California Association for Research in Astronomy
dba W. M. Keck Observatory(A Nonprofit California Public Benefit Corporation)
Financial Statements(With Independent Auditors’ Report Thereon)
September 30, 2016 and 2015

Independent Auditors’ Report

The Board of Directors
California Association for Research in Astronomy:

Report on the Financial Statements
We have audited the accompanying financial statements of the California Association for Research in
Astronomy, which comprise the statements of financial position as of September 30, 2016 and 2015, andthe related statements of activities, and cash flows for the years then ended, and the related notes tofinancial statements.
Management’s Responsibility for the Financial Statements
Management is responsible for the preparation and fair presentation of these financial statements inaccordance 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 fairpresentation of financial statements that are free from material misstatement, whether due to fraud or
error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these financial statements based on our audits. We
conducted our audits in accordance with auditing standards generally accepted in the United States ofAmerica. Those standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in
the financial statements. The procedures selected depend on the auditors’ judgment, including theassessment of the risks of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the entity’s preparationand fair presentation of the 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 entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating theappropriateness of accounting policies used and the reasonableness of significant accounting estimates
made by management, as well as evaluating the overall presentation of the financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis forour audit opinion.

1

Opinion
In our opinion, the financial statements referred to above present fairly, in all material respects, thefinancial position of the California Association for Research in Astronomy as of September 30, 2016 and2015, and the changes in its net assets and its cash flows for the years then ended in accordance withaccounting principles generally accepted in the United States of America.

Honolulu, Hawaii
February 16, 2017

2

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Statements of Financial Position
September 30, 2016 and 2015

Assets2016

Currrent assets:
Cash and cash equivalents (notes 2 and 3)
Grants and contracts receivable
Prepaid expenses and other assets

11,944,040
530,743
342,040

Total current assets
Noncurrent assets:Long-term investments (note 3)
Property and equipment, net (notes 5 and 7)
Total assets

2015

$

Liabilities and Net Assets
Current liabilities:
Accounts payable and accrued expenses:
Advances (note 2)$

7,744,145
517,146
178,315

12,816,823

8,439,606

7,190,938
49,872,715

6,804,129
54,309,469

69,880,476$

69,553,204

3,239,559
15,670,340$

2,942,004
11,407,045

Total current liabilities

18,909,899

14,349,049

Net assets:
Unrestricted
Unrestricted - board-designated (note 9)
Temporarily restricted (note 10)

49,685,193
698,323
587,061

54,121,947
593,634
488,574

50,970,577

55,204,155--

Total net assets
Commitments (notes 8 and 11)
Total liabilities and net assets$

69,880,476

See accompanying notes to financial statements.
3$69,553,204

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Statements of Activities
Years Ended September 30, 2016 and 2015

2016
Changes in unrestricted net assets:
Unrestricted operating support and revenues
Operating revenues (note 4):
University of California observatory operations
Other
Net realized gain (loss) on disposal of assets (note 5)
Net realized and unrealized gains (losses)
on investments (note 3)
Interest income (note 3)
Contributions (note 9)
Other income
Net assets released in satisfaction of equipment
acquisition restrictions (note 10)$

11,694,637
8,039,268(991,180)2015$

14,002,090
8,116,893
20,797401,734
183,034
125,563
107,890(59,022)208,072
239,596
269,890

511,100

597,606

20,072,046

23,395,922

18,243,797
3,122,348
11,3562,643,151
383,459

16,951,362
3,040,642
49,1572,552,538
581,991

Total expenses

24,404,111

23,175,690

Change in unrestricted net assets(4,332,065)

220,232

Change in temporary restricted net assets (note 10):Contributions
Net assets released from restrictions

609,587(511,100)

650,926(597,606)

Change in temporarily restricted net assets

98,48753,320(4,233,578)

273,552

55,204,155

54,930,603

Total unrestricted revenues
Expenses (notes 5, 7, and 11):
Program services:
Observatory operations
California Institute of Technology asset project
Research
Administration and general
Fund-raising

Change in net assets
Net assets at beginning of year
Net assets at end of year$

50,970,577

See accompanying notes to financial statements.
4$

55,204,155

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Statements of Cash Flows
Years Ended September 30, 2016 and 20152016
Cash flows from operating activities:
Change in net assets
Adjustments to reconcile change in net assets to net cash
provided by operating activities:
Depreciation
Net realized and unrealized losses (gains) on investments
Net losses (gains) on disposal of property and equipment
Contributions restricted for investment in property
and equipment
Decrease (increase) in operating assets:
Grants and contracts receivable, net
Prepaid expenses and other assets
Increase (decrease) in operating liabilities:
Accounts payable and accrued expenses
Advances$(4,233,578)

Net cash used in investing activities(609,587)(650,926)(13,597)(163,725)(80,090)(30,002)297,555
4,263,295

421,470(1,091,281)

6,494,830

4,843,831(2,951,416)
46,894-(5,943,519)
20,797(1,005,935)(2,904,522)(6,928,657)

609,587

650,926

4,199,895(1,433,900)

7,744,145

9,178,045

Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year$

273,552

5,962,883
59,022(20,797)

Cash flows provided by financing activities:
Contributions restricted for investment inproperty and equipment

Cash and cash equivalents at end of year$

6,350,096(386,809)
991,180

Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Proceeds on sale of property and equipment
Purchases of investments

2015

11,944,040

See accompanying notes to financial statements.
5$

7,744,145

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

(1)

Organization and Operations

California Association for Research in Astronomy (CARA) is a nonprofit corporation formed by
the California Institute of Technology (Caltech) and the University of California (UC) in January
1985 to build and operate the W. M. Keck Observatory (the Observatory) near the summit of
Mauna Kea in Hawaii. Tax exempt under Section 501(c)(3) of the Internal Revenue Code, CARA
is a nonprofit California public benefit corporation and, as such, is qualified as a nonprofit
corporation in the state of Hawaii.
The principal purpose of CARA is to foster astronomical research and to provide technical direction
for the development and operation of astronomical facilities on the island of Hawaii, principally onland owned by the state of Hawaii, leased to the University of Hawaii, and subleased to Caltech.
The Observatory is owned by Caltech and is leased to CARA for $1 per year. In consideration for
subleasing the land to Caltech for $1 per year through 2033, the University of Hawaii receives anopportunity to use the Observatory and related facilities and improvements. The astronomical
facilities include two 10-meter telescopes (Keck I and Keck II), related instrumentation, adaptive
optics technology, support facilities, and required infrastructure improvements.
The costs of development of the Observatory and the development of adaptive optics technology
were borne by Caltech, the majority of which were funded by grants from the W. M. Keck
Foundation (the Foundation). Caltech's funding for Keck I and Keck II development costs was$75,222,000 and $78,600,000, respectively. Keck I development was completed in 1996; Keck II
was largely completed in 1998 with the remaining development costs completely expended by
2005.
UC provided financial support to CARA for preoperating costs during the Observatory’s
development periods, acquisition of focal plane instrumentation, and observatory operations. UC
provides continuing operating support for Keck I operations in the amount of $3,500,000 per year,
which continues through fiscal year 2017, and $1,750,000 for the six-month period ending
March 31, 2018, all measured in 1984 dollars. UC provides support for Keck II operations in theamount of $2,105,000 per year, which continues through fiscal year 2017, and $1,052,500 for thesix-month period ending March 31, 2018, all measured in 1990 dollars. For fiscal years 2016 and2015, CARA received operating support for Keck I operations of $8,270,186 and $8,273,160,
respectively. For fiscal years 2016 and 2015, CARA received operating support for Keck II
operations of $6,041,498 and $5,809,126, respectively. For fiscal years 2016 and 2015, CARA
recognized operating revenue for Keck I and Keck II operations from UC of $11,694,637 and$14,002,090, respectively.

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CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015(2)

Summary of Significant Accounting Policies

Basis of Presentation
The accompanying financial statements have been prepared using the accrual basis of accounting
and accounting principles generally accepted in the United States of America (GAAP).
Net Assets
The financial statements report net assets and changes in net assets based upon the existence orabsence of restrictions on use that are placed by its donors, as follows:
Unrestricted Net Assets – net assets that are not subject to donor-imposed stipulations and that
may be expended for any purpose in performing the objectives of CARA.
Temporarily Restricted Net Assets – net assets subject to donor-imposed stipulations that may
or will be met either by actions and/or the passage of time. As the restrictions are satisfied,
temporarily restricted net assets are reclassified and reported in the accompanying financial
statements as net assets released from restrictions.
Permanently Restricted Net Assets – net assets subject to donor-imposed stipulations that
resources must be maintained in perpetuity. As of September 30, 2015 and 2014, CARA had
no permanently restricted net assets.
Cash and Cash Equivalents
CARA considers all highly liquid instruments with original maturities of three months or less to be
cash equivalents. As of September 30, 2016 and 2015, cash equivalents of $11,635,844 and$7,603,123, respectively, were invested in the University of California Short-term Investment Pool
(UC STIP), and reported at fair value in the accompanying financial statements. See Note 3 forfurther discussion and disclosures related to fair value measurements.
Long-term Investments
CARA’s investments in the University of California General Endowment Pool (UC GEP) are stated
at fair value. Fair value is defined as the price that would be received to see an asset or paid totransfer a liability in an orderly transaction between market participants at the measurement date(an exit price). See Note 3 for further discussion and disclosures related to fair value
measurements.
Purchases and sales of securities are recorded on a trade-date basis. Interest income is recorded on
the accrual basis. Dividends are recorded on the ex-dividend date.

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CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

Realized and unrealized gains (losses) on investments are based on the difference between the fairvalue of assets at the beginning of the year, or at the time of purchase for assets purchased during
the year, and the related fair value on the day investments are sold with respect to realized gains(losses), or on the last day of the year for unrealized gains (losses).
Property and Equipment
Expenditures incurred by CARA for observatory instrumentation and facilities, operating
equipment, and vehicles are capitalized at cost, except for donated property that is valued at fairmarket value at the date of the gift, and depreciated when placed in service. Depreciation isprovided over the estimated useful lives of the respective assets using the straight-line method. The
estimated useful lives are as follows:

Class of assets

Estimated
useful lives

Observatory instrumentation
Observatory facility
Vehicles and equipment

5-20 years
3-15 years
3-20 years

CARA reports contributions designated by donors to acquire long-lived assets as restricted support.
Absent explicit donor stipulations about how long those long-lived assets must be maintained,
CARA reports expirations of donor restrictions when the acquired long-lived assets are placed inservice.
Advances
Operating and instrumentation funds received from UC are recorded as advances until expended for
operating expenditures, observatory instrumentation, or vehicles and equipment. Funds received
from the Association of Universities for Research in Astronomy (AURA) and other foundation
grants for the purpose of developing certain instruments for the Keck telescopes or adaptive optics
development are recorded as advances until expended for their stated purpose.

8

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

A summary of advances at September 30, 2016 and 2015 follows:
2016
University of California:
Observatory operations
Other
Heising-Simons Foundation
W. M. Keck Foundation
Gordon and Betty Moore Foundation
Other
Total advances

2015

$

13,023,073
335,386
2,004,594
129,049
77,204
101,034$

10,406,026
330,000
433,884
237,135-$

15,670,340$

11,407,045

Contributions
Contributions are recorded in the period received. CARA reports gifts as restricted support if they
are received with donor-imposed stipulations that limit the use of the donated assets. When a donor
restriction expires, that is, when a stipulated time restriction ends or purpose restriction isaccomplished, temporarily restricted net assets are reclassified to unrestricted net assets andreported in the statements of activities as net assets released from restrictions.
As described in note 1, CARA leases the Observatory and related facilities and improvements from
Caltech for $1 per year. As the use of the Observatory is so specific that there is no assignablevalue, it is impractical to determine a fair rental value to be reported as contribution revenue in theaccompanying statements of activities.
Use of Estimates
The preparation of the financial statements in accordance with GAAP requires management of
CARA to make a number of estimates and assumptions relating to the reported amounts of assets
and liabilities and the disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the reporting period.
Significant items subject to such estimates and assumptions include the carrying amount of property
and equipment and the valuation of receivables and investments. Actual results could differ fromthose estimates.

9

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

Long-Lived Assets
Long-lived assets, such as property and equipment, are reviewed for impairment whenever eventsor changes in circumstances indicate that the carrying amount of an asset may not be recoverable.
If circumstances require a long-lived asset be tested for possible impairment, CARA first compares
undiscounted cash flows expected to be generated by an asset to the carrying value of the asset. If
the carrying value of the long-lived asset is not recoverable on an undiscounted cash flow basis, animpairment is recognized to the extent that the carrying value exceeds its fair value. Fair value isdetermined through various valuation techniques, including discounted cash flow models, quoted
market values, and third-party independent appraisals, as necessary.
Sponsored Programs, Grants, and Contracts
Governmental and private grants and contracts normally provide for the recovery of direct andindirect costs, subject to audit. CARA recognizes revenues associated with direct costs as incurred.
Indirect costs recovered on federally sponsored programs are based on cost reimbursement rates
negotiated with CARA’s cognizant agency, the Office of Naval Research. Indirect costs recoveredon all other grants and contracts are based on rates negotiated with the respective parties.
Reclassification
Certain 2015 amounts have been reclassified to conform with the 2016 presentation.
reclassifications had no effect on previously reported change in net assets.

Such

Subsequent Events
CARA has evaluated subsequent events from the balance sheet date through February 16, 2017, thedate at which the financial statements were available to be issued. There are no other matters todisclose.

(3)

Fair Value Measurements

The fair value of CARA’s investments have been estimated using the net asset value per share as apractical expedient, and in accordance with Accounting Standards Codification Subtopic 820-10,
Fair Value Measurement and Disclosures, are not required to be presented in a fair value hierarchy.
There have been no changes in the methodologies used at September 30, 2016 and 2015.

10

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

The following table summarizes CARA’s investments for which fair value is measured using the
net asset value per share practical expedient as of September 30, 2016 and 2015:
Fair Value as of September:

UnfundedCommitments

Redemption
Frequency

Redemption
Notice Period

7,603,123

None

Daily

Trade date

7,190,938

6,804,129

None

Monthly

30 days$ 18,826,782$ 14,407,252

2016

2015

Cash and cash equivalents:
University of California
Short-Term Investment Pool

$ 11,635,844$

Long-term investments:
University of California
General Endowment Pool

The following is a description of CARA’s investments:
UC STIP – is a highly liquid investment fund held by UC. Shares of the UC STIP arepurchased and redeemed at a constant value of $1 per share.
UC GEP – it is a unitized fund whereby CARA participates in investment returns and incomeon an equivalent pro-rated basis with all participants in the pool. The UC GEP consists of thefollowing investments at September 30, 2016: 22.1% U.S. equity securities, 16.0%
international equity securities, 10.8% emerging market securities, 8.3% U.S. fixed income
securities, 1.5% international fixed income securities, 19.2% absolute return funds, 11.8%
private equity funds, 5.3% U.S. real estate funds, 1.9% real asset funds, and 3.1% cash. Under
CARA’s investment agreements with the UC, the funds held in the UP GEP are not subject toan initial lockup period, however, fund redemptions are limited to 5% per year unlessadditional redemptions are approved by the UC.
Due to the nature of the investments held by the funds, changes in market conditions and theeconomic environment may significantly impact the net asset value of the fund and,
consequently, the fair value of CARA’s interests in the UC GEP.

11

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

(4)

Operating Revenues

A summary of operating revenues for the years ended September 30, 2016 and 2015 follows:
2016
University of California - observatory operations (note 1)
National Aeronautics and Space Administration
W. M. Keck Foundation
National Science Foundation
Gordon and Betty Moore Foundation
Heising-Simons Foundation
Association for Universities for Research in Astronomy
Other
Total operating revenues

(5)

2015

$

11,694,637
3,921,954
307,410464,268
162,018
10,405
1,074
3,172,139$

14,002,090
3,847,108
751,304
527,146
620,921318,836
2,051,578$

19,733,905$

22,118,983

Property and Equipment

A summary of property and equipment at September 30, 2016 and 2015 follows:
2016
Observatory instrumentation and adaptive optics:
Property and equipment
Construction in progress$ 100,786,161
13,192,936

2015$

91,337,462
24,628,054

113,979,097

115,965,516

Observatory infrastructure:
Property and equipment

4,466,132

4,082,075

Vehicles and equipment

5,265,866

5,259,563

123,711,095(73,838,380)

125,307,154(70,997,685)

Less accumulated depreciation
Total property and equipment, net$

49,872,715$

54,309,469

Depreciation expense amounted to $6,350,096 and $5,962,883 for the years ended September 30,
2016 and 2015, respectively.

12

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

In 2016, CARA replaced the dye laser in the Keck 2 telescope with an upgraded solid state laser,
resulting in a net loss on disposal of $802,478 for the year ended September 30, 2016.

(6)

Income Taxes

CARA has received a determination from taxing authorities that it is an organization exempt fromtaxation under Section 501(c)(3) of the U.S. Internal Revenue Code and Section 23701d of the
California Revenue and Taxation Code and is generally not subject to federal or state income taxes.
However, CARA is subject to income taxes on any net income derived from a trade or business,regularly carried on, and not in furtherance of the purposes for which it was granted exemption. No
income tax provision has been recorded as the net income, if any from any unrelated trade orbusiness, in the opinion of management, is not material to the financial statements taken as a whole.
CARA applies the provisions of ASC Topic 740, Income Taxes, which prescribes a recognition
threshold and measurement attribute for the financial statement recognition and measurement of atax position taken or expected to be taken in a tax return, and provides guidance on derecognition,
classification, interest, and penalties, disclosure, and transition. Management believes that no such
uncertain tax position exists for CARA requiring accrual or disclosure at September 30, 2016 and2015. CARA is no longer subject to U.S. federal income tax examinations by tax authorities foryears before 2013.

(7)

Related-Party Transactions

Caltech and UC provide various instrument and adaptive optics development services to CARA.
During fiscal years 2016 and 2015, total expenditures for these services charged to CARA were$601,662 and $1,863,090, respectively, by Caltech, and $215,369 and $487,899, respectively, by
UC.
CARA provided services for projects on Caltech’s observatory assets located in Hawaii including:ongoing repair of the telescope mirror segments, telescope control system upgrades, dome shutter
improvements, installation of two photo-voltaic systems on Caltech’s Waimea headquarters
buildings, and ongoing installation of a spare secondary mirror. During fiscal years 2016 and 2015,
total expenditures for these projects was $3,122,348 and $3,040,642, respectively.

13

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

(8)

Commitments

CARA entered into various contractual agreements for operations, laser guide star and adaptive
optics systems, observatory construction and development of instrumentation and interferometry
systems. A summary of commitments at September 30, 2016 follows:
Operations
Instrumentation
Laser guide star and adaptive optics systems
Total commitments(9)$2,280,792
329,245
305,426$

2,915,463

Board-Designated Net Assets

CARA established a board-designated Director’s Fund separate from its unrestricted, undesignatednet assets to be spent at the Observatory Director’s discretion, except that there is a ceiling of$100,000 for each activity unless Board approval is obtained. The Director will report annually to
the Board on the use of this fund. In 2016 and 2015, CARA received contributions of $125,563 and$239,596, respectively, which were board-designated for the Director’s Fund. At September 30,
2016 and 2015, respectively, the board-designated net assets amounted to $698,323 and $593,634.

(10) Temporarily Restricted Net Assets
In 2016 and 2015, CARA received restricted contributions for various instrumentation and adaptive
optics technology development and Advancement Office initiatives totaling $609,587 and$650,926, respectively. In 2016 and 2015, $511,100 and $597,606, respectively, of temporarily
restricted net assets were released from restriction in satisfaction of equipment acquisition andprogram restrictions. At September 30, 2016 and 2015, $587,061 and $488,574, respectively, wasavailable for these activities.

(11) Deferred Compensation
403(b)Plan
CARA sponsors a defined contribution retirement plan (the Plan), which was established under
Section 403(b) of the U.S. Internal Revenue Code. The Plan provides for CARA to makecontributions at various percentages of base salary depending on the participant’s age and grade.
Eligible employees, as defined in the Plan, may make contributions not to exceed amounts

14

CALIFORNIA ASSOCIATION FOR RESEARCH IN ASTRONOMY
DBA W. M. KECK OBSERVATORY(A Nonprofit California Public Benefit Corporation)
Notes to Financial Statements
September 30, 2016 and 2015

allowable under the U.S. Internal Revenue Code. Contributions to the Plan amounted to $922,291
and $862,380 for fiscal years 2016 and 2015, respectively.
457(b) Plan
In 2014, CARA established a voluntary deferred compensation plan for a specific group of
management designed in accordance with the provisions of Section 457 of the Internal Revenue
Code. The plan allows participants to defer a portion of their compensation until after employment
termination. Assets in the plan are held by CARA on a non trust basis and are subject to the claimsof its creditors. The plan is funded entirely from the compensation of the participants and vests
with the employee immediately. CARA makes no contributions to the plan. The 457(b) plan assets
and related liability obligation to participants of $208,219 and $145,718 as of September 30, 2016
and September 30, 20l5, respectively, are included within other assets and accounts payable andaccrued expenses in the accompanying statements of financial position.

15