Harvard Business School Alumni Bulletin

HBS Releases 2003 Financial Report

Other highlights from the report include: • Unrestricted reserves were $56 million at the end of fiscal 2003, compared with $70 million a year earlier. HBS realigned its debt and reserves balances in fiscal 2003, paying down higher-interest debt by $25 million. • While giving declined for the vast majority of institutions of higher education, HBS alumni and friends continued to be generous in fiscal 2003. The School closed fiscal 2003 with $97 million in pledge balances, compared with $85 million last year.

Despite a sluggish economy that constrained revenue growth for a second year, HBS finished fiscal year 2003 last June with a balanced budget and double-digit growth in its endowment funds.

“Through careful management of our expenses, we were able to meet our target for cash from operations while achieving our strategic objectives for the year,” said Richard P. Melnick (MBA ’92), the School’s chief financial officer.

The Harvard Business School 2003 Financial Report, scheduled for release this month, marks the second year that HBS has published a detailed financial statement to demonstrate its commitment to transparency at a time when the School is involved in a $500 million capital campaign. It also highlights the School’s unusual business model.

Unlike most schools, HBS does not accept government and third-party faculty research grants, opting instead to give its faculty maximum freedom to set their research priorities. Faculty research, in turn, produces the intellectual capital disseminated by HBS Publishing and Executive Education programs. These two business units generate more than half of the School’s revenues, thus making HBS heavily dependent on market-sensitive operations for its revenue.

For the fiscal year that ended June 30, HBS received $294 million in revenue, $9 million below its budget forecast.

Executive Education generated $67 million, 4 percent less than projected. HBS Publishing generated $93 million, 8 percent below plan but equaling the peak year of 2001. However, combined revenues for these two business units increased 2.6 percent from fiscal 2002 and represented 54 percent of total revenues. In addition, endowment income rose 6 percent to $53 million, and MBA Program revenues rose 5 percent to $61 million, reflecting a 6 percent tuition increase established for the MBA class that entered the School in September 2002.

In response to the revenue shortfall, the School implemented vigorous cost controls, made all the more challenging because of the fixed-cost nature of educational institutions. The spending controls resulted in holding expenses to a level of $11 million less than originally planned. Major savings came in maintaining lower staffing levels, trimming costs in Executive Education and HBS Publishing, and deferring a number of discretionary maintenance projects.

While the economy slowed unrestricted annual giving — down $600,000, or 7 percent from the previous year’s record high — nearly 30 percent of the School’s MBA graduates made or pledged gifts in fiscal 2003, compared with 26 percent last year.

The market value of the HBS endowment and current-use funds increased by more than 10.5 percent to $1.48 billion at June 30, up from $1.34 billion a year earlier. The total investment return was 12.5 percent. This gain is a reflection of both strong returns and new endowment gifts. The HBS endowment includes more than eight hundred funds established by individual donors, corporations, foundations, and reunion classes, largely to support specific purposes.

Read the full 2003 HBS Financial Report. (PDF download)