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 renewals 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 to be redetermined every three years, following the first two years of the contract, or 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 ("REA"). 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 July 2016, ASUS was awarded a 50-year contract by the U.S. government to operate, maintain, and provide construction management services for the water and wastewater systems at Eglin Air Force Base located in Florida. The contract is subject to annual economic price adjustments. ASUS is expected to begin operations at Eglin Air Force Base under its ECUS subsidiary in the spring of 2017.

ASUS has experienced delays in redetermining prices as required by the terms of these 50-year contracts. Interim rate increases have, at times, been implemented pending the outcome of these price redeterminations. Because of the delays, price redeterminations, when finally approved, can be retrospective and prospective. During 2016, the U.S. government approved various price redeterminations and/or economic price adjustments at four of the bases served. ASUS received approval from the U.S. government for these price redeterminations and/or economic price adjustments, which, in some cases, included retroactive operation and maintenance management fees for prior periods. 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. During the third quarter of 2015, the U.S. government approved various price redeterminations, as well as asset transfers, which included retroactive operation and maintenance management fees for prior periods. As such, ASUS recorded approximately $3.0 million of retroactive revenues and pretax operating income during 2015 in connection with these contract modifications related to periods prior to 2015.

Costs and estimated earnings on contracts and amounts due from the U.S. government as of December 31, 2016 and 2015 are as follows:



(dollars in thousands)	2016			2015
Revenues (costs and estimated earnings) recognized on contracts	$	104,830		$	111,397
Less: Billings to date on contracts	(43,161		)	(61,662		)
	$	61,669		$	49,735

Included in the accompanying balance sheets under the following captions:
Costs and estimated earnings in excess of billings on contracts	$	63,932		$	53,499
Billings in excess of costs and estimated earnings on contracts	(2,263		)	(3,764		)
	$	61,669		$	49,735

Receivables from the U.S. government:
Billed receivables from the U.S. government	$	8,467		$	5,861
Unbilled receivables from the U.S. government (current)	6,691			1,309
Total	$	15,158		$	7,170