Financial update for FY2010
OCLC is a nonprofit cooperative, owned and funded by the membership. Being a nonprofit does not mean that we don't charge for services. It means that our financial goal, every year, is to receive just a bit more (2 to 4%) cost-sharing revenue than we spend to provide services, research, advocacy and standards work on behalf of our members.. Why don't we budget to break precisely even? Because that extra 2 to 4% allows us to invest in the future of the cooperative, make major strategic improvements and guard against "lean times" (like now), when freezing prices for member libraries is the right thing to do.
Because a member cooperative is owned, governed and sustained cooperatively, transparency in our finances is essential. Every year, we communicate economic information about the cooperative in a number of ways, including audited financial statements and annual reports. The audited financial statements for fiscal 2010 (July 1, 2009 - June 30, 2010), including the independent auditors' report of Deloitte and Touche LLP, are now available online.
I want to take this opportunity to briefly go over a few of the most significant portions of last year's financial results. You're welcome to go through the full financials for more details.
OCLC's financial results year-to-year are affected by the economy and the strategic decisions made on behalf of member libraries. Consolidated revenues of OCLC totaled $228.1M (million) for the fiscal year that ended June 30, 2010, as compared to $240.5M for the fiscal year that ended June 30, 2009. The decline in revenue is primarily attributed to the sale of certain product lines, including NetLibrary. The gain on the sale of these product lines is reflected in the net contribution of $23.4M for fiscal 2010, as compared to a loss of $31.2M for fiscal 2009. The 2009 loss can be attributed to significant losses in the long-term investment portfolio.
A brief review of the key financial activities for FY2010 follows (all in USD):
- Operating activities include cost-sharing revenues and the cost to provide products and services for libraries, research and development, and other support services for the cooperative. Cost-share revenues fell short of the cost to operate in fiscal 2010, resulting in an operating loss of $13.7M (before investment income and other gains). This operating loss can be explained mainly by the continuing harsh economic climate, the decision to freeze prices for member libraries, and the significant investment in new products and services.
- Long-term investment activities provide interest and dividend income to support operating activities similar to an endowment. Long-term investment portfolio gains support strategic investment and the sustainability of the cooperative:
- Interest and dividend income of $5.2M: OCLC applies interest and dividends from the investment portfolio to augment yearly operating revenue, lower/freeze pricing or offset losses. Thus, net of interest and dividends income, our operating loss for the year was $8.5M (-$13.7 + $5.2M).
- Portfolio gains of $9.4M: This gain is a major component of the positive change in the value of the cooperative's long-term investment portfolio, exclusive of the interest and dividend income. For comparison, last year the portfolio took a $37.2M loss. Just about everyone's investments did very poorly in 2009, but overall investments are looking a bit better in 2010.
- Gain on sale of product lines was $22.5M. This represents, largely, the sale of the NetLibrary division to EBSCO in March 2010. The proceeds from these sales improved the cooperative's financial position and funded the following major initiatives:
- $1.4M restructuring of operations during fiscal 2010
- $2.8M retirement of debt in June 2010
- $12M to retire additional debt in FY2011
- And the balance was committed to offsetting operating losses and to funding strategic investments in new services, including new Web-scale management services.
Last year wasn't easy for anyone who manages finances. But I believe OCLC members can take pride in being part of a cooperative that has grown--and thrived--for more than four decades! We do this by listening to our members, putting member needs and goals first, and adapting to changes in the environment. And, most importantly, by remembering that, with every transaction, it is our members' resources we're managing on their behalf.
Rick J. Schwieterman
OCLC Executive Vice President and Chief Financial Officer, Treasurer
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