Annual Report 2010

Supplemental Financial Information

Cash Before Capital Expenses

HBS invests in capital projects and covers the related debt service primarily by using cash from operations. Cash from operations is largely a function of the margins generated by HBP and Executive Education and returns on the HBS endowment, offset by total expense levels reflecting the School’s operational priorities. HBS also uses prior years’ endowment gifts or appreciation, available to be spent pursuant to donor specifications, to fund capital investments and related debt service.

Although these sources of funding are sensitive to short-term economic and market trends, the School develops academic programs, adds faculty, manages its research activity, and invests in its revenue-generating businesses and campus infrastructure on a long-term basis. HBS also invests in unforeseen strategic opportunities as they arise. As a result, the School’s cash from operations can fluctuate widely from year to year.

HBS began fiscal 2010 braced for a year of declining revenues with an expense budget substantially lower than initially planned for fiscal 2009. Driven by strong Executive Education and HBP results in the second half of the year, as well as actual expenses that came in under budget, actual revenues for fiscal 2010 exceeded the School’s forecast by $33 million.

Consequently, cash from operations increased from fiscal 2009 by $18 million, or 53 percent, to $52 million. In addition, use of cash from prior years’ endowment gifts or appreciation contributed $13 million to the School’s cash flow in fiscal 2010, compared with $11 million in fiscal 2009. As a result, cash before capital activities grew in fiscal 2010 by $20 million, or 44 percent, to $65 million, from $45 million in fiscal 2009.