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Financial Report

Income from current activities

Overview
Income from Patient Care
Investing in Research and Education
Support from Benefactors
Endowment
Diversified Activities
Investment Performance
Capital Projects
Consolidated Statement of Activities
Consolidated Statement of Financial Position
Community Benefit Summary

Mayo Clinic is driven by its mission of providing the best patient care to every patient every day through integrated clinical practice, education and research. As a not-for-profit institution, Mayo invests all of its net operating income back into programs that support this mission.

Overview

During 2006, Mayo Clinic's income from current activities — the best measure of Mayo's financial performance — was $117 million. This gave the institution a 1.9 percent operating margin. This performance was within Mayo's financial target for patient care and overall operations. Mayo Clinic sets its financial targets with the goal of achieving a return that will allow the institution to meet its expenses, reinvest in the practice, cover pension obligations, build its liability reserves, and grow its endowment.

The number of patients visits at Mayo Clinic grew by 2 percent to 3 percent across the system. Growth in expenses outpaced growth in revenue, due in part to important Mayo investments in patient care, research activities and information technology infrastructure. Mayo's total revenues grew by 8 percent, while expenses grew by nearly 10 percent.

Significant benefactor support for education and research activities, and strong investment performance contributed to the positive overall financial performance for 2006. This performance also reflects both strategic investments by the institution in research and tremendous efforts by Mayo staff throughout the system to provide the best patient care in the most efficient and effective manner.

Continued strong financial performance is essential in the coming years to allow for continued investment in strategic priorities, restore Mayo Clinic's financial resources, meet increased pension payment obligations, and prepare for other financial challenges that lie ahead, including a growing number of Medicare patients and a constrained National Institutes of Health research budget.

Income from patient care

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Income from Patient Care

Mayo Clinic staff served 521,000 individual patients in 2006. The total number of patient visits for all locations was 2.8 million. Patient volumes grew 2 percent to 3 percent across the system. Mayo Clinic hospitals admitted 135,000 patients during the year, an increase of 3,000 admissions.

Income from patient care was down slightly — $279 million in 2006 compared to $307 million in 2005. However, overall financial performance in patient care was consistent with Mayo Clinic's multiyear financial plan.

Investing in Research and Education

Mayo Clinic's net operating income is reinvested to advance the science of medicine and to teach the next generation of health care professionals. However, Mayo can't rely on excess funds from operations alone to completely fund education and research.

Overall funding for Mayo research and education programs was $634 million in 2006, an increase of $67 million over 2005. Government, foundations and industry sources provided $319 million of the total amount — a 1.9 percent increase over 2005. Mayo invested $315 million in research and education in 2006. This includes Mayo funds and benefactor gifts.

Research and Education Funding

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Mayo will continue to partner with foundations, benefactors, government and industry with mutual aims to support education programs that train the next generation of medical professionals and research programs that identify tomorrow's medical breakthroughs.

Support from Benefactors

More than 87,000 benefactors gave $230 million in 2006 to support Mayo programs. Support from grateful patients, foundations, corporations and other organizations is essential to Mayo Clinic's ability to carry out its mission in patient care, education and research, to provide outstanding facilities and technology, and to provide charity care.

Endowment

Mayo's endowment reached nearly $1.3 billion, growing by more than $260 million during 2006. The endowment helps provide a stable funding source for Mayo Clinic research and education programs. Mayo's goal is to increase the endowment to $2 billion in coming years. Mayo Clinic's endowment is a critical element in providing a long-term funding base for these programs.

Diversified Activities

Mayo Clinic's diversified activities include health information publishing enterprises, clinical laboratory reference services, technology commercialization, and other services and products that use Mayo's medical and scientific knowledge base. These diversified activities generated $35 million in 2006, which is reinvested in Mayo Clinic programs in medical research and education.

Investment Performance

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Investment Performance

The financial markets made significant gains, with Mayo's portfolio returning over 18 percent. Mayo Clinic's investments increased in value by $569 million in 2006. Each year, a portion of the investment return is used to fund research and education programs. However, because there is significant variability of results from year to year, Mayo can't rely on strong stock market performance as a source of funding for the long-term.

Capital Projects

In 2006, Mayo Clinic continued to make significant investments in facilities and infrastructure. Capital expenditures increased by $175 million in 2006 over 2005 levels, totaling $588 million.

The organization continued a number of major projects during 2006, including construction of a new hospital in Jacksonville, the build-out of the Gonda Building in Rochester, the opening of the Mayo Clinic Specialty Building in Arizona, and the development of the electronic medical record in the Mayo Health System. These major projects, along with technology, medical equipment, major renovations and projects are fundamental in providing advanced, quality care to our patients.

Consolidated statement of activities

Years ended Dec. 31, 2006 and 2005 (In millions)

Revenue, gains and other support:	2006	2005
Net medical service revenue	$ 5,300.5	$ 4,910.7
Grants and contracts	270.5	258.2
Investment return allocated to current activities	93.1	78.1
Contributions available for current activities	130.8	135.7
Premium revenue	82.0	71.0
Other	412.5	357.9
Total revenue, gains, and other support	$ 6,289.4	$ 5,811.6

Expenses:	2006	2005
Salaries and benefits	4,050.0	3,648.0
Supplies and services	1,481.2	1,329.2
Facilities	478.9	468.2
Provision for uncollectible accounts	102.0	117.6
Finance and investment	59.9	52.7
Total expenses	$ 6,172.0	$ 5,615.7

Income from current activities	$ 117.4	$ 195.9

Noncurrent and other items:	2006	2005
Contributions not available for current activities, net	84.9	121.6
Unallocated investment return, net	335.4	194.4
Change in net deferred tax asset	2.8	(1.0)
Asset retirement obligation	(25.7)	-
Miscellaneous	(2.2)	(5.9)
Total noncurrent and other items	395.2	309.1

Increase in net assets (before other changes in net assets)	512.6	505.0
Change in minimum pension liability	12.0	7.1
Increase in net assets	524.6	512.1
Net assets at beginning of year	$ 3,551.7	$ 3,039.6
Net assets at end of year	$ 4,076.3	$ 3,551.7

The above summary is intended to present a brief review of Mayo Clinic's financial condition and activities for 2006 compared with 2005. The consolidated financial statements of Mayo Clinic for the years ended Dec. 31, 2006 and 2005 were examined by Ernst & Young LLP. A copy of its report and Mayo Clinic's consolidated financial statement can be obtained by writing to the Treasurer, Mayo Clinic, Rochester, MN 55905.

Consolidated statement of financial position

Years ended Dec. 31, 2006 and 2005 (In millions)

Assets:	2006	2005	Change
Cash and cash equivalents	$ 52.8	$ 43.1	$ 9.7
Accounts receivable for medical services – net	981.0	887.0	94.0
Investments – at market	3,230.1	2,661.0	569.1
Other assets	835.0	776.1	58.9
Property, plant and equipment – net	3,126.0	2,862.4	263.6
Total assets	$ 8,224.9	$ 7,229.6	$ 995.3

Liabilities and net assets:	2006	2005	Change
Accounts payable and current liabilities	$ 1,058.0	998.4	$ 59.6
Long-term debt	1,445.6	1,201.7	243.9
Other long-term liabilities	1,645.0	1,477.8	167.2
Net assets	4,076.3	3,551.7	524.6
Total liabilities and net assets	$ 8,224.9	$ 7,229.6	$ 995.3

Mayo services and people

Measures of service	2006	2005
Total clinic patients*	521,000	513,000
Hospital admissions	135,000	132,000
Hospital days of patient care	619,000	609,000

People of Mayo (average full-time equivalents)	2006	2005
Staff physicians, medical scientists, clinical and research associates	3,000	2,900
Allied health, Residents, fellows and students	43,500	42,100
Total	46,500	45,000

* Includes Rochester, Jacksonville and Arizona locations only.

Community Benefit Summary

Benefits to those in need and the broader community *
Year ended Dec. 31, 2006 (estimated costs stated in millions)

	2006
Cost of benefit provided to those in need:
Charity care	$ 63.9
Unpaid portions of Medicaid and other indigent care programs	150.3
Total quantifiable benefit to those in need	$ 214.2
Cost of benefit provided to the boarder community:
Non-billed and cash and in-kind donations	8.6
Education and research **	315.0
Total quantifiable benefit to the broader community	$ 323.6
Total estimated cost of quantifiable community benefit	$ 537.8
Unpaid portions of Medicare and other senior programs	$ 485.3
* The estimated cost of benefits to those in need and the broader community were calculated in accordance with the guidelines set forth by CHA/VHA.
** The estimated cost of education and research excludes externally sponsored funding that totaled $319 in 2006.