##### Table of Contents

AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 12, 2004

---



UNITED STATES

SECURITIES AND EXCHANGE COMMISSION



WASHINGTON, D.C. 20549



---



FORM 10-Q



(Mark One)



x    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE

THE SECURITIES ACT OF 1934



For the quarterly period ended June 30, 2004



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 333-81235



ROYSTER-CLARK, INC.

(Exact name of registrant as specified in its charter)



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 76-0329525                          
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



|                                                         |  |           
|-------------------------------------------------------- |  | ----------
|1251 Avenue of the AmericasSuite 900 New York, New York |  | 10020     
|(Address of principal executive offices)                 |  | (Zip code)



(212) 332-2965

(Registrants telephone number, including area code)



(Former name, former address and former fiscal year, if changed since last report)



Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ̈



Indicate by check mark whether the registrant is an accelerated filer (as
defined by Rule 12b-2 of the Act). ̈



APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDS DURING THE PRECEDING FIVE YEAR: Indicate by check mark whether the registrant has filed
all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ̈No ̈Not applicable



APPLICABLE ONLY TO CORPORATE ISSUERS: Indicate the number of shares
outstanding of each of the issuers classes of common stock as of the last practical date: Not Applicable



---



---

##### Table of Contents

ROYSTER-CLARK, INC.



FORM 10-Q



TABLE OF CONTENTS



|           |  |                                                                                                   |  |     
|---------- |  | ------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                   |  | Page
|PART 1.    |  | FINANCIAL INFORMATION:                                                                            |  |     
|           |  |                                                                                                  
|Item 1.    |  | Financial Statements                                                                              |  |     
|           |  | Condensed Consolidated Balance Sheets                                                             |  | 2   
|           |  | Condensed Consolidated Statements of Operations                                                   |  | 3   
|           |  | Condensed Consolidated Statements of Cash Flows                                                   |  | 4   
|           |  | Notes to Condensed Consolidated Financial Statements                                              |  | 5   
|           |  |                                                                                                  
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition, Results of Operations and Cash Flows |  | 13  
|           |  |                                                                                                  
|Item 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                        |  | 20  
|           |  |                                                                                                  
|Item 4.    |  | Controls and Procedures                                                                           |  | 21  
|           |  |                                                                                                  
|PART 2.    |  | OTHER INFORMATION:                                                                                |  |     
|           |  |                                                                                                  
|Item 6.    |  | Exhibits and Reports on Form 8-K                                                                  |  | 22  
|Signatures |  | 24                                                                                               



FORWARD-LOOKING
STATEMENTS



This Form 10-Q contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. When used in this Report, the words estimate,
project, anticipate, expect, intend, believe, hope, may and similar expressions, as well as will, shall and other indications of future
tense, are intended to identify forward-looking statements. Similarly, statements that describe the Companys future plans, objectives, targets or goals are also forward-looking statements. The forward-looking statements are based on our
current expectations and speak only as of the date made. These forward-looking statements involve known and unknown risks, uncertainties and other factors that in some cases have affected our historical results and could cause actual results in the
future to differ significantly from the results anticipated in forward-looking statements made in this Report. Important factors that could cause a material effect include, but are not limited to, (i) changes in matters which affect the global
supply and demand of fertilizer products, (ii) the volatility of the natural gas markets, (iii) a variety of conditions in the agricultural industry such as grain prices, planted acreage, projected grain stocks, U.S. government policies, weather and
changes in agricultural production methods, (iv) possible unscheduled plant outages and other operating difficulties, (v) price competition and capacity expansions and reductions from both domestic and international producers, (vi) the relative
unpredictability of national and local economic conditions within the markets we serve, (vii) environmental regulations, (viii) other important factors affecting the fertilizer industry, (ix) fluctuations in interest rates, (x) volatility in the
bond markets and (xi) other factors referenced in the Companys Reports and registration statements filed with the Securities and Exchange Commission. You are cautioned not to place undue reliance on the forward-looking statements.



Few of the forward-looking statements
in this Report deal with matters that are within our unilateral control. Acquisition, financing and other agreements and arrangements must be negotiated with independent third parties and, in some cases, must be approved by governmental agencies.
These third parties generally have interests that do not coincide with ours and may conflict with our interests. Unless the third parties and we are able to compromise their various objectives in a mutually acceptable manner, agreements and
arrangements will not be consummated.



1



---

##### Table of Contents

PART 1.    FINANCIAL INFORMATION



ITEM 1.Financial Statements.



ROYSTER-CLARK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED BALANCE SHEETS

JUNE 30, 2004 AND DECEMBER 31, 2003

(Dollars in thousands)



|                                                                                                                                            |  |              |         |   |                  |         |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | ---------------- | ------- | -
|                                                                                                                                            |  | June 30,2004 |         |   | December 31,2003 |        
|Assets                                                                                                                                      |  |              |         |   |                  |         |  
|Current assets:                                                                                                                             |  |              |         |   |                  |         |  
|Cash                                                                                                                                        |  | $            | 690     |   |                  | 886     |  
|Trade accounts receivable, net of allowance for doubtful accounts of $7,725 and $5,938 at June 30, 2004 and December 31, 2003,
respectively |  |              | 196,772 |   |                  | 85,304  |  
|Other receivables                                                                                                                           |  |              | 28,731  |   |                  | 19,983  |  
|Inventories                                                                                                                                 |  |              | 156,596 |   |                  | 259,957 |  
|Prepaid expenses and other current assets                                                                                                   |  |              | 1,689   |   |                  | 2,876   |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|Total current assets                                                                                                                        |  |              | 384,478 |   |                  | 369,006 |  
|Property, plant and equipment, net                                                                                                          |  |              | 157,480 |   |                  | 165,685 |  
|Goodwill                                                                                                                                    |  |              | 16,540  |   |                  | 16,540  |  
|Deferred financing costs, net                                                                                                               |  |              | 9,014   |   |                  | 9,904   |  
|Other assets, net                                                                                                                           |  |              | 4,293   |   |                  | 4,783   |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|                                                                                                                                            |  | $            | 571,805 |   |                  | 565,918 |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|Liabilities and Stockholders Equity                                                                                                        |  |              |         |   |                  |         |  
|Current liabilities:                                                                                                                        |  |              |         |   |                  |         |  
|Customer deposits                                                                                                                           |  | $            | 24,357  |   |                  | 65,004  |  
|Accounts payable                                                                                                                            |  |              | 80,437  |   |                  | 69,461  |  
|Accrued expenses and other current liabilities                                                                                              |  |              | 26,272  |   |                  | 25,234  |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|Total current liabilities                                                                                                                   |  |              | 131,066 |   |                  | 159,699 |  
|Senior Secured Credit Facility                                                                                                              |  |              | 144,926 |   |                  | 142,979 |  
|101/4% First Mortgage Notes due 2009                                                                                                        |  |              | 200,000 |   |                  | 200,000 |  
|Other long-term liabilities                                                                                                                 |  |              | 8,210   |   |                  | 8,548   |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|Total liabilities                                                                                                                           |  |              | 484,202 |   |                  | 511,226 |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|Stockholders equity:                                                                                                                       |  |              |         |   |                  |         |  
|Common stock, no par value. Authorized 350,000 shares; 1 share issued and outstanding                                                       |  |              |        |   |                  |        |  
|Additional paid-in capital                                                                                                                  |  |              | 88,599  |   |                  | 88,599  |  
|Accumulated deficit                                                                                                                         |  |              | (247    | ) |                  | (33,158 | )
|Accumulated other comprehensive loss                                                                                                        |  |              | (749    | ) |                  | (749    | )
|                                                                                                                                            |  |              |         |   |                  |         |  
|Total stockholders equity                                                                                                                  |  |              | 87,603  |   |                  | 54,692  |  
|                                                                                                                                            |  |              |         |   |                  |         |  
|                                                                                                                                            |  | $            | 571,805 |   |                  | 565,918 |  
|                                                                                                                                            |  |              |         |   |                  |         |  



See accompanying notes
to condensed consolidated financial statements.



2



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

THREE AND SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands)



|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  
|------------------------------------------------------ |  | --------------------------- | ------- | - | ------------------------- | ------- | - | ---- | ------- | - | ---- | ------- | -
|                                                       |  | Three Months ended June 30, |         |   | Six Months ended June 30, |        
|                                                       |  | 2004                        |         |   | 2003                      |         |   | 2004 |         |   | 2003 |        
|Net sales                                              |  | $                           | 569,730 |   |                           | 502,951 |   |      | 774,707 |   |      | 653,259 |  
|Cost of sales                                          |  |                             | 470,408 |   |                           | 407,546 |   |      | 647,000 |   |      | 534,959 |  
|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  
|Gross profit                                           |  |                             | 99,322  |   |                           | 95,405  |   |      | 127,707 |   |      | 118,300 |  
|Selling, general and administrative expenses           |  |                             | 42,859  |   |                           | 41,824  |   |      | 81,125  |   |      | 81,266  |  
|Loss on disposal of property, plant and equipment, net |  |                             | 263     |   |                           | 220     |   |      | 103     |   |      | 546     |  
|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  
|Operating income                                       |  |                             | 56,200  |   |                           | 53,361  |   |      | 46,479  |   |      | 36,488  |  
|Interest expense                                       |  |                             | (6,832  | ) |                           | (7,370  | ) |      | (13,540 | ) |      | (14,413 | )
|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  
|Income before income taxes                             |  |                             | 49,368  |   |                           | 45,991  |   |      | 32,939  |   |      | 22,075  |  
|Income tax expense                                     |  |                             |        |   |                           | 25,329  |   |      |        |   |      | 16,131  |  
|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  
|Net income                                             |  | $                           | 49,368  |   |                           | 20,662  |   |      | 32,939  |   |      | 5,944   |  
|                                                       |  |                             |         |   |                           |         |   |      |         |   |      |         |  







See accompanying notes to condensed consolidated financial statements.



3



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(Dollars in thousands)



|                                                                                  |  |                           |          |   |      |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | -------- | -
|                                                                                  |  | Six Months ended June 30, |         
|                                                                                  |  | 2004                      |          |   | 2003 |         
|Cash flows from operating activities:                                             |  |                           |          |   |      |          |  
|Net income                                                                        |  | $                         | 32,939   |   |      | 5,944    |  
|                                                                                  |  |                           |          |   |      |          |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |          |  
|Provision for doubtful accounts                                                   |  |                           | 1,566    |   |      | 2,008    |  
|Depreciation and amortization                                                     |  |                           | 12,646   |   |      | 13,684   |  
|Loss on disposal of property, plant and equipment                                 |  |                           | 103      |   |      | 546      |  
|Write-off of deferred financing costs                                             |  |                           |         |   |      | 227      |  
|Amortization of imputed interest                                                  |  |                           |         |   |      | 487      |  
|Deferred income tax expense                                                       |  |                           |         |   |      | 16,579   |  
|Changes in operating assets and liabilities increasing (decreasing) cash:         |  |                           |          |   |      |          |  
|Trade accounts receivable                                                         |  |                           | (113,034 | ) |      | (91,146  | )
|Other receivables                                                                 |  |                           | (8,748   | ) |      | 5,533    |  
|Inventories                                                                       |  |                           | 103,361  |   |      | 75,822   |  
|Prepaid expenses and other current assets                                         |  |                           | 1,187    |   |      | 763      |  
|Other assets                                                                      |  |                           | (16      | ) |      | (147     | )
|Accounts payable                                                                  |  |                           | 10,976   |   |      | (53      | )
|Accrued expenses and other current liabilities                                    |  |                           | 1,190    |   |      | (2,684   | )
|Other long-term liabilities                                                       |  |                           | (253     | ) |      | (381     | )
|                                                                                  |  |                           |          |   |      |          |  
|Total adjustments                                                                 |  |                           | 8,978    |   |      | 21,238   |  
|                                                                                  |  |                           |          |   |      |          |  
|Net cash provided by operating activities                                         |  |                           | 41,917   |   |      | 27,182   |  
|                                                                                  |  |                           |          |   |      |          |  
|Cash flows from investing activities:                                             |  |                           |          |   |      |          |  
|Proceeds from sale of property, plant and equipment                               |  |                           | 1,903    |   |      | 1,118    |  
|Purchases of property, plant and equipment                                        |  |                           | (4,807   | ) |      | (8,074   | )
|                                                                                  |  |                           |          |   |      |          |  
|Net cash used in investing activities                                             |  |                           | (2,904   | ) |      | (6,956   | )
|                                                                                  |  |                           |          |   |      |          |  
|Cash flows from financing activities:                                             |  |                           |          |   |      |          |  
|Proceeds from senior secured credit facility                                      |  |                           | 230,762  |   |      | 233,337  |  
|Payments on senior secured credit facility                                        |  |                           | (228,815 | ) |      | (200,356 | )
|Principal payments on long-term debt                                              |  |                           | (237     | ) |      | (9       | )
|Payments on vendor financing note                                                 |  |                           |         |   |      | (22,227  | )
|Dividend paid to Royster-Clark Group, Inc.                                        |  |                           | (28      | ) |      | (142     | )
|Net decrease in customer deposits                                                 |  |                           | (40,647  | ) |      | (30,870  | )
|Payment of deferred financing costs                                               |  |                           | (244     | ) |      | (513     | )
|                                                                                  |  |                           |          |   |      |          |  
|Net cash used in financing activities                                             |  |                           | (39,209  | ) |      | (20,780  | )
|                                                                                  |  |                           |          |   |      |          |  
|Net decrease in cash                                                              |  |                           | (196     | ) |      | (554     | )
|Cash at beginning of period                                                       |  |                           | 886      |   |      | 982      |  
|                                                                                  |  |                           |          |   |      |          |  
|Cash at end of period                                                             |  | $                         | 690      |   |      | 428      |  
|                                                                                  |  |                           |          |   |      |          |  
|Supplemental disclosure of cash flow information:                                 |  |                           |          |   |      |          |  
|Cash paid during the period for interest                                          |  | $                         | 13,459   |   |      | 13,813   |  
|                                                                                  |  |                           |          |   |      |          |  
|Cash paid during the period for income taxes                                      |  | $                         | 99       |   |      | 1,152    |  
|                                                                                  |  |                           |          |   |      |          |  



See accompanying notes
to condensed consolidated financial statements.



4



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2004

(Dollars in thousands)



(1)    Description of Business and Basis of Presentation



Royster-Clark, Inc. (herein referred to as Royster-Clark or the Company) is a retail and wholesale
distributor of mixed fertilizer, fertilizer materials, seed, crop protection products and agronomic services to farmers, primarily in the Southeast and Midwest regions of the United States. The Companys operations consist of retail farm
centers (Farmarkets), granulation, blending and seed processing plants, and a network of storage and distribution terminals and warehouses. In addition, the Company operates two nitrogen-manufacturing plants that supply its wholesale and
industrial customers with nitrogen products.



The information
presented as of June 30, 2004 and for the three and six month periods ended June 30, 2004 and 2003 is unaudited, and reflects all adjustments (consisting only of normal recurring adjustments) which the Company considers necessary for the fair
presentation of the Companys financial position as of June 30, 2004 and the results of its operations and its cash flows for the three and six month periods ended June 30, 2004 and 2003. The December 31, 2003 balance sheet information was
derived from the audited consolidated financial statements for the year ended December 31, 2003.



The condensed consolidated financial statements included herein have been prepared in accordance with accounting principles generally accepted in the
United States of America and the instructions to Form 10-Q and Rule 10-01 of Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles
generally accepted in the United States of America have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the Companys audited consolidated financial statements for the year ended
December 31, 2003, which are included as part of the Companys Annual Report on Form 10-K.



The Companys business is highly seasonal with a high concentration of sales generated between March and July. Since 1999, sales occurring between
March and July have varied from approximately 68% to 73% of annual sales based upon planting, growing and harvesting cycles. In 2003, approximately 69% of sales occurred between March and July. The Company is not aware of any factors that currently
exist that would make this sales concentration either more or less than historical percentages. Results for the interim periods presented are not necessarily indicative of results that may be expected for the entire year.



(2)    Restricted Cash



At June 30, 2004, the Company had $350 in restricted cash, representing
unspent proceeds from a grant of $500 from the State of Illinois, whose sole use of this cash is for an economic and development study on the feasibility of converting the Companys East Dubuque nitrogen-manufacturing plant from natural gas to
coal feedstock.



(3)    Inventories



Inventories at June 30, 2004 and December 31, 2003 consist of the following:



|                         |  |              |         |                  |        
|------------------------ |  | ------------ | ------- | ---------------- | -------
|                         |  | June 30,2004 |         | December 31,2003
|Crop protection products |  | $            | 64,944  |                  | 79,792 
|Fertilizers              |  |              | 11,201  |                  | 34,431 
|Raw materials            |  |              | 53,176  |                  | 92,056 
|Seeds                    |  |              | 12,234  |                  | 33,745 
|Sundries and other       |  |              | 15,041  |                  | 19,933 
|                         |  |              |         |                  |        
|                         |  | $            | 156,596 |                  | 259,957
|                         |  |              |         |                  |        



5



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



(4)    Goodwill and Other Assets



There were no changes in the carrying amount of goodwill for the three and
six months ended June 30, 2004.



The gross carrying value and
accumulated amortization of major classes of intangible assets as of June 30, 2004 and December 31, 2003 are as follows:



|                              |  |                     |       |                         |       |     |      
|----------------------------- |  | ------------------- | ----- | ----------------------- | ----- | --- | -----
|                              |  | June 30, 2004      
|                              |  | Grosscarryingamount |       | Accumulatedamortization |       | Net
|Amortizing intangible assets: |  |                     |       |                         |       |     |      
|Technology and patent license |  | $                   | 4,102 |                         | 1,364 |     | 2,738
|Noncompete agreements         |  |                     | 1,718 |                         | 1,547 |     | 171  
|Other                         |  |                     | 315   |                         | 118   |     | 197  
|                              |  |                     |       |                         |       |     |      
|Total                         |  | $                   | 6,135 |                         | 3,029 |     | 3,106
|                              |  |                     |       |                         |       |     |      
|                              | 
|                              |  | December 31, 2003  
|                              |  | Grosscarryingamount |       | Accumulatedamortization |       | Net
|Amortizing intangible assets: |  |                     |       |                         |       |     |      
|Technology and patent license |  | $                   | 4,102 |                         | 1,111 |     | 2,991
|Noncompete agreements         |  |                     | 1,703 |                         | 1,317 |     | 386  
|Other                         |  |                     | 315   |                         | 96    |     | 219  
|                              |  |                     |       |                         |       |     |      
|Total                         |  | $                   | 6,120 |                         | 2,524 |     | 3,596
|                              |  |                     |       |                         |       |     |      



Amortization expense
of intangible assets amounted to $243 and $294 for the three months ended June 30, 2004 and 2003, respectively, and $505 and $589 for the six months ended June 30, 2004 and 2003, respectively. During the three months ended March 31, 2004, amortizing
intangible assets of $15 were added for noncompete agreements.



These intangible assets are included in other assets in the accompanying condensed consolidated balance sheets. Estimated annual amortization expense for the twelve months ending December 31, 2004 and the next four years and
thereafter follows: $856 in 2004, $625 in 2005, $541 in 2006, $537 in 2007, $537 in 2008, and $515 thereafter.



(5)    Environmental Matters



The Company is subject to a wide variety of federal, state, and local environmental laws and regulations. The Company has been identified as a potentially responsible party concerning the release of certain hazardous
substances at five locations. While the current law potentially imposes joint and several liability upon each party named as a potentially responsible party, the Companys contribution to clean up these sites is expected to be limited given the
number of other companies which have also been named as potentially responsible parties and the nature and amount of cleanup involved. A number of the Companys facilities have been evaluated as having excess nitrates, phosphorous, and
pesticides in the surrounding soil or groundwater. In addition, several underground storage tanks have been removed or closed at some facilities and these sites have been evaluated for possible contamination. In total, cleanup of hazardous or
potentially hazardous substances has been planned or is being performed at approximately 39 sites.



6



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



In connection with the 1999 acquisitions of AgriBusiness and Royster-Clark, the Company obtained
indemnities for certain claims related to environmental matters that existed or arose prior to the acquisitions. The indemnities related to AgriBusiness are subject to a $4,500 deductible, may not exceed 10% of the purchase price, or a total of
$30,000, and are subject to certain time limitations. Indemnities related to claims arising out of environmental representations and warranties and claims associated with, arising from or relating to conditions existing prior to April 1999
associated with the real estate owned by AgriBusiness and transferred to the Company at closing expired in April 2004. Indemnities covering other environmental claims associated with, arising from or relating to conditions existing prior to April
1999 on real estate (other than real estate subject to the April 2004 indemnity expiration) formerly owned, leased, or operated by the AgriBusiness or offsite disposition of contaminants survive indefinitely. The environmental indemnities related to
Royster-Clark, Inc. (predecessor company) subject to a deductible of $2,000, an overall cap of $5,000 on all indemnities expired in April 2004. In addition, Royster-Clark, Inc. (predecessor company) had obtained indemnities from Lebanon Chemical
Corporation (LCC) for certain claims related to environmental matters that existed at sites acquired from LCC in December 1998. The Company has a claim pending under the indemnities from LCC. Other than that claim, the indemnity has expired. The
Company also obtained indemnities from the former stockholder of Alliance for environmental conditions identified as of the date of acquisition. The indemnification remains in effect until notice is received requiring no further actions or after a
two-year period of testing with no reportable results in deterioration of water quality.



The Company has recorded environmental liabilities at June 30, 2004 and December 31, 2003 for the estimated cost of cleanup efforts of identified contamination or site characterization, which total $2,951 and $3,105,
respectively, and are included in other long-term liabilities in the accompanying condensed consolidated balance sheets. Actual cash expenditures during the three months ended June 30, 2004 and 2003 were $86 and $81, respectively and $154 and $136
for the six month ended June 30, 2004 and 2003, respectively. These liabilities do not take into account any claims for recoveries from insurance or third parties and are not discounted. Actual costs to be incurred at identified sites in future
periods may vary from the estimates, given inherent uncertainty in evaluating environmental exposures.



(6)    Senior Secured Credit Facility



On December 22, 2003, the Company completed the refinancing of its Senior Secured Credit Facility with an amended and restated Senior Secured Credit
Facility (credit facility) from a consortium of lenders. In connection with the establishment of the credit facility, the Company incurred $3,605 of deferred financing costs as of December 31, 2003. As of December 31, 2003, there were
unamortized deferred financing costs of $419 associated with the Senior Secured Credit Facility in effect prior to the Replacement Credit Facility. During the first six months, additional deferred financing costs of $144 were incurred. Total
deferred financing costs of $4,168 are being amortized on a straight-line basis over the three-year life of the credit facility.



(7)    Condensed Financial Data of Guarantor Subsidiaries



The Company issued $200,000 of 101/4% First Mortgage Notes due April 2009 (herein referred to as the First Mortgage Notes) on April 22, 1999 to partially finance an acquisition. The First Mortgage Notes mature on April 22, 2009 and bear
interest at 101/4% payable semi-annually in arrears. The First Mortgage Notes are secured by 17 principal
properties, related fixtures and equipment and other related assets and a pledge of equity



7



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



of certain subsidiaries. The First Mortgage Notes are guaranteed on a full, unconditional and joint and several basis, by each of the following subsidiaries
of Royster-Clark:



|                            |  |                                       |  |                            
|--------------------------- |  | ------------------------------------- |  | ---------------------------
|Royster-Clark Realty LLC    |  | Royster-Clark AgriBusiness, Inc.      |  | Royster-Clark Nitrogen, Inc
|Royster-Clark Resources LLC |  | Royster-Clark AgriBusiness Realty LLC |  |                            



There are currently no
restrictions on the ability of Royster-Clark to obtain funds from its guarantor subsidiaries through dividends or loans.



The following tables present the condensed financial data of Royster-Clark and its guarantor subsidiaries as of June 30, 2004 and December 31, 2003 and
for the three and six month periods ended June 30, 2004 and 2003.



8



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



Balance Sheet Data as of June 30, 2004:



|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|---------------------------------------------- |  | ------------------ | ------- | - | --------------------- | ------- | - | ------------ | -------- | - | ------------ | ------- | -
|                                               |  | Royster-Clark,Inc. |         |   | GuarantorSubsidiaries |         |   | Eliminations |          |   | Consolidated |        
|Current assets:                                |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Cash                                           |  | $                  | 42      |   |                       | 648     |   |              |         |   |              | 690     |  
|Trade accounts receivable, net                 |  |                    |        |   |                       | 200,905 |   |              | (4,133   | ) |              | 196,772 |  
|Other receivables                              |  |                    | 1,667   |   |                       | 35,779  |   |              | (8,715   | ) |              | 28,731  |  
|Inventories                                    |  |                    |        |   |                       | 156,647 |   |              | (51      | ) |              | 156,596 |  
|Prepaid expenses and other current assets      |  |                    | 124     |   |                       | 1,565   |   |              |         |   |              | 1,689   |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total current assets                           |  |                    | 1,833   |   |                       | 395,544 |   |              | (12,899  | ) |              | 384,478 |  
|Property, plant and equipment, net             |  |                    | 8,728   |   |                       | 148,752 |   |              |         |   |              | 157,480 |  
|Goodwill                                       |  |                    | 12,012  |   |                       | 4,528   |   |              |         |   |              | 16,540  |  
|Deferred financing costs, net                  |  |                    | 9,014   |   |                       |        |   |              |         |   |              | 9,014   |  
|Other assets, net                              |  |                    | 15      |   |                       | 4,278   |   |              |         |   |              | 4,293   |  
|Investment in subsidiaries                     |  |                    | 397,675 |   |                       |        |   |              | (397,675 | ) |              |        |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total assets                                   |  | $                  | 429,277 |   |                       | 553,102 |   |              | (410,574 | ) |              | 571,805 |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Current liabilities:                           |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Customer deposits                              |  | $                  |        |   |                       | 24,357  |   |              |         |   |              | 24,357  |  
|Accounts payable                               |  |                    |        |   |                       | 93,285  |   |              | (12,848  | ) |              | 80,437  |  
|Accrued expenses and other current liabilities |  |                    | 5,428   |   |                       | 20,844  |   |              |         |   |              | 26,272  |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total current liabilities                      |  |                    | 5,428   |   |                       | 138,486 |   |              | (12,848  | ) |              | 131,066 |  
|Senior Secured Credit Facility                 |  |                    | 144,926 |   |                       |        |   |              |         |   |              | 144,926 |  
|101/4% First Mortgage Notes                    |  |                    | 200,000 |   |                       |        |   |              |         |   |              | 200,000 |  
|Other long-term liabilities                    |  |                    | 434     |   |                       | 7,776   |   |              |         |   |              | 8,210   |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total liabilities                              |  |                    | 350,788 |   |                       | 146,262 |   |              | (12,848  | ) |              | 484,202 |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Stockholders equity:                          |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Common stock                                   |  |                    |        |   |                       |        |   |              |         |   |              |        |  
|Additional paid-in capital                     |  |                    | 78,599  |   |                       | 407,675 |   |              | (397,675 | ) |              | 88,599  |  
|Accumulated deficit                            |  |                    | (110    | ) |                       | (86     | ) |              | (51      | ) |              | (247    | )
|Accumulated other comprehensive loss           |  |                    |        |   |                       | (749    | ) |              |         |   |              | (749    | )
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total stockholders equity                     |  |                    | 78,489  |   |                       | 406,840 |   |              | (397,726 | ) |              | 87,603  |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  
|Total liabilities and stockholders equity     |  | $                  | 429,277 |   |                       | 553,102 |   |              | (410,574 | ) |              | 571,805 |  
|                                               |  |                    |         |   |                       |         |   |              |          |   |              |         |  



9



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



Balance Sheet Data as of December 31, 2003:



|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|---------------------------------------------- |  | ------------------- | ------- | - | ---------------------- | ------- | - | ------------ | -------- | - | ------------ | ------- | -
|                                               |  | Royster-Clark, Inc. |         |   | Guarantor Subsidiaries |         |   | Eliminations |          |   | Consolidated |        
|Current assets:                                |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Cash                                           |  | $                   | 42      |   |                        | 844     |   |              |         |   |              | 886     |  
|Trade accounts receivable, net                 |  |                     |        |   |                        | 87,135  |   |              | (1,831   | ) |              | 85,304  |  
|Other receivables                              |  |                     | 3,671   |   |                        | 35,775  |   |              | (19,463  | ) |              | 19,983  |  
|Inventories                                    |  |                     |        |   |                        | 260,465 |   |              | (508     | ) |              | 259,957 |  
|Prepaid expenses and other current assets      |  |                     | 161     |   |                        | 2,715   |   |              |         |   |              | 2,876   |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total current assets                           |  |                     | 3,874   |   |                        | 386,934 |   |              | (21,802  | ) |              | 369,006 |  
|Property, plant and equipment, net             |  |                     | 9,474   |   |                        | 156,211 |   |              |         |   |              | 165,685 |  
|Goodwill                                       |  |                     | 12,012  |   |                        | 4,528   |   |              |         |   |              | 16,540  |  
|Deferred financing costs, net                  |  |                     | 9,904   |   |                        |        |   |              |         |   |              | 9,904   |  
|Other assets, net                              |  |                     | 15      |   |                        | 4,768   |   |              |         |   |              | 4,783   |  
|Investment in subsidiaries                     |  |                     | 391,945 |   |                        |        |   |              | (391,945 | ) |              |        |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total assets                                   |  | $                   | 427,224 |   |                        | 552,441 |   |              | (413,747 | ) |              | 565,918 |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Current liabilities:                           |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Customer deposits                              |  | $                   |        |   |                        | 65,004  |   |              |         |   |              | 65,004  |  
|Accounts payable                               |  |                     |        |   |                        | 90,755  |   |              | (21,294  | ) |              | 69,461  |  
|Accrued expenses and other current liabilities |  |                     | 5,281   |   |                        | 19,953  |   |              |         |   |              | 25,234  |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total current liabilities                      |  |                     | 5,281   |   |                        | 175,712 |   |              | (21,294  | ) |              | 159,699 |  
|Senior Secured Credit Facility                 |  |                     | 142,979 |   |                        |        |   |              |         |   |              | 142,979 |  
|101/4% First Mortgage Notes                    |  |                     | 200,000 |   |                        |        |   |              |         |   |              | 200,000 |  
|Other long-term liabilities                    |  |                     | 450     |   |                        | 8,098   |   |              |         |   |              | 8,548   |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total liabilities                              |  |                     | 348,710 |   |                        | 183,810 |   |              | (21,294  | ) |              | 511,226 |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Stockholders equity:                          |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Common stock                                   |  |                     |        |   |                        |        |   |              |         |   |              |        |  
|Additional paid-in capital                     |  |                     | 78,599  |   |                        | 401,945 |   |              | (391,945 | ) |              | 88,599  |  
|Accumulated deficit                            |  |                     | (85     | ) |                        | (32,565 | ) |              | (508     | ) |              | (33,158 | )
|Accumulated other comprehensive loss           |  |                     |        |   |                        | (749    | ) |              |         |   |              | (749    | )
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total stockholders equity                     |  |                     | 78,514  |   |                        | 368,631 |   |              | (392,453 | ) |              | 54,692  |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  
|Total liabilities and stockholders equity     |  | $                   | 427,224 |   |                        | 552,441 |   |              | (413,747 | ) |              | 565,918 |  
|                                               |  |                     |         |   |                        |         |   |              |          |   |              |         |  



10



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



Statement of Operations Data for the three and six months ended June 30, 2004 and 2003:



|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|------------------------------------------------------ |  | ------------------ | ----- | - | --------------------- | ------- | - | ------------ | ------- | - | ------------ | ------- | -
|Three Months ended June 30, 2004                       |  | Royster-Clark,Inc. |       |   | GuarantorSubsidiaries |         |   | Eliminations |         |   | Consolidated |        
|Net sales                                              |  | $                  | 852   |   |                       | 612,113 |   |              | (43,235 | ) |              | 569,730 |  
|Cost of sales                                          |  |                    | 103   |   |                       | 509,169 |   |              | (38,864 | ) |              | 470,408 |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Gross profit                                           |  |                    | 749   |   |                       | 102,944 |   |              | (4,371  | ) |              | 99,322  |  
|Selling, general and administrative expenses           |  |                    | 244   |   |                       | 47,075  |   |              | (4,460  | ) |              | 42,859  |  
|Loss on disposal of property, plant and equipment, net |  |                    | 35    |   |                       | 228     |   |              |        |   |              | 263     |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Operating income                                       |  |                    | 470   |   |                       | 55,641  |   |              | 89      |   |              | 56,200  |  
|Interest expense                                       |  |                    | (469  | ) |                       | (6,363  | ) |              |        |   |              | (6,832  | )
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Income before income taxes                             |  |                    | 1     |   |                       | 49,278  |   |              | 89      |   |              | 49,368  |  
|Income tax expense                                     |  |                    |      |   |                       |        |   |              |        |   |              |        |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net income                                             |  | $                  | 1     |   |                       | 49,278  |   |              | 89      |   |              | 49,368  |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Three Months ended June 30, 2003                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net sales                                              |  | $                  | 979   |   |                       | 528,272 |   |              | (26,300 | ) |              | 502,951 |  
|Cost of sales                                          |  |                    | 104   |   |                       | 429,021 |   |              | (21,579 | ) |              | 407,546 |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Gross profit                                           |  |                    | 875   |   |                       | 99,251  |   |              | (4,721  | ) |              | 95,405  |  
|Selling, general and administrative expenses           |  |                    | 241   |   |                       | 46,304  |   |              | (4,721  | ) |              | 41,824  |  
|Loss on disposal of property, plant and equipment, net |  |                    | 122   |   |                       | 98      |   |              |        |   |              | 220     |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Operating income                                       |  |                    | 512   |   |                       | 52,849  |   |              |        |   |              | 53,361  |  
|Interest expense                                       |  |                    | (510  | ) |                       | (6,860  | ) |              |        |   |              | (7,370  | )
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Income before income taxes                             |  |                    | 2     |   |                       | 45,989  |   |              |        |   |              | 45,991  |  
|Income tax expense                                     |  |                    | 1     |   |                       | 25,328  |   |              |        |   |              | 25,329  |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net income                                             |  | $                  | 1     |   |                       | 20,661  |   |              |        |   |              | 20,662  |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Six Months ended June 30, 2004                         |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net sales                                              |  | $                  | 1,671 |   |                       | 828,452 |   |              | (55,416 | ) |              | 774,707 |  
|Cost of sales                                          |  |                    | 205   |   |                       | 693,953 |   |              | (47,158 | ) |              | 647,000 |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Gross profit                                           |  |                    | 1,466 |   |                       | 134,499 |   |              | (8,258  | ) |              | 127,707 |  
|Selling, general and administrative expenses           |  |                    | 491   |   |                       | 89,349  |   |              | (8,715  | ) |              | 81,125  |  
|Loss on disposal of property, plant and equipment, net |  |                    | 45    |   |                       | 58      |   |              |        |   |              | 103     |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Operating income                                       |  |                    | 930   |   |                       | 45,092  |   |              | 457     |   |              | 46,479  |  
|Interest expense                                       |  |                    | (927  | ) |                       | (12,613 | ) |              |        |   |              | (13,540 | )
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Income before income taxes                             |  |                    | 3     |   |                       | 32,479  |   |              | 457     |   |              | 32,939  |  
|Income tax expense                                     |  |                    |      |   |                       |        |   |              |        |   |              |        |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net income                                             |  | $                  | 3     |   |                       | 32,479  |   |              | 457     |   |              | 32,939  |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Six Months ended June 30, 2003                         |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net sales                                              |  | $                  | 1,873 |   |                       | 686,854 |   |              | (35,468 | ) |              | 653,259 |  
|Cost of sales                                          |  |                    | 208   |   |                       | 560,890 |   |              | (26,139 | ) |              | 534,959 |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Gross profit                                           |  |                    | 1,665 |   |                       | 125,964 |   |              | (9,329  | ) |              | 118,300 |  
|Selling, general and administrative expenses           |  |                    | 506   |   |                       | 90,089  |   |              | (9,329  | ) |              | 81,266  |  
|Loss on disposal of property, plant and equipment, net |  |                    | 161   |   |                       | 385     |   |              |        |   |              | 546     |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Operating income                                       |  |                    | 998   |   |                       | 35,490  |   |              |        |   |              | 36,488  |  
|Interest expense                                       |  |                    | (994  | ) |                       | (13,419 | ) |              |        |   |              | (14,413 | )
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Income before income taxes                             |  |                    | 4     |   |                       | 22,071  |   |              |        |   |              | 22,075  |  
|Income tax expense                                     |  |                    | 2     |   |                       | 16,129  |   |              |        |   |              | 16,131  |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  
|Net income                                             |  | $                  | 2     |   |                       | 5,942   |   |              |        |   |              | 5,944   |  
|                                                       |  |                    |       |   |                       |         |   |              |         |   |              |         |  



11



---

##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES



NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)

JUNE 30, 2004

(Dollars in thousands)



Statement of Cash Flow Data for the six months ended June 30, 2004 and 2003:



|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|--------------------------------------------------- |  | ------------------ | -------- | - | --------------------- | ------- | - | ------------ | - | ------------ | -------- | -
|Six Months ended June 30, 2004                      |  | Royster-Clark,Inc. |          |   | GuarantorSubsidiaries |         |   | Eliminations |   | Consolidated |         
|Net cash provided by (used in) operating activities |  | $                  | (1,683   | ) |                       | 43,600  |   |              |  |              | 41,917   |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash flows from investing activities:               |  |                    |          |   |                       |         |   |              |   |              |          |  
|Proceeds from sale of property, plant and equipment |  |                    | 8        |   |                       | 1,895   |   |              |  |              | 1,903    |  
|Purchases of property, plant and equipment          |  |                    |         |   |                       | (4,807  | ) |              |  |              | (4,807   | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net cash provided by (used in) investing activities |  |                    | 8        |   |                       | (2,912  | ) |              |  |              | (2,904   | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash flows from financing activities:               |  |                    |          |   |                       |         |   |              |   |              |          |  
|Proceeds from Senior Secured Credit Facility        |  |                    | 230,762  |   |                       |        |   |              |  |              | 230,762  |  
|Payments on Senior Secured Credit Facility          |  |                    | (228,815 | ) |                       |        |   |              |  |              | (228,815 | )
|Principal payments on long-term debt                |  |                    |         |   |                       | (237    | ) |              |  |              | (237     | )
|Dividend paid to Royster-Clark Group, Inc.          |  |                    | (28      | ) |                       |        |   |              |  |              | (28      | )
|Net decrease in customer deposits                   |  |                    |         |   |                       | (40,647 | ) |              |  |              | (40,647  | )
|Payment of deferred financing costs                 |  |                    | (244     | ) |                       |        |   |              |  |              | (244     | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net cash provided by (used in) financing activities |  |                    | 1,675    |   |                       | (40,884 | ) |              |  |              | (39,209  | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net decrease in cash                                |  |                    |         |   |                       | (196    | ) |              |  |              | (196     | )
|Cash at beginning of period                         |  |                    | 42       |   |                       | 844     |   |              |  |              | 886      |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash at end of period                               |  | $                  | 42       |   |                       | 648     |   |              |  |              | 690      |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|                                                    |  |                    |          |  
|Six Months ended June 30, 2003                      |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net cash provided by (used in) operating activities |  | $                  | (32,390  | ) |                       | 59,572  |   |              |  |              | 27,182   |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash flows from investing activities:               |  |                    |          |   |                       |         |   |              |   |              |          |  
|Proceeds from sale of property, plant and equipment |  |                    | 64       |   |                       | 1,054   |   |              |  |              | 1,118    |  
|Purchases of property, plant and equipment          |  |                    |         |   |                       | (8,074  | ) |              |  |              | (8,074   | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net cash provided by (used in) investing activities |  |                    | 64       |   |                       | (7,020  | ) |              |  |              | (6,956   | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash flows from financing activities:               |  |                    |          |   |                       |         |   |              |   |              |          |  
|Proceeds from Senior Secured Credit Facility        |  |                    | 233,337  |   |                       |        |   |              |  |              | 233,337  |  
|Payments on Senior Secured Credit Facility          |  |                    | (200,356 | ) |                       |        |   |              |  |              | (200,356 | )
|Principal payments on long-term debt                |  |                    |         |   |                       | (9      | ) |              |  |              | (9       | )
|Payments on vendor financing note                   |  |                    |         |   |                       | (22,227 | ) |              |  |              | (22,227  | )
|Dividend paid to Royster-Clark Group, Inc.          |  |                    | (142     | ) |                       |        |   |              |  |              | (142     | )
|Net decrease in customer deposits                   |  |                    |         |   |                       | (30,870 | ) |              |  |              | (30,870  | )
|Payment of deferred financing costs                 |  |                    | (513     | ) |                       |        |   |              |  |              | (513     | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net cash provided by (used in) financing activities |  |                    | 32,326   |   |                       | (53,106 | ) |              |  |              | (20,780  | )
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Net decrease in cash                                |  |                    |         |   |                       | (554    | ) |              |  |              | (554     | )
|Cash at beginning of period                         |  |                    | 42       |   |                       | 940     |   |              |  |              | 982      |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  
|Cash at end of period                               |  | $                  | 42       |   |                       | 386     |   |              |  |              | 428      |  
|                                                    |  |                    |          |   |                       |         |   |              |   |              |          |  



12



---

##### Table of Contents

ITEM 2.Managements Discussion and Analysis of Financial Condition, Results of Operations and Cash Flows.



THE FOLLOWING INFORMATION CONTAINS FORWARD-LOOKING STATEMENTS. SEE FORWARD-LOOKING STATEMENTS ABOVE. YOU
SHOULD NOT PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS AS SUCH STATEMENTS SPEAK ONLY AS OF THE DATE ON WHICH THEY ARE MADE, AND WE MIGHT NOT UPDATE THEM TO REFLECT CHANGES THAT OCCUR AFTER THE DATE THEY ARE MADE.



General



Royster-Clark, Inc. together with its subsidiaries, (the Company or Royster-Clark) is a retail and
wholesale distributor of mixed fertilizer, fertilizer materials, seed, crop protection products and agronomic services to farmers, primarily in the Southeast and Midwest regions of the United States. The Companys operations include retail farm
centers (Farmarkets), granulation, blending and seed processing plants, and a network of storage and distribution terminals and warehouses. In addition, the Company operates two nitrogen-manufacturing plants that supply its wholesale and
industrial customers with nitrogen products. Our business is affected by a number of factors, including weather conditions and the availability and prevailing prices for fertilizer, natural gas used in the production of various fertilizers and other
crop production inputs.



Weather conditions can significantly
affect our results of operations, both for quarterly reporting and on an annual basis. Adverse weather conditions during the planting season may force farmers to either delay or abandon their planting, or change to another crop, which may lead to
lower use of fertilizer, seed and crop protection products. Favorable weather conditions, especially early in the planting season, may not lead to increased plantings with a potential increased use of various crop production inputs. Favorable
weather, however, will allow the farmer to plant to the full extent of their planting intentions. During the first six months, the Companys market areas in the Southeast and Midwest regions have experienced favorable weather conditions for
planting of most crops compared to the comparable period in 2003. This weather has allowed farmers to complete plantings for the spring planting season in many market areas of the Company without significant interruptions. Dry conditions in portions
of the Companys Southeast markets during the first quarter were reversed as affected areas received needed rain during the second quarter. However, some areas received moderate to heavy rain which flooded some fields and limited some
fieldwork. Some areas in the Midwest received moderate amounts of rain in June which was followed by warm temperatures that spurred the growth of corn. We believe, based on these factors, that some opportunities for additional nitrogen product sales
and associated application revenues have been lost which would have an impact on operating results.



The crop production inputs distribution business is highly seasonal with a high concentration of sales generated between March and July. Since 1999, sales
occurring between March and July have varied from approximately 68% to 73% of annual sales based upon planting, growing and harvesting cycles of our customers. In 2003, approximately 69% of sales occurred between March and July. The Company is not
aware of any factors that currently exist that would vary this sales concentration either more or less than historical percentages. Inventories are accumulated to be available for seasonal sales, requiring significant storage capacity. The
accumulation of inventory is financed by suppliers, by customer prepayments and by the Company through its credit facility. Depending on weather and field conditions in the Companys widely diverse geographic marketing areas, the period of
heavy product shipments to customers can vary by several weeks, which may have a material impact on which quarter sales are recorded.



Another factor affecting our business is the price for fertilizers. We purchase nitrogen materials, phosphates, and potash and resell these nutrients in
either their original form or in the form of multi-nutrient fertilizers. Price volatility varies for major nitrogen, phosphate and potash products. The table below provides quarter end prices for the products indicated by Mid-Cornbelt or Midwest per
ton price quote listing published by Green Markets (a publication reporting on fertilizer industry developments). Ammonia (anhydrous ammonia) is being illustrated



13



---

##### Table of Contents

as a proxy for nitrogen products, while DAP (diammonium phosphate) and potash (coarse muriate potash) are being used as proxies for phosphate and potash
products.



|          |  |      |  |                   |  |              |  |     |  |     |  |         |  |      |  |    
|--------- |  | ---- |  | ----------------- |  | ------------ |  | --- |  | --- |  | ------- |  | ---- |  | ---
|          |  |      |  | Quarter end price |  | Year-to-date
|$ per ton |  |      |  | 1st               |  | 2nd          |  | 3rd |  | 4th |  | Average |  | High |  | Low
|Ammonia   |  | 2004 |  | 328               |  | 315          |  |    |  |    |  | 327     |  | 340  |  | 310
|          |  | 2003 |  | 350               |  | 290          |  | 295 |  | 330 |  | 305     |  | 360  |  | 260
|          |  | 2002 |  | 190               |  | 190          |  | 195 |  | 245 |  | 188     |  | 195  |  | 180
|          |  |      |  |                   |  |              |  |    
|DAP       |  | 2004 |  | 232               |  | 222          |  |    |  |    |  | 229     |  | 235  |  | 222
|          |  | 2003 |  | 215               |  | 200          |  | 200 |  | 222 |  | 201     |  | 220  |  | 175
|          |  | 2002 |  | 178               |  | 180          |  | 184 |  | 175 |  | 176     |  | 178  |  | 170
|          |  |      |  |                   |  |              |  |    
|Potash    |  | 2004 |  | 135               |  | 152          |  |    |  |    |  | 139     |  | 152  |  | 129
|          |  | 2003 |  | 116               |  | 116          |  | 124 |  | 130 |  | 115     |  | 116  |  | 115
|          |  | 2002 |  | 115               |  | 115          |  | 116 |  | 115 |  | 115     |  | 115  |  | 112



While the level of
nitrogen prices affects the profitability of our entire business, the level of nitrogen prices affects the profitability of our two nitrogen-manufacturing plants more directly. The level of phosphate and potash prices affects the profitability of
our business since gross profit generated by our processing and distribution activities with these materials is typically a function of the underlying cost.



The major raw material in the manufacture of nitrogen-based products is natural gas. For the first six months of 2004, we purchased natural gas on the
spot market and through the use of fixed priced purchase contracts for use in our nitrogen-manufacturing plant in East Dubuque, IL. The use of fixed-priced purchase contracts permits the Company to elect to lock in our gas costs for quantities of
MMBTUs that the Company elects to purchase on that basis. The table below illustrates some of the volatility of natural gas pricing quoted at the Henry Hub obtained from a listing published by Energy Intelligence Group, Inc. on its website,
www.energyintel.com.



|            |  |                   |  |              |  |      |  |      |  |         |  |       |  |     
|----------- |  | ----------------- |  | ------------ |  | ---- |  | ---- |  | ------- |  | ----- |  | ----
|            |  | Quarter end price |  | Year-to-date
|$ per MMBTU |  | 1st               |  | 2nd          |  | 3rd  |  | 4th  |  | Average |  | High  |  | Low 
|2004        |  | 5.64              |  | 6.05         |  |     |  |     |  | 5.85    |  | 7.06  |  | 5.08
|2003        |  | 5.00              |  | 5.31         |  | 4.66 |  | 5.79 |  | 5.65    |  | 19.07 |  | 4.86
|2002        |  | 3.26              |  | 3.17         |  | 4.09 |  | 4.75 |  | 3.19    |  | 3.75  |  | 1.97



The level of natural
gas prices directly affects profitability of our nitrogen-based products.



Subsequent Event/Disposition



On August 9,
2004, the Company signed a non-binding letter of intent with Rentech Development Corporation, a wholly owned subsidiary of Rentech, Inc., and its affiliates (collectively referred to as Rentech), that could lead to the disposition of
assets of the Companys nitrogen-manufacturing facility in East Dubuque, Illinois. Negotiations continue between Rentech and the Company. The exact structure of the contemplated sale agreement can not be determined at this time. Under the terms
of the letter of intent, Rentech will pay $63 million for the business which includes $13 million in net current assets, working capital and inventories. The acquisition is subject to final due diligence, legal documentation, and the securing of the
necessary financing. The Company is party to a confidentiality agreement restricting further disclosures. The Company can not predict when or if a final agreement will be reached.



14



---

##### Table of Contents

Results of Operations



Three months ended June 30, 2004 compared to three months ended June 30, 2003



The following table and discussion provides information regarding Royster-Clarks statement of operations as a
percentage of net sales.



|                                             |  |                             |   |  |       |  
|-------------------------------------------- |  | --------------------------- | - |  | ----- | -
|                                             |  | Three Months ended June 30, |  
|                                             |  | 2004                        |   |  | 2003  |  
|Net sales                                    |  | 100.0                       | % |  | 100.0 |  
|Cost of sales                                |  | 82.6                        |   |  | 81.0  |  
|                                             |  |                             |   |  |       |  
|Gross profit                                 |  | 17.4                        |   |  | 19.0  |  
|Selling, general and administrative expenses |  | 7.5                         |   |  | 8.4   |  
|                                             |  |                             |   |  |       |  
|Operating income                             |  | 9.9                         |   |  | 10.6  |  
|Interest expense                             |  | (1.2                        | ) |  | (1.5  | )
|                                             |  |                             |   |  |       |  
|Income before income taxes                   |  | 8.7                         |   |  | 9.1   |  
|Income tax expense                           |  |                            |   |  | 5.0   |  
|                                             |  |                             |   |  |       |  
|Net income                                   |  | 8.7                         | % |  | 4.1   |  
|                                             |  |                             |   |  |       |  



Net
sales.Royster-Clarks net sales were $569.7 million for the second quarter of 2004 compared to $503.0 million for the same period in 2003, an increase of $66.7 million, or 13.3%. The increase in net sales resulted
from approximately $37.2 million in sales volume increases and $29.5 million in market related price increases and other revenue changes. Favorable weather conditions in most market areas allowed for increased sales volume for the quarter through
most of the Companys market area. Some market areas in Indiana, Michigan and Ohio experienced rainfall in June which we believe caused lower sales volume gains than what would have been expected without the rain. The sales volume increase in
the second quarter of 2004 represents a 9.4% increase in tonnage of the major nutrient product categories that the Company markets compared to the comparable period in 2003. Sales volume increases were experienced across most product groups. Higher
natural gas cost was the primary driver in the price appreciation. Sales price appreciation of fertilizer and nitrogen products accounted for approximately $28.4 million of the $29.5 million total price appreciation. Nitrogen products are used in
both liquid and dry blended and granulated fertilizers. Sales prices also increased in granulated and blended fertilizers and various fertilizer materials.



Gross profit.Gross profit was $99.3 million for the second quarter of 2004 compared to $95.4 million for the same period in
2003, an increase of $3.9 million, or 4.1%. Gross profit increased approximately $9.3 million resulting from sales volume increases described above. Gross profit was partially offset by $5.4 million in increased costs related to natural gas cost
increases during the quarter that were not recovered through increases in sales prices. Gross margin was 17.4% for the second quarter of 2004 compared to 19.0% for the same period in 2003. The decrease in gross margin of 1.6% was predominantly due
to cost increases discussed above that were not recovered.



Selling, general and administrative expenses.Selling, general and administrative expenses were $42.9 million for the second quarter of 2004 compared to $41.8 million for the same period in 2003, an increase of
$1.1 million, or 2.6%. The increase in selling, general and administrative expenses resulted from the following major factors:



| |  |  | Volume related expenses including seasonal labor and benefits, overtime, repairs, supplies, doubtful account provision and other expenses supporting sales were approximately $4.1
million higher than the comparable period last year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



---

##### Table of Contents

The increase in selling, general and administrative expenses was partially offset by the following major
factors:



| |  |  | Expenses were approximately $1.7 million lower compared to 2003 due to cost savings measures.
| | - |  | ---------------------------------------------------------------------------------------------

| |  |  | Medical insurance costs were $0.8 million lower due primarily to fewer large claims during the second quarter of 2004 compared to the comparable quarter in 2003.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Depreciation expense was approximately $0.5 million lower due to fully depreciated assets offsetting the impact of depreciation on capital spending over the past year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------



Quarterly selling, general and administrative
expenses as a percent of net sales fluctuate widely within the fiscal year due to the seasonal nature of sales volumes with selling, general and administrative expenses exhibiting less seasonal fluctuations.



Operating income.Operating income was $56.2
million for the second quarter of 2004 compared to $53.4 million for the same period in 2003, an increase in the operating income of $2.8 million, or 5.2%. Operating income as a percentage of net sales was 9.9% for the second quarter in 2004
compared to 10.6% for the same period in 2003 due to sales price and cost increases and selling, general and administrative expense changes described above.



Interest expense.Interest expense was $6.8 million for the second quarter in 2004 compared to $7.4 million for the same
period in 2003, a decrease of $0.6 million, or 8.1%. Decreased interest rates lowered interest expense by $0.3 million. Lower note payable balances and lower average borrowings on the credit facility in 2004 compared to 2003 lowered interest expense
by $0.3 million. Average borrowings on the credit facility were $119.7 million during the second quarter of 2004 compared to $120.4 million for the comparable period in 2003.



Income tax expense.The Company recognized no income tax expense for the second quarter of
2004 compared to an income tax expense of $25.3 million for the same period in 2003. The effective tax rate for the second quarter of 2003 was 55.1%. The Company has not recorded income tax expense or benefit subsequent to the second quarter of 2003
when the Company recorded a valuation allowance for the full amount of net deferred tax assets. The Company continues to maintain a valuation allowance for the full amount of net deferred tax assets in accordance with provisions of SFAS No. 109,
Accounting for Income Taxes as of June 30, 2004. The Company will not record a net income tax expense or benefit until GAAP requirements for unrestricted recognition of deferred tax assets have been satisfied.



Net income.Net income was $49.4 million for
the second quarter of 2004 compared to $20.7 million for the same period in 2003, an increase of $28.7 million, resulting from the fluctuations noted above.



Six months ended June 30, 2004 compared to six months ended June 30, 2003



The following table and discussion provides information regarding Royster-Clarks statement of operations as a
percentage of net sales.



|                                                       |  |                          |   |  |       |  
|------------------------------------------------------ |  | ------------------------ | - |  | ----- | -
|                                                       |  | Six Months endedJune 30, |  
|                                                       |  | 2004                     |   |  | 2003  |  
|Net sales                                              |  | 100.0                    | % |  | 100.0 |  
|Cost of sales                                          |  | 83.5                     |   |  | 81.9  |  
|                                                       |  |                          |   |  |       |  
|Gross profit                                           |  | 16.5                     |   |  | 18.1  |  
|Selling, general and administrative expenses           |  | 10.5                     |   |  | 12.4  |  
|Loss on disposal of property, plant and equipment, net |  |                         |   |  | 0.1   |  
|                                                       |  |                          |   |  |       |  
|Operating income                                       |  | 6.0                      |   |  | 5.6   |  
|Interest expense                                       |  | (1.7                     | ) |  | (2.2  | )
|                                                       |  |                          |   |  |       |  
|Income before income taxes                             |  | 4.3                      |   |  | 3.4   |  
|Income tax expense                                     |  |                         |   |  | 2.5   |  
|                                                       |  |                          |   |  |       |  
|Net income                                             |  | 4.3                      | % |  | 0.9   |  
|                                                       |  |                          |   |  |       |  



16



---

##### Table of Contents

Net sales.Royster-Clarks net sales were $774.7 million for the first
six months of 2004 compared to $653.3 million for the same period in 2003, an increase of $121.4 million, or 18.6%. The increase in net sales resulted from approximately $71.4 million in sales volume increases and $50.0 million in market related
price increases and other revenue changes. Favorable weather conditions in most market areas allowed for increased sales volume for the first six months through most of the Companys market area. Moderate weather during the first quarter proved
important, allowing an early start on fieldwork. During the second quarter, some market areas in Indiana, Michigan and Ohio experienced rainfall in June which we believe caused lower sales volume gains than what would have been expected without the
rain. The sales volume during the first six months of 2004 represents a 13.6% increase in tonnage of the major nutrient product categories that the Company markets compared to the comparable period in 2003. Sales volume increases were experienced
across most product groups. Higher natural gas cost was the primary driver in the price appreciation. Sales price appreciation of fertilizer and nitrogen products accounted for approximately $43.0 million of the $50.0 million total price
appreciation. Nitrogen products are used in both liquid and dry blended and granulated fertilizers. Sales prices also increased in granulated and blended fertilizers and various fertilizer materials.



Gross profit.Gross profit was $127.7 million
for the first six months of 2004 compared to $118.3 million for the same period in 2003, an increase of $9.4 million, or 7.9%. Gross profit increased approximately $15.4 million resulting from sales volume increases described above. Gross profit was
partially offset by $6.0 million in increased costs related to natural gas cost increases during the first six months that were not recovered through increases in sales prices and to a lesser extent increased costs related to the purchase of seed
and grain during the first quarter. Gross margin was 16.5% for the first six months of 2004 compared to 18.1% for the same period in 2003. The decrease in gross margin of 1.6% was predominantly due to cost increases discussed above that were not
recovered.



Selling, general and administrative
expenses.Selling, general and administrative expenses were $81.1 million for the first six months of 2004 compared to $81.3 million for the same period in 2003, a decrease of $0.2 million, or 0.2%. The decrease in
selling, general and administrative expenses resulted from the following major factors:



| |  |  | Expenses were approximately $1.3 million lower compared to 2003 due to cost savings measures.
| | - |  | ---------------------------------------------------------------------------------------------

| |  |  | Medical insurance costs were $0.7 million lower due primarily to fewer large claims during the first six months of 2004 compared to the comparable period in 2003.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Liability insurance costs were $0.7 million lower compared to 2003. Liability insurance costs were lower due to better negotiated rates on the Companys new policy year
beginning July 1, 2003.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Depreciation expense was approximately $1.0 million lower due to fully depreciated assets offsetting the impact of depreciation on capital spending over the past year.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  |  | Amortization expense was approximately $0.3 million lower due primarily to deferred financing costs written off during the first quarter of 2003 associated with the Third Amendment
to the Companys credit facility. Other amortization reductions resulted from noncompete covenants becoming fully amortized and other changes in amortizations between the current and predecessor revolver agreement.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The decrease in selling, general and administrative expenses was partially
offset by the following major factors:



| |  |  | Volume related expenses including seasonal labor and benefits, overtime, repairs, supplies, doubtful account provision and other expenses supporting sales were approximately $3.8
million higher than the comparable period last year.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Quarterly selling, general and administrative expenses as a percent of net sales fluctuate widely within the fiscal year due to the seasonal nature of sales volumes with selling, general and administrative expenses exhibiting less seasonal
fluctuations.



Operating
income.Operating income was $46.5 million for the first six months of 2004 compared to $36.5 million for the same period in 2003, an increase in the operating income of $10.0 million, or 27.4%.



17



---

##### Table of Contents

Operating income as a percentage of net sales was 6.0% for the first six months in 2004 compared to 5.6% for the same period in 2003 due to sales price and
cost increases and selling, general and administrative expense changes described above.



Interest expense.Interest expense was $13.5 million for the first six months in 2004 compared to $14.4 million for the same period in 2003, a decrease of $0.9 million, or 6.3%. Decreased
interest rates lowered interest expense by $0.6 million. Lower note payable balances in 2004 lowered interest expense by $0.5 million. Higher average borrowings on the credit facility of $103.5 million during the first six months of 2004 compared to
$98.7 million for the comparable period in 2003 increased interest expense by $0.2 million partially offset the decreases discussed above. Higher average daily borrowings on the credit facility were used to finance higher cost inventory resulting
predominantly from higher natural gas prices and to replace last years use of vendor note payable financing.



Income tax expense.The Company recognized no income tax expense for the first six months of 2004 compared to a income tax
expense of $16.1 million for the same period in 2003. The effective tax rate for the first six months of 2003 was 73.1%. The Company has not recorded income tax expense or benefit subsequent to the second quarter of 2003 when the Company recorded a
valuation allowance for the full amount of net deferred tax assets. The Company continues to maintain a valuation allowance for the full amount of net deferred tax assets in accordance with provisions of SFAS No. 109, Accounting for Income
Taxes as of June 30, 2004. The Company will not record a net income tax expense or benefit until GAAP requirements for unrestricted recognition of deferred tax assets have been satisfied.



Net income.Net income was $32.9 million for
the first six months of 2004 compared to $5.9 million for the same period in 2003, an increase of $27.0 million, resulting from the fluctuations noted above.



Liquidity and Capital Resources



Our primary capital requirements are for working capital, debt service, capital expenditures and possible acquisitions. For day-to-day liquidity
requirements, we operate with a $225 million senior secured credit facility (credit facility) with a consortium of lenders. At June 30, 2004, the borrowing base provisions under the credit facility supported a gross borrowing
availability in excess of its $225 million available credit line, from which we had drawn $144.9 million. This facility includes up to $20.0 million for letters of credit of which there were letters of credit totaling $11.0 million outstanding as of
June 30, 2004. This facility contains financial and operational covenants and other restrictions with which we must comply, including a requirement to maintain certain financial ratios and limitations on our ability to incur additional indebtedness.
In connection with the establishment of the credit facility, the Company incurred $3,605 of deferred financing costs during 2003. As of December 31, 2003, there were unamortized deferred financing costs of $419 associated with the credit facility in
effect prior to the current credit facility. During the six months ended June 30, 2004, additional deferred financing costs of $144 were incurred.



From time to time, we review our financing needs and capital structure. As a result of our review, we may periodically explore alternatives to our current
financing, including the issuance of additional long-term debt, refinancing our credit facility and other restructuring or financings. In addition, we may from time to time seek to retire our outstanding First Mortgage Notes in open market
purchases, privately negotiated transactions or otherwise. These repurchases, if any, will depend on prevailing market conditions, our liquidity requirements, contractual restrictions and other factors. The amount of repurchases of our First
Mortgage Notes may be material and may involve significant amounts of our cash and debt availability.



Net cash provided by operating activities for the six months ended June 30, 2004 was $41.9 million compared to $27.2 million for the comparable period in
2003, an increase in net cash provided of $14.7 million. The most significant component of higher cash flows provided by operating activities was increased net income of $27.0 million and the movement in operating assets and liabilities of $7.0
million. Adjustments of $19.2 million to reconcile net income to net cash provided by operating activities partially offset the higher cash flows



18



---

##### Table of Contents

provided by operating activities. The largest adjustment was $16.6 million in deferred tax adjustments in the first six months of 2003. Inventories, accounts
payable and accrued liabilities were the largest components of operating assets and liabilities providing $42.4 million more cash with trade accounts receivable and other receivables partially offsetting cash provided with $36.2 million in cash used
during the first six months of 2004 compared to the comparable period in 2003. Changes in prepaid expenses and other assets and liabilities made up the balance of the change in operating assets and liabilities.



Net cash used in investing activities for the six months ended June 30, 2004
totaled $2.9 million compared to $7.0 million for the comparable period in 2003, a decrease of $4.1 million. The decrease in net cash used in investing activities resulted from decreased capital expenditures of $3.3 million in 2004 and increased
proceeds from the sale of property, plant and equipment of $0.8 million in 2004 compared to 2003.



Capital expenditures were $4.8 million for the six months ended June 30, 2004 compared with $8.1 million for the comparable period in 2003, a decrease of
$3.3 million. These capital expenditures were primarily for facility improvements and machinery and equipment replacement projects. We estimate total capital expenditures, excluding potential acquisitions, for all of 2004 will be approximately $12.0
million.



Net cash used in financing activities for the six
months ended June 30, 2004 totaled $39.2 million compared to $20.8 million in 2003, an increase of $18.4 million. Increased cash used in financing activities in 2004 compared to 2003 resulted primarily from net higher payments to the credit facility
of $31.0 million, $9.8 million less cash from customer deposits and $0.2 million higher principal payments on long-term debt in 2004 compared to 2003. These increases in cash used were partially offset by $22.2 million less cash used for payments on
vendor financing notes, $0.3 million lower payment of deferred financing costs and decreased payments of dividends paid to Royster-Clark Group, Inc. in 2004 when compared to the comparable period in 2003.



Net working capital, excluding current installments of long-term debt at June
30, 2004 totaled $253.4 million versus $209.5 million at December 31, 2003, an increase of $43.9 million. This increase resulted primarily from normal seasonal movement of operating assets and liabilities highlighted by increases in trade accounts
receivable, other receivables, accounts payable, and accrued expenses and decreases in inventory, customer deposits and prepaid and other current assets. Working capital changes are summarized in the table below.



|                                                   |  |   |      
|-------------------------------------------------- |  | - | -----
|Working capital increases:                         |  |   |      
|Trade accounts receivable                          |  | $ | 111.5
|Customer deposits                                  |  |   | 40.6 
|Other receivables                                  |  |   | 8.7  
|                                                   |  |   |      
|Total increases                                    |  |   | 160.8
|                                                   |  |   |      
|Working capital decreases:                         |  |   |      
|Inventories                                        |  |   | 103.4
|Accounts payable                                   |  |   | 11.0 
|Accrued expenses & other working capital decreases |  |   | 2.5  
|                                                   |  |   |      
|Total decreases                                    |  |   | 116.9
|                                                   |  |   |      
|Net increases                                      |  | $ | 43.9 
|                                                   |  |   |      



Recently Adopted Accounting
Standards



Rebate income is recorded when the criteria of
EITF Issue 02-16 are met. We expect higher income during the fourth quarter for rebate programs that do not meet the requirements of EITF Issue 02-16 resulting from lower income being recorded during the first three quarters.



19



---

##### Table of Contents

ITEM 3.Quantitative and Qualitative Disclosures about Market Risk



The Company is exposed to various market risks, including commodity price risk and interest rate risk. The Company has entered into limited commodity
hedging activities with respect to its grain and seed purchases. The Company intends to use hedging transactions to minimize exposures to fluctuations in grain prices that may occur during the production cycle of seed products. The majority of these
contracts settle in cash. Historically, such settlements have not had a significant effect on liquidity, nor are they expected to be significant to the Companys liquidity in the future. In the past, the provisions of the credit facility have
not provided the Company the flexibility to perform any significant hedging activities. While we do not anticipate initiating any significant hedging activities, we believe our current credit facility will provide the Company with more flexibility
with which to consider hedging activities in natural gas, interest rates or expanded use in seed and grain. We continue to evaluate the possibilities for hedging to manage the volatility associated with various aspects of our business.



Commodity Price Risk



The Company is exposed to market risk due to changes in natural gas prices. Natural gas is a raw material used in the
production of various nitrogen-based products that the Company either manufactures at its East Dubuque plant or purchases from vendors. Market prices of nitrogen-based products are affected by changes in natural gas prices as well as supply and
demand and other factors. In its normal course of business, the Company purchases nitrogen-based products during the winter and early spring to supply its needs during the high sales volume spring season. Nitrogen-based inventory remaining at the
end of the spring season will be subject to market risk due to changes in natural gas prices and supply and demand. During the first six months of 2004, the Company purchased natural gas for use in its East Dubuque facility on the spot market, but
has also used short-term, fixed supply, fixed price purchase contracts which locked in pricing for a portion of its natural gas requirements. Short-term, fixed supply, fixed price purchase contracts have not been used after the first quarter.
Currently, the Company purchases natural gas for use in its East Dubuque facility on the spot market. Notwithstanding use of these purchase contracts, the Company is exposed to significant, although, in managements opinion, not excessive
market risk. Changes in levels of natural gas prices and market prices of nitrogen-based products can materially affect the Companys financial position and results of operations. To date, the Company has experienced no difficulties in securing
supplies of natural gas, however, natural gas is purchased at market prices and such purchases are subject to price volatility and there have been interruptions in gas deliveries for commercial users in the past.



The Company engages in limited commodity hedging activities with respect to
its grain and seed purchases. The Company attempts to use these hedging transactions to minimize exposures to fluctuations in grain prices that may occur during the production cycle of seed products. Grain and seed hedging activities are marked to
market every month and price fluctuations are reflected in the consolidated statements of operations. Increases in commodity grain prices can expose the Company to increased cost associated with its commodity seed purchases to the extent that
strategies in place do not perform as intended.



Interest Rate Risk



The Company is also exposed to changes in interest rates.
The interest rates that we pay for borrowings under our credit facility are based primarily on the LIBOR rate of interest charged by the agent bank under our credit facility. Our operating results will be impacted by changes in interest rates. We
estimate that based on an annual average balance on our credit facility that each 1% change in market interest rate will impact before tax earnings by approximately $1.1 million. Our First Mortgage Notes bear interest at a fixed rate of 101/4%. Some of our customer deposits also bear interest at a fixed rate, which is established on an annual basis at the
beginning of each farming season based on prevailing market rates for similar programs in each of the regions in which we operate.



At June 30, 2004, the Companys exposure to market risk factors had not materially changed from December 31, 2003.



20



---

##### Table of Contents

ITEM 4.Controls and Procedures



|(a) |  | Evaluation of disclosure controls and procedures.
|--- |  | -------------------------------------------------



We maintain a system of controls and procedures designed to provide reasonable assurance on the reliability of our financial statements and other
disclosures included in this report, as well as to safeguard assets from unauthorized use or disposition. The system is supported by formal policies and procedures. Appropriate actions are taken to address significant control deficiencies and other
opportunities for improving the system as they are identified. However, no cost-effective internal control system will preclude all errors and irregularities, and management is necessarily required to apply its judgment in evaluating the
cost-benefit relationship of possible controls and procedures.



Based on their evaluation as of the end of the period covered by this Quarterly Report on Form 10-Q, our principal executive officer and principal financial officer have concluded that our disclosure controls and procedures (as defined in
Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the Exchange Act) are effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in Securities and Exchange Commission rules and forms.



|(b) |  | Changes in internal controls.
|--- |  | -----------------------------



There were no significant changes in the Companys internal controls or in other factors over financial reporting or in other factors during our last
fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.



21



---

##### Table of Contents

PART 2.    OTHER INFORMATION



ITEM 6.Exhibits and Reports on Form 8-K



(a)(1)    Financial Statements:



The following condensed consolidated financial statements are included in Part 1, Item 1, of this Form 10-Q:



Condensed Consolidated Balance Sheets as of June 30, 2004
and December 31, 2003

Condensed Consolidated Statements of Operations for the Three and Six months ended June 30, 2004 and
2003

Condensed Consolidated Statements of Cash Flows for the Three and Six months ended June 30, 2004 and 2003



(2)    Financial Statement Schedules:None.

(3)    Exhibits:



|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|----- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.01  |  | Restated Certificate of Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                
|3.02  |  | Certificate of Amendment of Restated Certificate of Incorporation of the Company.                                                                                                                                                                                                                                                                                                                                                                                    
|3.03  |  | Amended and Restated Bylaws of the Company.                                                                                                                                                                                                                                                                                                                                                                                                                          
|4.01  |  | Indenture dated as of April 22, 1999 by and among the Company, the Guarantors, and the United States Trust Company of New York, as Trustee.                                                                                                                                                                                                                                                                                                                          
|4.02  |  | Form of 101/4% First Mortgage Note Due 2009 (Included
in Exhibit 4.01)                                                                                                                                                                                                                                                                                                                                                                                               
|10.03 |  | Supply Agreement dated as of April 22, 1999 among IMC Kalium Ltd., IMC-Agrico Company and the Company. Portions of this exhibit have been omitted pursuant to a request for confidential
treatment.                                                                                                                                                                                                                                                                  
|10.04 |  | Company Employee Savings and Investment Plan.                                                                                                                                                                                                                                                                                                                                                                                                                        
|10.05 |  | Royster-Clark Group, Inc. 1999 Restricted Stock Purchase and Option Plan.                                                                                                                                                                                                                                                                                                                                                                                            
|10.06 |  | Employment Agreement dated as of April 22, 1999 by and among Francis P. Jenkins, Jr., Royster-Clark Group, Inc. and Royster-Clark, Inc.                                                                                                                                                                                                                                                                                                                              
|10.16 |  | Employment Agreement dated as of December 1, 1999 between Royster-Clark, Inc. and G. Kenneth Moshenek.                                                                                                                                                                                                                                                                                                                                                              
|10.20 |  | Employment Agreement dated as of December 1, 1999 between Royster-Clark, Inc. and Paul M. Murphy.                                                                                                                                                                                                                                                                                                                                                                  
|10.21 |  | Amendment and Restatement of the April 22, 1999 Revolving Credit Agreement, dated as of December 22, 2003, among the Company, certain subsidiaries of the Company as the co-borrowers, various
financial institutions as lenders, U.S. Bank National Association, as the administrative agent, a collateral agent and a lead arranger, The CIT Group/Business Credit, Inc., as a collateral agent and a lead arranger, and Bank of America, N.A. as a
lead arranger. 

---

| |  | Incorporated by reference to Registration Statement on Form S-4 (Reg. No.: 333-81235) where it has been filed as an Exhibit.
|- |  | ----------------------------------------------------------------------------------------------------------------------------

| |  | Incorporated by reference to identically numbered exhibit to Form 10K for the annual period ended December 31, 2000 (Reg. No.: 333-81235) filed on April 2, 2001.
|-- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Incorporated by reference to identically numbered exhibit to Form 10K for the annual period ended December 31, 2002 (Reg. No.: 333-81235) filed on June 30, 2003.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Incorporated by reference to identically numbered exhibit to Form 10K for the annual period ended December 31, 2003 (Reg. No.: 333-81235) filed on March 30, 2004.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------



22



---

##### Table of Contents

|      |  |                                                                                                                                                                                                                                                                                                                                            
|----- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|10.22 |  | First Amendment to Amended and Restated Revolving Credit Agreement Among Royster-Clark, Inc., various financial institutions, U.S. Bank National Association, the CIT Group/Business Credit,
Inc., and Supplement Amending the Borrower Pledge and Security Agreement and Subsidiary Pledge and Security Agreement dated March 26, 2004. 
|31.01 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Executive Officer of Royster-Clark, Inc. *                                                                                                                                                                                                                                                 
|31.02 |  | Rule 13a-14(a)/15d-14(a) Certification of Chief Financial Officer of Royster-Clark, Inc. *                                                                                                                                                                                                                                                 
|32.01 |  | Section 1350 Certifications. *                                                                                                                                                                                                                                                                                                             



(b)    Reports
on Form 8-K



On May 14, 2004 we filed a report on Form 8-K
which reported under Item 7 and item 12, the issuance of a press release which reported first fiscal quarter ended March 31, 2004 operating and financial results for Royster-Clark, Inc. and furnished a copy of the earnings release to the Commission.

---

| |  | Incorporated by reference to identically numbered exhibit to Form 10Q for the quarterly period ended March 31, 2004 (Reg. No.: 333-81235) filed on May 14, 2004.
|-- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------

|* |  | Filed herein.
|- |  | -------------



23



---

##### Table of Contents

SIGNATURES



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



DATE:  August 12, 2004

ROYSTER-CLARK, INC./s/    JOEL F. DUNBARJoel F. Dunbar Vice President, Assistant Secretary and Controller (on behalf of the Registrant and
as Chief Accounting Officer)




24