Arctic Alaska Fisheries Corp. -- Fish Processor Reels In Big Share Of Deep-Sea Catch

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ARCTIC ALASKA FISHERIES

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- Employees: 1,500 (Full-time equivalents; fishing is done in four-month cycles so only about 800 people are working at any one time.)

- Headquarters: Fishermen's Terminal, Seattle.

- Business: Fishing and fish processing.

- Chief Executive Officer: Terry Baker.

- Fiscal 1988 sales: $120,688,000. ($115,865,000 January-September 1989).

- Fiscal 1988 profits: $13,880,000, $1 per share.

($13,837,000 January-September 1989, 98 cents per share).

- Current Stock price: $10.125 (NYSE) .

- Major customers: Skipper's Inc.; Ivar's Inc.; Shoney's Inc. restaurants; Jerrico Inc., owner of Long John Silver's restaurants; Red Lobster Inn restaurants; Aburai Kabo Ltd., a Japanese seafood company.

- Major competitors: Marine Management Inc., Golden Age Fisheries.

- Strategy: Diversifying operations to emphasize production of value-added products, mostly for restaurants; seeking new markets to complement sales in Japan and the United States; spurring U.S. seafood consumption.

A genuine fish story usually exaggerates greatly about ``the one that got away,'' but Arctic Alaska Fisheries Corp. doesn't need much yarn-spinning. Its increasing size and profitability prove not many get away.

What started in 1979 as a confederation of two dozen limited partnerships now has the most vessels in the U.S.-based North Pacific fleet, which harvests the rich waters in the 200-mile zone off Alaska.

The company's initial success was in taking over markets for Alaskan fish that were established after World War II by other nations, particularly Japan. Recent laws give U.S. vessels first crack at that bounty and Arctic Alaska has led the way. Now it seeks diversification and hopes to whet more U.S. appetites for fish.

The success of this strategy can be charted by two developments:

- The company's Pier 91 processing plant is slated for a fivefold expansion in the next year. Plant employment is expected eventually to double to about 300.

- Its stock was listed on the New York Stock Exchange Jan. 2, less than two years after it was first offered publicly on the American exchange.

``We were very happy with the American exchange. The thing the New York exchange offered us was, really, just more exposure for the company,'' because some institutional investors aren't allowed to buy AMEX stocks, said Terry Baker, president and chief executive officer.

The stock sold at an initial offering price of $13 in April 1988, and has had sharp fluctuations since. In the month it's been listed on the NYSE it's been as high as $12.75 a share and as low as $9.67. It closed Friday at $10.125 a share.

Part of the decline reflects the stock market's volatility. The big contributor, though, was an analysis from Merrill Lynch Capital Markets in New York that lowered the stock's long-term rating and reduced the company's projected 1990 earnings to a $1.10-$1.20-a-share range from $1.25-$1.35. Arctic Alaska stock fell two points on Jan. 23 in the wake of that news.

Fran Blechman Bernstein, Merrill Lynch vice president who issued the new rating and has followed Arctic Alaska stock closely since it was issued, said she rates the stock as high-risk, partly because of its sharp price fluctuations and partly because of the industry's cyclical nature.

``It's a `buy' recommendation, but not a very aggressive `buy' recommendation,'' Bernstein said. ``I think it's a good growth situation, but it's a very volatile industry. . . . There's a lot of vessels out there fighting for the same fish, and there's increasing pressure on fish prices.''

But Baker says the company is bent on winning the fight for its share of those fish. Corporate officers, including board chairman Francis Miller, a longtime fisherman who co-founded the operation with Baker, still own 41 percent of the stock.

Another 12 percent is held by Nippon Suisan, Japan's largest fishery company, in an arrangement Baker says should entrench Arctic Alaska in the Japanese surimi market.

The $27 million stock sale to Nippon Suisan, completed last fall, gave Arctic Alaska exclusive marketing rights for surimi, a fish paste used in foods such as imitation crab or shrimp. Similar agreements could be struck in other markets, such as Europe.

The Nippon Suisan deal is helping fuel Arctic Alaska's rapid growth. In 1982 it was a small company that owned three boats and employed 50. Now it's a corporation with 22 vessels and the equivalent of 1,500 employees, 800 of which are working at any given time.

Net sales increased from $48.7 million in 1986 to $120.7 million in 1988; net profits rose from nearly $2.3 million to nearly $13.9 million in the same time. total assets of $54.2 million in 1985 grew to $203.1 million by last year.

The assets are mostly in the vessels harvesting Alaskan waters. Factory trawlers reel in nets with 120,000 pounds of cod, pollock or other fish, which are processed into 20,000 pounds of filets, packaged and frozen - all in four hours.

The process is similar on crab vessels, and Baker says the comparative freshness of seafood frozen at sea gives it a competitive edge over that produced by shore-based processing plants, mostly foreign-owned, that have sprung up as the Alaskan fishing industry has become successful.

To ensure a plentiful fish supply in Alaskan waters, federal law limits the total bottomfish catch to nearly 5.1 billion pounds a year. But observers expect that to increase as much as 10 percent in the next two years.

In 1988, Arctic Alaska took 6 percent of the total bottomfish catch in the 200-mile Alaska zone, which includes the Bering Sea and the Gulf of Alaska, and accounted for 16 percent of U.S. bottomfish processing.

Baker hopes vigorous marketing will expand U.S. sales, but he adds that Japan's long history of high seafood consumption makes it the prime sales area. In fact, 70 percent of Arctic Alaska's business was in Japan in 1987, but efforts to achieve greater balance cut that to 50 percent last year.

He said U.S. sales of surimi - mostly in the form of imitation crab, shrimp and scallops to grocery stores - is growing at 10 percent a year. But the 80 million pounds sold last year is a fraction of the 1.5 billion pounds the Japanese consumed.

One reason for the disparity is that surimi is used in some 500 Japanese seafood products. And the Japanese eat 60 pounds of seafood per person a year, compared with 15 in the United States. But the U.S. figure is growing.

``In the last 10 years we've seen seafood consumption go from 10 pounds per-capita consumption to 15, and that's the highest growth rate of any 10-year period,'' Baker said.

Arctic Alaska's fish is stocked by several local restaurants, including Skipper's Fish 'N Chowder Houses and Ivar's Restaurants, and less extensively in grocery stores under store labels.

``They are basically our sole supplier of cod because of the quality,'' said Scott Kingdon, Ivar's Restaurants president. ``They've been doing it as long or longer than anyone else. We're one of their first customers, so there's definitely loyalty between us. Their product is as good as anything that's out there.''

Baker would like to see such loyalty spread across the United States. A linchpin in that effort is the 20,000-square-foot processing plant operated at Seattle's Pier 91 by a subsidiary, Arctic Alaska Seafoods Inc.

Inside, a beehive of machinery and 100 to 175 workers reprocess the bounty from Arctic Alaska Fisheries vessels. Crabs from contract vessels working Washington state waters and fish from other fishery companies are processed too.

The plant began operating in January 1988 but didn't hit its stride until that September, said Arctic Alaska Seafoods president Douglas Wallick. In its first full year of operation last year, the plant processed nearly 13.8 million pounds of seafood - far exceeding the 6 million-pound expectation.

Basically, the plant reprocesses the frozen bulk fish from Arctic Alaska trawlers into more refined products that are sold to restaurants and grocery stores. For instance, a restaurant might want only 2 1/2-ounce filets so it can control portion size without hiring someone to cut and weigh each filet. The plant does that work and the restaurant pays a higher price, but probably saves more in labor costs, Wallick said.

Plant workers' jobs range from cutting large slabs of halibut into steaks to specially preparing crab legs for a restaurant order.

The frozen Alaskan crab legs come in four-leg clusters. They can be sold that way, cut into single legs, cut halfway through the shell to create a ``snap-`n'-eat'' variety, or fully cut lengthwise so all a diner has to do is pull the meat out with a fork. That means a restaurant doesn't have to invest in shell-cracking utensils and gets faster turnover, more customers and more income, Wallick said.

On a special line, Dungeness crabs from Washington are placed live in a basket according to weight, cooked in 195-degree water, chilled in 32-degree water and then frozen in zero-degree brine - all in less than two hours.

Baker believes such frozen freshness has customers and potential investors taking notice. The federal government also has been impressed enough to guarantee loans for some company ships.

``Since we guarantee their vessels, one might assume we think very highly of them,'' said Linda Chavez, Seattle regional trade and industry services chief for the National Marine Fisheries Service.

The federal Environmental Protection Agency has been impressed in a different way. The EPA in October proposed a $65,000 fine against Arctic Fisheries Inc., another subsidiary, for illegally dumping fish waste from two vessels into Lost Harbor, Alaska.

Baker didn't want to discuss specifics because the case has not been settled. However, he said, the company is embarking on a plan, starting with two processors, to eliminate the waste discharge by processing it into fish meal for commercial sale.

Foreign governments play major roles too - mostly by erecting trade barriers and imposing stiff tariffs.

Chavez notes the tariffs hit 15 percent in some European nations. ``Arctic Alaska has done very well in breaking into those markets, but it's difficult because of the trade restrictions.''

Poaching from Alaskan waters by foreign vessels has made headlines, but it doesn't worry Baker so much anymore. That's because of the Coast Guard's new get-tough policy, under which several foreign vessels last year were caught red-handed fishing illegally in U.S. waters.

He said he'll let the feds worry about poachers while he focuses on growth. A $25 million factory trawler, the Island Enterprise, arrives in March to help ensure a modern fleet. The cost is high but so are expectations. Baker said the company counts on $20 million in annual revenue from that ship because of the Nippon Suisan deal.

As part of its diversification plans, the company has added a freighter to its fleet to carry some of its products overseas and cut shipping costs, Baker said.

And, Arctic Alaska could decide to put more emphasis on retailing its products in coming years, said Brian Kelly, an executive vice president.

``We don't really have much of a retail presence . . . but I think that's an area we'll be going more toward,'' Kelly said. ``We're just kind of exploring and thinking about different directions we can go.''

But Baker says because there's still great untapped potential in supplying restaurants, selling to stores under the company's Arctic Ice label could take a long time. ``That's a totally different way for us to do business,'' he said.

And, he added, it would be tough to buck well-established names, such as Mrs. Paul's and Van de Kamp, already found on store shelves. ``We're just not mature enough to take those kinds of plunges.''

Strategies appears weekly in the Business Monday section of The Seattle Times.