NEWS

Jeff MacDowell, Principal (214) 273-6633
Brian Maney, Director, Corporate Communications (301) 951-6122

By Maureen Flanagan

Valley Proteins, Inc. is one of the largest independent recyclers and renderers of food processing by-products in the U.S. Headquartered in Winchester, Virginia, the company was founded in 1949 by Clyde Smith, the grandfather of the current owners. Over the past 55 years, three generations of the Smith family have developed the business by organic expansion and acquisitions with operations that extend from the East to South Central states.

In a June 24, 2004 transaction, Valley Proteins refinanced the company's debt to further strengthen its balance sheet. In support of the refinancing, American Capital Strategies, Ltd. (Nasdaq: ACAS) provided $10 million of subordinated debt financing. US Bank NA provided a revolving credit facility and senior term loan.

Rendering is the process of collecting inedible animal by-products and recycling them for sale to producers of livestock feed and pet foods. The company employs a fleet of some 450 trucks to collect raw materials, including by-products, used restaurant grease and dead animal stock, from over 40,000 suppliers that range from small restaurants, butcher shops and grocery stores to the world's largest poultry and meat processors. These food purveyors rely on the company to dispose of their by-products in compliance with strict federal and state regulations governing meat processing and waste disposal. A renderer can also reduce the risk of environmental contamination as well as enable processors to generate incremental income by selling unwanted scraps.

Valley Proteins turns the raw materials it collects into commodity goods which are sold to over 170 customers that include producers of livestock feed ("feed mills"), pet food and refiners of fatty chemicals. The company's finished products are quoted on established commodity markets or priced relative to substitute commodities. The primary finished goods include fat and protein products, which are used in hundreds of commercial applications. Fat products are sold predominately to commercial animal feed manufacturers and to manufacturers of pet foods, fatty acids, chemicals and lubricants. The products are also used as an ingredient in bio-diesel (a blend of petroleum fuel and methyl esters derived from animal fats or vegetable oils), a cleaner burning substitute for diesel fuel. The company in fact has modified its own boiler equipment to use the lower priced fats it produces in its rendering plants and thereby minimize boiler fuel expense.

The company's protein products are used in commercial animal feeds and pet food as a concentrated source of protein. These products include meat and bone meal, poultry meal, feather meal and various blends thereof.

Valley Proteins also provides services including grease trap disposal, cooking oil disposal (which the company subsequently renders into fat), dead stock removal (rendered as well), and other services. The company operates a fleet of specially equipped vehicles to pump waste from the grease traps that are part of many suppliers' waste water processing equipment. The company operates 20 facilities, including rendering plants, pet food product plants, grease processing plants and transfer stations, in Pennsylvania, Maryland, Virginia, North Carolina, South Carolina, Tennessee, West Virginia, Texas, Oklahoma and New Mexico.

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Valley Proteins' revenues are directly correlated to chicken and turkey consumption since 63% of the company's raw material purchases are poultry. Since 1980, U.S. chicken and turkey consumption has grown at an annual rate of 2.2% and 2.5% respectively, while beef and pork consumption slightly decreased during the same period.

The company's collection services are also increasingly important. Industry demand for restaurant collection services, particularly grease trap and cooking oil, has been on the upswing as a result of the growth of the U.S. population and desires of large restaurant chains to consolidate vendors. State and federal regulations that require rendering of certain animal parts also contribute to the company's volume.

As a top renderer of food by-products, Valley Proteins has a well-established infrastructure, market position, and customer rapport to serve the growing industry needs for fast, efficient and environmentally friendly disposal of food by-products.