Industry Overview

American Seafoods Group LLC is one of the largest integrated seafood companies in the United States in a global industry that has been increasing steadily over the past half—century.

The worldwide production of seafood has grown at a compound annual growth rate of approximately 4 percent from approximately 19 million metric tons in 1950 to approximately 133 million metric tons in 2002. It is projected to increase slightly from 2003 to 2010, resulting in large part from increasing world population and continued economic growth in developing countries.

Worldwide seafood production of capture fish has remained stable in recent years. The growth in worldwide seafood production is primarily related to increased fish farming, or aquaculture. Due to its higher cost, aquaculture is used primarily to produce higher value fish species such as catfish and salmon.

Aquaculture is not a cost—effective alternative for lower value fish species such as pollock or hake. The whitefish category includes groundfish (such as pollock, hake and cod,) flatfish (such as sole,) and the redfish, bass and conger species groups.

Pollock Fisheries

Pollock is the most abundant whitefish and groundfish species in the world. Pollock accounted for 32 percent of groundfish produced worldwide in 2002, representing 2.7 million metric tons, which is more than any other groundfish species.

The two primary global pollock sources are the U.S. Bering Sea pollock fishery and the Russian fishery in the Sea of Okhotsk. Pollock stocks in the U.S. Bering Sea pollock fishery generally have increased steadily since 1999, while pollock stocks in Russia have experienced a steep decline in recent years. The Russian fisheries are expected to continue their decline over the next several years.

In contrast to the general world trend of declining groundfish stocks, the U.S. Bering Sea pollock fishery is generally characterized by abundant fish stocks and conservative management. Pollock matures relatively quickly, with fish aged three to seven years contributing most significantly to the commercial fisheries.

The pollock fishery in the U.S. Bering Sea is seasonal. The winter or “A” season takes place from January to April and the summer/fall or “B” season runs from July through October. During the “A” season, spawning pollock produce large quantities of high—value roe, making this season the more profitable one.

There are various methods used in the pollock fishery. Catcher—processors vessels, such as those owned and operated by American Seafoods Group LLC, harvest and process fish into products, such as roe, fillets and surimi, within hours of catching them. Catcher—vessels harvest and deliver fish to catcher—processors, motherships and inshore processors for processing. Motherships are at—sea processors which rely on catcher—vessels to harvest and deliver fish to them. Inshore processors operate onshore at fixed—location processing facilities, relying on catcher—vessels to harvest and deliver fish to them.

Other Groundfish Fisheries

In 2002, the U.S. hake and cod fisheries represented 11 percent and 18 percent of the worldwide production of hake and cod, respectively. Worldwide production of cod has dropped considerably over the last two decades, particularly in Atlantic fisheries.

Harvesting by catcher—processors in U.S. hake fisheries is conducted on a cooperative basis similar to the system in place for pollock fishing; the mothership sector for hake is conducted on an “Olympic—style” or “open access” basis. Harvesting in U.S. cod fisheries is Olympic—style.

U.S. Fisheries Regulation

Federal groundfish fisheries in the U.S. Exclusive Economic Zone occur within three to two hundred nautical miles off the United States coast. The Magnuson—Stevens Fishery Conservation and Management Act provides the broad framework for conserving and managing marine fisheries within the U.S. Exclusive Economic Zone.

The North Pacific Fishery Management Councilin Alaska and the Pacific Fishery Management Council in Washington and Oregon both oversee the fisheries on the U.S. West Coast. They are responsible for establishing annual maximum catch levels and developing fishery management plans.

The fishery management plans are then implemented and given legal force through regulations promulgated by the National Marine Fisheries Service, a division of the Department of Commerce. These regulations are then strictly enforced by both the U.S. Coast Guard and the National Marine Fisheries Service. Participants in U.S. federal fisheries are required to obtain a federal government permit.

Catfish

Catfish production has grown steadily since the earliest commercial production began. Approximately 55 percent comes from aquaculture; the remaining 45 percent comes from capture fisheries.

In the U.S., the catfish market has evolved over the past several years from being a regional commodity, locally produced and consumed predominantly in the southern U.S., to a large, commercial aquaculture industry that serves all major U.S. markets.

The U.S. catfish industry is concentrated in Alabama, Mississippi, Arkansas and Louisiana. Catfish harvests are seasonal, following the warm weather—growing cycle of the fish. Farmers prefer to harvest their ponds at the end of the summer, after the period in which the fish experience their maximum weight gain and before the fish enter a period of slower growth during the winter.

The harvest slows modestly during November and December due to reduced demand during the holiday season and picks up again in the beginning of the year. This leads to a seasonal abundance of fish between late summer and early winter, the time of year when catfish prices are usually at their lowest.

A large number of catfish produced in the U.S. comes from independently owned and operated local family farms. Catfish is processed into various ready—to—consume products such as fillets, nuggets and marinated and breaded products.