2004 Financial Report

A brief overview
Patient care
Reinvesting in research and education
Support from benefactors
Diversified activities
Investment performance
Consolidated statement of activities
Consolidated statement of financial position
Mayo services and people

A brief overview

Mayo Clinic had an excellent year financially in 2004, with a significant improvement in its operating performance over 2003. This performance is a result of diligent planning, practice improvements and expense management, and tremendous efforts of staff at all sites. Mayo Clinic's practices in Rochester, Jacksonville and Arizona, as well as Mayo Health System, all contributed to Mayo's overall success.

Patient demand for Mayo services remains strong, and the institution will continue to build on its success in 2005. Mayo needs to continue this level of performance over the next several years to fully replenish its financial reserves and prepare to meet future challenges.

Strong financial performance will allow Mayo to reinvest in its clinical practice, education and research missions to maintain its position as a premier patient-focused academic medical center. Mayo's revenues are reinvested in practice innovation, research and education programs that advance the science of medicine and help Mayo provide the best care to every patient every day.

In 2004, Mayo's income from current activities, the best indicator of Mayo Clinic's overall financial performance, was $305 million, an increase from the 2003 total of $132 million. Income from current activities includes revenue and expenses from: patient care, education, research, diversification activities and administrative support. It also includes a portion of endowment earnings and philanthropic support for operations.

Income from current activities more than doubled from the 2003 level. This represents a strong operating margin of 5.7 percent. As a not-for-profit institution, Mayo Clinic historically has had narrow operating margins — the amount of revenue in excess of expenses that can be reinvested in practice innovation, research, education, facilities and technology.

To fulfill its mission, Mayo needs strong programs in research and education, funding of new technology, and high-quality facilities. While part of this funding comes from operations, Mayo Clinic also needs to continue to work in partnership with grateful patients and friends, as well as industry and government organizations with mutual goals, to accomplish its mission.

Mayo continued to build its endowment in 2004, with the goal of providing perpetual support for its research and education programs. Mayo Clinic's endowment grew to $848 million, an increase of $99 million, as a result of benefactor gifts, investment returns and operating income directed to the endowment. The goal is to increase the endowment to more than $2 billion in the coming years. Mayo will need to maintain its strong financial position to continue to pursue its mission in the face of many external challenges. These challenges include scheduled decreases in Medicare reimbursement, public health programs and research funding; the effects of the federal budget deficit and an aging population on the Medicare program; rising health care costs and changing demographics.

Mayo's 2004 performance allowed the institution to reinvest in practice, research, education and technology, to increase funding to its pension plan, and to rebuild its reserves, which provides flexibility and helps ensure long-term stability.

Mayo is confident and optimistic about the future. The 2004 results put Mayo in a better position to deal with financial challenges ahead and advance the field of medicine, benefiting our communities and our patients.

Patient care

Income from patient care increased to $314 million in 2004 from $216 million in 2003. The increase results from a combination of stable patient demand, focused growth, and efforts to manage expenses and improve efficiency across the institution.

The increase in income from patient care of $98 million over the 2003 level resulted in a strong patient care operating margin of 7.0 percent, consistent with Mayo Clinic's multiyear plan.

Mayo Clinic staff served more than 513,000 individual patients in 2004. The total number of patient visits for all locations was 2.3 million. Mayo Clinic hospitals admitted 130,000 patients during the year, an increase of 3,000 over the previous year.

Reinvesting in research and education

Research and education continue to be essential in providing the highest-quality patient care, and Mayo Clinic continues to invest in these important components of its mission.

Overall funding for research and education was $528 million in 2004. Of that amount, $302 million came from government, foundations and industry sources, and $226 million came from Mayo Clinic funds and benefactor gifts. Mayo Clinic continues to initiate innovative partnerships with academic, government and industry to further its research and education efforts.

Support from benefactors

Philanthropic support has a profound impact on all Mayo Clinic programs, supporting research, education and innovations in patient care, as well as facilities and charity care. Support from grateful patients, foundations and other organizations is essential to Mayo Clinic's ability to carry out its mission. In 2004, gifts from benefactors exceeded $200 million — a record at Mayo — up from $136 million in 2003. Contributions to Mayo Clinic in 2004 came from more than 90,000 benefactors.

Philanthropic gifts also support Mayo Clinic's endowment, which is a top fund-raising priority intended to provide a long-term funding base for focused research and education programs. The endowment grew by $99 million in 2004 to $848 million.

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 $42 million in 2004, helping support Mayo Clinic programs in medical research and education.

Investment performance

The financial markets made strong gains in 2004, for the second year in a row, which helped offset the weak investment environment in 2001 and 2002. Mayo Clinic's investments increased in value by more than $400 million in 2004, an annual return of more than 14 percent. Each year, a portion of Mayo Clinic's investment return is used to fund research and education programs. In 2004, $72 million of Mayo's investment earnings was allocated to support operations. Recent positive performance continues to replenish Mayo Clinic's reserves.

Consolidated revenue for 2004
Rochester 42% Jacksonville 11% Arizona 9% Mayo Health System 22% Research 5% Mayo Collaborative Services Inc. 4% Contributions 2% Investments 1% Other 4% Total for 2004 revenues $5,353,800,000 Total for 2003 revenues $4,823,400,000

Expenses for 2004
Salaries and benefits 65% Facilities 9% Supplies and services 23% Other 3% Total $5,048,700,000

Consolidated statement of activities

Years ended Dec. 31, 2004 and 2003 (In millions)

Consolidated statement of financial position

Dec. 31, 2004 and 2003 (In millions)

Mayo services and people