Quarterly Financial Report of the United States Mint
Commemorative Coin Program,
P. L. 104-208, as of December 31, 2000
INTRODUCTION
Public Law 104-208, the Commemorative Coin Reform Act of 1996, requires the Mint to report the quarterly status of commemorative coin programs. In general effect, the law makes coin program beneficiaries partners in bearing the risks and marketplace realities of commemorative coin programs, and it assures that the U.S. Mint recovers its costs of operating coin programs. In addition, the law requires beneficiaries to file audited financial statements, and it requires the Mint to report quarterly on the status of commemorative coin programs. In compliance, this—the Mint’s sixteenth quarterly commemorative coin report—discusses programs reporting significant activity from October 1 to December 31, 2000.
MODERN COMMEMORATIVE COIN PROGRAM HISTORY
This report represents the first quarterly commemorative coin program report issued under our new Administration and submitted by the U.S. Mint to the 107th Congress. In light of this, we are providing the following summary highlighting major milestones in the history of modern U.S. commemorative coin programs. Modern commemorative coins authorized by Congress and produced by the U.S. Mint date from the introduction of the George Washington 250th Anniversary Half Dollar in 1982. Congress authorized a total of 35 commemorative coin programs between
1982-2000. Close to $2 billion in revenues has been raised through the sale of U.S. Mint commemorative coins over the past 18 years, generating $409 million in surcharges.
Commemorative Coin Reform Act
Public Law 104-208, the Commemorative Coin Reform Act of 1996 was enacted September 28, 1996, strengthening the working relationship among Congress, the various sponsoring organizations and the Citizen’s Commemorative Coin Advisory Committee (CCCAC). The CCCAC was established by Public Law 102-390, and its membership appointed by the Secretary of the Treasury in November 1993. The Committee was charged with the responsibility of designating potential commemorative coin program themes as well as making recommendations with respect to the mintage limits for each program.
Factors Necessitating Commemorative Coin Reforms
Demand for commemorative coins suffered a serious decline beginning in the mid-1990’s, fueled in part by the over proliferation of commemorative coin programs authorized by Congress, and the resultant flood of commemorative coins upon the market. Mintage limits far exceeded secondary market demand. At a March 5, 1997 hearing on FY1998 Appropriations before the House Subcommittee on Treasury, Postal Service and General Government, then-Mint Director Philip N. Diehl identified the proliferation of commemorative coins as the Mint’s number one customer complaint. “…too many programs, too many coins in each program, too many weak commemorative themes.” The Mint worked with Congress to address this issue via two means: first, through the passage of the 1996 commemorative coin reform legislation and secondly, by working closely with the Citizen’s Commemorative Coin Advisory Committee.
As a result of market saturation, coin collectors (who purchase ninety percent or more of all commemorative coins) came to view the hobby of collecting commemorative coins as very expensive, because collectors were typically unable to recover more than a fraction of the coin’s original sales price if they chose to sell. In addition, collectors were unhappy over their perceived lack of voice in choosing commemorative coin program themes authorized by Congress, as well as the surcharges Congress added to the cost of the coins which collectors viewed as a tax on the hobby. (Surcharges are used to raise funds outside of the congressional appropriations process for private organizations that benefit from the coin sales). Over time, as commemorative coin program sales fell, Congress sought to offset the effect by substantially increasing surcharges. In its initial report to Congress, the CCCAC indicated a drop in commemorative coin sales by 80 percent from 1986 to 1994. In 1994, the Mint posted its first financial loss in a commemorative program with the 1994 World Cup USA Commemorative Coin Program. This did not result in a loss to the American taxpayers as numismatic profits from other programs more than offset this loss. U.S. Mint commemorative coin programs generated over $24 million in surcharges in FY 1994.
Declining commemorative coin sales further increased the possibility that the programs could impose an operating loss to the Mint. In an August 1994 letter to Congress, the CCCAC cited market saturation as a significant risk to commemorative coin program profitability. In addition, the CCCAC stressed the significance of limiting authorized mintages to ensure continued commemorative coin program viability. The 1993 Sense of Congress Resolution, enacted as part of Public Law 103-186, sought to limit the number of commemorative coin programs authorized for any one year to no more than two.
Commemorative Coin Program Reforms
These controls have proven effective. As noted by Delaware Congressman Michael N. Castle, in support of the Commemorative Coin Authorization and Reform Act of 1995 (H.R. 2614), December 5, 1995: “No longer will the saturation of the market threaten the value of their collections, nor will they be the sole support for beneficiary causes of uncertain popularity… Commemorative coins are a benefit, not only to numismatic enthusiasts and the recipient organizations but also by reaffirming our history, to our Nation as a whole. This bill links public funding of special projects to demonstrated private support, and discourages groups from demanding superfluous coins. It prevents the further abuse of the coin collecting community by groups lacking general public support.”
Revenues generated through commemorative coin sales increased to $30.3 million in FY 2000 from $23.8 million in FY 1999– an increase of 27.4 percent. Working closely with the CCCAC, the U.S. Mint, and the numismatic community, Congress has become more responsive to coin collectors. In general, collectors are more supportive of the commemorative events being observed for recent commemorative coin programs. Other factors have influenced the growing interest in the commemorative programs as well. The overwhelming response to the 50 State Quarters™ Program and to the Golden Dollar has rekindled collector enthusiasm for the U.S. Mint commemorative coin programs as well. In addition, U.S. Mint commemorative coin sales were launched on the Internet in March 1999, with the Dolley Madison Commemorative Silver Dollar. Our popular website has provided additional exposure as well, allowing us to reach a significantly larger audience while greatly reducing advertising expenses. With the exception of the U.S. Black Revolutionary War Patriots Commemorative Coin Program, the commemorative coin programs continue to maintain a profitable status.
Overall, U.S. Mint commemorative coin programs remain profitable. This can be attributed, in part, to the Mint’s development and increased use of a variety of cost reduction measures and analytical tools aimed at optimizing the Mint’s customer database through market segmentation and analysis. Analytical tools such as Recency-Frequency-Monetary modeling (RFM) have enabled us to optimize the Mint’s customer database, through detailed analysis of customer product preferences. Such analysis provides the Mint with the ability to better tailor messages and media to each potential market segment, thus minimizing promotional costs while maximizing program returns. Increased and innovative commemorative coin program options provide collectors with a variety of Mint products from which to choose, including “limited-edition” collector sets, one-time special collector sets, and “Young Collector Sets” which have proven especially popular with younger numismatists.
U.S. Mint Innovations and Growth of Customer Base
As part of an effort to improve mail service, the Mint worked with the U.S. Postal Service in 1997 to convert shipments of coins from registered mail to Priority Mail. The Mint became the first Federal agency to use custom-designed Priority Mail containers resulting in reduced delivery time in addition to improved package security. The U.S. Mint was awarded the National Postal Forum “Mailing Excellence Award” at the Fall 1998 Awards Luncheon in recognition of its successful partnership with the U.S. Postal Service in improving customer satisfaction and increasing sales in commemorative and numismatic coin programs.
The Mint E-Commerce team recently received a Hammer Award from the National Partnership for Reinventing Government for its outstanding efforts in winning recognition for the Mint as one of the top e-commerce retailers. In six weeks, the E-Commerce Team transformed the Mint’s website into a state-of-the-art on-line catalog at www.USMINT.gov. We launched secure online shopping on our Web site in April 1999, and have quickly become one of the most successful e-retailers in the Nation. Further, our e-retail program allows us to reduce our cost of operations and pass the savings onto our customers, including waiving shipping and handling charges that are the common practice of other e-retailers. The Mint’s website was also the first to host a Webcast from the White House and to provide handicap access required by the Rehabilitation Act. Its kid’s corner is ranked 39th nationally. GovExec.com of Government Executive Magazine named the Mint among 1999’s “Best Feds on the Web,” joining Fast Company, the Washington Times, and a number of publications to single out the Mint’s e-presence.
The Mint has participated in the American Customer Satisfaction Index (ACSI) to survey purchasers of numismatic and commemorative coins for the past five years. Our customers continue to express a high degree of satisfaction and confidence in our customer service and annual products. For the fifth straight year, the U.S. Mint has scored among the top performers in the ASCI Survey by the National Quality Research Center (NRQC) at the University of Michigan School of Business. However, it should be noted that while commemorative coin programs are currently enjoying a period of renewed health and stability, it would be imprudent to become complacent. The health of the commemorative coin program remains fragile. To ensure the programs continue to reap the benefits of the 1996 reforms, continued vigilance is necessary.
PROGRAM-WIDE ISSUES
As of December 31, 2000, revenues of nearly $29 million were generated through sales of the Library of Congress, and Leif Ericson Commemorative Coin Programs. An initial surcharge payment of $1,373,957.50 was made November 8, 2000 to the Library of Congress Trust Fund Board. Based upon the Ericson program’s start, or drop date on June 21, 2000, an initial surcharge payment was due to the Leifur Eiriksson Foundation in December 2000. However, as of this report, the Foundation has not met the matching funds criterion established by the Commemorative Coin Reform Act of 1996. That requirement stipulates that the Mint must withhold surcharges until all program operating costs have been recovered, and until the designated beneficiary has raised other monies from private sources equal to the maximum potential program surcharges. To date, the Foundation has raised approximately $1 million out of the maximum amount of $5 million, which the organization may receive from the proceeds of the surcharges.
FINANCIAL REPORTING
The attached financial statements provide quarterly and cumulative program data. The Commemorative Coin Reform Act of 1996 requires us to withhold surcharges until all program costs are recovered and beneficiaries submit audited financial statements indicating funds raised from private sources equal the maximum amount which the organization may receive from the proceeds of the surcharges. As noted earlier, the U.S. Black Revolutionary War Patriots Commemorative Coin Program closed December 31, 1998, with a deficit. The beneficiary has not yet submitted the required documentation to qualify to receive surcharges.
LIBRARY OF CONGRESS BICENTENNIAL
Program Highlights
To commemorate the bicentennial of the Library of Congress on April 24, 2000, Congress authorized the production of 500,000 silver dollars and 100,000 $5 gold coins. Legislation permitted the Secretary of the Treasury to substitute 200,000 $10 gold-and-platinum coins for the $5 gold coins, and with the support of the sponsoring organization, he approved of this substitution and we struck the nation’s first bimetallic commemorative coin. Designs finalized and reviewed by the Citizens Commemorative Coin Advisory Committee (CCCAC) and the Commission of Fine Arts depict various themes emblematic of the Library of Congress, including the magnificent Thomas Jefferson Building. Surcharges will be paid to the Library of Congress Trust Fund Board for bicentennial programs, educational outreach and other activities.
Marketing Activities
Program sales for the Library of Congress Commemorative Coin Program ended December 31, 2000, as required by P.L. 105-268. The Library of Congress commemorative coins were prominently featured in the Mint’s Holiday 2000 catalog, generating approximately $1.2 million in sales revenue. Promotional efforts during the first quarter of FY 2001 included the placement of “last chance to purchase” full-page advertisements in select numismatic trade publications to help stimulate collector demand before the program ended. In addition, a “last chance to purchase” web banner was placed on the Mint web site to alert Internet shoppers. The coins also were featured in an e-tailing print advertisement that ran nationally in several Tribune-owned newspapers.
Analysis of Financial Position
As of December 31, 2000, more than 283,000 coins were sold generating revenues of over $20.3 million, including surcharges of nearly $3 million. Estimated profits of $3.6 million exceed potential unrecovered expenses of slightly more than $200,000. Cost of goods sold totaled $9,479,943. Selling, general and administrative expenses equaled slightly over $4.3 million. Close to $1.4 million in surcharges have been distributed to the recipient organization to date.
Manufacturing/Packaging Operations
No bimetallic coins were produced during the quarter ending December 31, 2000. A total of 11,584 acceptable silver proof coins and 2,296 acceptable silver uncirculated coins were produced during the quarter ending September 30, 2000, representing reject rates of less than one percent for both the proof and uncirculated coins.
LEIF ERICSON MILLENIUM
Program Highlights
The Leif Ericson Commemorative Coin Program was formally launched on June 21, 2000, at the Smithsonian’s National Museum for Natural History at its popular Viking Exhibit. Approximately 842,000 customers, all selected based on their expected propensity to purchase, were mailed the Leif Ericson direct mail package. This was supported with direct response print advertisements in numismatic trade publications.
The second and final U.S. commemorative coin program of 2000, the Leif Ericson Millennium Commemorative Coin Program commemorates the 1000-year anniversary of Leif Ericson’s voyage to the New World. Public Law 106-126 authorized the issuance of up to 500,000 U.S. silver dollars in conjunction with the issuance of an Icelandic 1000 krónur silver coin. Qualifying surcharges will be paid to the Leifur Eiriksson Foundation for the purpose of funding student exchanges between students of the United States and students of Iceland.
This program represents an historic “first of its kind” for the U.S. Mint commemorative coin program – providing collectors with the opportunity to purchase jointly issued domestic and foreign commemorative coins. The silver dollar and 1000 krónur silver coin, designed by the U.S. Mint and the Republic of Iceland respectively, each portray a heroic representation of Leif Ericson on the obverse. The reverse of the U.S. coin depicts his Viking ship under full sail. The reverse of the Icelandic 1000 krónur portrays the eagle, dragon, bull, and giant from the Icelandic Coat of Arms.
By request, the U.S. Mint will produce and market the Icelandic 1000 krónur silver coin on behalf of the Governors of the Central Bank of Iceland. A mintage limit of 500,000 was established for the U.S. coin, which is available in both proof and uncirculated condition. A mintage limit of 150,000 coins was established for the Icelandic krónur, available in proof silver only.
Marketing Activities
The Leif Ericson Millenium Coins were prominently featured in the Mint’s Holiday 2000 catalog generating approximately $900,000 in revenues. Part of the coins’ launch involved the Mint’s participation in the welcoming of the Viking Ship Icelander in New York Harbor on October 5, 2000. A two-coin set, featuring proof versions of both the U.S. and Icelandic silver coins, was presented by the Mint to the captain of the Icelander during the ship’s stopover in New York City. In addition to appearing in our catalog, the coins were featured in a multi-product e-tailing print advertisement that ran nationally in several Tribune-owned newspapers. In accordance with the authorizing legislation, coin production for this commemorative program ended December 31, 2000. However, the Mint will continue to sell the remaining inventory of Leif Ericson commemorative coins through February 2001.
Analysis of Financial Position
As of December 31, 2000, sales of over 265,000 coins were realized generating revenues of nearly $8.6 million. Estimated profits of $1,089,651 million exceed potential unrecovered expenses of approximately $124,000. Cost of goods sold totaled $2,555,560. Selling, general and administrative expenses were slightly in excess of $2.2 million. As of this report, the Foundation has not met the matching funds criterion established by the Commemorative Coin Reform Act of 1996. That requirement stipulates that the Mint must withhold surcharges until all program operating costs have been recovered, and until the designated beneficiary has raised other monies from private sources equal to the maximum potential program surcharges. To date, the Foundation has raised approximately $1 million out of the maximum amount
Manufacturing/Packaging Operations
A total of 1,198 acceptable uncirculated silver dollars were produced during the quarter ending September 30, 2000, representing a reject rate of less than one half of one percent. No additional proof silver or Icelandic proof 1000 krónur coins were produced during the first quarter of FY 2001.
U.S. CAPITOL VISITOR CENTER – FY 2001
Program Highlights
Authorized by Public Law 106-126, the U.S. Capitol Visitor Center Commemorative Coin Program commemorates the first convening of Congress in the Capitol building. Mintages of 100,000 gold; 500,000 silver dollar coins; and 750,000 clad half-dollar coins have been established. Design
concepts for the U.S. Capitol Visitor Center Commemorative Coins were selected by the Secretary of the Treasury and were reviewed by the Citizens Commemorative Coin Advisory Committee (CCCAC), the Commission of Fine Arts, and the U.S. Capitol Preservation Commission. Final designs, representative of the convening of Congress in the Capitol in 1800, have been selected. Program promotional artwork will feature William Russell Birch’s 1803 watercolor depicting the first Capitol’s completed north wing. The Birch watercolor is one of the few remaining pieces of artwork that depicts what the Capitol looked like when Congress first convened there. The Senate and House of Representatives of the second session of the Sixth Congress met on November 22, 1800, for a joint session addressed by President John Adams. Surcharges from the sale of the coins will go toward the construction, maintenance and preservation of a Capitol Visitor Center. The program will launch in March 2001.
AMERICAN BUFFALO COMMEMORATIVE COIN – FY 2001
Program Highlights
Authorized by Public Law 106-375, the American Buffalo Coin Commemorative Coin Act of 2000 commemorates the opening of the National Museum of the American Indian of the Smithsonian Institution. A mintage limit of 500,000 silver dollar coins has been established. The second commemorative coin program of 2001, the American Buffalo Silver Dollar will feature a reproduction of one of the most famous and beloved designs among coin collectors – the James Earle Fraser Buffalo nickel.
Surcharges will be paid to the National Museum of the American Indian to commemorate the opening of the museum and to supplement the museum’s endowment and educational outreach funds. U.S. Mint marketing officials recently met for the first time with program sponsors to discuss program parameters and potential promotional plans. In addition, a panel of numismatists and buffalo nickel experts was convened to discuss the importance of maintaining the integrity of the original James Earle Fraser Buffalo nickel design. The proposed coin designs were reviewed and endorsed by the Citizens Commemorative Coin Advisory Committee (CCCAC) and the Commission of Fine Arts. The initial program mailing is scheduled for June 2001.
2002 WINTER OLYMPIC GAMES
The 2002 Winter Olympic Commemorative Coin Act, P.L. 106-435, authorizes the production of 400,000 silver dollar coins and 80,000 gold five-dollar coins. In the spirit of the 1996 commemorative coin reform legislation to curb proliferation, the 2002 Games will feature a single coin design for the obverse and reverse of each denomination — in contrast to the 1996 Olympic Games in Atlanta, which included a total of 16 designs. The final design selection will be made by the Secretary of the Treasury in consultation with the Commission of Fine Arts, the United States Olympic Committee, and the Olympic Properties of the United States—Salt Lake 2002, L.L.C. Surcharges from the sale of the coins will be divided equally between the Salt Lake Organizing Committee for the Olympic Winter Games of 2002 and the U. S. Olympic Committee. U.S. Mint marketing officials recently met for the first time with program sponsors to discuss program parameters and potential promotional plans. Issuance of the coin is targeted for January 1, 2002.
CONCLUSION
Two commemorative coin programs were active during the first quarter of FY 2001. Both the Library of Congress and the Leif Ericson Millenium programs reported a profit this quarter, and together have generated close to $29 million in revenues to date. The commemorative coin programs are currently experiencing a modest comeback with program sales increasing. While these signs are encouraging, they also underscore the necessity of continuing to abide by the 1996 program reforms.
Preparations are currently underway for the FY 2001 commemorative coin programs. Collector excitement is building within the numismatic community in anticipation of the reintroduction of a treasured coin design – James Earle Fraser’s Buffalo nickel. This program is scheduled to launch in June 2001.