FORM 10-K

50 Note 3. Accounts Receivable and Finance Receivables Accounts Receivable Accounts receivable is composed of the following: (In millions) December 30, 2017 December 31, 2016 Commercial $ 1,007 $ 797 U.S. Government contracts 383 294 1,390 1,091 Allowance for doubtful accounts (27) (27) Total $ 1,363 $ 1,064 We have unbillable receivables, primarily on U.S. Government contracts, that arise when the revenues we have appropriately recognized based on performance cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $179 million at December 30, 2017 and $178 million at December 31, 2016. Finance Receivables Finance receivables are presented in the following table: (In millions) December 30, 2017 December 31, 2016 Finance receivables* $ 850 $ 976 Allowance for losses (31) (41) Total finance receivables, net $ 819 $ 935 * Included finance receivables held for sale of $30 million at December 31, 2016. Finance receivables primarily includes loans provided to purchasers of new and pre-owned Textron Aviation aircraft and Bell helicopters. These loans typically have initial terms ranging from five to ten years, amortization terms ranging from eight to fifteen years and an average balance of $1 million at December 30, 2017. Loans generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan. Our finance receivables are diversified across geographic region and borrower industry. At December 30, 2017, 56% of our finance receivables were distributed internationally and 44% throughout the U.S., compared with 61% and 39%, respectively, at the end of 2016. At December 30, 2017 and December 31, 2016, finance receivables of $257 million and $411 million, respectively, have been pledged as collateral for TFC’s debt of $175 million and $244 million, respectively. Finance Receivable Portfolio Quality Credit Quality Indicators and Nonaccrual Finance Receivables We internally assess the quality of our finance receivables based on a number of key credit quality indicators and statistics such as delinquency, loan balance to estimated collateral value and the financial strength of individual borrowers and guarantors. Because many of these indicators are difficult to apply across an entire class of receivables, we evaluate individual loans on a quarterly basis and classify these loans into three categories based on the key credit quality indicators for the individual loan. These three categories are performing, watchlist and nonaccrual. We classify finance receivables as nonaccrual if credit quality indicators suggest full collection of principal and interest is doubtful. In addition, we automatically classify accounts as nonaccrual once they are contractually delinquent by more than three months unless collection of principal and interest is not doubtful. Accounts are classified as watchlist when credit quality indicators have deteriorated as compared with typical underwriting criteria, and we believe collection of full principal and interest is probable but not certain. All other finance receivables that do not meet the watchlist or nonaccrual categories are classified as performing. Delinquency We measure delinquency based on the contractual payment terms of our finance receivables. In determining the delinquency aging category of an account, any/all principal and interest received is applied to the most past-due principal and/or interest amounts due. If a significant portion of the contractually due payment is delinquent, the entire finance receivable balance is reported in accordance with the most past-due delinquency aging category.