##### Table of Contents

As Filed with the Securities and Exchange Commission on August 13, 2002





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SECURITIES AND EXCHANGE COMMISSION


WASHINGTON, D.C. 20549





---




FORM 10-Q





(Mark One)


xQUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF


THE SECURITIES ACT OF 1934





For the
quarterly period ended June 30, 2002





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.)





600 FIFTH AVENUE  25TH FLOOR


NEW YORK, NEW YORK 10020


(212) 332-2965


(Address, including zip code, and telephone number, including


area code, of
registrants principal executive offices)





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  ̈





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





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##### Table of Contents

ROYSTER-CLARK, INC.





FORM 10-Q





TABLE OF CONTENTS





PagePART 1.

FINANCIAL INFORMATION:Item 1.

Financial StatementsCondensed Consolidated Balance Sheets

2Condensed Consolidated Statements of Operations

3Condensed Consolidated Statements of Cash Flows

4Notes to Condensed Consolidated Financial Statements

5Item 2.

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

13Item 3.

Quantitative and Qualitative Disclosures about Market Risk

21PART 2.

OTHER INFORMATION:Item 6.

Exhibits and Reports on Form 8-K

22Signatures

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 and (x) 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 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




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##### Table of Contents

PART I.    
FINANCIAL INFORMATION





ITEM 1.Financial Statements





ROYSTER-CLARK, INC.
AND SUBSIDIARIES





CONDENSED CONSOLIDATED BALANCE SHEETS


JUNE 30, 2002 AND DECEMBER 31, 2001


(Dollars in thousands)





June 30, 2002

December 31, 2001AssetsCurrent assets:Cash

$
317

997Trade accounts receivable, net of allowance for doubtful accounts of $8,311 and $5,350 at June 30, 2002 and December 31,
2001, respectively


180,143

73,754Other receivables


35,068

24,381Inventories


139,206

211,218Prepaid expenses and other current assets


2,079

2,246Deferred income taxes


8,000

6,000Total current assets


364,813

318,596Property, plant and equipment, net


194,266

203,445Goodwill


16,540

16,540Deferred income taxes




4,795Deferred financing costs, net


9,461

10,512Other assets, net


1,739

1,997$
586,819

555,885Liabilities and Stockholders EquityCurrent liabilities:Current installments of long-term debt

$
2,147

7,181Customer deposits


30,250

60,900Accounts payable


69,839

86,282Accrued expenses


20,748

24,314Total current liabilities


122,984

178,677Senior secured credit facility


154,343

89,244101/4% First Mortgage Notes due 2009


200,000

200,000Long-term debt, excluding current installments


363

363Other long-term liabilities


5,600

6,018Deferred income taxes


6,574

Total liabilities


489,864

474,302Stockholders equity:Common stock, no par value. Authorized 350,000 shares; 1 share issued and outstanding




Additional paid-in capital


88,599

88,599Retained earnings (accumulated deficit)


8,356

(7,016
)Total stockholders equity


96,955

81,583$
586,819

555,885





See accompanying notes to condensed consolidated financial statements.




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##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS


THREE AND SIX MONTHS ENDED JUNE 30, 2002 AND 2001


(Dollars in thousands)





Three Months ended June 30,


Six Months ended June 30,2002


2001


2002


2001Net sales

$
470,511


534,633


628,458


700,730Cost of sales


371,916


422,412


507,037


560,661Gross profit


98,595


112,221


121,421


140,069Selling, general and administrative expenses


42,244


49,134


81,954


92,279Loss on disposal of property, plant and equipment, net


103


293


163


842Operating income


56,248


62,794


39,304


46,948Interest expense


(7,301
)

(9,725
)

(14,419
)

(18,586
)Income before income taxes


48,947


53,069


24,885


28,362Income tax expense


18,628


20,261


9,513


11,099Net income

$
30,319


32,808


15,372


17,263








See accompanying notes to condensed
consolidated financial statements.




3




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##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES





CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS


SIX MONTHS ENDED JUNE 30, 2002 AND 2001


(Dollars in thousands)





Six Months ended June 30,2002


2001Cash flows from operating activities:Net income

$
15,372


17,263Adjustments to reconcile net income to net cash used in operating activities:Provision for doubtful accounts


1,882


1,653Depreciation and amortization


13,471


13,137Loss on disposal of property, plant and equipment


163


842Deferred income taxes


9,369


10,810Changes in operating assets and liabilities increasing (decreasing) cash:Trade accounts receivable


(108,271
)

(115,296
)Other receivables


(10,687
)

4,871Inventories


72,012


88,863Prepaid expenses and other current assets


167


3,884Other assets


16


(577
)Accounts payable


(16,443
)

(34,037
)Accrued expenses


(3,566
)

(1,999
)Other long-term liabilities


(418
)

1,063Total adjustments


(42,305
)

(26,786
)Net cash used in operating activities


(26,933
)

(9,523
)Cash flows from investing activities:Proceeds from disposal of property, plant and equipment


739


497Purchases of property, plant and equipment


(3,901
)

(9,334
)Costs associated with Agro Acquisition





(1,816
)Net cash used in investing activities


(3,162
)

(10,653
)Cash flows from financing activities:Proceeds from senior secured credit facility


220,886


240,735Payments on senior secured credit facility


(155,787
)

(175,970
)Principal payments on long-term debt


(5,034
)

(60
)Net decrease in customer deposits


(30,650
)

(44,512
)Net cash provided by financing activities


29,415


20,193Net increase (decrease) in cash


(680
)

17Cash at beginning of period


997


413Cash at end of period

$
317


430Supplemental disclosure of cash flow information:Cash paid during the period for interest

$
14,104


18,811Cash paid during the period for income taxes

$
260


258





See accompanying notes to condensed consolidated financial statements.




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##### Table of Contents

ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS


JUNE 30, 2002


(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 East, South and Midwest. The Companys operations consist of retail
farm centers, granulation, blending and seed processing plants, and an integrated network of storage and distribution terminals and warehouses. In addition, the Company operates two nitrogen-manufacturing plants that supply the retail and wholesale
distribution businesses with nitrogen fertilizer products.





The information presented as of June 30, 2002 and for
the three and six month periods ended June 30, 2002 and 2001 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, 2002 and the results of its operations and its cash flows for the three and six month periods ended June 30, 2002 and 2001. The December 31, 2001 balance sheet information was derived from the audited Consolidated Financial
Statements for the year ended December 31, 2001.





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, 2001, which are included as part of the Companys Annual Report on Form 10-K.





The Companys business is highly seasonal with approximately 70% of sales generated between March and July. Results for the interim periods presented are not
necessarily indicative of results that may be expected for the entire year.





Certain reclassifications have been
made to the condensed consolidated financial statements as of December 31, 2001 and for the three and six months ended June 30, 2001 in order to conform to the financial statement presentation as of and for the three and six months ended June
30, 2002.





(2)    Accounting Change





Effective January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, which establishes accounting and reporting standards for goodwill and intangible assets. SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized, but rather tested for
impairment at least annually. Upon the adoption of SFAS No. 142 effective January 1, 2002, the Company ceased amortizing amounts related to goodwill. SFAS No. 142 also requires that intangible assets with definite useful lives be amortized over
their respective estimated useful lives and reviewed for impairment in accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets.





SFAS No. 142 prescribes a two-phase process for impairment testing of goodwill. The first phase, required to be completed by June 30, 2002, screens for impairment, while
the second phase (if necessary), which is required to be completed by December 31, 2002, measures the impairment. The Company completed its first phase impairment analysis during the current quarter which indicated no impairment of its recorded
goodwill; accordingly, the second testing phase, absent future indication of impairment, is not necessary during 2002.




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







Intangible Assets





At January 1, 2002, the Companys intangible assets consisted of non-compete agreements with former employees and owners of
businesses acquired. These assets are being amortized over the legal term of the individual agreements, which is generally less than four years. At June 30, 2002 and December 31, 2001, the carrying value of these arrangements was $0.8 million and
$1.0 million, respectively, which is net of $0.8 million and $0.6 million of accumulated amortization, respectively. Amortization of intangible assets amounted to $0.2 million and $0.3 million for the six months ended June 30, 2002 and 2001,
respectively.





These intangible assets are included in other assets in the accompanying condensed
consolidated balance sheets. Estimated annual amortization expense for the next five years follows: 2002$0.5 million; 2003$0.4 million; 2004$0.2 million and no amortization in 2005 and 2006.





Goodwill





At June 30, 2002 and December 31, 2001, the carrying value of goodwill was $16.5 million. In accordance with SFAS No. 142, the Company compared the fair value of the Company with the carrying value of assets and determined that
goodwill recorded was not impaired. The fair value was determined using a present value of future cash flows technique.





For the six months ended June 30, 2001, amortization of goodwill totaled $0.6 million. The following table reconciles reported net income for the three and six months ended June 30, 2002 and 2001 to net income that would have been
recorded if SFAS No. 142 were effective for each of the periods presented:





Three Months Ended June 30,

Six Months Ended June 30,2002

2001

2002

2001Reconciliation of net income:Net income

$
30,319

32,808

15,372

17,263Add back: Goodwill amortization (net of tax)




159



372Adjusted net income

$
30,319

32,967

15,372

17,635





(3)    Inventories





Inventories at June 30, 2002 and December 31, 2001 consist of the following:





June 30,

December 31,2002

2001Crop protection products

$
68,986

93,428Fertilizers


10,457

25,824Raw materials


34,908

62,624Seeds


10,894

12,752Sundries and other


13,961

16,590$
139,206

211,218




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







(4)    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 49 sites.





In connection with the acquisitions of AgriBusiness and Royster-Clark (predecessor company), 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, an overall cap on all indemnities of approximately $27,000, and certain time limitations. The indemnities related to
Royster-Clark, Inc. (predecessor company) are subject to a deductible of $2,000, certain time limitations and an overall cap of $5,000 on all indemnities. 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 also obtained indemnities from the former stockholder of Alliance for environmental conditions
identified as of the date of acquisition.





The Company has recorded environmental liabilities at June 30, 2002 and
December 31, 2001 for the estimated cost of cleanup efforts of identified contamination or site characterization, which total $3,437 and $3,483, respectively, and are included in other long-term liabilities in the accompanying condensed consolidated
balance sheets. Actual cash expenditures during the six months ended June 30, 2002 and 2001 were $46 and $82, 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.





(5)    Senior Secured Credit Facility





The Company maintains a
senior secured credit facility that is subject to certain borrowing base limitations and to certain covenants, including maintenance of certain required financial ratios. Although the Company believes it is in compliance with the covenants at June
30, 2002, we do not expect to be in compliance with one or more of the financial ratios at September 30, 2002. We are currently renegotiating loan covenants with our bank group for future measurement dates. We expect to have this completed by
September 30, 2002. If we are unable to have the covenants reset, we may have to renegotiate the loan or enter into a new agreement. While we believe we will be able to renegotiate the agreement or enter into a new agreement, there can be no
assurance that we will.





(6)    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




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(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 Nitrogen, Inc.Royster-Clark Resources LLC

Alliance Fertilizer of Suffolk, Inc.Royster-Clark AgriBusiness, Inc.

Seaboard Liquid Plant Food, Inc.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, 2002 and December 31, 2001 and for the three and six month periods ended June 30, 2002 and 2001.




8




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







Balance Sheet Data as of June 30, 2002:





Royster-Clark, Inc.

Guarantor Subsidiaries

Eliminations


ConsolidatedCurrent assets:Cash

$
42

275




317Trade accounts receivable, net




181,881

(1,738
)

180,143Other receivables


2,259

42,239

(9,430
)

35,068Inventories




139,206




139,206Prepaid expenses and other current assets


208

1,871




2,079Deferred income taxes


8,000






8,000Total current assets


10,509

365,472

(11,168
)

364,813Property, plant and equipment, net


12,502

181,764




194,266Goodwill


12,012

4,528




16,540Deferred financing costs, net


9,461






9,461Other assets, net


50

1,689




1,739Investment in subsidiaries


402,019



(402,019
)

Total assets

$
446,553

553,453

(413,187
)

586,819Current liabilities:Current installments of long-term debt

$


2,147




2,147Customer deposits




30,250




30,250Accounts payable


90

80,917

(11,168
)

69,839Accrued expenses


6,347

14,401




20,748Total current liabilities


6,437

127,715

(11,168
)

122,984Senior secured credit facility


154,343






154,343101/4% First Mortgage Notes


200,000






200,000Long-term debt, excluding current installments




363




363Other long-term liabilities


489

5,111




5,600Deferred income taxes


6,574






6,574Total liabilities


367,843

133,189

(11,168
)

489,864Stockholders equity:Common stock









Additional paid-in capital


78,599

412,019

(402,019
)

88,599Retained earnings


111

8,245




8,356Total stockholders equity


78,710

420,264

(402,019
)

96,955Total liabilities and stockholders equity

$
446,553

553,453

(413,187
)

586,819




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







Balance Sheet Data as of December 31, 2001:








Royster-Clark, Inc.

Guarantor Subsidiaries


Eliminations


ConsolidatedCurrent assets:Cash

$
42

955





997Trade accounts receivable, net




73,754





73,754Other receivables


4,204

42,306


(22,129
)

24,381Inventories




211,257


(39
)

211,218Prepaid expenses and other current assets


356

1,890





2,246Deferred income taxes


6,000







6,000Total current assets


10,602

330,162


(22,168
)

318,596Property, plant and equipment, net


13,354

190,091





203,445Goodwill


12,012

4,528





16,540Deferred income taxes


4,795







4,795Deferred financing costs, net


10,512







10,512Other assets, net


75

1,922





1,997Investment in subsidiaries


322,845




(322,845
)

Total assets

$
374,195

526,703


(345,013
)

555,885Current liabilities:Current installments of long-term debt

$
4

7,177





7,181Customer deposits




60,900





60,900Accounts payable




108,411


(22,129
)

86,282Accrued expenses


5,750

18,564





24,314Total current liabilities


5,754

195,052


(22,129
)

178,677Senior secured credit facility


89,244







89,244101/4% First Mortgage Notes


200,000







200,000Long-term debt, excluding current installments




363





363Other long-term liabilities


490

5,528





6,018Total liabilities


295,488

200,943


(22,129
)

474,302Stockholders equity:Common stock










Additional paid-in capital


78,599

332,845


(322,845
)

88,599Retained earnings (accumulated deficit)


108

(7,085
)

(39
)

(7,016
)Total stockholders equity


78,707

325,760


(322,884
)

81,583Total liabilities and stockholders equity

$
374,195

526,703


(345,013
)

555,885




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







Statement of Operations Data for the three and six months ended June
30, 2002 and 2001:





Royster-Clark, Inc.


Guarantor Subsidiaries


Eliminations


ConsolidatedThree Months Ended June 30, 2002Net sales

$
903


493,038


(23,430
)

470,511Cost of sales


105


390,763


(18,952
)

371,916Gross profit


798


102,275


(4,478
)

98,595Selling, general and administrative expenses


299


46,423


(4,478
)

42,244(Gain)/Loss on disposal of property, plant and equipment, net


(4
)

107





103Operating income


503


55,745





56,248Interest expense


(501
)

(6,800
)




(7,301
)Income before income taxes


2


48,945





48,947Income tax expense


1


18,627





18,628Net income

$
1


30,318





30,319Three Months Ended June 30, 2001Net sales

$
1,207


556,815


(23,389
)

534,633Cost of sales


105


440,022


(17,715
)

422,412Gross profit


1,102


116,793


(5,674
)

112,221Selling, general and administrative expenses


70


54,681


(5,617
)

49,134Loss on disposal of property, plant and equipment, net


289


4





293Operating income


743


62,108


(57
)

62,794Interest expense


(740
)

(8,985
)




(9,725
)Income before income taxes


3


53,123


(57
)

53,069Income tax expense


1


20,260





20,261Net income

$
2


32,863


(57
)

32,808Six Months Ended June 30, 2002Net sales

$
1,801


663,415


(36,758
)

628,458Cost of sales


211


534,193


(27,367
)

507,037Gross profit


1,590


129,222


(9,391
)

121,421Selling, general and administrative expenses


591


90,793


(9,430
)

81,954Loss on disposal of property, plant and equipment, net


12


151





163Operating income


987


38,278


39


39,304Interest expense


(983
)

(13,436
)




(14,419
)Income before income taxes


4


24,842


39


24,885Income tax expense


2


9,511





9,513Net income

$
2


15,331


39


15,372Six Months Ended June 30, 2001Net sales

$
2,269


729,945


(31,484
)

700,730Cost of sales


210


580,991


(20,540
)

560,661Gross profit


2,059


148,954


(10,944
)

140,069Selling, general and administrative expenses


368


103,030


(11,119
)

92,279Loss on disposal of property, plant and equipment, net


392


450





842Operating income


1,299


45,474


175


46,948Interest expense


(1,294
)

(17,292
)




(18,586
)Income before income taxes


5


28,182


175


28,362Income tax expense


2


11,097





11,099Net income

$
3


17,085


175


17,263




11




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##### Table of Contents



ROYSTER-CLARK, INC. AND SUBSIDIARIES





NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS(Continued)


JUNE 30, 2002


(Dollars in thousands)







Statement of Cash Flow Data for the six months ended June 30, 2002
and 2001:





Royster-Clark, Inc.


Guarantor Subsidiaries


Eliminations

ConsolidatedSix Months Ended June 30, 2002Net cash provided by (used in) operating activities

$
(65,149
)

38,216




(26,933
)Cash flows from investing activities:Proceeds from disposal of property, plant and equipment


54


685




739Purchases of property, plant and equipment





(3,901
)



(3,901
)Net cash provided by (used in) investing activities


54


(3,216
)



(3,162
)Cash flows from financing activities:Proceeds from senior secured credit facility


220,886







220,886Payments on senior secured credit facility


(155,787
)






(155,787
)Principal payments on long-term debt


(4
)

(5,030
)



(5,034
)Net decrease in customer deposits





(30,650
)



(30,650
)Net cash provided by (used in) financing activities


65,095


(35,680
)



29,415Net decrease in cash





(680
)



(680
)Cash at beginning of period


42


955




997Cash at end of period

$
42


275




317Six Months Ended June 30, 2001Net cash provided by (used in) operating activities

$
(64,901
)

55,378




(9,523
)Cash flows from investing activities:Proceeds from disposal of property, plant and equipment


159


338




497Purchases of property, plant and equipment





(9,334
)



(9,334
)Costs associated with Agro acquisition





(1,816
)



(1,816
)Net cash provided by (used in) investing activities


159


(10,812
)



(10,653
)Cash flows from financing activities:Proceeds from senior secured credit facility


240,735







240,735Payments on senior secured credit facility


(175,970
)






(175,970
)Principal payments on long-term debt


(23
)

(37
)



(60
)Net increase in customer deposits





(44,512
)



(44,512
)Net cash provided by (used in) financing activities


64,742


(44,549
)



20,193Net increase in cash





17




17Cash at beginning of period


42


371




413Cash at end of period

$
42


388




430







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.





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 East, South and Midwest. The Companys operations include retail farm centers (Farmarkets), granulation, blending and seed processing plants, and an integrated network of storage and
distribution terminals and warehouses. In addition, the Company operates two nitrogen-manufacturing plants that supply the retail and wholesale distribution businesses with nitrogen fertilizer 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. Weather conditions affected this quarters results of operations due to
wet field conditions, especially in our Midwestern markets where some areas had water standing in the fields into the second week of June. This time is critical because farmers who have taken out crop insurance must decide whether to plant a crop or
not. Farmers without crop insurance will decide whether to plant corn or switch to soybeans which has a lower dollar cost investment to the farmer.





The crop production inputs distribution business is seasonal, with approximately 70% of our sales occurring between March and July based upon planting, growing and harvesting cycles. This seasonality
results from the planting, growing and harvesting cycles of our customers. Inventories are accumulated to be available for seasonal sales, requiring significant storage capacity. The accumulation of inventory is financed by suppliers or 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 whether sales are recorded in the first or second quarter.





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. Prices for phosphates have recently experienced some volatility
while potash has been relatively stable over the past several years. During the second quarter of 2002, nitrogen pricing has remained relatively stable compared to 2001 when pricing dropped significantly. The level of nitrogen prices directly
affects the profitability of our two nitrogen-manufacturing plants.





The major raw material in the manufacture of
nitrogen-based products is natural gas. We purchase natural gas through a combination of firm supply, fixed-price and market-priced contracts for use in our nitrogen-production plant in East Dubuque, IL. Natural gas pricing quoted at the Henry Hub
was $2.55 per MMBTU at December 31, 2001. Natural gas prices have ranged from approximately $3.04 to $3.75 per MMBTU during the quarter and were $3.20 per MMBTU as of June 30, 2002. The level of natural gas prices directly affects profitability of
our nitrogen-based products.




13




---

##### Table of Contents




Results of Operations





Three months ended June 30, 2002 compared to three months ended June 30, 2001





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





Three Months ended June 30,2002


2001Net sales

100.0
%

100.0Cost of sales

79.0


79.0Gross profit

21.0


21.0Selling, general and administrative expenses

9.0


9.2Loss on disposal of property, plant and equipment, net




0.1Operating income

12.0


11.7Interest expense

(1.6
)

(1.8
)Income before taxes

10.4


9.9Income tax expense

4.0


3.8Net income

6.4
%

6.1





Net sales.    Royster-Clarks net
sales were $470.5 million for the second quarter of 2002 compared to $534.6 million for the same period in 2001, a decrease of $64.1 million, or 12.0%. The decrease in sales resulted predominantly from approximately $58.1 million in price
depreciation of fertilizer materials, crop protection and seed products, predominantly nitrogen products. Declining natural gas prices from the high levels encountered in 2001 was the prime driver in this price depreciation. Inclement weather in
several of the Companys market areas in Indiana, Ohio, Illinois, Kentucky and Tennessee continued during the second quarter affecting product shipments. Some farmers switched from planting corn to soybeans, which require less fertilizer and
crop protection inputs while other farmers elected not to plant and file for crop insurance compensation. The change in sales resulted from the following factors:





| |  |  | Market related sales price depreciation of various nitrogen fertilizer products (nitrogen products) accounted for approximately $48.0 million
of the $58.1 million price depreciation. Price depreciation affected liquid and dry blend fertilizers and, to lesser extent, phosphate and potash products. Nitrogen products are used in both liquid and dry blended fertilizers and were affected by
nitrogen price depreciation resulting in approximately $6.4 million in price depreciation. Crop protection product price depreciation of approximately $2.2 million resulted predominantly from generic product competition during the second quarter.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Sales volume declines were a net of $6.0 million resulting from declines in blend and granulated fertilizer products of approximately $9.5 million and crop
protection products of approximately $11.0 million that were partially offset by volume increases in nitrogen products of approximately $13.8 million and smaller volume increases in industrial, potash and seed products. The decrease in
blend and granulated sales volumes was the result of several factors that affected our markets to varying degrees. The volume declines in granulated products sales in the Southeast resulted from reduced fertilizer application due to continued dry
conditions, limited supply of certain fertilizer grades and mixes and unprofitable customers we elected not to service. Limited supply of certain grades and mixes resulted from Company efforts that modified some of its manufacturing processes. We
did not attain previous manufacturing rates resulting in lower available tons. Other decreases were the result of the compressed period many farmers had for planting in the Midwest due to rains during the planting season. Farmers shifted to nitrogen
products for the maximum payback on their input dollars at the expense of the nutrient mix offered in blend and granulated products. Lower crop protection product sales volumes resulted from reduced corn acres planted.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14




---

##### Table of Contents




Gross profit.    Gross profit was $98.6 million for
the second quarter of 2002 compared to $112.2 million for the same period in 2001, a decrease of $13.6 million, or 12.1%. The decrease in gross profit resulted from the various volume and pricing factors discussed above. Higher rebates, compared to
the comparable period last year, covering various product groups resulted from improved rebate program income but was offset by unfavorable leverage of East Dubuque sales due to price depreciation of nitrogen products.





Gross margin was 21.0% for the second quarter of 2002 compared to 21.0% for the same period in 2001.





Selling, general and administrative expenses.    Selling, general and administrative expenses were
$42.2 million for the second quarter of 2002 compared to $49.1 million for the same period in 2001, a decrease of $6.9 million, or 14.1%. The decrease in selling, general and administrative expenses resulted from the following factors:





| |  |  | Expenses were approximately $3.9 million lower compared to 2001 due to less expense supporting sales decreases including incentives, seasonal labor and
overtime, fuel, power, doubtful accounts, travel, entertainment, repairs and supplies. Cost savings initiated in response to sales volume decreases were included in the lower expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Expenses at distribution centers handling crop protection and seed products and various terminals handling nitrogen solution and other fertilizer materials were
$1.2 million lower due to the leverage effect of increased shipments through the facilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Medical health insurance and workers compensation expenses were $1.0 million lower than last year due to favorable cost experience and an increase in employee
sharing of healthcare costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Rent expense was approximately $0.6 million lower than the comparable period last year due to improved utilization of equipment and lengthened use of equipment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Full time salary costs were approximately $0.4 million lower due to personnel reductions.
| | - |  | -----------------------------------------------------------------------------------------




| |  |  | Amortization of goodwill and other assets was approximately $0.2 million lower compared to 2001, predominantly due to adoption of provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. During 2001 selling, general and administrative expenses reflect charges for the amortization of goodwill, which is no longer
amortized in the current year with the adoption of SFAS No. 142. For the three months ended June 30, 2001, amortization of goodwill totaled $0.3 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Other expenses were approximately $0.4 million lower compared to 2001 due to the results of other cost savings measures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------




The decrease in selling, general and administrative expenses was partially offset by increases in property and general
liability insurance of approximately $0.4 million and depreciation of approximately $0.4 million. Selling, general and administrative expense as a percentage of net sales was 9.0% for the second quarter of 2002 compared to 9.2% for the same period
in 2001. Lower selling, general and administrative expenses as a percent of net sales resulted from personnel reduction, lower amortization and other expense reductions not driven by volume changes. Quarterly selling, general and administrative
expense as a percent of net sales fluctuates widely within the fiscal year due to the seasonal nature of sales volumes with selling, general and administrative expense exhibiting less seasonal fluctuations.





Loss on disposal of property, plant and equipment, net.    Loss on sales of fixed assets was $0.1 million in
2002 compared to $0.3 million in 2001. This decrease was the result of the fewer asset sales during the quarter compared to the comparable period last year.





Operating income.    Operating income was $56.2 million for the second quarter of 2002 compared to $62.8 million for the same period in 2001, a decrease of $6.6 million,
or 10.5%. This decrease was the result of




15




---

##### Table of Contents

factors discussed above. Operating income as a percentage of net sales was 12.0% for the second quarter in 2002 compared to 11.7% for the same period in 2001 due to the decreased selling, general
and administrative expenses as a percentage of sales as described above.





Interest
expense.    Interest expense was $7.3 million for the second quarter in 2002 compared to $9.7 million for the same period in 2001, a decrease of $2.4 million, or 24.7%. The decrease in interest expense was due to both
lower average daily borrowings for the quarter against our senior secured credit facility and lower interest rates. Average daily borrowings against our senior secured credit facility used to fund working capital needs were $86.4 million lower in
2002 compared to 2001 resulting in approximately $1.7 million less interest expense. Lower interest rates on the senior secured credit facility of approximately 2.0% resulted in approximately $0.7 million less expense in 2002 as compared to 2001.





Income tax expense.Income tax expense was $18.6 million for the second quarter of
2002 compared to $20.3 million for the same period in 2001, a decrease of $1.7 million. The lower income tax expense is attributable to lower taxable income. The effective tax rate was 38.1% for the second quarter of 2002 compared to 38.2% for the
same period in 2001.





Net income.      Net income was $30.3 million
for the second quarter of 2002 compared to $32.8 million for the same period in 2001, a decrease of $2.5 million, resulting from the fluctuations noted above.





Six months ended June 30, 2002 compared to six months ended June 30, 2001





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





Six Months ended June 30,2002


2001Net sales

100.0
%

100.0Cost of sales

80.7


80.0Gross profit

19.3


20.0Selling, general and administrative expenses

13.0


13.2Loss on disposal of property, plant and equipment, net




0.1Operating income

6.3


6.7Interest expense

(2.3
)

(2.6
)Income before taxes

.4.0


4.1Income tax expense

1.6


1.6Net income

2.4
%

2.5





Net sales.    Royster-Clarks net
sales were $628.5 million for the first six months of 2002 compared to $700.7 million for the same period in 2001, a decrease of $72.2 million, or 10.3%. The decrease in sales resulted predominantly from approximately $79.0 million in price
depreciation of fertilizer materials, crop protection and seed products, predominantly nitrogen products during the second quarter. Declining natural gas prices from the high levels encountered in 2001 was the prime driver in this price
depreciation. Inclement weather in several of the Companys market areas in Indiana, Ohio, Illinois, Kentucky and Tennessee during the later portion of the first quarter and during the second quarter affected product shipments. Some farmers
switched from planting




16




---

##### Table of Contents

corn to soybeans, which require less fertilizer and crop protection inputs while other farmers elected not to plant and file for crop insurance compensation. The change in sales resulted from the
following factors:





| |  |  | Market related sales price depreciation of various nitrogen fertilizer products accounted for approximately $62.6 million of the $79.0 million price
depreciation. Price depreciation affected liquid and dry blend fertilizers and, to lesser extent, phosphate and potash products. Nitrogen products are used in both liquid and dry blended fertilizers and were affected by nitrogen price depreciation
resulting in approximately $9.1 million in price depreciation. Crop protection product price depreciation of approximately $2.5 million resulted predominantly from generic product competition during the second quarter.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Sales volume increases were a net of $6.8 million resulting from volume increases in nitrogen products of approximately $20.8 million that were partially offset
by declines in blend and granulated fertilizer products of approximately $9.5 million and crop protection products of approximately $7.9 million. The increase in nitrogen products resulted primarily from regaining market share from 2001 when we
passed on business anticipating higher returns during heavy second quarter movement. In addition, farmers applied nitrogen products for the maximum payback on their input dollars at the expense of blend and granulated fertilizer that offer a
nutrient mix. Other decreases in blend and granulated sales volumes were the result of several factors that affected our markets to varying degrees. The volume declines in granulated products sales in the Southeast resulted from reduced fertilizer
application due to continued dry conditions, limited supply of certain fertilizer grades and mixes and unprofitable customers we elected not to service. Limited supply of certain grades and mixes resulted from Company efforts that modified some of
its manufacturing processes. We did not attain previous manufacturing rates resulting in lower available tons. Lower crop protection product sales volumes resulted from reduced corn acres planted.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




Gross profit.    Gross profit was $121.4 million for the first six months of 2002 compared to $140.1 million
for the same period in 2001, a decrease of $18.7 million, or 13.3%. The decrease in gross profit resulted from the various volume and pricing factors discussed above. Higher rebates covering various product groups earned during the second quarter
compared to last year was partially offset by unfavorable leverage of East Dubuque sales due to price depreciation. Gross margin was 19.3% for the second quarter of 2002 compared to 20.0% for the same period in 2001. Lower gross margin percentage
resulted primarily from sales price declines in nitrogen products.





Selling, general and administrative
expenses.    Selling, general and administrative expenses were $82.0 million for the first six months of 2002 compared to $92.3 million for the same period in 2001, a decrease of $10.3 million, or 11.2%. The decrease in
selling, general and administrative expenses resulted from the following factors:





| |  |  | Expenses were approximately $6.2 million lower compared to 2001 due to less expense supporting sales decreases including incentives, seasonal labor and
overtime, fuel, power, doubtful accounts, travel, entertainment, repairs and supplies. Cost savings initiated in response to sales volume decreases were included in the lower expense.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Expenses at distribution centers handling crop protection and seed products and various terminals handling nitrogen solution and other fertilizer materials were
$1.8 million lower due to the leverage effect of increased shipments through the facilities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Medical health insurance and workers compensation expenses were $1.2 million lower than last year due to favorable cost experience and an increase in employee
sharing of healthcare costs.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Rent expense was approximately $0.6 million lower than the comparable period last year due to improved utilization of equipment and lengthened use of equipment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------






17




---

##### Table of Contents

| |  |  | Full time salary costs were approximately $1.1 million lower due to personnel reductions.
| | - |  | -----------------------------------------------------------------------------------------




| |  |  | Amortization of goodwill and other assets was approximately $0.6 million lower compared to 2001, predominantly due to adoption of provisions of Statement of
Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets. During 2001 selling, general and administrative expenses, reflect charges for the amortization of goodwill, which is no longer
amortized in the current year with the adoption of SFAS No. 142. For the six months ended June 30, 2001, amortization of goodwill totaled $0.6 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------




| |  |  | Other expenses were approximately $0.6 million lower compared to 2001 due to the results of other cost savings measures.
| | - |  | ------------------------------------------------------------------------------------------------------------------------




The decrease in selling, general and administrative expenses was partially offset by increases in property and general
liability insurance of approximately $1.0 million and depreciation of approximately $0.8 million. Selling, general and administrative expense as a percentage of net sales was 13.0% for the first six months of 2002 compared to 13.2% for the same
period in 2001. Lower selling, general and administrative expenses as a percent of net sales resulted from personnel reduction, lower amortization and other expense reductions not driven by volume changes. Quarterly selling, general and
administrative expense as a percent of net sales fluctuates widely within the fiscal year due to the seasonal nature of sales volumes with selling, general and administrative expense exhibiting less seasonal fluctuations.





Loss on disposal of property, plant and equipment, net.    Loss on sales of fixed assets was $0.2 million for
the first six months of 2002 compared to $0.8 million in 2001. This decrease was the result of the disposal last year of a former administrative office in 2001.





Operating income.    Operating income was $39.3 million for the first six months of 2002 compared to $46.9 million for the same period in 2001, a decrease of $7.6 million, or
16.2%. This decrease was the result of factors discussed above. Operating income as a percentage of net sales was 6.3% for the first six months in 2002 compared to 6.7% for the same period in 2001.





Interest expense.    Interest expense was $14.4 million for the first six months in 2002 compared to $18.6
million for the same period in 2001, a decrease of $4.2 million, or 22.6%. The decrease in interest expense was due to both lower average daily borrowings for the first six months against our senior secured credit facility and lower interest rates.
Average daily borrowings against our senior secured credit facility used to fund working capital needs were $54.8 million lower in 2002 compared to 2001 resulting in approximately $2.5 million less interest expense. Lower interest rates on the
senior secured credit facility of approximately 3.0% resulted in approximately $1.7 million less expense in 2002 as compared to 2001.





Income tax expense.    Income tax expense was $9.5 million for the first six months of 2002 compared to $11.1 million for the same period in 2001, a decrease of $1.6 million. The lower income tax
expense is primarily attributable to a lower taxable income. The effective tax rate was 38.2% for the first six months of 2002 compared to 39.1% for the same period in 2001. The lower effective tax rate in 2002 compared to 2001 resulted from the
elimination of goodwill amortization effective January 1, 2002 because of the adoption of SFAS No. 142.





Net income.    Net income was $15.4 million for the first six months of 2002 compared to $17.3 million for the same period in 2001, a decrease of $1.9 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 $245 million senior
secured credit facility (credit facility) with a consortium of banks. The credit facility expires in April 2004. At June 30, 2002, the borrowing base provisions under the facility supported a borrowing availability of $189.6 million,
from which we had drawn $154.3 million. This facility includes up to $10.0 million for letters of credit. 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.




18




---

##### Table of Contents




Although the Company believes it is in compliance with the covenants at June 30,
2002, we do not expect to be in compliance with one or more of the financial ratios at September 30, 2002. We are currently renegotiating loan covenants with our bank group for future measurement dates. We expect to have this completed by September
30, 2002. If we are unable to have the covenants reset, we may have to renegotiate the loan or enter into a new agreement. While we believe we will be able to renegotiate the agreement or enter into a new agreement, there can be no assurance that we
will.





Capital expenditures were $3.9 million for the six months ended June 30, 2002 compared with $9.3 million
for the six months ended June 30, 2001. These capital expenditures were primarily for facilities improvements and machinery and equipment replacement projects. We estimate total capital expenditures, excluding acquisitions, for 2002 will range from
$5.0 to $6.5 million.





Net cash used in operating activities for the six months ended June 30, 2002 was $26.9
million compared to $9.5 million for comparable period in 2001, an increase of $17.4 million. The most significant component of cash flows used in operating activities was movement in operating assets and liabilities of $14.0 million due to the
seasonal nature of our business. The increases of $14.0 million resulted primarily from lower collections of other receivables of $15.6 million. Lower collections of other receivable resulted primarily from the collection last year of $10.2 million
of the receivable recorded December 2000 for the sale of natural gas purchase contracts. Lower collections also resulted from higher rebate receivables of $3.7 million in 2002 and higher cash used from exchange receivables of $2.4 million due to the
movement in balances 2002 versus 2001. Increased cash used also resulted from higher prepaid expenses of $3.8 million, lower accrued expenses of $1.6 million and lower long-term liabilities of $1.5 million. Cash used was partially offset from lower
accounts receivable of $7.0 million due to lower sales and higher accounts payable net of inventory, of $0.7 million for the six months ended June 2002 compared to 2001.





Net cash used in investing activities amounted to $3.2 million in 2002 compared to $10.7 million in 2001, a decrease of $7.5 million. The decrease in net cash used in
investing activities resulted from less capital expenditures in 2002 and $1.8 million in acquisition costs associated with the attempted acquisition of Agro Distribution expended in 2001.





Net cash provided by financing activities totaled $29.4 million compared to $20.2 million in 2001, an increase of $9.2 million. Increased cash provided by financing
activities in 2002 compared to 2001 resulted from, an increase in customer deposits of $13.9 million and net proceeds from the credit facility of $0.3 million compared to 2001. The increase in cash provided by customer deposits resulted from lower
cash used due to lower customer deposits at December 2001 compared to 2000, due primarily to price depreciation of nitrogen products. Lower working capital needs required lower borrowings under the credit facility. The payment of $5.0 million on a
five-year note payable entered in 1997 reduced cash provided by financing activities.







19




---

##### Table of Contents

Net working capital, excluding senior secured credit facility and current installments of long-term debt at June 30, 2002
totaled $244.0 million versus $147.1 million at December 31, 2001, an increase of $96.9 million, or 65.9%. This increase resulted primarily from the typical seasonal activity of increases in trade accounts receivable and decreases in inventory,
customer deposits and accounts payable from normal seasonal movement of operating assets and liabilities. Working capital changes are summarized in the table below.





Working capital increases:Trade account receivable

$
106.4Customer deposits


30.7Accounts payable


16.4Other receivables


10.7Accrued expenses


3.6Deferred taxes


2.0Total increases


169.8Working capital decreases:Inventory


72.0Other current assets


0.9Total decreases


72.9Net increase

$
96.9





Recently Issued Accounting Standards





Statement of Financial Accounting Standards No. 143





In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 143, Accounting for Asset Retirement Obligations, which
addresses financial accounting and reporting for obligations associated with the retirement of tangible long-lived assets and the associated asset retirement costs. The standard applies to legal obligations associated with the retirement of
long-lived assets that result from the acquisition, construction, development and/or normal use of the assets. SFAS No. 143 is effective for fiscal years beginning after June 15, 2002.We do not believe the implementation of this standard will have a
material effect on the financial condition or results of operations.





Statement of Financial Accounting
Standards No. 145





In April 2002, the FASB issued SFAS No. 145, Recission of FAS No. 4, 44 and 64,
Amendment of FAS No. 13, and Technical corrections. This Statement rescinds SFAS No. 4, Reporting Gains and Losses from Extinguishment of Debt, and an amendment of that Statement, SFAS No. 64,
Extinguishments of Debt Made to Satisfy Sinking-Fund Requirements. This Statement also rescinds SFAS No. 44, Accounting for Intangible Assets of Motor Carriers. This Statement amends SFAS No. 13,
Accounting for Leases, to eliminate an inconsistency between the required accounting for sale-leaseback transactions and the required accounting for certain lease modifications that have economic effects that are similar to
sale-leaseback transactions. This Statement also amends other existing authoritative pronouncements to make various technical corrections, clarify meanings, or describe their applicability under changed conditions. This statement has a variety of
effective dates due to the various standards affected, but generally is effective for years beginning or transactions after May 15, 2002, with early application encouraged. While we are still assessing the impact of this new standard, we do not
believe the implementation of this standard will have a material effect on the financial condition or results of operations.







20




---

##### Table of Contents

Statement of Financial Accounting Standards No. 146





In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses financial accounting and
reporting for costs associated with exit or disposal activities and nullifies Emerging Issues Task Force (EITF) Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including
Certain Costs Incurred in a Restructuring). This Statement requires that a liability for a cost associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost as
defined in Issue 94-3 was recognized at the date of an entitys commitment to an exit plan. A fundamental conclusion reached by the Board in this Statement is that an entitys commitment to a plan, by itself, does not create a present
obligation to others that meets the definition of a liability. Therefore, this Statement eliminates the definition and requirements for recognition of exit costs in Issue 94-3. This Statement also establishes that fair value is the objective for
initial measurement of the liability. SFAS No. 146 is effective for exit or disposal activities that are initiated after December 31, 2002, with early application encouraged. SFAS No. 146 is effective prospectively after December 31, 2002. SFAS No.
146 was issued late in June and management has not reviewed its provisions to assess the impact of this new standard.





ITEM 3.Quantitative and Qualitative Disclosures about Market 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. As a normal course of business, nitrogen-based products are purchased by the
Company 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. Currently, the Company enters into limited indexed price commitments to purchase natural gas for use in its East Dubuque facility and therefore is exposed to significant 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.





The Company is also exposed to changes in interest rates. The interest rates that we pay for borrowings under our credit facility are based 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 estimated annual average balance on our credit facility that each 1% change in market interest rate will impact before tax earnings by approximately $1.0
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.





The Company engages in limited commodity hedging activities with respect to its grain and seed purchases. Given the current economic
climate, we believe that the rates in force approximate market rates. We do not hold or issue derivative financial instruments for trading purposes.





At June 30, 2002, the Companys exposure to market risk factors had not materially changed from December 31, 2001.




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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 Sheet as of June 30, 2002 and December 31, 2001





Condensed Consolidated Statements of Operations for the Three and Six Months ended June 30, 2002 and 2001





Condensed Consolidated Statements of Cash Flow for the Six Months ended June 30, 2002 and 2001





(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)10.01

Credit Agreement dated as of April 22, 1999 by and among the Company, the Guarantors, various lenders, DLJ Capital Funding, as arranger and syndication agent,
J.P. Morgan Securities Inc., as documentation agent and U.S. Bancorp Ag Credit, Inc., as administrative agent.10.03

SupplyAgreement 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.10.14

Amendment Agreement dated August 18, 2000 amending Credit Agreement.10.15

Second Amendment to Revolving Credit Agreement among Royster-Clark, Inc., various financial institutions, DLJ Capital Funding, J.P. Morgan Securities, Inc., and
U.S. Bancorp, Ag Credit, Inc.10.16

Employment Agreement dated as of December 1, 1999 between Royster-Clark, Inc. and G. Kenneth Moshenek.10.17

EmploymentAgreement dated as of December 1, 1999 between Royster-Clark, Inc. and Walter Vance.10.18

Form of Waiver and Consent dated May 6, 2002 under the Revolving Credit Agreement by and among Royster-Clark, Inc. and various financial
institutions*99.01

Certification of Periodic Financial Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350 99.02

Certification of Periodic Financial Report Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, U.S.C. Section 1350 




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| |  | 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 Exhibit No. 10.14 to Form 10Q for the quarterly period ended June 30, 2000 (Reg. No.: 333-81235) filed on August 21, 2000.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Incorporated by reference to Exhibit No 10.15 to Form 10Q for the quarterly period ended September 30, 2000 (Reg. No.: 333-81235) filed on November 14, 2000.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Incorporated by reference to Exhibit No 10.15 to Form 10K for the annual period ended December 31, 2000 (Reg. No.: 333-81235) filed on April 2, 2001.
|---- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------

|* |  | Incorporated by reference to Exhibit No 10.18 to Form 10Q for the quarterly period ended March 31, 2002 (Reg. No.: 333-81235) filed on May 14, 2002.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------

| |  | Filed herein.
|- |  | -------------




| | (b) |  | Reports on Form 8-K  None
| | --- |  | --------------------------



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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.





ROYSTER-CLARK, INC.  /s/    WALTER R. VANCEWalter R. Vance Chief Accounting Officer








DATE: August 12, 2002




24