From the Chief Financial Officer
Driven by continued growth in the global economy and strong demand for management education and research, fiscal 2007 proved to be an excellent financial and operational year for Harvard Business School (HBS).
Consolidated revenue increased by $37 million, or 10.1 percent, from $368 million in fiscal 2006 to $405 million. The School's revenue has risen at a compound annual rate of 7.2 percent for the past five years, and fiscal 2007 was the second year in a row of double-digit revenue growth.
Executive Education and Harvard Business School Publishing (HBSP) together generated $19 million of the top-line growth this year. Publishing revenue grew by $9 million, driven by increased circulation and foreign-edition royalties at Harvard Business Review; higher sales of cases, teaching materials, and HBS Press books; and continued expansion in HBSP's eLearning business. Executive Education revenue was up by $10 million, reflecting positive market response to programs introduced during the year.
About $7 million of this year's revenue growth came from increased distributions from the HBS endowment, which continued its record of strong investment returns.For the first time in the School's history,endowment distributions exceeded MBA Program income.
An extraordinary increase in unrestricted giving accounted for $5 million in additional revenue in fiscal 2007. Unrestricted current use gifts are the School's major source of funds for strategic innovation. Over the past two years, unrestricted current use giving has more than doubled.
Of the remaining $6 million in incremental revenue that HBS realized in fiscal 2007, the planned 5.6 percent increase in MBA tuition and fees provided $4 million. The other $2 million was generated by growth in interest income.
Total operating expenses grew by $30 million, or 8.7 percent, in fiscal 2007 to $375 million from $345 million in fiscal 2006. As in the prior year, the increase in total expenses was primarily driven by spending designed to strengthen product portfolios and marketing capabilities in Executive Education and HBSP. Growth in faculty compensation and fellowships also contributed to the increase in operating expenses.
We continued our tight control over spending in non-revenue-generating functions in fiscal 2007. As a result, we again were successful in countering the impact of inflation on many of the School's fixed costs, and cash from operations rose by $7 million year-over-year to $30 million. This increase resulted from a combination of expense control and the larger endowment distribution and income from unrestricted current use gifts.
A five-year period of intensive construction activity on the HBS campus peaked in fiscal 2005, when capital expenses reached $79 million. Fiscal 2007 was a year of relatively modest construction activity, as we focused on developing the comprehensive campus plan that will serve as the framework for the School's future capital investments. As a result, capital expenses declined from $49 million in fiscal 2006 to $20 million this year.
The decline in major building renewal activity meant that more than 50 percent of fiscal 2007 capital spending was directed toward the School's long-term program of baseline facilities maintenance. In addition to the usual multitude of small maintenance projects, we began upgrading the Technology Operations Center, and modernized HVAC systems in many of the School's buildings. These projects were financed by accessing reserves.
Thanks to continued strength in cash from operations, the School's reserves balance at the end of fiscal 2007 increased by $5 million from last year to $65 million. This is comfortably within our long-term optimal range, and at a level that should enable HBS to continue innovating academically, investing in strategic opportunities, and maintaining the physical integrity of the campus.