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United States Mint 1998 Annual Report Management Discussion and Analysis Highlights from Fiscal Year 1998
Regulatory Compliance Federal Managers’ Financial Integrity Act
The Mint received its fifth consecutive unqualified audit opinion on its FY 1998 financial statements. In addition, we made significant progress toward resolving the two outstanding FMFIA Section 4 material non-conformances that were reported in the FY 1997 FMFIA report. The two remaining material non-conformances relate to the Mint’s need for an integrated enterprise-wide management information system and for related procedures. Although there are two non-conformances carried in the Treasury system for tracking FMFIA actions, the independent public accountants reported only one material weakness in the FY 1997 audit report. The material non-conformances open as of September 30, 1998, were the following:
In early FY 1999, both of these outstanding items wereresolved with the implementation of the Consolidated Information System (COINS). The main purpose of COINS is to integrate manufacturing, finance, marketing, and customer service, thereby assuring that management has critical and consistent information to make strategic and operational decisions. In addition, COINS enhances our ability to comply with requirements of the CFO Act, the Government Performance and Results Act, the Government Management Reform Act, and the Federal Financial Management Improvement Act. During FY 1998, we dedicated significant human and financial resources to the implementation of COINS. The COINS Team, composed of both Mint and contractor personnel, developed the interfaces between the financial, manufacturing, and order entry software packages that are the basis of COINS. In addition, the COINS Team performed extensive system and transaction testing to ensure that the COINS components were exchanging data successfully and that transactions were processed correctly. Almost all Mint personnel received training in one or more components of COINS, with training scheduled for "just in time" delivery. From mid-September through the middle of November, members of the COINS Team were at the various Mint locations to help with the conversion to COINS. We met our "go live" dates—October 1 for Headquarters, Philadelphia, and West Point and October 31 for Denver and San Francisco. Any subsequent modifications or additions to COINS will be enhancements to the basic functionality in place as of October 1, 1998. With the implementation of COINS, we believe we will meet the requirements of both the FFMIA and FMFIA. Year 2000 Readiness We identified 28 crucial information systems with deficiencies that could have impeded essential operations after December 31, 1999. All 28 systems have been replaced or repaired to be Year 2000 (Y2K)compliant—all have been tested, validated, and placed in operation. COINS is our primary means of overcoming potential Y2K technology problems. At September 30, 1998, we were reviewing all of the COINS systems tests and will complete a review of the implementation effort in mid-January 1999. We have or will obtain documentation from external vendors to certify that all supporting hardware and software are Y2K compliant. Our non-information technology systems (i.e., telecommunications and other equipment) are being brought into compliance either through upgrade or replacement in accordance with the Mint’s Year 2000 contingency plan. All activities are on schedule. As of September 30, 1998, we had upgraded the telecommunications infrastructure at five of our six locations. The remaining location will be upgraded in early 1999. We identified 19 critical non-information technology systems with potential Y2K problems. Those systems will be addressed in accordance with our Y2K contingency plan. Our plans and progress toward meeting critical milestones are regularly reported and discussed with Treasury officials. We also are working with an independent party to verify and validate the Mint’s Y2K compliance efforts. We are confident that our plans will bring Mint systems into full Year 2000 compliance. We also sent extensive questionnaires to 19 critical suppliers to assess their Y2K plans and assure ourselves that they can deliver required materials after 1999. Each of the 19 suppliers completed and returned a questionnaire. Our Y2K consultant is inspecting all of the suppliers to validate their responses. One supplier was identified at risk, but has since made substantial progress and should be in compliance in early 1999. Prompt Payment Act During FY 1998, the Mint continued its progress to strengthen its invoice payment process and was able to successfully isolate issues contributing to non-compliance with the Department standard. The overall percentage of late payments for FY 1998 was 0.9 percent, which was well under the Department’s standard of 2.0 percent. This rate was a significant improvement compared to the 2.3 percent late payment rate during FY 1997. EFT Payments The Mint recognizes the efficiencies and cost savings to the government of using electronic funds transfer (EFT) for its financial transactions. Therefore, the Mint encourages its employees and business partners to conduct business electronically. During the fourth quarter, the Mint required all travel reimbursements to employees be paid by EFT, thus reaching our goal of 100 percent. Employee salaries paid by EFT increased slightly and vendor payments improved significantly over the first quarter FY 1998. The Mint intends to build on these successes to further improve these percentages. Financial Statement Highlights FY 1998 was a year of growth and profitability and the Mint received its fifth consecutive unqualified opinion on its financial statements. The Mint operated at a $617.0 million surplus for FY 1998 and contributed $562 million to the Treasury General Fund, compared to a $446.7 million surplus and contribution of $465 million in FY 1997. Significant Account Changes At September 30, 1998, and 1997, the Mint reported the following financial statement line items in millions:
Among the most significant changes on the Balance Sheet, operating inventories decreased by $94.2 million in FY 1998. The inventory of materials used to produce clad coinage (dimes, quarters, and half-dollars) was lower by $19.5 million. The demand for circulating coins exceeded production by approximately 1.6 billion coins, which contributed to the inventory reduction. In addition, supplies of the Susan B. Anthony dollars were reduced by $44.6 million. Further, the operating inventories of gold and silver were lower by $24.8 million, due to the extraordinary demand for the Mint’s bullion products. Overall, Total Assets increased by more than six percent during FY 1998. The Mint increased its property, plant, and equipment balance by $58.4 million. This increase further enhanced capacity, replaced outdated equipment, and funded the COINS integrated information system. The lower operating inventories described above were offset by a higher fund balance of $95.3 million. This increase is due to significant variability of business activity. Decreases in Total Liabilities are attributable almost entirely to lower accounts payable balances at the end of FY 1998. Total Revenue for FY 1998 increased by $500.5 million over FY 1997, representing a 45.9 percent increase. Approximately half, or $240.8 million, of the increase is due to the greater demand for circulating coins. The steady, strong economy is fueling increased demand for coinage. The incredible demand for numismatic bullion fueled the remainder of the increase in revenues to the tune of $259.7 million. Sales of bullion and numismatic products increased by more than 61 percent for FY 1998 over FY 1997 levels. This increase is attributable to the runaway FY 1998 sales of uncirculated American Eagles, which were 117 percent higher than sales in FY 1997. Numismatic activity, exclusive of the bullion program, did not fair as well with FY 1998 sales down 19 percent from FY 1997. Commemorative Coin Program Results The table on the next page shows results of active commemorative coin programs as reported in the Quarterly Financial Report to Congress as of September 30, 1998. Financial Summary
Public Law 104-208, "Omnibus Consolidated Appropriations Act for Fiscal Year 1997,"requires the Mint to withhold surcharges from commemorative coin program beneficiaries until all production and marketing costs are recovered, and until the beneficiaries have raised other monies from private sources equal to the maximum amount of surcharges that could be generated from their coin program. The estimated program closeout costs as required by P.L. 104-208 are included in the above table. Estimated closeout costs include melting and fabrication costs associated with unsold coin inventories, manufactured dies, and unused packaging materials. The Mint fully expects to recover the estimated closeout costs through the sale of coins. In the event that coin sales are insufficient to recover the total cost of the program, the shortfall would be subtracted from the surcharges collected reducing the amount of surcharges paid to the beneficiary organization. The Mint began preparation for the George Washington Commemorative Program during FY 1998; however, the program launch dates did not occur until after the end of the fiscal year. As a result, the Mint’s commemorative coin program profit and loss statements show initial start-up expense, but no sales activity. Sales for this program will be reported in FY 1999. Supplemental Statement of Net Cost
In FY 1997 the Federal Accounting Standards Advisory Board (FASAB) and the Office of Management and Budget developed new financial statement requirements for FY 1998. The Mint presented the new format, for two of the new statements, one year ahead of schedule as supplemental information in its FY 1997 annual report. The FY 1998 supplemental Statement of Net Cost is included again in this report. This statement displays total program costs less revenue earned attributable to each of the Mint’s three core business units. The statement shows that the Numismatic and Bullion Programs were self-sustaining, with net program profits of $22.1 million. The Circulating Coinage Program also shows net profit rather than net cost, making it a self-sustaining operation. For FY 1998, program profits were $587.8 million. The Mint sells circulating coins to the Federal Reserve Banks at face value. However, the Mint is only entitled to retain sufficient revenues from these transactions to meet the needs of the Public Enterprise Fund. The remaining proceeds are remitted to the Treasury General Fund. For FY 1998, the Mint transferred $562 million to the Treasury General Fund. The only program that is not self-sustaining is the Mint’s obligation to guard the Nation’s gold and silver reserves at Fort Knox and the other Mint facilities. The Mint successfully fulfilled this mission activity during FY 1998 at a cost of $16.9 million. However, because the gold and silver reserves that the Mint safeguards exceed $10.4 billion (statutory value) in FY 1998, the Mint’s cost to perform its responsibilities is less than two tenths of a cent per dollar guarded. The Statement shows that more than $925 million was spent in support of American commerce during FY 1998. The most significant purchases from industry were for precious and non-precious metal used in coin production. The Mint also purchased more than $33 million in precious metals from the Treasury (gold) and the Department of Defense (silver) for use in bullion, numismatic, and commemorative coins. Performance Measures Under GPRA, agencies must develop performance measures and plans to gauge the success of programs and missions against those barometers. The Mint began to implement these requirements into its budget and reporting responsibilities in FY 1994. The performance measures identified in the Mint’s Strategic Plan are reported upon as part of this annual report. While core missions change little from year to year, the Mint continues to define performance objectives and appropriate performance outcome measures that better gauge the results of its business and activities. The Strategic Plan presents goals relating to the Mint’s three mission areas and three enabling goals. Within each goal, multiple objectives and strategies are identified to achieve the goal. Finally, specific quantitative performance measures are provided to gauge the Mint’s success in achieving the goal. Within the context of this report, the Mint is presenting representative performance measures identified for its mission. Circulating Coinage Goal: Measures: Each year, the Mint’s goal is to maintain inventory above prescribed minimum levels within normal operating capacity 100 percent of the time to avoid coin shortages. These inventory levels are based upon expected demand from the FRBs based on several factors including the economy, seasonal spending patterns, and savings trends. However, forecast models must be used to anticipate demand into the future and economic reality may not always mirror those projections. Therefore, the Mint may occasionally experience short-term shortages in inventory levels. Changes to the Mint’s procurement regulations and operating structure, however, have permitted greater flexibility to react more quickly to unexpected demand. In FY 1998 the Mint met its inventory level 81.8 percent of the time. The goal of 100 percent was not met because actual coin demand was stronger than expected in FY 1998 and this demand outstripped the original baseline. In FY 1998, 16.6 billion coins were shipped; an increase of 30.7 percent above the 12.7 billion coins delivered in FY 1997. During FY 1998, the Mint produced about 15 billion coins. This reflects a small increase from the 14 billion coins produced in 1997, but still represents a decrease in coin demand from the unprecedented 20 billion coin levels experienced from FY 1994 through FY 1996. Another means of achieving target inventory levels is to increase the quality of the forecasting tools. In FY 1998, 75 percent of the Mint’s coin demand forecasts were accurate within a 90 percent confidence level. Work is being done on improving the forecasting models and future enhancements may focus on further increasing this confidence level. Goal: Measure: The Mint has established FY 1997 as the baseline against which to measure this five-year goal aimed at improving the efficiency of producing coins and eliminating activities that add no value to our products. Since average unit costs can vary greatly depending on the mix of cents and clad coins produced during the year, the Mint reports on these costs by denomination. The Mint succeeded in lowering most of its circulating coin costs (excluding metals) in FY 1998. For purposes of comparison, the FY 1997 average unit cost of $0.0177 was restated to the weighted average unit cost of $0.0059. In FY 1998 the Mint reduced the average unit cost of circulating coinage (excluding metals) to $0.0054 representing a decrease of eight percent from FY 1997. This favorable performance is due primarily to the production mix. Numismatic/Bullion Products Goal: Measures: The Mint has established a 100 percent goal for completing various types of transactions with customers within prescribed time periods. Monitoring actual performance against this goal is performed weekly. The Mint’s performance against these 100 percent goals is shown in the following table:
Improvement was made in three of the five customer service standards and the stated goal was attained in two of the five. The principal reason for not meeting the goals related to the installation of the Mint’s new order entry system in August as a part of the COINS implementation. The start up of the new system caused delays in the fourth quarter, which prevented the attainment of the 100 percent goals. In addition to the overall goals stated above, the Mint has set targets of shipping 98 percent of commemorative coins within four weeks and recurring program coins within three weeks of order date. In FY 1998, the Mint met the goal on 82 percent of commemorative coin orders and on 97 percent of recurring program coin orders. Again, the implementation of the new order entry system was the major factor for not achieving the target of 98 percent. Goal: Measures: During 1998, the Mint was able to increase product sales. The Mint set performance goals for FY 1998 at 12.0 million units and $305.1 million for revenue. Both goals were met with unit sales of 14.0 million and revenue of $671.8 million. The increased sales volumes were driven by a 117 percent increase in bullion sales. The uncertainty in monetary markets coupled with a historically low price for gold likely fueled the unexpected gold coin sales. The Mint has aggressively pursued new customers, new market channels, and new product lines, while promoting brand awareness and establishing business partnerships to increase sales. The Mint set the annual target rate for its contribution margin for numismatic and commemorative products at 10 percent. In FY 1998, the Mint did not meet this target due to the sales product mix. FY 1998 brought unprecedented and unexpected levels of demand for bullion products, which have a lower profit margin than other numismatic products. Had the Eagle uncirculated programs performed as originally planned, our contribution margin would have been 11 percent. Protection of Assets Goal: Measures: The Mint secures more than $72.8 billion (market value) of the American people’s gold and silver. The Mint also produced and shipped approximately $923 million in circulating coinage and processed approximately $672 million in customer payments for numismatic and bullion products. Mint security forces protect these assets while safeguarding more than 2,000 Mint employees against potential threats at six facilities. In FY 1998, the Mint’s goal was to maintain losses at less than one-one-thousandth of a percent of total reserve value. The Mint exceeded this goal by having losses of less than one-ten-thousandth of a percent of reserve value. Next Section:
Financial Statements |
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Mar 23, 2001 |