AMERICAN DIABETES ASSOCIATION. CONSOLIDATED FINANCIAL STATEMENTS December 31, (with Independent Auditors Report Thereon)

AMERICAN DIABETES ASSOCIATION CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with Independent Auditors Report Thereon)

KPMG LLP Suite 12000 1801 K Street, NW Washington, DC 20006 The Board of Directors American Diabetes Association: Independent Auditors Report We have audited the accompanying consolidated balance sheet of the American Diabetes Association (the Association) as of December 31, 2011, and the related consolidated statements of activities, functional expenses, and cash flows for the year then ended. These consolidated financial statements are the responsibility of the Association s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audit. The prior year summarized comparative information has been derived from the Association s 2010 financial statements and, in our report dated May 31, 2011, we expressed an unqualified opinion on those statements. We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Association s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe our audit provides a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of the American Diabetes Association as of December 31, 2011, and the changes in its net assets and its cash flows for the year then ended in conformity with U.S. generally accepted accounting principles. May 29, 2012 KPMG LLP is a Delaware limited liability partnership, the U.S. member firm of KPMG International Cooperative ( KPMG International ), a Swiss entity.

AMERICAN DIABETES ASSOCIATION CONSOLIDATED BALANCE SHEET December 31, 2011 (with comparative information as of December 31, 2010) (in thousands of dollars) ASSETS 2011 2010 Cash and cash equivalents $ 13,027 $ 12,132 Investments (notes 4 and 5) 31,712 28,769 Accounts receivable, net (notes 6 and 18) 8,701 10,533 Inventory and supplies, net 1,511 1,454 Prepaid expenses and other assets 3,880 4,117 Contributions receivable, net (note 7) 48,040 48,471 Fixed assets, net (note 8) 7,747 8,273 Interest in perpetual trusts (note 5) 5,251 5,326 Total assets $ 119,869 $ 119,075 LIABILITIES AND NET ASSETS Accounts payable and accrued liabilities (note 15) $ 15,643 $ 15,733 Line of credit (note 16) - 6,080 Research grants payable 8,976 9,324 Deferred revenues 10,627 11,849 Total liabilities 35,246 42,986 Net assets (note 11): Unrestricted 23,675 16,216 Temporarily restricted (note 9) 51,347 50,336 Permanently restricted (note 10) 9,601 9,537 Total net assets 84,623 76,089 Total liabilities and net assets $ 119,869 $ 119,075 See accompanying notes to the consolidated financial statements. 2

AMERICAN DIABETES ASSOCIATION CONSOLIDATED STATEMENT OF ACTIVITIES Year ended December 31, 2011 (with summarized information for the year ended December 31, 2010) (in thousands of dollars) Temporarily Permanently 2011 2010 Unrestricted Restricted Restricted Total Total Revenues: Contributions and grants: Donations $ 43,092 30,447-73,539 72,797 Special events 52,941 3,647-56,588 52,722 Less: Costs of direct benefits to donors (7,900) - - (7,900) (7,220) Bequests 20,850 8,303 309 29,462 24,744 Federated and nonfederated organizations 8,129 37-8,166 8,553 Total contributions and grants 117,112 42,434 309 159,855 151,596 Fees from exchange transactions: Subscriptions & other income from periodicals 22,468 - - 22,468 23,097 Sales of materials 5,839 - - 5,839 8,576 Program service fees 15,715 - - 15,715 14,385 Investment income (note 4) 1,951 295 (245) 2,001 3,098 Miscellaneous revenues 2,655 - - 2,655 1,731 Total fees from exchange transactions 48,628 295 (245) 48,678 50,887 Net assets released from restrictions 41,718 (41,718) - - - Total revenues 207,458 1,011 64 208,533 202,483 Expenses (note 13): Program activities: Research 44,218 - - 44,218 42,638 Information 56,086 - - 56,086 54,956 Advocacy and public awareness 45,018 - - 45,018 44,000 Total program activities 145,322 - - 145,322 141,594 Supporting services: Management and general 8,403 - - 8,403 9,777 Fundraising 46,274 - - 46,274 43,453 Total supporting services 54,677 - - 54,677 53,230 Total expenses 199,999 - - 199,999 194,824 Change in net assets 7,459 1,011 64 8,534 7,659 Net assets, beginning of year 16,216 50,336 9,537 76,089 68,430 Net assets, end of year $ 23,675 51,347 9,601 84,623 76,089 See accompanying notes to the consolidated financial statements. 3

AMERICAN DIABETES ASSOCIATION CONSOLIDATED STATEMENT OF FUNCTIONAL EXPENSES Year ended December 31, 2011 (with summarized information for the year ended December 31, 2010) (in thousands of dollars) Program Activities Supporting Services Advocacy Management and public and 2011 2010 Research Information awareness Total general Fundraising Total Total Total Grants $ 33,588 163 10 33,761 - - - 33,761 33,389 Employee costs 2,452 18,856 20,972 42,280 2,630 17,296 19,926 62,206 59,900 Professional fees 1,456 7,372 5,443 14,271 1,001 5,660 6,661 20,932 20,010 Supplies 59 2,632 602 3,293 74 442 516 3,809 3,812 Telecommunications 103 915 848 1,866 80 657 737 2,603 2,595 Postage and shipping 296 4,696 3,146 8,138 362 6,160 6,522 14,660 14,983 Occupancy cost 536 4,927 2,281 7,744 716 1,831 2,547 10,291 10,089 Equipment rental and maintenance 57 449 418 924 58 321 379 1,303 1,341 Printing and publications 1,932 10,845 5,640 18,417 1,255 9,076 10,331 28,748 26,330 Travel 47 769 1,010 1,826 74 871 945 2,771 2,421 Conferences and meetings 3,358 1,359 1,791 6,508 83 359 442 6,950 6,248 Data processing 43 461 503 1,007 42 1,121 1,163 2,170 2,202 Depreciation and amortization 29 874 700 1,603 962 350 1,312 2,915 3,888 Miscellaneous 262 1,768 1,654 3,684 1,066 2,130 3,196 6,880 7,616 Total expenses $ 44,218 56,086 45,018 145,322 8,403 46,274 54,677 199,999 194,824 Costs of direct benefits to donors 7,900 7,220 Total expenses and costs of direct benefits to donors $ 207,899 $ 202,044 See accompanying notes to the consolidated financial statements. 4

AMERICAN DIABETES ASSOCIATION CONSOLIDATED STATEMENT OF CASH FLOWS Year ended December 31, 2011 (with comparative information for the year ended December 31, 2010) (in thousands of dollars) 2011 2010 Cash flows from operating activities: Change in net assets $ 8,534 $ 7,659 Adjustments to reconcile change in net assets to net cash provided by operating activities: Depreciation and amortization 2,915 3,888 Net unrealized and realized loss (gain) on investments 535 (1,283) Loss on disposal of assets 1 11 Provisions for doubtful receivables and obsolete inventory 2,247 2,658 Contributions to third party perpetual trusts (171) (1,138) Other contributions restricted for long-term investments (407) (248) Adjustments for changes in operating assets and liabilities: Decrease (increase) in accounts receivable 1,862 (2,401) (Increase) decrease in inventory and supplies (200) 147 Decrease in prepaid expenses and other assets 237 830 Increase in contributions receivable (1,463) (6,397) Increase (decrease) in accounts payable and accrued liabilities 272 (727) Decrease in research grants payable (348) (1,140) (Decrease) increase in deferred revenues (1,291) 25 Net cash provided by operating activities 12,723 1,884 Cash flows from investing activities: Purchases of investments (18,876) (16,479) Sales or maturities of investments 15,473 14,576 Purchase of fixed assets (2,390) (2,402) Net cash used in investing activities (5,793) (4,305) Cash flows from financing activities: Proceeds from contributions restricted for investment in endowment 407 248 Proceeds from borrowing on line of credit - 9,700 Payments on line of credit (6,080) (4,940) Payments on capital lease agreements (362) (350) Net cash (used in) provided by financing activities (6,035) 4,658 Net increase in cash and cash equivalents 895 2,237 Cash and cash equivalents, beginning of year 12,132 9,895 Cash and cash equivalents, end of year $ 13,027 $ 12,132 See accompanying notes to the consolidated financial statements. 5

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) 1. Consolidation and organization The consolidated financial statements include the American Diabetes Association, the American Diabetes Association Research Foundation, Inc., and the American Diabetes Association Property Title Holding Corporation (consolidated, the Association). All significant inter-association transactions have been eliminated. The American Diabetes Association and the American Diabetes Association Research Foundation, Inc. are exempt from income taxes under Section 501(c)(3) of the Internal Revenue Code (the Code) and charitable contributions to these organizations qualify for tax deductions as described in the Code. The American Diabetes Association Property Title Holding Company, Inc. is exempt from income taxes under Section 501(c)(2) of the Code. These entities have been classified as organizations that are not private foundations under Section 509(a) of the Code. The Association recognizes the effect of income tax positions only if those positions more likely than not would not be sustained upon examination by the Internal Revenue Service. The Association has analyzed the tax positions taken and has concluded that as of December 31, 2011, there are no uncertain tax positions taken or expected to be taken that would require recognition of a liability (or asset) or disclosure in the financial statements. 2. Program activities The Association is a not-for-profit voluntary health agency that works to prevent and cure diabetes and to improve the lives of all people affected by diabetes. This mission is accomplished through programs in communities throughout the country. The principal program activities of the Association are: Research - The Association provides financial support to researchers who are seeking knowledge in the following areas: The prevention and cure of diabetes The prevention and cure of the complications of diabetes New and improved therapies for individuals affected by diabetes 6

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Information - The Association conducts programs that provide diabetes information to individuals with diabetes, their families, and their health care providers. Advocacy and public awareness - The Association acts as an advocate for people with diabetes by delivering programs with important diabetes messages to the general public and to all levels of the government. 3. Summary of significant accounting policies Basis of accounting The Association prepares its financial statements on an accrual basis in accordance with U.S. generally accepted accounting principles. The net assets and revenues, gains and losses of the Association are classified for accounting and reporting purposes in three classes of net assets based on the existence or absence of donor-imposed restrictions. A description of the three classes follows: Permanently restricted - Net assets subject to donor-imposed stipulations that they be maintained permanently by the Association. Generally, the donors permit the Association to use the income earned on related investments for general or specific purposes. Temporarily restricted - Net assets subject to donor-imposed stipulations that will be met either by actions of the Association and/or the passage of time. Unrestricted - Net assets that are not subject to donor-imposed stipulations. Cash and cash equivalents Cash and cash equivalents are defined as currency on hand, demand deposits with banks or financial institutions, federally insured certificates of deposit with original maturities of less than three months, money market funds of U.S. Government securities and other amounts that have the general characteristics of demand deposits. The Association has classified any cash or money market accounts held by external investment managers as investments as these funds are intended to be part of our long term investment strategy. 7

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Investments Investments in marketable equity securities and all debt securities are recorded at fair value, which is based on quoted market prices or dealer quotes. The real estate investment is reported at the appraised value at the time of the donation and is evaluated for impairment on an annual basis. Unrealized and realized gains and losses are reported as investment income on the consolidated statement of activities. Investments are exposed to certain risks, such as interest rate, credit and overall market volatility. Due to the level of risk associated with certain investment securities and the volatility in the capital markets, changes in the value of investment securities could occur in the near term, and those investment values could materially differ from the amounts reported in the accompanying financial statements. Fair value of financial instruments As of December 31, 2011 and 2010, the carrying value of cash and cash equivalents, accounts receivable, and accounts payable approximated their fair value, based on the short-term maturities of these instruments. Additional fair value information is presented in note 5. Inventory Inventory is comprised primarily of publications and is valued at the lower of cost (first-in, first-out method) or market at net realizable value. Fixed assets All fixed assets are stated at cost or fair value on the date of receipt and are depreciated on a straight-line basis over the following useful lives: Leasehold improvements Furniture, fixtures and equipment Software 10 years or life of lease, if shorter 5 years 5-7 years If donors stipulate the purpose for which the assets must be used and/or how long the assets must be held, the contributions are recorded as temporarily restricted, otherwise such donations are reported as unrestricted contributions. 8

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Recognition of revenues Contributions, including unconditional promises to give, are recognized when received. All contributions are considered to be available for unrestricted use unless specifically restricted by the donor. Contributions that are restricted by the donor for a specific time or purpose are reported as temporarily or permanently restricted contributions based on the nature of the restriction. When a donor restriction expires, that is, when a stipulated time restriction ends or purpose restriction has been fulfilled, temporarily restricted net assets are reclassified to unrestricted net assets and are reported in the consolidated statement of activities as net assets released from restrictions. In the event a donor makes changes to the nature of a restricted gift which affects its classification among the net asset categories, such amounts are reflected as reclassifications in the consolidated statement of activities. Unconditional promises to give are reported at their net realizable value. Unconditional promises to give that are expected to be collected in future years are recorded at the present value of the amounts expected to be collected. The present value discount is calculated using a risk adjusted rate at the time of the contribution ranging from 1.3% to 4.8%. Fees from exchange transactions are recognized as earned from reciprocal transfers of goods and services. Subscription revenue is deferred upon receipt and then recognized over the term of the subscription, which is generally one year, beginning with the mailing of the first issue to the subscriber. Split-interest agreements The Association receives certain planned gift donations that benefit not only the Association, but also the donor or another beneficiary designated by the donor. These contributions are termed split-interest agreements and are generally gifts to be received by the Association in the future. The Association benefits from the following types of split-interest agreements: perpetual trusts, charitable lead and remainder trusts, gift annuities, and a pooled income fund. The Association s share of split-interest agreements is included in investments, contributions receivable, or interest in perpetual trusts. Assets of approximately $14,355,000 and $17,684,000 are reported on the balance sheet as of December 31, 2011 and 2010, respectively. When applicable, amounts to be received in future periods are discounted using a risk adjusted rate based on the expected term of the split-interest agreements. The rates range from 1.3% to 7.6%. 9

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Amounts payable to beneficiaries, gift annuities payable, and pooled income fund liabilities of approximately $1,877,000 and $1,847,000 are reported as accrued liabilities or deferred revenues on the consolidated balance sheets as of December 31, 2011 and 2010, respectively. Contributed services and materials Contributed services and materials are reported in the consolidated statement of activities at the fair value of the services and materials received. Contributions of services are recognized if the services received create or enhance nonfinancial assets or if the services require specialized skills and would typically need to be purchased if not provided by donation. Research program The research program of the American Diabetes Association is administered through the American Diabetes Association Research Foundation, Inc. Research grants awarded by the Association generally extend over a period of one to three years, subject to renewal on an annual basis. The liability and related expenses are recorded when the recipients are notified of their annual award amount, and the liability is recorded as research grants payable in the consolidated balance sheet. Management estimates and uncertainties The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Functional allocation of expenses Expenses have been summarized on a functional basis in the consolidated statement of activities. Accordingly, certain costs have been allocated among program activities and supporting services. 10

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Comparative financial statements The consolidated statements of activities and functional expenses include certain summarized comparative information for the year ended December 31, 2010. Such information does not include sufficient detail to constitute a presentation in conformity with generally accepted accounting principles. Accordingly, such information should be read in conjunction with the Association s financial statements for the year ended December 31, 2010, from which the summarized information was derived. 4. Investments Investments as of December 31, 2011 and 2010, consist of the following (in thousands): 2011 2010 Real estate $ 12,850 $ 12,850 Fixed-income mutual funds 4,965 6,626 Certificates of deposit 6,970 5,055 Equity mutual funds 2,370 2,428 Corporate equities 1,655 919 Money market funds 2,902 716 U.S. government securities - 175 Total investments $ 31,712 $ 28,769 Investments as of December 31, 2011 and 2010, include gift annuity investments of approximately $2,363,000 and $2,728,000, respectively, and the fair value of gift annuity obligations under those agreements was approximately $1,806,000 and $1,744,000, respectively. Reserves for gift annuities are held in separate investment accounts at a value equal to the original gift plus accrued income less beneficiary payments. The investment in real estate represents a 1999 donor bequest that restricted the Association from selling the property for 25 years. A portion of the property is leased to corporations and derives monthly rental income that is reported in investment income in the consolidated statement of activities. 11

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Investment income for the year ended December 31, 2011 and 2010, includes (in thousands): 2011 2010 Property rental income, net $ 1,865 $ 1,172 Net realized and unrealized (loss) gain (535) 1,283 Interest and dividends 782 773 Investment fees (111) (130) Total investment income, net $ 2,001 $ 3,098 5. Fair value measurements Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Those fair value measurements maximize the use of observable inputs. However, in situations where there is little, if any, market activity for the asset or liability at the measurement date, the fair value reflects the Association s own judgments about the assumptions that market participants would use in pricing the asset or liability. Those judgments are developed by the Association based on the best information available in the circumstances. A fair value hierarchy prioritizes the inputs into valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and lowest priority to unobservable inputs (level 3 measurements). The three levels of the hierarchy are as follows: Level 1: Unadjusted quoted prices in active markets for identical assets or liabilities. Level 2: Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quotes prices in markets that are not active or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. Split interest obligations are measured as the present value of future cash flows expected to be paid to the donor or the donor s designee. These obligations are adjusted during the term of each annuity for payments to donors, accretion of discounts and changes in life expectancies of the donors. 12

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Level 3: Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the asset or liabilities. The Association s interest in perpetual trusts is carried at the fair value of the Association s share of the trust assets. Distributions from the trusts are recorded as investment income and the trust values are adjusted annually for changes in the fair value of the trust assets. The following table presents the fair value hierarchy for the Association s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 (in thousands). Total Level 1 Level 2 Level 3 Financial Assets: Investments: Fixed income mutual funds 4,965 4,965 - - Certificates of deposit 6,970 6,970 - - Equity mutual funds 2,370 2,370 - - Corporate equities 1,655 1,655 - - Money market funds 2,902 2,902 - - U.S. government securities - - - - Interest in perpetual trusts 5,251 - - 5,251 Financial Liabilities: Split interest obligations 1,877-1,877 - In 2011, the decrease in the Association s interest in perpetual trusts of approximately $75,000 reflects a new trust of $170,000, investment losses of $32,000, and distributions of $213,000. 13

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) The following table presents the fair value hierarchy for the Association s financial assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2010 (in thousands). Total Level 1 Level 2 Level 3 Financial Assets: Investments: Fixed income mutual funds 6,626 6,626 - - Corporate equities 5,055 5,055 - - Equity mutual funds 2,428 2,428 - - Certificates of deposit 919 919 - - Money market funds 716 716 - - U.S. government securities 175 175 - - Interest in perpetual trusts 5,326 - - 5,326 Financial Liabilities: Split interest obligations 1,847-1,847 - In 2010, the increase in the Association s interest in perpetual trusts of approximately $1,601,000 reflects new trusts of $1,138,000, investment returns of $595,000, and distributions of $132,000. 6. Accounts receivable Accounts receivable are reported net of an allowance for doubtful accounts of approximately $1,783,000 and $2,334,000 as of December 31, 2011 and 2010, respectively. The Association s receivables consist of amounts due for program service fees, publications, advertising, land rental and other exchange transactions. 14

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) 7. Contributions receivable Contributions receivable consist of the following amounts due as of December 31, 2011 and 2010 (in thousands): 2011 2010 Within one year $ 37,835 $ 35,763 In one to five years 7,795 6,644 In more than five years 208 313 Total contributions receivable 45,838 42,720 Less: allowance for doubtful accounts (4,083) (3,363) Less: present value discount (225) (271) Subtotal 41,530 39,086 Funds held in remainder trusts 6,510 9,385 Contributions receivable, net $ 48,040 $ 48,471 8. Fixed assets Fixed assets consist of the following as of December 31, 2011 and 2010 (in thousands): 2011 2010 Land $ 67 $ 67 Leasehold improvements 1,249 1,232 Software 14,701 16,983 Furniture, fixtures and equipment 15,434 15,526 Total fixed assets 31,451 33,808 Less: accumulated depreciation and amortization (23,704) (25,535) Fixed assets, net $ 7,747 $ 8,273 15

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) 9. Temporarily restricted net assets Net assets were temporarily restricted for the following as of December 31, 2011 and 2010 (in thousands): 2011 2010 Research $ 5,498 $ 5,340 Information 2,484 2,529 Advocacy 6,102 4,969 Sponsorship for fundraising activities 3,330 3,221 Time restricted for operations 33,933 34,277 Total temporarily restricted net assets $ 51,347 $ 50,336 10. Permanently restricted net assets In accordance with donor stipulations, permanently restricted net assets are held (and invested) in perpetuity. The income derived from these net assets at December 31, 2011 and 2010, is to be used as follows (in thousands): 2011 2010 Research $ 3,826 $ 3,854 Information 1,920 1,987 Advocacy and public awareness 193 193 Discretion of the Association 3,662 3,503 Total permanently restricted net assets $ 9,601 $ 9,537 11. Endowment The Association s endowment consists of individual donor-restricted endowment funds and donor-restricted term endowment funds established for a variety of purposes. The Association has no board designated endowment funds. The net assets associated with these funds are classified and reported based on the existence or absence of donor-imposed restrictions. Accordingly, the historic dollar value of donor-restricted endowment contributions is reported as permanently restricted net assets. The portion of a donor-restricted endowment fund that is not classified as 16

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) permanently restricted net assets and the term endowment funds are classified as temporarily restricted net assets until appropriated for expenditure. At times, the fair value of assets associated with an individual donor-restricted endowment fund may fall below the historic dollar value of the fund. Such deficiencies are reported in unrestricted net assets and were $587,000 and $612,000 as of December 31, 2011 and 2010, respectively. Changes in endowment net assets for the years ended December 31, 2011 and 2010 are as follows (in thousands): Temporarily Permanently Unrestricted Restricted Restricted Total Endowment net assets, December 31, 2009 $ (1,268) 18,243 3,685 20,660 Investment return: Investment income 1,290 232-1,522 Net appreciation 539 62-601 Contributions - - 526 526 Appropriation for expenditure (1,173) (280) - (1,453) Endowment net assets, December 31, 2010 (612) 18,257 4,211 21,856 Investment return: Investment income 1,964 175-2,139 Net appreciation (depreciation) (72) 6 - (66) Contributions - - 139 139 Appropriation for expenditure (1,867) (227) - (2,094) Endowment net assets, December 31, 2011 $ (587) 18,211 4,350 21,974 17

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) The Association has adopted an investment policy for endowment assets that provides continued financial stability for the Association and a revenue stream for spending on the Association s mission. Under this policy, as approved by the Board of Directors, the Association relies on a total return strategy in which investment returns are achieved through both capital appreciation (realized and unrealized) and current yield (interest and dividends). The Association targets a diversified asset allocation that utilizes fixed income and equity-based investments to achieve its long-term objectives within prudent risk constraints. The Association expects its endowment funds, over time, to provide an average rate of return of approximately 7.5% annually. The Association's endowment spending policy permits spending at a rate of 4% of the endowments market value over a rolling five-year average. The long-term return of 7.5% and a spending rate of 4% are intended to maintain the purchasing power of the endowment. 12. Contributed services and in-kind contributions The Association recognizes as contribution revenue and as professional fees expense the fair value of services donated by volunteers in conjunction with the peer review process by the Grant Review Panel of the American Diabetes Association Research Foundation, Inc. and medical services provided in conjunction with the Association s program activities, primarily camps held for children with diabetes. Contributed services for the production of public service announcements and for occupancy are recorded in printing and publications and occupancy expenses, respectively. The Association recognized approximately $2,870,000 and $2,744,000, in donated services provided in conjunction with the Association s activities during the years ended December 31, 2011 and 2010, respectively. Many other volunteers made significant contributions of time to the Association's program and supporting functions. The values of those contributed services do not meet the criteria for recognition and, accordingly, are not recognized as revenues and expenses in the accompanying consolidated statement of activities. In-kind contributions of supplies are recognized as contribution revenue and supplies expense and totaled approximately $1,952,000 and $2,070,000 for the years ended December 31, 2011 and 2010, respectively. 18

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) 13. Allocation of joint costs The Association conducts activities to distribute information related to diabetes and a call to action, such as understanding the risks and seeking appropriate health services, as well as an appeal for funds. The joint costs incurred through these activities for the years ended December 31, 2011 and 2010, were allocated as follows (in thousands): 2011 2010 Advocacy and public awareness $ 11,859 $ 11,025 Management and general 2,297 3,622 Fundraising 23,523 20,471 Total joint costs $ 37,679 $ 35,118 14. Pension plan The Association has a defined contribution pension plan which covers most salaried employees who have reached the age of 21 and completed one year of service. Pension expense for the years ended December 31, 2011 and 2010, was approximately $1,279,000 and $1,186,000, respectively. 15. Self-insured benefits The Association self-insures its employee medical and dental benefits. Losses from claims identified under the incident reporting system, as well as provisions for estimated losses for incurred but not reported incidents, are accrued based on estimates that incorporate the past experience of the Association, as well as other considerations, including the nature of the claims or incidents and relevant trend factors. Self-insured risk for employee health benefits is secured through stop loss insurance policies which protect the Association should total claims exceed a specified limit in a plan year. This limit was $7,900,000 and $7,600,000 in 2011 and 2010, respectively. The liability as of December 31, 2011 and 2010, was approximately $485,000 and $1,116,000, respectively, and is included in accounts payable and accrued liabilities in the consolidated balance sheets. Benefit expense under this plan was approximately $5,147,000 and $5,865,000 for the years ended December 31, 2011 and 2010, respectively. The benefit expense includes claims paid and changes to the reserve for future claims. 19

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) 16. Line of credit The Association has an unsecured line of credit with a bank at interest rates calculated as a factor of the London Interbank Offered Rate (LIBOR). The line of credit of $10,000,000 is subject to review and approval by the bank in August 2012. The Association expects to renew the line of credit each year. The outstanding balance on the line of credit as of December 31, 2011 and 2010, was $0 and $6,080,000, respectively. Interest and fees for the years ended December 31, 2011 and 2010, were approximately $52,000 and $72,000, respectively. The line of credit is available for working capital and for financing the purchase and implementation costs of computer equipment and software. The Association is required to maintain a level of unrestricted, unencumbered marketable securities, cash and cash equivalents of not less than $10,000,000. 17. Lease commitments Operating leases The Association is obligated under various noncancelable operating lease agreements for facilities expiring at various dates between February 2012 and December 2019. Many of these agreements contain cost escalations providing for increases in rental rates. The Association recognizes rent expense on a straight-line basis over the life of the lease. The Association is also obligated under noncancelable operating leases for telephone and other equipment through September 2015. As of December 31, 2011, the future minimum lease payments under operating leases with noncancelable lease terms in excess of one year were (in thousands): Year ending December 31, 2012 $ 6,682 2013 5,560 2014 5,176 2015 4,292 2016 3,697 2017 and thereafter 824 Total minimum lease payments $ 26,231 20

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) Rent expense totaled approximately $7,213,000 and $7,180,000 for the years ended December 31, 2011 and 2010, respectively. Capital leases The Association leases computer equipment under capital lease agreements expiring on various dates through 2014. The liability at December 31, 2011 and 2010, approximated $578,000 and $942,000, respectively, and is included in accounts payable and accrued liabilities on the consolidated balance sheet. Assets under capital lease were approximately $2,345,000 and $2,453,000 and accumulated amortization on those assets was approximately $1,767,000 and $1,511,000 as of December 31, 2011 and 2010, respectively. 18. Lease payments receivable The Association holds leases on land that was donated in 1999 through a bequest. As part of the bequest, the donor restricted the Association from selling the land for 25 years from the date of the donation. As of December 31, 2011, the future minimum lease payments due to the Association under these leases were (in thousands): Year ended December 31, 2012 1,337 2013 1,379 2014 1,430 2015 1,438 2016 1,446 2017 and thereafter 49,487 Total minimum lease receipts $ 56,517 21

AMERICAN DIABETES ASSOCIATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2011 (with comparative information as of and for the year ended December 31, 2010) The accumulated difference between the rental income recognized and the straight-line value of the leases was approximately $6,411,000 and $6,078,000 as of December 31, 2011 and 2010, respectively and is included in accounts receivable on the consolidated balance sheet. Due to market conditions, management believes a significant risk exists that future rent revenue will not be recognized; therefore, an allowance against the deferred rent has been recorded in the amount of $1,556,000 and $1,790,000 as of December 31, 2011 and 2010, respectively. 19. Subsequent events For the year ended December 31, 2011, the Association evaluated subsequent events through May 29, 2012, which is the date the financial statements were available for issuance. 22

American Diabetes Association Statement of Activities Form 990 Detail Listed by State and Certain Markets For the Year Ended December 31, 2011 Schedule 1 Alabama Alaska Arizona Arkansas California REVENUES Los Angeles Orange County Sacramento San Diego San Francisco San Jose Other Total Contributions: Federated campaigns $ 100,854 $ 38,313 $ 298,479 $ 74,097 $ 131,416 $ 33,729 $ 114,555 $ 101,865 $ 92,965 $ 60,783 $ 32,406 $ 567,719 Fundraising events 431,760 526,957 1,145,422 525,366 1,232,166 624,593 419,043 710,093 1,528,389 1,493,374 318,458 6,326,116 Related organizations - - Government grants - - Other contributions 892,383 451,125 2,622,674 567,785 2,328,854 899,266 265,947 2,511,757 1,020,866 713,102 824,999 8,564,791 Total contributions 1,424,997 1,016,395 4,066,575 1,167,248 3,692,436 1,557,588 799,545 3,323,715 2,642,220 2,267,259 1,175,863 15,458,626 Program service fees: Subscription income - - Registration - 9,650 99,413 24,085-14,711-6,506 - - - 21,217 Sales of materials - - 26 498 2,022 - - - - - - 2,022 Booth rental - - 13,775 49,166 317,625 5,500-75 - 16,250 5,500 344,950 Other program service fees - - 1,220 1,250 - - - 1,501 - - - 1,501 Total program service revenue - 9,650 114,434 74,999 319,647 20,211-8,082-16,250 5,500 369,690 Investment income 1,431 - Royalties - - Gross rents - - Less: rental expenses - - Net rental income (loss) - - Gross amount from sale of securities - - Less: cost or basis - - Net gain (loss) from sale of securities - - Gross amount from sale of assets - - Less: cost or basis - - Net gain (loss) from sale of assets - - Gross income from fundraising events Excluding contributions reported above 62,383 108,130 244,279 140,819 337,204 124,025 61,920 124,190 258,078 164,966 56,605 1,126,988 Less: direct benefit expenses (62,383) (108,130) (244,279) (140,819) (337,204) (124,025) (61,920) (124,190) (258,078) (164,966) (56,605) (1,126,988) Net Income from special events - - Gross income from gaming activities - 31,485 - - - 23,911 - - - - - 23,911 Less: direct benefit expenses - (14,228) - - - (12,999) - - - - - (12,999) Net income from gaming activities - 17,257 - - - 10,912 - - - - - 10,912 Advertising - - Catalog sales - - All other revenue 3 - Total other revenue 3 - TOTAL REVENUES 1,426,431 1,043,302 4,181,009 1,242,247 4,012,083 1,588,711 799,545 3,331,797 2,642,220 2,283,509 1,181,363 15,839,228 EXPENSES Program Activities: Research 311,822 144,060 965,653 220,444 873,045 293,576 105,140 920,585 499,326 437,576 449,147 3,578,395 Information 71,596 180,361 479,846 150,122 381,266 160,555 88,703 180,757 180,072 160,945 45,771 1,198,069 Advocacy & Public Awareness 136,100 181,350 509,696 176,518 866,341 220,780 176,795 291,899 394,791 310,777 100,763 2,362,146 Subtotal Program Activities 519,518 505,771 1,955,195 547,084 2,120,652 674,911 370,638 1,393,241 1,074,189 909,298 595,681 7,138,610 Management and General 2,997 4,258 10,499 3,895 18,754 5,099 4,032 6,044 8,083 6,610 1,852 50,474 Fundraising 128,009 177,390 471,542 158,366 669,231 226,749 168,103 269,718 373,022 285,727 96,232 2,088,782 TOTAL EXPENSES 650,524 687,419 2,437,236 709,345 2,808,637 906,759 542,773 1,669,003 1,455,294 1,201,635 693,765 9,277,866 NET ASSETS Excess (Deficit) 775,907 355,883 1,743,773 532,902 1,203,446 681,952 256,772 1,662,794 1,186,926 1,081,874 487,598 6,561,362 Beginning Net Assets 252,714 (207,191) 810,444 289,631 1,301,061 332,254 280,263 353,494 851,229 859,343 345,845 4,323,489 Other Changes in Net Assets (768,411) - (1,579,323) (538,795) (1,381,052) (651,502) (319,926) (1,348,687) (1,456,037) (1,460,563) (555,938) (7,173,705) ENDING NET ASSETS $ 260,210 $ 148,692 $ 974,894 $ 283,738 $ 1,123,455 $ 362,704 $ 217,109 $ 667,601 $ 582,118 $ 480,654 $ 277,505 $ 3,711,146 See accompanying note to the supplemental schedules 27

American Diabetes Association Statement of Activities Form 990 Detail Listed by State and Certain Markets For the Year Ended December 31, 2011 Schedule 1 REVENUES Contributions: Federated campaigns Fundraising events Related organizations Government grants Other contributions Total contributions Program service fees: Subscription income Registration Sales of materials Booth rental Other program service fees Total program service revenue Investment income Royalties Gross rents Less: rental expenses Net rental income (loss) Gross amount from sale of securities Less: cost or basis Net gain (loss) from sale of securities Gross amount from sale of assets Less: cost or basis Net gain (loss) from sale of assets Gross income from fundraising events Excluding contributions reported above Less: direct benefit expenses Net Income from special events Gross income from gaming activities Less: direct benefit expenses Net income from gaming activities Advertising Catalog sales All other revenue Total other revenue TOTAL REVENUES EXPENSES Program Activities: Research Information Advocacy & Public Awareness Subtotal Program Activities Management and General Fundraising TOTAL EXPENSES NET ASSETS Excess (Deficit) Beginning Net Assets Other Changes in Net Assets ENDING NET ASSETS Colorado Connecticut Delaware Florida Denver Other Total Hartford Other Total Pensacola Other Total $ 129,829 $ 5,395 $ 135,224 $ 257,849 $ 5,430 $ 263,279 $ 74,037 $ 10,032 $ 257,557 $ 267,589 953,239 85,949 1,039,188 591,545 183,464 775,009 322,221 152,238 2,300,615 2,452,853 123,658-123,658 - - - 16,550 - - - 1,416,785 61,706 1,478,491 683,111 119,188 802,299 263,173 25,469 3,770,201 3,795,670 2,623,511 153,050 2,776,561 1,532,505 308,082 1,840,587 675,981 187,739 6,328,373 6,516,112 134,907-134,907 9,530-9,530 2,085-198,920 198,920 3,400-3,400 871-871 - - 1,916 1,916 131,320-131,320 68,142-68,142 1,400-67,170 67,170 765-765 663-663 - - 20 20 270,392-270,392 79,206-79,206 3,485-268,026 268,026-511 511 - - - - - 53,156 53,156 203,957 17,468 221,425 105,142 21,807 126,949 79,018 31,124 380,097 411,221 (203,957) (17,468) (221,425) (105,142) (21,807) (126,949) (79,018) (31,124) (380,097) (411,221) - - - 511 104 615 - - 1,325 1,325 - - - 511 104 615 - - 1,325 1,325 2,893,903 153,561 3,047,464 1,612,222 308,186 1,920,408 679,466 187,739 6,650,880 6,838,619 517,351 28,248 545,599 294,636 60,463 355,099 101,017 12,441 1,474,438 1,486,879 596,260 9,968 606,228 134,673 18,524 153,197 79,407 30,032 694,241 724,273 563,195 23,921 587,116 259,721 44,249 303,970 134,094 60,548 891,335 951,883 1,676,806 62,137 1,738,943 689,030 123,236 812,266 314,518 103,021 3,060,014 3,163,035 8,194 330 8,524 4,792 5,890 10,682 3,163 1,240 19,749 20,989 359,446 21,104 380,550 209,448 53,808 263,256 131,184 54,959 857,632 912,591 2,044,446 83,571 2,128,017 903,270 182,934 1,086,204 448,865 159,220 3,937,395 4,096,615 849,457 69,990 919,447 708,952 125,252 834,204 230,601 28,519 2,713,485 2,742,004 783,873 34,444 818,317 422,032 140,422 562,454 257,591 66,679 1,692,413 1,759,092 (815,552) (71,005) (886,557) (769,676) (192,500) (962,176) (308,646) (31,510) (2,830,940) (2,862,450) $ 817,778 $ 33,429 $ 851,207 $ 361,308 $ 73,174 $ 434,482 $ 179,546 $ 63,688 $ 1,574,958 $ 1,638,646 See accompanying note to the supplemental schedules 28

American Diabetes Association Statement of Activities Form 990 Detail Listed by State and Certain Markets For the Year Ended December 31, 2011 Schedule 1 REVENUES Contributions: Federated campaigns Fundraising events Related organizations Government grants Other contributions Total contributions Program service fees: Subscription income Registration Sales of materials Booth rental Other program service fees Total program service revenue Investment income Royalties Gross rents Less: rental expenses Net rental income (loss) Gross amount from sale of securities Less: cost or basis Net gain (loss) from sale of securities Gross amount from sale of assets Less: cost or basis Net gain (loss) from sale of assets Gross income from fundraising events Excluding contributions reported above Less: direct benefit expenses Net Income from special events Gross income from gaming activities Less: direct benefit expenses Net income from gaming activities Advertising Catalog sales All other revenue Total other revenue TOTAL REVENUES EXPENSES Program Activities: Research Information Advocacy & Public Awareness Subtotal Program Activities Management and General Fundraising TOTAL EXPENSES NET ASSETS Excess (Deficit) Beginning Net Assets Other Changes in Net Assets ENDING NET ASSETS Georgia Hawaii Idaho Illinois Indiana Iowa Kansas Kentucky Atlanta Other Total Chicago Other Total $ 231,545 $ 38,186 $ 269,731 $ 71,790 $ 2,328 $ 277,876 $ 39,006 $ 316,882 $ 131,821 $ 61,712 $ 31,101 $ 69,417 1,227,466 320,274 1,547,740 711,517-1,627,933 528,185 2,156,118 730,075 263,821 199,535 536,616 - - - - 756,206 1,113,862 1,870,068 217,615 262,808 1,786,946 3,285,830 5,072,776 1,439,418 379,225 828,043 725,041 2,215,217 1,472,322 3,687,539 1,000,922 265,136 3,692,755 3,853,021 7,545,776 2,301,314 704,758 1,058,679 1,331,074 - - 1,475-1,475 4,647-195,612 55,148 250,760 58,323 7,935 76,531 79 2,006-2,006 - - - 10 10 179 - - - 189,415-189,415 7,500-157,790 1,800 159,590 100 6,050 9,825 500 700-700 791-1,830 202 2,032 1,593-20 1,252 193,596-193,596 12,938-355,232 57,160 412,392 60,195 13,985 86,376 1,831 - - - - - 5,300 1,406 6,706 - - - 795 - - - - - - - - - - - - - - - - - - - - 138,940 47,511 186,451 30,903-236,339 75,616 311,955 148,732 32,495 32,998 75,019 (138,940) (47,511) (186,451) (30,903) - (236,339) (75,616) (311,955) (148,732) (32,495) (32,998) (75,019) - - 100-100 - - 3,018-3,018 - - - - (9,350) - (9,350) - - (4,276) - (4,276) - - - - (9,250) - (9,250) - - (1,258) - (1,258) - - - - - - - - 919-919 - - 1,616-1,616 724 - - - 919-919 - - 1,616-1,616 724 - - - 2,400,482 1,472,322 3,872,804 1,013,860 265,136 4,053,645 3,911,587 7,965,232 2,362,233 718,743 1,145,055 1,333,700 357,648 340,385 698,033 209,259 81,927 689,508 1,405,555 2,095,063 402,022 115,459 279,053 280,071 241,787 50,161 291,948 107,969 825 552,585 195,748 748,333 381,259 71,253 352,821 72,183 526,707 105,470 632,177 177,099 355 714,534 145,159 859,693 336,684 132,449 129,002 136,822 1,126,142 496,016 1,622,158 494,327 83,107 1,956,627 1,746,462 3,703,089 1,119,965 319,161 760,876 489,076 11,684 2,257 13,941 4,473 9 14,853 3,453 18,306 7,618 2,967 3,132 3,046 407,159 113,354 520,513 169,095 339 582,238 146,010 728,248 332,503 125,741 128,370 136,594 1,544,985 611,627 2,156,612 667,895 83,455 2,553,718 1,895,925 4,449,643 1,460,086 447,869 892,378 628,716 855,497 860,695 1,716,192 345,965 181,681 1,499,927 2,015,662 3,515,589 902,147 270,874 252,677 704,984 633,376 184,113 817,489 365,079 17,698 1,423,305 342,287 1,765,592 604,273 217,011 244,183 193,616 (870,879) (800,157) (1,671,036) (443,886) (165,997) (1,901,745) (1,599,579) (3,501,324) (922,386) (308,737) (139,909) (647,114) $ 617,994 $ 244,651 $ 862,645 $ 267,158 $ 33,382 $ 1,021,487 $ 758,370 $ 1,779,857 $ 584,034 $ 179,148 $ 356,951 $ 251,486 See accompanying note to the supplemental schedules 29