Reports Required by Government Auditing Standards and OMB 2 CFR 200 Uniform Administrative Requirements, Cost Principles, and Audit Requirements for the Year Ended August 31, 2017 EIN 36-2167817 – 1 – NORTHWESTERN UNIVERSITY TABLE OF CONTENTS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED AUGUST 31, 2017 Report of Independent Auditors Page 3 Northwestern University Financial Statements Page 5 FEDERAL FINANCIAL ASSISTANCE PROGRAMS FOR THE YEAR ENDED AUGUST 31, 2017 Schedule of Expenditures of Federal Awards Page 33 Notes to the Schedule of Expenditures of Federal Awards Page 131 SCHEDULE OF FINDINGS AND QUESTIONED COSTS FOR THE YEAR ENDED AUGUST 31, 2017 Report of Independent Auditors on Internal Control Over Financial Reporting and on Compliance and Other Matters Based on an Audit of Financial Statements Performed in Accordance with Government Auditing Standards Page 133 Report of Independent Auditors on Compliance with Requirements That Could Have a Direct and Material Effect on Each Major Program and on Internal Control Over Compliance in Accordance with the Uniform Guidance Page 135 Schedule of Findings and Questioned Costs Page 137 Summary Schedule of Prior Audit Findings Page 140 Management’s Views and Corrective Action Plan Page 142 – 2 – Report of Independent Auditors To the Board of Trustees of Northwestern University: We have audited the accompanying consolidated financial statements of Northwestern University (the “University”), which comprise the consolidated statements of financial position as of August 31, 2017 and 2016, the related consolidated statement of activities for the year ended August 31, 2017 and of cash flows for the years ended August 31, 2017 and 2016, and the related notes to the financial statements. Management's Responsibility for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with accounting principles generally accepted in the United States of America; this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair presentation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on the consolidated financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States of America and the standards applicable to financial audits contained in Government Auditing Standards issued by the Comptroller General of the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial statements. The procedures selected depend on our judgment, including the assessment of the risks of material misstatement of the consolidated financial statements, whether due to fraud or error. In making those risk assessments, we consider internal control relevant to the University's preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the University's internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of significant accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Northwestern University as of August 31, 2017 and 2016, and the changes in its net assets for the year ended August 31, 2017, and its cash flows for the years ended August 31, 2017 and 2016, in accordance with accounting principles generally accepted in the United States of America. PricewaterhouseCoopers LLP, One North Wacker Drive Chicago, IL, 60606 T: (312)298 2000, F: (312) 298 2001, www.pwc.com/us – 3 – Other Matters We previously audited the consolidated statement of financial position as of August 31, 2016, and the related consolidated statement of activities (not presented herein) and of cash flows for the year then ended, and in our report dated February 2, 2017, we expressed an unmodified opinion on those consolidated financial statements. In our opinion, the information set forth in the accompanying summarized financial information as of August 31, 2016 and for the year then ended is consistent, in all material respects, with the audited consolidated financial statements from which it has been derived. Other Information Our audit was conducted for the purpose of forming an opinion on the consolidated financial statements as a whole. The accompanying schedule of expenditures of federal awards for the year ended August 31, 2017, is presented for purposes of additional analysis as required by Title 2 U.S. Code of Federal Regulations Part 200, Uniform Administrative Requirements, Cost Principles, and Audit Requirements for Federal Awards (Uniform Guidance) and is not a required part of the consolidated financial statements. Such information is the responsibility of management and was derived from and relates directly to the underlying accounting and other records used to prepare the consolidated financial statements. The information has been subjected to the auditing procedures applied in the audit of the consolidated financial statements and certain additional procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to prepare the consolidated financial statements or to the consolidated financial statements themselves, and other additional procedures in accordance with auditing standards generally accepted in the United States of America. In our opinion, the schedule of expenditures of federal awards is fairly stated, in all material respects, in relation to the consolidated financial statements as a whole. Other Reporting Required by Government Auditing Standards In accordance with Government Auditing Standards, we have also issued our report dated January 10, 2018 on our consideration of Northwestern University’s internal control over financial reporting and on our tests of its compliance with certain provisions of laws, regulations, contracts and grant agreements and other matters for the year ended August 31, 2017. The purpose of that report is solely to describe the scope of our testing of internal control over financial reporting and compliance and the results of that testing and not to provide an opinion on the effectiveness of internal control over financial reporting or on compliance. That report is an integral part of an audit performed in accordance with Government Auditing Standards in considering Northwestern University's internal control over financial reporting and compliance. January 10, 2018 2 of 2 – 4 – Consolidated Statements of Financial Position As of August 31, 2017, and August 31, 2016 (in thousands of dollars) 2017 2016 Assets Cash and cash equivalents $92,623 $215,375 Accounts receivable, net 263,424 326,446 Notes receivable, net 151,679 156,428 Contributions receivable, net 318,780 263,423 Investments 10,717,787 10,312,782 Land, buildings, and equipment, net 2,933,679 2,368,598 Other assets 17,973 17,125 Total assets $14,495,945 $13,660,177 Liabilities Accounts payable and accrued expenses $295,641 $265,979 Deferred revenue 277,853 289,083 Deposits payable and actuarial liability of annuities payable 156,179 140,836 Government advances for student loans 30,559 37,766 Asset retirement obligations 3,250 2,940 Bonds, notes, and other debt payable 2,049,080 1,909,164 Total liabilities $2,812,562 $2,645,768 Net assets Unrestricted $7,338,857 $6,986,925 Temporarily restricted 2,720,408 2,472,172 Permanently restricted 1,624,118 1,555,312 Total net assets $11,683,383 $11,014,409 Total liabilities and net assets $14,495,945 $13,660,177 See Notes to the Consolidated Financial Statements, beginning on page 8. 11 – 5 – Consolidated Statement of Activities For the fiscal year ended August 31, 2017, and summarized financial information for the fiscal year ended August 31, 2016 (in thousands of dollars) 2017 2016 Temporarily Permanently Operating revenues Unrestricted restricted restricted Total Total Tuition and fees $1,008,586 $1,008,586 $963,001 (less scholarships and fellowships) (419,944) (419,944) (381,713) Net tuition and fees 588,642 588,642 581,288 Auxiliary services 80,812 80,812 79,036 Grants and contracts 617,4 48 617,4 48 595,774 Private gifts 199,630 199,630 200,892 Investment return designated for operations 445,137 $159,397 604,534 509,009 Sales and services 171,289 171,289 161,615 Professional fees 34,929 34,929 31,345 Royalties and trademarks 12,134 12,134 41,236 Other income 576 576 793 Total operating revenues 2,150,597 159,397 2,309,994 2,200,988 Net assets released from restrictions 197,968 (197,968) — — Total operating revenues and other additions (reductions) 2,348,565 (38,571)