    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.......................................................................   5
                      Energy.......................................................................................   7
                      Leasing......................................................................................   8
                      Insurance....................................................................................   8
                      Discontinued Operations......................................................................   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.......................................  29
Item 8.           Financial Statements and Supplementary Data......................................................  31
Item 9.           Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.............  74

                                    PART III

Item 10.          Directors and Executive Officers of the Registrant...............................................  74
Item 11.          Executive Compensation...........................................................................  77
Item 12.          Security Ownership of Certain Beneficial Owners and Management...................................  80
Item 13.          Certain Relationships and Related Transactions...................................................  80

                                     PART IV

Item 14.          Exhibits, Financial Statement Schedules and Reports on Form 8-K..................................  81

                  Signatures.......................................................................................  90


</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 (seed, fertilizers,  and chemicals) and
services  for  its  farmer-members   and  other  customers,   primarily  in  the
northeastern  United  States  and  Ohio.  In  addition,  Agway  is  involved  in
repackaging and marketing produce and processing and marketing  sunflower seeds.
Agway,  through certain of its subsidiaries,  is involved in the distribution of
petroleum products; the installation and servicing of heating,  ventilation, and
air-conditioning  equipment;  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.  As one of the largest
agricultural cooperatives in the United States, Agway 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.  In June 2000, Agway discontinued its
retail services business. These operations are therefore reflected separately as
discontinued  operations  in this Form  10-K.  See the  Discontinued  Operations
section of Business and Properties  and Note 14 to the financial  statements for
further details.

Prior to July 1, 2001, Agway Financial Corporation (AFC), a Delaware corporation
incorporated  in 1986 with principal  executive  offices  located in Wilmington,
Delaware,  was a wholly owned  subsidiary  of Agway.  AFC's  principal  business
activities  consisted of securing  financing  through bank borrowings and public
issuance of corporate debt instruments,  principally in the form of Subordinated
Money Market  Certificates (the Debt  Securities),  to provide funds for general
corporate  purposes to Agway and AFC's wholly owned  subsidiary,  Agway Holdings
Inc. (AHI), and AHI's subsidiaries.  Major holdings of AHI included 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) through June 30, 2001. In exemptive relief granted pursuant to
a "no action  letter"  issued by the staff of the SEC, AFC did not file periodic
reports with the SEC for itself but did report summarized financial  information
in Agway's financial  statement  footnotes.  Leasing and Insurance finance their
activities  through  their own  operations  or with a  combination  of their own
short- and long-term  credit  facilities.  Telmark's  debt is not  guaranteed by
Agway.

Effective July 1, 2001, we simplified the Agway  corporate  structure by merging
AFC and AHI into Agway Inc. The more complex  structure was no longer  necessary
due to changed circumstances related to Agway's financing.  Additionally,  Agway
Inc.  assumed  all the assets and  liabilities  of AFC and AHI and  assumed  the
direct  responsibility of securing financing,  as described above. In connection
with the assumption by Agway of the obligations under the Debt Securities,  AFC,
Agway  and The  Chase  Manhattan  Bank,  a New  York  banking  corporation  (the
Trustee),  entered into a Supplemental  Indenture dated as of July 1, 2001 which
provides  for the  assumption  by  Agway  of all  rights,  responsibilities  and
obligations  of AFC under existing  indentures and the Debt  Securities to which
they relate.

Also effective  July 1, 2001,  Agway,  as the sole member of Milford  Fertilizer
Company LLC, a Delaware limited liability company (Milford), merged Milford with
and into Agway Inc. As a result of this  merger,  Agway Inc.  has assumed all of
the assets and liabilities of Milford. The Mergers are not expected to result in
a  material  change  in  the  consolidated  financial  position  or  results  of
operations of Agway.

                                        3

<PAGE>



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


AGRICULTURE

Agriculture,    since   1995,   has   been   comprised   principally   of   five
geographically-based enterprise units. Each unit was responsible for management,
operations,  sales, billing, and customer service within its geographic markets.
The agricultural business is focused on animal feed, agronomy, and farm services
to farmers in their  specific  geographic  markets.  As part of the  Agriculture
realignment  (as  described  below),  the  segment  is  transitioning  from  the
enterprise unit basis of operations to a line of business structure that creates
a separate Feed and Nutrition and an Agronomy Divisions.

FEED AND NUTRITION:  The Feed and Nutrition Division, as realigned,  operates 15
feed  mills  and 4  grind  and  mix  facilities,  principally  in New  York  and
Pennsylvania.  These  operations  manufacture  livestock and poultry feeds under
Agway formulae.  Products are sold primarily through an Agway sales force, which
actively calls on  farmer-customers  and responds to customer  inquiries.  Agway
believes  that  production  capacity of animal feeds will be  sufficient to meet
market needs of the Feed and Nutrition Division.

The Feed operations have built or have under construction four farms,  which, on
a contract  basis for farmers,  custom raise heifers in an  environment  that is
designed to result in those heifers testing free of specific pathogens (TSPF(TM)
-  tested-specific  pathogen  free) with the  ultimate  goal of  increasing  the
productivity  levels of such heifers.  The facilities are in Elba,  Easton,  and
Hopkinton, New York, and Newburg, Pennsylvania.

AGRONOMY:  The Agronomy Division,  as realigned,  operates 72 agronomic blending
plants and  storage  facilities.  These  operations  manufacture,  process,  and
procure  fertilizer  and  other  crop-related  products  to be  sold  as  direct
shipments  to  farmer-customers,   farmer-dealers,   non-farmer  customers,  and
wholesale  accounts.  The  fertilizer  operation in East  Berlin,  Pennsylvania,
manufactures yard and garden fertilizers sold to dealers and distributors on the
East Coast. At East Liverpool,  Ohio, we have fertilizer grading equipment which
processes fertilizer we sell to other commercial  customers.  Agronomy purchases
the  majority  of its  fertilizer  from CF  Industries,  Inc.,  an  agricultural
cooperative  of which Agway is a member and is eligible for  patronage  refunds.
Agway has a significant investment in CF Industries.

Other crop-related products sold primarily for farm use include plant nutrients,
lime, crop protectants,  and various seed products.  The  Agronomy  operation is
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.  Agriculture's seed operations  produce,  import, and market,
primarily for commercial use,  agricultural,  vegetable,  and turf seeds through
facilities  located in Hall, New York, and Elizabethtown,  Emmaus,  Mifflinburg,
and York,  Pennsylvania.  Agway  believes that  production  capacity of agronomy
products will be sufficient to meet the market needs of the Agronomy Division.

The  Agronomy  operation also 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.  Additional  sales  are
generated from Brubaker  Agronomic  Consulting  Services,  LLC, an  agricultural
consulting firm specializing in crop, turf, natural  resources,  engineering and
nutrient management plans.

RESEARCH AND DEVELOPMENT:  The  Feed  and  Nutrition and Agronomy Divisions each
conduct  research  pertinent to their markets. During the years ended June 2001,
2000 and 1999, net  expenditures  of  $200,  $2,400  and  $1,300,  respectively,
were  incurred  by Agriculture on agricultural research activities.

COMPETITION: The Feed operations are one of the largest suppliers based on sales
volume in the northeastern United States (Source: Feed Management).  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, an established
manufacturing and distribution system, and a knowledgeable work force.


                                        4

<PAGE>



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


AGRICULTURE (CONTINUED)

In Agronomy operations,  our fertilizer,  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.

AGRICULTURE  REALIGNMENT:  On  December 7, 2000,  the Agway  Board of  Directors
approved a plan to realign  the  Agriculture  segment of Agway's  business  (the
Agriculture  Plan).  The Agriculture Plan is intended to realign the Agriculture
segment with the continuing  concentration  of farming and our member farmers in
the northeastern  United States and to convert the segment's  historic operating
losses to profits by fiscal 2003. The  Agriculture  Plan calls for the formation
of a Feed and  Nutrition  Division  and an  Agronomy  Division  that  are  being
structured to enable Agway to act as a wholesaler of its  agricultural  products
in its traditional marketplace and as a retailer of its agricultural products in
select markets.  In addition to establishing  the management and systems support
structures,   this   realignment   involves  the  conversion  of  some  existing
Agway-owned  facilities to dealer operations,  as well as the sale or closing of
some  existing  Agway-owned  facilities.  As of June 30,  2001,  the  management
structure is in place,  and the  realignment  is in process.  It is expected the
system  support  conversion,  and the majority of the facility  conversions  and
closings,  will be substantially  completed on or about September 30, 2001. Sale
of closed facilities is estimated to take place through June 2002. Approximately
4 feed mills,  9 feed  storage  facilities,  24 crop  facilities,  1  fertilizer
terminal,  and 13 farm stores and farm  centers  have been or are expected to be
closed and/or sold under the Agriculture Plan.  Additionally,  6 crop facilities
and 3 farm  stores and farm  centers  are  expected  to be  converted  to dealer
operations.

COUNTRY PRODUCTS GROUP

Agway's  Country  Products  Group (CPG) is organized into three  divisions:  The
Produce Group, The Business Group, and The Investment Group. Agway believes that
all  operations  of  CPG  have  sufficient  capacity  to  meet  their  operating
requirements.

THE PRODUCE GROUP: The Produce Group (generally  marketed under the name Country
Best) operates a network of seventeen 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;  Pompano,
Florida; and Idaho Falls, Idaho; and market a wide variety of produce across the
United States.  Truck  brokerage  offices are located in Salina,  Oklahoma,  and
Presque Isle,  Maine; and a seed and tablestock  potato marketing office is also
located in Presque Isle, Maine. The full-line produce operation in Donna, Texas,
was shut down in July 2001, due to unsatisfactory financial performance.



                                        5

<PAGE>



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


COUNTRY PRODUCTS GROUP (CONTINUED)

THE  BUSINESS  GROUP:  The Business  Group  consists of  operations  involved in
commodity  processing  and repack  operations,  and  manufacturing  of bags. 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 human edible
sunflower  seed and bird food.  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.  The 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
(Pro-Pet)  and Buckeye  Feed Mills,  Inc.  (Buckeye  Feeds).  CPG has a minority
investment  in Pro-Pet,  a pet food  manufacturer.  During  2001,  Agway sold an
indirect investment in Buckeye Feeds, an animal feed company. Also, during 2001,
Agway decided to exit the bean operations which  historically  processed,  sold,
and distributed  soybeans and edible dry beans.  The soybean and edible dry bean
processing plants, located at Caledonia and Geneva, New York, are now for sale.

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

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  providing  daily  production  of an animal  feed
product, OptigenTM 1200, a controlled release nitrogen source.

Agway  CPG  Technologies  International  (CPG  Technologies),  headquartered  in
DeWitt, New York, invests in post- harvest  technologies such as Fresh Seal(TM),
a innovative product used for 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.

CPG, through Agway,  currently owns  approximately 33% (3,000,000 shares) of the
outstanding common stock of Planet Polymer  Technologies Inc. (Planet),  located
in San Diego,  California.  On July 18, 2001, Planet's common stock was delisted
from the Nasdaq  small cap stock  market due to  non-compliance  with Nasdaq net
tangible assets and minimum bid pricing requirements.

In November  1998,  Planet granted Agway an exclusive  worldwide  license to all
current and future products that utilize Planet's polymer coating technology for
agricultural and  food-related  purposes (other than products already covered by
existing  agreements).  In March 2000, Agway and Planet entered into sub-license
agreements  defining  sales  royalties  due  Planet  with  respect  to  Planet's
patented/patent  pending  coatings and/or polymer systems sold for use in animal
feed products and on fruits,  vegetables,  floral and nursery items. In November
2000,  Agway purchased rights to the Planet patents that are used in animal feed
products and on fruits, vegetables, floral, and nursery items. For these rights,
Agway  agreed to (1) pay $250 in cash,  (2)  continue  the sales  royalties  due
Planet as defined in the sub-license agreement existing prior to the purchase of
these patent rights, and (3) sell back to Planet the exclusive worldwide license
to all current and future products that utilize this polymer coating  technology
for uses other than agricultural and food-related purposes for $150.

RESEARCH  AND  DEVELOPMENT:  During the years  ended  June 2001,  2000 and 1999,
expenditures  of  $300,  $500  and  $300,  respectively,  were  incurred  by The
Investment Group on research and development activities.



                                        6

<PAGE>



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


COUNTRY PRODUCTS GROUP (CONTINUED)

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 bag printing and  manufacturing  product  lines of the
Business Group, CPG does not occupy a major position in national markets. In the
Business  Group,  the bird food  products are  primarily  marketed to the dealer
system of 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.

In the Investment  Group, CPG Nutrients has no direct  competitors in the market
for controlled-release nitrogen products in the animal feed area, so competition
will come from indirect  sources.  CPG Nutrients  competes on the basis of a new
technology  bringing  improved  product  quality and  performance  over existing
technologies. As new products are developed, competitive factors may change. CPG
Technologies'  competition  comes from several  types of coating  companies  and
producers  of  similar  products,  some  of  which  are  much  larger  than  CPG
Technologies  and have had a long history in the industry.  Produce  coatings of
waxes,  shellacs,  anti-oxidants,  modified  atmosphere  films,  and new coating
developments, as well as products such as controlled atmosphere containers, film
liners,  and wax boxes,  all compete in the market for specialized  coatings and
films.  We compete on the basis of a new technology  bringing  improved  product
quality and performance over existing technologies.

ENERGY

Agway Energy  Products  LLC (AEP),  a wholly owned  Delaware  limited  liability
company, is a full-service  energy solutions provider to residential,  farm, and
commercial  customers  principally in New York,  Pennsylvania,  New Jersey,  and
Vermont. AEP is 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 the  re-marketing  of  natural  gas and
electricity where  deregulation makes that possible.  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.  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  2001,  AEP owned and  operated,  within  its  geographic  territory,  95
distribution  and  sales  centers.   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. In June 2000, AEP sold 6 of its 7 terminals to Buckeye Partners,  L.P.
(Buckeye).  The  sale of the  terminals  is part of AEP's  strategy  to focus on
growing its retail  energy  marketing  business,  and is not  expected to have a
negative  impact on AEP customers or its  operations.  An agreement with Buckeye
allows AEP to  utilize  these  terminal  facilities  for  storage as part of its
distribution network.

COMPETITION: The fuel oil, propane, HVAC, and power fuel industries in which AEP
competes  are  generally  fragmented  and  consist  of a large  number  of small
businesses.  Some  consolidation  in fuel oil,  propane,  and HVAC 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.



                                        7

<PAGE>



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


LEASING

Telmark LLC (Telmark),  a wholly owned Delaware limited liability  company,  and
Telmark's consolidated  subsidiaries finance equipment,  buildings, and vehicles
to farmers and other customers in rural  communities.  Telmark employs a captive
sales force as its primary distribution system in most of the continental United
States.  Telmark offers  financing in the continental  United States through its
Telmark  Express  program.  Telmark also transacts  business in Canada through a
separate subsidiary,  Telease Financial Services,  Ltd. (TFS). TFS is a Canadian
corporation   which  enters  into  certain  lease   transactions  with  Canadian
customers.  On September  14, 2001,  Agway  pledged its  membership  interest in
Telmark as additional  collateral to secure Agway's obligations under its Credit
Agreement  with lenders.  In the event Agway defaults on its  obligations  under
this Credit  Agreement,  Agway lenders could choose among the remedies available
to  them, including  the  right  to foreclose on the Telmark membership interest
pledged as security, which  would  result in a change in  control of Telmark.

As of June 2001,  Telmark had approximately  $668,300 of leases outstanding with
persons  other than Agway and its  subsidiaries,  net of unearned  interest  and
finance charges of approximately  $264,900.  Telmark finances its operations and
lease  portfolio  growth  through  earnings  and  borrowings  under its lines of
credit,  private  placements  of  debt  with  institutional   investors,   lease
securitizations,  or sales of debentures  to the public.  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   finance   affiliates   of   equipment
manufacturers,  agricultural financial  institutions,  other independent finance
and leasing  companies,  and commercial banks. Many of these  organizations have
substantial  financial and other  resources and, as a  consequence,  are able to
compete on a long-term basis within the market segment which Telmark serves.

INSURANCE

Agway  Insurance  Company  (Insurance),  a wholly  owned New York  property  and
casualty insurance 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.



                                        8

<PAGE>



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


DISCONTINUED OPERATIONS

In fiscal 2000, the former Agway retail services business consisted of two major
components,  a retail store distribution system and a wholesale  procurement and
supply  system.  In the  second  quarter  of fiscal  2000,  the  Agway  Board of
Directors approved a plan to restructure the retail store  distribution  system.
This plan called for the sale or closure of the 227 Agway retail properties.  In
the spring of 2000,  the Agway  Board of  Directors  authorized  the sale of the
wholesale procurement and supply system to Southern States Cooperative,  Inc. An
agreement  for this sale was  executed  on June 20,  2000 and closed on July 31,
2000. The sale of the wholesale  procurement  and supply  system,  when combined
with the  sale  and  closure  of the  Agway-owned  or  operated  retail  stores,
constituted a plan to discontinue  operations of the retail  services  business.
For  financial  reporting  purposes,   the  measurement  date  upon  which  this
discontinued  operation  plan  became  effective  was June 20,  2000.  Operating
results of the retail services business,  including restructuring activity which
took  place  through  that  date,  are  included  in  the  operating  loss  from
discontinued  operations  in the  financial  statements  for the year ended June
2000.  The  anticipated  gains and losses  after  June 20,  2000 from the future
anticipated  sale of the  wholesale  procurement  and supply  system,  which was
consummated  on  July  31,  2000,  and  the  sale or  closure  of the  remaining
Agway-owned or operated retail store properties, as well as the results of their
future  operations  through the  anticipated  dates of sale, are included in the
loss on disposal of the retail  services  business in the June 2000 statement of
operations. Prior year financial results reflect the retail services business as
a discontinued operation.

During  fiscal 2000 and 2001,  the plan to  discontinue  the  operations  of the
retail services business was executed. As of June 30, 2001, a total net asset of
discontinued  operations  of  $5,414  remains,  as  detailed  in  Note 14 to the
financial  statements,  and no adjustments to the estimated net loss on disposal
of discontinued operations established as of the June 20, 2000, measurement date
was required.

HUMAN RESOURCES

As of June 30, 2001, Agway and its  subsidiaries  employed  approximately  4,700
people,  700 of whom were  part-time.  This  represents a decrease of 900 people
from  5,600  employees  as of June 24,  2000,  of whom 600 were  part-time.  The
decrease  is  substantially  due to the  discontinuation  of the  former  retail
services   business  and  to  the  Agriculture  Plan   realignment.   There  are
approximately  120  employees  represented  by two  different  unions with seven
existing union contracts.  We enjoy  satisfactory  relations with both our union
and nonunion employees as a result of competitive wage 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 6 remaining years with two 10-year renewal options. 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.


                                        9

<PAGE>



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


REGULATION (CONTINUED)

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). See
Legal Proceedings (Item 3).

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 or authorized dealers. Currently,
there are approximately 69,000 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.  Ownership of Membership  Common Stock is different  from  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.

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, are held by
Agway members,  the Agway Inc.  Employees' 40l(k) Thrift Investment Plan and the
general public.  In addition,  non-cumulative  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).

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  presently 14 directors on
the Board of Directors,  all of whom are members.  Effective October 2001, there
will be 17  directors  on the Board of  Directors,  at least 14 of whom shall be
members,  up to two of whom shall be other  directors who are not required to be
members, and the chief executive officer of the Company. Members elect directors
each year at the annual  meeting to fill new seats or vacancies  resulting  from
the expiration of the terms of certain directors. Once elected, a director holds
office for a term of 3 years.



                                       10

<PAGE>



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


STOCKHOLDER MEMBERSHIP AND CONTROL OF AGWAY (CONTINUED)

Agway announced a new process for nominating and electing  Directors which takes
effect for the Cooperative's 2001 Director elections to be held in October 2001:

o     Three geographic  Nomination  Regions have replaced the fifteen Nomination
      Districts that comprise Agway's membership.

o     Director  Nominating  Forums  established  in each region  identified  and
      recommended Member Director candidates.

o     Every Agway member has the  opportunity  to participate on an annual basis
      in the  Director  Nominating  Forums,  with  special  emphasis  placed  on
      engaging  those members who  represent  the majority of Agway's  patronage
      volume.

o     In October  2001,  two outside  Directors and Agway's CEO will be added to
      the Board,  while over the next two years,  the number of Member Directors
      will be reduced from 14 to 12.

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 by
      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, an amount
equal to the earnings,  if any, 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 income taxes and dividends on issued and outstanding  stock
of Agway may be paid as patronage refunds in cash. 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 from Agway 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.

                                       11

<PAGE>



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


PATRONAGE REFUNDS (CONTINUED)

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 governments,  and charitable,
religious  or  educational  institutions  that  use or  produce  farm  supplies.
Business  with contract  patrons  currently  represents  less than 1% of Agway's
annual sales volume.

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:

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

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 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 was entered by the Court
in May  1999.  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.  In January 2001, the parties agreed to a voluntary  dismissal of
this lawsuit. 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.
In June 1997, the cooperating  PRPs agreed upon an allocation of  responsibility
for past and future  investigation and remediation costs. In March 2000, the EPA
issued the Record of  Decision  (ROD) for the  Remedial  Design/Remedial  Action
(RD/RA)  for the site.  The EPA has  requested  that  Agway  and the other  PRPs
participate  in the  RD/RA.  A  group  of  cooperating  PRPs,  including  Agway,
negotiated  a Consent  Decree  with the EPA to perform  the RD/RA.  The  Consent
Decree was filed with the U.S. District Court, Northern District of New York, in
April 2001 and was  approved  by the Court in August  2001.  Based on the agreed
upon allocation and the cost estimates for the site,  Agway has accrued its best
estimate for any additional costs at the site.

                                       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 2001.

                                     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
      14, 2001,  is 97,390,  of which  28,607  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 2001 and 2000.
(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,  independent  certified public  accountants,  whose
report for the three  years ended June 2001 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 2001         June 2000          June 1999        June 1998          June 1997
                                --------------     -------------     --------------    --------------    --------------
<S>                             <C>                <C>               <C>               <C>               <C>
Net sales and revenues........  $   1,548,314      $  1,357,999      $   1,160,278     $   1,236,976     $   1,325,787
Earnings from continuing
    operations................  $      (7,870)     $      6,152      $      12,941     $      16,016     $       8,499
Net earnings (loss)(1)(2)(3)..  $      (8,927)     $     (9,377)     $       1,795     $      41,145     $      10,670
Total assets..................  $   1,599,905      $  1,578,129      $   1,437,172     $   1,380,891     $   1,261,763
Total long-term debt .........  $     418,689      $    417,889      $     371,972     $     352,188     $     329,969
Total subordinated debt.......  $     488,110      $    474,874      $     486,303     $     462,196     $     438,127
Cash dividends per share
    of common stock ..........  $        1.50      $       1.50      $        1.50     $        1.50     $        1.50
</TABLE>


(1) 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.

(2) The data reflects  after-tax loss on disposal and loss from the discontinued
    retail services business of $0, $15,529,  $11,146 and $3,827 for 2001, 2000,
    1999 and 1998,  respectively.  The 1997 data reflects  after-tax earnings of
    $2,172 from  discontinued retail services business (see Note 14 of the
    financial statements for details of discontinued operations).

(3) Effective June 25, 2000,  Agway changed its method of determining  the value
    of derivative  instruments under Statement of Financial Accounting Standards
    (SFAS)  No.  133,   "Accounting  for  Derivative   Instruments  and  Hedging
    Activities." A cumulative effect adjustment, net of tax of $1,057, decreased
    net earnings in 2001.


                                       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 13) and
Discontinued  Operations (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 each of the three
fiscal  years in the period  ended  June  2001.  Agway  reports  its  operations
principally in five business  segments:  Agriculture,  Country  Products  Group,
Energy,  Leasing,  and  Insurance.  The  consolidated  results  for all  periods
discussed  reflect the former Agway retail  services  business as a discontinued
operation.

Agway's net sales and revenues and operating results are significantly  impacted
by seasonal  fluctuations due to the nature of its operations and the geographic
location of its service area, which is primarily the northeastern United States.
Agriculture  net sales and  revenues are  traditionally  higher in the spring as
customers  acquire  products to initiate the growing  season.  Energy  generally
realizes significantly higher net sales and revenues in the winter months due to
the higher  product  demand  from cold winter  conditions.  Energy net sales and
revenues  do not include  product  excise  taxes.  The prior years net sales and
revenues have been  reclassified to conform with the current year  presentation.
Country Products Group,  Leasing,  and Insurance are not materially  impacted by
seasonal fluctuations.

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

RESULTS OF OPERATIONS - 2001 COMPARED WITH 2000

CONSOLIDATED RESULTS

Agway's net loss of $8,900 for 2001 reflects a decrease in net loss of $500 (5%)
from a net loss of  $9,400  in  2000.  The net loss is  reported  separately  as
continuing and discontinued operations.  The net loss from continuing operations
of $7,900 in 2001 represents a decrease in earnings of $14,000 from net earnings
from  continuing  operations of $6,100 in 2000.  The net loss from  discontinued
operations  was $0 in 2001,  as compared to a net loss of $15,500 in 2000, as no
adjustment  to the  estimated  net loss on disposal of  discontinued  operations
established as of the June 20, 2000, measurement date was required. Finally, the
cumulative  effect of an accounting  change  resulted in a net loss of $1,000 in
2001.

The $14,000  decrease in earnings  from  continuing  operations  is made up of a
$26,700  decrease  in  pre-tax  earnings  offset  by a $12,700  decrease  in tax
expense. The decrease in pre-tax earnings consists of operating  improvements in
certain business  operations of $15,800 (see business segment  discussion below)
that were offset by $14,400 in operating  losses and costs  associated  with the
realignment  and/or  shutdown and exit from certain  business  activities in our
Agriculture  ($5,500) and Country  Products  Group ($8,900)  segments.  Gains in
fiscal  2000 of  $17,900  from the sale of 6 Energy  pipeline  terminal  storage
facilities  ($12,900) and a negotiated  settlement of prior years' cost ($5,000)
in  Agriculture's  operations  were unique to that year and were not repeated in
2001.  Finally,  corporate costs increased $10,200,  substantially due to higher
interest  costs  from  higher  average debt  balances  combined  with a slightly
higher  average interest rate during 2001 as compared to 2000.  Additionally,  a
decline in  the  amount of pension  income  recognized in continuing  operations
occurred  during 2001  due to the  transition asset being fully amortized during
2000.

Consolidated  net sales and revenues  from  continuing  operations of $1,548,300
increased  $190,300  (14%)  compared to  $1,358,000  in 2000.  The  increase was
substantially the result of increased sales in the Energy segment.  The increase
in Energy was  principally  due to increases  in the cost of petroleum  products
over the prior year combined with an increase in volume. Sales also increased in
2001  from  increased  sales  from  Energy's   heating,   ventilation  and  air-
conditioning  installation  and service sales and growth in electric and natural
gas marketing  sales;  an increase in lease revenues at Telmark;  an increase in
CPG's continuing produce operations; and increases in Agriculture's agronomy and
heifer rearing  services.  These  improvements  were  partially  offset by sales
declines in Agriculture's  Feed operations,  substantially  due to the result of
the planned exiting from the direct marketing of grains.  An additional  decline
in sales was  experienced  in CPG's  sunflower  operation,  the result of a poor
sunflower seed crop that impacted

                                       14

<PAGE>



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


CONSOLIDATED RESULTS (CONTINUED)

sunflower seed product sales in the first quarter of 2001, and for the remainder
of the year, the result of a combination of lower product demand,  low commodity
pricing, and international pricing competition.

Consolidated operating expenses from continuing operations of $1,527,400 in 2001
increased  $187,300  (14%)  compared  to  $1,340,100  in 2000.  The  increase in
operating  expense was substantially due to increased cost of products and plant
operations of $168,200 (15%) substantially from the increase in Energy's product
costs noted above and increased selling,  general and administrative  activities
of $13,400 (10%), principally in CPG, Telmark, and Corporate.

Net interest  expense from  continuing  operations of $37,600  increased  $7,000
(23%) in 2001 as  compared  to $30,600 in 2000.  Average  borrowing  levels were
higher  in 2001 as  compared  to  2000,  the  average  interest  rate  increased
slightly, and debt fees were higher in 2001 as compared to 2000, which drove the
increase in interest expense.

Other income, net, from continuing  operations of $3,000 decreased $22,700 (88%)
in 2001 as compared to $25,700 in 2000. Total impairment losses recorded in 2001
totaled  $4,400 as compared to $0 in 2000.  Additionally,  other  income in 2000
included a $12,900 gain from the sale of six Energy  pipeline  terminal  storage
facilities and $5,000 from a negotiated settlement in Agriculture of amounts due
the Company on claims from prior years' business activity,  which were unique to
that year and were not repeated in 2001.

Income tax benefit from continuing operations of $5,800 in 2001 as compared to a
tax  expense of $6,900 in 2000  results in  effective  tax rates of (42.5%)  and
52.7%,  respectively.  Effective  July  1, 2001,  Agway simplified its corporate
structure by merging AFC and AHI into Agway Inc.  The change in net deferred tax
liabilities   reflects  the  expected  future  tax  rate  from  this  structure.
Additionally, an adjustment to  prior  years' tax  liabilities and  a  valuation
allowance had a significant impact on the effective rate.

AGRICULTURE

Total  Agriculture  sales and revenue of $523,600 in 2001 increased $14,900 (3%)
as compared to $508,700 in 2000. The overall  increase in sales in 2001 was from
a $19,700 (8%)  increase in sales in the Agronomy  business and a $2,700  (212%)
increase in sales in the tested  specific  pathogen  free (TSPF)  heifer-rearing
services.  These  increases in sales were  partially  offset by a $4,800  (100%)
decrease in the direct marketing of grains, a $400 (0%) decrease in sales in the
feed  business,  and a $2,700 (12%)  decrease in sales in the  Agriculture  farm
stores.

The  sales  increase  in the  Agronomy  operations  was  partly  related  to the
weather-related  delay in the spring 2000 plantings.  That delay resulted in the
sale of agronomy products, such as fertilizer, crop protectants, and lime (which
normally  would have  occurred  in the  fourth  quarter of 2000) to occur in the
first quarter of the current year. Additionally,  the Agronomy sales increase in
2001 was due in part to an  increase  in pricing of  certain  products,  such as
liquid  nitrogen and urea,  where  underlying  product costs  increased in 2001.
These  factors   increased  the  sales  price  of  these   products.   The  TSPF
heifer-rearing   service  sales  increased  due  to  the  continued   growth  of
utilization  of the  heifer-rearing  facilities  during 2001. The decline in the
direct  marketing  of grains in 2001 as  compared  to 2000 was the result of the
planned  exiting from the direct  marketing of grains  during the second half of
2000.  The Feed  operations  experienced  growth in sales in the bagged feed and
ongoing  feed mill  operations  as a result of a refocused  marketing  and sales
strategies. These increases to feed sales were offset by a loss in feed sales as
a result of the actual or impending closure of several feed locations as part of
the Agriculture Plan realignment.



                                       15

<PAGE>



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


AGRICULTURE (CONTINUED)

Agriculture  pre-tax loss of $18,800 in 2001 increased  $5,300 (39%) as compared
to a $13,500  loss in 2000.  The $18,800 loss in 2001  includes  $3,800 in costs
associated  with the  Agriculture  Plan (as further  described in Note 15 to the
financial  statements),  $1,700 in asset  impairment  charges  related to select
business activities with inadequate  projected future cash flows, and $13,300 in
losses from ongoing operations.  The $13,500 loss in 2000 included a $5,000 gain
from a negotiated  settlement (with no  corresponding  gain included in the 2001
results),  a $1,900 cost from the final exiting of the grain marketing business,
and $16,600 in losses from ongoing operations.  The $3,300 improvement in losses
from ongoing operations from $16,600 in 2000 to $13,300 in 2001 is substantially
due to improved  Agronomy results of $3,600,  principally from improved planting
conditions  in the  spring  of  2001  as  compared  to 2000  combined  with  the
weather-related  delay in the spring  2000  plantings  noted  above and  reduced
administrative  costs of $1,500, which were partially offset by increased losses
in our  developing  TSPF(TM)  operations of $1,100,  and reduced feed results of
$300.

COUNTRY PRODUCTS GROUP

Country  Products  Group  (CPG)  total  sales and  revenue of  $202,800  in 2001
increased  $800 (0%) as compared to $202,000  in 2000.  The  continuing  produce
operations  sales  increased  $2,800  (2%) in 2001 as  compared  to 2000  due to
increased  volumes in various  product lines and sales to new  customers.  Other
operating  units of CPG increased  sales by $1,800 (100%) in 2001 as compared to
2000  primarily  from the  commercial  sale of  Optigen(TM)  1200, a controlled-
release nitrogen feed product,  which was not available until the second quarter
of 2000.  These sales increases were partially  offset by a $2,200 (5%) decrease
in  sunflower  seed sales and a $1,600  (4%)  decrease in sales from the sale or
shutdown of certain operations.  The decline in sunflower seed sales is a result
of a poor  sunflower seed crop that  adversely  impacted  sunflower seed product
sales during the first quarter of 2001 and for the remainder of 2001 is a result
of a combination of lower product demand, low commodity pricing,  and lost sales
due to  international  pricing  competition.  The sales  decrease due to sold or
shutdown  operations resulted from the sale of a pastry flour mill in the fourth
quarter of 2000, which decreased sales in 2001 by $4,800,  and the shutdown of a
number  of  other  smaller  operations  reduced  sales  $1,000  (23%) in 2001 as
compared  to 2000.  These  decreases  were  partially  offset by a $4,200  (21%)
increase in sales at the Texas produce  operations,  which was shut down shortly
after the fiscal 2001 year-end.  Total CPG sales that related to operations that
have been sold or exited totaled $33,700 (or 17% of total segment sales) in 2001
and $35,300 (or 17% of total segment sales ) in 2000.

CPG  pre-tax  loss of $14,100 in 2001 is an $11,200  (388%)  increase in pre-tax
loss as  compared to a pre-tax  loss of $2,900 in 2000.  The  increased  loss is
primarily  due to  operating  losses  from  discontinued  businesses,  costs  of
business  shutdowns,  and loss of earnings  from sold  businesses,  which , when
combined,  increased  pre-tax  loss by $8,900 in 2001 as compared  to 2000.  The
largest  components of this impact were from the  operating  losses and costs of
business  shutdown,  including asset  impairment,  relating to the Texas produce
operation  and the  bean  operation  in 2001.  In  contrast,  CPG had  operating
revenues  and a gain on the sale of the  flour  mill in 2000.  CPG's  continuing
operations experienced an increased loss of $2,300 (128%) in 2001 as compared to
2000. The decline was driven by lower margins in the sunflower seed operation as
a result of a combination  of higher  product cost from the prior year carryover
crop and lower product  demand,  excess  industry  capacity,  and  international
competition, as noted above, which has suppressed margins. Additionally, overall
administrative costs have increased principally from increased interest costs.



                                       16

<PAGE>



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


ENERGY

Energy total sales and revenue of $723,900 in 2001  increased  $147,900 (26%) as
compared  to total sales and  revenue of  $576,000  in 2000.  The overall  sales
dollar  increase  was  primarily  due to volume and price  increases  related to
liquid  products.  Sales  dollar  increases  attributable  to increase in liquid
product volume were $11,200 during 2001 (a 2% increase over 2000), while overall
sales dollar  increases  attributable to price increases in liquid products were
$114,100 for 2001 (a 19% increase over 2000).  Volume  increases of $21,000 (8%)
were  experienced in the retail and wholesale  sales of heating oil and propane,
which are a result of colder winter weather in the Northeast in 2001 as compared
to 2000.  These volume increases were partially offset by a $9,800 (4%) decrease
in volume of power fuels,  principally  gasoline, in 2001 as compared to 2000. A
combination  of  increased  price  competition  at our gas  stations  and  lower
contracted commercial gasoline sales caused the volume declines.

The  price  increases  resulted  from  the  petroleum  industry   continuing  to
experience  significantly  higher  pricing of product in 2001 as compared to the
prior  year,   primarily   due  to  pressure  on  global   supply  of  products.
Additionally,  sales  increases  in 2001 of $18,600  (96%) as  compared  to 2000
resulted  from the  continued  sales  growth in the  electric  and  natural  gas
marketing   business.   Finally,   continued  growth  of  revenues  in  heating,
ventilation and  air-conditioning  installation  and service  increased sales in
2001 by $4,000 (7%).

Energy pre-tax  earnings of $20,100 in 2001 decreased $1,900 (9%) as compared to
$22,000 in 2000.  The pre-tax  earnings in 2001 include  $16,500 from  operating
results and $3,600 of other  revenues,  while pre-tax  earnings in 2000 included
$4,800 from operating results and $17,200 from other revenue. The improvement in
operating results includes a $17,400 (10%) increase in gross margin, offset by a
$5,500 (3%) increase  in  operating  expense. The  gross  margins were driven by
product volume increases and improved margins.  The operating expense  increases
are a  result of  distribution costs  from the  increased  volume  of  delivered
products and an increase in 2001 in management and employee incentives  from the
improved operating results in 2001 as  compared to 2000. Finally,  other revenue
decreased $13,600  in 2001  as  compared to  2000  substantially  because Energy
recognized a gain of $12,900 on sale of six pipeline terminal storage facilities
in 2000.

LEASING

Leasing total revenues of $86,200 in 2001 increased  $9,400 (12%) as compared to
revenues of $76,800 in 2000.  The increase is primarily due to a higher  average
investment  in leases and notes,  which was  partially  offset by a lower income
rate on new and replacement  leases and notes.  Telmark's average net investment
in leases and notes increased $76,800 (13%) in 2001 as compared to 2000.

Pre-tax  earnings from  operations of $21,200 for 2001 increased  $1,100 (6%) as
compared  to  pre-tax  earnings  of  $20,100 in 2000.  The  increase  in pre-tax
earnings is due primarily to the total revenue increases noted above, which were
partially  offset by an  increase in total  expenses of $8,200  (14%) in 2001 as
compared to 2000.  The  increase in total  expenses was  substantially  due to a
$5,400 (17%) increase in interest expense,  a $1,600 (20%) increase in provision
for  credit  losses,  and  a  $1,200  (7%)  increase  in  selling,  general  and
administrative  (SGA)  expenses.  The  increase in interest  expense is due to a
$71,300  (15%)  increase in the average  amount of debt  required to finance the
increase in the lease portfolio,  combined with higher interest rates on new and
replacement debt, as compared to the prior year.  Telmark's allowance for credit
losses is based on a periodic  review of the collection  history of past leases,
current  credit  practices,  an analysis  of  delinquent  accounts,  and current
economic conditions.  The increase in provision for credit losses from $7,900 to
$9,500  is based  on an  analysis  of the  allowance  required  to  provide  for
uncollectible  receivables,  and the allowance has been  established  at a level
management believes is sufficient to cover estimated losses in the portfolio. At
June 2001,  the allowance  for credit losses was $35,500  compared to $32,500 at
June  2000.  During  2001 and 2000,  the total  value of  non-earning  discounts
increased  from  $6,000 in 2000 to $6,400 in 2001 and as a  percentage  of lease
portfolio  remained  at 0.9% for both  years.  The  increase  in SGA  expense is
principally  due to additional  personnel and incentive  costs,  paid to certain
employees  relating  to  overall  profitability,   retention  of  business,  and
profitability of new business.

                                       17

<PAGE>



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


INSURANCE

Insurance Group (Agway Insurance  Company and Agway General Agency) net revenues
of $27,900 in 2001 increased $700 (3%) as compared to net revenues of $27,200 in
2000. A $900 (4%) increase in revenues was  experienced  at the Agway  Insurance
Company. The increase was in net earned premiums as sales initiatives caused the
increase in net premiums  year over year.  In the Agency,  2001 revenues of $600
were down $200  (25%) from 2000 as a result of a decline  in  enrollment  in the
products offered by the Agency.

Pre-tax  earnings  of the  Insurance  Group  of $800 in 2001  increased  $800 as
compared to break-even results in 2000. The Agway Insurance Company  experienced
pre-tax earnings of $800 in 2001, which increased $200 (33%) as compared to $600
in 2000. The Insurance  Company  increase in net earned premiums noted above and
an increase in  non-operating  revenues were partially  offset by an increase of
$1,300 in claims  losses during 2001 as compared to 2000 as a result of numerous
roof collapses from the heavy winter snows in the Northeast and an above average
number of farm fires reported during 2001. The Agway General Agency  experienced
a pre-tax  break-even  position for 2001,  which  represents an increase of $600
(100%) from a net loss of $600 in 2000. The improvement in pre-tax  earnings was
primarily due to lower expenses in the Agency.

DISCONTINUED OPERATIONS

As  disclosed  in the  Business  and  Properties  section  (Items 1 & 2),  Agway
discontinued  the operation of our retail services  business in 2000. As of June
2000,  Agway  reflected in its financial  results both the loss from  operations
during 2000 as well as an estimate of the net loss on the  ultimate  disposal of
the  retail  services  business.  During  fiscal 2000 and 2001, as reflected  in
Note 14 of the financial statements,  we executed our plans  to  discontinue the
retail services business and no adjustment to the estimated net loss on disposal
established as of the June 20, 2000 measurement date was required.

RESULTS OF OPERATIONS - 2000 COMPARED WITH 1999

CONSOLIDATED RESULTS

Agway's  net loss of $9,400 for 2000  reflects a decrease in earnings of $11,200
from net earnings of $1,800 in 1999. The net earnings from continuing operations
of $6,100 in 2000 decreased  $6,800 from the $12,900 net earnings in 1999.  This
$6,800 decrease was made up of a $10,200  decrease in pre-tax earnings offset by
a $3,400 decrease in tax expense.  The 2000 results have a $15,500 net loss from
discontinued  operations  as  compared  to  $11,100 in 1999.  (See  Discontinued
Operations section below.)

Consolidated  net sales and revenues  from  continuing  operations of $1,358,000
increased  $197,700  (17%)  compared to  $1,160,300  in 1999.  The  increase was
substantially  the result of increased sales in the Energy and Country  Products
Group (CPG) segments. The increase in Energy was principally due to increases in
the cost of  petroleum  products  over the  prior  year  combined  with a slight
increase in volume.  The increase in Country  Products Group sales resulted from
new  acquisitions  in CPG's Produce Group  operations.  These sales increases in
2000 were further enhanced by increased sales from Energy's heating, ventilation
and  air-conditioning  installation and service sales and growth in electric and
natural gas  marketing  sales;  an increase  in lease  revenues at Telmark;  and
increases in Agriculture's  national commercial  vegetable seed operations,  new
livestock nutrition centers and heifer rearing services. These improvements were
partially offset by sales declines in Agriculture's feed and agronomy operations
which, during 2000, faced continued  industry-wide  depressed commodity pricing,
high spring  rainfall  in a  significant  part of its  planting  territory,  and
planned operational reductions in its grain marketing operations.  An additional
decline in sales was experienced in CPG's sunflower  operation,  the result of a
poor sunflower seed crop in the fall of 1999.



                                       18

<PAGE>



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


CONSOLIDATED RESULTS (CONTINUED)
Consolidated   operating  expenses  from  continuing  operations  of  $1,340,000
increased  $210,100  (19%)  compared  to  $1,129,900  in 1999.  The  increase in
operating  expense was substantially due to increased cost of products and plant
operations of $195,400 (20%),  from the increase in Energy's product costs noted
above and increased selling,  general and  administrative  activities of $12,600
(10%), principally in Agriculture and CPG.

Net interest expense from continuing  operations  increased $4,500 (17%) in 2000
as compared  to 1999.  Borrowing  levels were higher in 2000 as working  capital
requirements increased $52,300, principally as a result of Energy's high product
costs  substantially  driving up the carrying  value of  inventory  and accounts
receivable.

Other net income from continuing operations of $25,700 increased $6,800 (36%) in
2000 as compared  to $18,900 in 1999.  Other  income in 2000  included a $12,900
gain from the sale of six pipeline terminal storage facilities and $5,000 from a
negotiated  settlement in  Agriculture of amounts due the Company on claims from
prior years' business activity. The 1999 other net income included a $10,700 net
gain on sale of CPG's Allied Seed business.

Income tax expense from  continuing  operations of $6,900 in 2000 and $10,300 in
1999  results in  effective  tax rates of 52.7% and 44.2%,  respectively.  State
taxes are a  significant  factor in the  effective  rate.  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 relating to certain acquisitions in 2000 and
1999 increased the effective tax rate for 2000 as compared to the effective rate
for 1999.

AGRICULTURE
Total  Agriculture  sales and revenues of $508,700 in 2000  decreased by $26,500
(5%) as compared to $535,200 in 1999. Total feed sales, including enterprise and
direct  marketing  sales,  decreased  $10,100 (4%) despite a 6% increase in feed
unit volume in 2000 as  compared to 1999.  The decline in feed sales in 2000 was
substantially  the  result  of a  planned  reduction  in grain  marketing  sales
combined with overall lower commodity  market pricing.  These declines more than
offset  sales  growth in the new  livestock  nutrition  centers  in 2000.  Total
agronomy sales  decreased  $14,100 (5%) in 2000 as compared to 1999. The decline
in agronomy  sales  resulted  from the  continued  industry-wide  low  commodity
pricing of  nitrogen  products.  Additionally,  high  rainfall  in the  northern
portion of Agway's  market  territory  during the spring  2000  planting  season
delayed  plantings  and  the  sale of  agronomy  products  such as  fertilizers,
pesticides and lime. The agronomy operations experienced sales growth in 2000 in
its national commercial vegetable seed and agronomy consulting  businesses which
partially  offset the sales declines  noted above.  The  Agriculture  farm store
sales  decreased  $3,800  (15%),  a direct result of closing  several  locations
during 2000.  Agriculture's  new TSPF(TM) (tested specific pathogen free) heifer
rearing services had its initial revenues of $1,100 during 2000.

Agriculture  loss  before  income  taxes of $13,500  increased  $1,100 (9%) from
$12,400 in 1999. The feed operations  pre-tax earnings increased $2,600 (29%) in
2000. The grain  marketing  unauthorized  speculative  positions,  as previously
described in the 1999 10-K, resulted in $8,600 in pre-tax losses in 1999, and an
additional  $1,300 of  pre-tax  losses  were  incurred  in 2000 in  closing  the
unauthorized  speculative  positions  which were  outstanding  at June 1999. The
combined  enterprise and direct marketing feed operations had increased costs of
$4,400 in 2000 as compared to 1999 as a result of facility improvements,  higher
production  costs  from  increased  unit  volume,  and  costs  relating  to  the
discontinuation  of the futures  trading  operations.  The  agronomy  operations
pre-tax earnings decreased $3,500 (55%) in 2000 as compared to 1999. The decline
was  substantially  the result of lost  margins  from the delays in spring  2000
planting noted above and one-time costs  associated  with the  acquisition of an
agronomic consulting operation.  The new TSPF(TM) operations reduced earnings by
$1,600 in 2000 as  compared to 1999 as the  research  and  development  costs to
initiate the operation of several new facilities  were greater than the revenues
generated.   Total  administrative  expenses  more  than  offset  earnings  from
operations noted above.  During 2000,  administrative  costs increased $4,400 as
compared to 1999,  principally  due to  increases  to bad debt expense and lower
interest  revenues.  This  cost  increase  was  offset  by a  $5,000  negotiated
settlement  for amounts due the  Company on claims  from prior  years'  business
activity.  Finally, farm stores pre-tax losses were reduced by $800 due to lower
operational expenses.

                                       19

<PAGE>



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


COUNTRY PRODUCTS GROUP

Country  Products  Group  (CPG)  total  sales and  revenues  of $202,000 in 2000
increased  $30,300 (18%)  compared to $171,700 in 1999.  The growth in CPG sales
over  the  prior  year was  substantially  in the  Produce  Group,  where  sales
increased $35,400 due to the acquisition of new produce businesses in the second
half of 1999 and in the first half of 2000. Additionally, CPG's Investment Group
began commercial sales of Optigen(TM) 1200, a  controlled-release  nitrogen feed
product,  to dairy farmers in the Northeast  beginning in October 1999. Sales of
this new product  totaled  $1,700 for 2000. The growth in sales due to these new
operations was partially  offset by a $6,100 (10%) decline in the Business Group
sales and a $700  decrease  from the sale in the first quarter of 1999 of Allied
Seed. The decline in Business Group sales was substantially the result of a poor
sunflower  seed crop in the fall of 1999,  which was widespread in its territory
due to adverse growing conditions.

CPG loss before income taxes of $2,900 in 2000 is a $15,000  (124%)  decrease in
earnings  compared to earnings  before income taxes of $12,100 in 1999.  Pre-tax
earnings declined in 2000 by $9,100 as compared to the prior year, primarily due
to the  differences  in  gains  resulting  from  the  sale of  certain  business
operations during each of those years. In 1999, CPG recognized a gain of $10,700
on the sale of Allied Seed. In fiscal 2000,  CPG  recognized a gain of $1,600 on
the sale of certain assets and its flour  operation.  The Business Group pre-tax
earnings  declined  $2,500 (93%) due to the  sunflower  operations  experiencing
lower margin from higher product and production  costs  associated with the poor
sunflower  seed crop  harvested in the fall of 1999.  The Produce  Group pre-tax
earnings  declined  $2,500  (64%) in 2000 as compared to 1999.  While  increased
produce sales provided  increased  gross margins,  these gross margins were at a
lower  percentage  than the prior year and were more than  offset by  additional
costs,  principally from the new produce operations.  CPG's Investment Group had
an increase  in pre-tax  loss in 2000 of $1,300  (37%) as compared to 1999.  The
increased loss in 2000 occurred as the Investment Group continues to incur costs
related to several of its new product initiatives.

ENERGY

Energy total sales and revenues of $576,000 in 2000 increased  $185,300 (47%) as
compared to total sales and revenues of $390,700 in 1999. Overall,  sales dollar
increases  from petroleum  product volume  increases were $6,200 (1%) in 2000 as
compared to 1999. The volume increases were driven by higher wholesale volume of
diesel  fuel and  heating  oil and  continued  volume  growth in the  retail and
wholesale  propane  business.  Throughout  fiscal 2000,  the petroleum  industry
experienced significant increases in the pricing of product, particularly in the
first and third quarters of the fiscal year, primarily due to pressure on global
supply of products.  As a result of these market conditions,  Energy experienced
sales dollar increases due to price increases in its liquid products of $158,100
(36%) for 2000 as compared to 1999.  Additionally,  continued focus on growth of
the heating,  ventilation and  air-conditioning  installation and services sales
and in the electric and gas marketing business increased sales in 2000 by $8,900
(19%) and $12,100 (168%), respectively, as compared to 1999.

Earnings  before  income taxes of $22,000 for 2000  increased  $9,000 (69%) from
$13,000 in 1999. Overall,  gross margin dollars increased $7,200 (4%) in 2000 as
compared  to 1999 and were  substantially  driven  by the  continued  growth  in
heating, ventilation and air-conditioning  installation and service sales and an
increase in propane product  volumes with margins  comparable to the prior year.
The  improved  margins,  however,  were more than offset by  increases  in total
operating  expenses of $11,200 (7%) in 2000 as compared to 1999.  An increase in
payroll costs  associated with the increased  service sales and unit volume,  as
well as increased administrative costs, principally information system cost from
implementation of a new operating system, and increased  automotive fuels costs,
increased  total  operating  costs in 2000 as compared to 1999.  Finally,  other
revenue  was  substantially  increased  as a result of the June 2000 sale of six
pipeline terminal storage facilities to Buckeye Partners,  L.P.,  resulting in a
net gain to Energy of $12,900.  This sale is part of Energy's  strategy to focus
on  growing  its retail  energy  marketing  business,  and the sale will have no
negative  impact on Energy's  customers or its  operations.  The agreement  with
Buckeye allows Energy to utilize these  terminal  facilities for storage as part
of its distribution network.


                                       20

<PAGE>



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


LEASING

Leasing total revenues of $76,800 in 2000 increased  $6,800 (10%) as compared to
$70,000  in 1999.  The  increase  is  attributable  in part to a  $67,800  (12%)
increase  in the  average  net leases and notes  during 2000 as compared to 1999
partially offset by a lower income rate on new and replacement leases and notes.

Pre-tax  earnings from operations of $20,100 in 2000 increased $1,900 (10%) from
$18,200 in 1999.  The 2000 increase in total  revenues noted above was partially
offset by increases in interest expense and selling,  general and administrative
(SG&A) costs  incurred to generate  these  revenues in 2000 as compared to 1999.
Total  interest costs of $31,500  increased  $3,900 (14%) in 2000 as compared to
1999 due to a $61,700 (15%)  increase in the average  amount of debt required to
finance the  increase in the lease  portfolio.  The SG&A  expenses of $17,300 in
2000  increased  $1,100  (7%) from  1999,  primarily  the  result of  additional
personnel and incentive  costs  relating to additional  new leases  booked.  The
provision for credit losses of $7,900 in 2000 decreased $100 (1%) as compared to
1999 based on  Telmark's  analysis  of the  allowance  required  to provide  for
uncollectible  receivables.  Telmark's allowance for credit losses is based on a
periodic  review  of the  collection  history  of past  leases,  current  credit
practices,  an analysis of delinquent accounts, and current economic conditions.
At June 2000, the allowance for credit losses was $32,500 compared to $30,000 at
June 1999.  During 2000 and 1999, the general  economy  remained  strong and the
total value of non-earning  accounts  increased from $4,900 in 1999 to $6,000 in
2000 and as a  percentage  of lease  portfolio  remained  at 0.9% in both years.
Reserves are established at a level  management  believes is sufficient to cover
estimated losses in the portfolio.

INSURANCE

Insurance  Group  total net  revenues  of  $27,200 in 2000  decreased  $800 (3%)
compared to $28,000 in 1999. The decline was  experienced in net earned premiums
of Agway Insurance Company.  Reinsurance premiums, which reduce earned revenues,
were higher in 2000 as  compared to 1999.  The 1999  reinsurance  premiums  were
lower  due  to   favorable   claims   development   during   1999  in  the  1995
experienced-rated  reinsurance  contract.  In the Agency,  2000 revenues of $800
were at the same levels as in 1999.

The  Insurance  Group  break-even  results  in 2000 were a  decrease  of $500 as
compared  to pre-tax  earnings  of $500 in 1999.  Pre-tax  earnings of the Agway
Insurance  Company of $600 in 2000 decreased $400 (40%) from $1,000 in 1999. The
decline in net  earned  premiums,  combined  with  higher  costs from new system
implementation,  was partially  offset by improved claims  experience in 2000 as
compared to 1999.  The Agency  experienced  a pre-tax  loss of $600 in 2000,  an
increased loss of $100 as compared to 1999. Higher salary and marketing expenses
cause the increased loss in 2000.


DISCONTINUED OPERATIONS

During  fiscal year 2000, as disclosed in Business and  Properties  (Items 1 and
2), the sale of the wholesale  procurement and supply system, when combined with
the sale and closure of the Agway-owned or operated retail stores, constituted a
plan to discontinue  operations of the former retail services business of Agway.
For  financial  reporting  purposes,   the  measurement  date  upon  which  this
discontinued  operation  plan  became  effective  was June 20,  2000.  Operating
results of the retail services business,  including restructuring activity which
took  place  through  that  date,  are  included  in  the  operating  loss  from
discontinued  operations  in the  financial  statements  for the year ended June
2000.  The  anticipated  gains and losses after June 20,  2000,  from the future
anticipated  sale of the  wholesale  procurement  and supply  system,  which was
consummated  on  July  31,  2000,  and  the  sale or  closure  of the  remaining
Agway-owned or operated retail store properties, as well as the results of their
future  operations  through the  anticipated  dates of sale, are included in the
loss on disposal of retail in the June 2000 statement of operations.  Prior year
financial  results  reflect  the  retail  services  business  as a  discontinued
operation.  The financial  disclosure of discontinued  operations is detailed in
Note 14 to the financial statements.


                                       21

<PAGE>



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


FINANCIAL CONDITION

LIQUIDITY AND CAPITAL RESOURCES

During the year ended June 2001, cash flow from current period operations,  from
reduced working capital needs,  from sale of discontinued  operations,  from the
sale of other  assets,  and from  external  borrowings  funded the growing lease
portfolio of Telmark, capital improvements, redemption of stock, and shareholder
dividends.  During  the year ended June 2000,  cash  generated  from  continuing
operations,  from sale of discontinued  operations,  from sale of businesses and
assets,  and from  external  borrowings  was  Agway's  major  source of funds to
finance the growing lease portfolio at Telmark, increased working capital needs,
capital   improvements,   business   acquisitions,   redemption  of  stock,  and
shareholder dividends. In 1999, cash flow from operations,  from reduced working
capital needs, from sale of businesses and assets, and from external borrowings,
was  used  to  finance  the  growing  lease   portfolio  at   Telmark,   capital
improvement,  business  acquisitions,  redemptions  of  stock,  and  shareholder
dividends.

<TABLE>
<CAPTION>
                                                                        June 2001         June 2000         June 1999
                                                                     --------------    --------------    --------------
<S>                                                                  <C>               <C>               <C>
Net cash flows from (used in):
      Continuing operating activities..............................  $       17,318    $      (40,717)   $       36,358
      Discontinued operating activities............................          28,864            35,995              (391)
      Investing activities.........................................         (65,173)          (91,652)          (82,224)
      Financing activities.........................................            (150)          115,515            46,257
                                                                     ---------------   ---------------    --------------
Net increase (decrease) in cash and equivalents....................  $      (19,141)   $       19,141    $            0
                                                                     ===============   ===============    ==============
</TABLE>

CASH FLOWS FROM OPERATIONS

Cash flows from continuing operations in 2001 of $17,300 improved $58,000 from a
cash used of $40,700 in 2000. Substantially all of the improvement is related to
working  capital needs.  In 2001,  working capital items generated cash flows of
$5,300  as compared to using cash flows of $50,400 in 2000.  The  generation  of
cash flows from  working  capital  items in 2001 was the result of  declines  in
receivables,  principally  Agriculture,  and inventory,  principally  Energy and
Agriculture.  The use of cash from working capital items in 2000 was principally
the result of high energy  product costs that  increased  the carrying  value of
inventory  and  receivables.  In 1999,  cash  flows from  continuing  operations
generated cash flows of $36,400, principally due to lower agriculture and energy
commodity prices that reduced the carrying value of inventories.

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 $55,000,  $79,700 and $63,500 in 2001, 2000 and 1999,  respectively.
Capital expenditures and business acquisitions required cash of $19,300, $32,700
and $35,200 for 2001, 2000 and 1999, respectively.

Cash  flow  used in  investing  was  partially  funded  by cash  generated  from
investing  activities,  principally  the proceeds  from the disposal of business
and/or property and equipment, which amounted to a total of $10,000, $23,200 and
$15,300 in 2001, 2000 and 1999, respectively.



                                       22

<PAGE>



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


CASH FLOWS FROM FINANCING

Agway and AFC
Effective  March 28, 2001,  Agway and AFC established a new senior debt facility
(the Agway Senior Debt) for all business  operations  except for Agway Insurance
Company and Telmark and Telmark's  subsidiaries  (Telmark).  The Agway Insurance
Company is independently  financed through  operations and liquidity provided by
its investment  portfolio.  Telmark  finances  itself through a series of credit
arrangements  that are  independent  from the Agway Senior  Debt.  Each of those
arrangements  is more fully  described  in Note 9 to the  financial  statements.
Effective  July 1, 2001, AFC was merged into Agway.  As a result,  Agway assumed
liability for any amounts borrowed by AFC under the Credit Agreement (as defined
below).

The Agway Senior Debt is a syndicated  three-year  asset-based revolving line of
credit for up to  $175,000  pursuant  to the terms of a credit  agreement  dated
March 28, 2001 (and as amended September 14, 2001) between Agway, certain of its
subsidiaries  and a syndicated  group of lenders (the Credit  Agreement).  Up to
$35,000 of this line of credit can be  designated  for use as letters of credit.
In this asset-based line of credit,  the amount available to Agway is the lesser
of the  "collateral  borrowing  base" or the $175,000 upper limit of the line of
credit.  The collateral  borrowing base consists of certain of Agway's  eligible
accounts  receivable  and  inventory  (as defined  under the Credit  Agreement).
Certain  covenants  and  conditions  of the  Credit  Agreement,  as  more  fully
discussed below, restrict the use of funds and reduce the practical availability
of financing under the agreement by $25,000 to a maximum of $150,000. The credit
facilities  that  this  senior  debt  financing  replaces  amounted  to a  total
availability  for  letters  of credit  and  lines of  credit of up to  $148,000.
Amounts owed under the former  facilities have been repaid and those  facilities
have been terminated.  Management  believes that adequate  collateral exists and
will  continue  to exist so that the Agway  senior debt  financing  is, and will
continue to be, adequate to meet the ongoing needs of Agway.

The Credit  Agreement  has a number of financial  covenants  which  restrict our
capital  spending and require us to maintain  minimum levels of earnings  before
interest,  taxes,  depreciation,  and amortization  (EBITDA),  as defined in the
Credit  Agreement,  minimum  ratios of EBITDA to fixed  charges and  interest on
senior debt, and a minimum outstanding balance of preferred stock,  subordinated
debt,  and  certain  debt of a  subsidiary.  That  minimum  outstanding  balance
requirement,  as amended (as discussed below),  ranges from $455,000 to $465,000
throughout  the year.  (This  minimum  amount of  capital  we must  maintain  is
referred to as the Minimum Capital.)

Other conditions of the Credit Agreement  prevent us, in certain  circumstances,
from  using  funds we borrow  under the  Credit  Agreement  to pay  interest  or
dividends  on, or repurchase or repay  principal  of, our  subordinated  debt or
preferred stock. To avoid these use restrictions,  the Credit Agreement requires
us to have a minimum  excess  borrowing  capacity  as defined  in the  agreement
(collateral  borrowing base greater than outstanding  loans) of at least $20,000
if we are not in default under the Credit Agreement.  If we are in default under
the Credit  Agreement,  to avoid  these use  restrictions,  the  minimum  excess
borrowing capacity we must maintain increases to $25,000  (collateral  borrowing
base greater than outstanding  loans).  Further,  if we are in default under the
Credit Agreement, we are subject to these use restrictions if:

(a)   we  default on our  payment of principal, interest or other amounts due to
      the lenders under the Credit Agreement;

(b)   we  fail  to  maintain the cash management procedures we agree to with the
      lenders under the Credit Agreement;

(c)   we do not maintain the Minimum Capital balance of $455,000 to $465,000; or

(d)   the agent under the Credit  Agreement  provides  us with a written  notice
      that such payments are no longer permitted.



                                       23

<PAGE>



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


CASH FLOWS FROM FINANCING (CONTINUED)

Agway and AFC (continued)
These  conditions  reduce  the  practical  availability  under the  senior  debt
financing from $175,000 to $150,000.  The Credit  Agreement was designed in part
to allow and enable us to continue our past  practice of  repurchasing,  at face
value,  certain  subordinated  debt  and  preferred  stock  when  presented  for
repurchase  prior to  maturity.  However,  while  it is our  current  intent  to
continue  this  historic  practice,  we are under no  obligation  to  repurchase
subordinated  debt prior to its maturity and preferred  stock when so presented,
and may stop or suspend this  practice at any time or may be required to stop or
suspend such  practice if Agway does not continue to meet the  conditions of the
Credit Agreement, including those described above.

As of June 30, 2001, the total amount outstanding under the Credit Agreement was
$83,700,  of which $22,400 was  designated to letters of credit  principally  in
support of Agway insurance programs under the Agway Senior Debt. Interest rates,
as amended in the manner  described  below,  are determined at the option of the
Company, as either prime rate, plus 2.00%, or the London Interbank Offering Rate
(LIBOR) rate, plus 3.50%. These amended rates, effective September 14, 2001, are
now  approximately 25 basis points higher than the rates which were available to
Agway in its prior senior debt financing arrangements.

As of June  30,  2001,  Agway  was in  violation  of  certain  of the  financial
covenants  contained within the Credit  Agreement  because it had not maintained
the required  minimum level of EBITDA and the minimum  ratios of EBITDA to fixed
charges and interest on senior debt. On September 14, 2001, the syndicated group
of lenders agreed to waive these  violations,  and further agreed to amend these
covenants for each of the  succeeding  four quarters  through June 2002 based on
revised  operating  budgets  for that  period  of time.  In  exchange  for those
amendments,  Agway agreed to pay 25 basis points in  additional  interest on its
borrowings,  grant additional security interests in equipment and properties not
previously pledged as collateral  (including a pledge of its membership interest
in Telmark  LLC),  and increase the required  minimum  range of Minimum  Capital
balances to $455,000 to  $465,000  throughout  the year,  an increase of $15,000
over the previous range to reflect the actual increased balances  outstanding at
June 30, 2001, and the projections of those  balances.  Based on this waiver and
amendment,  Agway is currently in compliance  with, and no default exists under,
the terms of the Credit Agreement.

On  November  1,  2001,   $43,100  of  subordinated   money  market  certificate
obligations  of  Agway (previously  issued  by  AFC  and  assumed by Agway) will
mature.  Agway  expects to  refinance  this debt  either  through a new issue of
subordinated debt,  through cash from operations,  through sales of discontinued
assets, through short-term bank borrowings, or a combination thereof.

Telmark Debt
At June 30, 2001, Telmark had credit facilities available from banks aggregating
to $389,300. Uncommitted short- term line of credit agreements permit Telmark to
borrow up to $89,300 on an unsecured basis with interest paid upon maturity. The
lines bear  interest  at money  market  variable  rates.  A  committed  $300,000
partially  collateralized  (by an investment  in a cooperative  bank with a book
value of $14,700 at June 30, 2001) revolving term loan facility  permits Telmark
to draw  short-term  funds  bearing  interest  at  money  market  rates  or draw
long-term debt at rates  appropriate  for the term of the note drawn.  The total
amounts  outstanding as of June 30, 2001 and June 30, 2000 under the short- term
lines of credit were $71,100 and $75,200,  respectively, and under the revolving
term loan facility were $215,500 and $164,500,  respectively. The portion of the
revolving  term loan that is short  term at June 30,  2001 and June 30,  2000 is
$49,500 and $500,  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  $89,300
short-term  lines of credit all have terms  expiring  during the next 12 months.
The $300,000 revolving term loan facility is available through May 1, 2002.


                                       24

<PAGE>



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


CASH FLOWS FROM FINANCING (CONTINUED)

Telmark Debt (continued)
In  November  2000,   Telmark  issued  $61,000  of  unsecured  senior  notes  to
institutional  investors.  The terms of the note  agreement  are  similar to the
terms of other unsecured senior notes.  Telmark had balances  outstanding on all
unsecured  senior notes from private  placements  totaling  $149,500 at June 30,
2001, and $122,000 at June 30, 2000. The principal bears interest at fixed rates
ranging from 6.6% to 8.7%. Interest is payable semiannually on each senior note.
Principal  payments are on both a semiannual and an annual basis. The notes have
various maturities through December 2012. The note agreements are similar to one
another and each contains  several  specific  financial  covenants  that must be
complied with by Telmark.

Telmark, through two wholly owned special purpose subsidiaries, has four classes
of lease-backed notes outstanding totaling $90,800 and $118,300 at June 30, 2001
and June 30, 2000, respectively,  payable to institutional  investors.  Interest
rates  on these  classes  of notes  range  from  6.5% to  9.1%.  The  notes  are
collateralized by leases,  which Telmark sold to these  subsidiaries,  having an
aggregate  present value of contractual  lease payments equal to or greater than
the principal balance of the notes, and the notes are further  collateralized by
the residual values of these leases and by segregated  cash accounts.  Two notes
relating to Telmark Lease  Funding I, LLC were paid in full during 2001,  and in
June 2001, Telmark Lease Funding I, LLC was approved to be dissolved.  The final
scheduled  maturity  of these  notes is in  varying  amounts  and dates  through
December 2008.

Telmark  registers with the SEC to offer  debentures to the public.  The Telmark
debentures  are unsecured and  subordinated  to all senior debt at Telmark.  The
interest  on the debt is paid on January  1,  April 1, July 1, and  October 1 of
each year and may, at the holder's option, be reinvested. Telmark's subordinated
debentures  bear  interest at a rate that is the greater of the stated rate or a
rate based upon an average  discount rate for U.S.  Government  Treasury  Bills,
with maturities of 26 weeks. Telmark debentures outstanding as of June 30, 2001,
of approximately  $38,800 are due at various dates through March 2009 and bear a
weighted average interest rate of 8.0%.

Total sources of longer-term financing of Agway include the following as of June
2001:
<TABLE>
<CAPTION>
Source of debt                                           Agway      AFC        Telmark     Total
--------------                                        ---------   ---------   ---------   ---------
<S>                                                   <C>         <C>         <C>         <C>
Banks - due 2001 to 2004 with interest
     from 5.36% to 7.47% .........................    $      0    $      0    $166,000    $166,000
Insurance companies - due 2001 to 2012
     with interest from 6.54% to 9.05% ...........           0           0     240,260     240,260
Capital leases and other - due 2001 to 2018
     with interest from 7.5% to 10% ..............      10,639       1,790           0      12,429
                                                      ---------   ---------   ---------   ---------
       Long-term debt ............................      10,639       1,790     406,260     418,689
Subordinated money market certificates - due
     2001 to 2016 with interest from 4.5% to 9.75%           0     442,551           0     442,551
Subordinated debentures - due 2001 to 2009
     with interest at 6.25% to 9% ................           0       6,787      38,772      45,559
                                                      ---------   ---------   ---------   ---------
       Total subordinated debt ...................           0     449,338      38,772     488,110
                                                      ---------   ---------   ---------   ---------
              Total debt .........................    $ 10,639    $451,128    $445,032    $906,799
                                                      =========   =========   =========   =========
</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

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

We are designated as a PRP under CERCLA or as a third party by the original PRPs
in several  Superfund  sites.  The liability  under CERCLA is joint and several,
meaning  that we could be  required  to pay in excess  of our pro rata  share of
remediation  costs. As a result of the use and handling of hazardous  substances
in our normal  operations,  an  unexpected  environmental  event or  significant
changes in environmental  compliance  requirements could have a material adverse
impact on our financial condition and results of operations.

We continually  monitor our operations  with respect to potential  environmental
issues,  including changes in legal  requirements and remediation  technologies.
Our recorded  liability in our  financial  statements  reflects  those  specific
issues  where  we think  remediation  activities  are  likely  and  where we can
estimate the cost of  remediation.  Estimating the extent of our  responsibility
for a particular  site and the method and ultimate cost of  remediation  of that
site require  that we make a number of  assumptions.  As a result,  the ultimate
outcome of  remediation  of a site may differ from our  estimates.  However,  we
believe  that  our past  experience  provides  us with a  reasonable  basis  for
estimating our liability.  When we receive additional  information we adjust our
estimates as necessary. While we do not anticipate that any such adjustment will
be material to our  financial  statements,  the result of ongoing  and/or future
environmental  studies or other factors could alter this expectation and require
that we record additional  liabilities.  We currently can't determine whether we
will  incur  additional  liabilities  in the  future or, if we do, the extent or
amount of such additional liabilities.





                                       26

<PAGE>



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


OTHER ISSUES

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.

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 or services
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;  (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.

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 financial  condition of 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 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.

NEW ACCOUNTING STANDARD

The Financial  Accounting  Standards Board (FASB) issued  Statement of Financial
Accounting Standards (SFAS) No. 133, "Accounting for Derivative  Instruments and
Hedging Activities." SFAS No. 133 (as amended by SFAS No. 137) was effective for
all fiscal quarters of all fiscal years beginning after June 15, 2000, (June 25,
2000, for the Company). SFAS No. 133 requires that all derivative instruments be
recorded on the balance sheet at their fair value.  Changes in the fair value of
derivatives are recorded each period in current earnings or other  comprehensive
income,  depending  on whether a  derivative  is  designated  as part of a hedge
transaction and, if it is, the type of hedge transaction.

On June 25,  2000,  upon  adoption  of SFAS No.  133,  the  Company  recorded  a
net-of-tax  cumulative-effect  loss of $1,100  to  recognize  at fair  value the
component of all option  contracts  associated with the Company's Energy segment
which is excluded from the assessment of hedge  effectiveness  as allowed by the
new standard.  The Company also recorded a net-of-tax  cumulative-effect gain of
$3,100 in other  comprehensive  income to recognize at fair value all derivative
instruments in the Company's  Energy segment that were  designated and qualified
as cash-flow hedges. See Note 1 for further details of the Company's  accounting
for derivatives and hedging activities.



                                       27

<PAGE>



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


IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS

In  June  2001,  the  FASB  approved SFAS No. 141,  "Business Combinations," and
SFAS No.142, "Goodwill and Other Intangible Assets," which are effective July 1,
2001  and  July 1, 2002, respectively, for  the Company. SFAS No. 142 allows for
early adoption,  as of July 1, 2001, by the Company. SFAS No. 141 requires  that
the  purchase  method  of  accounting   be  used  for all  business combinations
initiated  after June 30, 2001. This  has  no  material  impact on the financial
statements  of  the  Company.  Under  SFAS No.  142,  amortization  of goodwill,
including  goodwill recorded in  past  business  combinations,  will discontinue
upon  adoption  of  this  standard. In addition,  goodwill recorded as a  result
of  business  combinations   completed   during  the  six-month   period  ending
December 31, 2001,  will not be amortized.  All goodwill and  intangible  assets
will  be  tested  for  impairment  in  accordance  with  the  provisions  of the
Statement. The Company is currently reviewing the provisions of SFAS No. 142 and
assessing the impact of adoption.

                                       28

<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

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
                                        2002         2003        2004         2005        2006     Thereafter     Total    June 2001
                                        ----         ----        ----         ----        ----     ----------     -----    ---------
<S>                                   <C>          <C>         <C>          <C>         <C>        <C>          <C>         <C>
ASSETS
Available-for-sale securities......   $   5,642    $   4,834   $   2,774    $   4,106   $   4,763  $  15,243    $  37,362   $ 37,556
Weighted average interest rate.....       5.77%        6.40%       6.38%        6.17%       6.26%      6.30%

LIABILITIES
Bank lines of credit - Agway.......   $  61,342    $   -       $   -        $   -       $   -      $   -        $  61,342   $ 61,342
Weighted average interest rate.....       7.22%

Bank lines of credit - Telmark.....     120,638        -           -            -           -          -          120,638    120,638
Weighted average interest rate.....       4.67%

Long-term debt, including current
   portion - Telmark...............     146,496      111,924      79,091        6,323      23,213     39,213      406,260    419,753
Weighted average interest rate.....       6.67%        6.76%       6.74%        7.65%       8.22%      8.44%

Subordinated debentures, including
   current portion - Telmark.......       8,320       11,608       9,534        -           -          9,310       38,772     38,772
Weighted average interest rate.....       6.31%        8.43%       8.32%                               8.78%

Long-term debt, including current
   portion - Agway.................       1,333        3,343       4,963          143          98      1,124       11,004     11,090
Weighted average interest rate.....       6.93%        6.80%       6.77%        7.48%       6.32%      6.46%

Subordinated debentures, including
   current portion - Agway.........       2,894        3,893       -            -           -          -            6,787      6,795
Weighted average interest rate.....       7.38%        7.92%

Subordinated money market
   certificates, including current
   portion - Agway.................      44,734       34,143      38,477       47,171      35,912    242,114      442,551    441,922
Weighted average interest rate.....       7.81%        7.02%       8.18%        8.74%       8.15%      8.20%
</TABLE>

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.
Telmark,  Agway's  leasing  business,  tries to limit the  effects of changes in
interest  rates by matching as closely as  possible,  on an ongoing  basis,  the
maturity  and cost 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 funds Telmark borrows to finance its
lease portfolio,  including 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  an  average  discount  rate  for  U.S.
Government  Treasury Bills (T-Bills),  with maturities of 26 weeks. Based on the
T-Bill rate of 3.55% as of June 2001,  as  compared  to the stated  rates of the
debentures,  which  range from 6.25% to 9.00% at June  2001,  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 2001, we do not believe that  reasonably  possible  near-term
increases in interest  rates will result in a material  near-term loss in future
earnings, fair values, or cash flows.

                                       29

<PAGE>



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


INTEREST RATE EXPOSURE (CONTINUED)

Agway's  subordinated  money market  certificates  (previously issued by AFC and
assumed by Agway) bear interest at a rate that is the greater of the stated rate
or a rate based upon an average discount rate of T-Bills,  with maturities of 26
weeks.  Based on the  T-Bill  rate of 3.55% at June 2001 as it  compares  to the
stated rates of the money market  certificates which range from 4.5% to 9.75% at
June 2001, we believe a reasonably  possible near-term increase in T- Bill rates
and the  conversion  of Agway debt to a variable  rate would not cause  material
near-term losses in future earnings or cash flows.

The maturities of available-for-sale securities are based on the assumption that
actual call and prepayment activity will differ from contractual maturities.

COMMODITY PRICE EXPOSURE

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

A sensitivity  analysis has been prepared to estimate Agway's exposure to market
risk of its commodity  instrument  positions as of June 2001 and 2000.  The fair
value of such  position is a summation  of the fair values  calculated  for each
commodity  instrument by valuing each position at quoted  futures  prices or, in
the case of options,  a delta-adjusted  calculated price. The market risk of the
commodity  position is estimated as the potential  loss in fair value  resulting
from a  hypothetical  10%  adverse  change  in market  prices of the  underlying
commodities.  This  estimated loss in fair value does not reflect the offsetting
impact of market  price  changes  to the  underlying  commodities  for which the
commodity  instruments  are managing  the price risk.  As of June 2001 and 2000,
assuming a 10%  hypothetical  adverse change in the underlying  commodity price,
the  potential   decrease  in  fair  value  of  our  Energy  business  commodity
instruments was $600 and $4,800, respectively.  The potential loss in fair value
of  commodity  instruments  for  Agriculture  and  Country  Products  Group  was
immaterial for both periods.



                                       30

<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..................................................................    32

      Report of Independent Accountants..........................................................................    33

      Consolidated Balance Sheets, June 30, 2001 and June 24, 2000...............................................    34

      Consolidated  Statements of Operations,  fiscal years ended June 30, 2001, June 24, 2000 and
           June 26, 1999.........................................................................................    35

      Consolidated Statements of Comprehensive Income, fiscal years ended June 30, 2001, June 24, 2000
           and June 26, 1999.....................................................................................    36

      Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended June 30, 2001,
           June 24, 2000 and June 26, 1999.......................................................................    37

      Consolidated  Statements  of Cash Flow,  fiscal years ended June 30, 2001, June 24, 2000 and
           June 26, 1999.........................................................................................    38

      Notes to Consolidated Financial Statements.................................................................    39

</TABLE>




                                       31

<PAGE>



                    AGWAY INC. REPORT ON FINANCIAL STATEMENTS


The  accompanying  consolidated  financial  statements have been prepared by the
Company in  conformity  with  accounting  principles  generally  accepted in the
United  States.  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 Audit Committee of the Board of Directors, which consists of seven 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
Audit Committee.



                                                         AGWAY INC.




                                                    BY  /s/ DONALD P. CARDARELLI
                                                            DONALD P. CARDARELLI
                                                               President and CEO
                                                              September 14, 2001




                                                   BY       /s/ PETER J. O'NEILL
                                                                PETER J. O'NEILL
                                                           Senior Vice President
                                                               Finance & Control
                                                              September 14, 2001


                                       32

<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 81  present  fairly,  in all  material
respects,  the financial position of Agway Inc. and its subsidiaries at June 30,
2001 and June 24, 2000, and the result of their  operations and their cash flows
for each of the  three  fiscal  years in the  period  ended  June 30,  2001,  in
conformity with accounting principles generally accepted in the United States of
America. In addition,  in our opinion,  the financial statement schedules listed
in the index  appearing  under Item 14(a)(2) on page 81 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 auditing  standards  generally
accepted in the United States of America, 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 our opinion.





/s/ PRICEWATERHOUSECOOPERS LLP
PRICEWATERHOUSECOOPERS LLP

Syracuse, New York
August 17, 2001, except for Note 9, as to which the date is September 14, 2001



                                       33

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                     ASSETS

                                                                                         JUNE 30,            JUNE 24,
                                                                                           2001                2000
                                                                                     ---------------     --------------
<S>                                                                                  <C>                 <C>
Current assets:
     Cash.........................................................................   $            0      $      19,141
     Trade accounts receivable (including notes receivable of
          $36,416 and $38,755, respectively), less allowance for
          doubtful accounts of $10,633 and $7,204, respectively...................          212,793            209,261
     Leases receivable, less unearned income of $78,126 and $71,944,
          respectively............................................................          165,348            152,255
     Advances and other receivables...............................................           19,941             23,738
     Inventories..................................................................           88,626            111,940
     Restricted cash..............................................................            8,306             10,103
     Prepaid expenses and other assets............................................           66,282             48,143
                                                                                     ---------------     --------------
          Total current assets....................................................          561,296            574,581
Marketable securities.............................................................           37,556             36,254
Other security investments........................................................           51,829             51,472
Properties and equipment, net.....................................................          177,355            175,784
Long-term leases receivable, less unearned income of $186,795 and
     $167,414, respectively.......................................................          502,992            470,595
Net pension asset.................................................................          229,678            213,455
Other assets......................................................................           33,785             21,710
Net assets of discontinued operations.............................................            5,414             34,278
                                                                                     ---------------     --------------
          Total assets............................................................   $    1,599,905      $   1,578,129
                                                                                     ===============     ==============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Notes payable................................................................   $      181,980      $     177,576
     Current installments of long-term debt.......................................          147,946            136,211
     Subordinated debt, current...................................................           55,948             57,125
     Accounts payable.............................................................           90,684             94,046
     Other current liabilities....................................................          131,209            122,060
                                                                                     ---------------     --------------
          Total current liabilities...............................................          607,767            587,018
Long-term debt....................................................................          270,743            281,678
Subordinated debt.................................................................          432,162            417,749
Other liabilities.................................................................          119,903            109,093
                                                                                     ---------------     --------------
          Total liabilities.......................................................        1,430,575          1,395,538
Commitments and contingencies.....................................................
Shareholders' equity:
     Preferred stock, less amount held in Treasury................................           37,603             39,695
     Common stock ($25 par--300,000 shares authorized; 173,323 and 173,083
          shares issued, less amount held in Treasury)............................            2,445              2,473
     Accumulated other comprehensive income (loss)................................              (61)              (798)
     Retained earnings............................................................          129,343            141,221
                                                                                     ---------------     --------------
          Total shareholders' equity..............................................          169,330            182,591
                                                                                     ---------------     --------------
              Total liabilities and shareholders' equity..........................   $    1,599,905      $   1,578,129
                                                                                     ===============     ==============
</TABLE>

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

                                       34

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF OPERATIONS
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                   JUNE 30,          JUNE 24,          JUNE 26,
                                                                     2001              2000              1999
                                                                --------------    --------------    --------------
<S>                                                             <C>               <C>               <C>
Net sales and revenues from:
     Product sales ...........................................  $   1,435,552     $   1,254,220     $   1,062,304
     Leasing operations.......................................         84,868            76,626            70,006
     Insurance operations.....................................         27,894            27,153            27,968
                                                                --------------    --------------    --------------
          Total net sales and revenues........................      1,548,314         1,357,999         1,160,278
                                                                --------------    --------------    --------------

Cost and expenses from:
     Products and plant operations............................      1,326,341         1,158,105           962,739
     Leasing operations.......................................         35,616            31,377            27,626
     Insurance operations.....................................         17,003            15,663            17,152
     Selling, general and administrative activities...........        148,426           134,980           122,406
                                                                --------------    --------------    --------------
          Total operating costs and expenses..................      1,527,386         1,340,125         1,129,923
                                                                --------------    --------------    --------------

Operating earnings............................................         20,928            17,874            30,355
Interest expense, net of interest income of $8,185,
     $9,452 and $8,642, respectively..........................        (37,633)          (30,591)          (26,102)
Other income, net.............................................          3,029            25,733            18,947
                                                                --------------    --------------    --------------
Earnings (loss) from continuing operations before
     income taxes.............................................        (13,676)           13,016            23,200
Income tax expense (benefit)..................................         (5,806)            6,864            10,259
                                                                --------------    --------------    --------------

Earnings (loss) from continuing operations....................         (7,870)            6,152            12,941

Discontinued operations:
     Loss from operations, net of tax benefit of $0,
          $7,313 and $6,086, respectively.....................              0           (13,187)          (11,146)
     Loss on disposal, net of tax benefit of $0, $1,278 and $0              0            (2,342)                0
                                                                --------------    --------------    --------------
          Loss from discontinued operations...................              0           (15,529)          (11,146)

Earnings (loss) before cumulative effect of an accounting
     change...................................................         (7,870)           (9,377)            1,795
                                                                --------------    --------------    --------------

Cumulative effect of accounting change, net of tax
     benefit of $723..........................................         (1,057)            -                 -
                                                                --------------    --------------    --------------

Net earnings (loss)...........................................  $      (8,927)    $      (9,377)    $       1,795
                                                                ==============    ==============    ==============

</TABLE>


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

                                       35

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>
                                                                     JUNE 30,           JUNE 24,             JUNE 26,
                                                                       2001               2000                 1999
                                                                  --------------     -------------       --------------

<S>                                                               <C>                <C>                 <C>
Net earnings (loss) ..........................................    $      (8,927)     $      (9,377)      $       1,795

Other comprehensive income, net of tax:
     Unrealized gains (losses) on available-for-sale securities:
          Unrealized holding gains (losses) arising
              during period...................................              779               (608)               (685)
          Reclassification adjustment for losses included in
              net earnings....................................              148                 49                  21

     Deferred gains (losses) on derivatives, net of tax:
          Cumulative effect of accounting change..............            3,061
          Holding gains (losses) arising during period........            2,448                  0                   0
          Reclassification adjustment for (gains) losses
              included in net earnings........................           (5,699)                 0                   0
                                                                  --------------     --------------      --------------

Other comprehensive income (loss) ............................              737               (559)               (664)
                                                                  --------------     --------------      --------------

Comprehensive income (loss)...................................    $      (8,190)     $      (9,936)      $       1,131
                                                                  ==============     ==============      ==============


</TABLE>


























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

                                       36

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
           CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
                             (THOUSANDS OF DOLLARS)

<TABLE>
<CAPTION>

                                                           COMMON STOCK                     ACCUMULATED
                                                      ---------------------                   OTHER
                                                         (PAR VALUE $25)      PREFERRED    COMPREHENSIVE    RETAINED
                                                       SHARES      AMOUNT       STOCK       INC (LOSS)      EARNINGS         TOTAL
                                                      --------  -----------   ----------   -------------  ------------   -----------

<S>                                                   <C>       <C>           <C>          <C>            <C>            <C>
Balance June 27, 1998.............................    102,838   $    2,571    $  47,871    $     425      $  155,362     $  206,229

       Net earnings (loss)........................                                                             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 26, 1999.............................    100,241        2,506       42,917         (239)        153,763        198,947

       Net earnings (loss)........................                                                            (9,377)        (9,377)
       Dividends declared.........................                                                            (3,165)        (3,165)
       Redeemed, net..............................     (1,342)         (33)      (3,222)                                     (3,255)
       Other comprehensive income.................                                              (559)                          (559)
                                                      --------   ----------   ----------   ----------     ------------   -----------

Balance June 24, 2000.............................     98,899        2,473       39,695         (798)        141,221        182,591

       Net earnings (loss)........................                                                            (8,927)        (8,927)
       Dividends declared.........................                                                            (2,951)        (2,951)
       Redeemed, net..............................     (1,124)         (28)      (2,092)                                     (2,120)
       Other comprehensive income.................                                               737                            737
                                                      --------   ----------   ----------   ----------     ------------   -----------

Balance June 30, 2001.............................     97,775    $   2,445    $  37,603    $     (61)     $  129,343     $  169,330
                                                      ========   ==========   ==========   ==========     ============  ============
</TABLE>


Common shares, purchased at par value, held in Treasury at year-end were: 75,548
in 2001;  74,184 in 2000;  72,465 in 1999. A common stock  dividend per share of
$1.50 was declared for 2001, 2000 and 1999.  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.

                                       37

<PAGE>



                    AGWAY INC. AND CONSOLIDATED SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOW
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                        JUNE 30, 2001         JUNE 24, 2000          JUNE 26, 1999
                                                                        -------------        ---------------       ----------------
<S>                                                                     <C>                  <C>                   <C>
CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES:
   Net earnings (loss) .............................................    $     (8,927)        $       (9,377)       $       1,795
   Adjustments to reconcile earnings to net cash:
        Net loss from discontinued operations.......................               0                 15,529               11,146
        Depreciation and amortization...............................          26,896                 26,171               24,728
        Receivables and other asset provisions......................          18,362                 14,378               10,730
        Net pension income..........................................         (16,223)               (19,563)             (21,368)
        Cumulative effect of accounting change, net of tax..........           1,057                      0                    0
        Patronage refund received in stock..........................            (360)                  (679)                (992)
        Deferred income tax expense (benefit).......................          (7,033)                (2,757)               3,841
        (Gain) loss on disposition of:
             Businesses.............................................               0                 (1,098)             (11,097)
             Other security investments.............................             509                  1,044                1,267
             Properties and equipment...............................          (2,215)               (13,995)                (655)
        Changes in assets and liabilities, net of effects of
        businesses acquired or sold:
             Receivables............................................          (8,601)               (57,177)              18,522
             Inventory..............................................          23,314                (25,671)               2,381
             Payables...............................................          (3,267)                 9,004               (3,771)
             Other..................................................          (6,194)                23,474                 (169)
                                                                        -------------        ---------------       ---------------
Net cash flows from (used in) continuing operations.................          17,318                (40,717)              36,358
Net cash flows from (used in) discontinued operations...............          28,864                 35,995                 (391)
                                                                        -------------        ---------------       ---------------
Net cash from (used in) operating activities........................          46,182                 (4,722)              35,967

CASH FLOWS FROM (USED IN) INVESTING ACTIVITIES:
   Purchases of properties and equipment............................         (18,787)               (27,799)             (27,162)
   Cash paid for acquisitions.......................................            (484)                (4,950)              (8,030)
   Disposition of properties and equipment..........................           9,948                 20,592                1,163
   Purchases of marketable securities available for sale............          (4,905)                (4,658)              (6,333)
   Sale of marketable securities available for sale.................           4,530                  2,945                6,982
   Leases originated................................................        (265,986)              (276,199)            (252,107)
   Leases repaid....................................................         211,017                196,471              188,637
   Purchases of investments in related cooperatives.................          (3,201)                (1,840)              (2,172)
   Proceeds from sale of investments in related cooperatives........           2,695                  1,171                2,648
   Proceeds from disposal of businesses.............................               0                  2,615               14,150
                                                                        -------------        ---------------       ---------------
Net cash flows used in investing activities.........................         (65,173)               (91,652)             (82,224)

CASH FLOWS FROM (USED IN) FINANCING ACTIVITIES:
   Net change in short-term notes payable...........................           4,404                 95,776               16,480
   Proceeds from long-term debt.....................................         131,099                143,263              113,852
   Repayment of long-term debt......................................        (130,165)               (97,225)             (94,553)
   Proceeds from sale of subordinated debt..........................         183,028                131,571              133,948
   Redemption of subordinated debt..................................        (169,792)              (143,001)            (109,842)
   Payments on capitalized leases...................................         (15,380)                (2,716)                (597)
   Proceeds from sale of stock......................................               7                     14                   45
   Redemption of stock..............................................          (2,127)                (3,269)              (5,064)
   Cash dividends paid..............................................          (3,021)                (3,275)              (3,532)
   Net change in restricted cash....................................           1,797                 (5,623)              (4,480)
                                                                        -------------        ---------------       ---------------
Net cash flows from financing activities............................            (150)               115,515               46,257
                                                                        -------------        ---------------       ---------------

Net increase (decrease) in cash and equivalents.....................         (19,141)                19,141                    0
Cash and equivalents at beginning of year...........................          19,141                      0                    0
                                                                        -------------        ---------------       ---------------
Cash and equivalents at end of year.................................    $          0         $       19,141        $           0
                                                                        =============        ===============       ===============
</TABLE>

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

                                       38

<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 (seed, fertilizers,  and chemicals) and
services  for  its  farmer-members   and  other  customers,   primarily  in  the
northeastern  United  States  and  Ohio.  In  addition,  Agway  is  involved  in
repackaging and marketing produce and processing and marketing  sunflower seeds.
Agway,  through certain of its subsidiaries,  is involved in the distribution of
petroleum products; the installation and servicing of heating,  ventilation, and
air-conditioning  equipment;  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 of Agway Inc. is on the last Saturday in June.  Fiscal year
ended June 30, 2001,  was  comprised of 53 weeks and fiscal years June 24, 2000,
and June 26, 1999, were comprised of 52 weeks. The fiscal year-end of certain of
Agway's  subsidiaries,  including  Agway Energy  Products LLC,  Telmark LLC, and
Agway Insurance Company,  is June 30, and these subsidiaries are consolidated on
that basis. Effective July 1, 2001, the fiscal year-end has been changed to June
30 each year for the  company  as a whole and each of its  divisions.  Quarterly
reports will be at quarters ended on September 30, December 31, and March 31.

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.  Included  in cash at June  2000 is  $19,141
received  on June 30,  2000,  for the  sale of six  terminals  by  Agway  Energy
Products LLC. This cash was used to reduce debt on July 1, 2000.

Restricted Cash
Certain  cash  accounts  amounting  to $8,306 and  $10,103 at June 2001 and June
2000,  respectively,  collateralize  certain Telmark lease-backed notes payable.
This cash is held in segregated  cash accounts by Telmark  pending  distribution
and is restricted in its use.

Accounts Receivable
Agway uses the allowance method to account for doubtful accounts and notes.




                                       39

<PAGE>



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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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.  For those  inventories
stated at cost, we use the average unit cost or the first-in, first-out method.

Commodity Instruments
The  Company's  Energy  segment  enters into a  combination  of  exchange-traded
futures and options  contracts and, in certain  circumstances,  over-the-counter
options  (collectively  "derivatives")  to manage the price risk associated with
future purchases of the commodities used in its operations,  principally heating
oil and propane.  Energy has fair value hedges  associated  with its fixed price
purchase  contracts  and cash  flow  hedges  for its  variable  priced  purchase
contracts.  The derivatives are specifically matched in volume and maturity with
the various  purchase  commitments of the business and generally expire within a
year. The value of option  contracts that Energy enters into has two components:
time and intrinsic  value.  The intrinsic value is the value by which the option
is in the money.  The remaining  amount of option value is  attributable to time
value.  Energy  does not  include  the time  value of  option  contracts  in its
assessment  of hedge  effectiveness  and therefore  records  changes in the time
value component of its options  currently in earnings.  At June 30, 2001, Energy
had a derivative  liability of $300. An after-tax  total of $190 of deferred net
unrealized   losses  on  derivatives   instruments  were  accumulated  in  other
comprehensive  income and are expected to be  reclassified  into earnings during
the next 12 months.  The pre-tax earnings impact for the time value component of
option value not used in assessing hedge  effectiveness  totaled $1,800 upon the
initial  adoption of SFAS No. 133 at July 1, 2000, and is included,  net of tax,
in the cumulative effect of accounting change. For the year ended June 30, 2001,
$3,700 is included in cost of goods sold for the change in option time value not
used in the assessment of hedge effectiveness.

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



                                       40

<PAGE>



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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Commodity Instruments (continued)
In the  Country  Products  Group  segment,  exchange-traded  soybean oil futures
contracts are used principally to manage the price risk of confection and bakery
kernel  sunflower  seeds  which are  purchased  from  growers by CPG and sold to
customers.  Foreign  currency  forward  contracts  are  entered  into to  manage
fluctuations in foreign currency  denominated  sales  transactions.  Because the
commodity instrument used by CPG (soybean oil futures contracts) does not create
a highly  effective  hedging  relationship (as defined by SFAS No. 133) with the
sunflower  seed  purchase  contracts,  and  because  the  timing of the  foreign
currency  contracts  does  not  match  the  associated  sales  contracts,  these
derivatives are marked to market currently in earnings.

Marketable Securities
All marketable securities relate entirely to Agway's Insurance  operations,  are
classified  as  available-for-sale,  and are 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 $1,800, $1,200 and $1,400 for the
years  ended  June 2001,  June 2000 and 1999,  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  $12,400 and $15,800 at June 2001 and 2000,
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 ($1,600 over 1 to 10 years,  $7,800 over
12 to 20 years,  and $3,000 over 40 years).  Amortization  included in operating
results totaled  approximately $2,300, $2,000 and $1,500 for fiscal years ending
June  2001,  2000  and  1999,  respectively.   Other  assets  are  reviewed  for
impairment, as described under Impairment of Long-Lived Assets below.

Comprehensive Income
Comprehensive  income  consists  of net  earnings  (loss),  the  net  change  in
unrealized gains and losses on  available-for-sale  securities,  net of tax, and
deferred gains and losses on cash flow hedges,  net of tax. The unrealized gains
and losses on available-for-sale  securities are net of tax expense (benefit) of
$477,  $(288) and $(342) for 2001,  2000 and 1999,  respectively.  The  deferred
gains and losses on derivatives are net of tax of $(126) in 2001.



                                       41

<PAGE>



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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

Impairment of Long-Lived Assets
In accordance  with SFAS No. 121,  "Accounting  for the Impairment of Long-Lived
Assets and for  Long-Lived  Assets to be  Disposed  of,"  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 by reducing the recorded value to fair
value. 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
$4,400, $400 and $700 in 2001, 2000 and 1999, respectively.

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 considered in determining the Company's accrual for these losses.

Advertising/Research and Development Costs
Agway  expenses  advertising  and  research  and  development  costs as they are
incurred.  Advertising expenses included in selling,  general and administrative
expenses  for the  years  ended  June  2001,  2000 and 1999  were  approximately
$11,800, $13,200 and $11,600,  respectively.  Net research and development costs
were  approximately  $500, $2,900 and $1,800 for the years ended June 2001, 2000
and 1999, 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 assured. The provision for income taxes has been
allocated  between   continuing  and  discontinued   operations  for  all  years
presented.

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 accounting principles
generally  accepted in the United States of America requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities and the disclosure of contingent  assets and liabilities at the date
of the  financial  statements  as well as the  reported  amounts of revenues and
expenses  during the reporting  period.  Actual  results could differ from those
estimates.




                                       42

<PAGE>



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


1.  SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

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

Impact of Recently Issued Accounting Standards
In June 2001, the Financial  Accounting  Standards Board approved  Statements of
Financial Accounting Standards No. 141, "Business  Combinations," (SFAS No. 141)
and No. 142,  "Goodwill and Other  Intangible  Assets," (SFAS No. 142) which are
effective July 1, 2001 and July 1, 2002, respectively, for the Company. SFAS No.
142 allows for early adoption,  as of July 1, 2001, by the Company. SFAS No. 141
requires  that the  purchase  method  of  accounting  be used  for all  business
combinations  initiated after June 30, 2001. Under SFAS No. 142, amortization of
goodwill,  including  goodwill  recorded  in past  business  combinations,  will
discontinue upon adoption of this standard. In addition,  goodwill recorded as a
result of business  combinations  completed  during the six-month  period ending
December 31, 2001,  will not be amortized.  All goodwill and  intangible  assets
will  be  tested  for  impairment  in  accordance  with  the  provisions  of the
Statement. The Company is currently reviewing the provisions of SFAS No. 141 and
SFAS No. 142 and assessing the impact of adoption.  (See Other Assets section of
this Note for details of intangible  and goodwill  asset balances and amounts of
annual amortization.)

2.  LEASES RECEIVABLE AND ALLOWANCE FOR CREDIT LOSSES

Net investments in leases at fiscal year-end were as follows:
<TABLE>
<CAPTION>
                                                                                       June 2001            June 2000
                                                                                    --------------       --------------
<S>                                                                                 <C>                 <C>
Gross leases:
     Commercial and agricultural................................................    $    936,144        $     860,788
     Retail ....................................................................          17,562               20,388
                                                                                    -------------       --------------
         Total leases...........................................................         953,706              881,176
Unearned interest and finance charges...........................................        (264,922)            (239,358)
Net deferred origination costs..................................................          15,072               13,568
                                                                                    -------------       --------------
     Net investment.............................................................         703,856              655,386
Allowance for credit losses.....................................................         (35,516)             (32,536)
                                                                                    --------------      ---------------
     Net leases receivable......................................................    $    668,340        $     622,850
                                                                                    ==============      ===============
</TABLE>

Included within the above are estimated  unguaranteed  residual values of leased
property approximating $103,700 and $92,700 at June 2001 and 2000, respectively.
Additionally,  as of June 2001 and 2000, the  recognition of interest income was
suspended on approximately $6,400 and $6,000, respectively, of net leases.

Maturities  of gross  leases  over the next  five  years and  thereafter  are as
follows at June 2001:  $247,823  in 2002;  $202,283  in 2003;  $156,736 in 2004;
$108,373 in 2005; $70,753 and 2006; and $167,738 thereafter.

3.  INVENTORIES

Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                                       June 2001            June 2000
                                                                                     -------------       --------------
<S>                                                                                 <C>                  <C>
Finished goods..................................................................    $      80,240        $      101,859
Raw materials...................................................................            6,122                 7,982
Supplies........................................................................            2,264                 2,099
                                                                                    --------------       --------------
     Total inventories..........................................................    $      88,626        $      111,940
                                                                                    ==============       ===============
</TABLE>


                                       43

<PAGE>



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


4.  MARKETABLE SECURITIES

All  marketable  securities  relate  to  Agway's  insurance  operations  and are
classified as available-for-sale.  At June 2001, 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
                                                         --------------   --------------    -------------    --------------
June 2001
---------
<S>                                                      <C>              <C>               <C>              <C>
U.S. government securities and obligations............   $       7,012    $          95     $         (34)   $      7,073
Mortgage-backed securities............................          12,214              127               (30)         12,311
Corporate securities..................................          16,557              215               (74)         16,698
Equity securities  ...................................           1,579                0              (105)          1,474
                                                         --------------   --------------    --------------   --------------
     Total available-for-sale marketable securities...   $      37,362    $         437     $        (243)   $     37,556
                                                         ==============   ==============    ==============   ==============

                                                                               Gross          Gross
                                                            Amortized       Unrealized      Unrealized            Fair
                                                              Cost             Gains          Losses              Value
                                                         --------------   --------------    -------------    --------------
June 2000
---------
U.S. government securities and obligations............   $       5,236    $           9     $        (202)   $      5,043
Mortgage-backed securities............................          14,256               21              (294)         13,983
Corporate securities..................................          17,972                0              (744)         17,228
                                                         --------------   --------------    --------------   --------------
     Total available-for-sale marketable securities...   $      37,464    $          30     $      (1,240)   $     36,254
                                                         ==============   ==============    ==============   ==============
</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
$23, $0 and $4 were realized on sales of debt securities in 2001, 2000 and 1999,
respectively.  Gross  losses  realized  on  sales  of  debt  securities  totaled
approximately $270, $74 and $36 in 2001, 2000 and 1999, respectively.

The amortized cost and the fair value of  available-for-sale  securities at June
2001, 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...........................................................   $       1,805    $       1,815
Due after one year through five years.................................................           6,260            6,358
Due after five years through ten years................................................          14,546           14,629
Due after ten years...................................................................          14,751           14,754
                                                                                         --------------   --------------
                                                                                         $      37,362    $      37,556
                                                                                         ==============   ==============
</TABLE>


5.  OTHER SECURITY INVESTMENTS

Other security investments consist of the following:
<TABLE>
<CAPTION>
                                                                                        June 2001           June 2000
                                                                                     -------------       -------------
<S>                                                                                  <C>                 <C>
CF Industries, Inc................................................................   $     25,260        $     25,260
CoBank, ACB.......................................................................         16,696              16,648
Other.............................................................................          9,873               9,564
                                                                                     -------------       -------------
                                                                                     $     51,829        $     51,472
                                                                                     =============       =============
</TABLE>


                                       44

<PAGE>



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


6.  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 2001
---------
Land and land improvements...................................   $       24,236       $          0        $       24,236
Buildings and leasehold improvements.........................           95,923              7,061               102,984
Machinery and equipment......................................          314,273                473               314,746
Capital projects in progress.................................            6,837                  0                 6,837
                                                                ---------------      -------------       ---------------
                                                                       441,269              7,534               448,803
Less: accumulated depreciation and amortization..............          266,758              4,690               271,448
                                                                ---------------      -------------       ---------------

Properties and equipment, net................................   $      174,511       $      2,844        $      177,355
                                                                ===============      =============       ===============


                                                                     Owned               Leased             Combined
                                                                ---------------       -------------       -------------
June 2000
---------
Land and land improvements...................................   $       21,381       $          0        $       21,381
Buildings and leasehold improvements.........................           93,290              7,061               100,351
Machinery and equipment......................................          307,372                473               307,845
Capital projects in progress.................................           13,720                  0                13,720
                                                                ---------------      -------------       ---------------
                                                                       435,763              7,534               443,297
Less: accumulated depreciation and amortization..............          263,624              3,889               267,513
                                                                ---------------      -------------       ---------------

Properties and equipment, net................................   $      172,139       $      3,645        $      175,784
                                                                ===============      =============       ===============
</TABLE>

Depreciation  and  amortization  expense  relating to  properties  and equipment
amounted to approximately  $24,600,  $24,200 and $23,200 in 2001, 2000 and 1999,
respectively.


                                       45

<PAGE>



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


7.  RETIREMENT BENEFITS

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  bases  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 2001 and 2000,  retirement  plan assets  included
Agway debt  securities and preferred stock with estimated fair values of $10,100
and $15,100, respectively.

The Employees'  Retirement Plan of Agway Inc. has assets that exceed the benefit
obligation.  The following tables set forth the plan's funded status and amounts
recognized in Agway's consolidated financial statements at June 2001 and 2000 as
a net pension asset.  The net pension income is summarized for each of the three
years ended June 2001:
<TABLE>
<CAPTION>

                                                                                          2001                2000
                                                                                     -------------       --------------
<S>                                                                                  <C>                 <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year..........................................    $     338,503       $     345,917
Service cost (with interest).....................................................            9,195               9,975
Interest cost....................................................................           24,697              24,661
Amendments.......................................................................              419                   0
Curtailment......................................................................                0                 458
Actuarial gain (loss) ...........................................................            4,650              (6,738)
Benefits paid....................................................................          (44,330)            (35,770)
                                                                                     ---------------     ---------------
Benefit obligation at end of year................................................    $     333,134       $     338,503
                                                                                     ===============     ===============

Change in Plan Assets
---------------------
Fair value of plan assets at beginning of year...................................    $     569,633       $     578,975
Actual return on plan assets.....................................................           41,506              26,428
Benefits paid....................................................................          (44,330)            (35,770)
                                                                                     ---------------     ---------------
Fair value of plan assets at end of year.........................................    $     566,809       $     569,633
                                                                                     ===============     ===============

Funded status....................................................................    $     233,675       $     231,130
Unrecognized prior service cost..................................................           20,147              23,219
Unrecognized net gain............................................................          (24,144)            (40,894)
                                                                                     ---------------     ---------------
Net pension asset................................................................    $     229,678       $     213,455
                                                                                     ===============     ===============

</TABLE>


                                       46

<PAGE>



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


7.  RETIREMENT BENEFITS (CONTINUED)

Pension Plan (continued)
<TABLE>
<CAPTION>
                                                                     2001                 2000                1999
                                                                --------------       -------------       --------------
Components of Net Pension Income
--------------------------------
<S>                                                             <C>                  <C>                 <C>
Service cost (with interest).................................   $       9,195        $       9,975       $       9,835
Interest cost................................................          24,697               24,661              23,948
Expected return on plan assets...............................         (53,606)             (53,350)            (53,682)
Amortization of:
    Transition obligation....................................               0               (4,705)             (4,705)
    Prior service cost.......................................           3,491                4,134               4,566
    Actuarial gains and losses...............................               0                 (278)             (1,330)
Recognized curtailment (gain)/loss(1)........................               0                4,268                   0
                                                                --------------       --------------      --------------
Net pension income...........................................   $     (16,223)       $     (15,295)      $     (21,368)
                                                                ===============      ===============     ===============

Weighted-Average Assumptions as of June 30
------------------------------------------
Discount rate................................................            7.75%               7.75%                7.50%
Expected return on plan assets...............................            9.75%               9.75%                9.50%
Rate of compensation increase................................            5.00%               5.00%                5.00%
</TABLE>

(1)  In the second quarter of fiscal 2000, Agway's Board of Directors approved a
     plan to  restructure  the  Company's  retail store  distribution  system by
     selling or  converting  the  Agway-owned  and operated  retail  stores into
     dealer- owned and operated  stores.  As a result of a large number of Agway
     employees  leaving  the  Company,  a  curtailment  of both the  pension and
     postretirement  benefit plans occurred.  The impact of this curtailment was
     as follows:
<TABLE>
<CAPTION>

                                                                                        Pension           Postretirement
                                                                                     ------------        ---------------
<S>                                                                                  <C>                 <C>
Change in benefit obligation.......................................................  $        458        $         424
Curtailment charge.................................................................  $      4,268        $       1,451
</TABLE>

The curtailment  charge for both the pension and  postretirement  benefits noted
above were included in the loss on disposal of the retail business in 2000.



                                       47

<PAGE>



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


7.  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.  The benefit  obligation under Agway's  postretirement
benefit  plans are  general,  unsecured  obligations  of the Company and 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 at June 2001 and 2000 and
the net  periodic  postretirement  benefit  cost at June  2001,  2000  and  1999
recognized in Agway's consolidated financial statements were as follows:
<TABLE>
<CAPTION>

                                                                                          2001                2000
                                                                                     -------------       --------------
<S>                                                                                  <C>                 <C>
Change in Benefit Obligation
----------------------------
Benefit obligation at beginning of year...........................................   $     (40,704)      $     (43,937)
Service cost (with interest)......................................................            (668)               (685)
Interest cost.....................................................................          (2,999)             (3,118)
Plan participant contributions....................................................          (1,108)             (1,502)
Actuarial gain (loss).............................................................          (2,269)              2,360
Curtailment.......................................................................               0                 424
Benefits paid.....................................................................           5,537               5,754
                                                                                     -------------       --------------
Benefit obligation at end of year.................................................   $     (42,211)      $     (40,704)
                                                                                     ===============     ===============

Funded status.....................................................................   $     (42,211)      $     (40,704)
Unrecognized prior service cost...................................................             917               1,038
Unrecognized net gain.............................................................            (138)             (2,067)
Unrecognized net transition obligation............................................          13,886              15,042
                                                                                     --------------      --------------
Accrued postretirement benefit cost...............................................   $     (27,546)      $     (26,691)
                                                                                     ===============     ===============
<CAPTION>

                                                                     2001                 2000                1999
                                                                --------------       -------------       --------------
<S>                                                             <C>                  <C>                 <C>
Components of Net Periodic Postretirement Benefit Cost
------------------------------------------------------
Service cost (with interest).................................   $         668        $        685        $         699
Interest cost................................................           2,999               3,118                3,028
Amortization of:
    Transition obligation....................................           1,156               1,188                1,255
    Prior service cost.......................................             121                 125                  132
Recognized curtailment (gain)/loss(2)........................               0               1,451                    0
                                                                --------------       -------------       --------------
Net periodic postretirement expense..........................   $       4,944        $      6,567        $       5,114
                                                                ==============       =============       ==============
</TABLE>

(2)  See  Pension  Plan  section  of  this   footnote  for   discussion  of  the
postretirement plan curtailment in 2000.

In determining the benefit  obligation,  the weighted average discount rate used
was 7.75% for both June 2001 and 2000,  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 2001
---------------
Effect on total of service and interest cost components...........................   $        184        $       (157)
Effect on year-end benefit obligation.............................................          1,271              (1,118)
</TABLE>


                                       48

<PAGE>



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


7.  RETIREMENT BENEFITS (CONTINUED)

Postretirement Benefits (continued)
For  measurement  purposes,  the  assumed  health  care cost  trend rate used to
measure Agway's  accumulated benefit obligation for persons under age 65 was 10%
for June 2001 and 6.8% for June 2000. The health care cost trend rate assumption
for fiscal  2002 and  forward at June 2001  decreases  gradually  until the year
2006, when the ultimate trend rate is then fixed at 5%. For persons over age 65,
Agway has an insured medical program limiting Agway's subsidy to a per month/per
retiree basis.

Employees' Thrift Investment Plan
The  Agway  Inc.   Employees'   401(k)  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  an  Agway  matching
contribution.  Participant  contributions  are  invested  at the  option  of the
participant in any combination of eight funds.

Agway will contribute,  as a matching  contribution,  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 2001, 2000 and 1999 were approximately  $1,700, $1,600
and  $1,300,  respectively.  For the years ended June 2001,  2000 and 1999,  the
Board of Directors of Agway  approved an  additional  match of 20% to supplement
the minimum contribution level of 10%.


                                       49

<PAGE>



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


8.  INCOME TAXES

The provision (benefit) for income taxes consists of the following:
<TABLE>
<CAPTION>

                                                                   June 2001           June 2000            June 1999
                                                                --------------       -------------       --------------
<S>                                                             <C>                  <C>                 <C>
Continuing operations:
     Current:
          Federal............................................   $           0        $      7,968        $       4,844
          State..............................................           1,227               1,653                1,574
     Deferred................................................          (8,547)             (2,757)               3,841
     Increase in valuation allowance.........................           1,514                   0                    0
                                                                --------------       -------------       --------------
                                                                $      (5,806)       $      6,864        $      10,259
                                                                ==============       =============       ==============

Discontinued operations:
     Current:
          Federal............................................   $           0        $     (7,968)       $      (6,099)
          State..............................................               0                (448)                (397)
     Deferred................................................               0                (175)                 410
                                                                --------------       -------------       --------------
                                                                            0        $     (8,591)       $      (6,086)
                                                                ==============       ==============      ==============
</TABLE>

The effective  income tax rate on earnings  from  continuing  operations  before
income taxes differs from the federal statutory regular tax rate as follows:
<TABLE>
<CAPTION>
                                                                   June 2001           June 2000           June 1999
                                                                --------------       -------------       --------------

<S>                                                             <C>                  <C>                 <C>
Statutory federal income tax rate............................         (34.0%)              35.0%               35.0%

Tax effects of:
     Impact from change in legal structure (1)...............         (14.6)                0.0                 0.0
     Adjustment to prior years' tax liabilities..............         (14.6)                0.0                 0.0
     Valuation allowance.....................................          11.1                 0.0                 0.0
     State income taxes, net of federal benefit (2)..........           3.9                 8.3                 6.0
     Nondeductible items (3).................................           4.2                 5.1                 3.5
     Other items.............................................           1.5                 4.3                (0.3)
                                                                --------------       -------------       -------------
          Effective income tax rate..........................         (42.5%)              52.7%               44.2%
                                                                ==============       =============       ==============
</TABLE>

(1)  Effective July 1, 2001, for reasons  described in Note 19, Agway simplified
     its  corporate  structure by merging AFC and AHI into Agway Inc. The change
     in net deferred tax liabilities  reflects the expected future tax rate from
     this structure.

(2)  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.

(3)  Nondeductible  items are principally  related to goodwill  amortization and
     meal and entertainment expenses.

                                       50

<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 were as follows:
<TABLE>
<CAPTION>
                                                                                        June 2001          June 2000
                                                                                     -------------       --------------
<S>                                                                                  <C>                 <C>
Deferred tax assets:
     Net operating loss (NOL) carryforward........................................   $      28,206       $      23,251
     Medical liabilities..........................................................          10,736              10,433
     Other liabilities............................................................          10,867              13,268
     Self-insurance reserves......................................................          11,024               9,406
     Alternative minimum tax (AMT) credit carryforward............................           7,530               6,005
     Deferred compensation........................................................           5,037               4,854
     Inventory allowance..........................................................           4,265               3,172
     Accounts and lease receivable allowance......................................          16,350              14,411
     Environmental liabilities....................................................           1,864               2,297
     Investment tax credit (ITC) carryforward.....................................           1,405               1,604
                                                                                     ---------------     ---------------
          Gross deferred tax asset................................................          97,284              88,701
              Less valuation allowance............................................          (1,514)                  0
                                                                                     ---------------     ---------------
                   Total net deferred tax assets..................................          95,770              88,701

Deferred tax liabilities:
     Pension assets...............................................................          82,867              76,729
     Excess of tax-over-book depreciation.........................................          12,315              17,617
     Net leasing activity.........................................................          19,936              18,455
     Prepaid medical expenses.....................................................             334               1,039
     Other assets  ...............................................................           1,557               1,120
                                                                                     ---------------     ---------------
          Total deferred tax liability............................................         117,009             114,960
                                                                                     ---------------     ---------------
              Net deferred tax liability..........................................   $     (21,239)      $     (26,259)
                                                                                     ===============     ===============
</TABLE>
Agway's net deferred tax liability at June 2001 and 2000 of $21,239 and $26,259,
respectively, consists of a net current asset of $49,379 and $28,887 included in
prepaid  expenses and a net long-term  liability of $70,618 and $55,146 included
in other  liabilities,  respectively.  The total gross  deferred  tax assets are
partially offset by a valuation allowance of $1,514 at June 2001. This allowance
is required to reflect the net realizable value of ITC carryforward  expiring in
2002  and  2003  and  charitable  contribution   carryforwards  that  expire  in
2001-2005. Based on Agway's history of taxable earnings and our expectations for
the future,  management  has determined  that  operating  income and reversal of
future taxable temporary  differences will more likely than not be sufficient to
recognize all of our other net deferred tax assets.

At June 2001, the federal AMT credit can be carried  forward  indefinitely.  The
net operating loss (NOL) carryforward  expires at various intervals between 2010
and 2020.


                                       51

<PAGE>



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


9.  SHORT-TERM NOTES PAYABLE

As of June 2001, Agway had certain  facilities  available with various financial
institutions  whereby  lenders  have  agreed to provide  funds up to $564,300 to
separately  financed  units of Agway as follows:  Agway,  excluding  Telmark and
Insurance  - $175,000  and Telmark -  $389,300.  The Agway  amount is a $175,000
short-term  line of credit,  up to  $35,000 of which can be used for  letters of
credit.  At June  2001,  letters  of  credit  issued,  primarily  to back  Agway
insurance programs,  under the Agway Senior Debt totaled approximately  $22,400.
The carrying amounts of Agway's  short-term  borrowings  approximate  their fair
value and were as follows:
<TABLE>
<CAPTION>
                                                                     Agway              Telmark             Total
                                                                --------------       -------------      --------------
<S>                                                             <C>                  <C>                <C>
June 2001
---------
Bank lines of credit.........................................   $      61,342        $    120,638       $     181,980
                                                                ==============       =============      ==============
Weighted average interest rate...............................           7.22%               4.67%
                                                                ==============       =============

                                                                     Agway               Telmark              Total
                                                                --------------       -------------      --------------
June 2000
---------
Bank lines of credit.........................................   $      51,900        $     75,676       $     127,576
Commercial paper.............................................          50,000                   0              50,000
                                                                --------------       -------------      --------------
                                                                $     101,900        $     75,676       $     177,576
                                                                ==============       =============      ==============
Weighted average interest rate...............................           7.93%               7.36%
                                                                ==============       =============
</TABLE>

The interest  rate charged on bank lines of credit ranged from 4.45% to 7.31% at
June 2001.

Effective  March 28, 2001,  Agway and AFC established a new senior debt facility
(the Agway Senior Debt) for all business  operations  except for Agway Insurance
Company and Telmark and Telmark's  subsidiaries  (Telmark).  The Agway Insurance
Company is independently  financed through  operations and liquidity provided by
its investment  portfolio.  Telmark  finances  itself through a series of credit
arrangements  that are  independent  from the Agway Senior  Debt.  Each of those
arrangements is more fully  described in this footnote.  Effective July 1, 2001,
AFC was merged into Agway. As a result,  Agway assumed liability for any amounts
borrowed by AFC under the Credit Agreement (as defined below).

The Agway Senior Debt is a syndicated  three-year  asset-based revolving line of
credit for up to  $175,000  pursuant  to the terms of a credit  agreement  dated
March 28, 2001 (and amended as of September 14, 2001) between Agway,  certain of
its subsidiaries and a syndicated group of lenders (the Credit Agreement). Up to
$35,000 of this line of credit can be  designated  for use as letters of credit.
In this asset-based line of credit,  the amount available to Agway is the lesser
of the  "collateral  borrowing  base" or the $175,000 upper limit of the line of
credit.  The collateral  borrowing base consists of certain of Agway's  eligible
accounts  receivable  and  inventory  (as defined  under the Credit  Agreement).
Certain  covenants  and  conditions  of the  Credit  Agreement,  as  more  fully
discussed below, restrict the use of funds and reduce the practical availability
of financing under the agreement by $25,000 to a maximum of $150,000. The credit
facilities  that  this  senior  debt  financing  replaces  amounted  to a  total
availability  for  letters  of credit  and  lines of  credit of up to  $148,000.
Amounts owed under the former  facilities have been repaid and those  facilities
have been terminated.  Management  believes that adequate  collateral exists and
will  continue  to exist so that the Agway  senior debt  financing  is, and will
continue to be, adequate to meet the ongoing needs of Agway.



                                       52

<PAGE>



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


9.  SHORT-TERM NOTES PAYABLE (CONTINUED)

The Credit  Agreement  has a number of financial  covenants  which  restrict our
capital  spending and require us to maintain  minimum levels of earnings  before
interest,  taxes,  depreciation,  and amortization  (EBITDA),  as defined in the
Credit  Agreement,  minimum  ratios of EBITDA to fixed  charges and  interest on
senior debt, and a minimum outstanding balance of preferred stock,  subordinated
debt,  and  certain  debt of a  subsidiary.  That  minimum  outstanding  balance
requirement,  as amended (as discussed  below) ranges from  $455,000 to $465,000
throughout  the year.  (This  minimum  amount of  capital  we must  maintain  is
referred to as the Minimum Capital.)

Other conditions of the Credit Agreement  prevent us, in certain  circumstances,
from  using  funds we borrow  under the  Credit  Agreement  to pay  interest  or
dividends  on, or repurchase or repay  principal  of, our  subordinated  debt or
preferred stock. To avoid these use restrictions,  the Credit Agreement requires
us to have a minimum  excess  borrowing  capacity  as defined  in the  agreement
(collateral  borrowing base greater than outstanding  loans) of at least $20,000
if we are not in default under the Credit Agreement.  If we are in default under
the Credit  Agreement,  to avoid  these use  restrictions,  the  minimum  excess
borrowing capacity we must maintain increases to $25,000  (collateral  borrowing
base greater than outstanding  loans).  Further,  if we are in default under the
Credit Agreement, we are subject to these use restrictions if:

(a) we default on our payment of principal, interest or other amounts due to the
    lenders under the Credit Agreement;
(b) we  fail  to  maintain  the  cash management procedures we agree to with the
    lenders under the Credit  Agreement;
(c) we do not maintain  the Minimum Capital balance of $455,000 to $465,000;  or
(d) the  agent  under the Credit  Agreement  provides  us with a written  notice
    that such payments are no longer permitted.

These  conditions  reduce  the  practical  availability  under the  senior  debt
financing from $175,000 to $150,000.  The Credit  Agreement was designed in part
to allow and enable us to continue our past  practice of  repurchasing,  at face
value,  certain  subordinated  debt  and  preferred  stock  when  presented  for
repurchase  prior to  maturity.  However,  while  it is our  current  intent  to
continue  this  historic  practice,  we are under no  obligation  to  repurchase
subordinated  debt prior to its maturity and preferred  stock when so presented,
and may stop or suspend this  practice at any time or may be required to stop or
suspend such practice if we do not continue to meet the conditions of the Credit
Agreement, including those described above.

As of June 30, 2001, the total amount outstanding under the Credit Agreement was
$83,700,  of which $22,400 was  designated to letters of credit  principally  in
support of Agway insurance programs under the Agway Senior Debt. Interest rates,
as amended in the manner  described  below,  are determined at the option of the
Company,  as either prime rate plus 2.00% or the London Interbank  Offering Rate
(LIBOR) rate plus 3.50%. These amended rates,  effective September 14, 2001, are
now  approximately 25 basis points higher than the rates which were available to
Agway in its prior senior debt financing arrangements.

As of June  30,  2001,  Agway  was in  violation  of  certain  of the  financial
covenants within the Credit Agreement because it had not maintained the required
minimum  level of EBITDA and the minimum  ratios of EBITDA to fixed  charges and
interest on senior debt. On September 14, 2001, the syndicated  group of lenders
agreed to waive these  violations,  and further agreed to amend these  covenants
for each of the  succeeding  four  quarters  through  June 2002 based on revised
operating  budgets for that period of time.  In exchange  for those  amendments,
Agway agreed to pay 25 basis points in  additional  interest on its  borrowings,
grant additional  security  interests in equipment and properties not previously
secured,  including a pledge of its membership interest in Telmark, and increase
the minimum  range of Minimum  Capital of $455,000 to  $465,000,  an increase of
$15,000, to reflect the actual increased balances  outstanding at June 30, 2001,
and the projections of the balances.  Based on this waiver and amendment,  Agway
is currently in compliance  with, and no default exists under,  the terms of the
Credit Agreement.


                                       53

<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
$89,300 on an uncollateralized basis with interest paid upon maturity. The lines
bear interest at money market  variable  rates. A committed  $300,000  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  partially
collateralized by Telmark's  investment in certain bank stock,  which has a book
value of $14,700  and $13,600 at June 2001 and 2000,  respectively.  The $89,300
lines of credit all have  terms  expiring  during the next 12 months.  The total
amounts  outstanding  as of June  2001 and 2000  under the  short-term  lines of
credit  were  $71,100  and  $75,200,  respectively,  and  under  the  short-term
component  of  the   revolving   term  loan  facility  were  $49,500  and  $500,
respectively.  The portion of the revolving  term loan that is long-term at June
2001 and 2000 was $166,000 and $164,000, respectively.

10.  DEBT

Long-Term Debt:

Long-term debt consists of the following at June 2001:
<TABLE>
<CAPTION>
                                                                                AFC
                                                                            (excluding
                                                              Agway          Telmark)          Telmark           Total
                                                         --------------   --------------   --------------   ---------------
<S>                                                      <C>              <C>              <C>              <C>
Notes payable - banks (a).............................   $           0    $           0    $     166,000    $      166,000
Notes payable - insurance companies (b)(c)............               0                0          240,260           240,260
Other      ...........................................           9,214            1,790                0            11,004
                                                         --------------   --------------   --------------   ---------------
Subtotal long-term debt, excluding capital leases.....           9,214            1,790          406,260           417,264
Obligations under capital leases......................           1,425                0                0             1,425
                                                         --------------   --------------   --------------   ---------------
Total long-term debt..................................          10,639            1,790          406,260           418,689
Less: current portion.................................           1,307              143          146,496           147,946
                                                         --------------   --------------   --------------   ---------------
                                                         $       9,332    $       1,647    $     259,764    $      270,743
                                                         ==============   ==============   ==============   ===============

Long-term debt consists of the following at June 2000:

                                                                                AFC
                                                                            (excluding
                                                              Agway          Telmark)          Telmark          Total
                                                         --------------   --------------   --------------   ---------------
Notes payable - banks (a) ............................   $           0    $         525    $     164,000    $      164,525
Notes payable - insurance companies (b)(c) ...........               0                0          240,256           240,256
Other.................................................           9,776            1,772                0            11,548
                                                         --------------   --------------   --------------   ---------------
Subtotal long-term debt, excluding capital leases.....           9,776            2,297          404,256           416,329
Obligations under capital leases......................           1,560                0                0             1,560
                                                         --------------   --------------   --------------   ---------------
Total long-term debt..................................          11,336            2,297          404,256           417,889
Less: current portion.................................           2,812              626          132,773           136,211
                                                         --------------   --------------   --------------   ---------------
                                                         $       8,524    $       1,671    $     271,483    $      281,678
                                                         ==============   ==============   ==============   ===============
</TABLE>



                                       54

<PAGE>



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


10.  DEBT (CONTINUED)

(a)  The portion of Telmark's  revolving term loan facility that is long term at
     June 2001 of $166,000  bears  interest at fixed rates ranging from 5.36% to
     7.47%, with payments  commencing August 2001 and final  installments due in
     April 2004.  (See Note 9 of the financial  statements  for  discussions  of
     collateralization  and/or  financial  covenants  relating to Telmark's  and
     Agway's notes payable to banks.)

(b)  At June 30, 2001, Telmark also had balances outstanding on uncollateralized
     senior  note  private  placements  totaling  $149,500.  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  based on  Telmark's  financial  statements,  the most
     restrictive  of  which   prohibit:   (i)  tangible  net  worth  defined  as
     consolidated  tangible assets less total  liabilities  (excluding any notes
     payable to AHI (now  Agway),  from  being  less than an amount  equal to or
     greater than the sum of $85,000,  plus 50% of all net income (if a positive
     number) for all fiscal years ending after January 1, 2000. As of June 2001,
     the  required  minimum  net  worth  is  $96,900,  (ii)  the  ratio of total
     liabilities less subordinated  notes payable to AHI (now Agway) to members'
     equity plus  subordinated  notes payable to AHI (now Agway) from  exceeding
     5:1,  (iii) the ratio of earnings  available  for fixed  charges from being
     less than 1.25:1, (iv) equity distributions and restricted  investments (as
     defined) made after July 1, 2000,  from exceeding 50% of  consolidated  net
     income  for the  period  beginning  on July 1,  2000,  through  the date of
     determination, inclusive.  As  of  June 2001, $6,100  of  Telmark's  member
     equity   was  free  of   this  restriction,  and (v)  entering  into  lease
     transactions with  Agway  which exceed 5% of Telmark's total assets.  As of
     June  2001,  $15,200  is  free  of  this  restriction. For  the  year ended
     June 2001,  Telmark  complied  with  all  its  covenants  contained  in its
     borrowing arrangements.

(c)  At June 30,  2001,  Telmark,  through  two  wholly  owned  special  purpose
     subsidiaries,  has four classes of lease- backed notes outstanding totaling
     $90,800 payable to institutional investors. Interest rates on these classes
     of notes range from 6.5% to 9.1%. The notes are  collateralized  by leases,
     which Telmark sold to these subsidiaries, having an aggregate present value
     of  contractual  lease  payments  equal to or  greater  than the  principal
     balance  of the  notes,  and the notes are  further  collateralized  by the
     residual values of these leases and by segregated cash accounts.  Two notes
     relating to Telmark Lease Funding I, LLC were paid in full during 2001, and
     in June 2001,  Telmark  Lease  Funding I, LLC was approved to be dissolved.
     The  scheduled  maturity  of these  notes is in varying  amounts  and dates
     through December 2008.

Subordinated Debt:

Subordinated debt consists of the following at June 2001:
<TABLE>
<CAPTION>

                                                                      AFC
                                                                  (excluding
                                                                   Telmark)             Telmark              Total
                                                                ---------------      -------------       --------------
<S>                                                             <C>                  <C>                 <C>
Subordinated money market certificates,
      due 2001 to 2016, interest at a weighted average
      rate of 8.2% with a range of 4.5% to 9.75%                $      442,551       $          0        $     442,551
Subordinated debentures, due 2001to 2009,
     interest at a weighted average rate of 8.0%
     with a range of 6.25% to 9.0%...........................            6,787             38,772               45,559
                                                                ---------------      -------------       --------------
Total subordinated debt......................................          449,338             38,772              488,110
Less:  current portion.......................................           47,628              8,320               55,948
                                                                ---------------      -------------       --------------
                                                                $      401,710       $     30,452        $     432,162
                                                                ===============      =============       ==============
</TABLE>



                                       55

<PAGE>



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


10.  DEBT (CONTINUED)

Subordinated debt consists of the following at June 2000:
<TABLE>
<CAPTION>
                                                                     AFC
                                                                  (excluding
                                                                   Telmark)             Telmark              Total
                                                                --------------       -------------       --------------
<S>                                                             <C>                  <C>                 <C>
Subordinated debentures, due 2001 to 2008,
     interest at a weighted average rate of 8.0%
     with a range of 6.0% to 8.75%...........................   $       7,177        $     37,398        $      44,575
Subordinated money market certificates,
     due 2000 to 2014, interest at a weighted average
     rate of 8.0% with a range of 4.5% to 9.5%...............         430,299                   0              430,299
                                                                --------------       -------------       --------------
Total subordinated debt......................................         437,476              37,398              474,874
Less:  current portion.......................................          51,628               5,497               57,125
                                                                --------------       -------------       --------------
                                                                $     385,848        $     31,901        $     417,749
                                                                ==============       =============       ==============
</TABLE>

AFC's (now Agway's)  subordinated  debt is not redeemable by the holder,  though
Agway,  through AFC,  historically  has had a practice of  repurchasing  at face
value,  plus  interest  accrued at the stated rate,  certain  subordinated  debt
whenever presented for repurchase prior to maturity.  However, Agway is under no
obligation  to repurchase  such debt when so presented,  and may stop or suspend
this  repurchase  practice at any time. In addition,  the terms or conditions of
the lines of credit may, in certain circumstances, cause Agway to limit or cease
its past  practices  with regard to the  repurchase  of  subordinated  debt,  as
discussed  in Note  9.  The  Agway  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. The  interest  rates of
AFC (now Agway's) money market certificates and Telmark's  debentures are at the
greater of the stated  rate or a rate  based upon an average  discount  rate for
U.S. Government Treasury Bills, with maturities of 26 weeks.

Maturities:
Aggregate annual  maturities on long-term debt during the next five years ending
June and thereafter are as follows:
<TABLE>
<CAPTION>
                                                Capital                                                   Subordinated
                                                Leases            Borrowings              Total               Debt
                                            -------------       --------------       --------------      --------------
<S>                                         <C>                 <C>                  <C>                 <C>
2002.....................................   $        190        $     147,830        $     148,020       $      55,948
2003.....................................            248              115,267              115,515              49,644
2004.....................................            248               84,054               84,302              48,011
2005.....................................            248                6,466                6,714              47,171
2006.....................................            248               23,311               23,559              35,912
Thereafter...............................            821               40,336               41,157             251,424
Imputed interest.........................           (578)                   0                 (578)                  0
                                            -------------       --------------       --------------      --------------
Total....................................   $      1,425        $     417,264        $     418,689       $     488,110
                                            =============       ==============       ==============      ==============
</TABLE>

                                       56

<PAGE>



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


11.  COMMITMENTS AND CONTINGENCIES

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

We are designated as a PRP under CERCLA or as a third party by the original PRPs
in several  Superfund  sites.  The liability  under CERCLA is joint and several,
meaning  that we could be  required  to pay in excess  of our pro rata  share of
remediation  costs. As a result of the use and handling of hazardous  substances
in our normal  operations,  an  unexpected  environmental  event or  significant
changes in environmental  compliance  requirements could have a material adverse
impact on our financial condition and results of operations.

We continually  monitor our operations  with respect to potential  environmental
issues,  including changes in legal  requirements and remediation  technologies.
Our recorded  liability in our  financial  statements  reflects  those  specific
issues  where  we think  remediation  activities  are  likely  and  where we can
estimate the cost of  remediation.  Estimating the extent of our  responsibility
for a particular  site and the method and ultimate cost of  remediation  of that
site require  that we make a number of  assumptions.  As a result,  the ultimate
outcome of  remediation  of a site may differ from our  estimates.  However,  we
believe  that  our past  experience  provides  us with a  reasonable  basis  for
estimating our liability.  When we receive additional  information we adjust our
estimates as necessary. While we do not anticipate that any such adjustment will
be material to our  financial  statements,  the result of ongoing  and/or future
environmental  studies or other factors could alter this expectation and require
that we record additional  liabilities.  We currently can't determine whether we
will  incur  additional  liabilities  in the  future or, if we do, the extent or
amount of such additional liabilities.

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

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 2001 approximated $14,400.

Agway rents or leases a variety of equipment, vehicles, and building space. Rent
expense for the years ended June 2001, 2000 and 1999 was approximately  $15,300,
$16,500 and $14,700,  respectively.  Future minimum payments under noncancelable
operating leases are approximately $13,100,  $11,300, $10,200, $9,500 and $9,300
for the years ending June 2002 through  2006,  respectively,  and  approximately
$9,900 thereafter.


                                       57

<PAGE>



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


12.  PREFERRED STOCK

Values are whole numbers except where noted as (000s).
<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 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 1999................       133,771        234,789         18,010         41,954          2,584    $    42,917
     Issued (redeemed), net.........       (10,451)        (2,044)             0        (19,702)          (100)        (3,222)
                                       ------------   ------------   ------------   ------------   ------------   ------------
   Balance June 2000................       123,320        232,745         18,010         22,252          2,484    $    39,695
     Issued/redeemed), net..........       (10,475)        (2,047)             0         (8,371)          (116)        (2,092)
                                       ------------   ------------   ------------   ------------   ------------   ------------
   Balance June 2001................       112,845        230,698         18,010         13,881          2,368    $    37,603
                                       ============   ============   ============   ============   ============   ============
</TABLE>
<TABLE>
<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 1999........................   $      6.00    $      8.00    $      8.00    $      7.00    $     1.50
   June 2000........................   $      6.00    $      8.00    $      8.00    $      7.00    $     1.50
   June 2001........................   $      6.00    $      8.00    $      8.00    $      7.00    $     1.50

Shares Held in Treasury (purchased
at par value):
   June 1999........................       216,229         15,211        121,990        108,046         1,070
   June 2000........................       226,680         17,255        121,990        127,748         1,202
   June 2001........................       237,155         19,302        121,990        136,119         1,331
</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. However,
while we currently  intend to continue this historic  practice,  we are under no
obligation to repurchase  preferred  stock when presented to us, and we may stop
or suspend this  practice at any time or may be required to stop or suspend such
practice if we do not continue to meet the  conditions  of the Credit  Agreement
(see Note 9). 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.

                                       58

<PAGE>



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

13.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING

Agway reports its operations principally in five business segments as follows:

(1)    AGRICULTURE  engages in the  manufacturing,  processing,  marketing,  and
       direct distribution of various animal feeds, crop inputs, fertilizers and
       farm  supplies and services for its  farmer-members  and other  customers
       primarily in the northeastern United States and Ohio.

(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 and which sells and
       delivers fuel oil, kerosene,  propane,  gasoline and diesel fuel, as well
       as marketing natural gas and electricity  where  deregulation  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.  Interest  expense
       is reported as cost and expenses from leasing operations (cost of sales).

(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  net
corporate  expenses,  pension income,  intersegment  eliminations,  interest and
taxes.
<TABLE>
<CAPTION>

                                                 Country
                                                 Products
Year ended June 2001             Agriculture      Group           Energy      Leasing     Insurance    Other(a)      Consolidated
--------------------            -------------  -------------  ------------  -----------   ---------  ------------    ------------
<S>                             <C>            <C>            <C>           <C>           <C>        <C>             <C>
Net sales and revenues to
  unaffiliated customers....    $    514,080   $    198,183   $   723,242   $   84,868    $ 27,894   $        47     $ 1,548,314
Intersegment sales and
  revenues..................           9,493          4,608           691        1,325           0       (16,117)              0
                                -------------  -------------  ------------  -----------   ---------  ------------     ------------
    Total sales and revenues    $    523,573   $    202,791   $   723,933   $   86,193    $ 27,894   $   (16,070)    $ 1,548,314
                                =============  =============  ============  ===========   =========  ============    ============

Operating earnings (loss)...    $     (8,520)  $     (9,337)  $    21,297   $   21,242    $    329   $    (4,083)    $    20,928
Interest income.............           5,630             69         1,382            0           0         1,104           8,185
Interest expense............         (15,327)        (3,746)       (6,793)           0          (6)      (19,946)        (45,818)
Other income, net...........            (595)        (1,070)        4,186            0         488            20           3,029
                                -------------  -------------  ------------  -----------   ---------  ------------    ------------
Earnings (loss) before
  income taxes..............    $    (18,812)  $    (14,084)  $    20,072   $   21,242    $    811   $   (22,905)    $   (13,676)
                                =============  =============  ============  ===========   =========  ============    ============

Total assets................    $    270,294   $     67,571   $   181,800   $  735,707    $ 55,422   $   289,111     $ 1,599,905
Depreciation and amortization         11,010          5,224         8,645          303         115         1,599          26,896
Capital expenditures........           5,252          1,036        10,974          837         148           540          18,787
</TABLE>

                                       59

<PAGE>



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


13.  FINANCIAL INFORMATION CONCERNING SEGMENT REPORTING (CONTINUED)

<TABLE>
<CAPTION>

                                                 Country
                                                 Products
Year ended June 2000             Agriculture      Group         Energy        Leasing     Insurance    Other(a)      Consolidated
--------------------            -------------  -------------  ------------  -----------   ---------  ------------    ------------
<S>                             <C>            <C>            <C>           <C>           <C>        <C>             <C>
Net sales and revenues to
  unaffiliated customers....    $    488,417   $    190,221   $   575,568   $   76,626    $ 27,153   $        14     $ 1,357,999
Intersegment sales and
  revenues..................          20,268         11,780           438          159           0       (32,645)              0
                                -------------  -------------  ------------  -----------   ---------  ------------    ------------
   Total sales and revenues     $    508,685   $    202,001   $   576,006   $   76,785    $ 27,153   $   (32,631)    $ 1,357,999
                                =============  =============  ============  ===========   =========  ============    ============

Operating earnings (loss)...    $    (13,016)          (384)        9,001       20,059          30         2,184          17,874
Interest income.............           5,767            153         1,078            0           0         2,454           9,452
Interest expense............         (13,263)        (2,902)       (6,709)           0          (7)      (17,162)        (40,043)
Other income, net...........           6,972            248        18,655            0          17          (159)         25,733
                                -------------  -------------  ------------  -----------   ---------  ------------    ------------
Earnings (loss) before
  income taxes..............    $    (13,540)  $     (2,885)  $    22,025   $   20,059    $     40   $   (12,683)    $    13,016
                                =============  =============  ============  ===========   =========  ============    ============

Total assets................    $    293,859   $     71,636   $   183,462   $  670,364    $ 54,160   $   304,648     $ 1,578,129
Depreciation and amortization         10,778          4,413         8,839          386          98         1,657          26,171
Capital expenditures........          18,372          2,083         6,342            0          28           974          27,799


                                                 Country
                                                 Products
Year ended June 1999             Agriculture      Group         Energy        Leasing     Insurance    Other(a)      Consolidated
--------------------            -------------  -------------  ------------  -----------   ---------  ------------    ------------
Net sales and revenues to
  unaffiliated customers....    $    512,071   $    160,153   $   390,097   $   70,006    $ 27,968   $       (17)    $ 1,160,278
Intersegment sales and
  revenues..................          23,163         11,572           613            0           0       (35,348)              0
                                -------------  -------------  ------------  -----------   ---------  ------------    ------------
    Total sales and revenues    $    535,234   $    171,725   $   390,710   $   70,006    $ 27,968   $   (35,365)    $ 1,160,278
                                =============  =============  ============  ===========   =========  ============    ============

Operating earnings (loss)...    $     (8,565)  $      2,950   $    12,992   $   18,201    $    130   $     4,647     $    30,355
Interest income.............           6,467             10           614            0           0         1,551           8,642
Interest expense............         (12,529)        (2,239)       (5,119)           0         (12)      (14,845)        (34,744)
Other income, net...........           2,168         11,355         4,538          (43)        378           551          18,947
                                -------------  -------------  ------------  -----------   ---------  ------------    ------------
Earnings (loss) before
  income taxes..............    $    (12,459)  $     12,076   $    13,025   $   18,158    $    496   $    (8,096)    $    23,200
                                =============  =============  ============  ===========   =========  ============    ============


Total assets................    $    269,884   $     64,365   $   133,624   $  596,905    $ 55,578   $   316,816     $ 1,437,172
Depreciation and amortization         10,247          3,959         8,506          493          92         1,431          24,728
Capital expenditures........          13,943          4,707         5,002          511          89         2,910          27,162


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





                                       60

<PAGE>



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


14.  DISCONTINUED OPERATIONS

In fiscal 2000, the former Agway retail services business consisted of two major
components,  a retail store distribution system and a wholesale  procurement and
supply  system.  In the  second  quarter  of fiscal  2000,  the  Agway  Board of
Directors approved a plan to restructure the retail store  distribution  system.
This plan called for the sale or closure of the 227 Agway retail properties.  In
the spring of 2000,  the Agway  Board of  Directors  authorized  the sale of the
wholesale procurement and supply system to Southern States Cooperative,  Inc. An
agreement  for this sale was  executed  on June 20,  2000 and closed on July 31,
2000. The sale of the wholesale  procurement  and supply  system,  when combined
with the  sale  and  closure  of the  Agway-owned  or  operated  retail  stores,
constituted a plan to discontinue  operations of the retail  services  business.
For  financial  reporting  purposes,   the  measurement  date  upon  which  this
discontinued  operation  plan  became  effective  was June 20,  2000.  Operating
results of the retail services business,  including restructuring activity which
took  place  through  that  date,  are  included  in  the  operating  loss  from
discontinued  operations  in the  financial  statements  for the year ended June
2000.  The  anticipated  gains and losses  after  June 20,  2000 from the future
anticipated  sale of the  wholesale  procurement  and supply  system,  which was
consummated  on  July  31,  2000,  and  the  sale or  closure  of the  remaining
Agway-owned or operated retail store properties, as well as the results of their
future  operations  through the  anticipated  dates of sale, are included in the
loss on disposal of the retail  services  business in the June 2000 statement of
operations. Prior year financial results reflect the retail services business as
a discontinued operation.  All retail store  operations ceased  during  2001 and
the company is continuing to market the former store properties for sale.

The net  sales  and  revenues  from  discontinued  operations  (retail  services
business) were  approximately  $26,400,  $222,400 and $285,200 in 2001, 2000 and
1999,  respectively.  Interest  expense  allocated  to  discontinued  operations
totaled $500, $4,100 and $6,200 in 2001, 2000 and 1999, respectively.

A summary of net assets of discontinued  operations at June 2001 and 2000 was as
follows:
<TABLE>
<CAPTION>

                                                                                            2001              2000
                                                                                       --------------    --------------
<S>                                                                                    <C>               <C>
Accounts receivable..................................................................  $         662     $      22,982
Inventory............................................................................              0            18,408
Property, plant and equipment, net...................................................          8,525            18,989
Other assets, net....................................................................          7,107            25,470
Accounts payable and accrued expenses................................................         (9,306)          (49,413)
Long-term liabilities................................................................         (1,574)           (2,158)
                                                                                       --------------    --------------
Net assets of discontinued operations................................................  $       5,414     $      34,278
                                                                                       ==============    ==============
</TABLE>

Total net assets of  discontinued  operations  of $5,414 remain as of June 2001,
and no  adjustments  to the  estimated  net  loss on  disposal  of  discontinued
operations established as of the June 20, 2000, measurement date was required.

                                       61

<PAGE>



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


15.  AGRICULTURE REALIGNMENT

On December 7, 2000, the Agway Board of Directors approved a plan to realign the
Agriculture  segment of Agway's business (the Agriculture Plan). The Agriculture
Plan is  intended  to  realign  the  Agriculture  segment  with  the  continuing
concentration  of farming  and our member  farmers  in the  northeastern  United
States.  The  Agriculture  Plan calls for the  formation of a Feed and Nutrition
Division and an Agronomy  Division that are being  structured to enable Agway to
act as a wholesaler of its agricultural products in its traditional  marketplace
and as a retailer of its agricultural products in select markets. In addition to
establishing  the management and systems support  structures,  60 locations have
been  identified  for  conversion  to  dealer  operations,   sale,  or  closure.
Approximately  412  employees  working at the  identified  locations may be paid
severance.  As of June 30, 2001, the management  structure is in place,  and the
realignment is in process. It is expected the system support conversion, and the
majority  of the  facility  conversions  and  closings,  will  be  substantially
completed on or about September 30, 2001. Sale of closed facilities is estimated
to take place through June 2002.  Gains on the sale of properties are recognized
when realized.  Inventories  have been reduced to their estimated net realizable
values.  Operating  costs  during  the  transition  period are  recognized  when
incurred.  During this transition  period,  we expect  continued losses from the
Agriculture segment's  operations,  due in part to the costs associated with the
Agriculture  Plan.  Costs  associated with the Agriculture Plan incurred in 2001
are  summarized  below.  As of June 30, 2001, a total of $3,372 remains  accrued
for expected  severance costs. In 2002, while still in the transition phase, the
Agriculture  segment's  operating losses in total will likely  continue,  but we
expect substantial improvement in the Agriculture segment's operating results to
begin.
<TABLE>
<CAPTION>
                                                                                                    Fiscal Year Ended
                                                                                                      June 30, 2001
                                                                                                -----------------------
<S>                                                                                             <C>
Net gain on sale of assets...................................................................   $                  879
Loss on sale/liquidation of inventory........................................................                     (360)
Impairment on long-lived assets..............................................................                     (771)
Severance costs..............................................................................                   (3,463)
Other transaction costs......................................................................                      (60)
                                                                                                -----------------------
   Net loss on realignment activity..........................................................   $               (3,775)
                                                                                                =======================
</TABLE>

16.  OTHER INCOME (EXPENSE)

The components of other income (expense) for the years ended June 2001, 2000 and
1999 are summarized below:
<TABLE>
<CAPTION>
                                                                     2001                 2000                1999
                                                                --------------       -------------       --------------

<S>                                                             <C>                  <C>                 <C>
Patronage refund income......................................   $         360        $        787        $       1,231
Rent and storage revenue.....................................             684               2,964                3,155
Gain (loss) on disposition of:
     Businesses..............................................               0               1,098               11,097
     Other security investments..............................            (509)             (1,044)              (1,267)
     Properties and equipment................................           2,215              13,995                  655
Negotiated settlement........................................               0               5,049                    0
Other, net...................................................             279               2,884                4,076
                                                                --------------       -------------       --------------
                                                                $       3,029        $     25,733        $      18,947
                                                                ==============       =============       ==============
</TABLE>



                                       62

<PAGE>



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


17.  SUPPLEMENTAL DISCLOSURES ABOUT CASH FLOWS

<TABLE>
<CAPTION>
                                                                     2001                 2000                1999
                                                                --------------       -------------       --------------
<S>                                                             <C>                  <C>                 <C>
Additional disclosure of operating cash flows: Cash paid
during the year for:
          Interest...........................................   $      43,644        $      38,905       $      35,310
                                                                ==============       ==============      ==============
          Cost of leasing operations (interest)..............   $      35,399        $      30,774       $      28,629
                                                                ==============       ==============      ==============
          Income taxes.......................................   $         290        $       2,727       $       2,586
                                                                ==============       ==============      ==============

Additional disclosure for non-cash investing and financing
activities:

     Dividends declared but unpaid at fiscal year-end........   $       1,521        $       1,592       $       1,702
                                                                ==============       ==============      ==============
     Note receivable from sale of business...................   $      12,522        $       -           $        -
                                                                ==============       ==============      ==============
</TABLE>


18.  FINANCIAL AND COMMODITY 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 5.3% to 10.0% in 2001
and 7.7% to 10% in 2000.

The carrying amounts and estimated fair values of Agway's significant  financial
instruments  held for purposes  other than trading at June 2001 and 2000 were as
follows:
<TABLE>
<CAPTION>
                                                                2001                                 2000
                                                   -------------------------------      ------------------------------
                                                     Carrying             Fair            Carrying            Fair
                                                      Amount              Value            Amount             Value
                                                   -------------     -------------      -------------    -------------
<S>                                                <C>               <C>                <C>               <C>
Liabilities:
Long-term debt (excluding capital leases).......   $    417,264      $    430,843       $    416,329      $   423,843
Subordinated debentures.........................        488,110           487,489            474,874          436,970
</TABLE>

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, 2001, the
carrying and fair value of Agway's  investment  in commodity  futures and option
contracts was an asset of $1,700 and $1,700, respectively.  As of June 24, 2000,
the carrying and fair  value  of  Agway's  investment  in commodity  futures and
option contracts was a gain of $5,300 and $8,200, respectively.




                                       63

<PAGE>



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


18.  FINANCIAL AND COMMODITY INSTRUMENTS (CONTINUED)

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



                                       64

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS

Prior to July 1, 2001  Agway  Financial  Corporation  (AFC)  was a wholly  owned
subsidiary of Agway. AFC's principal business  activities  consisted 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. Major holdings of
AHI included 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) through June 30, 2001. In exemptive relief
granted pursuant to a "no action letter" issued by the staff of the SEC, AFC did
not file  periodic  reports  with the SEC for itself  but did report  summarized
financial  information in Agway's  financial  statement  footnotes.  Leasing and
Insurance finance their activities  through  operations or with a combination of
short- and long-term  credit  facilities.  Telmark's  debt is not  guaranteed by
Agway.

Effective July 1, 2001, we simplified the Agway  corporate  structure by merging
AFC and AHI into Agway Inc. The more complex  structure was no longer  necessary
due to changed circumstances related to Agway's financing.  Additionally,  Agway
Inc.  assumed  all the assets and  liabilities  of AFC and AHI and  assumed  the
direct  responsibility of securing financing,  as described above. In connection
with the assumption by Agway of the obligations under the Debt Securities,  AFC,
Agway  and The  Chase  Manhattan  Bank,  a New  York  banking  corporation  (the
Trustee),  entered into a Supplemental  Indenture dated as of July 1, 2001 which
provides  for the  assumption  by  Agway  of all  rights,  responsibilities  and
obligations  of AFC under existing  indentures and the Debt  Securities to which
they relate.

The following summarized condensed  consolidating  financial information for the
Company  presents the financial  information for AFC, Agway Inc. (parent company
only  and  as  of  June  30,  2001  guarantor  of  AFC  Debt),  and other direct
subsidiaries of Agway Inc.,  which  do  not  guarantee any obligations of AFC or
Agway.  Subsidiaries  of  Agway  Inc.  and AFC are reported on the equity basis.
Debt and goodwill have been allocated to subsidiaries.

                                       65

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                 June 2001
                                     --------------------------------------------------------------------------
                                                       Agway Inc.       All
                                             AFC      (Parent Co.)     Others
                                          (Issuer)    (Guarantor)   (Non-Guarantor)     Elims      Consolidated
                                       ------------   ------------   -------------  ------------   ------------
ASSETS
------
Current Assets:
<S>                                    <C>            <C>            <C>            <C>            <C>
   Cash  ..........................    $         0    $         0    $     1,555    $    (1,555)   $         0
   Trade accounts receivable, net..         74,353         96,245         42,250            (55)       212,793
   Leases receivable, net..........        166,694              0              0         (1,346)       165,348
   Operating advance receivable....        284,324              0              0       (284,324)             0
   Advances and other receivables            4,653         13,776          2,654         (1,142)        19,941
   Inventories.....................         23,959         46,435         18,232              0         88,626
   Restricted cash.................          8,306              0              0              0          8,306
   Prepaid expenses and other assets.       30,573         35,573             80             56         66,282
                                       ------------   ------------   ------------   ------------    -----------
      Total current assets..........       592,862        192,029         64,771       (288,366)       561,296
Marketable securities available for
sale                                        37,556              0              0              0         37,556
Other security investments.........         50,233        239,953              0       (238,357)        51,829
Properties and equipment, net......         80,947         85,520         11,166           (278)       177,355
Long-term leases receivable, net...        521,971              0              0        (18,979)       502,992
Net pension asset..................              0        229,678              0              0        229,678
Other assets.......................         93,796         23,527          9,432        (92,970)        33,785
Net assets of discontinued operations            0          5,414              0              0          5,414
                                       ------------   ------------    -----------   ------------   ------------
       Total assets................    $ 1,377,365    $   776,121     $   85,369    $  (638,950)   $ 1,599,905
                                       ============   ============    ===========   ============   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current Liabilities:
   Notes payable...................    $   120,638    $    61,342     $        0    $         0    $   181,980
   Current installments of long-term
     debt and subordinated debt            202,588          1,632          1,022         (1,348)       203,894
   Operating advance payable.......              0        259,678         24,081       (283,759)             0
   Accounts payable................         14,891         22,470          6,988         46,335         90,684
   Other current liabilities.......         94,387         78,352          8,065        (49,595)       131,209
                                       ------------   ------------    -----------   ------------   ------------
     Total current liabilities.....        432,504        423,474         40,156       (288,367)       607,767
Long-term debt.....................        262,380         19,384          8,051        (19,072)       270,743
Subordinated debt..................        432,162              0              0              0        432,162
Other liabilities..................         49,124        163,933              0        (93,154)       119,903
                                       ------------   ------------    -----------   ------------   ------------
     Total liabilities.............      1,176,170        606,791         48,207       (400,593)     1,430,575

Shareholders' equity:
   Preferred stock, net............              0         37,603              0              0         37,603
   Common stock, net...............              0          2,445              0              0          2,445
   Accumulated other comprehensive
     income (loss).................              0           (61)              0              0            (61)
   Retained earnings...............        201,195        129,343         37,162       (238,357)       129,343
                                       ------------   ------------    -----------   ------------   ------------
     Total shareholders' equity....        201,195        169,330         37,162       (238,357)       169,330
                                       ------------   ------------    -----------   ------------   ------------
       Total liabilities and
         shareholders' equity......    $ 1,377,365    $   776,121     $   85,369    $  (638,950)   $ 1,599,905
                                       ============   ============    ===========   ============   ============
</TABLE>


                                       66

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                                 June 2000
                                     --------------------------------------------------------------------------
                                                       Agway Inc.       All
                                             AFC      (Parent Co.)     Others
                                          (Issuer)    (Guarantor)   (Non-Guarantor)     Elims      Consolidated
                                       ------------   ------------   -------------  ------------   ------------
ASSETS
------
Current Assets:
<S>                                    <C>            <C>            <C>            <C>            <C>
   Cash   ..........................   $         0    $    23,508    $     6,875    $   (11,242)   $    19,141
   Trade accounts receivable, net...        67,214        104,459         37,587              1        209,261
   Leases receivable, net...........       152,785              0              0           (530)       152,255
   Operating advance receivable.....       400,894              0              0       (400,894)             0
   Advances and other receivables...        13,926          7,988          2,837         (1,013)        23,738
   Inventories......................        33,805         61,604         16,531              0        111,940
   Restricted cash..................        10,103              0              0              0         10,103
   Prepaid expenses and other assets.       32,016         16,116              9              2         48,143
                                       ------------   ------------   ------------   ------------   ------------
     Total current assets...........       710,743        213,675         63,839       (413,676)       574,581
Marketable securities available for
sale                                        36,254              0              0              0         36,254
Other security investments..........        48,739        242,817              0       (240,084)        51,472
Properties and equipment, net.......        79,178         84,812         11,793              1        175,784
Long-term leases receivable, net....       473,753              0              0         (3,158)       470,595
Net pension asset...................             0        213,455              0              0        213,455
Other assets........................        59,557          8,605         10,187        (56,639)        21,710
Net assets of discontinued operations            0         34,278              0              0         34,278
                                       ------------   ------------   ------------   ------------   ------------
       Total assets.................   $ 1,408,224    $   797,642    $    85,819    $  (713,556)   $ 1,578,129
                                       ============   ============   ============   ============   ============

LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
   Notes payable....................   $   177,576    $         0    $         0    $         0    $   177,576
Current installments of long-term
     debt and subordinated debt            190,524          1,104          2,237           (529)       193,336
   Operating advance payable........             0        379,977         20,005       (399,982)             0
   Accounts payable.................        16,376         21,184          4,630         51,856         94,046
   Other current liabilities........       110,222         63,070         13,789        (65,021)       122,060
                                       ------------   ------------   ------------   ------------   ------------
     Total current liabilities......       494,698        465,335         40,661       (413,676)       587,018
Long-term debt......................       273,146          3,775          7,664         (2,907)       281,678
Subordinated debt...................       417,749              0              0              0        417,749
Other liabilities...................        20,041        145,941              0        (56,889)       109,093
                                       ------------   ------------   ------------   ------------   ------------
     Total liabilities..............     1,205,634        615,051         48,325       (473,472)     1,395,538

Shareholders' equity:
   Preferred stock, net.............             0         39,695              0              0         39,695
   Common stock, net................             0          2,473              0              0          2,473
   Accumulated other comprehensive
     income (loss)..................             0           (798)             0              0           (798)
   Retained earnings................       202,590        141,221         37,494       (240,084)       141,221
                                       ------------   ------------   ------------   ------------   ------------
     Total shareholders' equity.....       202,590        182,591         37,494       (240,084)       182,591
                                       ------------   ------------   ------------   ------------   ------------
       Total liabilities and
          shareholders' equity......   $ 1,408,224    $   797,642    $    85,819    $  (713,556)   $ 1,578,129
                                       ============   ============   ============   ============   ============
</TABLE>


                                       67

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)
<TABLE>
<CAPTION>
                                                                   June 2001
                                       ------------------------------------------------------------------------
                                                       Agway Inc.        All
                                             AFC      (Parent Co.)      Others
                                          (Issuer)    (Guarantor)   (Non-Guarantor)    Elims       Consolidated
                                       ------------   -----------    -------------  ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Net sales and revenues from:
   Product sales...................    $   789,580    $   526,814    $   136,183    $   (17,025)   $ 1,435,552
   Leasing operations..............         84,868              0              0              0         84,868
   Insurance operations............         27,894              0              0              0         27,894
                                       ------------   ------------   ------------   ------------   ------------
     Total net sales and revenues..        902,342        526,814        136,183        (17,025)     1,548,314

Cost and expenses from:
   Products and plant operations...        743,373        477,126        121,623        (15,781)     1,326,341
   Leasing operations..............         35,616              0              0              0         35,616
   Insurance operations............         17,003              0              0              0         17,003
   Selling, general and admin
   activities                               71,210         64,166         13,051             (1)       148,426
                                       ------------   ------------   ------------   ------------   ------------
   Total operating costs and expenses      867,202        541,292        134,674        (15,782)     1,527,386

Operating income (loss)............         35,140        (14,478)         1,509         (1,243)        20,928
Interest expense, net..............        (20,985)       (15,793)        (2,098)         1,243        (37,633)
Other income, net..................        (14,836)        19,376            193         (1,704)         3,029
                                       ------------   ------------   ------------   ------------   ------------
Earnings (loss) from continuing
   operations before income taxes..           (681)       (10,895)          (396)        (1,704)       (13,676)
Income tax expense (benefit) ......            394         (6,136)           (64)             0         (5,806)
                                       ------------   ------------   ------------   ------------   ------------

Earnings (loss) before equity in
   unconsolidated subsidiaries.....         (1,075)        (4,759)          (332)        (1,704)        (7,870)
Equity in earnings from subsidiaries.            0         (3,111)             0          3,111              0
                                       ------------   ------------   ------------   ------------   ------------

Earnings from continuing operations         (1,075)        (7,870)          (332)         1,407         (7,870)

Discontinued operations:
   Loss from operations, net of tax              0              0              0              0              0
   Loss on disposal, net of tax....              0              0              0              0              0
                                       ------------   ------------   ------------   ------------   ------------
   Loss from discontinued operations             0              0              0              0              0

Earnings (loss) before cumulative
   effect of an accounting change..         (1,075)        (7,870)          (332)         1,407         (7,870)

Cumulative effect of accounting
   change, net of tax benefit of $723            0         (1,057)             0              0         (1,057)
                                       ------------   ------------   ------------   ------------   ------------
Net earnings (loss)................    $    (1,075)   $    (8,927)   $      (332)   $     1,407    $    (8,927)
                                       ============   ============   ============   ============   ============
</TABLE>






                                       68

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>
                                                                   June 2000
                                       -------------------------------------------------------------------------
                                                       Agway Inc.        All
                                            AFC       (Parent Co.)      Others
                                         (Issuer)     (Guarantor)   (Non-Guarantor)    Elims       Consolidated
                                       ------------   -----------    -------------  ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Net sales and revenues from:
   Product sales                       $   628,684    $   522,631    $   120,461    $  (17,556)    $ 1,254,220
   Leasing operations..............         76,626              0              0             0          76,626
   Insurance operations............         27,153              0              0             0          27,153
                                       ------------   ------------   ------------   -----------    ------------
     Total net sales and revenues..        732,463        522,631        120,461       (17,556)      1,357,999

Cost and expenses from:
   Products and plant operations...        592,790        474,529        108,201       (17,415)      1,158,105
   Leasing operations..............         31,377              0              0             0          31,377
   Insurance operations............         15,663              0              0             0          15,663
   Selling, general and admin
   activities                               59,700         62,637         12,505           138         134,980
                                       ------------   ------------   ------------   ------------   ------------
   Total operating costs and expenses      699,530        537,166        120,706       (17,277)      1,340,125

Operating income (loss)............         32,933        (14,535)          (245)         (279)         17,874
Interest expense, net..............        (19,875)        (9,113)        (1,748)          145         (30,591)
Other income, net..................         (1,409)        26,275            295           572          25,733
                                       ------------   ------------   ------------   ------------   ------------
Earnings (loss) from continuing
   operations before income taxes..         11,649          2,627         (1,698)          438          13,016

Income tax expense (benefit) ......          4,763          2,231           (130)            0           6,864
                                       ------------   ------------   ------------   -----------    ------------

Earnings (loss) before equity in
   unconsolidated subsidiaries.....          6,886            396         (1,568)          438           6,152
Equity in earnings from subsidiaries             0          5,756              0        (5,756)              0
                                       ------------   ------------   ------------   -----------    ------------

Earnings from continuing operations          6,886          6,152         (1,568)       (5,318)          6,152

Discontinued operations:
   Loss from operations, net of tax
     benefit of $7,313.............              0        (13,187)             0             0         (13,187)
   Loss on disposal, net of tax
     benefit of $1,278.............              0         (2,342)             0             0          (2,342)
                                       ------------   ------------   ------------   -----------    ------------
   Loss from discontinued operations             0        (15,529)             0             0         (15,529)

Net earnings (loss)................    $     6,886    $    (9,377)   $    (1,568)   $   (5,318)    $    (9,377)
                                       ============   ============   ============   ===========    ============
</TABLE>







                                       69

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS (CONTINUED)

<TABLE>
<CAPTION>

                                                                   June 1999
                                       ------------------------------------------------------------------------
                                                      Agway Inc.        All
                                            AFC       (Parent Co.)      Others
                                         (Issuer)     (Guarantor)   (Non-Guarantor)    Elims       Consolidated
                                       ------------   -----------    -------------  ------------   ------------
<S>                                    <C>            <C>            <C>            <C>            <C>
Net sales and revenues from:
   Product sales                       $   421,721    $  548,400     $   116,481    $   (24,298)   $ 1,062,304
   Leasing operations..............         70,006             0               0              0         70,006
   Insurance operations............         27,968             0               0              0         27,968
                                       ------------   ------------   ------------   ------------   ------------
     Total net sales and revenues..        519,695       548,400         116,481        (24,298)     1,160,278

Cost and expenses from:
   Products and plant operations...        382,141       497,508         107,376        (24,286)       962,739
   Leasing operations..............         27,626             0               0              0         27,626
   Insurance operations............         17,152             0               0              0         17,152
   Selling, general and admin
   activities                               46,656        66,638           8,672            440        122,406
                                       ------------   ------------   ------------   ------------   ------------
   Total operating costs and expenses      473,575       564,146         116,048        (23,846)     1,129,923

Operating income (loss)............         46,120       (15,746)            433           (452)        30,355
Interest expense, net..............        (19,287)       (5,344)         (1,485)            14        (26,102)
Other income, net..................        (16,283)       35,171              59              0         18,947
                                       ------------   ------------   ------------   ------------   ------------
Earnings (loss) from continuing
   operations before income taxes..         10,550        14,081            (993)          (438)        23,200

Income tax expense (benefit) ......         17,209        (6,087)           (862)            (1)        10,259
                                       ------------   ------------   ------------   ------------   ------------

Earnings (loss) before equity in
   unconsolidated subsidiaries.....         (6,659)       20,168            (131)          (437)        12,941
Equity in earnings from subsidiaries             0        (7,227)              0          7,227              0
                                       ------------   ------------   ------------   ------------   ------------

Earnings from continuing operations         (6,659)       12,941            (131)         6,790         12,941

Discontinued operations:
   Loss from operations, net of tax
     benefit of $6,086.............              0       (11,146)              0              0        (11,146)
   Loss on disposal, net of tax....              0             0               0              0              0
                                       ------------   ------------   ------------   ------------   ------------

   Loss from discontinued operations             0       (11,146)              0              0        (11,146)
                                       ------------   ------------   ------------   ------------   ------------

Net earnings (loss)................    $    (6,659)   $     1,795    $      (131)   $     6,790    $     1,795
                                       ============   ============   ============   ============   ============


</TABLE>

                                       70

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)

<TABLE>
<CAPTION>
                                                                                          June 2001
                                                                --------------------------------------------------------------------
                                                                               Agway Inc.        All
                                                                     AFC      (Parent Co.)     Others
                                                                  (Issuer)    (Guarantor)  (Non-Guarantor)   Elims     Consolidated
                                                                -----------   -----------   ------------   ----------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>           <C>           <C>            <C>         <C>
Net earnings (loss) .........................................   $   (2,132)   $  (8,927)    $   (2,036)    $  4,168    $     (8,927)
Adjustments to reconcile earnings to net cash:
   Depreciation and amortization.............................       10,717       14,256          2,657         (734)         26,896
   Receivables and other asset provisions....................       18,362            0              0            0          18,362
   Net pension income........................................            0      (16,223)             0            0         (16,223)
   Cumulative effect of accounting change, net of tax........        1,057            0              0            0           1,057
   Patronage refund received in stock........................            0         (360)             0            0            (360)
   Deferred income tax expense (benefit).....................       (3,350)       1,802            288       (5,773)         (7,033)
   (Gain) loss on disposition of:
      Businesses.............................................            0            0              0            0               0
      Other security investments.............................          509            0              0            0             509
      Properties and equipment...............................       (1,281)        (750)          (184)           0          (2,215)
   Changes in assets and liabilities,  net of effects of
   businesses  acquired or sold:
      Receivables............................................      (10,294)      (1,193)        (4,663)       7,549          (8,601)
      Inventory..............................................        9,871       15,169         (1,702)         (24)         23,314
      Payables...............................................      (13,757)    (109,870)        (3,191)     123,551          (3,267)
      Other..................................................      103,535       (5,889)      (109,693)    (115,466)         (6,194)
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from (used in) continuing operations..........      113,237     (111,985)        (2,978)      19,044          17,318
Net cash flows from (used in) discontinued operations........            0       28,864              0            0          28,864
                                                                -----------   -----------   ------------   ----------  ------------
Net cash from (used in) operating activities.................      113,237      (83,121)        (2,978)      19,044          46,182

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of properties and equipment.....................      (12,387)      (5,343)        (1,057)           0         (18,787)
   Cash paid for acquisitions................................         (484)           0              0            0            (484)
   Disposition of properties and equipment...................        2,106        6,794            113          935           9,948
   Purchases of marketable securities available for sale.....        4,905)           0              0            0          (4,905)
   Sale of marketable securities available for sale..........        4,530            0              0            0           4,530
   Leases originated.........................................     (265,986)           0              0            0        (265,986)
   Leases repaid.............................................      211,017            0              0            0         211,017
   Purchases of investments in related cooperatives..........       (1,948)      (1,253)             0            0          (3,201)
   Proceeds from sale of investments in related cooperatives.        1,461        1,234              0            0           2,695
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows used in investing activities..................      (66,596)       1,432           (944)         935         (65,173)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term notes payable.......................      (56,938)      61,342              0            0           4,404
Proceeds from long-term debt.................................      131,099           85              0          (85)        131,099
Repayment of long-term debt..................................     (130,165)        (662)             0          662        (130,165)
Proceeds from sale of subordinated debt......................      183,029            0              0            0         183,029
Redemption of subordinated debt..............................     (169,792)           0              0            0        (169,792)
Payments on capitalized leases...............................        1,283        2,558         (1,072)     (18,149)        (15,380)
Proceeds from sale of stock..................................            0            6              0            0               6
Redemption of stock..........................................            0       (2,127)             0            0          (2,127)
Cash dividends paid..........................................            0       (3,021)             0            0          (3,021)
Net change in restricted cash................................            0            0              0        1,797           1,797
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from financing activities.....................      (41,484)      58,181         (1,072)     (15,775)           (150)
                                                                -----------   -----------   ------------   ----------  ------------

Net inc (dec) in cash and equivalents........................        5,157      (23,508)        (4,994)       4,204         (19,141)
Cash and equivalents at beginning of year....................            0       23,508          6,548      (10,915)         19,141
                                                                -----------   -----------   ------------   ----------  ------------
Cash and equivalents at end of year..........................   $    5,157    $       0     $    1,554     $ (6,711)   $          0
                                                                ===========   ===========   ============   ==========  ============
</TABLE>

                                       71

<PAGE>



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


19.  CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
<TABLE>
<CAPTION>
                                                                                          June 2000
                                                               --------------------------------------------------------------------
                                                                               Agway Inc.        All
                                                                     AFC      (Parent Co.)     Others
                                                                  (Issuer)    (Guarantor)  (Non-Guarantor)   Elims     Consolidated
                                                                -----------   -----------   ------------   ----------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>           <C>           <C>            <C>         <C>
Net earnings (loss) .........................................   $    6,886    $  (9,377)  $     (1,567)    $ (5,319)   $     (9,377)
Adjustments to reconcile earnings to net cash:
   Net loss from discontinued operations.....................            0       15,529              0            0          15,529
   Depreciation and amortization.............................       10,054       13,545          2,572            0          26,171
   Receivables and other asset provisions....................       14,378            0              0            0          14,378
   Net pension income........................................            0      (19,563)             0            0         (19,563)
   Patronage refund received in stock........................            0         (679)             0            0            (679)
   Deferred income tax expense (benefit).....................       (5,263)         625            (61)       1,942          (2,757)
   (Gain) loss on disposition of:
      Businesses.............................................            0       (1,098)             0            0          (1,098)
      Other security investments.............................        1,012           32              0            0           1,044
      Properties and equipment...............................      (13,311)        (411)          (273)           0         (13,995)
   Changes in assets and liabilities,  net of effects of
   businesses  acquired or sold:
      Receivables............................................      (51,245)     (30,517)        (1,350)      25,935         (57,177)
      Inventory..............................................      (16,520)      (7,793)        (1,358)           0         (25,671)
      Payables...............................................        4,951       47,304         (2,381)     (40,870)          9,004
      Other..................................................      (12,063)         (40)        10,792       24,785          23,474
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from (used in) continuing operations..........      (61,121)       7,557          6,374        6,473         (40,717)
Net cash flows from (used in) discontinued operations........            0       35,995              0            0          35,995
                                                                -----------   -----------   ------------   ----------  ------------
Net cash from (used in) operating activities.................      (61,121)      43,552          6,374        6,473          (4,722)

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of properties and equipment.....................       (6,894)     (18,984)        (1,888)         (33)        (27,799)
   Cash paid for acquisitions................................       (2,900)           0         (2,050)           0          (4,950)
   Disposition of properties and equipment...................       18,193        1,379            987           33          20,592
   Purchases of marketable securities available for sale.....       (4,658)           0              0            0          (4,658)
   Sale of marketable securities available for sale..........        2,945            0              0            0           2,945
   Leases originated.........................................     (276,199)           0              0            0        (276,199)
   Leases repaid.............................................      196,471            0              0            0         196,471
   Purchases of investments in related cooperatives..........         (382)      (1,458)             0            0          (1,840)
   Proceeds from sale of investments in related cooperatives.        1,017          154              0            0           1,171
   Proceeds from disposal of businesses......................            0        2,615              0            0           2,615
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows used in investing activities..................      (72,407)     (16,294)        (2,951)           0         (91,652)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term notes payable.......................       95,776            0              0            0          95,776
Proceeds from long-term debt.................................      142,812          430             21            0         143,263
Repayment of long-term debt..................................      (93,631)        (255)        (3,339)           0         (97,225)
Proceeds from sale of subordinated debt......................      131,571            0              0            0         131,571
Redemption of subordinated debt..............................     (143,001)           0              0            0        (143,001)
Payments on capitalized leases...............................            0         (296)          (616)      (1,804)         (2,716)
Proceeds from sale of stock..................................            0           13              0            1              14
Redemption of stock..........................................            0       (3,269)             0            0          (3,269)
Cash dividends paid..........................................            0       (3,275)             0            0          (3,275)
Net change in restricted cash................................            0            0              0       (5,623)         (5,623)
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from financing activities.....................      133,527       (6,652)        (3,934)      (7,426)        115,515
                                                                -----------   -----------   ------------   ----------  ------------

Net inc (dec) in cash and equivalents........................            0       20,606           (511)        (954)         19,141
Cash and equivalents at beginning of year....................            0        2,902          7,059       (9,961)              0
                                                                -----------   -----------   ------------   ----------  ------------
Cash and equivalents at end of year..........................   $        0    $  23,508     $    6,548     $(10,915)  $      19,141
                                                                ===========   ===========   ============   ==========  ============
</TABLE>
                                       72

<PAGE>

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


19.  CONSOLIDATING FINANCIAL STATEMENTS(CONTINUED)
<TABLE>
<CAPTION>

                                                                                          June 1999
                                                                --------------------------------------------------------------------
                                                                               Agway Inc.        All
                                                                     AFC      (Parent Co.)     Others
                                                                  (Issuer)    (Guarantor)  (Non-Guarantor)   Elims     Consolidated
                                                                -----------   -----------   ------------   ----------  ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S>                                                             <C>           <C>           <C>             <C>         <C>
Net earnings (loss) .........................................   $   (6,659)   $   1,795      $    (130)   $   6,789    $      1,795
Adjustments to reconcile earnings to net cash:
   Net loss from discontinued operations.....................            0       11,146              0            0          11,146
   Depreciation and amortization.............................        9,426        8,702          2,941        3,659          24,728
   Receivables and other asset provisions....................       10,730            0              0            0          10,730
   Net pension income........................................            0      (21,368)             0            0         (21,368)
   Patronage refund received in stock........................            0         (992)             0            0            (992)
   Deferred income tax expense (benefit).....................      (63,177)      72,325           (979)      (4,328)          3,841
   (Gain) loss on disposition of:
      Businesses.............................................            0      (11,097)             0            0         (11,097)
      Other security investments.............................        1,267            0              0            0           1,267
      Properties and equipment...............................         (109)        (486)           (60)           0            (655)
   Changes in assets and liabilities,  net of effects of
   businesses  acquired or sold:
      Receivables............................................        5,068       20,224            583       (7,353)         18,522
      Inventory..............................................       (1,100)       2,498            983            0           2,381
      Payables...............................................        4,632      (10,668)        (1,559)       3,824          (3,771)
      Other..................................................       43,488      (50,302)        15,840       (9,195)           (169)
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from (used in) continuing operations..........        3,566       21,777         17,619       (6,604)         36,358
Net cash flows from (used in) discontinued operations........            0         (391)             0            0            (391)
                                                                -----------   -----------   ------------   ----------  ------------
Net cash from (used in) operating activities.................        3,566       21,386         17,619       (6,604)         35,967

CASH FLOWS FROM INVESTING ACTIVITIES:
   Purchases of properties and equipment.....................       (5,492)     (18,015)        (4,577)         922         (27,162)
   Cash paid for acquisitions................................            0            0         (8,030)           0          (8,030)
   Disposition of properties and equipment...................          849          972              0         (658)          1,163
   Purchases of marketable securities available for sale.....       (6,333)           0              0            0          (6,333)
   Sale of marketable securities available for sale..........        6,982            0              0            0           6,982
   Leases originated.........................................     (252,107)           0              0            0        (252,107)
   Leases repaid.............................................      188,637            0              0            0         188,637
   Purchases of investments in related cooperatives..........        1,145       (9,238)             0        5,921          (2,172)
   Proceeds from sale of investments in related cooperatives.        2,648            0              0            0           2,648
   Proceeds from disposal of business........................            0       14,150              0            0          14,150
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows used in investing activities..................      (63,671)     (12,131)       (12,607)       6,185         (82,224)

CASH FLOWS FROM FINANCING ACTIVITIES:
Net change in short-term notes payable.......................       16,700           0            (220)           0          16,480
Proceeds from long-term debt.................................      113,852         152               0         (152)        113,852
Repayment of long-term debt..................................      (94,553)        (83)              0           83         (94,553)
Proceeds from sale of subordinated debt......................      133,948           0               0            0         133,948
Redemption of subordinated debt..............................     (109,842)          0               0            0        (109,842)
Payments on capitalized leases...............................            0        (319)           (278)           0            (597)
Proceeds from sale of stock..................................            0          45               0            0              45
Redemption of stock..........................................            0      (5,064)              0            0          (5,064)
Cash dividends paid..........................................            0      (3,532)              0            0          (3,532)
Net change in restricted cash................................            0           0               0       (4,480)         (4,480)
                                                                -----------   -----------   ------------   ----------  ------------
Net cash flows from financing activities.....................       60,105      (8,801)           (498)      (4,549)         46,257
                                                                -----------   -----------   ------------   ----------  ------------

Net inc (dec) in cash and equivalents........................            0         454           4,514       (4,968)              0
Cash and equivalents at beginning of year....................            0       2,448           2,545       (4,993)              0
                                                                -----------   -----------   ------------   ----------  ------------
Cash and equivalents at end of year..........................   $        0    $  2,902      $    7,059    $  (9,961)  $           0
                                                                ===========   ===========   ============   ==========  ============
</TABLE>
                                       73

<PAGE>

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.

                                    PART III

ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

DIRECTORS
The directors of Agway  determine  Agway policy.  The following  directors  were
nominated on a district  representation basis by committees representing members
within each district. See page 10, Stockholder, Membership and Control of Agway,
for a  description  of the new  process of  nominating  and  electing  directors
effective for the 2001 director elections.  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>
Gary K. Van Slyke(1)            58    Chairman of the           VanSlyke's Dairy Farm         1994      October 2003
                                      Board and Director
Andrew J. Gilbert               42    Vice Chairman of the
                                      Board and Director        Adon Farms                    1995      October 2001
Keith H. Carlisle               59    Director                  Carlisle Farms, Inc.          1995      October 2001
D. Gilbert Couser               60    Director                  Couser Farm                   1995      October 2001
Robert L. Marshman              62    Director                  Marshman Farms                1989      October 2002
Jeffrey B. Martin               42    Director                  Martin Farms                  1997      October 2003
Samuel F. Minor                 63    Director                  The Spring House              1987      October 2003
Richard H. Skellie              57    Director                  Richland Farms                1999      October 2002
Carl D. Smith                   66    Director                  Hillacre Farms                1984      October 2002
Thomas E. Smith                 66    Director                  Lazy Acres Dairy              1986      October 2001
Joel L. Wenger                  70    Director                  Weng-Lea Farms                1987      October 2002
Edwin C. Whitehead              60    Director                  White Ayr Farms               1994      October 2003
Dennis C. Wolff                 49    Director                  Pencol Farms                  2000      October 2003
William W. Young                48    Director                  Will-O-Crest Farm             1989      October 2001
</TABLE>

Gary K. Van Slyke, Chairman of the Board of Directors, earned $60,000 and Andrew
J. Gilbert,  Vice Chairman of the Board of Directors,  earned  $45,000 for their
services  for the year  ended  June  2001.  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  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 they  were  involved  in
business  for the  Company  other than the days  where the Agway  Inc.  Board of
Directors was 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 as of
December 31, 1995. 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
2001,   the  present  value  of   accumulated   benefits  under  this  plan  was
approximately $448,200.

(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.

                                       74

<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.  As of July 1, 2001,  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 Agway for the past five
years, except for Mr. Lubetkin, has been as an officer or employee of Agway. The
following is a listing of these officers as of June 30, 2001:
<TABLE>
<CAPTION>

                                                                                                      Years Served
          Name                       Age      Office                                                   As Officer
          ----                       ---      ------                                                   ----------
<S>                                  <C>      <C>                                                         <C>
Donald P. Cardarelli                 45       President and Chief Executive Officer                       10
Daniel J. Edinger                    50       President, Telmark LLC                                       3
John F. Feeney                       40       Corporate Controller                                         2
Robert A. Fischer, Jr.               53       President, Agriculture Group                                 6
Christopher W. Fox                   53       Senior Vice President, General Counsel and Secretary         -
Stephen H. Hoefer                    46       Senior Vice President, Public Affairs                        7
Michael R. Hopsicker                 36       President, Agway Energy Products LLC                         5
Dennis J. LaHood                     55       Vice President                                               6
Roy S. Lubetkin                      44       President, Country Products Group                            -
Karen J. Ohliger                     39       Treasurer                                                    2
Peter J. O'Neill                     54       Senior Vice President, Finance & Control                    12
William L. Parker                    54       Vice President and Chief Information Officer                 6
Gerald R. Seeber                     54       Senior Vice President and Chief Administrative
                                                Officer and Chairman and President,
                                                Agway Insurance Group                                      3
G. Leslie Smith                      58       Vice President and Chief Investment Officer                  4
Michael P. Spyker                    51       Vice President, Membership                                   1
</TABLE>


More detailed biographies of each person listed above are set forth below:

Mr. Cardarelli served as General Manager and CEO from January 1995 and President
from February 1995 to present.

Mr. Edinger served as President, Telmark LLC, from February 1988 to present.

Mr. Feeney served as Director, Corporate Reporting, from  July  1995  to  August
1998; and as Corporate Controller from August 1998 to present.

Mr.  Fischer has served as President,  Milford  Fertilizer  Company,  since June
1970; as Vice President, Agway Agricultural Products, from February 1995 to July
1, 1997;  as President,  Agway  Agricultural  Products,  from July 1997 to March
1999; as President, Agriculture Group, from March 1999 to June 30, 2001, when he
retired from Agway.

Mr. Fox served as Associate  General Counsel,  from July 1996 to August 2000; as
Vice  President,  Deputy  General  Counsel  and  Secretary  from  August 2000 to
December 2000; and as Senior Vice President, General Counsel and Secretary, from
January 2001 to present.

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 present.

Mr. Hopsicker served 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 present.



                                       75

<PAGE>



ITEM 10.  DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

EXECUTIVE OFFICERS (CONTINUED)

Mr. LaHood served as Vice President,  Country Products Group, from February 1995
to July 1997;  as President,  Country  Products  Group,  from July 1997 to April
2001; and as Vice President,  Agway Inc., from April 2001 to July 13, 2001, when
he retired from Agway.

Mr. Lubetkin  served as President,  Country  Products Group,  from April 2001 to
present.  Prior to joining  Agway,  Mr.  Lubetkin  served as  President,  Churny
Company (a manufacturer and marketer of specialty foods and subsidiary of Krafts
Food),  from February 1995 to February 1999; and as Regional General Manager and
Executive  Vice  President,  Metz Baking Company (a commercial  manufacturer  of
fresh baked goods), from February 1999 to March 2000.

Ms. Ohliger served as Assistant Treasurer  from  September 1992 to  August 1998;
and as Treasurer from August 1998 to present.

Mr. O'Neill served 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 present.

Mr. Parker served as Vice President, Information Services, from  September  1994
to  May 1996; and as Vice President, Chief Information Officer, from May 1996 to
present.

Mr. Seeber served as President, Agway Insurance Group, from October 1993 to July
1997; as Senior Vice  President,  Administrative  Services and President,  Agway
Insurance  Group,  from July 1997 to November 2000; and as Senior Vice President
and Chief  Administrative  Officer and Chairman and President,  Agway  Insurance
Group, from November 2000 to present.

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
present.

Mr. Spyker has served as Seed Business Unit Manager since July 1995; and as Vice
President, Membership, from January 2000 to July 13, 2001, when he left Agway.


                                       76

<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
2001,  2000 and 1999 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, 2001 (collectively, the "named executive officers").
<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             2001              $547,521          $332,008                           $20,009
   President and CEO             2000               521,548                 0                            19,771
                                 1999               478,276           154,530                            18,057

Robert A. Fischer, Jr.           2001              $409,616          $375,000                           $43,918
   President,                    2000               350,385                 0                            58,743
   Agriculture Group             1999               316,442            40,000                            63,480

Michael R. Hopsicker             2001              $255,008          $210,750                            $4,527
  President                      2000               248,278            51,000                             5,480
  Agway Energy                   1999               218,087           171,000                             3,864
  Products LLC

Dennis J. LaHood                 2001              $330,018          $200,000                            $4,956
   Vice President                2000               316,173                 0                             4,963
                                 1999               252,639           211,800                             3,009

Peter J. O'Neill                 2001              $307,008          $187,000                            $8,561
  Senior Vice President,         2000               304,703            46,050                             9,436
  Finance & Control              1999               290,212            60,000                             6,999
</TABLE>

(1)   Salary  and  bonus are used in determining the average annual compensation
      pursuant to the Employees' Retirement  Plan of  Agway  Inc. (see page 79).
      This amount includes  all deferred amounts under the Agway Inc. Employees'
      401(k) 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'  401(k)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.

                                       77

<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 up to the
limits provided by law, 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 27,  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>             <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 27, 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.



                                       78

<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>             <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  line 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 2001. as of june 2001, the named executive
officers  and their  respective  number of credited  years of service  under the
Retirement Plan were as follows:  Messrs.  Cardarelli,  16; O'Neill, 12; LaHood,
31; and Hopsicker,  12. 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, including overtime, vacation pay, or special pay
and  bonuses  as  reported  in the Bonus  column of the  Executive  Compensation
disclosure on page 77.




                                       79

<PAGE>



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 certain  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,  owns 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,  owns 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.




                                       80

<PAGE>



                                              PART IV


ITEM 14.  EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
<TABLE>
<CAPTION>

                                                                                                                 PAGE
     (A)  INDEX TO DOCUMENT LIST                                                                               LOCATION
                                                                                                               --------
          <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 31:

              (i)    Report of Independent Accountants............................................................   33

              (ii)   Consolidated Balance Sheets, June 30, 2001 and June 24, 2000 ................................   34

              (iii)  Consolidated Statements of Operations, fiscal years ended June 30, 2001, June 24, 2000
                       and June 26, 1999..........................................................................   35

              (iv)   Consolidated Statements of Comprehensive Income, fiscal years ended June 30, 2001,
                       June 24, 2000 and June 26, 1999............................................................   36

              (v)    Consolidated Statements of Changes in Shareholders' Equity, fiscal years ended
                       June 30, 2001, June 24, 2000 and June 26, 1999.............................................   37

              (vi)   Consolidated Statements of Cash Flow, fiscal years ended June 30, 2001, June 24, 2000
                       and June 26, 1999..........................................................................   38

              (vii)  Notes to Consolidated Financial Statements...................................................   39

          (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, 2001.....................   82

                     Schedule II       -    Valuation and Qualifying Accounts, fiscal years ended
                                            June 30, 2001, June 24, 2000 and June 26, 1999........................   86
</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.



                                       81

<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
                             (THOUSANDS OF DOLLARS)

                                     ASSETS

<TABLE>
<CAPTION>
                                                                                        JUNE 30,            JUNE 24,
                                                                                          2001                2000
                                                                                     ---------------     ---------------
<S>                                                                                  <C>                 <C>
Current assets:
    Cash...........................................................................  $            0      $       23,508
     Trade accounts receivable (including notes receivable of $33,083 and
          $34,559, respectively), less allowance for doubtful accounts of
          $5,035 and $4,674, respectively..........................................          96,245             104,459
     Inventories...................................................................          46,435              61,604
     Other current assets..........................................................          49,349              24,104
                                                                                     ---------------     ---------------
          Total current assets.....................................................         192,029             213,675

Investments in subsidiaries........................................................         239,953             242,817

Properties and equipment, net......................................................          85,520              84,812

Net pension asset..................................................................         229,678             213,455

Other assets  .....................................................................          23,527               8,605

Net assets of discontinued operations..............................................           5,414              34,278
                                                                                     ---------------     ---------------

          Total assets.............................................................  $      776,121      $      797,642
                                                                                     ===============     ===============


                      LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Accounts payable..............................................................  $       22,470      $       21,184
     Operating advances payable to subsidiaries, net...............................         259,678             379,977
     Other current liabilities.....................................................         141,326              64,174
                                                                                     ---------------     ---------------
          Total current liabilities................................................         423,474             465,335

Other liabilities..................................................................         183,317             149,716

Shareholders' equity...............................................................         169,330             182,591
                                                                                     ---------------     ---------------

          Total liabilities and shareholders' equity...............................  $      776,121      $      797,642
                                                                                     ===============     ===============
</TABLE>




                                       82

<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
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                   JUNE 30,             JUNE 24,             JUNE 26,
                                                                     2001                 2000                 1999
                                                                --------------       ---------------     ---------------

<S>                                                             <C>                  <C>                 <C>
Total net sales and revenues from product sales..............         526,814               522,631             548,400

Cost and expenses from:
     Products and plant operations...........................         477,126               474,529             497,508
     Selling, general and administrative activities..........          64,166                62,637              66,638
                                                                --------------       ---------------     ---------------
          Total operating costs and expenses.................         541,292               537,166             564,146
                                                                --------------       ---------------     ---------------

Operating loss...............................................         (14,478)              (14,535)            (15,746)
Interest expense, net........................................         (15,793)               (9,113)             (5,344)
Other income, net............................................          19,376                26,275              35,171
                                                                --------------       ---------------     ---------------
Earnings (loss) from operations before income taxes
     and equity in earnings of subsidiaries .................         (10,895)                2,627              14,081
Income tax (expense) benefit ................................           6,136                (2,231)              6,087
                                                                --------------       ---------------     ---------------
Income (loss) before equity in earnings of subsidiaries......          (4,759)                  396              20,168
Equity in earnings (loss) of unconsolidated subsidiaries.....          (3,111)                5,756              (7,227)
                                                                --------------       ---------------     ---------------
Earnings from continuing operations..........................          (7,870)                6,152              12,941
Discontinued operations:
     Loss from operations, including tax benefit of $0,
          $7,313 and $6,086, respectively....................               0               (13,187)            (11,146)
     Loss on disposal, net of tax benefit
          of $0, $1,278 and $0...............................               0                (2,342)                  0
                                                                --------------       ---------------     ---------------
          Loss from discontinued operations..................               0               (15,529)            (11,146)
Earnings (loss) before cumulative effect of an accounting
     change..................................................          (7,870)               (9,377)              1,795
Cumulative effect of accounting change, net of tax
     benefit of $723.........................................          (1,057)                    0                   0
                                                                --------------       ---------------     ---------------
Net earnings (loss)..........................................          (8,927)               (9,377)              1,795
Retained earnings - beginning of year........................         141,221               153,763             155,362
Dividends....................................................          (2,951)               (3,165)             (3,394)
                                                                --------------       ---------------     ---------------
Retained earnings - end of year..............................   $     129,343        $      141,221      $      153,763
                                                                ==============       ===============     ===============
</TABLE>



                                       83

<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
                             (THOUSANDS OF DOLLARS)
<TABLE>
<CAPTION>
                                                                   JUNE 30,             JUNE 24,            JUNE 26,
                                                                     2001                 2000                1999
                                                                --------------       -------------       --------------

<S>                                                             <C>                  <C>                 <C>
Net cash flows from (used in) continuing operations..........   $    (111,985)       $       7,557       $      21,777
Net cash flows from (used in) discontinued operations........          28,864               35,995                (391)
                                                                --------------       --------------      --------------
Net cash flows from (used in) operating activities...........         (83,121)              43,552              21,386
Cash flows from investing activities:
     Purchases of property, plant and equipment..............          (5,343)             (18,984)            (18,015)
     Proceeds from disposal of business......................               0                2,615              14,150
     Disposition of properties and equipment.................           6,794                1,379                 972
     Other...................................................             (19)              (1,304)             (9,238)
                                                                --------------       --------------      --------------
Net cash flows used in investing activities..................           1,432              (16,294)            (12,131)
Cash flows from financing activities:........................
     Net change in short-term notes payable..................          61,342                    0                   0
     Payments on capitalized leases..........................           2,558                 (296)               (319)
     Cash dividends paid.....................................          (3,021)              (3,275)             (3,532)
     Other...................................................          (2,698)              (3,081)             (4,950)
                                                                --------------       --------------      --------------
Net cash flows used in financing activities..................          58,181               (6,652)             (8,801)
Net increase in cash and equivalents.........................         (23,508)              20,606                 454
Cash and equivalents at beginning of year....................          23,508                2,902               2,448
                                                                --------------       --------------      --------------
Cash and equivalents at end of year..........................   $           0        $      23,508       $       2,902
                                                                ==============       ==============      ==============
</TABLE>



                                       84

<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.

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

INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
                                                                                        JUNE 2001           JUNE 2000
                                                                                     -------------       --------------
<S>                                                                                  <C>                 <C>
Finished goods....................................................................   $      38,460       $      52,147
Raw materials.....................................................................           6,122               7,977
Supplies..........................................................................           1,853               1,480
                                                                                     -------------       --------------
                                                                                     $      46,435       $      61,604
                                                                                     ==============      ==============
</TABLE>

DEBT
Debt capital for Agway had been  supplied by its wholly owned  subsidiary,  AFC,
which  through  March 28, 2001 secured  financing  through bank  borrowings  and
through  June  30,  2001  issued   corporate  debt   instruments.   See  Agway's
consolidated financial statement Note 9 for discussion of Agway short-term notes
payable and Note 19 for discussion of change in legal structure.

RELATED PARTY TRANSACTIONS
Transactions  between  Agway  Inc. and  its  unconsolidated  subsidiaries are as
follows:
<TABLE>
<CAPTION>

                                                                                       YEARS ENDED
                                                                -------------------------------------------------------
                                                                   JUNE 2001            JUNE 2000           JUNE 1999
                                                                --------------       -------------       --------------

<S>                                                             <C>                  <C>                 <C>
Net sales and revenues.......................................   $       2,796        $       3,307       $       4,637
Product and plant operation expenses.........................          12,986               14,108              19,648
Recovery of selling, general and administrative expenses.....           7,357               11,811              12,029
Interest expense, net........................................          19,841               19,657              17,222
</TABLE>

CONTINGENCIES
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.



                                       85

<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, 2001
------------------------------------------------------------------------------------------------------------------------------------
<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).........................     $    7,204     $    5,531     $        0     $ 2,102(a)     $   10,633
                                                            ==========     ==========     ==========     ==========     ==========
     Allowance for doubtful leases receivable..........     $   32,536     $   12,831     $        0     $ 9,851(a)     $   35,516
                                                            ==========     ==========     ==========     ==========     ==========
     Reserve for other security investments............     $    1,427     $      509     $        0     $ 1,065        $      871
                                                            ==========     ==========     ==========     ==========     ==========
     Reserve for obsolete and slow moving inventory....     $      299     $      361     $        0     $    0         $      660
                                                            ==========     ==========     ==========     ==========     ==========
     Surplus property reserve..........................     $      623     $        0     $        0     $   449(b)     $      174
                                                            ==========     ==========     ==========     ==========     ==========
     Income tax valuation allowance....................     $        0     $    1,514     $        0     $     0        $    1,514
                                                            ==========     ==========     ==========     ==========     ==========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                           for the year ended June 24, 2000
------------------------------------------------------------------------------------------------------------------------------------
<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)............................  $    6,139     $    2,639     $        0    $  1,574(a)     $    7,204
                                                            ==========     ==========     ==========    ===========     ==========
     Allowance for doubtful leases receivable.............  $   29,978     $   11,737     $        0    $  9,179(a)     $   32,536
                                                            ==========     ==========     ==========    ===========     ==========
     Reserve for other security investments...............  $    1,010     $      417     $        0    $     0         $    1,427
                                                            ==========     ==========     ==========    ===========     ==========
     Reserve for obsolete and slow moving inventory.......  $      235     $       64     $        0    $     0         $      299
                                                            ==========     ==========     ==========    ===========     ==========
     Surplus property reserve.............................  $      623     $        0     $        0    $     0         $      623
                                                            ==========     ==========     ==========    ===========     ==========
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------------
                                           for the year ended June 26, 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)............................  $    7,172     $    1,003     $        0     $ 2,036(a)     $    6,139
                                                            ==========     ==========     ==========     ==========     ==========
     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.......  $      100     $      135     $        0     $    0         $      235
                                                            ==========     ==========     ==========     ==========     ==========
     Surplus property reserve.............................  $      645     $        0     $        0     $    22(b)     $      623
                                                            ==========     ==========     ==========     ==========     ==========

</TABLE>

(a)  Accounts charged off, net of recoveries.
(b)  Locations sold.


                                       86

<PAGE>



ITEM 14(B).        REPORTS ON FORM 8-K
                   Agway  filed a report on Form 8-K during  the fourth  quarter
                   ended June 30, 2001, as follows:

                   On March 30,  2001,  to announce the  establishment  of a new
                   senior debt financing agreement.

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-K,  10-Q, or
                       8-K filed on the dates as specified:

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

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

                       ARTICLES OF INCORPORATION AND BY-LAWS

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

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

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

                       INSTRUMENTS  DEFINING  THE  RIGHTS  OF SECURITY  HOLDERS,
                       INCLUDING INDENTURES

                       4(a)   - The  Indenture  dated  as  of  September 1, 1976
                                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, 2001,  and
                                Subordinated Debentures (Minimum 7.0% 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(b)   - The  Indenture  dated  as  of  September 1, 1978
                                between  Agway Inc.  and First Trust and Deposit
                                Company   of   Syracuse,   New  York,   Trustee,
                                including  forms  of   Subordinated   Debentures
                                (Minimum  8.0% per annum) due July 1, 2003,  and
                                Subordinated Debentures (Minimum 7.5% per annum)
                                due July 1, 2003,  filed by reference to Exhibit
                                4 of the Registration Statement (Form S-1), File
                                No. 2-62549, dated September 8, 1978.

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



                                       87

<PAGE>



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

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

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

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

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



                                       88

<PAGE>



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

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

                       MATERIAL CONTRACTS

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

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

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

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

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

                       10     - MATERIAL CONTRACTS
                                (e)  First   Amendment  and   Waiver  to  Credit
                                     Agreement, dated  September 14, 2001, filed
                                     herewith

                                (f)  First  Amendment  to  Security   Agreement,
                                     dated September 14, 2001, filed herewith.

                                (g)  Pledge   Amendment   with  lenders,   dated
                                     September 14, 2001, filed herewith.

                                (h)  Vehicle  Security and Escrow Agreement with
                                     lenders,  dated  September 14, 2001,  filed
                                     herewith.

                                (i)  Directors- Deferred Compensation Agreement,
                                     filed herewith.

                                (j)  Board  Officers  -  Deferred   Compensation
                                     Agreement, filed herewith.


                       12     - STATEMENT RE COMPUTATION OF RATIOS

                       21     - SUBSIDIARIES OF THE REGISTRANT

                       23     - CONSENTS OF EXPERTS AND COUNSEL





                                       89

<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 14, 2001
                                        ----------------------------------------

      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 14, 2001
--------------------------------------------------
             (DONALD P. CARDARELLI)                      (Principal Executive Officer)



              /s/ Peter J. O'Neill                       Senior Vice President,                      September 14, 2001
--------------------------------------------------
               (PETER J. O'NEILL)                            Finance & Control
                                                             (Principal Financial Officer
                                                             & Principal Accounting Officer)



              /s/ Gary K. Van Slyke                      Chairman of the                             September 14, 2001
--------------------------------------------------
               (GARY K. VAN SLYKE)                           Board and Director



              /s/ Andrew J. Gilbert                      Vice Chairman of the                        September 14, 2001
--------------------------------------------------
               (ANDREW J. GILBERT)                           Board and Director



              /s/ Keith H. Carlisle                      Director                                    September 14, 2001
--------------------------------------------------
               (KEITH H. CARLISLE)



              /s/ D. Gilbert Couser                      Director                                    September 14, 2001
--------------------------------------------------
               (D. GILBERT COUSER)
</TABLE>

                                       90

<PAGE>
<TABLE>
<CAPTION>
                    SIGNATURE                                TITLE                                         DATE
                    ---------                                -----                                         ----


<S>                                                      <C>                                         <C>
             /s/ Robert L. Marshman                      Director                                    September 14, 2001
--------------------------------------------------
              (ROBERT L. MARSHMAN)



              /s/ Jeffrey B. Martin                      Director                                    September 14, 2001
--------------------------------------------------
               (JEFFREY B. MARTIN)



               /s/ Samuel F. Minor                       Director                                    September 14, 2001
--------------------------------------------------
                (SAMUEL F. MINOR)



             /s/ Richard H. Skellie                      Director                                    September 14, 2001
--------------------------------------------------
              (RICHARD H. SKELLIE)



                /s/ Carl D. Smith                        Director                                    September 14, 2001
--------------------------------------------------
                 (CARL D. SMITH)



               /s/ Thomas E. Smith                       Director                                    September 14, 2001
--------------------------------------------------
                (THOMAS E. SMITH)



               /s/ Joel L. Wenger                        Director                                    September 14, 2001
--------------------------------------------------
                (JOEL L. WENGER)



             /s/ Edwin C. Whitehead                      Director                                    September 14, 2001
--------------------------------------------------
              (EDWIN C. WHITEHEAD)



               /s/ Dennis C. Wolff                       Director                                    September 14, 2001
--------------------------------------------------
                (DENNIS C. WOLFF)



              /s/ William W. Young                       Director                                    September 14, 2001
--------------------------------------------------
               (WILLIAM W. YOUNG)
</TABLE>

                                       91

<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,
2001. Subsequent to the filing of the annual report on Form 10-K, the Registrant
shall furnish security holders and the Commission with the annual report.





                                       92

<PAGE>

                                    AGWAY INC.
                                    FORM 10-K
                                    JUNE 2001
                                  EXHIBIT INDEX


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

(10)         Material contracts
             (e) First Amendment and Waiver to Credit Agreement, dated September
                 14, 2001
             (f) First Amendment to Security Agreement, dated September 14, 2001
             (g) Pledge Amendment with lenders, dated September 14, 2001
             (h) Vehicle Security and Escrow Agreement with lenders, dated
                 September 14, 2001
             (i) Directors - Deferred Compensation Agreement
             (j) Board Officers - Deferred Compensation Agreement

(12)         Statements re computation of ratios

(21)         Subsidiaries of registrant

(23)         Consent of experts and counsel


Note:        The annual report on Form  11-K for the year ended June 30, 2001 of
             Agway Inc. Employees' 401(k) Thrift  Investment  Plan will be filed
             separately at a later date.











<PAGE>

                       SECURITIES AND EXCHANGE COMMISSION

                             WASHINGTON, D.C. 20549

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




                                    EXHIBITS



                                   filed with



                                    FORM 10-K

                                  JUNE 30, 2001



                  ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)



                                     of the



                       THE SECURITIES EXCHANGE ACT OF 1934


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



                                   AGWAY INC.