Server: Microsoft-IIS/3.0 Date: Fri, 19 Dec 1997 03:22:11 GMT Content-Type: text/html Accept-Ranges: bytes Last-Modified: Fri, 05 Sep 1997 20:54:38 GMT Content-Length: 7420 Ambassadors International, Inc., Letter to Shareholders

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Letter to Shareholders

Dear Shareholder:

Thank you for supporting us in our first year as a public company. In the future, we will be using this Letter to Shareholders as a means to highlight the key initiatives that we have undertaken and will undertake to create, build and sustain shareholder value. This year, however, we will also discuss the nature of our current business as well as many of its unique traits.

Taking the helm of Ambassadors International marked my return to the travel industry. Although much remains the same - the key people, the industry fragmentation and the fun of the business - much has changed, and those changes have brought new and greater opportunities for those with the right experience, management ability and access to capital.

The end of the Cold War has reduced many barriers to travel and opened new parts of the globe to adventurous souls. Advances in technology have provided new tools to create more time for travel while increasing the value of international experience. Businesses around the world are crossing international borders more than ever, which spurs greater interest in our counterparts in all areas of the world. Demographics are also working in the favor of travel providers. The concentration of wealth in the upper age groups of our society combined with fewer time commitments for this group is generating new travel demands. These positive feedback dynamics are accelerating the growth of many types of travel services.

In addition, I now work for a public travel company, Ambassadors International - our company - that has the strength of the public market behind it, which can provide both cash and stock for acquisitions as well as capital for growth in our existing businesses.

We launched Ambassadors International, a holding company, in 1995 to identify and capture defensible positions in specialized segments of the travel industry. We chose to use a holding company because it enables us to leverage our industry experience, our ability to identify and attract strong management, and our ability to attract strong performing travel companies and build them into larger, more efficient enterprises.

Although 1995 was clearly a transition year for API, we realized high-water marks in gross receipts, revenue and net income. For comparative purposes, we present our financial results pro forma, to adjust for two key changes: API was changed from an S-corporation to a C-corporation, and we eliminated many non-recurring expenses from 1994. Our pro forma results read as follows: 1995 gross receipts increased 4% over 1994 to $46,747,000; revenues increased 1% to $17,133,000; and, net income advanced from $3,152,000 in 1994 to $3,179,000.

Our income statement, however, is only part of the 1995 story. Our strong balance sheet should be given the primary role. Our initial public offering and another very profitable year have allowed us to approximately double our cash and cash equivalents from $6.6 million to $13.0 million. In addition, our shareholders' equity grew from $1.8 million at the end of 1994 to $11.1 million at the end of 1995. We have now set the stage for expansion.

Our core business, Ambassador Programs, Inc., has two main lines of business: adult professional exchange and student exchange. Both of these businesses utilize the People to People brand name as well as its established network of contacts around the world. While both the adult and student sides of the business are profitable and healthy, they both present significant opportunities for sustained, profitable growth.

Some of these growth drivers are shared by both sides of the business. For example, our new geographic information systems are allowing us to study the geographic and demographic patterns of our customer base. This pattern analysis provides us with better targeting for our marketing and product development efforts. Improved financial analysis is enabling us to develop a better picture of our marketing, administrative and operational systems. We are using this information to pinpoint the greatest opportunities for gains in efficiency.

In addition to management improvements, both the student and adult programs present significant expansion opportunities. We are evaluating inbound student programs, shorter stays, and non-summer travel for new program possibilities. All of these program ideas have substantial, existing markets.

On the adult side, we are focused on finding new marketing practices that will enable us to achieve much greater efficiencies in all of our marketing programs. We are also testing new programs aimed directly at baby boomers that will enable us to market to the general public for the first time.

We have also added to our adult business through acquisition. In early February, 1996, we announced the acquisition of American People Ambassador Programs (APAP). This acquisition adds to our base of business and also brings all People to People travel programs under our management.

In late January, 1996, we added a new line of business to the Ambassadors mix: incentive travel and meeting management. This business involves designing, marketing and organizing the incentive travel for corporate and business clients. For example, a car company rewarding its dealers for selling a certain number of cars in a fixed time period by sending them and their spouses to Hawaii for a week. Our entry point into this business is the Helin Organization. Headquartered in Newport Beach, California, the Helin Organization has engaged in incentive travel for over two decades. The Helin Organization will not have a large impact on our earnings in 1996. We expect to acquire several other incentive companies to add to this new division of Ambassadors International and build a strong, profitable business.

We look forward to your support in the coming years as we embark on a mission to build a substantial new type of travel company. We have a base of dedicated professionals who have a passion for the travel experience. We will seek to acquire additional companies and individuals of the highest quality. Financial security and long-term commitment to the travel industry will accelerate our growth in the months and years to come.

Sincerely,

John A. Ueberroth, Chief Executive Officer


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