Q1 Financial Report - 2011

and then begin to decline in the third or fourth quarter as sales levels exceed production. As a
result of these working capital movements, historically, Ag Growth begins to draw on its
operating lines in the first or second quarter. The operating line balance typically peaks in the
second or third quarter and normally begins to decline later in the third quarter as collections of
accounts receivable increase. Ag Growth has typically fully repaid its operating line balance by
early in the fourth quarter.
Results in 2011 are generally expected to approximate historical patterns, however due to a larger
than typical opening cash balance the Company may not draw on its operating lines to the same
extent as in prior years. Acquisitions completed in 2010 are expected to have a minor effect on
seasonal working capital requirements in 2011 as sales and EBITDA at Mepu and Tramco have
historically been weighted to the second and third quarters.
Capital Expenditures
Ag Growth had maintenance capital expenditures of $0.6 million in the first quarter of 2011,
representing 1.0% of sales (2010 - $1.1 million or 2.1% of sales). Maintenance capital
expenditures in 2011 relate primarily to purchases of manufacturing equipment, trucks, trailers,
and forklifts and were funded through cash from operations. Maintenance capital expenditures in
2011 are expected to increase slightly over 2010 levels, largely due to the addition of three new
divisions in 2010, and are expected to be funded through cash from operations.
Ag Growth defines maintenance capital expenditures as cash outlays required to maintain plant
and equipment at current operating capacity and efficiency levels. Non-maintenance capital
expenditures encompass other investments, including cash outlays required to increase operating
capacity or improve operating efficiency. Ag Growth had non-maintenance capital expenditures
in the three months ended March 31, 2011 of $1.8 million (2010 - $4.9 million). As expected,
non-maintenance capital expenditures in 2011 have decreased significantly from 2010 and have
been funded through cash from operations. Non-maintenance capital expenditures in 2011,
excluding approximately $3.2 million to complete the storage bin capacity project as discussed
below, are expected to return to 2009 levels and are expected to be financed through cash from
operations. The following capital expenditures were classified as non-maintenance in 2011:
i. Grain storage bin capacity – in 2010 the Company invested $15.9 million towards a grain
storage bin manufacturing facility and automated storage bin production equipment. The
investment is expected to allow the Company to capitalize on international sales
opportunities and to increase sales in North America. The total project cost is estimated at
$19.1 million and the project is expected to be completed in the second quarter of 2011.
ii. Manufacturing equipment – the Company invested $0.1 million to upgrade certain
equipment to allow for increased capacity, primarily at Applegate.
Cash Balance
For the three month period ended March 31, 2011, the Company’s cash balance decreased $24.2
million (2010 – $20.7 million). The decrease in the cash balance in 2011 resulted from payments
related to the Tramco acquisition of $10.9 million, strategic capital expenditures of $1.8 million
and seasonality.
18