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The Dow Jones Industrial Average had fallen to the mid-6000s in the spring of 2009 when we were preparing the School’s financial plan for fiscal 2010. We had implemented two rounds of budget cuts after the 2008 market collapse, but in parts of the School’s Publishing and Executive Education businesses, revenues were still declining faster than expenses. The Harvard endowment was heading toward a year of negative returns, and the outlook for alumni giving was becoming increasingly uncertain.
Anticipating an extended period of revenue constraints, we launched an aggressive effort to reduce the School’s cost structure even further. The HBS community responded well to the challenge. Reflecting three rounds of restructuring and our forecast for subdued top-line results, our budget for fiscal 2010 projected revenue and expense levels 10 percent and 9 percent lower, respectively, than we had budgeted for fiscal 2009.
Although the nation’s recovery from the recession proved to be slow and uneven, the School’s fiscal 2010 financial performance was stronger than we had expected—particularly in the second half of the year. Executive Education and Harvard Business Publishing (HBP) produced solid top-line results and stronger margin contributions to operating income. Unrestricted current use giving to HBS returned to prerecession levels, and endowment income came in 3 percent higher than anticipated. Consequently, total revenues for fiscal 2010 exceeded the budget by nearly 8 percent, decreasing only 1 percent from actual revenues for the prior fiscal year.
Meanwhile, HBS faculty and staff reined in spending even more aggressively than planned, and total expenses for fiscal 2010 came in 1 percent under budget, 4 percent below fiscal 2009 actual expenses, and as planned, $40 million, or 9 percent, lower than initially budgeted for fiscal 2009. As a result, HBS continued to generate positive cash from operations in fiscal 2010. This cash flow enabled the School to add modestly to unrestricted reserves by year-end.