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Annual Report 2009

Supplemental Information

FISCAL 2009 REVENUES

The School’s top-line growth slowed to 4.7 percent in fiscal 2009, from a compound annual rate of 8.9 percent for the previous five years, as total revenues increased by $21 million from fiscal 2008 to $472 million. In contrast to fiscal 2008 when Executive Education and HBP together represented more than $26 million of year-over-year growth, revenue from these combined sources was down by $1 million in fiscal 2009. This decline reflected weaker demand in both the corporate and academic markets as the economy deteriorated in the second half of the fiscal year.

The School’s alumni and friends continued to be generous in fiscal 2009, but the market collapse and recession clearly had an impact on giving to HBS. Income from unrestricted current use gifts totaled $12 million, or 2.5 percent of the School’s total revenue, compared with $14 million, or 3 percent of revenue a year earlier. Total cash received from all types of gifts for fiscal 2009 was $37 million, compared with $51 million in fiscal 2008. Approximately 24 percent of the School’s MBA alumni made a gift to the School in fiscal 2009, compared with nearly 30 percent in fiscal 2008.

The flat revenues in Executive Education and HBP and decline in current use giving were offset by the larger endowment distribution, as well as an increase in the Housing, Rents, and Other category. Revenue in this category was up by $4 million from fiscal 2008, the result of Global Business Summit registration fees and an expansion of the MBA immersion programs. As in prior years, MBA tuition and fees increased as well, generating an incremental $2 million in revenue for the fiscal year.



FISCAL 2009 EXPENSES



BACKGROUND

Total operating expenses increased by $15 million, or 3.5 percent, in fiscal 2009 to $438 million, from $423 million last year—roughly half the increase initially projected. Early in the fiscal year, HBS anticipated slowing revenue growth and implemented a multitude of budget cuts that affected nearly every area of spending. Aggressive expense management at HBP alone resulted in $11 million in savings, compared with the initial fiscal 2009 budget. In total, the School’s fiscal 2009 operating expenses came in $22 million lower than the $460 million initially planned. 

The expense reductions implemented in fiscal 2009 were designed with two goals in mind. The first goal was to ensure that the School’s operating budget reflects an environment of slower revenue growth. The second goal was to protect key priorities—academic programs, faculty research, and strategic initiatives—while minimizing costs to the extent possible. From an expense management perspective, these goals relate to various functional areas that transect a number of items in the School’s Statement of Activity and Cash Flows.

In HBP and Executive Education, for example, expenses include direct costs for staff compensation, specialized outside professional services in areas such as IT and marketing, and residence expenses for executive program participants. As another example, faculty research expense includes a significant portion of faculty salaries and benefits, as well as direct costs for research support staff, travel, and IT services. Also included in the cost of faculty research are allocated expenses for the School’s network of global research centers, as well as library resources, campus facilities, technology, and administration. When viewed in this way, the School’s total investment in faculty research for fiscal 2009 was $97 million, compared with $102 million last year.

SALARIES & BENEFITS

Compensation for faculty and staff is the School’s largest expense. For fiscal 2009, salaries and benefits expenses rose by $6 million, or 2.9 percent, from a year earlier. The fiscal 2008 figure was unusually high due to a one-time expensing of both historic vacation liability and faculty early retirement incentives.

Amid increasing global competition for academic talent, HBS recruits aggressively and seeks creative ways to attract outstanding faculty. The ability to offer competitive salary and benefits packages is crucial in this effort. The total number of faculty, as measured in full-time equivalents (FTEs), can rise or fall in any given year as a result of retirements, departures, and normal fluctuations in recruiting activity. In fiscal 2009, the size of the faculty grew by nine FTEs to 228, which contributed to the increase in faculty compensation expense.

HBS tightly controls administrative staff levels, adding staff positions only when they are critical to achieving the School’s teaching and research mission. Although the operational footprint of the School has expanded significantly in the past five years, the number of administrative FTEs has grown at a compound annual rate of only 3.1 percent.

In fiscal 2009, the administrative FTE budget increased by 41 to a total of 1,187, from 1,146 at the end of fiscal 2008, reflecting plans completed prior to the economic downturn. Looking forward, the staffing reductions implemented for fiscal 2010 will result in a significant year-over-year decline in total administrative FTEs.

FELLOWSHIPS

MBA and Doctoral fellowship spending, or financial aid, is treated as an expense line item on the School’s Statement of Activity and Cash Flows. However, increasing financial aid support for students is a longstanding strategic objective at HBS.

Generous giving by the School’s alumni and friends, coupled with strong investment returns on the HBS endowment, have significantly increased the size of the School’s endowed financial aid funds in the past five years. Total financial aid spending, including fellowships for doctoral as well as MBA students, has risen at a compound annual rate of 17.1 percent during this period. In fiscal 2009, the School’s total financial aid expense grew by $7 million, or 26.9 percent, from the prior year, to $33 million.

Since fiscal 2004, the average two-year MBA fellowship award has grown from $24,500 for the Class of 2005 to $49,500 for the Class of 2010. HBS will continue seeking ways to assist MBA students in reducing their debt at graduation, thus broadening their career opportunities in both the private and public sectors. The School is also increasing its investment in doctoral education. The number of doctoral students rose to 120 in fiscal 2009 from 105 in the prior year, driving commensurate growth in spending for doctoral fellowships, stipends, and research support.

PUBLISHING & PRINTING

Publishing and printing expenses includes HBP production costs as well as a small amount of spending to produce the School’s other printed materials and publications. Primarily reflecting lower costs for printing and paper and marketing at HBP as business activity contracted, publishing and printing expenses were down by $1 million in fiscal 2009 to $52 million, from $53 million a year earlier.

SPACE & OCCUPANCY

The HBS campus includes 33 buildings encompassing more than 1.5 million square feet of occupied space. Space and occupancy expenses includes costs related to maintaining and operating the School’s buildings and associated campus infrastructure. In addition, facilities improvement and renovation costs that do not qualify as capital expenses are generally categorized as space and occupancy.

Also included in space and occupancy are expenses related to dining facilities and other campus services, as well as costs associated with leased space that houses HBP’s operations. In addition, residence expenses for executive program participants—equivalent to cost of goods sold in Executive Education—are reported under this category.

In the past five years, space and occupancy expenses have risen at a compound annual rate of 6.2 percent. Despite incremental spending related to the School’s centennial activities, these expenses were flat with the prior year in fiscal 2009 as a result of midyear budget reduction initiatives, which included cuts in campus-wide dining costs and the postponement of numerous facilities projects. 

SUPPLIES & EQUIPMENT

Spending in this area increased by $1 million, or 9.1 percent, in fiscal 2009, primarily reflecting projects related to enhanced IT security and business continuity measures.

PROFESSIONAL SERVICES

Professional services expenses increased by 7.6 percent in fiscal 2009 to $31 million, from $29 million in fiscal 2008. Over the past five years, the School’s spending on professional services has risen at a compound annual rate of 17.2 percent. This increase largely reflected spending for outside contractors who assisted with HBP’s IT infrastructure upgrade and migration to a digital product platform, as well as other IT projects across the campus. The slower growth in professional services expenses in fiscal 2009 was mainly due to a decrease in Executive Education spending in this area. 

UNIVERSITY ASSESSMENTS

Expenses for University assessments are primarily calculated as a percent of the School's total expenses on a two-year lagged basis. These assessments cover essential services provided to HBS by the University, including payroll and benefits administration, processing of accounts receivable and payable, and legal services. University assessments increased in fiscal 2009 by $1 million, or 8.3 percent, to $13 million, reflecting growth in the School's expenses. University assessments may rise at a faster rate in future years, as the negative endowment returns of fiscal 2009 are likely to reduce the amount of endowment income available to support the University’s central administrative functions.

DEBT SERVICE

The School’s debt service expenses, which consists of interest payments to the University on building and other University debt, declined in fiscal 2009 by $1 million, or 14.3 percent, to $6 million. As in the prior year, debt service expenses were mainly associated with borrowings to finance campus expansion earlier in the decade.

OTHER EXPENSES

Other expenses were flat with the prior year in fiscal 2009 at $37 million. Incremental expenses related to MBA Program innovation, career services initiatives, and the School’s centennial were offset by budget cuts in numerous areas, as well as the postponement of special projects.

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