CAPITAL CONSTRUCTION FUND

12 Months Ended

Dec. 31, 2023

CAPITAL CONSTRUCTION FUND

CAPITAL CONSTRUCTION FUND

7. CAPITAL CONSTRUCTION FUND

The Company is party to an agreement with the U.S. Department of Transportation, Maritime Administration (“MARAD”) that established a Capital Construction Fund (“CCF”) program under provisions of the Merchant Marine Act of 1936, as amended (the “Merchant Marine Act”). The CCF program was created to assist owners and operators of U.S. flagged vessels in raising capital necessary for the modernization and expansion of the U.S. merchant marine fleet. CCF funds may be used for the acquisition, construction, or reconstruction of vessels, and for repayment of existing vessel indebtedness through the deferment of federal income taxes on certain deposits of monies and other property placed into the CCF. Qualified withdrawals from the CCF must be used for investment in vessels built in the U.S. and used between covered U.S. ports as described by the Merchant Marine Act, and for other qualifying expenditures (see Item 1 of Part 1 for additional information on Maritime Laws and the Jones Act). Participants of the CCF must also meet certain U.S. citizenship requirements.

Cash deposits into the CCF are limited by certain applicable earnings and other conditions. Such cash deposits, once made, are available as tax deductions in the Company’s income tax provision. Qualified withdrawals from the CCF do not give rise to a current income tax liability, but reduce the depreciable basis of the vessels or certain related equipment for income tax purposes. However, if withdrawals are made from the CCF for general corporate purposes or other non-qualified purposes, or upon termination of the agreement, they are taxable with interest payable from the year of deposit.

Deposits not committed for qualified purposes within 25 years from the date of deposit will be treated as non-qualified withdrawals over the subsequent five years. Under the terms of the CCF agreement, the Company may designate certain qualified earnings as “accrued deposits” or may designate, as obligations of the CCF, qualified withdrawals to reimburse qualified expenditures initially made with operating funds. Such accrued deposits to, and withdrawals from, the CCF are reflected in the Consolidated Balance Sheets either as obligations of the Company’s current assets or as receivables from the CCF.

The Company may invest funds on deposit in the CCF in money market funds, U.S. Treasury Obligation Funds or other eligible credit-based investments for maturities of up to 3 years.

A summary of the activities within the CCF cash account for the years ended December 31, 2023 and 2022 consists of the following:

	Years Ended
	December 31,
(In millions)	2023		2022
CCF balance at beginning of period	$	518.2	$	—
Cash deposits into CCF		100.0		579.7
Interest earned on deposits		31.1		3.1
Qualifying withdrawal payments		(49.9)		(64.6)
CCF balance at end of period	$	599.4	$	518.2

Cash on deposit and assigned accounts receivables in the CCF as of December 31, 2023 and 2022 are as follows:

	As of December 31,
(In millions)	2023		2022
Capital Construction Fund:
Cash on deposit	$	599.4	$	518.2
Assigned accounts receivables	$	218.1	$	9.9

Cash on deposit in the CCF is invested in a U.S. Treasury obligations fund with daily liquidity. At December 31, 2023, securities held within the U.S. Treasury obligations fund had a weighted average life of 68 days. Cash on deposit in the CCF is classified as a long-term asset on the Company’s Condensed Consolidated Balance Sheets, as the Company intends to use withdrawals to fund qualified milestone progress payments for the construction of three new Jones Act vessels.

In February 2024, the Company purchased approximately $450 million of fixed-rate U.S. Treasuries with CCF cash deposits. The fixed-rate investments have various maturity dates up to 3 years.

Assigned accounts receivable in the CCF are classified as part of accounts receivable on the Company’s Consolidated Balance Sheets due to the nature of the assignment.