2005 Financial Report

Mayo Clinic operating performance (In millions)
	2005	2004	Change
Total Revenue	$5,802.3	$5,353.8	8.4%
Total Expenses	5,526.9	5,052.7	9.4%
Income from current activities	$275.4	301.1	(8.5%)
Operating Margin	4.7%	5.6%	(0.9%)

A brief overview
Patient care
Investing in research and education
Support from benefactors
Diversified activities
Investment performance
Capital projects
Community benefit
Consolidated statement of activities
Consolidated statement of financial position
Mayo services and people
Benefits to those in need and the boarder community

A brief overview

As a nonprofit organization, 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. All of Mayo's net operating income is invested back into programs that support this mission.

Mayo Clinic's 2005 income from current activities was $275 million, which gave the institution a 4.7 percent operating margin. Mayo Clinic sets its financial target 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 debt reserves, and grow its endowment.

During 2005, Mayo's total revenues grew by 8 percent, while expenses grew by 9 percent. The growth in Mayo's expenses outpaced its growth in revenue, due in part to important Mayo investments in patient care, research activities, and information technology infrastructure.

Mayo Clinic met its financial objectives in 2005, allowing the organization to make necessary investments in strategic priorities. The overall number of individual patients seen by Mayo Clinic remained relatively stable, with both outpatient visits and admissions increasing slightly in 2005. Significant growth in benefactor support for education and research activities, and capital projects, contributed to the positive financial result.

Mayo Clinic must continue its strong financial performance in the coming years to allow reinvestment in strategic, operational and capital priorities, to restore its financial reserves, and to prepare for significant financial challenges that lie ahead.

Income from patient care (In millions and % of revenue)
	2005	2004	Change
Total Revenue	$4,828.8	$4,480.0	348.8 7.8%
Total Expenses	4,521.9	4,169.6	352.3 8.4%
Income from patient care	$306.9	$310.4	(3.5)
Operating Margin	6.4%	6.9%	(0.5)

Patient care

Mayo Clinic staff served more than 513,000 individual patients in 2005. The total number of patient visits for all locations was 2.7 million. Mayo Clinic hospitals admitted 132,000 patients during the year, an increase of 2,000 admissions. Income from patient care remained stable at $307 million in 2005, compared with $310 million in 2004. Overall financial performance in patient care was consistent with Mayo Clinic's multi-year 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, we can't rely on excess funds from operations alone to completely fund education and research.

Overall funding for Mayo research and education programs was $567 million in 2005, an increase of $39 million over 2004. Government, foundations and industry sources provided $313 million of the total amount. Mayo Clinic invested $254 million in research and education in 2005. This includes Mayo funds and benefactor gifts.

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 70,000 benefactors gave more than $270 million in 2005 to support Mayo programs, a record year for Mayo Clinic, and an increase from $203 million in 2004. 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.

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Mayo Clinic"s endowment grew by $180 million during 2005, to more than $1 billion. This growth will help to secure the future of Mayo 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 Clinic's medical and scientific knowledge base. These diversified activities generated a net surplus of $33 million in 2005, which is reinvested in Mayo Clinic programs in medical research and education.

Investment performance (Annualized return)
	One-year	Three-year	Five-year
General Fund	14.6%	18.3%	8.0%
Benchmark	10.4%	14.9%	4.4%

Investment performance

Mayo Clinic's investment performance outperformed its benchmarks on a one-, three- and five-year horizon, contributing significantly to Mayo Clinic's overall financial performance. Mayo Clinic's investments increased in value by $300 million in 2005, an annual return of just under 15 percent. Each year, a portion of Mayo Clinic's investment return is used to fund research and education programs. In 2005, $78 million of investment return was allocated to support these programs.

Capital Projects

Mayo Clinic continued to invest in the most advanced facilities, equipment and technology to maintain its position as a leader in health care. Capital expenditures increased by $98 million in 2005 over 2004 levels, totaling $412 million. Mayo invested about $307 million to replace and update medical equipment and technology.

The organization also undertook a number of renovations and other major projects during 2005. Construction of a 214-bed hospital on the Mayo Clinic Jacksonville campus began in 2005. The new hospital will be integrated with outpatient clinical care facilities. Construction of a Mayo Clinic Specialty Building adjacent to Mayo Clinic Hospital in Phoenix also is under way. The facility will house surgeons and specialty outpatient procedural activities. A major laboratory expansion was undertaken in Rochester to support the growth of reference laboratory and pathology services provided for both Mayo patients and patients from around the world.

Community Benefit

As an organization, Mayo Clinic is committed to giving back to the community — both its local communities and the broader community. Mayo contributes both locally and globally by contributing time and resources to community improvement, education, public health and other initiatives; by providing care and support to those in need; and by carrying out education and research programs that benefit people everywhere. The total quantifiable benefit to the broader community in 2005 was approximately $456 million.

Consolidated statement of activities

Years ended Dec. 31, 2005 and 2004 (In millions)

Revenue, gains and other support:	2005	2004
Net medical service revenue	$ 4,901.8	$ 4,532.9
Grants and contracts	258.3	253.5
Investment return allocated to current activities	78.1	72.1
Contributions available for current activities	135.7	109.5
Premium revenue	71.0	67.7
Other	357.4	318.1
Total revenue, gains, and other support	$ 5,802.3	$ 5,353.8
Expenses:	2005	2004
Salaries and benefits	3,562.9	3,302.9
Supplies and services	1,325.7	1,152.1
Facilities	468.1	441.0
Provision for uncollectible accounts	117.5	113.1
Finance and investment	52.7	43.6
Total expenses	$ 5,526.9	$ 5,052.7
Income from current activities	$ 275.4	$ 301.1
Non-current and other items:	2005	2004
Contributions not available for current activities, net	121.6	82.8
Unallocated investment return, net	194.4	168.1
Pension benefits, net of service cost	(46.2)	(31.7)
Post-retirement benefits, net of service cost	(22.1)	(20.9)
Change in net deferred tax asset	(1.0)	4.0
Miscellaneous	(17.0)	7.2
Total noncurrent and other items	229.7	209.5
Increase in net assets before other changes in net assets	505.1	510.6
Change in minimum pension liability	7.1	(21.4)
Increase in net assets	512.2	489.2
Net assets at beginning of year	$ 3,033.4	$ 2,544.2
Net assets at end of year	$ 3,545.6	$ 3,033.4

The above summary is intended to present a brief overview of Mayo Clinic's financial condition and activities for 2005 compared with 2004. The consolidated financial statements of Mayo Clinic for the years ended Dec. 31, 2005 and 2004 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

Dec. 31, 2005 and 2004 (In millions)

Assets:	2005	2004	Change
Cash and cash equivalents	$ 42.3	$ 10.3	32.0
Accounts receivable for medical services – net	885.3	844.0	41.3
Investments – at market	2,658.7	2,416.1	242.6
Other assets	644.8	576.1	68.7
Property, plant and equipment – net	2,859.7	2,760.2	99.5
Total assets	$7,090.8	$ 6,606.7	$ 484.1
Liabilities and net assets:	2005	2004	Change
Accounts payable and current liabilities	733.4	652.9	80.5
Long-term debt	1,333.6	1,430.9	(97.3)
Other long-term liabilities	1,478.2	1,489.5	(11.3)
Net assets	3,545.6	3,033.4	512.2
Total liabilities and net assets	$ 7,090.8	$ 6,606.7	$ 484.1

Mayo services and people

Measures of service	2005	2004
Total clinic patients*	513,000	513,000
Hospital admissions	132,000	133,000
Hospital days of patient care	609,000<;/td>	599,000
The people of Mayo (average full-time equivalents)	2005	2004
Staff physicians and medical scientists, clinical and research associates	2,900	2,800
Residents, fellows and students	2,400	2,400
Administrative and allied health personnel	39,700	38,200
Total	45,000	43,400

* This line includes Rochester, Jacksonville and Arizona clinics only.

Benefits to those in need and the boarder community

(estimated costs stated in millions)

Cost of benefit provided to those in need:
Charity care, unpaid portions of Medicaid and other indigent care programs, other programs
Total quantifiable benefit to those in need	$196.0
Cost of benefit provided to the boarder community:
Education and research	254.0
Non-billed and cash in-kind donations (This amount includes $1.9 million given to Hurricane Katrina relief efforts)	6.0
Total quantifiable benefit to those in need and the broader community	$456.0