Military Privatization

Each of the Military Utility Privatization Subsidiaries have entered into a service contract with the U.S. government to operate and maintain, as well as perform construction activities to renew and replace, the water and/or wastewater systems at a military base or bases. The amounts charged for these services are based upon the terms of the 50-year contract between ASUS or the Military Utility Privatization Subsidiaries and the U.S. government. Under the terms of each of these agreements, the Military Utility Privatization Subsidiaries agree to operate and maintain the water and/or wastewater systems for: (i) a monthly net fixed-price for operation and maintenance, and (ii) an amount to cover renewal and replacement capital work. In addition, these contracts may also include firm, fixed-priced initial capital upgrade projects to upgrade the existing infrastructure. Contract modifications are also issued for other necessary capital upgrades to the existing infrastructure approved by the U.S. government.

Under the terms of each of these contracts, prices are subject to an economic price adjustment ("EPA") provision, on an annual basis. Prices may also be equitably adjusted for changes in law and other circumstances. ASUS is permitted to file, and has filed, requests for equitable adjustment. Each of the contracts may be subject to termination, in whole or in part, prior to the end of the 50-year term for convenience of the U.S. government or as a result of default or nonperformance by the Military Utility Privatization Subsidiaries.

In September 2017, ASUS was awarded a new 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water distribution and wastewater collection and treatment facilities at Fort Riley, a United States Army installation located in Kansas. ASUS expects to assume operations at Fort Riley following the completion of a 6-to-12-month transition period currently underway. ASUS assumed the operation of the water and wastewater systems at Eglin Air Force Base on June 15, 2017.

ASUS has experienced delays in receiving EPAs as provided for under its 50-year contracts. Because of the delays, EPAs, when finally approved, are retroactive. During 2017, the U.S. government approved EPAs at five of the bases served. In some cases, these EPAs included retroactive operation and maintenance management fees for prior periods. In the second quarter of 2017, ASUS recorded approximately $1.0 million in retroactive operation and maintenance management fees and pretax operating income related to periods prior to 2017. In December 2016, ASUS recorded approximately $421,000 in retroactive operation and maintenance management fees and pretax operating income related to periods prior to 2016.

Costs and estimated earnings on contracts and amounts due from the U.S. government as of December 31, 2017 and 2016 are as follows:



(dollars in thousands)	2017			2016
Revenues (costs and estimated earnings) recognized on contracts	$	78,245		$	104,830
Less: Billings to date on contracts	(15,343		)	(43,161		)
	$	62,902		$	61,669

Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on contracts	$	66,813		$	63,932
Billings in excess of costs and estimated earnings on contracts	(3,911		)	(2,263		)
	$	62,902		$	61,669

Receivables from the U.S. government:
Billed receivables from the U.S. government	$	3,725		$	8,467
Unbilled receivables from the U.S. government (current)	7,559			6,691
Total	$	11,284		$	15,158