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Annual Report 2009

From the Chief Financial Officer

Any discussion of fiscal 2009, as well as fiscal 2010, must be put in the context of the 2008-09 financial crisis and recession. More than 75 percent of the School's revenue comes from several sources that are sensitive to the global economy: Executive Education, Harvard Business Publishing, and the HBS endowment and alumni giving. Each has been deeply affected by the downturn.

From a financial perspective, the 12 months that began July 1, 2008, encompassed two profoundly different periods. The School's initial fiscal 2009 budget, prepared in the spring of 2008 amid the first signs of broad economic weakness, reflected caution regarding the revenue outlook for Executive Education and Harvard Business Publishing (HBP). For the first five months of the fiscal year, the School's revenues remained in line with our initial plan. Then, the operating environment changed radically.

Late in 2008, as the world's capital markets collapsed, the University announced the prospect of a 30 percent decline in Harvard's endowment for fiscal 2009. HBS and the other Harvard schools were asked to assume an 8 percent reduction in funds distributed from the endowment in budgeting for fiscal 2010. At the same time, both Executive Education and Harvard Business Publishing began seeing a drop-off in demand, and alumni current use gifts also declined.

We quickly responded with an aggressive effort to reduce the School's spending for the second half of fiscal 2009, and to develop a budget for fiscal 2010 that reflected both lower income and fundamental changes in our cost structure. The School's faculty and staff responded to the challenge with impressive resolve and creativity, enabling HBS to remain cash flow positive and conclude the fiscal year with a strong reserves balance.

Looking forward, however, both the School and the University anticipate that constrained revenue growth will continue. The HBS budget for fiscal 2010 acknowledges this new reality. The purpose of this letter is to provide insight into the School's key financial issues, accomplishments, and challenges in fiscal 2009 and, equally important, into what we see on the horizon for the coming fiscal year.

Executive Education Revenues