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Annual Report 2009

Supplemental Information

CASH BEFORE CAPITAL ACTIVITIES

HBS invests in capital projects and covers the related debt service using cash from operations, as well as prior years’ endowment gifts or appreciation. The health of the global economy significantly affects the School’s cash flow from operations, because margins from HBP and Executive Education, income from investment returns on the endowment, and levels of unrestricted giving are all economically sensitive.

The economy also drives the School’s decisions regarding the use of prior years’ gifts or appreciation, available to be spent in accordance with a donor’s wishes. These funds vary from year to year depending on the type of gifts available, the purposes for which they were given, the status of the School’s initiatives related to these purposes, and the available appreciation.

At the same time, HBS adds faculty, manages its research activity, and invests in its revenue-generating businesses and campus infrastructure on a long-term, strategic basis. While generally tracking these activities, the School’s expenses also reflect unforeseen strategic opportunities as they arise. As a result, cash from operations can fluctuate widely from year to year as economic conditions and the School’s spending priorities change.

In fiscal 2009, the School’s cash from operations increased by $6 million, or 21 percent, to $34 million, reflecting a mix of factors. Growth in the endowment distribution, and to a lesser extent an increase in student housing and tuition income, were offset by a slight decline in combined revenue from HBP and Executive Education, a slowdown in unrestricted current use giving, and a modest rise in operating expenses.

At the same time, there was a decline in use of cash from prior years’ endowment gifts or appreciation. Income from this source contributed $11 million to the School’s cash flow in fiscal 2009, compared with $41 million last year. The fiscal 2008 figure included the School’s $26 million share of a University-wide strategic decapitalization of principal and appreciation from the endowment, drawn from the Harvard endowment’s strong investment returns in the decade prior to fiscal 2009.

Reflecting the $6 million increase in cash from operations, netted against the $30 million drop in cash from endowment gifts or appreciation, cash before capital activities declined in fiscal 2009 by $24 million, or 34.7 percent, to $45 million, from $69 million a year earlier.

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