As a not-for-profit global library cooperative, our goal is to achieve an operating income over time that is 24% of revenues. Historically we have achieved this with revenues that approximate the costs to deliver services, plus interest and dividend income from our investment portfolio. In recent years, OCLC has experienced operating losses from service delivery. (See operating loss before portfolio activity in the FY2015 Financial Highlights, below.) These losses are attributed to limited price increases for three years and heavy strategic investment into new services. Interest and dividend income from the investment portfolio is included in the annual operating plan, which enables us to partially offset the operating losses.
Unlike other library services organizations, OCLC reinvests all of our income into new products and programs rather than distribute funds to shareholders or business owners. Our revenue stream from library services and our investment portfolio provide a strong cash flow that allows for strategic capital investments and to ensure the viability of OCLC.
|Library service revenues||$202.8||$213.6||$206.6|
|Operating loss before portfolio activity||($13.1)||($8.6)||($8.1)|
|Investment portfolio activity|
|Dividends and interest income||$7.8||$13.2||$5.3|
|Net realized gains||$7.7||$28.6||$5.2|
Revenues from library services were $202.8 million in FY2015, a decrease of 5.1% from FY2014, mainly due to the change in accounting for user credits, which are now reflected in lower subscription pricing for participating libraries with a corresponding reduction in operating expense. This decrease also reflects unfavorable exchange rates, primarily the Euro to U.S. dollar. FY2014 revenue reflects the acquired revenue from HKA, a Dutch library systems provider that then served over 60% of the public library market in the Netherlands. OCLC acquired HKA in FY2014.
In FY2015, OCLC realized an operating loss before portfolio activity of $13.1 million, the third consecutive year of an operating loss. Included in FY2015 operating expenses is the goodwill write-down from the strategic acquisition of Sustainable Collection Services (SCS), the leader in analyzing print collection data to help libraries manage and share their materials. Also included in operating expenses are one-time restructuring and severance costs expensed in FY2015. Like many libraries, we have realigned our staffing and cost structure to better reflect current revenue trends.
Net contribution for FY2015 was $2.4 million, which includes favorable investment portfolio activity. Dividend and interest income was $7.8 million, and net realized portfolio gains were $7.7 million. (See the OCLC investment portfolio, below.)
We are working to return to break-even operating performance before portfolio activity. Our historical break-even approach was interrupted in 2010, as we supported the membership during a challenging economy with three years of no or modest price increases. At the same time, we were heavily investing in the WorldShare Platform and complement of cloud services to strengthen the future of the cooperative and value to the membership. The continued growth of newer services and the tightened focus of operational spending on areas most important to libraries will help us return to breakeven.
The Audit Committee, consisting entirely of independent trustees, assists the Board of Trustees in its oversight of our financial reporting process, and is responsible for, among other things, reviewing with Deloitte & Touche LLP, independent auditors, the scope and results of its audit engagement.
“As a membership organization, we are committed to the transparency and integrity of financial information. OCLC Board members make sure that the cooperative operates in a responsible, business-like manner. We place the long-term needs of the library community at the forefront of all OCLC activities.”
OCLC maintains an investment portfolio that includes our Sustainability Fund and library funds entrusted to OCLC. The Sustainability Fund is managed similar to an endowment, and supports our continuity.
At the end of the fiscal year, the portfolio totaled $238.5 million, compared to $239.3 million on June 30, 2014. The decrease in value is due primarily to lower advance payments made by libraries to OCLC. Interest and dividend income is used to partially support library service and research activities. The portfolio also funds a subscription discount to members who make advance payments on their subscriptions.
In addition, the Sustainability Fund helps the cooperative borrow at low interest rates, much lower than the investment returns realized in the Sustainability Fund. At the end of the fiscal year, outstanding debt was $73.8 million. The Sustainability Fund will fund $50 million of capital and infrastructure investment in the FY2016 operating plan approved by the Trustees in June 2015.
OCLC is financially stable and strengthened by our growing global membership and ongoing advancement in our products and services. The cooperative model allows us to invest in technology, research and development to meet library needs into the future. In FY2015, we continued to invest in research and development areas that are most important to our member libraries, including WorldShare cloud services, end user services and metadata services. Over the past five years, these investments have totaled $172 million. The pie chart below identifies research and development by category and certain specific initiatives during FY2015.
Thank you for your interest in OCLC. As a global library cooperative, OCLC supports thousands of libraries in making information more accessible and more useful to people around the world. For additional information, please see:
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Inset: Photo courtesy of Butler University