United States Mint 2000 Annual Report

Results of Operations

Overall Operations

The mission of the U.S. Mint is to manufacture the highest quality circulating, numismatic, and bullion coins at the lowest possible cost and to deliver them in a timely manner… to expand our markets through exceptional customer service, product development, and innovative marketing…to sell numismatic and bullion products at a reasonable price and profit, and to provide security over assets entrusted to us.

Performance Measures Highlights

Under the Government Performance and Results Act (GPRA), agencies must develop performance measures and plans to gauge the success of programs and missions against those measures. The Mint began to implement these requirements into its financial planning and reporting responsibilities in FY 1994. Performance measures identified in the Mint’s Strategic Plan are reported upon as part of this annual report. Although core missions do not change dramatically from year to year, the Mint continues to refine performance objectives and appropriate performance outcome measures that better gauge the results of its business and activities. Within the context of this report, the Mint is presenting its most critical performance measures. The Mint’s performance measures are linked to outcomes, capture significant variables, and address the multiple priorities involved in completing its mission.

Revenues

Overall revenues for the Mint increased to $3.7 billion in FY 2000 from $2.4 billion in FY 1999, an increase of 54%. The $1.3 billion increase consists of an increase of over $1.8 billion in Circulating coinage revenues and a decrease of just under $0.5 billion in Numismatic product revenues. This is largely attributable to the post Y2K decline in the demand for precious metal/bullion products and to the market saturation that ensued. Details of the changes in revenues follow in the individual sections below.

Expenses

Overall expenses for the Mint decreased to $1.1 billion in FY 2000 from $1.4 billion in FY 1999. Overall expenses incurred by Numismatic decreased to $399.4 million in FY 2000 from $928.7 million in FY 1999. Expenses incurred by Circulating operations increased to $697.2 million in FY 2000 from $420.6 million in FY 1999. Details of the changes in expenses follow in the individual sections below.

Transfer of Profits to the Treasury General Fund

Over the past several years, contributions to the Treasury General Fund from profits on Mint operations have increased dramatically. In FY 2000 contributions to the Treasury General Fund increased by 124% over that of the prior year — $2.28 billion for FY 2000 as compared to the prior record high of $1.02 billion for FY 1999.

Circulating Strategic Business Unit

Mission

The primary mission of the Circulating Strategic Business Unit is to produce sufficient coinage to meet the needs of commerce and the consumer while doing so in a cost-effective manner.

Operating challenges faced in FY 2000

Following the all-time record set in FY 1999 of 20.4 billion coins shipped, the Circulating Strategic Business Unit faced several significant challenges in FY 2000. Two of these major challenges were increasing capacity by approximately 7 billion coins to meet increased coin demand and modernizing and upgrading the Philadelphia and Denver Mints.

In FY 2000 the demand for circulating coins has reached annualized peaks as high as 29 billion pieces per year, more than double the demand of 14 billion pieces just three years ago. This remarkable increase is largely attributable to the 50 States Quarters program, the popularity of the Golden dollar, and a sustained strong American economy. The following table illustrates this demand.

*The above data reflects fiscal year production and should not be interpreted as mintage levels of coins for a calendar year.

The recent high demand for coinage has exceeded normal production capacity. In addition to the increase in coin production, the mix of denominations produced has also changed. The production of non-penny coins has increased dramatically, as a percentage of total coins produced. In FY 2000, non-penny production equaled penny production for the first time in the Mint’s more than 200-year history. Non-pennies require significantly more resources to produce than pennies due to more complex manufacturing methods. This change in mix coupled with extraordinary demand has challenged the Circulating Strategic Business Unit.

Financial Performance

Revenues

Circulating revenues increased to $3.22 billion in FY 2000 from $1.46 billion in FY 1999. This represents a 121% increase in revenues.

*FY 1999 revenues for the Susan B. Anthony dollar coins

The increases in revenues consists of:

• $986.1 million increase in the dollar coins
• $673.4 million increase in quarters
• $106.2 million increase in all other denominations

Dollar Coins

The significant increase in dollar coins is related to the introduction of the new “Golden Dollar coin.” Units of dollar coins shipped increased to 1,019 million in FY 2000 from 33 million in FY 1999. The FY 2000 shipments included 40 million Susan B. Anthony dollars (SBAs). This exceeds, in less than one year, the entire amount of coins minted during the 21- year SBA program. The last SBAs were shipped in the second quarter of FY 2000.

Quarters

Quarter revenues have increased from an average of $403 million for the three years prior to the inception of the “50State Quarters Program” (FY 1996 – FY1998) to an average of $1,205 million for the past two fiscal years. This represents an average increase of 199%. The dramatic increase in quarter revenues is a result of the phenomenally successful 50 State Quarters Program. It is estimated that nearly 113 million citizens are actively collecting the 50 state quarters. Under this program a new state quarter is produced every ten weeks.

Other Denominations

The balance of the increase ($106 million) is due to increased demand for coins. This increase represents a 19% increase in revenues in FY 2000 from FY 1999.

* The above data reflects fiscal year shipments and should not be interpreted as mintage levels of coins for a calendar year.

** Prior to the establishment of the Public Enterprise Fund (PEF), revenue from circulating coinage was recognized when the coinage was produced and turned over to the cashier. Currently, under the PEF, revenue from circulating coinage is recognized when coinage is shipped to the Federal Reserve Board.

Expenses

Circulating coinage expenses increased to $697 million in FY 2000 from $421 million in FY 1999. This represented a 66% increase over that period compared to a revenue increase of 121% for the same time period. This increase reflects the production of 7 billion more coins in FY 2000 as compared with FY 1999!

The majority of the $277 million increase (83.6%) is associated with the increases in production for the dollar and the state quarters. Approximately 41.0% of the increase relates to the production of the Golden dollar and 42.6% to the production of state quarters. The major components of this cost increase are metal and metal fabrication costs ($128 million). The table below shows the increase in expenses for these two denominations:

Circulating Profits

Profits increased to $2.5 billion in FY 2000 from $1.0 billion in FY 1999. The majority of the $1.5 billion in increased profits can be associated with the golden dollar and the state quarters program.

The profit margins for FY 2000 on both the quarters and dollars are significant: 82% and 86% for quarters and dollars respectively.

Performance Measures Highlights

Goal: By 2003, reduce the average unit cost of circulating coinage by 15% (including metal cost).

Performance Measures:

There are two indicators that are used to measure the cost-effectiveness of the Mint’s production of circulating coinage:

• Average cost per thousand units of circulating pennies.
• Average cost per thousand units of circulating clad and nickel coinage.

The goals for our performance measures are set intentionally high. In our private sector-like Mint culture, these goals are known as “stretch goals” which are designed to raise the performance standards of the Mint to the highest levels possible.

1. Average cost per 1,000 units of circulating pennies (including metal)

The Mint exceeded its goal for circulating pennies in FY 2000. The total number of pennies shipped in FY 2000 was 13.7 billion, an increase of 2.1 billion from the 11.6 billion shipped in FY 1999. While shipping a higher volume, progress was made toward the goal as shown by a reduction from $8.35 in FY 1999 to the result of $8.21 in FY 2000.

2. Average cost per 1,000 units of circulating clad and nickel coinage (including metal)

The Mint’s cost per 1,000 units of clad and nickel coinage exceeded the goal of $34.48 by 14%. Actual results were affected by increased production of the higher value/cost denominations plus increased metals costs. In FY 2000, we shipped 6.2 billion quarters, compared with 3.5 billion in FY 1999. Also dollar coin operations contributed to this result. The first quarter of FY 2000 saw the need to produce and ship Susan B. Anthony Dollars; the Golden Dollar featuring Sacagawea was introduced in the second quarter of FY 2000. Approximately 1.02 billion dollar coins were shipped in FY 2000. The Mint incurred higher prices in FY 2000, compared to FY 1999, for nickel (26%) and copper (6%), the raw materials that are the main ingredients in the clad and nickel coinage. Quarters and dollar coins made up 53% of clad and nickel shipments in FY 2000 compared with 40% in FY 1999. The increase in quarter demand alone, translates to an increase in metal costs of $79 million.

Numismatic Strategic Business Unit

The vision of the Numismatic Strategic Business Unit of the U.S. Mint is to foster the health of numismatics by providing outstanding products and services, expanding markets, and supporting the long-term value of our products, while making a reasonable return for the American taxpayer.

Revenues

Numismatic revenues are generated through sales of investment (bullion) and collectible (non-bullion) products to the public. Bullion products refer to gold, silver, and platinum American Eagle Uncirculated coins that are sold to Authorized Purchasers who in turn offer them for sale to the general public. Non-Bullion products include American Eagle Proof Programs, Commemorative Programs, and Recurring Programs and are sold directly to the public by the Mint. Numismatic revenues were $488.4 million in FY 2000 compared to $967.6 million in FY 1999. As explained in greater detail below, Non-Bullion revenues increased significantly from FY 1999. This increase was offset by the drastic decrease of Bullion revenues which is largely attributable to the post Y2K decline in the demand for precious metal/bullion products and to the market saturation that ensued.

Bullion Products

Numismatic revenues as a result of bullion product, specifically Gold Eagle Uncirculated sales in the American Eagle Uncirculated program, decreased to $182.5 million in FY 2000 from $806.8 million in FY 1999. Sale of gold bullion plummeted in FY 2000 due to a glut of bullion coins in the market. This was a result of an all time record demand for bullion in FY 1999 to address Y2K concerns that did not materialize. The decrease, however, is largely offset by a decline in operating expenses for the program. The U.S. Mint still dominates market share in world markets for platinum, gold, and silver bullion products, the market for these products having shrunk significantly during FY 2000.

Non-Bullion Products

American Eagle Proof Program

Numismatic revenues as a result of American Eagle Proof [the collector version of the Bullion program coins] sales increased to $66.4 million in FY 2000 from $57 million in FY 1999, an increase of 16%. In FY 2000, five of the six American Eagle options sold out within three months whereas all of these options were still for sale at the end of FY 1999.

Commemorative Coins

Revenues as a result of commemorative coin sales increased to $34.1 million in FY 2000 from $25.2 million in FY 1999, an increase of 35%. The chart below shows the results of the Commemorative Coin programs active during FY 2000 as reported to Congress. Public Law 104-208, “Omnibus Consolidated Appropriations Act for Fiscal year 1997,” requires the Mint to withhold surcharge payments to commemorative coin program beneficiaries until the Mint’s investment in program, marketing and administrative activities have been recovered.

Additionally, the law requires that beneficiary organizations demonstrate they have raised equal or greater amounts of revenue from private sources. The Mint and beneficiary organizations have partnered more effectively since the legislation was passed, with both groups sharing in the risks and benefits in a business-like manner.

Recurring Programs

Sales of Recurring programs [circulating derived products that are produced annually by Numismatics for collectors/numismatists] increased to $205.4 million in FY 2000 from $78.6 million in FY 1999, an increase of 161%. This increase in revenue reflects growth in demand for 50 State Quarter products including the sales of maps, five coin quarters sets, bags of quarters, and bags of Golden Dollars.

Expenses

Numismatic expenses decreased to $399.4 million in FY 2000 from $928.7 million in FY 1999. Expenses for the Investment (Bullion) program decreased to $179.5 million in FY 2000 from $795.6 million in FY 1999, a decrease of 77%, mirroring the decline in bullion revenue. Expenses for the Non-Investment (Non-Bullion) programs increased to $219.9 million in FY 2000 from $133.1 million in FY 1999, an increase of 65%, compared to the 90% increase in revenues for these programs.

Profits

Overall profits for the numismatic operations rose dramatically to $89 million in FY 2000 from $38.8 million in FY 1999. The profits from the Non-Investment programs (including the Commemorative Coin Program) were $86 million in FY 2000 compared to $27.7 million in FY 1999. The profits from the Investment program fell to $3 million in FY 2000 from $11.1 million in FY 1999.

Performance Measures Highlights

Goal: Match the best in business in the delivery of product and customer services.

Performance Measures:

• Percentage of commemorative coins shipped within standard (four weeks)
• Percentage of recurring coin products shipped within standard (three weeks)

1. Percentage of commemorative coins shipped within standard

*Both commemorative and recurring products were combined in FY 1999. The result was 79%.

The Mint shipped commemorative coins within the standard of four weeks 87% of the time. Heavy demand for the Yellowstone 2-coin sets outstripped our supply. The inability to obtain additional boxes for the 2-coin set from the vendor resulted in many of our shipments being delayed by more than four weeks. Demand in excess of our sales projections for the Leif Ericson and Library of Congress coins also affected our performance under this measure.

2. Percentage of recurring coin products shipped within standard

*Both commemorative and recurring products were combined in FY 1999. The result was 79%.

The Mint shipped recurring coin products within the standard of three weeks 90% of the time. The unique qualities of the 50 States Quarters program required an expanded version of the Mint’s classic proof set. To accommodate proof versions of the 5 state quarters minted in 2000, the annual proof sets require revised processes to manufacture and package this expanded set. As an example, the 1999 proof sets, shipped in early FY 2000, included nine coins (penny, nickel, dime, five quarters, and half-dollar) as compared to the traditional five-coin proof set of prior years. Automation, new coin lenses, and new packaging inserts all presented challenges in production that caused delays in readying this product for customer shipments. The introduction of the new Golden Dollar featuring Sacagawea into circulation during FY 2000 presented additional challenges to the Mint’s recurring coin programs. Year 2000 proof sets have increased to 10 coins from the 9-coin set, and uncirculated sets have 20 coins instead of 18 coins. Additionally, delivery of the year 2000 silver proof sets was delayed until the President signed into law a Congressional amendment to the Silver Proof Act. This Congressional act was necessary in order to include the Golden Dollar in the silver proof set.

Goal: To increase the contribution margin of the numismatic/bullion operation by aggressively pursuing new customers, new market channels and new product lines.

Performance Measures:

• Numismatic Contribution margin for bullion
• Numismatic Contribution margin for non-bullion

1.   Numismatic contribution margin for bullion

This goal is measured by taking the bullion profit (before corporate expense allocations) as a percent of the bullion revenues. The Mint did not reach the goal of 2% due to low demand for the bullion products. Since the revenue the Mint receives from the bullion program is basically cost plus a minimal markup, the contribution margin as we’ve defined it here will be lower in times of low demand due to the fixed costs being spread among less revenues. This result has improved approximately 12% from FY 1999.

2. Numismatic contribution margin for non-bullion

This goal is measured by taking the non-bullion profit (before corporate expense allocations) as a percent of the non-bullion revenues. High demand for the 50 States Quarters program’s ancillary products such as maps, first-day coin covers, bagged coins; and very high profitability of American Eagle proof programs contributed to this result.

Customer Service Standards

The Mint is committed to excellence in customer service. In addition to the performance measures discussed above, eight aspects of product delivery which interface directly with customers were identified. In each instance, the Mint has established a benchmark against which to gauge its operations and identify improvement opportunities. The Mint’s performance against these goals is shown in the following table:

Like the goals for our performance measures, the goals for our customer service standards are set intentionally high. In our private sector-like Mint culture, these goals are known as “stretch goals” which are designed to raise the performance standards of the Mint to the highest levels possible. As such, we met one of our customer service standards (#5) and came very close to meeting a second standard (#7). In comparison with FY 1999 performance in Customer Service, we have improved or maintained 5 of our 8 Customer Service Standards. This is especially significant considering the increase in demand for non-bullion programs.

In January 2000, a new correspondence management system was implemented. This system was installed to provide better customer service, from order to fulfillment. The normal learning curve for a new system impacted our performance relative to processing refunds within 14 working days and responding to customer correspondence within three business days.

The Mint reported improved performance for 50% of the measures relative to FY 1999 performance. The greatest increase occurred with the answering of customer service phone calls by a live agent within 17.5 seconds. The Mint increased staffing for this crucial area and was able to register a 77% improvement despite a 17% increase in the number of customer service phone calls received (328,453 calls in FY 2000 versus 279,874 calls received in FY 1999).

Our FY 2000 results are consistent with the need to continue to evolve policies and procedures to better serve our customers. We are committed to match and then exceed the best in business in the quality of service received by our customers.

Protection Strategic Business Unit

The vision of the Protection division of the U.S. Mint is to maintain a highly professional police force with the tools and resources to respond to changing threats in our environment while making Protection a self-sustaining line of business.

The Mint’s police force conducts business each year without publicity and headlines in a quiet, extremely efficient and professional manner. The Mint secures more than $67 billion of the Nation’s gold and silver reserves. In FY 2000, the Mint produced and shipped $3.2 billion in circulating coinage and processed more than $481 million in customer payments for numismatic and bullion products. Mint police protect these assets while safeguarding 2,700 Mint employees against potential threats at six facilities.

Goal: To provide a level of security commensurate with changing threats.

Performance Measure:

Dollar losses per billion dollars of Reserve Value

The Mint had no dollar losses per billion dollars of reserve value. The Protection Business Unit secures the Nation’s precious metal reserves as well as the facilities and employees of the Mint. This stellar performance continues to highlight the efficiency and effectiveness of the Protection Business Unit.

Other Issues

Capital Investment

During the last few years, the demand for coins has often exceeded the Mint’s normal production capacity. In response to this extraordinary increase in coin demand, the Mint relied on 24-hour per day, seven day per week production schedules that necessitated overtime, weekend and holiday production in an effort to close the supply gap. These stopgap measures are not sustainable in the long run to address the nation’s coinage needs. Such measures can result in depleted inventories, stressed machinery and stressed employees. In response to the challenges of increased coin demand, the Mint is undertaking a capital plan that will address the nation’s immediate and longer-term circulating coinage needs. The Mint’s strategy requires increasing overall production capacity with new equipment and modernizing material handling systems.

Nearly half of the coining presses are more than 20 years old and are essentially worn out. These antiquated presses are mechanically incapable of responding to the modern production and engineering requirements of the Mint. They are inefficient, slow, virtually incapable of producing anything except pennies, and frequently break down, resulting in the erosion of crucial production capacity. The Mint plans to replace these presses and replace them with new equipment. As a result, production capacity will be augmented and the gap between coin supply and demand greatly reduced.

Included in the Mint’s capital investment plan are funds to provide for “facilities improvements.” The category “facilities improvements” encompasses a variety of upgrades, modifications and renovations. Many of the Mint’s field facilities are older structures that require significant infrastructure renovations as well as grounds improvements. Among the facilities improvements included in the Mint’s plan are infrastructure improvements for new equipment, water cooling system improvements, seismic upgrades, roof repairs, redesigns and replacements and sidewalk and driveway repair. Additionally, the Mint is modernizing the fire protection system at the Philadelphia Mint and installing a modern bulk coin bagging process at the Denver and Philadelphia facilities.

The Mint’s capital investment plan includes funds for information technology and protection. With technology advancing at an accelerated pace, the Mint must upgrade its information technology systems and telecommunications to effectively support our evolving operations and to maintain a competitive position in the marketplace. Major planned activities include the implementation of an Automated Data Collection System (ADCS), telecommunications upgrades, hardware/network upgrades and software acquisition. Similarly, the Mint needs state-of-the-art security technologies and equipment in order to effectively respond to ever changing security threats. Major protection items in our capital investment plan include control center upgrades, surveillance equipment at employee/visitor entrances, communications equipment and physical barriers.

The Mint utilizes a five-year planning cycle for capital investments. Many of the crucial capital projects outlined above span more than one fiscal year. During FY 2000, major areas capital spending for equipment included coin press replacements, coin press life extensions, and coin bagging automation. Principal facilities improvements for FY 2000 included renovations and modifications at the Mint’s West Point facility and upgrades to the utility infrastructure (electric, water, sewer) at the San Francisco location.

E-Commerce Activities

Prompt Payment Act (PPA)

The Prompt Payment Act (PPA), enacted on May 21, 1982, and amended on October 17, 1988, requires Federal agencies to pay commercial obligations within discrete time periods and to pay interest penalties when those time constraints are not met. During FY 2000, the Mint continued its progress in strengthening its invoice payment process. The overall percentage of late payments for FY 2000 was 3.6%, which unfortunately was above the Department’s standard of 2%. This rate was a significant improvement compared to the 8.7% percent late payment rate during FY 1999. While this was an improvement, we recognize that the level is still unacceptably high and our goal is to come under 2% during FY 2001.

Electronic Funds Transfer (EFT)

The Debt Collection Act of 1996 was signed and passed by the president of the United States on April 26, 1996. This legislation requires that all federal payments be made through the use of electronic funds transfer (EFT), with the exception of tax refunds. The Mint recognizes the efficiencies and cost savings to the government of using EFT for its financial transactions. Therefore, the Mint encourages its employees and business partners to conduct business electronically. During FY 2000, 100% of the Mint’s travel reimbursements to employees and 94% of vendors were paid by EFT.

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Aug 14, 2001
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