Table Of Content

2s Mint 1999 Annual Report UsERy oeerLmeM The Mission of the United States 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. — U.S. Mint Strategic Plan Founded in 1792, the U.S. Mint became a bureau of the Treasury Department in 1873 and today is the world’s largest coin manufacturer, with operations in California, Colorado, Kentucky, Maryland, New York, Pennsylvania, and Washington, D.C. Our missions are to produce the nation’s circulating coinage, to manufacture and market coin and medal products worldwide, and to safeguard the nation’s bullion reserves at Fort Knox and elsewhere. These missions and our effectiveness in executing them make the U.S. Mint one of the few federal agencies that produces an operating profit. Table of Contents PTUTPOCUCTION: ¢\9 5 sis sis o-& cletesee meee ee eee 1 Circulating Business Unit.................. 2 Numismatic Business Unit.................. 5 PLOLECUOMASUSINICSS WOINLU, toi. . cin ss cletiiele c Oeemer 9 Corporate Administration................. 10 BUG GRINS HORWANC ss. .feisecarns s»6 iS ueitseet: s%ea r iby. Management Discussion & Analysis......... 13 BING Al SCALEMENS§6:4.4-s«c19e eryes el.lre esiie.e ee e 21 PER UINR LCS Mettstre Ts bed eere 0 foi u lc) suet u:S A ciens Whe ete rede 24 Supplementary Financial Information...... ay Reports of Independent Accountants....... 30 ROAE OEN S20:V iegas etch c> cot ocsh n adsi ns Meelssoiage Uia ievenemets 48 For further information, contact: U.S. Mint Office of Corporate Communication 801 Ninth Street, N.W. Washington, D.C. 20220 (202) 354-7200 Visit us at www.usmint.gov To Our Colleagues and Customers: Consolidated Revenue (Billions of $) $3 ive years ago we set out to make the United States Mint more progres- sive and profitable by challenging every aspect of our opera- $2.5 tions — product selection, market strategy, customer service, information systems, capital investment, labor-management relations, and corpo- $2 rate structure to name a few. Throughout each of my annual reports to you over the years, you’ve seen our programs and progress unfold in dozens of ways, ranging from faster product delivery to more concerted capital investment. The cumulative outcome ofo ur efforts has been to bring the Ameri- $1 can people a national Mint governed by a public sector sense of service and a private sector insistence on results. And for fiscal 1999 specifically, our efforts past and present produced the greatest financial, operating, and ad- $0 ministrative performance in our history. _ Sa abA S=" ™ “ = T@ = Fe8T eie @ Revenues soared to $2.4 billion, a 52 percent increase over 1998 @ Consolidated net income leapt 75 percent to $1.05 billion Net Income (Millions of $) @ Seigniorage earned from the production of circulating coinage reached $1.04 $1200 billion, 74 percent higher than 1998 $1000 @ Profits earned from numismatic and bullion sales climbed to $38.8 million, a 69 percent increase over 1998 $800 @ We contributed $1.02 billion to the Treasury General Fund as taxpayers’ $600 return on their investment in the Mint, 81 percent above last year and our $400 largest contribution in history $200 We have convincingly reversed the downturn in our financial performance. During the past five years, our revenues have grown at a 14 percent annual $0 ek|(s e e erSs$esd ee§4a3 3.6 te$Sa5 99 .9 S average rate, net income has risen an average eight percent annually, seigniorage has increased an average seven percent yearly, and deposits to the general fund have averaged nine percent yearly increases. All this happened because we became an operationally integrated public Payments to the General Fund sector enterprise. Today, our circulating coinage, numismatic, and protec- (Millions of $) tion businesses are linked by an integrated information system, guided by a $1200 mature strategic plan, and synergized by a shared vision of our future. The best example is our results from 1999’s leading coin program, one antici- $1000 pated by numismatists and ordinary Americans, the longest sequence of $800 changes to coinage in U.S. history: 50 State Quarters™. Or as we’ve nick- named it: Q50. In 1999 through 2008, we’ll issue five new quarter-dollars $600 per year honoring each state with a design chosen by its citizens. State quarters will appear in pockets and purses for decades as daily history les- $400 sons for all Americans, and numismatic versions of Q50 coins, sets, jewelry, and accessories will sell nationwide in retail stores, catalogs, and on the $200 Web. $0 —S ATa =fr( 6e5 4 E~T3 1“IE N — a o ~"E a© S Circulating Revenues (Millioonfs $ ) $1600 $1400 We knew Q50 would be the biggest event in U.S. coinage since the Mint’s founding in 1792. We knew it would excite collectors worldwide. Research $1200 suggested consumer demand for quarters would increase by more than 1.5 bil- $1000 lion coins per year and that Americans would keep one-third to half of all Q50 $800 quarters we produced. We knew claims on production, distribution, administration, and marketing would be unprecedented. We knew QS0 presented the chance $600 to attract customers and reinvigorate the hobby of coin collecting. And we knew $400 prospects for circulating and numismatic profits on behalf of taxpayers would be $200 extraordinary. This year’s operating and financial results show just how extraordinary. $0 athe oa =k=; S a Cae= | N ~ ,s— fo) aii[s s © so e Circulating Business Unit Circulating Profits We are the world’s largest coin manufacturer, and in 1999 the performance of (Millions of $) our light manufacturing and bulk distribution operations also proved we’re the best. Our Circulating Business Unit surpassed almost every previous record for $1200 ~ total coin production, total production of high denomination coins (those larger 2 than the penny), yearly revenues, and yearly seigniorage. It did so while operat- see ing 24 hours a day, seven days a week to meet the economy’s requirements for coins and while preparing next year’s state quarters, perfecting next year’s new $800 dollar coin, minting the first circulating Susan B. Anthony dollars since 1980, installing equipment to bring 1999 capacity for high denomination coins from six $600 billion to nine billion, and purchasing equipment to bring nominal capacity for clad to almost 15 billion annually. $400 $200 Circulating Business Unit revenues—payments from the Federal Reserve (FRB) for circulating coinage—rocketed to $1.5 billion, a 58 percent increase over 1998 $0 7 41998 1999 and the largest in our history. This performance resulted from unprecedented _S|e S r55:[5 ee$SD4p 28s.3 rE)om demand for nickels and dimes and the resounding popularity of 50 State Quar- ters.™ Our market research indicated that 106 million people were actively collecting state quarters by September 1999 and that the number will rise to 160 Circulating Coinage Production million in 2000. (In Billions) Denver and Philadelphia produced 19.95 billion circulating coins, second only to 25 1996 production, and shipped 20.4 billion coins to FRB banks, besting 1995’s N record of 19.1 billion. The degree to which the American people wanted Q50 S nN 20 quarters outstripped even our projections: in 1999 we struck 3.7 billion quarter- dollars, a 145 percent increase over 1998 quarter production. At fiscal year-end Ps x~ our annual rate of production reached five billion quarters; we plan to produce at a rate of 7.7 billion by December 1999. Here’s another important point behind that performance: in the past, our circulating coinage operations merely re- sponded to coin demand; today, we are creating public demand for and interest in U.S. coinage. American taxpayers benefit from our escalating profits and con- tributions to the general fund. 1995 1996 1997 1998 1999 PRODUCTION TOTALS Fy 1999 Capital Investment Given the expected popularity of state quarters, we weren’t surprised when LINCOLN CENT studies early in the year indicated that production capacity of six billion high- DENVER: 5,789,200,000 denomination coins would be inadequate. Even so, we were surprised by July PHILADELPHIA: 5,149,355,000 estimates that we needed to increase capacity to almost 15 billion high-denomination coins yearly. To accomplish this feat, we accelerated capital investments JEFFERSON NICKEL into this year that had been planned out to 2001. In a $54.8 million addition to DENVER: 930,960,000 capital equipment, we ordered 67 high-speed coining presses, five blanking presses, PHILDELPHIA: 1,141,680,000 two annealing furnaces, and a 2,500 pound-per-hour centrifugal burnisher plus ancillary equipment. ROOSEVELT DIME DENVER: 1,43 1,500,000 In a major renovation at the Philadelphia Mint, we’ve installed automatic mate- PHILADELPHIA: 1,822,000,000 rial handling equipment and are plotting additional improvements over the next three years. We started construction on two of Philly’s four blanking/annealing WASHINGTON QUARTER lines, planned a fifth, and began partial automation of two coining lines. DENVER: EAGLE* 229,600,000 Denver completed installing automated material handling for its new blanking/ DELAWARE 401,424,000 annealing line, started construction of the new west entrance, and completed PENNSYLVANIA 358,332,000 repairs to the HVAC system. Major projects ahead include roof repair, the New JERSEY 299,028,000 maintenance control center, fire safety, and water system replacement. GEORGIA 488,744,000 CONNECTICUT 16,600,000 San Francisco completed emergency roof repairs, renovated its die polishing PHILADELPHIA: automation, and automated proof set assembly and packaging. A new emer- EAGLE* 311,268,000 gency generator was installed, and other electrical improvements support these DELAWARE 373,400,000 production improvements. We completed the design phase of West Point’s building PENNSYLVANIA 349,000,000 improvements and awarded a contract for the three-year construction project New JERSEY 363,200,000 that’s replete with facility improvements. GEORGIA 451,188,000 CONNECTICUT 28,000,000 Cost Reduction Aggressive cost-re- KENNEDY HALF-DOLLAR a duction continued in NONE PRODUCED IN FY99 1999 by attacking the wil“ I largest cost of circu- ANTHONY DOLLAR eS= a: lating coin production: ; Ae PHILADELPHIA: 13,720,000 ra 200 million pounds of copper, nickel, and TOTALS: zinc we purchase DENVER: 9,945,388,000 each year. Since re- PHILADELPHIA: 10,002,811,000 ceiving our procurement waiver in 1996 we’ ve studied private FY99 TOTAL: 19,948,199,000 sector practices for Romulo Panares (left) and Tyrone Whiten buying metals in insert cartons into the Langen mailer. quantity, and in Sep- *Calendar year 1998 tember we began to use industry practices to manage metals procurement to minimize price volatility and risk. A committee of senior Mint managers over- Bx4 sees the program. Significant savings are expected to result from this endeavor. Aggressive energy and water conservation are reducing our costs and environmental impact and making us energy-efficient. Energy savings performance contracts at Philadelphia will save almost $200,000 yearly through path-breaking provisions like convincing private sector suppliers to restructure rate bases, provide incentives, and invest in capital equipment. For example, TRIGEN, the steam facility serving the Philadelphia Mint installed—at no cost to us—a backpressure steam turbine generator that directs steam pressure to an electric generator in- Director Diehl displays the Peace Medals that he will present to stead of letting it dissipate. Co-generation’s fuel effi- Tex Hall (behind), chair of the Three Affiliated Tribes. ciency approaches 85 percent versus 35 percent for a typical utility plant. Dollar Coins A robust economy and increasing consumer use drained Susan B. Anthony in- ventories, so we found ourselves minting SBA dollars in 1999 even though we launch a new dollar coin in 2000. Minting 1999 SBAs was insurance for vending machine operators and transit authorities as well as a delight to collectors. At year-end we finalized the alloy for the Sacagawea dollar coin—or as we call it, the Golden Dollar—after almost two years of experimentation and coordination with business stake- holders. We’ll produce more than 100 million Golden Dollars for release in February, when our consumer awareness and business education campaign ramps up. We’re readying a national print and TV consumer campaign, and our business-to-business outreach team is finalizing materials, interac- tive displays, and schedules of appearances. We’ve met repeatedly with banking and retail organizations and tested public perception of the coin. Awards and Recognition While posting these operating achievements and others, our circulating operations earned a Federal En- ergy Management Award from the Fed- eral Energy Management Program for efficiencies and cost reductions at the Philadelphia Mint. We are the first civilian federal facility to sign an energy savings performance contract with a private sector firm. Numismatic Business Unit Sales of numismatic, commemorative, and bullion coins and products rocketed to $967 million, a 44 percent increase over last year, and net income rose 69 per- Numismatic Revenues cent to $38.8 million. With 1999’s performance, our Numismatic Business Unit’s (Millions of $) sales have increased 26 percent and profits 69 percent annually during the past $1200 five years. The year was wallpapered by gangbuster numbers in every product $1000 line, bonus results from a popular Q50 program, unstoppable bullion sales, soaring Internet sales, lucrative new products and partnerships, and a $26 million $800 catalog business. $600 O50 and Recurring Products The 50 State Quarter™ Program catapulted numismatic revenues from sales $400 of specialty items and long-standing core products reinvigorated by featur- $200 ing Q50 coinage. We literally bagged a winner with bags of 100 and 1,000 quarters honoring Delaware, New Jersey, Pennsylvania, and Georgia (Con- $0 necticut appeared after fiscal year-end). Collectors aNS2) E3 5O6o R=DM S$$3 2®E6 E.8R E_ P “I =eT @ e could specify quarters from Denver or Philadelphia and _ did so eagerly: we sold out every option for all four quarters within days. By fiscal year-end we’d sold about 81 percent of another Q50 phenomenon, the five-coin set contain- ' ing proof versions of 1999’s five quarters. Q50 also occasioned one of our most popular cross-over prod- Numismatic Profits ucts, First-Day Coin Covers containing Denver and Phila- delphia quarters from the first day each coin entered production plus a post- (Millions of $) $50 age stamp canceled on their debut day. This year’s proof and uncirculated sets enjoyed a Q50 infusion, too. Proof sets for 1999 contained nine coins, not the usual five, and the uncirculated $30 set featured 18 coins instead of 10. Unit sales remained even with last = $22.9 eo year’s pace at 1.5 million proof sets and 800,000 uncirculated sets, but rev- $20 a enues increased to $33.4 million and $13.2 million, respectively, because we charged more for the higher number of coins. $0 a$4. 7 SSS8 D aaST The year’s delightful numismatic surprise—1999 Susan B. Anthony dollars— 3 debuted in our Holiday Collection Catalog, and collectors bid a rousing “- farewell to the final dollar coin of this century. Economic demand prompted 1995 1996 1997 1998 1999 us to strike 13.7 million SBAs for circulation, so we brought out single proof coins, two-coin uncirculated SBA sets, and bags of 25 and 1,000 coins to accompany the circulating SBA. We’d not minted numismatic versions of SBAs since 1981. Uncirculated 80,340 Commemorative Programs This year’s three commemorative programs exceeded projections and again fur- nished a gratifying endorsement of earlier initiatives with Congress to reform commemorative coin programs. We expect all three coin programs to close with profits. Proof 200,127 Launched in December 1998, the Dolley Madison silver dollar had sold 280,000 coins and posted sales of $8.9 million by September 30. A stunning obverse by Tiffany and Co. contributed to the popularity of this first U.S. coin to honor a First Lady. It is our best-selling silver dollar since 1995. Our only gold commemorative for 1999, the George Washington $5 launched in May 1999 had sold 55,000 coins and produced revenues of $10.1 million by September 30. Its 1931 Laura Gardin Fraser design had tremendous signifi- cance for numismatists. It is our best-selling gold coin since 1996. The Yellowstone National Park silver dollar launched in June also did well, selling 149,000 coins and bringing in revenues of $5 million by fiscal year-end. Uncirculated 19,382 Eagle Proof Program Our American Eagle proof program was a mixed nest of successes and disap- pointments. Gold Eagle sales of $30.3 million on 54,600 ounces represented a 17 percent increase over 1998. We attribute performance to the distinctive 1999 year-date and are anticipating sellouts of all four denominations of individual gold proof coins by year-end. Silver Eagles outpaced last year. By September 30 we had sold 538,000 ounces, a 26 percent increase over 1998, and are projecting a sellout of the program’s 550,000 maximum mintage. Revenues reached $12.7 million, 29 percent higher than the prior year. Turn of the millennium no doubt contributed to sales of a 1999 coin, but Q50 and our soaring Internet business brought us 25,000 first-time customers in 1999, and shoppers becoming acquainted with our products often find historic, beautiful, affordable proof silver Eagles appealing. Platinum Eagle sales slid to $13.9 million, a decline of 34 percent from last year, Uncirculated on sales of 19,000 ounces, about 32 percent lower than 1998. We’d hoped to 36,876 sustain sales by changing the proof coin’s obverse each year for five years in our Vistas of Liberty™ series. Although disappointing for us, lackluster sales may bode well for future secondary market prices among collectors. Eagle Bullion Proof Bullion Eagle revenues rocketed 51 percent to $806.7 million for a third extraordinary year. With 1999 sales of 10.9 million ounces, each American Eagle bullion coin—gold, silver, and platinum—now dominates its global market. Silver Eagles have long been the world leader with an 80 percent market share, and