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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-K

          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.

          Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of the registrant’s knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.   o

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

          The registrant does not have a class of equity securities registered pursuant to Section 12 of the Securities Exchange Act of 1934 and there is no public market for the voting stock of the registrant.

DOCUMENTS INCORPORATED BY REFERENCE     None

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FORWARD-LOOKING STATEMENTS

          All statements other than statements of historical fact are “forward-looking statements” for purposes of federal and state securities laws. Forward-looking statements may include the words “may,” “will,” “estimate,” “intend,” “continue,” “believe,” “expect,” “plan” or “anticipate” and other similar words. Such forward-looking statements may be contained in “Item 1--Business - -- Industry” and “Item 7--Management’s Discussion and Analysis of Financial Condition and Results of Operations”, among other places. Forward-looking statements include statements concerning:

          Although we believe that the expectations reflected in our forward-looking statements are reasonable, actual results could differ materially from those projected or assumed in our forward-looking statements. Our future financial condition and results of operations, as well as any forward-looking statements, are subject to change and are subject to inherent risks and uncertainties, such as those disclosed in this Annual Report. Important factors that could cause actual results to differ materially from the forward-looking statements we make in this Annual Report are described in this Annual Report, including under “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.” 

          We do not intend, and we undertake no obligation, to update any forward-looking statement. Currently known risk factors include, but are not limited to, the factors described in this Annual Report in “Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

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PART I

          Unless the context otherwise requires, references to "we", "us" and "our" refer to American Seafoods Group LLC and its consolidated subsidiaries.

Overview

          American Seafoods Group LLC (“ASG” or the “Company”) is one of the largest integrated seafood companies in the United States in terms of revenues. We catch, or harvest, several species of fish; process our catch into a variety of finished fish products, either on board our sophisticated catcher-processor vessels, at our Southern Pride catfish processing plants or our East Coast value added processing facilities; and market our products to a diverse group of customers in North America, Asia and Europe.  The Company was founded in 2000 and was incorporated in Delaware as a Limited Liability Company in January 2000.

          We are the leading harvester and at-sea processor of groundfish in the United States.  We primarily harvest pollock, which is the world’s highest-volume groundfish harvested for human consumption in the U.S. Bering Sea pollock fishery. We believe that this fishery is among the world’s largest and most conservatively managed fisheries. We benefit from the favorable regulatory system that governs pollock fishing in these waters. We also harvest and process other species of groundfish, including Pacific whiting (also known as hake), Pacific cod and yellowfin sole. 

          With our acquisition of Southern Pride Catfish, Inc. (“Southern Pride” or “SPC”) in December 2002, we are now one of the largest catfish processors in the United States processing over 90 million pounds of catfish per year.  The SPC acquisition presents an attractive strategic opportunity for ASG.  SPC complements the existing ASG operations by adding a new whitefish species to the product line.  With this addition, ASG will have significant market positions in Alaska pollock, cod and catfish, the top three domestic whitefish species in terms of human consumption.

Business Strategy

          Over the past decade, we have become one of the largest integrated seafood companies in the United States. Today we are committed to building on our existing harvesting, processing and marketing platforms. The primary components of our business strategy include the following:

          Maximize Pollock Revenues.    Our pollock harvesting and at-sea processing operations provide a significant majority of our revenues. There are three main elements to our strategy of maximizing pollock revenues:

          Expand Our Non-Pollock Harvest.    Although we generate most of our revenue from pollock-based products, we currently participate in a number of other fisheries, such as those for Pacific cod, Pacific whiting and yellowfin sole. We plan to continue opportunistically expanding our operations in these and other fisheries.

          Leverage Global Marketing Network.    We are currently expanding our presence in worldwide seafood markets, with a particular focus on the Asian and European markets, to increase and diversify our customer base and global seafood market share.

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          Develop Additional Distribution Channels.    In light of our reliable access to fish resources, we will continue to evaluate opportunities to develop further distribution channels for our core pollock products, as well as products from other species.

Industry

          Fish Demand and Supply.    Approximately three-quarters of worldwide seafood production is used for human consumption. Over the last several decades, global seafood production has grown significantly, from approximately 18.0 million metric tons in 1950 to approximately 130.4 million metric tons in 2000. The Food and Agriculture Organization of the United Nations (the “FAO”) forecasts that seafood production will continue to increase, resulting in large part from increasing world population and continued economic growth in developing countries.

          Whitefish, an important table-fare product worldwide, accounted for approximately 16.9 million metric tons of production in 2001. The whitefish category includes groundfish (such as pollock, cod and whiting), flatfish (such as sole), and the redfish, bass and conger species groups.  Groundfish comprised approximately 9.2 million metric tons of production in 2001. Pollock, the species representing the significant majority of our harvest, is the most abundant whitefish and groundfish species in the world.

          U.S. Bering Sea Pollock Fishery.    We participate primarily in the U.S. Bering Sea pollock fishery, which we believe is regarded as one of the healthiest and most responsibly managed fisheries in the world. In contrast to the general world trend of declining groundfish supply, the U.S. Bering Sea pollock fishery is generally characterized by abundant fish stocks and conservative management. According to the National Marine Fisheries Service, approximately 35% of this fishery’s 2002 pollock biomass could be harvested without causing overfishing to occur. The federal government typically sets harvest limits in the 10% to 20% range, substantially below the levels the National Marine Fisheries Service views as sustainable.

          We believe that the U.S. Bering Sea pollock fishery is in a healthier and more stable condition than other groundfish fisheries. For example, the Russian pollock catch in the Sea of Okhotsk has fallen dramatically in recent years, with a total allowable catch of 430,000 metric tons in 2002. The total pollock catch in Russian waters declined from 3.2 million metric tons in 1988 to 1.3 million metric tons in 2001, with a total allowable catch of only 930,000 metric tons in 2002. The U.S. Bering Sea pollock fishery, on the other hand, has grown from a total allowable catch of 992,000 metric tons in 1999 to 1,485,000 metric tons in 2002. We believe that aggregate world groundfish harvests have declined in recent years. Because the U.S. Bering Sea pollock catch has grown during this period, we believe the U.S. Bering Sea pollock harvest has increased as a percentage of the aggregate world groundfish harvest. We expect this trend to continue in the next several years.

          The stable nature of the U.S. Bering Sea pollock fishery is partly a function of the regulatory and cooperative structure that governs its activities. The American Fisheries Act specifically identifies the catcher-processor vessels that are eligible to participate in the fishery, prohibits the entry of additional vessels and prohibits any single entity from harvesting more than 17.5% of the annual directed pollock catch. The American Fisheries Act specifies how pollock is allocated annually among the various sectors of the U.S. Bering Sea pollock fishery. Further, by restricting participation in the U.S. Bering Sea pollock fishery, the American Fisheries Act facilitates the existence and operation of the Pollock Conservation Cooperative, comprised of the seven companies that own the catcher-processors named in the statute. Under the cooperative agreement, each member is annually assigned a fixed portion of the annual directed pollock catch, which represents the total allowable catch that is allocated to the catcher-processor sector.

          The participants in the U.S. Bering Sea pollock fishery include:

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          In 2001 and 2002, through our 16.8% allocation of the directed pollock catch under our cooperative agreements, and our purchases of 0.7% of the directed pollock catch from other vessels in our fishery, we harvested 17.5% of the directed pollock catch. We supplemented this harvest in 2001 and 2002 by purchasing 28.0% of the community development quota from the Alaska Community Development Groups with which we have developed relationships, of which two are equity investors in our company. Purchases from Alaska Community Development Groups do not count against the 17.5% harvest limitation.

          United States Catfish Industry.  The U.S. catfish industry has evolved from a locally produced and consumed commodity predominantly sold in the southern U.S. to the largest domestically produced commercial aquaculture industry that distributes to all major domestic markets. Catfish production has grown steadily since the earliest commercial production began. According to the Catfish Institute, over the past 20 years, farmed catfish production growth has been strong, with catfish production increasing from 192 million pounds to 630 million pounds in 2002. U.S. catfish production is concentrated in Mississippi, Arkansas, Alabama and Louisiana, and has become one of the principal agricultural crops in these states.

Products

          We process fish into:

          The fish we catch at-sea can either be processed into fillet blocks or surimi. Each fish is first filleted and incremental flesh is removed from the carcass and sent to the surimi line. The fillets are then either inspected and frozen in block form, or minced and used to produce surimi. The manufacturing processes for surimi and fillet blocks generate different quantities of salable product from each fish.

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          Pollock Roe.    Roe is harvested from the egg sacs of spawning fish, primarily during the winter and spring. Egg sacs are sorted by size and quality and frozen on the vessels. The egg sacs are then salted and dyed by processors in Asia for sale to consumers. We sell roe primarily to large Japanese importers.

          Pollock Block.    Pollock blocks are skinless, boneless fillets frozen into blocks. The frozen blocks are cut into different sizes, shapes and weights by our value added processing operation for conversion into products such as fish sticks and breaded fillets. We sell most of our block products to foodservice customers or large scale value added processors.

          Pin Bone Out Pollock Blocks.    Pin bone out (PBO) pollock blocks, or regular blocks, are a main raw material for battered and breaded fish stick and fillets. Pin bone out pollock blocks are sold throughout the world for a variety of finished products.

          Pin Bone In Pollock Blocks.    Pin bone in (PBI) pollock blocks include the pin bone in the final processed form.  Pin bone in pollock blocks are sold almost exclusively in Eastern Europe.

          Deepskin Pollock Block.    Deepskin is the highest quality pollock block and is generally leaner, deeper cut and whiter than other block products. The white meat is more palatable to the United States market. This product is used in products sold primarily by fast food restaurants.

          Minced Pollock Block.    Minced blocks are primarily used in low-end breaded and battered fish products.

          Surimi.    Surimi is a tasteless and colorless fish paste used as the primary protein in numerous Asian dishes and, to a lesser extent in Europe.  We sell surimi as a commodity to importers and large-scale distributors, who then sell it to processors as a raw ingredient.  Outside of Japan, the most recognized surimi products are imitation crab, shrimp, scallops and other similar products.

          Fishmeal.    Fishmeal is produced from fish by-products, primarily frames, guts and heads. Fishmeal is rich in protein, but not fit for human consumption.  It is sold into China, Taiwan and Japan where it is used as the main ingredient in aquaculture feeds.

          Pacific Cod.    We produce different types of cod block products such as skinless, boneless cod block, pin bone out and mince blocks, headed and gutted fish and roe. The cod block generally does not require further reprocessing and the majority of our production is sold under fixed contracts directly to restaurant chains or retailers in the United States.

          Yellowfin Sole.    We produce two yellowfin products: whole fish and headed and gutted fish.  Whole round fish is generally sold to Korea for domestic consumption. Headed and gutted fish is primarily sold to reprocessors in China for conversion into individual skinless, boneless fillets.

          Scallops.    The Company sells two products, fresh and processed frozen scallops. Fresh scallops are sold in bagged or canned form to wholesalers and high-end restaurants. Frozen scallops are substantially in individually quick frozen (IQF) form and are sold to food service, retail and national accounts.

          Catfish.    We produce a variety of catfish products. The products can be grouped into the following categories: whole dressed, fresh fillets and nuggets, IQF fillets and nuggets and breaded products. Breaded products include fillets, strips, and nuggets.

          Individually quick frozen.    Individually quick frozen (IQF) product is skinless, boned fillets frozen into individual portions rather than blocks. The IQF portions are various sizes and are processed for conversion into “center of the plate” and breaded and battered products.   We sell most of our IQF products to foodservice customers.

Customers

          We have established long-term relationships with a number of key customers worldwide. Our customer base includes industrial importers, foodservice distributors, food retailers, trading companies, restaurants and reprocessing companies.

          For surimi and roe products, our customers have primarily been Japanese and Korean importers and large scale distributors. Over the past few years, we have focused on broadening our customer base and have been building closer relationships with key Japanese end-users. We have recently penetrated the growing European surimi market, particularly in France and Spain.

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          The United States is our primary market for pollock deepskin blocks and catfish products.  For pollock deepskin product, we have established long-term customer relationships, including multi-year or multi-season supply contracts with three of the largest U.S. pollock deepskin customers.  Our catfish products are sold to a diversified customer base made up of retail, foodservice (both broadline and national chains), and specialty seafood distributor accounts. 

          With the decline of Russian pollock supply, we have increased production of pin bone out, pin bone in and minced pollock blocks to capture additional market share. In addition to the United States, Europe is a primary market for these products.  The growth in European block demand led to the establishment of our European office in Copenhagen, Denmark, which leverages our existing relationships with broker alliances. 

Sales, Marketing and Distribution

          Overview.    We have a global marketing network with offices in the United States, Japan and Denmark. We market products from our harvesting and processing operations as well as products from third party harvesters, fish farmers and processors located in Russia, South America, Norway, Canada, Iceland and China.  Our domestic sales and marketing operation includes a network of 37 brokers throughout the U.S.   This network sells and distributes in excess of one million pounds of processed, farm-raised catfish, scallops, and breaded pollock or cod every week.

          Industrial Market.    Currently, our production is focused on products used primarily as raw materials by secondary processors serving end markets throughout the world. We develop annual marketing and sales plans for our products based on anticipated demand and market pricing, including any existing sales agreements. We review these plans continuously and, if necessary, adjust them during the season. Because most vessels can easily switch between producing surimi and fillet blocks, we constantly monitor and adjust the product mix to meet market demand.

          Depending on the product and customer, we negotiate either seasonal or long-term contracts. We have traditionally entered into revolving arrangements in which several larger customers commit to purchase all surimi produced on a specific vessel. Prior to each fishing season, we typically enter into sales commitments for 70%-90% of our expected production. Final pricing usually occurs during the season or shortly thereafter, based on general pricing in the market. Over the years, we have built good relationships with our core customer base.

          Food Service and Retail Market.    We focus on selling, marketing and distributing seafood products in the food service and retail channels utilizing a national broker network. Our food service products are marketed under the national brands Frionor, Arctic Cape, and Southern Pride catfish, as well as private label brands. Although the majority of our sales are in the food service channel, about one third of the products are sold retail through either seafood specialty shops, grocery or club stores. In the retail channel the Company markets its products as American Pride, Bayside Bistro and Southern Pride Catfish or private label. Product mix is about 2/3 frozen and 1/3 fresh. Approximately 45% of the products are delivered through our own fleet of trucks.

          Foreign Markets.    The opening of our Copenhagen office in 2001 reflects our strategy to build a long-term presence in the European markets that will enable us to capitalize on seafood consumption growth trends in previously unaddressed markets such as France, Spain, Italy and Germany. Our seafood sales to customers in Europe increased to $50.4 million in 2002 from $5.2 million in 1999. In Asia, surimi-based products and natural products from whitefish showed strong growth as well. Our seafood sales to customers in Asia grew to $163.6 million in 2002 from $100.7 million in 1999.

Competition

          We compete in selling roe primarily on the basis of quality. Roe is sold at auction, where we compete to sell into the Japanese market with other participants in our fishery, as well as with Russian producers.

          Block and surimi are largely commodity products. We compete in selling these products on the basis of developing stable customer relationships and, to a lesser degree, on price.

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          Our main competitors in the harvesting and at-sea processing business are the other members of the Pollock Conservation Cooperative, including Trident Seafoods and Glacier Fish. We also compete with inshore processors, including Maruha and Nissui.

          In value added processing, we compete both for raw materials and customers with numerous other processors. Competition for sales is intense, and is based largely on price. Our competitors range from large volume, well established value added processors to small independent importers and brokers. Our major competitors are Fishery Products International, Coldwater Seafoods, Iceland Seafood Corp. and Trident Seafoods.

          As of December 2002, there were approximately 24 domestic catfish processing companies, of which Southern Pride was the largest. 

Intellectual Property

          In addition to such copyrights and trademarks as may arise by our creation or use of intellectual property in the normal course of our business, we or our subsidiaries hold several federally-registered trademarks, including Pride of the Sea, Arctic Cape, Southern Pride Catfish, Bayside Bistro and Frionor. The life of our trademarks is perpetual. In addition to the major brand names, the Company has a number of registered logos, tag lines and sub-brand names. We also hold one federally registered patent, which has a remaining life of 19 years. The life of our trademarks is perpetual.

Environmental Matters

          Our vessels and facilities are subject to numerous foreign, federal, state and local laws and regulations relating to the storage, handling, emission and discharge of materials into the environment, including the Clean Water Act, the Clean Air Act, the Resource Conservation and Recovery Act, the Emergency Planning and Community Right-To-Know Act, the Comprehensive Environmental Response, Compensation and Liability Act, and their state and local counterparts. Under some of these laws the owner or operator of real property may be liable for the costs of removal or remediation of hazardous or toxic substances on, under, or in such property, regardless of whether the owner or operator knew of or was responsible for the presence of such hazardous or toxic substance and regardless of whether the release or disposal of such substances was legal at the time it occurred. We believe that we are in substantial compliance with all such laws and regulations.

          Under certain environmental laws and regulations currently in effect, we will be required to expend capital in the future in order to remain in compliance. We do not believe that such capital expenditures required by environmental laws currently in effect will be material.

Employees

          As of December 31, 2002, we employed more than 2,000 full-time personnel, including a corporate staff of approximately 95 employees. In addition to their regular compensation, all corporate staff participate in an incentive plan to reward high product quality and value.

          We employ a vessel crew of between 700 and 1,000 people, depending on the season. All vessel employees are compensated based on the quantity and quality of their respective vessel’s production. We have an annual retention rate of approximately 80%. In addition, we have approximately 1,000 plant employees including 70 hourly-paid Teamsters’ Union workers, with the remainder non-union employees. We consider relations with our employees to be good.   

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Insurance

          We carry customary insurance coverage, including policies on each of our vessels which provide for the payment of an assessed amount corresponding to “fair market value” (generally approximately one-half of current replacement cost) in the event of a loss of a vessel. Additionally, all of our catcher-processor vessels have a further layer of umbrella insurance which provides coverage for 80% of the difference between such fair market value and the total replacement cost for one vessel during each one-year policy term. We believe that we carry adequate insurance coverage for our business activities. However, we cannot assure you that such coverage will prove to be adequate or will continue to be available to us and, in the event that such coverage proves to be inadequate, the sinking or destruction of, or substantial damage to, any of our vessels could have a material adverse effect on our business, financial condition or results of operations.  

Government Regulation

          All U.S. fisheries in which we operate are regulated and subject to total allowable catch limits. Participants in U.S. federal fisheries are required to obtain a federal government permit.

          We operate in the groundfish fisheries within the U.S. Exclusive Economic Zone, three to 200 nautical miles off the coasts of Alaska, Washington and Oregon. According to the National Marine Fisheries Service, no species in the U.S. Bering Sea is deemed to be overfished. Credit for these healthy stocks and profitable fisheries can be attributed in large part to two pieces of federal legislation.

          Magnuson-Stevens Fishery Conservation and Management Act.  The Magnuson-Stevens Act provides the broad framework for conserving and managing marine fisheries within the U.S. Exclusive Economic Zone. This legislation was originally enacted in 1976 as the Magnuson Fishery Conservation and Management Act and has been amended and reauthorized several times since that date.   This legislation created the 200 mile Exclusive Economic Zone, established priority access to U.S. fisheries for U.S. citizens and created the National Standards under which the fisheries are managed.

          American Fisheries Act. In 1998, Congress passed a second piece of legislation, the American Fisheries Act, which introduced several major changes in the management of the U.S. Bering Sea pollock fishery. The American Fisheries Act and its implementing regulations include the following key provisions:

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          The American Fisheries Act requires that vessels engaged in U.S. fisheries be owned by entities that are at least 75% US citizen owned and controlled. This requirement applies at each tier of ownership and must also be examined in the aggregate.  The Maritime Administration made a favorable determination with respect to the US citizenship of the entities owning our vessels in January 2002. On March 26, 2002, we applied for confirmation that after completion of the proposed changes in our ownership structure in connection with the recapitalization ("Recapitalization"), the Maritime Administration would issue a renewed US citizenship determination. We obtained this confirmation prior to the issuance of the original notes. On December 17, 2002 we filed annual affidavits of US citizenship and on February 21, 2003 the Maritime Administration made a favorable determination of continuing eligibility with respect to the citizenship requirements of the American Fisheries Act.

          The determinations of the Maritime Administration referred to in the previous paragraph do not extend to the citizenship status of a lender or the terms of any loan covenants and financing arrangements and contain language in which the Maritime Administration expressly reserves the right to review these terms to determine if they constitute an impermissible shifting of control to a non-citizen lender. Based on discussions with counsel and with pertinent government officials, we believe the intention of the Maritime Administration is to prevent provisions couched as loan covenants from serving as a device to shift control to non-U.S. citizens, and not to impede conventional market based loans and credit facilities.

          On February 4, 2003, the Maritime Administration published final regulations implementing certain statutory requirements under the American Fisheries Act for lenders holding preferred mortgages on large US flag fishing industry vessels directly or through qualified mortgage trustees. Under the terms of these regulations our lender must satisfy certain requirements by April 30, 2003. We expect that our secured lending arrangements will comply with these requirements and, if they do not fully comply, intend to take such steps as may be necessary to bring them into compliance.

          The American Fisheries Act is relatively new legislation. As a result, no reported judicial cases clearly interpret its meaning. For this reason, the full future impact of the American Fisheries Act on our continuing operations remains somewhat uncertain.

          The Pollock Conservation Cooperative.    By limiting participation in the US Bering Sea pollock fishery, the American Fisheries Act facilitated the formation of a cooperative agreement. In December 1998, the nine companies owning the 20 catcher-processors named in the American Fisheries Act formed the Pollock Conservation Cooperative. The Pollock Conservation Cooperative controls 36.6% of the directed pollock catch (subject to minor catches by one other designated vessel), with the remaining 3.4% of the sector’s 40.0% controlled by seven catcher-vessels that historically delivered to the catcher-processors. The original division of share among the nine companies was based primarily on historical performance and was reached by the mutual agreement of the participants. In December 1999, Alaska Trawl Fisheries, one of the original Pollock Conservation Cooperative members, agreed to sell its interest to the remaining Pollock Conservation Cooperative members and its vessel, ENDURANCE, has been permanently removed from US fisheries, leaving 19 eligible catcher-processors.

          Under the terms of the Pollock Conservation Cooperative membership agreement, each participating company is allocated a percentage of the directed pollock catch by private contractual arrangement. Pollock and other groundfish allocation rights under the Pollock Conservation Cooperative are freely transferable to other participants pursuant to the membership agreement, without the prior consent or approval of the other participants. Participants can then harvest and process their quota shares at their own pace with vessels named in the American Fisheries Act, within certain seasonal restrictions. The change in fishery management introduced by the American Fisheries Act allowed the catcher-processor sector to: slow the

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harvesting pace in order to optimize the value per ton of harvested round fish; reduce operating costs; and minimize by-catch and discards.

          The Pollock Conservation Cooperative membership agreement is expected to continue through the remainder of the named vessels’ lives, unless certain events occur, none of which we expect will occur in the foreseeable future.

          The following is a summary of the Pollock Conservation Cooperative’s current members, as well as one vessel that is not a member but has a right to a portion of the allocation, and their current allocations:

          In December 1998, the owners of the seven catcher-vessels listed in the American Fisheries Act as eligible to deliver or sell pollock to the Pollock Conservation Cooperative members formed the High Seas Catchers’ Cooperative. As with the Pollock Conservation Cooperative, the 3.4% of the directed pollock catch allocated to the seven catcher-vessels was divided by private contractual arrangement based primarily on historical catch performance. The members of the High Seas Catchers’ Cooperative and their respective allocations are listed below:

The Pollock Conservation Cooperative and the High Seas Catchers’ Cooperative have entered into an agreement that allows the High Seas Catchers’ Cooperative members to lease their allocations directly to Pollock Conservation Cooperative members. As a result, 100% of the High Seas Catchers’ Cooperative allocation is now harvested directly by Pollock Conservation Cooperative members.

          The agreement governing our current arrangements for purchasing community development quota expires at the end of 2005. We cannot assure you that the Alaska Community Development Groups from which we purchase community development quota will continue to sell quota to us or will continue to offer quota at prices we consider reasonable. In addition, the state of Alaska may re-allocate quota allocated to Alaska Community Development Groups. We cannot assure you that the Alaska Community Development Groups from which we purchase community development quota will not have their quota allocation reduced below current levels.

          Other Aspects of the American Fisheries Act.    Our ability to harvest pollock depends substantially upon our deployment of fishing vessels qualified for endorsements to operate in the fisheries of the United States.

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The American Fisheries Act imposes certain restrictions and exemptions that are important for our ability to maintain properly endorsed vessels.

          Should any of our vessels be destroyed or otherwise become inoperable, the American Fisheries Act would limit our ability to replace that vessel. The statute permits the replacement of lost vessels only if the loss is due to an Act of God, an act of war, the result of a collision, or otherwise not an intentional act of the vessel’s owner. These rules would restrict our ability to replace our vessels on account of obsolescence and, accordingly, could cause us to incur increased costs of maintaining our vessels, including the substantial loss of capacity during times of such maintenance and rebuilding.

          Regulation Related to the U.S. Catfish Industry.   In 2001, a group of US catfish producers and processors  made claims that Vietnamese producers were selling catfish-like products into the US at unfairly low prices.  The US catfish group lobbied the Department of Commerce (“DOC”) to investigate the alleged Vietnamese dumping activity.  The DOC launched its investigation after the US International Trade Commission (“ITC”) found that there was a reasonable indication that American catfish producers were unfairly threatened by low-priced Vietnamese products.  In November 2002, the DOC made a preliminary ruling that the Vietnamese were selling fish into the US at unfairly low market prices.  The DOC is expected to issue its final ruling on the case in the summer of 2003.  Vietnam could be subjected to high import tariffs if the DOC determines that it is dumping its product into the US 

Food Safety

          The manufacture, processing, packaging, storage, distribution and labeling of food products are subject to extensive foreign, federal, state and local regulation. We are regulated by the Food and Drug Administration, the US Department of Agriculture, the US Department of Commerce, European Union regulators and various US local and state health and agricultural agencies. In addition, some of our facilities are subject to regular on-site inspections and our production and distribution facilities are subject to various federal, state and local environmental and workplace and food safety regulations.  Failure to comply with all applicable laws and regulations could subject us to civil remedies, including fines, injunctions, recalls or seizures, and criminal sanctions, any of which or all of which could have a material adverse effect on our business, financial condition and results of operations. Additionally, we expect that the food safety regulatory environment in the US, Europe and Asia will become more stringent. Compliance with current or future laws or regulations could require us to make material expenditures or otherwise adversely affect our business, prospects, results of operations and financial condition.

Available Information  

          We file annual, quarterly and special reports and other information with the Securities and Exchange Commission (“SEC”).  You can read and copy any materials we file with the SEC at the SEC’s Public Reference Room at 450 Fifth Street, N.W., Washington, D.C.  20549.  You may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330.  The SEC also maintains an Internet site that contains reports, proxy and information statements and other information regarding issuers, such as us, that file electronically with the SEC.  The address of the SEC’s Internet site is http://www.sec.gov.   We make available free of charge on or through our Internet site, www.americanseafoods.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Exchange Act as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC.  We will voluntarily provide electronic or paper copies of our filings free of charge upon request.

          We own and operate the largest fleet within the catcher-processor sector of the US Bering Sea pollock fishery. Our catcher-processor vessels range in length from approximately 260 to 340 feet, generate between 6,500 and 10,000 horsepower each in their main engines and carry between 90 to 125 crew members.  Each

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of our catcher-processors meets the rigorous seaworthiness requirements of Det Norske Veritas, the highest vessel classification standard in the world.

Our trawling fleet consists of the following vessels:

          We own and operate an approximately 212,000 square foot fish processing and storage facility in New Bedford, Massachusetts.

          Our headquarters is located in a leased office space of approximately 20,000 square feet located in Seattle, Washington.

          Also in Seattle, we lease 395 square feet of office space, 29,700 square feet of warehouse space, 43,686 square feet of yard space, and 11,036 square feet of covered storage at Pier 90 from the Port of Seattle. We also benefit from a preferential moorage agreement with the Port of Seattle which provides for the docking of all of our vessels during the off-season.

          We own and operate two catfish processing plants located in Greensboro and Demopolis, Alabama.  In terms of size, the Greensboro and Demopolis facilities are approximately 86,255 and 34,225 square feet, respectively.  Combined, these processing facilities operate a total of thirteen processing lines.  We own live hauling equipment, including 15 aerated tank trucks used to harvest and transport the live catfish to our processing facilities.  We own and operate a fleet of 25 trucks used for domestic distribution of our products.

          We also lease office space in Copenhagen, Denmark and Tokyo, Japan. Additionally, in Dutch Harbor, Alaska we lease office space and approximately 15,000 square feet of warehouse facilities and use several moorage facilities during the fishing season.

          We believe that our existing facilities are generally adequate for our current operations.

          General.    We are from time to time party to litigation, administrative proceedings and union grievances that arise in the ordinary course of our business. Except as described below, we do not have pending any litigation that, separately or in the aggregate, would in the opinion of management have a material adverse effect on our results of operations or financial condition. However, given the inherent unpredictability of litigation, it is possible that an adverse outcome could, from time to time, have a material adverse effect on our operating results or cash flows in any particular quarterly or annual periods. 

          Crew Member Class Action.    On April 27, 2000, an action was filed in the United States District Court for the Western District of Washington against us by two of our former vessel crew members alleging that we breached the terms of their crew member agreements, resulting in the underpayment of the individuals’ crew shares for the 2000 “A” season. The plaintiffs also claimed that we had violated certain federal requirements that entitle them to be paid the highest rate of wages paid to similarly rated crew members aboard other vessels. On October 11, 2000, the action was certified as a class action, with the plaintiff class consisting of all of the crew members on all of our vessels during the 2000 “A” season. The plaintiffs’ claim requested damages of approximately $23 million.

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          On January 8, 2002, the District Court ruled in favor of the plaintiffs on one of their four specific claims after finding they had proved that we diluted each individual’s crew share by dividing each individual share by a number that was larger than the number of shares assigned to the whole crew, thereby depriving the crew members of their full wages. The court awarded damages in the aggregate amount of $1,607,254 and attorneys’ fees and expenses in an aggregate amount to be determined. We have accrued for the amount we estimate that we may have to pay relating to this matter in 2001. The plaintiffs have requested attorneys’ fees of approximately $600,000 (on April 29, 2002, the court awarded $383,234 in attorneys’ fees and expenses, and an additional $103,588 to be paid out of the plaintiffs’ award at no additional cost to us). The court further found that our underpayment of crew shares was not willful. The court also found that we did not estimate roe prices in good faith for the third fishing trip of each vessel in the 2000 “A” season. The court did not award the plaintiffs any damages with respect to this finding because we had paid the crew members a bonus amount in excess of any damages that resulted from the roe price estimates. The plaintiffs have filed a Notice of Appeal in connection with one of the three claims that the court rejected. The appealed claim alleges that the crew contracts did not comply with the provisions of the applicable statutes which govern the form and content of crew member contracts. We have filed a separate Notice of Appeal with respect both to the grant of attorneys’ fees and the award of damages against us. We cannot assure you that the plaintiffs will not prevail or that we will not be required to pay significant damages to resolve this litigation, which could have a material adverse effect on our business, results of operations or financial condition.

          Subsequent Crew Member Lawsuits.     On October 19, 2001, a complaint was filed in the United States District Court for the Western District of Washington and the Superior Court of Washington for King County. An amended complaint was filed in both courts on January 15, 2002. The amended complaint was filed against us by a former vessel crew member on behalf of himself and a class of over 500 seamen, although neither the United States District Court nor the Superior Court have certified this action as a class action. On June 13, 2002, the complaint filed in the Superior Court was voluntarily dismissed by the plaintiffs. The complaint filed alleges that we breached our contract with the plaintiff by underestimating the value of the catch in computing the plaintiff’s wages. The plaintiff demanded an accounting of his crew shares pursuant to federal statutory law. In addition, the plaintiff requested relief under a Washington statute that would render us liable for twice the amount of wages withheld, as well as judgment against us for compensatory and exemplary damages, plus interest, attorneys’ fees and costs, among other things. The plaintiff also alleged that we fraudulently concealed the underestimation of product values, thereby preventing the discovery of the plaintiff’s cause of action. The conduct alleged took place prior to January 28, 2000, the date our business was acquired by American Seafoods, L.P. This litigation is in a preliminary stage and its ultimate outcome is uncertain. We have denied the allegations made and intend to vigorously defend the claims. We cannot assure you that the plaintiff will not prevail or that we will not be required to pay significant damages to resolve this litigation, which could have a material adverse effect on our business, results of operations or financial condition.

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PART II

          There is no established public trading market for the registrant’s common equity. 

          The Company is part of a group of subsidiaries that are wholly owned by American Seafoods, L.P.  As of March 28, 2003, American Seafoods, LP directly owned approximately 99.4% or the common equity interests in, and is the managing member of, American Seafoods Holdings LLC (“Holdings”).  Bernt Bodal and Webjorn Eikrem own approximately 0.4% and 0.2%, respectively, of Holdings’ common equity.  Holdings directly owns 100% of American Seafoods Consolidated LLC, which, in turn, directly owns 90% and indirectly owns the remaining 10% of ASG.  ASC, Inc. (“ASC”) owns approximately 10% of ASG and has an interest with preferred allocation and distribution rights.

          As of March 28, 2003, the beneficial ownership through American Seafoods, LP, which owns approximately 99.4% of our common equity interest held by Centre Partners, Coastal Villages Region Fund, our directors and officers as a group and U.S. Equity Partners Funds was 24.7%, 38.9%, 31.6% and 4.2%, respectively.

          There are restrictions imposed on distributions to partners by covenants contained in the Amended and Restated Credit Agreement, dated as of April 18, 2002, by and among American Seafoods Holdings LLC, American Seafoods Consolidated LLC, American Seafoods Group LLC, the banks and other financial institutions, Harris Trust and Savings Bank, as Documentation Agent, the Bank of Nova Scotia, as Syndication Agent, and Bank of America, N.A., as Administrative Agent, Issuing Lender and Swingline Lender.  Distributions are limited to an amount, which will enable the partners to pay Theoretical Tax, as defined, on the amount of taxable income of the Company and its subsidiaries allocated to such Partners.  See “Item 8 – Financial Statements and Supplementary Data, Notes 8 and 9”. 

          The Company is required under the terms of its Limited Liability Company agreement to pay a preferred return to ASC.  This annual return is equal to 8.25% of that member’s contributed capital.  The cumulative to date preferred return as of December 31, 2002 was $29.6 million.  The remaining net income of the Company is allocated to its members based upon a pro rata share of their membership units. To date, no preferred return has been distributed to ASC in cash.

          Set forth below are Selected Financial Data for American Seafoods Group LLC as of and for the years ended December 31, 2001 and 2002 and for the period January 28, 2000 through December 31, 2000 and for the Predecessor Business as of and for the years ended December 31, 1998 and 1999 and the period January 1, 2000 through January 27, 2000.  The selected historical financial data set forth below are not necessarily indicative of the results of future operations and should be read in conjunction with “Item 7--Management’s Discussion and Analysis of Financial Condition and Results of Operations” and our consolidated financial statements and related notes included elsewhere in this Annual Report.

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          The following discussion should be read in conjunction with our consolidated financial statements and the notes to those statements and other financial information appearing elsewhere in this annual report. This annual report contains forward-looking statements that involve risks and uncertainties. Our actual results may differ materially from those indicated in forward-looking statements. See “Forward-Looking Statements.”

Overview

          We are one of the largest integrated seafood companies in the United States in terms of revenues. We catch, or harvest, several species of fish; process our catch into a variety of finished fish products, either on board our sophisticated catcher-processor vessels, at our catfish processing plants or at our east coast value added processing facilities.  We maintain a global marketing network through our U.S., Japanese and European offices; own and operate a well integrated domestic distribution network and have developed long-term relationships with a domestic and international customer base.

Investment by Centre Partners; Corporate Structure

          In January 2000, our ultimate parent company American Seafoods, L.P., through two subsidiaries, purchased from Norway Seafoods all of the outstanding stock of American Seafoods Company.  The acquisition also involved the purchase of six additional catcher-processors, one catcher-vessel and certain assets of Frionor USA (now called American Seafoods International LLC).  American Seafoods, L.P. is a limited partnership controlled by affiliates of Centre Partners. Other significant investors in the acquisition included two Alaska Community Development Groups and members of our management.

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          American Seafoods Group LLC was formed in connection with the acquisition. Following the acquisition of American Seafoods Company by American Seafoods, L.P., American Seafoods Company contributed its assets to us in exchange for member interests in our company, including an interest with preferred allocation and distribution rights. The acquisition was accounted for as a purchase, and all of the debt, assets and goodwill relating to the acquisition have been “pushed down” to our balance sheet. The aggregate purchase price for the acquisition was $477.9 million, including acquisition costs.  The acquisition was financed through short-term seller financing ($21.9 million), long-term debt ($280.0 million) and seller long-term subordinated promissory notes ($95.0 million), which were “pushed down” to our financial statements. In addition, American Seafoods, LP issued a warrant ($3.5 million) for the purchase, at a future date, of additional partnership interests in American Seafoods, LP to an affiliate of Norway Seafoods. The warrant entitled the holder to purchase American Seafoods, LP partnership units at a price per unit equal to the amount per unit contributed at that time by the American Seafoods, LP partners. On October 4, 2002 ASLP settled the warrant by making a cash payment to the holder of the warrant.

          We are the direct 100% owner of American Seafoods Company LLC, through which we conduct our at-sea pollock harvesting and processing operations; American Seafoods International LLC, through which we conduct our value added processing activities; and Southern Pride Catfish LLC, through which we harvest and process catfish.  We also had an equity interest in Pacific Longline Company LLC, which was formed in August 2001 to conduct longliner cod harvesting and processing operations.  In connection with the Recapitalization, we distributed our interest in Pacific Longline Company (PLC), which is the owner and operator of three freezer longliner vessels that harvest Pacific cod in the U.S. Bering Sea, to one of our equityholders which distributed it to American Seafoods Holdings LLC (Holdings) on April 18, 2002. As a result, these cod harvesting activities are no longer included in our consolidated results of operations.

Revenues and Expenses

          Revenues.    Our revenues are primarily driven by the following factors:

          Harvest volumes.    In addition to the portion of the directed pollock catch allocated to us under the Pollock Conservation Cooperative agreement, we historically have purchased additional pollock quota from other industry participants up to the 17.5% limit of the directed pollock catch.  In addition, we supplemented our harvest in 2001 and 2002 by purchasing 28.0% of the community development quota from Alaska Community Development Groups, which does not count against the 17.5% limitation.

          Recovery rates.    Increases in flesh and roe recovery rates, which represent the percentage of finished product produced from a whole fish, result in higher finished product volumes. Flesh recovery rate means the percentage of the weight of at-sea processed products, other than fishmeal and roe, relative to the weight of fish harvested. Roe recovery rate means the percentage of the weight of at-sea processed roe, relative to the weight of fish harvested.

          Market prices.    Market prices are mainly a function of the aggregate supply of pollock products produced in any given year as well as the anticipated inventory carry over for that year. The supply is determined primarily by the US and Russian pollock harvest levels.

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          Prices generally fluctuate year to year and do not necessarily follow a typical price cycle trend. For example, the 29.7% increase in our surimi prices, denominated in Japanese Yen, from year 2001 to 2002 was primarily due to market conditions, but also due to producing a slightly higher grade mix of surimi in year 2002.  The 2002 “A” season roe price of ¥1,906 per kilogram declined from the 2001 “A” season roe price of ¥2,247 per kilogram.  With the introduction of long-term supply contracts for deepskin product in early 2000, the price for deepskin dropped from an annual average price of $1.59 per pound for 1999, to $1.32 per pound for 2000, $1.25 per pound for 2001 and $1.24 per pound 2002.

          Below is a chart illustrating our average prices achieved for the years 1999, 2000, 2001 and 2002 for pollock surimi, roe and block products. The surimi and roe prices are noted in yen per kilogram, which is the price unit we receive from our Japanese customers.

          Exchange rate effects.    Because we sell large quantities of roe to Japanese customers, a significant portion of our revenue is denominated in Japanese yen. This means that we are at risk that any increase or decrease in the value of the yen relative to the dollar would increase or reduce, respectively, the amount of dollar revenues we record on the sales of our products in Japan. In order to mitigate the potentially adverse effect of fluctuations in the yen to U.S. dollar spot exchange rate, we enter into forward currency contracts. It is the Company’s risk management policy to hedge approximately 80% of its forecasted yen sales over the next 12 months, 65% over months 13 to 24, 50% over months 25 to 36 and 35% over months 37 to 48.

          Catfish volume and  processing margins.  SPC's profitability is primarily a function of the price of fish, volume of catfish processed and yield achieved in processing. SPC's processing margin has historically been higher than the industry average because SPC harvests almost all of the fish purchased from local farmers resulting in a lower farm gate price than industry average and on average SPC processes fish that are greater in weight than the industry average resulting in higher yield.

          Value added processing product volume.    Our value added processing operations are comprised of our frozen cutting and breading/battering operation as well as unloading fishing vessels and processing fresh and frozen scallops. The key performance driver for our value added processing operation are purchase price of raw material and the volume of production.

          Expenses.    The operating cost structure of the harvesting operations is comprised of four main cost categories:

          Excluding depreciation expense, crew compensation represents the largest operating cost for the vessel operations and is a variable cost, structured to reward each crew based upon the production value

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achieved by their vessel. Quota purchase costs, the second largest operating cost excluding depreciation expense, are calculated as an amount per ton harvested and are incurred when we purchase quota amounts from our Alaska Community Development Group partners, catcher vessel owners and other third party fishery participants. Product freight is incurred when we transport the product to either our customer or a cold storage facility.  Storage costs are incurred for product entering a cold storage facility.

          Excluding production-related depreciation of $32.2 million in 2002, approximately 12.7% of our total harvesting operating costs are fixed in that we assume that we would incur them even if a vessel were inactive for the season. As a result of our relatively low fixed harvesting cost base, we have the ability to manage our cost structure by matching vessel harvesting capacity with the available harvest amount for any given season.

          Our other main expenses include general and administrative expenses, amortization of cooperative rights and other intangible assets, interest expense and losses, if any, on foreign currency contracts.

          The Company recognizes revenues and records accounts receivable balances when persuasive evidence of an arrangement exists, delivery has occurred, the price is fixed or determinable and collectibility is reasonably assured. The allowance for doubtful accounts reflects management’s estimate of probable losses inherent in the accounts receivable balance. Management determines the allowance based on known troubled accounts, historical experience, and other currently available evidence. It is the Company’s policy to write off accounts as collectibility becomes remote. We have two valuation accounts recorded on our balance sheet. The allowance for doubtful accounts balance was approximately $0.5 million at December 31, 2001 and 2002. Accounts receivable write-offs for the year ended December 31, 2000 were $2.2 million. Total accounts receivable write-offs for the years ended December 31, 2001 and 2002 were not significant. We also have an allowance of $0.9 million and $1.8 million recorded at December 31, 2001 and December 31, 2002, respectively, for a receivable due from one of our insurance providers, which filed for bankruptcy in March 2001. $0.9 million of this allowance was recorded in each of the years ended December 31, 2001 and 2002.

Acquisitions

          From time to time we have considered acquisition opportunities that might have the prospect of increasing the breadth of our product offerings, enhancing our market position and diversifying and complimenting our capabilities.

          Effective as of December 16, 2002, ASG, through direct and indirect wholly-owned subsidiaries, purchased substantially all of the assets of Southern Pride, an Alabama corporation engaged in the business of catfish harvesting, processing and distribution.  The acquired assets include, among other things, certain real property, fixtures, equipment, accounts receivable, intellectual property, customer and other contracts, and cash on hand.  The purchase price was approximately $41.8 million in cash.  In addition, pursuant to the Asset Purchase Agreement, we paid off bank debt of SPC in the amount of $2.4 million, assumed liabilities of $3.8 million, and incurred direct acquisition costs at approximately $1.0 million.  The acquisition was financed with additional indebtedness under ASG’s senior credit facility. 

Financing Activities

          On April 18, 2002, we issued and sold $175,000,000 principal amount of 10 ¹/8% Senior Subordinated Notes due 2010 pursuant to Rule 144A and Regulation S of the Securities Act of 1933, as amended. The offering of these notes was part of a recapitalization involving our company and certain of our affiliates.   On November 20, 2002, we exchanged these notes through an Exchange Offer with registered notes.  Concurrently with the offering of these notes, we entered into a new senior credit facility.  As part of this recapitalization, we used the proceeds of the notes offering, together with borrowings of $325.9 million under our new senior credit facility, to:

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          In addition, we distributed to our equityholders any cash on hand on April 4, 2002 plus cash generated from our operations from April 4, 2002 to April 18, 2002. As a result, the aggregate amount of cash distributed to our majority equityholder, American Seafoods Consolidated LLC, for distribution to the equityholders of its parent, was approximately $203.8 million, including $5.7 million of fees paid out of the distribution.

          In connection with the Recapitalization, we distributed all of our interest in PLC to one of our equityholders, which distributed it to American Seafoods Holdings LLC. As a result, these cod harvesting activities are no longer part of our operations.

          On July 2, 2002, the Company loaned $6 million to its chief executive officer to purchase ownership interests in ASLP and Holdings from a selling partner at the same price per unit paid by other purchasing partners. The loan bears an initial interest rate of 5.25% with a requirement to reset the rate at the prime rate plus one-half percent per annum on January 1, April 1, July 1 and October 1 of each year that the loan is outstanding. Payments on the loan are required to be made from the net proceeds of any and all dividends and distributions with respect to the chief executive officer’s interests in the Company, interests in connection with a public liquidity event or exercise of any management option, whether currently owned or subsequently purchased, and 25% of the gross amount of any annual bonus paid. The underlying loan is recourse to the assets of the chief executive officer, except that the recourse to assets other than ownership interests is eliminated under certain circumstances if the value of the underlying security becomes greater than four times the loan balance, and all of the chief executive officer’s ownership interests in ASLP and Holdings is pledged as collateral for the loan. During 2002, approximately $0.2 million of related party interest income had been recorded pursuant to this loan.

          On October 4, 2002, three investment funds managed by affiliates of Wasserstein & Co. (the “U.S. Equity Partners Funds”) purchased from American Seafoods Holdings LLC a combination of preferred equity securities and notes, and purchased from American Seafoods, L.P. the US Equity Partners Warrants, for a total purchase price of $27.3 million. Proceeds from the sale were used by American Seafoods, LP to redeem 44,828 partnership units and a warrant to purchase 106,875 partnership units, which were held by affiliates of Norway Seafoods.

          On October 28, 2002, American Seafoods Holdings LLC loaned approximately $0.7 million to certain members of management of the Company to purchase ownership interests in American Seafoods, LP (“ASLP”) from a selling partner. The loan bears an initial interest rate of 5.25% with a requirement to reset the rate at the prime rate plus one-half percent per annum on January 1, April 1, July 1 and October 1 of each year that the loan is outstanding. Payments on the loan are required to be made from the net proceeds of any and all dividends and distributions with respect to the purchaser’s interests in the Company, interests in connection with a public liquidity event or exercise of any management option whether currently owned or subsequently purchased, and 25% to 33% of the gross amount of any annual bonus paid or payable. The underlying loan is full recourse to the assets of the purchasers, except that the recourse to assets other than ownership interests is eliminated under certain circumstances if the value of the underlying security becomes greater than four times the loan balance, and all of the purchasers’ ownership interest in ASLP is pledged as collateral for the loan.

          On November 18, 2002, the Company forgave the exercise price on certain Series C options that had been repriced to $0.01 in connection with the Recapitalization and forced the conversion of these options into ASLP ownership units.

          On December 16, 2002, the Company, American Seafoods Holdings LLC and American Seafoods Consolidated LLC entered into the Second Amended and Restated Credit Agreement with Bank of America, N.A., as Administrative Agent, and various other lenders, which amended the Company’s existing senior credit facility, dated as of April 18, 2002.  The amendment provides, among other things, for an increase in the principal amount of term B loans by $50 million, and consents to the acquisition of SPC by ASG as other than a permitted acquisition.  The Company received consents from the requisite percentage of lenders under the credit agreement to enter into the amendment.  The Company used the borrowing of $50 million in additional term B loans to pay the purchase price for the acquisition, make certain payments related to the acquisition, pay related fees and expenses and fund its general corporate purposes.  The assets that the Company acquired from SPC secure the Company’s indebtedness under the senior credit facility.  As of December 31, 2002, after giving effect to the amendment, there was $360.5 million of outstanding indebtedness under the senior credit facility and approximately $73 million of unused borrowing capacity under the revolving credit facility. 

          On December 16, 2002, the Company, American Seafoods, Inc. (“ASI” and, together with the Company, the “Issuers”), Wells Fargo Bank Minnesota, NA, as trustee (the “Trustee”), executed

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supplemental indentures with each of Southern Pride Catfish LLC, a newly-formed wholly-owned direct subsidiary of the Company, and Southern Pride Catfish Trucking, Inc., a newly-formed wholly-owned indirect subsidiary of the Company, relating to the Issuers’ 10¹/₈% senior subordinated notes due 2010, which were issued and sold in a private offering in April 2002 and registered with the SEC in November 2002. The supplemental indentures supplement the indenture, dated as of April 18, 2002, among the Company, ASI, the guarantors named therein and the Trustee. 

          Under the supplemental indentures, the Company is required to cause its newly-formed or acquired subsidiaries to become guarantors of the notes and to cause such subsidiaries to execute a supplemental indenture to the indenture, subject to certain exceptions.  Southern Pride Catfish LLC was formed, and Southern Pride Catfish Trucking, Inc. was incorporated, on December 6, 2002, and the supplemental indentures were executed in order to fulfill the Company’s obligations under the indenture with respect to its newly-formed subsidiaries. 

Results of Operations

          We were acquired in a transaction accounted for as a purchase on January 28, 2000. The purchase accounting resulted in all assets and liabilities being recorded at their estimated fair values on that date. We also changed our method of accounting for major scheduled vessel maintenance and accounting for derivative instruments, effective with the acquisition. For the period from January 28, 2000 through December 31, 2000 and for the years ended December 31, 2001 and 2002, all goodwill and debt resulting from the acquisition have been recorded in the financial statements of American Seafoods Group LLC. The financial statement for the period from January 1, 2000 through January 27, 2000 represents the combined operations of the predecessor businesses purchased as part of the acquisition. Accordingly, the consolidated financial statements for American Seafoods Group LLC for periods subsequent to the acquisition are not comparable to the predecessor business financial statements presented for prior periods.

     Year Ended December 31, 2002 Compared to Year Ended December 31, 2001.

          Revenue.    Revenue for the year ended December 31, 2002 decreased $13.1 million, or 3.9%, to $323.7 million from $336.8 million for the year ended December 31, 2001. The revenue decrease in 2002 was primarily due to lower roe pricing and lower Hadley Group related trade sales, partially offset by higher pricing of our block and surimi products.  The price of roe achieved during the Company’s 2002 “A” season was 1,906¥ as compared to 2,247¥ in 2001, or a decrease of approximately 15.2%.   Hadley Group trade sales decreased by $13.8 million or approximately 49.5% due to global product supply constraints.  We believe these same constraints that influenced the Hadley Group’s inability to obtain product for resale also contributed to the Company’s increased pricing for its PBO block products.  Production of finished goods in metric tons decreased in 2002 compared to 2001 primarily as a result of lower hake production in 2002 due to a reduction in the hake fishery quota.  Pollock production in 2002 decreased by less than 1% as compared to the 2001 pollock production.

          Cost of Sales.    Costs of sales includes operating costs such as crew and factory personnel compensation, fish purchases, vessel fuel, raw material purchases, packaging, insurance, other operating related expenses, and depreciation applicable to property, vessels, and equipment used in production. Cost of sales for the year ended December 31, 2002 decreased $12.2 million, or 5.8%, to $197.4 million from $209.6 million for the year ended December 31, 2001. This decrease was primarily attributable to lower variable product costs such as packaging and additives resulting from selling approximately 9,300 less metric tons of at-sea processed finished product in 2002, as compared to a total of 100,200 metric tons in 2001 lower fuel costs due to a decrease in fuel prices, and lower fish cost for the Hadley Group due to a decline in fish purchases, partially offset by an increase in crew compensation due to the higher value per metric ton produced as a result of the higher surimi and block prices.  The gross profit for the year ended December 31, 2002 decreased to $126.3 million, a decrease of $0.9 million, from $127.2 million for the year ended December 31, 2001. Gross margin for the year ended December 31, 2002 increased to 39% from 38% for the year ended December 31, 2001 due principally to the decrease in Hadley Group trade sales which generate lower gross margins.

          Selling, General and Administrative Expenses.    Selling costs include product freight, storage, and marketing costs. General and administrative expenses include our employee compensation and benefits, rent expense, professional fees, association dues and other expenses, such as business development, office equipment and supplies. Selling, general and administrative expenses for the year ended December 31, 2002, including equity based compensation

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increased $14.5 million, or 24.2%, to $74.4 million from $59.9 million for the year ended December 31, 2001.  These expenses increased primarily due to an increase in equity based compensation expenses from $2.2 million for the year ended December 31, 2001 to $20.9 million for the year ended December 31, 2002, partially offset by lower freight related costs resulting from selling approximately 9,300 less metric tons of at-sea processed finished product in 2002 combined with lower logistical costs per unit achieved in 2002. 

          Amortization of Cooperative Rights, Intangibles and Goodwill and Depreciation of Other Assets. Amortization includes the amortization related to the cooperative rights, depreciation of office related assets and, through December 2001, and goodwill recorded in connection with the January 2000 acquisition. Amortization expense for the year ended December 31, 2002 decreased $27.1 million, or 79.9%, to $6.8 million from $33.9 million for year ended December 31, 2001. This decrease was primarily attributable to an extension of the amortization schedule for cooperative rights, an intangible asset representing our allocation rights as a member of the Pollock Conservation Cooperative. From January 28, 2000 to October 31, 2001, the cooperative rights were amortized on a straight-line basis over 59 months, which was the remaining life of the Pollock Conservation Cooperative agreement. Beginning in November 2001, as a result of changes to the American Fisheries Act, we changed the amortizable life of the cooperative rights to 23.2 years, which matches the average remaining depreciable lives of our vessels. As of January 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, and ceased amortization of goodwill.

          Interest Expense, Net (including related party interest).    Net interest expense includes interest incurred related to our revolving facility, bank debt and subordinated seller notes. Net interest expense for the year ended December 31, 2002 increased $3.5 million, or 10.0%, to $38.4 million from $34.9 million for the year ended December 31, 2001.  The increase in net interest expense was mainly attributable to the increase in the principal balance on the senior bank debt resulting from the April 2002 Recapitalization, the addition of $175 million principal amount related to the private offering of 10  ¹/8% Senior Subordinated Notes,  partially offset by declining variable interest rates applied to the senior bank debt.  Interest expense for our revolving credit facility for the years ended December 31, 2002 and 2001 was $0.9 million and $1.6 million, respectively, including commitment fees.  Interest expense for our two term loans was $14.1 million for the year ended December 31, 2002 and $15.1 million for the year ended December 31, 2001.  In connection with the Recapitalization, we repaid all amounts outstanding under the bank credit facility that was in place at the time of the Recapitalization, and entered into a new credit facility. See “—Liquidity and Capital Resources—Our Indebtedness.”

          Foreign Exchange (Losses) Gains, Net.    Net foreign currency exchange gain attributable to financial derivatives for the year ended December 31, 2002 increased $1.3 million to $19.0 million from $17.7 million for the year ended December 31, 2001.  Beginning January 28, 2000, in compliance with our adoption of  SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities”, the existing forward contracts were designated as hedges and the change in value related to the fluctuation in the value of the Japanese yen was not reflected in earnings.  The net unrealized gains related to the ineffective portion (the time value) of the derivatives recognized in earnings for the years ended December 31, 2002 and 2001 were $18.3 million and $16.2 million, respectively.  We recorded realized gains of $0.3 million and $1.7 million related to the change in the ineffective portion of the derivatives which settled during the years ended December 31, 2002 and 2001, respectively.

     Year Ended December 31, 2001 Compared to Year Ended December 31, 2000.

          Revenue.    Revenue for the year ended December 31, 2001 increased $74.8 million, or 28.5%, to $336.8 million from $9.7 million for the period from January 1, 2000 to January 27, 2000 and $252.3 million for the period from January 28, 2000 to December 31, 2000. The revenue increase in 2001 was primarily attributable to harvesting over 60,000 metric tons more pollock in 2001 compared to the 2000 pollock harvest, an increase of 32.9%. This additional harvest led to higher sales volumes in surimi, block and roe products, resulting in approximately 33,800 more metric tons of at-sea processed frozen pollock product sold in 2001 as compared to 2000. In 2001, we produced approximately 38,000 more metric tons of at-sea processed finished product than in 2000. The increase was also driven by an improvement in recovery rates from an average pollock flesh recovery rate of 22.0% in 2000 to 24.5% in 2001, and an increase in the roe recovery rate from 3.9% in 2000 to 4.8% in 2001. These positive factors were partially

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offset by a less favorable yen exchange rate in 2001 and declines in roe and surimi yen prices by approximately 27.5% and 2.8%, respectively, from 2000 to 2001. The 2001 increase in pollock harvest was the result of a 22.9% increase in the total allowable catch and an increase in community development quota that we acquired from our Alaska Community Development Group partners from 15.3% in 2000 to 28.0% in 2001 of the community development pollock quota allocation.

          Cost of Sales.    Costs of sales includes operating costs such as crew and factory personnel compensation, fish purchases, vessel fuel, raw material purchases, packaging, insurance and other operating related expenses and depreciation applicable to assets used in operations. Cost of sales for the year ended December 31, 2001 increased $46.0 million, or 28.1%, to $209.6 million from $11.7 million for the period from January 1, 2000 to January 27, 2000 and $152.0 million for the period from January 28, 2000 to December 31, 2000. This increase was primarily attributable to additional variable product costs such as crew compensation and packaging resulting from selling approximately 37,000 more metric tons of at-sea processed finished product in 2001, higher quota purchase cost due to the increase in the volume of quota purchased and higher fuel costs due to an increase in fishing days. The gross profit for the year ended December 31, 2001 increased to $127.2 million, an increase of $28.8 million, or 29.3%, from ($2.0) million for the period from January 1, 2000 to January 27, 2000 and $100.4 million for the period from January 28, 2000 to December 31, 2000.

          Selling, General and Administrative Expenses.    Selling costs include product freight, storage, and marketing costs. General and administrative expenses include our employee compensation and benefits, rent expense, professional fees, association dues and other expenses, such as business development, office equipment and supplies. Selling, general and administrative expenses for the year ended December 31, 2001 increased $22.5 million, or 60.2%, to $59.9 million from $2.0 million for the period from January 1, 2000 to January 27, 2000 and $35.3 million for the period from January 28, 2000 to December 31, 2000. These expenses increased primarily due to our selling approximately 37,000 more metric tons of at-sea processed finished product in 2001, which resulted in $10.9 million of higher freight costs; higher general and administrative costs related to increases in salary and bonus expense; non-cash option compensation expense; association dues, which are assessed on the volume of pollock quota allocation; legal fees and professional services related to a potential sale and to the Recapitalization.

          Amortization of Cooperative Rights, Intangibles and Goodwill and Depreciation of Other Assets. Amortization includes the amortization related to the cooperative rights and goodwill recorded in connection with the January 2000 acquisition and depreciation of office related assets. Amortization expense for the year ended December 31, 2001 decreased $1.7 million, or 4.7%, to $33.9 million from $0.4 million for the period from January 1, 2000 to January 27, 2000 and $35.2 million for the period from January 28, 2000 to December 31, 2000. This decrease was primarily attributable to an extension of the amortization schedule for cooperative rights, an intangible asset representing our allocation rights as a member of the Pollock Conservation Cooperative. From January 28, 2000 to October 31, 2001, the cooperative rights were amortized on a straight-line basis over 59 months, which was the remaining life of the Pollock Conservation Cooperative agreement. Beginning in November 2001, as a result of changes to the American Fisheries Act, we changed the amortizable life of the cooperative rights to 23.2 years, which matches the average remaining depreciable lives of our vessels. Amortization of cooperative rights was $24.1 million for the period ended December 31, 2001 and $25.9 million for the period from January 28, 2000 to December 31, 2000.

          Interest Expense, Net (including related party interest).    Net interest expense includes interest incurred related to our revolving facility, bank debt and subordinated sellers note. Net interest expense for the year ended December 31, 2001 decreased $7.6 million, or 18.0%, to $34.9 million from $4.3 million for the period from January 1, 2000 to January 27, 2000 and $38.3 million for the period from January 28, 2000 to December 31, 2000. Interest expense for the period from January 1, 2000 to January 27, 2000 includes $3.1 million of related party debt guarantee and refinance fees that were recorded as an expense of the Predecessor Business. The decrease in net interest expense was mainly attributable to the absence of related party debt guarantee and refinance fees in 2001 and to lower variable interest rates applied to a declining principal balance on the senior bank debt we incurred in connection with the January 2000 acquisition. Interest expense for our revolving credit facility for the period from January 28, 2000 to December 31, 2000 and the year ended December 31, 2001 was $2.1 million and $1.6 million, respectively,

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including commitment fees. Interest expense for our two term loans was $21.7 million for the period from January 28, 2000 to December 31, 2000 and $15.1 million in 2001. We repaid all amounts outstanding under this bank credit facility in connection with the recapitalization, and entered into a new credit facility. See “—Liquidity and Capital Resources—Our Indebtedness.”

          In connection with the January 2000 acquisition, ASC, Inc. and American Seafoods Holding LLC each issued a long-term subordinated note payable to the seller, Norway Seafoods, which have been pushed down to our financial statements. The principal amounts of these seller notes totaled $95.0 million at issuance and bear interest at the rate of 10% per annum increasing to 12% to the extent interest is not paid in cash, but rather added to the principal amounts of the notes. No cash interest was paid on these notes in 2000 or 2001. Related party interest expense attributable to these seller notes was $9.2 million in 2000 and $12.6 million in 2001. We repaid these notes in connection with the Recapitalization. See “—Liquidity and Capital Resources—Our Indebtedness.”

          Foreign Exchange (Losses) Gains, Net.    Net foreign currency exchange gain attributable to financial derivatives for the year ended December 31, 2001 decreased $11.8 million to $17.7 million from $10.4 million for the period from January 1, 2000 to January 27, 2000 and $19.1 million for the period from January 28, 2000 to December 31, 2000. Of the $11.8 million, $10.4 million was unrealized gain related to the entire change in fair value of derivatives due to a significant decrease in the value of the Japanese yen during the first twenty-seven days of January 2000 prior to our adoption of SFAS No. 133 “Accounting for Derivative Instruments and Hedging Activities.” Beginning January 28, 2000, the existing forward contracts were designated as hedges and the change in value related to the fluctuation in the value of the Japanese yen was not reflected in earnings. The net unrealized gains related to the ineffective portion (the time value) of the derivatives recognized in earnings during the period from January 28, 2000 to December 31, 2000 and the twelve months ended December 31, 2001 were $16.4 million and $16.2 million, respectively. We recorded realized gains of $2.6 million and $1.7 million related to the change in the ineffective portion of the derivatives which settled during the period from January 28, 2000 to December 31, 2000 and the twelve months ended December 31, 2001. Due to the accounting effects resulting from our adoption of SFAS No. 133, the foreign currency gains (losses) recorded in periods related to the Predecessor Business are not comparable to the foreign currency gains (losses) recorded in periods related to American Seafoods Group LLC. 

Seasonality

          The U.S. pollock fishery is split into two distinct seasons, known as the “A” and “B” seasons. The “A” season opens in January and typically ends in April. During the “A” season, pollock carry their maximum quantities of high-value roe, making this season the more profitable one. During the “A” season we also produce other primary products, such as surimi and fillet blocks, although yields on these products are slightly lower in “A” season compared to “B” season due to the high roe content of pollock harvested in the “A” season. Although the “A” season typically accounts for approximately 40% of our year’s total pollock harvest measured by weight, it represents a substantially larger portion of our revenues generated in the same period due to the higher value of roe that is recovered during the “A” season.

          The “B” season occurs in the latter half of the year, typically beginning in July and extending through the end of October. The primary products produced in the “B” season are surimi and fillet blocks. The “B” season typically accounts for approximately 60% of our year’s total pollock harvest.

          The table below shows the Company’s quarterly dispersion, in terms of percentage, for net sales and gross profit for the period from January 1, 2000 through January 27, 2000, the period from January 28, 2000 through December 31, 2000, and for the years ended December 31, 2001 and 2002:

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Liquidity and Capital Resources

          Our principal liquidity requirements are for working capital, consisting primarily of receivables, inventories, pre-paid expenses, payables and accrued expenses; capital expenditures; and debt service. We will fund our liquidity needs primarily with cash generated from operations and, to the extent necessary, through borrowings under the new credit facility that we entered into as part of the Recapitalization. As of December 31, 2002, we had a $2.0 million outstanding balance under our existing revolving credit facility, which represents a decrease of $10.0 million compared to the $12.0 million outstanding revolver balance at December 31, 2001. 

          Our short-term and long-term liquidity needs will arise primarily from: interest expense, which is expected to be between $35 million and $45 million in both 2003 and 2004; scheduled principal repayments on debt, which are expected to be approximately $16.2 million in 2003, $17.9 million in 2004, $20.2 million in 2005, $23.7 million in 2006 and $460.1 million thereafter; capital expenditures, which are expected to be $10.0 million to $14 million in both 2003 and 2004; and working capital requirements as may be needed to support business growth.

          Cash flow from operating activities was $63.8 million, $84.1 million and $90.3 million for the years ended December 31, 2000, 2001 and 2002, respectively.  The increase in cash flow provided by operating activities from 2001 to 2002 was due principally to an increase in operating income resulting primarily from an increase in pollock surimi and block prices, which increased at-sea product margins, and a net decrease in working capital excluding current portion of long-term debt.  The increase in cash flow provided by operating activities from 2000 to 2001 was due principally to an increase in operating income resulting from an increase in pollock harvest and recovery rates, which increased revenue and product margins, and a more favorable Japanese yen exchange rate, partially offset by a net increase in working capital.

          Cash flow used by investing activities was $275.2 million, $13.7 million and $57.5 million for the years ended December 31, 2000, 2001 and 2002, respectively.  The increase in cash used by investing activities from 2001 to 2002 related principally to the acquisition of Southern Pride Catfish, Inc.  The cash used by investing activities in 2001 was due principally to an increase in purchases of property, vessels and equipment, and our equity investment in, and advances made to, Pacific Longline Company LLC prior to the Recapitalization.  The cash used by investing activities in 2000 was due principally to the January 2000 purchase of predecessor assets and vessels plus $24.1 million in a deferred purchase payment to the seller.

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Excluding the cash outflow related to the January 2000 acquisition, cash flow used by investing activities was $8.2 million for the year ended December 31, 2000.  

          Cash flows from financing activities were net cash outflows of $5.0 million in the period from January 1, 2000 to January 27, 2000, net cash inflows of $235.8 million in the period from January 27, 2000 to December 31, 2000, net cash outflows of $72.5 million in 2001 and net cash outflows of $31.6 million for 2002.

          During the period from January 1, 2000 to January 27, 2000, our cash flows from financing activities were comprised of net repayments of revolving debt of $5.0 million.  

          During the period from January 28, 2000 to December 31, 2000, our cash flows from financing activities included borrowings of $185.0 million of long-term debt, net revolving debt borrowings of $28.0 million and capital contributions of $41.5 million. These amounts represent cash flows relating primarily to funding the acquisition. The acquisition, which had a total purchase price of $477.9 million, involved the issuance of seller notes, bank borrowings and the issuance of equity instruments issued by our parent. All debt obligations that we have or will have assumed, that we repaid with proceeds from the offering of the old notes, or that we have guaranteed or our assets are pledged as collateral for, have been pushed down to our financial statements.  In addition to our acquisition funding, our cash flows from financing activities during the period January 28, 2000 to December 31, 2000 include $9.3 million of financing fees and costs, $1.4 million advanced to our parent, and principal payments on our long-term debt of $9.4 million.

          During 2001, our cash flows from financing activities were primarily comprised of borrowings of long-term debt of $3.5 million, principal payments of long-term debt of $47.8 million, net repayments on our revolving debt of $16.0 million and distributions to a member of $11.2 million. We repaid our debt as required by our loan agreements and we paid down our revolving debt to reduce our interest cost and improve our leverage ratio as cash was available from our operating activities. The distributions to our members were made based on estimated tax allocations.

          During 2002, our cash flows from financing activities were primarily comprised of net borrowings and net payments of long-term and revolving debt.  On April 18, 2002, we repaid all of our existing senior debt and seller notes in the amount of $305.6 million in connection with the recapitalization. We entered into new credit facilities in the amount of $445 million, which includes two term loans for $370 million and a revolving credit line of $75 million, and subordinated notes of $175 million.  The total amount borrowed on the term loans and subordinated notes was $545 million, of which $9.5 million had been paid down at December 31, 2002.  There was a $2.0 million outstanding balance on the revolver at December 31, 2002. We have considered and are considering other financing and restructuring transactions that  could lower our cost of capital and/or increase the value of our equity.    

          We had $3.4 million of cash and cash equivalents at December 31, 2002.  We believe that this cash, the cash flows we expect to generate from operations, and borrowing capabilities under our new senior credit facility, will be sufficient to meet our liquidity requirements in the foreseeable future.

          Covenant Restrictions.    The senior credit facility imposes restrictions on our ability to make capital expenditures. Additionally, the senior credit facility and the indenture governing the subordinated notes limit our ability to incur additional indebtedness. Such restrictions could limit our ability to respond to certain market conditions, meet our capital spending program, provide for unanticipated capital investments or take advantage of business opportunities. The covenants in the senior credit facility also, among other things, restrict our ability and the ability of our subsidiaries to dispose of assets, incur indebtedness, incur guarantee obligations, prepay other indebtedness or amend other debt instruments, make restricted payments, create liens, make investments, make acquisitions, change the nature of our business, engage in mergers and consolidations, enter into sale and leaseback transactions, make capital expenditures or engage in certain transactions with affiliates. The indenture governing our subordinated notes also imposes similar restrictions on the operation of our business.

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     Capital Expenditures

          The majority of our maintenance capital expenditures relate to our catcher-processor fleet and include items such as fishing gear, improvements to vessel factory processing equipment and major scheduled vessel maintenance.  Capital expenditures in these years were funded from cash flows from operations and borrowings under our credit facilities.  

          Major scheduled vessel maintenance costs relate principally to our periodic overhauls and replacements performed generally on a three-year cycle. Since the acquisition of January 28, 2000, these costs are capitalized and depreciated over the period through the next scheduled major vessel maintenance session. Prior to the acquisition, we accrued these costs in advance of incurring them.

          We estimate that we will have capital expenditure requirements in the range of approximately $10.0 million to $14.0 million per year for the next five years. This level of anticipated capital expenditures is primarily due to our capital expenditure cycle where our initial investment in the vessel asset is significant and is typically followed by additional expenditures made to upgrade the factory platform and the additional capital expenditures anticipated as a result of the Southern Pride acquisition. Our vessel platforms include state-of-the-art technological improvements, and we do not believe that any significant capital expenditures are currently required to improve the level of performance of our at-sea processing operations. As a result, we are currently in a proactive general maintenance phase to ensure that our vessels remain in the best operating condition.

          In addition to capital expenditures, we spent $7.2 million, $7.6 million and $7.6 million on vessel maintenance, which were expensed during the years ended December 31, 2000, 2001 and 2002, respectively.

     Our Indebtedness

          Old Senior Credit Facility.  In connection with our acquisition by Centre Partners in January 28, 2000, we entered into a revolving credit and term loan agreement with a syndicate of lenders, the administrative agent of which was Bank of America, N.A.  This agreement provided for $250.0 million in term loans ($175.0 million Term A and $75.0 million Term B) and $60.0 million in revolving credit.  In connection with the April 18, 2002 Recapitalization, we repaid all indebtedness under our old senior credit facility.

          New Senior Credit Facility.  In connection with the April 2002 Recapitalization, we entered into a senior credit agreement with a syndicate of banks, the administrative agent of which is Bank of America, NA  Our credit agreement, as amended and restated, consists of a $75.0 million revolving credit facility with an initial $5.9 million drawn at closing, and $370.0 million in term loans ($90.0 million Term A and $280.0 million Term B).  Our obligations under the credit facility are secured by substantially all our assets.  The agreement subjects us to various restrictive covenants, including limitations on our ability to prepay indebtedness (including our subordinated notes), incur additional indebtedness, and requirements that we maintain specified financial ratios, such as maximum total leverage, minimum interest coverage and minimum fixed charge coverage.

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          Our ability to comply in future periods with the financial covenants in the new credit facility will depend on our ongoing financial and operating performance, which in turn will be subject to economic conditions and to financial, business and other factors, many of which are beyond our control, and will be substantially dependent on the selling prices for our products and our ability to successfully implement our overall business strategies.

          Subordinated Seller Notes.  In connection with our acquisition by Centre Partners in January 2000, ASC, Inc. and American Seafoods Holdings LLC each issued a note to the seller, Norway Seafoods, each of which was pushed down to our financial statements.  These notes were in the principal amounts of $50.0 million and $45.0 million, respectively, and bore interest at the rate of 10% per annum, increasing to 12% to the extent interest was not paid in cash.  Any interest not paid in cash was added to the principal amounts of the notes.  No cash interest was paid on these notes in 2000 or 2001.  The notes were scheduled to mature on January 28, 2010.  In connection with the April 18, 2002 recapitalization, we repaid these notes plus related accrued interest.

          SEC Registered Notes.  On April 18, 2002, we completed a private offering of $175.0 million principal amount of 10 1/8% Senior Subordinated Notes due 2010.  A registration statement under the Securities Act registering these notes became effective on October 15, 2002.  On November 20, 2002, we completed our exchange offer of the privately-placed notes for SEC registered notes.  All of the privately-placed notes were exchanged for registered notes.  The indenture, dated as of April 18, 2002, among us, the guarantors and Wells Fargo Bank Minnesota, National Association, as trustee, contains provisions that define the rights of holders of the SEC  registered notes.

    Contractual Obligations and Commercial Commitments.

          The following table provides aggregated information about the Company's contractual obligations as of December 31, 2002.

In addition to the above, the Company is obligated to purchase up to 5 million pounds of catfish per year from SPC's previous owner at a price that is based on a market index. The term of this obligation is ten years. The Company had no significant commercial commitments as of December 31, 2002.

Critical Accounting Policies and Estimates

          Management’s discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our critical accounting policies and estimates and base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

          We believe the following critical accounting policies affect the most significant judgments and estimates used in the preparation of our consolidated financial statements:

          Foreign exchange contracts.    Since January 28, 2000, we record gains and losses on foreign currency transactions in other income and expense following Statement of Financial Accounting Standards No. 133, “Accounting for Derivative Instruments and Hedging Activities.” Foreign exchange contracts are used to hedge the variability of future cash flows associated with Japanese yen denominated sales due to changes in foreign currency exchange rates. The effectiveness of the hedged transactions is measured by changes in spot rates and the gain or loss resulting from the change in time value is recognized currently in earnings. The unrealized gains and losses resulting from the change in spot rates, or the effective portion, are recorded in other comprehensive income. These gains and losses are recognized in revenues when the forecasted sales have occurred. Gains and losses resulting from the ineffective portion of the hedge, which generally relate to the time value component of the contract, are recognized currently in earnings.

          Our profitability depends in part on revenues received in Japanese yen as a result of sales in Japan. During 2002, our Japanese sales represented 40.7% of our total revenues. A decline in the value of the yen against the U.S. dollar would adversely affect our earnings from sales in Japan. Fluctuations in currency are beyond our control and are unpredictable. From January 1 through December 31, 2002, the value of the dollar decreased 9.6% against the JPY, from 131.26 JPY per USD to 118.64 JPY per USD.  While we conduct hedging activities to mitigate the risk of currency fluctuations, these hedging activities may not be sufficient to

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provide complete protection against loss, and accordingly any such fluctuations could adversely affect our revenues.

          Acquisition and pushdown accounting.    On January 28, 2000, American Seafoods, L.P., our parent company, acquired us in a business combination accounted for as a purchase. Accordingly, all of our assets and liabilities were recorded at their estimated fair market values as of the date of the acquisition.

          To the extent that any of the debt issued in connection with the acquisition was assumed by us, repaid with the proceeds of the offering of the old notes, or guaranteed or secured by our assets, the debt and the related interest expense and debt issuance costs have been recorded in our financial statements. The goodwill resulting from the purchase has also been recorded in our financial statements.  In addition, expenses incurred by our parent have been recorded in our financial statements to the extent that such expenses related to or benefited our operations.

          In December 2002, the Company acquired Southern Pride Catfish Company, Inc. as described in Note 20 to the consolidated financial statements (the Acquisition of Southern Pride Catfish).  “See Item 8 – Financial Statement and Supplementary Data – Note 20.”  A portion of the net book value of the Company’s property and equipment represents amounts allocated to those assets as part of the allocation of the purchase price in the SPC Acquisition.  The allocation of the purchase price in a business combination under the purchase method of accounting is based on fair value estimates, which are subjective.  Management is required to estimate the fair values of assets and liabilities as of the SPC Acquisition date.  For property and equipment, an estimate of fair market value was determined based on replacement cost and age of the assets.  Inventories were valued at fair value less costs to sell and a normal profit margin.  Intangible assets acquired, including the trade name and customer relationships, were valued by discounting estimated future cash flows.  Other assets and liabilities were allocated purchase price based on the carrying value as management determined that carrying value approximated fair value.  The excess purchase price over the fair value of the net assets acquired was recorded as goodwill.  The Company reviews the carrying value of goodwill annually and when events and changes in circumstances indicate that the carrying value of the asset may not be recoverable through future operations.

          Cooperative rights.    An identifiable intangible asset, cooperative rights, was recorded at its estimated fair value of $138.2 million in connection with the acquisition on January 28, 2000. This estimated fair value was determined using a discounted cash flow analysis by comparing the expected discounted cash flows under the cooperative system to the cash flows under the former Olympic style system, which means that any vessel licensed to operate in the fishery may harvest as much fish as possible until the fishery’s aggregate seasonal quota allocation has been reached.

          From January 2000 to October 2001, the cooperative rights intangible asset was amortized on a straight-line basis over 59 months, which was the remaining life of the pollock conservation cooperative agreement. Beginning in November 2001, as a result of changes to the American Fisheries Act, we changed the life of our cooperative rights to 23.2 years, which matches the average remaining lives of the vessels, as the American Fisheries Act specifies vessels to which the cooperative rights apply.

          Vessel maintenance.    A significant portion of our operations is related to our vessels. On January 28, 2000, the purchase of our vessels was part of the total acquisition. Our vessels were recorded at their fair market values based on appraisals we obtained, with approximately 60% categorized as vessel equipment and machinery with an estimated useful life of seven years and approximately 40% as vessel hull with an estimated useful life of twenty-five years. We depreciate these assets on a straight-line basis over their estimated useful lives.

          We incur expenses to repair and maintain our vessels. Repairs and ordinary maintenance are expensed as incurred. Significant additions and improvements are capitalized. As a condition to maintaining our Det Norske Veritas class certification, the highest vessel certification in the industry, the vessels must undergo scheduled major shipyard maintenance at intervals of three to five years. As a part of this scheduled maintenance, we may also have major vessel components overhauled. The costs for this major shipyard maintenance are capitalized and charged to operations on a pro rata basis during the period through the next scheduled major shipyard maintenance.

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          Segment information.     We have one reportable segment, harvesting and processing ocean whitefish. The processing of these seafood products occurs both on our vessels while at sea and at our facilities in New Bedford, Massachusetts.  Catfish and other products were less than 10% of our sales and assets as of December 31, 2002. Prior to the SPC Acquisition, substantially all of the seafood products produced and sold were supported by the same executive management team and shared common customer and distribution functions. We do not allocate indirect expenses, including amortization of intangibles and interest expense, to any product lines or reporting segments. Accordingly, we do not maintain separate comprehensive profit and loss accounts for these product lines. In the opinion of our management, all product lines that exceed 10% of revenues, net income and total assets possess similar economic characteristics and meet the aggregation criteria described in SFAS No. 131, “Disclosure about Segments of an Enterprise and Related Information.”

New Accounting Pronouncements

          See “Item 8. Financial Statements and Supplementary Data--Note 1.”

Inflation

          We do not expect inflation to have a significant impact on our business, financial condition or results of operations. Historically, we generally have been able to offset the impact of inflation through a combination of productivity improvements and price increases.

          Market Pricing.   The sale of pollock roe is our highest margin product within ocean whitefish.  The price of pollock roe is heavily influenced by the size and condition of roe skeins, color and freshness and the maturity of the fish caught.  In addition, pollock roe prices are influenced by anticipated Russian and U.S. production and Japanese inventory carryover, as pollock roe is consumed almost exclusively in Japan. A decline in the quality of the pollock roe that we harvest or in Japanese demand could cause a decline in the market price of pollock roe, which would reduce our margins and revenues. Average roe prices per kilogram were 2,856 yen, 2,240 yen and 1,906 yen per kilogram for the years ended December 31, 2000, 2001 and 2002, respectively.

          Foreign Currency, Interest Rate and Commodity Hedging.   We are exposed to cash flow and earnings market risk from certain changes in the yen foreign currency exchange rate due to the significance of our sales into Japan, and to interest rates and diesel fuel prices. To mitigate the risk related to these factors, we utilize forward currency contracts and other derivative commodity instruments, principally futures contracts. As of December 31, 2002, we had open foreign exchange contracts maturing through October 30, 2006 with total notional amounts of $435.0 million, including $170 million subject to extension agreements.

          Prior to the acquisition of our business by Centre Partners in January 28, 2000, Aker, the parent of Norway Seafoods, had entered into a currency forward transaction with Sparebanken NOR and a forward transaction with Den norske Bank ASA.  On January 28, 2000, in connection with the acquisition by Centre Partners, Aker entered into an agreement with us whereby Aker is obligated to pay us all amounts less a nominal fee that Aker receives from Sparebanken NOR or Den norske Bank ASA, and we are obligated to pay Aker all amounts that Aker must pay to Sparebanken NOR or Den norske Bank ASA. Aker also had, as of December 31, 2002, exercisable foreign currency options with Sparebanken NOR with total notional amounts of $55.0 million relating to the period October 31, 2003 through July 29, 2005.  Pursuant to the January 28, 2000 agreement, Aker is obligated to pay us all amounts less a nominal fee that Aker receives from Sparebanken NOR and we are obligated to pay Aker all amounts that Aker must pay to Sparebanken NOR. These options will become forward foreign currency exchange contracts at our election or in the event that the dollar-yen spot exchange rate is at or below 94.00 Japanese yen per one US dollar at any time before July 29, 2003.

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          In connection with our foreign exchange contracts, we also have extension agreements to enter into foreign exchange agreements that expire between March 2004 and December 2005, and March 2006 and December 2007. These extension agreements would become binding and effective only if the spot price falls to a rate below a pre-specified level (the trigger price) on or before December 2005.  If the spot rate does not reach the trigger price on or before December 2005 we would have no right or obligation with respect to any of these extension agreements. The trigger price for these extension agreements is 99.00 Japanese yen per one U.S. dollar and the notional amounts for each of these extension agreements is $50.0 million. The extension agreements, if exercised, provide that we receive US dollars in exchange for Japanese yen.  We also have extension agreements to enter into additional foreign exchange contracts with Aker that expire between October 2003 and August 2005 that have similar terms as the ones described above. The trigger price is 94.00 Japanese yen per one U.S. dollar, the notional amounts are $70.0 million and the trigger end date is July 28, 2003.

          At December 31, 2002, we prepared an analysis to determine the sensitivity of our forward foreign exchange contracts, which were staggered over a rolling 36-month timeframe, to changes in exchange rates. A hypothetical adverse yen exchange rate movement of 1% against our forward foreign exchange contracts would have resulted in a potential loss in fair value of these contracts of approximately $2.7 million. All such losses on these forward foreign exchange contracts would have been substantially offset by gains on the related underlying Japanese yen sales transactions that we have hedged.

          Fuel hedges are entered into whereby we pay a fixed price per gallon and receive a floating price per gallon with the payments being calculated on a notional gallon amount of approximately 85% of our next 12 month estimated fuel usage and approximately 60% of months 13 through 24 estimated fuel usage over the term of the contracts through November 30, 2004. The objective of the swap agreements is to hedge the variability of future fuel prices. These instruments are considered to be substantially fully effective and, therefore, substantially all unrealized gains and losses at year-end are recognized as a component of other comprehensive income.   An adverse change in fuel prices, such as what has occurred in recent months, will not have a material impact on the average fuel price paid by the Company during the term of the open fuel hedge contracts.  The average hedged prices per gallon related to contracts maturing from January 2003 through November 2004 are lower than the 2002 average fuel price per gallon.

          Interest Rates.    Our senior credit facility requires us to hedge the interest rate on a portion of the outstanding senior debt to convert such debt to fixed-rate debt. We are required to enter into hedging transactions such that no less than 50% of the aggregate principal amount of the term loans and the senior subordinated notes is effectively fixed rate debt until April 18, 2005.

          We use various derivative financial instruments to manage our exposure to fluctuations in interest rates, including interest rate swaps. We have variable-to-fixed interest rate swap agreements whereby we pay a fixed rate and receive a floating rate with the interest payments being calculated on a notional amount of $36.0 million through March 15, 2003. The objective of the swap agreements is to hedge the variability of future cash flows associated with changes in variable interest rates. Gains and losses are recognized in earnings at the interest payment dates throughout the year. On March 15, 2003, these interest swap instruments were settled at their contractually specified terms.

          In addition to interest rate swaps, we have an interest rate cap with a notional amount of $29.5 million maturing in 2003. The cap rate is 9.0% and the variable rate is the U.S. dollar three-month LIBOR. On March 15, 2003 this interest cap instrument was settled at its contractually specified terms. We also have an interest rate cap with a notional amount of $72.5 million maturing in 2005. The cap rate is 5.0% and the variable rate is the U.S. dollar three month LIBOR. The fair value of these instruments was not significant at December 31, 2002. As of March 16, 2003, the Company entered into an interest rate cap with a notional amount of $21.0 million in 2003 through June 16, 2005. The cap rate is 5.0% and the variable rate is the U.S. dollar three month LIBOR.

          In addition to the interest hedges applicable to our senior debt, interest on our senior subordinated notes has a fixed rate. Approximately 58% of our total debt effectively has a fixed rate as of December 31, 2002.  Interest rate changes generally do not affect the market value of floating rate debt but do impact the

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amount of our interest payments and, therefore, our future earnings and cash flows, assuming other factors are held constant.  At December 31, 2002, the effect of a 1% increase in the interest rate, assuming the interest rate remains below the hedged cap rate, as applied to our floating rate debt would result in a $2.2 million increase in interest expense.  Conversely, for fixed rate debt, interest rate changes do not impact future cash flows and earnings, but do impact the fair market value of such debt, assuming other factors are held constant.

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INDEX TO FINANCIAL STATEMENTS

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REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS

To the Members of American Seafoods Group LLC:

          We have audited the accompanying consolidated balance sheets of American Seafoods Group LLC and subsidiaries (a Delaware Limited Liability Company) as of December 31, 2000 and 2001 and the related consolidated statements of operations, equity and cash flows for American Seafoods Group LLC and subsidiaries for the period from January 28, 2000 to December 31, 2000 and the year ended December 31, 2001 and for the Predecessor Business for the year ended December 31, 1999 and the period from January 1, 2000 to January 27, 2000. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

          We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

          In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of American Seafoods Group LLC and subsidiaries as of December 31, 2000 and 2001 and the results of their operations and their cash flows for the period from January 28, 2000 to December 31, 2000 and the year ended December 31, 2001 and the results of the operations and cash flows of the Predecessor Business for the year ended December 31, 1999 and the period from January 1, 2000 to January 27, 2000 in conformity with accounting principles generally accepted in the United States.

          As discussed in Note 1, on January 28, 2000, the Company was acquired in a transaction accounted for as a purchase. The purchase accounting resulted in all assets and liabilities being recorded at their estimated fair values. All goodwill and debt have been pushed down to the financial statements of the Company. Also, the Company changed its method of accounting for major scheduled vessel maintenance and accounting for derivative instruments, effective with the acquisition. Accordingly, the consolidated financial statements for periods subsequent to the acquisition are not comparable to the Predecessor Business financial statements presented for prior periods.

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INDEPENDENT AUDITORS’ REPORT

The Members of
American Seafoods Group LLC:

          We have audited the accompanying consolidated balance sheet of American Seafoods Group LLC and subsidiaries (the Company) as of December 31, 2002 and the related consolidated statements of operations, members’ interest (deficit) and comprehensive income (loss) and cash flows for the year then ended.  These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The combined financial statements of the predecessor business for the period January 1, 2000 to January 27, 2000, and the consolidated financial statements of the Company for the period January 28, 2000 to December 31, 2000, and as of and for the year ended December 31, 2001, were audited by other auditors who have ceased operations. Those auditors' report, dated February 1, 2002, on those financial statements was unqualified, before the revisions and restatement of disclosures described in Note 1 to the financial statements, and included an explanatory paragraph that described a purchase transaction and the change in the Company's method of accounting for major scheduled vessel maintenance and accounting for derivative instruments effective with the acquisition discussed in Note 1 to the financial statements.

          We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

          In our opinion, the 2002 consolidated financial statements referred to above present fairly, in all material respects, the financial position of American Seafoods Group LLC and subsidiaries as of December 31, 2002 and the results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America.

          As discussed above, the January 28, 2000 through December 31, 2000 and the 2001 consolidated financial statements of American Seafoods Group LLC were audited by other auditors who have ceased operations. As described in Note 1, these consolidated financial statements have been revised to include the transitional disclosures required by Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which was adopted by American Seafoods Group LLC as of January 1, 2002 and to include and restate the disclosures required by Statement of Financial Accounting Standards No. 148, Accounting for Stock-Based Compensation—Transition and Disclosure. We audited the adjustment that was applied to restate the disclosures for equity-based compensation for the year ended December 31, 2001. In our opinion, such adjustment is appropriate and has been properly applied and the disclosures for January 28, 2000 through December 31, 2000 and for 2001 in Note 1 are appropriate. However, we were not engaged to audit, review, or apply any procedures to the January 28, 2000 through December 31, 2000 or the 2001 consolidated financial statements of American Seafoods Group LLC and subsidiaries other than with respect to such adjustment and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the January 28, 2000 through December 31, 2000 or the 2001 consolidated financial statements taken as a whole.

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AMERICAN SEAFOODS GROUP LLC AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS—AS OF DECEMBER 31, 2001 AND 2002
(in thousands)

The accompanying notes are an integral part of these consolidated financial statements.

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AMERICAN SEAFOODS GROUP LLC AND SUBSIDIARIES CONSOLIDATED
AND PREDECESSOR BUSINESS COMBINED

STATEMENTS OF OPERATIONS
(in thousands)