##### Table of Contents





UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C.
    20549
    Form 10-K
 þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended
    January 3, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the transition period
    from          to  Commission file number 0-27559
  Textron Financial
    Corporation
 (Exact Name of Registrant as
    Specified in Its Charter)
  Delaware

05-6008768(State or Other Jurisdiction
    of
    Incorporation or Organization)

(I.R.S. Employer
    Identification No.)40 Westminster Street, P.O. Box 6687,
    Providence, R.I.

02940-6687(Address of Principal Executive
    Offices)

(Zip Code)   Registrants Telephone Number, Including Area Code:
 (401) 621-4200
  Securities registered pursuant to Section 12(b) of the
    Act:
  Title of Class

Name of Each Exchange on Which Registered$100,000,000 5.125% Notes

New York Stock Exchangedue August 15, 2014   Securities registered pursuant to Section 12(g) of the
    Act:
  Common Stock, $100.00 par value
  þ o
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K.
  Rule 12b-2
 Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   þ
    REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
    INSTRUCTION I (1) (a) AND (b) OF
    FORM 10-K
    AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
    DISCLOSURE FORMAT.




---



##### 





TABLE OF
    CONTENTS
    
 PART I.Item 1.


Business


3Item 1A.


Risk Factors


8Item 1B.


Unresolved Staff Comments


12Item 2.


Properties


12Item 3.


Legal Proceedings


12Item 4.


Submission of Matters to a Vote of Security
    Holders


13PART II.Item 5.


Market for Registrants Common Equity and
    Related Stockholder Matters


13Item 6.


Selected Financial Data


13Item 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


15Item 7A.


Quantitative and Qualitative Disclosure about
    Market Risk


31Item 8.


Financial Statements and Supplementary Data


32Item 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


70Item 9A.


Controls and Procedures


70Item 9B.


Other Information


70PART III.Item 10.


Directors and Executive Officers of the
    Registrant


70Item 11.


Executive Compensation


70Item 12.


Security Ownership of Certain Beneficial Owners
    and Management


70Item 13.


Certain Relationships and Related Transactions


70Item 14.


Principal Accounting Fees and Services


70PART IV.Item 15.


Exhibits, Financial Statement Schedules


71EX-12 Computation of Ratio of Earnings to Fixed Charges.EX-23 Consent of Independent Registered Public Accounting Firm.EX-24 Power of Attorney dated as of February 26, 2009.EX-31.1 Certification of Chief Operating Officer Pursuant to Rule 13a-14(a).EX-31.2 Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).EX-32.1 Certification of Chief Operating Officer Pursuant to U.S.C. Section 1350.EX-32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350.   2




---



##### Table of Contents



PART I.  Item 1.
    Business  General
  E-Z-GO
    E-Z-GO
      Form 10-K.
  Competition
   3




---



##### Table of Contents



Relationship
    with Textron
  General
    Form 10-K.
  Agreements
    with Textron
    Receivables
    Purchase Agreement
    Support
    Agreement with Textron
    Tax
    Sharing Agreement with Textron
   4




---



##### Table of Contents



Form 10-K.
  Regulations
    
    Regulate credit-granting activities;
    Establish maximum interest rates, finance charges and other
    charges;
    Require disclosures to customers;
    Govern secured transactions;
    Affect insurance brokerage activities; and
    Set collection, foreclosure, repossession and claims handling
    procedures and other trade practices.      Employees
    Risk
    Management
    
    Credit risk;
    Asset/liability risk (including interest rate and foreign
    exchange risk); and
    Liquidity risk.    Credit
    Risk Management
    
    Underwriting procedures;
    Centralized approval of individual transactions exceeding
    certain size limits; and
    Active portfolio and account management. 5




---



##### Table of Contents




    Analyzing business or property cash flows and collateral values;
    Performing financial sensitivity analyses; and
    Assessing potential exit strategies.        Geographic
    Concentration
  Form 10-K.
  Asset/Liability
    Risk Management
    
    Interest rate exposure arising from changes in interest rate
    indices; and
    Foreign currency exposure arising from changes in exchange rates.   6




---



##### Table of Contents



Interest
    Rate Risk Management
  Form 10-K.
  Foreign
    Exchange Risk Management
  and/or
  Liquidity
    Risk Management
    
    Collection of existing finance receivables;
    Committed bank lines of credit;
    Sales of finance receivables classified as held for sale;
    Syndication and securitization of finance receivables; and
    Other forms of secured financing  Form 10-K.
  Available
    Information
  http://www.textronfinancial.com Form 10-K, Form 10-Q, Form 8-K,
 7




---



##### Table of Contents



Forward-looking
    Information
  Certain statements in this Annual Report on
    Form 10-K
    and other oral and written statements made by Textron Financial
    from time to time are forward-looking statements, including
    those that discuss strategies, goals, outlook or other
    non-historical matters; or project revenues, income, returns or
    other financial measures. These forward-looking statements speak
    only as of the date on which they are made, and we undertake no
    obligation to update or revise any forward-looking statements.
    These forward-looking statements are subject to risks and
    uncertainties that may cause actual results to differ materially
    from those contained in the statements, including the Risk
    Factors contained herein and the following: (a) changes in
    worldwide economic, political or regulatory conditions that
    impact interest and foreign exchange rates; (b) the
    occurrence of slowdowns or downturns in customer markets in
    which Textron products are sold or supplied and financed or
    where we offer financing; (c) the ability to realize full
    value of finance receivables and investments in securities;
    (d) the ability to control costs and successful
    implementation of various cost reduction programs, including our
    current restructuring program; (e) increases in pension
    expenses and other post-retirement employee costs; (f) the
    impact of changes in tax legislation; (g) the ability to
    maintain portfolio credit quality and certain minimum levels of
    financial performance required under our committed credit
    facilities and under our Support Agreement with Textron;
    (h) access to financing, including securitizations, at
    competitive rates; (i) access to equity in the form of
    retained earnings and capital contributions from Textron;
    (j) uncertainty in estimating contingent liabilities and
    establishing reserves to address such contingencies;
    (k) the launching of significant new products or programs
    which could result in unanticipated expenses; (l) risks and
    uncertainties related to acquisitions and dispositions,
    including difficulties or unanticipated expenses in connection
    with the consummation of acquisitions or dispositions, the
    disruption of current plans and operations, or the failure to
    achieve anticipated synergies and opportunities; (m) the
    ability to successfully exit from our commercial finance
    business, other than the captive finance business, including
    effecting an orderly liquidation or sale of certain portfolios
    and businesses; (n) uncertainty in estimating the market
    value of our Finance receivables held for sale and our Allowance
    for losses on finance receivables held for investment;
    (o) bankruptcy or other financial problems at major
    customers that could cause disruptions or difficulty in
    collecting amounts owed by such customers; (p) legislative
    or regulatory actions impacting our operations; and
    (q) continued volatility and further deterioration of the
    capital markets.
  Item 1A.
    Risk
    Factors    If the
    current economic uncertainty and capital market turbulence is
    prolonged, our planned liquidity actions may not be sufficient
    to meet our liquidity needs
    Current
    levels of market volatility are unprecedented, which may
    continue to disrupt our access to the capital markets and other
    sources of liquidity may not be available
   8




---



##### Table of Contents



Measures
    we are taking to enhance our liquidity position, including our
    plan to exit portions of our commercial finance business, may
    not work in the manner and within the time frame that we
    anticipate or at all
  and/or
    Difficult
    conditions in the financial markets have adversely affected our
    business and results of operations, and we do not expect these
    conditions to improve in the near future
   9




---



##### Table of Contents



The
    soundness of our customers and business partners could affect
    our business and results of operations
    The
    soundness of financial institutions could adversely affect
    us
    Our
    lowered credit ratings limit our access to the capital markets
    and increase the cost of our funding from the capital
    markets
  Form 10-K
  We may be
    unable to effectively mitigate pricing pressures
    If we are
    unable to maintain portfolio credit quality, our financial
    performance may be adversely affected
   10




---



##### Table of Contents



The use
    of estimates and assumptions in determining our allowance for
    losses on finance receivables held for investment may adversely
    affect our profitability
    Currency
    and interest rate fluctuations, and our ability to hedge those
    transactions may adversely affect our results
      Unanticipated
    changes in tax rates or exposure to additional income tax
    liabilities could affect our profitability
    An
    interruption of our information technology networks may limit
    our ability to conduct our regular operations and react to
    sudden changes in market conditions, both of which could
    adversely impact our results
   11




---



##### Table of Contents



Changes
    in the regulatory environment in which we operate could have an
    adverse affect on our business and earnings
    Our
    international business is subject to risks of doing business in
    foreign countries
    We are
    subject to legal proceedings and other claims
    Item 1B.
    Unresolved
    Staff Comments    Item 2.
    Properties  Form 10-K.
  Item 3.
    Legal
    Proceedings   12




---



##### Table of Contents



Item 4.
    Submission
    of Matters to a Vote of Security Holders  Form 10-K.
 PART II.  Item 5.
    Market
    for Registrants Common Equity and Related Stockholder
    Matters  Form 10-K.
  Item 6.
    Selected
    Financial Data  Form 10-K.
  For the Years Ended(1)2008


2007


2006


2005


2004(Dollars in millions)Results of OperationsFinance charges

$
558


$
671


$
652


$
464


$
369Securitization gains


42



62



42



49



56Rental revenues on operating leases


34



34



32



32



29Other income


89



108



72



83



91(Loss) income from continuing operations before special charges
    and income taxes


(50
)


222



210



171



139Valuation allowance on finance receivables held for sale


293















Goodwill impairment


169















Restructuring charges


27















Net (loss) income


(461
)


145



152



111



94Balance Sheet DataTotal finance receivables held for investment

$
6,915


$
8,603


$
8,310


$
6,763


$
5,837Finance receivables held for sale


1,658















Allowance for losses on finance receivables held for investment


191



89



93



96



99Equipment on operating leases  net


247



259



238



231



237Total assets


9,344



9,383



9,000



7,441



6,738Debt


7,388



7,311



6,862



5,420



4,783Deferred income taxes


337



472



497



461



453Shareholders equity


1,079



1,138



1,142



1,050



1,035Debt to tangible shareholders equity(2)


6.52
x


7.76
x


7.10
x


6.19
x


5.53
x 13




---



##### Table of Contents



For the Years Ended(1)2008


2007


2006


2005


2004(Dollars in millions)SELECTED DATA AND RATIOSProfitabilityPortfolio yield


6.86
%


8.51
%


9.11
%


7.91
%


7.35
%Net interest margin as a percentage of average net investment(3)


4.74
%


5.66
%


5.81
%


6.40
%


7.14
%Return on average equity(4)


(44.26
)%


13.28
%


14.13
%


11.17
%


9.49
%Return on average assets(5)


(4.82
)%


1.60
%


1.84
%


1.58
%


1.49
%Selling and administrative expenses as a percentage of average
    managed and serviced finance receivables(6)


1.68
%


1.71
%


1.84
%


2.01
%


2.01
%Operating efficiency ratio(7)


53.8
%


44.6
%


45.1
%


48.8
%


47.1
%Credit Quality60+ days contractual delinquency as a percentage of finance
    receivables held for investment(8)


2.59
%


0.43
%


0.77
%


0.79
%


1.47
%Nonperforming assets as a percentage of finance assets(9)


4.72
%


1.34
%


1.28
%


1.53
%


2.18
%Allowance for losses on finance receivables held for investment
    as a percentage of finance receivables held for investment


2.76
%


1.03
%


1.11
%


1.43
%


1.70
%Allowance for losses on finance receivables held for investment
    as a percentage of nonaccrual finance receivables held for
    investment


68.9
%


111.7
%


123.1
%


108.6
%


83.7
%Net charge-offs as a percentage of average finance
    receivables(10)


1.00
%


0.45
%


0.38
%


0.51
%


1.48
%     (1)
    
    Textron Financials year-end dates conform with
    Textrons year-end, which falls on the nearest Saturday to
    December 31.(2)
    
    Tangible shareholders equity equals Shareholders
    equity, excluding Accumulated other comprehensive income (loss),
    less Goodwill.(3)
    
    Represents revenues earned less interest expense on borrowings
    and operating lease depreciation as a percentage of average net
    investment. Average net investment includes finance receivables
    plus operating leases, less deferred taxes on leveraged leases.(4)
    
    Return on average equity excludes the cumulative effect of
    change in accounting principle.(5)
    
    Return on average assets excludes the cumulative effect of
    change in accounting principle.(6)
    
    Average managed and serviced finance receivables include owned
    finance receivables, finance receivables serviced under
    securitizations, participations and third-party portfolio
    servicing agreements.(7)
    
    Operating efficiency ratio is selling and administrative
    expenses divided by net interest margin.(8)
    
    Delinquency excludes any captive finance receivables with
    recourse to Textron. Captive finance receivables represent
    third-party finance receivables originated in connection with
    the sale or lease of Textron manufactured products. Percentages
    are expressed as a function of total Textron Financial
    independent and nonrecourse captive finance receivables.(9)
    
    Finance assets include: finance receivables held for investment;
    equipment on operating leases, net of accumulated depreciation;
    repossessed assets and properties; retained interests in
    securitizations; investment in equipment residuals; acquisition,
    development and construction arrangements; investments in other
    marketable securities and short- and long-term investments (some
    of which are classified in Other assets on Textron
    Financials Consolidated Balance Sheets). Nonperforming
    assets include independent and nonrecourse captive finance
    assets.(10)
    
    Average finance receivables include both finance receivables
    held for investment and finance receivables held for sale. 14




---



##### Table of Contents



Item 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  Overview
            Key
    Business Initiatives and Trends
  Form 10-K. non-cash,
 15




---



##### Table of Contents



Form 10-K.
    Financial
    Condition
  Liquidity
    and Capital Resources
         16




---



##### Table of Contents



Payments / Receipts Due by PeriodLess than


1-2


2-3


3-4


4-5


More than1 year


Years


Years


Years


Years


5 years


Total(In millions)Payments due:Multi-year credit facilities, Textron intercompany loan and
    commercial paper

$



$



$



$
876


$



$



$
876Other short-term debt


25























25Term debt


1,534



2,315



727



52



578



152



5,358Securitized on-balance sheet debt


169



205



134



89



66



190



853Subordinated debt






















300



300Securitized off-balance sheet debt


2,031



5















31



2,067Loan commitments


13



12



3







1



66



95Operating lease rental payments


5



4



4



1



1



1



16Total payments due


3,777



2,541



868



1,018



646



740



9,590Cash and contractual receipts:Finance receivable receipts  held for investment


1,474



970



1,193



855



584



1,839



6,915Finance receivable receipts  held for sale


793



435



256



293



125



94



1,996Securitized off-balance sheet finance receivable receipts


2,212



5















31



2,248Operating lease rental receipts


31



26



22



17



10



24



130Total contractual receipts


4,510



1,436



1,471



1,165



719



1,988



11,289Cash


16























16Total cash and contractual receipts


4,526



1,436



1,471



1,165



719



1,988



11,305Net cash and contractual receipts (payments)

$
749


$
(1,105
)

$
603


$
147


$
73


$
1,248


$
1,715Cumulative net cash and contractual receipts (payments)

$
749


$
(356
)

$
247


$
394


$
467


$
1,715    17




---



##### Table of Contents



Form 10-K.
        Fitch Ratings

Moodys

Standard & PoorsLong-term ratings

BBB-

Baa2

BBBShort-term ratings

F3

P2

A2Outlook

Negative

Watch (Negative)

Watch (Negative)      18




---



##### Table of Contents



2008


2007


2006Operating activities

$
167


$
262


$
338Investing activities


(64
)


(281
)


(1,680
)Financing activities


(146
)


29



1,391           Form 10-K.
 19




---



##### Table of Contents



Off-Balance
    Sheet Arrangements
            2008


2007


2006(In millions)Net pre-tax gains

$
36


$
58


$
42Proceeds from securitizations

$
125


$
549


$
50Cash flows received on retained interests


103



54



42    20




---



##### Table of Contents



Form 10-K.
  Interest
    Rate Sensitivity
        Financial
    Risk Management
   21




---



##### Table of Contents



Critical
    Accounting Policies
  Allowance
    for Losses on Finance Receivables Held for Investment
      Goodwill
   22




---



##### Table of Contents



Securitized
    Transactions
    Form 10-K
  Income
    Taxes
       23




---



##### Table of Contents



Fair
    Value of Financial Instruments
    Finance
    Receivables Held for Sale
  and/or
   24




---



##### Table of Contents



Results
    of Operations
  Revenues
    2008 vs. 2007(In millions)Lower market interest rates

$
(163
)Benefit from variable-rate receivable interest rate floors


24Higher average finance receivables of $258 million


21Securitization gains, net of impairments


(20
)Lower gains on the sale of leveraged lease investment


(16
)Change in estimate related to SILO transactions


(9
)Lower leveraged lease residual value impairments


8     2007 vs. 2006(In millions)Higher average finance receivables of $722 million

$
66Higher securitization gains and securitization fee income


27Gains on the sale of a leveraged lease investment


21Lower pricing as a result of competitive pressures


(17
)Leveraged lease residual value impairments


(13
)Higher other fee income


9Reduction in leveraged lease earnings resulting from adoption of
    FSP 13-2


(8
)Sale of an option related to a leveraged lease asset


(7
)   (Loss)
    Income from Continuing Operations before Special Charges and
    Income Taxes
    2008 vs. 2007(In millions)Increase in the provision for loan losses

$
(201
)Higher borrowing costs, relative to market rates


(51
)Benefit from variable-rate receivable interest rate floors


24Securitization gains, net of impairments


(20
)Lower gains on the sale of leveraged lease investment


(16
)        25




---



##### Table of Contents



2007 vs. 2006(In millions)Benefit from higher average finance receivables of
    $722 million

$
30Higher securitization gains and securitization fee income


27Gain on the sale of a leveraged lease investment


21Lower pricing as a result of competitive pressures


(17
)Leveraged lease residual value impairments


(13
)Higher selling and administrative expenses


(11
)Reduction in leveraged lease earnings resulting from adoption of
    FSP 13-2


(8
)Sale of an option related to a leveraged lease asset


(7
)Increase in the provision for loan losses


(7
)   Income
    Taxes
    2008


2007


2006Federal statutory income tax rate


(35.0
)%


35.0
%


35.0
%Increase (decrease) in taxes resulting from:State income taxes


(0.8
)


1.0



1.0Foreign tax rate differential


3.7



(3.3
)


(4.0
)Canadian dollar functional currency






(1.0
)


(5.5
)Change in state valuation allowance


(1.4
)


0.3



1.6Tax contingencies


2.5



4.0



2.7Tax credits


(0.7
)


(1.1
)


(2.1
)Goodwill impairment


9.8







Change in status of foreign subsidiary


7.6







Other, net


(0.1
)






(1.4
)Effective income tax rate


(14.4
)%


34.9
%


27.3
%   Form 10-K,
  Form 10-K,
  Form 10-K.
 26




---



##### Table of Contents



Credit
    Quality
    2008


2007


2006(Dollars in millions)Golf Finance

$
145



9.35
%

$
21



1.24
%

$
29



1.89
%Resort Finance


83



4.97
%


9



0.57
%


16



1.22
%Distribution Finance


64



9.29
%


23



1.20
%


7



0.28
%Aviation Finance


35



1.14
%


20



0.89
%


12



0.70
%Structured Capital


2



0.35
%














Asset-Based Lending










23



2.31
%


16



1.81
%Corporate and Other


32



35.43
%


27



24.73
%


33



19.74
%Total nonperforming assets

$
361



4.72
%

$
123



1.34
%

$
113



1.28
%       2008


2007


2006(Dollars in millions)Allowance for losses on finance receivables held for investment
    beginning of period

$
89


$
93


$
96Provision for losses


234



33



26Less net charge-offs:Distribution Finance


69



19



6Asset-Based Lending


7



7



7Golf Finance


6



3



1Aviation Finance


5



2



2Resort Finance


1



(2
)


7Corporate and Other


(2
)


8



6Total net charge-offs


86



37



29Transfer to valuation allowance on finance receivables held for
    sale


(44
)






Foreign currency translation


(2
)






Allowance for losses on finance receivables held for investment
    end of period

$
191


$
89


$
93Net charge-offs as a percentage of average finance receivables


1.00
%


0.45
%


0.38
%Allowance for losses on finance receivables held for investment
    as a percentage of total finance receivables held for investment


2.76
%


1.03
%


1.11
%Allowance for losses on finance receivables held for investment
    as a percentage of nonaccrual finance receivables


68.9
%


111.7
%


123.1
%    27




---



##### Table of Contents



Managed
    Finance Receivables
    2008


2007(Dollars in millions)Distribution Finance

$
3,379



31
%

$
3,812



34
%Aviation Finance


2,795



26
%


2,448



22
%Golf Finance


1,785



16
%


1,663



15
%Resort Finance


1,636



15
%


1,506



14
%Asset-Based Lending


649



6
%


1,004



9
%Structured Capital


508



5
%


608



5
%Corporate and Other


69



1
%


82



1
%Total managed finance receivables

$
10,821



100
%

$
11,123



100
%   Form 10-K
  Operating
    Results by Segment
    Distribution
    Finance
  2008


2007


2006(In millions)Revenues

$
207


$
290


$
268Net interest margin

$
150


$
206


$
185Selling and administrative expenses


102



96



82Provision for losses


119



24



4Segment (loss) income

$
(71
)

$
86


$
99      28




---



##### Table of Contents



Aviation
    Finance
  2008


2007


2006(In millions)Revenues

$
174


$
176


$
133Net interest margin

$
78


$
72


$
52Selling and administrative expenses


26



21



21Provision for losses


23



3



Segment income

$
29


$
48


$
31       Resort
    Finance
  2008


2007


2006(In millions)Revenues

$
131


$
137


$
118Net interest margin

$
76


$
68


$
61Selling and administrative expenses


23



23



23Provision for losses


30



(6
)


6Segment income

$
23


$
51


$
32      29




---



##### Table of Contents



Golf
    Finance
  2008


2007


2006(In millions)Revenues

$
126


$
138


$
132Net interest margin

$
51


$
62


$
54Selling and administrative expenses


25



19



19Provision for losses


43



5



3Segment (loss) income

$
(17
)

$
38


$
32     Form 10-K.
  Asset-Based
    Lending
  2008


2007


2006(In millions)Revenues

$
71


$
94


$
90Net interest margin

$
41


$
47


$
51Selling and administrative expenses


25



24



23Provision for losses


21



2



16Segment (loss) income

$
(5
)

$
21


$
12      30




---



##### Table of Contents



Structured
    Capital
  2008


2007


2006(In millions)Revenues

$
11


$
33


$
38Net interest margin

$
1


$
20


$
21Selling and administrative expenses


4



4



4Segment (loss) income

$
(3
)

$
16


$
17     FSP 13-2
  Corporate
    and Other
  2008


2007


2006(In millions)Revenues

$
3


$
7


$
19Net interest margin

$
1


$
(15
)

$
6Selling and administrative expenses


9



18



22Provision for losses


(2
)


5



(3
)Segment loss

$
(6
)

$
(38
)

$
(13
)   Form 10-K
  Form 10-K
  Item 7A.
    Quantitative
    and Qualitative Disclosure about Market Risk  Form 10-K.
 31




---



##### Table of Contents



Item 8.
    Financial
    Statements and Supplementary Data  REPORT OF
    MANAGEMENT
  Form 10-K. Rules 13a-15(f).
      Buell
    J. Carter, Jr.
       Thomas
    J. Cullen
       32




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
    INTERNAL CONTROL OVER FINANCIAL REPORTING
  To the Board of Directors
 Textron Financial Corporation
              
     33




---



##### Table of Contents



REPORT OF
    INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
  To the Board of Directors
 Textron Financial Corporation
          No. 13-2,
  
     34




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF INCOME
    2008


2007


2006(In millions)Finance charges

$
558


$
671


$
652Securitization gains


42



62



42Rental revenues on operating leases


34



34



32Other income


89



108



72Total revenues


723



875



798Interest expense


307



397



351Depreciation of equipment on operating leases


18



18



17Net interest margin


398



460



430Provision for losses


234



33



26Selling and administrative expenses


214



205



194(Loss) income from continuing operations before special
    charges and income taxes


(50
)


222



210Valuation allowance on finance receivables held for sale


293







Goodwill impairment


169







Restructuring charges


27







(Loss) income from continuing operations before income
    taxes


(539
)


222



210Income tax (benefit) expense


(78
)


77



57(Loss) income from continuing operations


(461
)


145



153Loss from discontinued operations, net of income tax benefit










(1
)Net (loss) income

$
(461
)

$
145


$
152    35




---



##### Table of Contents



CONSOLIDATED
    BALANCE SHEETS
  January 3,


December 29,2009


2007(In millions)AssetsCash and equivalents

$
16


$
60Finance receivables held for investment, net of unearned income:Installment contracts


2,787



2,052Revolving loans


1,208



2,254Golf course and resort mortgages


1,206



1,240Distribution finance receivables


647



1,900Finance leases


608



613Leveraged leases


459



544Total finance receivables held for investment


6,915



8,603Allowance for losses on finance receivables held for investment


(191
)


(89
)Finance receivables held for investment  net


6,724



8,514Finance receivables held for sale


1,658



Equipment on operating leases  net


247



259Goodwill






169Other assets


699



381Total assets

$
9,344


$
9,383Liabilities and shareholders equityLiabilitiesAccrued interest and other liabilities

$
379


$
437Amounts due to Textron Inc.


161



25Deferred income taxes


337



472Debt


7,388



7,311Total liabilities


8,265



8,245Shareholders equityCapital surplus


1,217



592Investment in parent company preferred stock


(25
)


(25
)Accumulated other comprehensive (loss) income


(55
)


26Retained (deficit) earnings


(58
)


545Total shareholders equity


1,079



1,138Total liabilities and shareholders equity

$
9,344


$
9,383    36




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CASH FLOWS
    2008


2007


2006(In millions)Cash flows from operating activities:Net (loss) income

$
(461
)

$
145


$
152Loss from discontinued operations










1(Loss) income from continuing operations


(461
)


145



153Adjustments to reconcile (loss) income from continuing
    operations to net cash provided by operating activities:Valuation allowance on finance receivables held for sale


293







Provision for losses


234



33



26Goodwill impairment


169







Deferred income tax provision


(94
)


(7
)


38(Decrease) increase in accrued interest and other liabilities


(66
)


36



66Depreciation


29



28



28Restructuring charges


23







Amortization


11



12



11Collections in excess of non-cash gains on securitizations and
    syndications


11



(4
)


8Other  net


18



19



8Net cash provided by operating activities of continuing
    operations


167



262



338Net cash used by operating activities of discontinued operations










(13
)Net cash provided by operating activities


167



262



325Cash flows from investing activities:Finance receivables originated or purchased


(11,879
)


(13,124
)


(12,240
)Finance receivables repaid


11,245



11,863



10,205Proceeds from receivable sales, including securitizations


631



994



513Proceeds from disposition of operating leases and other assets


40



55



66Purchase of assets for operating leases


(26
)


(49
)


(66
)Other investments


(67
)


(10
)


18Net cash used in acquisitions










(164
)Other capital expenditures


(8
)


(10
)


(12
)Net cash used by investing activities of continuing
    operations


(64
)


(281
)


(1,680
)Cash flows from financing activities:Proceeds from issuance of long-term debt


1,161



1,878



1,853Principal payments on long-term debt


(1,307
)


(1,248
)


(1,049
)Proceeds from issuance of securitized on-balance sheet debt


300







Net (decrease) increase in commercial paper


(668
)


(315
)


532Net increase in amounts due to Textron Inc.


133







Net increase (decrease) in other short-term debt


19



(55
)


47Proceeds from issuance of nonrecourse debt










142Principal payments on nonrecourse debt


(267
)


(96
)


(72
)Capital contributions from Textron Inc.


634



9



27Dividends paid to Textron Inc.


(151
)


(144
)


(89
)Net cash (used) provided by financing activities of
    continuing operations


(146
)


29



1,391Effect of exchange rate changes on cash


(1
)


3



1Net cash (used) provided by continuing operations


(44
)


13



50Net cash used by discontinued operations










(13
)Net (decrease) increase in cash and equivalents


(44
)


13



37Cash and equivalents at beginning of year


60



47



10Cash and equivalents at end of year

$
16


$
60


$
47    37




---



##### Table of Contents



CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
    Investment


AccumulatedIn Parent


OtherCompany


Comprehensive


Retained


TotalCapital


Preferred


Income


Earnings


ShareholdersSurplus


Stock


(Loss)


(Deficit)


Equity(In millions)Balance December 31, 2005

$
574


$
(25
)

$
5


$
496


$
1,050Comprehensive income:Net income














152



152Other comprehensive income:Foreign currency translation










1







1Change in unrealized net losses on hedge contracts, net of
    income taxes










5







5Change in unrealized net gains on interest-only securities, net
    of income taxes










(4
)






(4
)Other comprehensive income










2







2Comprehensive income


















154Capital contributions from Textron Inc.


27















27Dividends to Textron Inc.


(9
)










(80
)


(89
)Balance December 30, 2006


592



(25
)


7



568



1,142Comprehensive income:Net income














145



145Other comprehensive income:Foreign currency translation










19







19Change in unrealized net losses on hedge contracts, net of
    income taxes










2







2Change in unrealized net gains on interest-only securities, net
    of income taxes










(2
)






(2
)Other comprehensive income










19







19Comprehensive income


















164Cumulative effect of a change in accounting principle














(33
)


(33
)Capital contributions from Textron Inc.


9















9Dividends to Textron Inc.


(9
)










(135
)


(144
)Balance December 29, 2007


592



(25
)


26



545



1,138Comprehensive loss:Net loss














(461
)


(461
)Other comprehensive loss:Foreign currency translation, net of income taxes










(79
)






(79
)Change in unrealized net losses on hedge contracts, net of
    income taxes










(1
)






(1
)Change in unrealized net gains on interest-only securities, net
    of income taxes










(1
)






(1
)Other comprehensive loss










(81
)






(81
)Comprehensive loss


















(542
)Capital contributions from Textron Inc.


634















634Dividends to Textron Inc.


(9
)










(142
)


(151
)Balance January 3, 2009

$
1,217


$
(25
)

$
(55
)

$
(58
)

$
1,079    38




---



##### Table of Contents



NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
  NOTE 1Summary of Significant Accounting Policies
  Nature of
    Operations
  E-Z-GO
    piston-engine E-Z-GO
    Principles
    of Consolidation
    Use of
    Estimates
    Finance
    Charges
   39




---



##### Table of Contents



Finance
    Receivable Origination Fees and Costs
    Other
    Income
    Allowance
    for Losses on Finance Receivables Held for Investment
        Loan
    Impairment
     40




---



##### Table of Contents



Fixed
    Assets
    Equipment
    on Operating Leases
    Goodwill
      Pension
    Benefits and Postretirement Benefits Other than
    Pensions
    Income
    Taxes
     41




---



##### Table of Contents



Securitized
    Transactions
        Derivative
    Financial Instruments
        Fair
    Value of Financial Instruments
   42




---



##### Table of Contents



Finance
    Receivables Held for Sale
      Cash and
    Equivalents
    NOTE 2Other Income
  2008


2007


2006(In millions)Servicing fees

$
43


$
36


$
29Investment income


23



14



15Late charges


4



3



3Prepayment gains


3



7



6Syndication income


2



4



2Other


14



44



17Total other income

$
89


$
108


$
72       NOTE 3Special Charges
  Valuation
    Allowance
   43




---



##### Table of Contents



Goodwill
    Impairment
    Restructuring
    Charges
          Severance


Contract


AssetCosts


Terminations


Impairments


Total(In millions)Additions

$
15


$
1


$
11


$
27Cash Paid


(4
)










(4
)Non cash utilization










(11
)


(11
)Balance at January 3, 2009

$
11


$
1


$



$
12   NOTE 4Relationship with Textron Inc.
   44




---



##### Table of Contents



NOTE 5Finance Receivables  Terms and
    Concentrations
  Managed
    and Serviced Finance Receivables
    2008


2007(In millions)Total managed and serviced finance receivables

$
12,173


$
12,478Nonrecourse participations


(820
)


(760
)Third-party portfolio servicing


(532
)


(595
)Total managed finance receivables


10,821



11,123Securitized finance receivables


(2,248
)


(2,520
)Finance receivables


8,573



8,603Finance receivables held for sale


(1,658
)


Finance receivables held for investment

$
6,915


$
8,603      45




---



##### Table of Contents



Finance
    Receivable Terms
           46




---



##### Table of Contents



Concentrations
    2008


2007(Dollars in millions)United States:Southeast

$
2,728



25
%

$
2,782



25
%West


1,667



16
%


1,823



16
%Southwest


1,419



13
%


1,546



14
%Midwest


1,294



12
%


1,306



12
%Mideast


952



9
%


974



9
%Northeast


256



2
%


289



2
%Total United States

$
8,316



77
%

$
8,720



78
%Canada


963



9
%


1,062



10
%Mexico


414



4
%


383



3
%South America


396



3
%


342



3
%Other international


732



7
%


616



6
%Total managed finance receivables

$
10,821



100
%

$
11,123



100
%     2008


2007(Dollars in millions)General aviation

$
2,822



26
%

$
2,475



22
%Golf


1,696



16
%


1,680



15
%Resort


1,636



15
%


1,506



13
%Marine


808



7
%


783



7
%Powersports


534



5
%


590



5
%Manufactured housing


443



4
%


487



4
%Transportation


404



4
%


437



4
%Recreational vehicles


403



4
%


526



5
%Outdoor power equipment


315



3
%


301



3
%Finance company services


177



2
%


318



3
%Information technology equipment


154



1
%


220



2
%Real estate


110



1
%


170



2
%Other


1,319



12
%


1,630



15
%Total managed finance receivables

$
10,821



100
%

$
11,123



100
%  47




---



##### Table of Contents



NOTE 6
    Finance
    Receivables Held for Investment  Portfolio
    Maturities
    2009


2010


2011


2012


2013


Thereafter


Total(In millions)Installment contracts

$
392


$
351


$
354


$
362


$
358


$
970


$
2,787Revolving loans


226



200



444



249



61



28



1,208Golf course and resort mortgages


191



132



256



170



148



309



1,206Distribution finance receivables


468



144



25



4



5



1



647Finance leases


151



145



97



81



23



111



608Leveraged leases


46



(2
)


17



(11
)


(11
)


420



459Total finance receivables held for investment

$
1,474


$
970


$
1,193


$
855


$
584


$
1,839


$
6,915     Leveraged
    Leases
  2008


2007(In millions)Rental receivable

$
1,252


$
1,561Nonrecourse debt


(759
)


(1,030
)Estimated residual values of leased assets


229



297722



828Less unearned income


(263
)


(284
)Investment in leveraged leases


459



544Deferred income taxes


(350
)


(408
)Net investment in leveraged leases

$
109


$
136       2008


2007


2006(In millions)Income recognized

$
4


$
11


$
39Income tax expense


(1
)


(4
)


(11
)Income from leveraged leases

$
3


$
7


$
28   No. 13-2 (FSP 13-2). FSP 13-2 FSP 13-2
 48




---



##### Table of Contents



FSP 13-2
  Finance
    Leases
  2008


2007(In millions)Total minimum lease payments receivable

$
557


$
568Estimated residual values of leased equipment


259



267816



835Less unearned income


(208
)


(222
)Net investment in finance leases

$
608


$
613     Loan
    Impairment
    2008


2007(In millions)Impaired nonaccrual finance receivables

$
234


$
59Impaired accrual finance receivables


19



143Total impaired finance receivables

$
253


$
202Impaired nonaccrual finance receivables with identified reserve
    requirements

$
182


$
40Allowance for losses on impaired nonaccrual finance receivables

$
43


$
15  49




---



##### Table of Contents



2008


2007(In millions)Impaired nonaccrual finance receivables

$
234


$
59Nonaccrual homogeneous finance receivables


43



20Total nonaccrual finance receivables


277



79Repossessed assets and properties


84



44Total nonperforming assets

$
361


$
123         Allowance
    for Losses on Finance Receivables Held for Investment
    2008


2007


2006(In millions)Balance at beginning of year

$
89


$
93


$
96Provision for losses


234



33



26Charge-offs


(98
)


(49
)


(40
)Recoveries


12



12



11Transfer to valuation allowance on finance receivables held for
    sale


(44
)






Foreign currency translation


(2
)






Balance at end of year

$
191


$
89


$
93   NOTE 7Receivable Securitizations
   50




---



##### Table of Contents



2008


2007


2006(In millions)Net pre-tax gains

$
42


$
62


$
42Proceeds from securitizations

$
473


$
731


$
50Cash flows received on retained interests


126



71



63Servicing fees received


39



32



27Cash paid for loan repurchases






17



15     Distribution
    Finance
    Assumptions at





10%


20%Date


Assumptions at


Adverse


Adverse(Dollars in millions)

of Sale


Year-End


Change


ChangeWeighted-average life (in years)


.4



.4


$



$
Expected credit losses (annual rate)


1.0
%


1.3
%


(2
)


(5
)Residual cash flows discount rate


7.3
%


13.7
%






Monthly payment rate


19.4
%


18.4
%


(3
)


(6
)  51




---



##### Table of Contents



At January 3, 2009


Year Ended January 3, 2009AggregateTotal


ContractPrincipal


Value 60











CreditAmount


Days or


60+ Day





Net


Lossesof Loans


More


Delinquency


Average


Credit


AnnualType of Finance Receivable

and Leases


Past Due


Percentage


Balances


Losses


Percentage(Dollars in millions)Distribution finance receivables

$
3,379


$
70



2.1
%

$
3,778


$
69



1.8
%Consisting of:Loans held in portfolio

$
1,173


$
46Loans securitized


2,206



24Total loans held and securitized

$
3,379


$
70     NOTE 8Equipment on Operating Leases
  2008


2007(In millions)Equipment on operating leases, at cost:Aircraft.

$
274


$
279Golf cars


30



28Accumulated depreciation:Aircraft.


(50
)


(43
)Golf cars


(7
)


(5
)Equipment on operating leases  net

$
247


$
259     NOTE 9Goodwill
  2008


2007(In millions)Resort Finance

$



$
110Asset-Based Lending






43Aviation Finance






16$



$
169    52




---



##### Table of Contents



NOTE 10Other Assets
  2008


2007(In millions)Retained interests in securitizations

$
200


$
203Other long-term investments


96



32Investments in other marketable securities


95



20Repossessed assets and properties


88



44Fixed assets  net


24



33Other


196



49Total other assets

$
699


$
381          53




---



##### Table of Contents



NOTE 11Debt and Credit Facilities
  2008


2007(In millions)Short-term debt:Commercial paper

$
743


$
1,447Other short-term debt


25



14Total short-term debt


768



1,461Long-term debt:Fixed-rate notesDue 2008 (weighted-average rate of 4.15%)






654Due 2009 (weighted-average rates of 5.62% and 5.60%,
    respectively)


698



726Due 2010 (weighted-average rates of 4.82% and 4.83%,
    respectively)


1,018



1,007Due 2011 (weighted-average rates of 5.04% and 5.05%,
    respectively)


452



442Due 2012 (weighted-average rates of 4.43% and 4.39%,
    respectively)


52



42Due 2013 (weighted-average rates of 5.19% and 4.39%,
    respectively)


478



42Due 2014 and thereafter (weighted-average rates of 5.68% and
    5.44%, respectively)


152



135Total fixed-rate notes


2,850



3,048Variable-rate notesDue 2008 (weighted-average rate 5.23%)






605Due 2009 (weighted-average rates of 2.78% and 5.22%,
    respectively)


836



825Due 2010 (weighted-average rates of 3.09% and 5.18%,
    respectively)


1,297



906Due 2011 (weighted-average rates of 3.40% and 5.15%,
    respectively)


275



150Due 2013 (weighted-average rate of 3.07%)


100



Total variable-rate notes


2,508



2,486Securitized on-balance sheet debt:Amortization beginning 2009 (3.09%)


853



Subordinated debt:Due 2017 and thereafter (6.00%)


300



300Unamortized discount


(3
)


(4
)Fair value adjustments


112



20Total long-term, securitized on-balance sheet and subordinated
    debt


6,620



5,850Total debt

$
7,388


$
7,311    54




---



##### Table of Contents



Commercial





Amount NotPaper





Reserved asOutstanding/





Support forTextron


Letters of Credit


Commercial PaperFacility


Intercompany


Issued under


and Letters ofAmount


Loan


Facility


Credit(In millions)Textron Financial multi-year facility expiring in 2012

$
1,750


$
876


$
10


$
864Textron multi-year facility expiring in 2012


1,250



734



18



498Total

$
3,000


$
1,610


$
28


$
1,362     2008


2007


2006Commercial paper:USD


5.64
%


5.19
%


5.39
%CAD






4.48
%


4.34
%Other short-term debt


1.78
%


4.92
%


4.46
%           and/or
   55




---



##### Table of Contents



NOTE 12Derivative Financial Instruments
   56




---



##### Table of Contents



Notional Amount


Fair Value AmountAssets


Liabilities2008


2007


2008


2007


2008


2007(In millions)Fair Value HedgesInterest Rate Exchange AgreementsFixed-rate debt

$
2,055


$
2,293


$
112


$
20


$



$
(1
)Firm commitments






37















(1
)Fixed-rate receivable


32















(7
)


Net Investment HedgesForeign Currency Forward Exchange AgreementsForeign-dollar functional currency subsidiary equity


139



















Cash Flow HedgesCross-Currency Interest Rate Exchange AgreementsForeign-dollar denominated variable-rate debt


140







21











Foreign-dollar denominated variable-rate receivable


5



5











(1
)


$
2,371


$
2,335


$
133


$
20


$
(8
)

$
(2
)       Notional Amount


Fair Value AmountAssets


Liabilities2008


2007


2008


2007


2008


2007(In millions)Foreign currency forward exchange agreements

$
536


$
16


$



$



$



$
Interest rate exchange agreements


336















(13
)


$
872


$
16


$



$



$
(13
)

$
        57




---



##### Table of Contents



Amount of Gain/(Loss)Gain/(Loss) Location

2008


2007(In millions)Fair Value HedgesInterest rate exchange agreements

Interest expense

$
113


$
37Non-designated HedgesInterest rate exchange agreements

Other income

$
(3
)

$
   Amount ofGain/(Loss) in OtherComprehensiveIncome





Gain/(Loss) Amount2008


2007


Gain/(Loss) Location


2008


2007(In millions)Cash Flow HedgesCross-Currency Interest Rate Exchange Agreement Interest
    impact

$
(5
)

$




Interest expense


$
(2
)


$Foreign exchange impact










Selling and
    administrative expenses



26



Cross-Currency Interest Rate Exchange AgreementInterest impact










Finance charges







Foreign exchange impact










Selling and 
    administrative expenses



(1
)


   NOTE 13Investment in Parent Company Preferred Stock
   58




---



##### Table of Contents



NOTE 14Accumulated Other Comprehensive Income (Loss)
    DeferredForeign


(Losses)


DeferredCurrency


Gains on


GainsTranslation


Hedge


(Losses) onAdjustment


Contracts


Securities


Total(In millions)Balance December 31, 2005

$
7


$
(9
)

$
7


$
5Foreign currency translation


1











1Amortization of deferred loss on terminated hedge contracts, net
    of income taxes of $2.2 million






4







4Net deferred gain on hedge contracts, net of income taxes of
    $0.6 million






1







1Net deferred loss on interest-only securities, net of income tax
    benefit of $2.3 million










(4
)


(4
)Balance December 30, 2006


8



(4
)


3



7Foreign currency translation


19











19Amortization of deferred loss on terminated hedge contracts, net
    of income taxes of $2.9 million






5







5Net deferred loss on hedge contracts, net of income tax benefit
    of $1.6 million






(3
)






(3
)Net deferred loss on interest-only securities, net of income tax
    benefit of $0.9 million










(2
)


(2
)Balance December 29, 2007


27



(2
)


1



26Foreign currency translation, net of income tax benefit of
    $39.7 million


(79
)










(79
)Net deferred loss on hedge contracts, net of income tax benefit
    of $0.8 million






(1
)






(1
)Net deferred loss on interest-only securities, net of income tax
    benefit of $0.2 million










(1
)


(1
)Balance January 3, 2009

$
(52
)

$
(3
)

$



$
(55
)   NOTE 15Income Taxes
    2008


2007


2006(In millions)United States

$
(478
)

$
206


$
198Foreign


(61
)


16



12Total

$
(539
)

$
222


$
210  59




---



##### Table of Contents



2008


2007


2006(In millions)Current:Federal

$
19


$
55


$
7State


(8
)


14



6Foreign


5



15



6Total current income tax expense

$
16


$
84


$
19Deferred:Federal

$
(89
)

$
14


$
36State


1



(10
)


3Foreign


(6
)


(11
)


(1
)Total deferred income tax (benefit) expense


(94
)


(7
)


38Total income tax (benefit) expense

$
(78
)

$
77


$
57       2008


2007


2006Federal statutory income tax rate


(35.0
)%


35.0
%


35.0
%Increase (decrease) in taxes resulting from:State income taxes


(0.8
)


1.0



1.0Foreign tax rate differential


3.7



(3.3
)


(4.0
)Canadian dollar functional currency






(1.0
)


(5.5
)Change in state valuation allowance


(1.4
)


0.3



1.6Tax contingencies


2.5



4.0



2.7Tax credits


(0.7
)


(1.1
)


(2.1
)Goodwill impairment


9.8







Change in status of foreign subsidiary


7.6







Other, net


(0.1
)






(1.4
)Effective income tax rate


(14.4
)%


34.9
%


27.3
%        60




---



##### Table of Contents



2008


2007(In millions)Balance  Beginning of year

$
9


$
9Additions for tax positions of the current year






2Additions for tax positions of prior years






Reductions for tax positions of prior years


(3
)


(2
)Settlements






Balance  End of year

$
6


$
9    61




---



##### Table of Contents



non-U.S. income
    2008


2007(In millions)Deferred tax assets:Valuation allowance on finance receivables held for sale

$
131


$
Allowance for losses on finance receivables held for investment


75



31Foreign currency translation


29



Deferred origination fees


12



10Nonaccrual finance receivables


9



5State net operating losses


3



15Other


72



56Total deferred tax assets


331



117Valuation allowance for deferred tax assets


(27
)


(11
)Net deferred tax assets


304



106Deferred tax liabilities:Leveraged leases


350



408Finance leases


138



66Equipment on operating leases


63



55Change in status of foreign subsidiary


36



Other


54



49Total deferred tax liabilities


641



578Net deferred tax liabilities

$
337


$
472     NOTE 16Fair Value of Financial Instruments
  No. 157-2, No. 157-2
 62




---



##### Table of Contents



Assets
    Recorded at Fair Value on a Recurring Basis
    January 3, 2009Quoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsTotal


(Level 1)


(Level 2)


(Level 3)(In millions)AssetsDerivative financial instruments, net

$
112


$



$
112


$
Interest-only securities


12











12Total assets

$
124


$



$
112


$
12   Derivatives
    Interest-Only
    Securities
   63




---



##### Table of Contents



Changes
    in Fair Value for Unobservable Input
    Interest-Only Securities

2008(In millions)Balance, beginning of period

$
43Net gains for the period:Increase due to securitization gains on sale of finance
    receivables


66Change in value recognized in Other income


2Reclassification to Finance receivables held for investment


(19
)Impairment charges


(21
)Collections


(59
)Balance, end of period

$
12   Assets
    Recorded at Fair Value on a Nonrecurring Basis
    January 3, 2009Quoted Prices in


Significant Other


SignificantActive Markets for


Observable


UnobservableIdentical Assets


Inputs


InputsTotal


(Level 1)


(Level 2)


(Level 3)(In millions)AssetsFinance receivables held for sale

$
1,658


$



$



$
1,658Impaired loans


191











191Total assets

$
1,849


$



$



$
1,849   Finance
    Receivables Held for Sale
     64




---



##### Table of Contents



and/or
  Impaired
    Loans
    Assets
    and Liabilities Not Recorded at Fair Value
    January 3, 2009


December 29, 2007Carrying


Estimated


Carrying


EstimatedValue


Fair Value


Value


Fair Value(In millions)Assets:Installment contracts

$
2,748


$
2,408


$
2,023


$
2,025Revolving loans


1,170



986



2,232



2,235Golf course and resort mortgages


1,150



931



1,225



1,235Distribution finance receivables


597



503



1,883



1,883Retained interests in securitizations, excluding interest-only
    securities


188



178



160



160Investment in other marketable securities


95



78



20



20$
5,948


$
5,084


$
7,543


$
7,558Liabilities:Fixed-rate debt

$
2,959


$
2,518


$
3,063


$
3,091Variable-rate debt


2,508



2,292



2,487



2,458Securitized on-balance sheet debt


853



824







Short-term debt


768



768



1,461



1,461Subordinated debt


300



105



300



278Amounts due to Textron Inc.


161



156



25



21$
7,549


$
6,663


$
7,336


$
7,309   Finance
    Receivables
   65




---



##### Table of Contents



and/or
  Retained
    Interests in Securitizations, Excluding Interest-Only
    Securities
    Investments
    in Other Marketable Securities
    Debt
    NOTE 17Commitments
     66




---



##### Table of Contents



(In millions)Commitments to extend credit:Committed revolving lines of credit

$
1,242Standby letters of credit


59Loans


95     NOTE 18Contingencies
      NOTE 19Financial Information about Operating Segments
      67




---



##### Table of Contents



2008


2007


2006(Dollars in millions)Revenues:Distribution Finance

$
207



29
%

$
290



33
%

$
268



34
%Aviation Finance


174



24
%


176



20
%


133



17
%Resort Finance


131



18
%


137



15
%


118



15
%Golf Finance


126



17
%


138



16
%


132



16
%Asset-Based Lending


71



10
%


94



11
%


90



11
%Structured Capital


11



2
%


33



4
%


38



5
%Corporate and Other


3




%


7



1
%


19



2
%Total revenues

$
723



100
%

$
875



100
%

$
798



100
%(Loss) income from continuing operations before special charges
    and income taxes: (1)(2)Distribution Finance

$
(71
)





$
86






$
99Aviation Finance


29







48







31Resort Finance


23







51







32Golf Finance


(17
)






38







32Asset-Based Lending


(5
)






21







12Structured Capital


(3
)






16







17Corporate and Other


(6
)






(38
)






(13
)(Loss) income from continuing operations before special
    charges and income taxes

$
(50
)





$
222






$
210Valuation allowance on finance receivables held for sale


293















Goodwill impairment


169















Restructuring charges


27















(Loss) income from continuing operations before income
    taxes

$
(539
)





$
222






$
210Finance assets: (3)Aviation Finance

$
3,035






$
2,279






$
1,776Resort Finance


1,678







1,521







1,296Golf Finance


1,545







1,680







1,524Distribution Finance


690







1,936







2,422Structured Capital


603







631







756Asset-Based Lending










1,004







864Corporate and Other


90







109







170Total finance assets

$
7,641






$
9,160






$
8,808     (1)
    
    Interest expense is allocated to each segment in proportion to
    its net investment in finance assets. Net investment in finance
    assets includes finance assets less deferred income taxes,
    security deposits and other specifically identified liabilities.
    The interest allocated matches all variable-rate finance assets
    with variable-rate debt costs and all fixed-rate finance assets
    with fixed-rate debt costs and includes only debt issued during 68




---



##### Table of Contents



historical periods with credit spreads consistent with those in
    existence during the periods in which the current receivable
    portfolio was originated. If this allocation results in greater
    or less interest expense than was actually incurred by the
    Company, the remaining balance is included in the Corporate and
    Other segments interest expense.Prior to 2007, we allocated 100% of the interest expense
    recognized to the Companys operating segments without
    adjustment. In addition, the allocation was determined, to the
    extent possible, based on matching variable-rate debt with
    variable-rate finance assets and fixed-rate debt with fixed-rate
    finance assets. Any excess floating-rate debt was allocated to
    fixed-rate finance assets. A change in the allocation
    methodology was made in 2007 to measure the results of each
    segment more consistently with the economic characteristics of
    its existing portfolio, which coincided with a change in how
    management internally evaluates segment operating performance.
    The 2006 results have not been restated under the new
    methodology. This change had a $(3) million and
    $13 million effect on the collective results of the six
    other portfolio segments for the twelve months ended
    January 3, 2009 and December 29, 2007, respectively.(2)
    
    Indirect expenses are allocated to each segment based on the use
    of such resources. Most allocations are based on the
    segments proportion of net investment in finance assets,
    headcount, number of transactions, computer resources and senior
    management time.(3)
    
    Finance assets include: finance receivables held for investment;
    equipment on operating leases, net of accumulated depreciation;
    repossessed assets and properties; retained interests in
    securitizations; investment in equipment residuals; acquisition,
    development and construction arrangements; investments in other
    marketable securities and other short- and long-term investments
    (some of which are classified in Other assets on Textron
    Financials Consolidated Balance Sheets).  NOTE 20Quarterly Financial Data (Unaudited)
  First


Second


Third


FourthQuarter


Quarter


Quarter


Quarter2008


2007


2008


2007


2008


2007


2008


2007(In millions)Revenues

$
214


$
210


$
177


$
239


$
184


$
214


$
148


$
212Net interest margin

$
123


$
106


$
102


$
133


$
109


$
113


$
64


$
108Selling and administrative expenses


54



49



49



54



57



53



54



49Provision for losses


27



5



40



11



34



6



133



11Income (loss) from continuing operations before special
    charges and income taxes


42



52



13



68



18



54



(123
)


48Valuation allowance on finance receivables held for sale


























293



Goodwill impairment


























169



Restructuring charges


























27



Income (loss) from continuing operations before income
    taxes


42



52



13



68



18



54



(612
)


48Income tax expense (benefit)


11



17



9



27



4



22



(102
)


11Net income (loss)

$
31


$
35


$
4


$
41


$
14


$
32


$
(510
)

$
37  69




---



##### Table of Contents



Item 9.Changes in and Disagreements with Accountants on Accounting and
    Financial Disclosure   Item 9A.
    Controls and Procedures  Rule 13a-15(e) 15d-15(e))
  a)
    See Report of Management in Item 8 of this
    Form 10-K.b)
    See the Reports of Independent Registered Public Accounting Firm
    in Item 8 of this
    Form 10-K.c)
    Changes in Internal Controls  There has been no
    change in our internal control over financial reporting during
    the fourth fiscal quarter of the fiscal year covered by this
    report that has materially affected, or is reasonably likely to
    materially affect, our internal control over financial reporting. Item 9B.Other Information   PART III. Item 10.Directors and Executive Officers of the Registrant  Form 10-K.
 Item 11.Executive Compensation  Form 10-K.
 Item 12.Security Ownership of Certain Beneficial Owners and
    Management  Form 10-K.
 Item 13.Certain Relationships and Related Transactions  Form 10-K.
 Item 14.Principal Accounting Fees and Services    Audit Fees  Forms 10-Q,
  Audit Related Fees
 70




---



##### Table of Contents



Tax Fees
  All Other Fees
 PART IV. Item 15.Exhibits, Financial Statement Schedules  (1) List
    of Financial Statements and Financial Statement
    Schedules
    1.
    Consolidated Statements of Income for each of the years in the
    three-year period ended January 3, 2009.      4.
    Consolidated Statements of Changes in Shareholders Equity
    for each of the years in the three-year period ended
    January 3, 2009.5.
    Notes to the Consolidated Financial Statements.    (2)
    Exhibits  Regulation S-K
  ExhibitNo.3
.1

Restated Certificate of Incorporation of Textron Financial,
    dated July 19, 1993. Incorporated by reference to
    Exhibit 3.1 to Textron Financial Corporations
    Registration Statement on Form 10 (File
    No. 0-27559).3
.2

By-Laws of Textron Financial Corporation as of May 2, 2000.
    Incorporated by reference to Exhibit 3.1 to Textron
    Financial Corporations Quarterly Report on
    Form 10-Q
    filed August 11, 2000.4
.1A

Indenture dated as of December 9, 1999, between Textron
    Financial Corporation and SunTrust Bank (formerly known as Sun
    Trust Bank, Atlanta) (including form of debt securities).
    Incorporated by reference to Exhibit 4.1 to Amendment
    No. 2 to Textron Financial Corporations Registration
    Statement on
    Form S-3
    (No. 333-88509).4
.1B

First Supplemental Indenture dated November 16, 2006
    between Textron Financial Corporation and U.S. Bank National
    Association (successor to SunTrust Bank) to Indenture dated as
    of December 9, 1999. Incorporated by reference to
    Exhibit 4.3 to Textron Financial Corporations
    Registration Statement on
    Form S-3
    (File
    No. 333-138755).4
.1C

Form of Medium-Term Note of Textron Financial Corporation.
    Incorporated by reference to Exhibit 4.3 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed November 17, 2006.4
.2A

Indenture dated as of November 30, 2001, between Textron
    Financial Canada Funding Corp. and SunTrust Bank, guaranteed by
    Textron Financial Corporation. Incorporated by reference to
    Exhibit 4.2 to Amendment No. 1 to Textron Financial
    Corporations Registration Statement on
    Form S-3
    (No. 333-108464). 71




---



##### Table of Contents



ExhibitNo.4
.2B

First Supplemental Indenture dated November 16, 2006
    between Textron Financial Canada Funding Corp., Textron
    Financial Corporation and U.S. Bank National Association
    (successor trustee to SunTrust Bank) to Indenture dated
    November 30, 2001. Incorporated by reference to
    Exhibit 4.4 to Textron Financial Corporations
    Registration Statement on
    Form S-3
    (File
    No. 333-138755).4
.2C

Form of Medium-Term Note of Textron Financial Canada Funding
    Corp., including the form of the Guaranty by Textron Financial
    Corporation. Incorporated by reference to Exhibit 4.4 to
    Textron Financial Corporations Current Report on
    Form 8-K
    filed November 17, 2006.4
.3A

Amended and Restated Indenture, dated as of May 26, 2005,
    by and between Textron Financial Floorplan Master Note Trust and
    The Bank of New York, as indenture trustee. Incorporated herein
    by reference to Exhibit 4.1 to Textron Financial
    Corporations Current Report on
    Form 8-K
    filed June 1, 2005.4
.3B

Amended and Restated
    Series 2001-1
    Supplement, dated as of May 26, 2005, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer,
    incorporated herein by reference to Exhibit 4.2 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed June 1, 2005.4
.3C

Series 2005-A
    Supplement, dated as of May 26, 2005, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer,
    incorporated herein by reference to Exhibit 4.3 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed June 1, 2005.4
.3D

Series 2006-A
    Supplement, dated as of April 19, 2006, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer,
    incorporated herein by reference to Exhibit 4.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed April 24, 2006.4
.3E

Series 2007-A
    Supplement, dated as of March 29, 2007, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer,
    incorporated herein by reference to Exhibit 4.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed March 30, 2007.4
.3F

Amended and Restated Trust Agreement, dated as of
    May 26, 2005, among Textron Financial, Textron Receivables
    Corporation III and SunTrust Delaware Trust Company,
    as owner trustee, incorporated herein by reference to
    Exhibit 99.1 of Textron Financial Corporations
    Current Report on
    Form 8-K
    filed June 1, 2005.4
.4A

Indenture, dated as of February 8, 2007, between Textron
    Financial Corporation and Deutsche Bank Trust Company
    Americas, as trustee, incorporated herein by reference to
    Exhibit 99.1 of Textron Financial Corporations
    Current Report on
    Form 8-K
    filed February 13, 2007.4
.4B

Contribution Agreement, dated February 8, 2007, between
    Textron Financial Corporation and Textron Inc, incorporated
    herein by reference to Exhibit 99.2 of Textron Financial
    Corporations Current Report on
    Form 8-K
    filed February 13, 2007.4
.4C

Replacement Capital Covenant, dated February 8, 2007,
    incorporated herein by reference to Exhibit 99.3 of Textron
    Financial Corporations Current Report on
    Form 8-K
    filed February 13, 2007.4
.5A

Series 2008-CP-1
    Supplement, dated as of March 20, 2008, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer.
    Incorporated by reference to Exhibit 4.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed March 26, 2008.4
.5B

Series 2008-CP-2
    Supplement, dated as of May 13, 2008, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer.
    Incorporated by reference to Exhibit 4.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed May 15, 2008.4
.5C

Amendment No. 1, dated as of May 13, 2008, to
    Series 2008-CP-1
    Supplement, dated as of March 20, 2008, to the Amended and
    Restated Indenture, dated as of May 26, 2005, by and among
    Textron Financial Floorplan Master Note Trust, The Bank of New
    York, as indenture trustee, and Textron Financial, as servicer.
    Incorporated by reference to Exhibit 4.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed May 15, 2008. 72




---



##### Table of Contents



ExhibitNo.10
.1

Support Agreement dated as of May 25, 1994, between Textron
    Financial Corporation and Textron Inc. Incorporated by reference
    to Exhibit 10.1 to Textron Financial Corporations
    Statement on Form 10
    (File No. 0-27559).10
.2

Receivables Purchase Agreement between Textron Financial and
    Textron dated as of January 1, 1986. Incorporated by
    reference to Exhibit 10.2 to Textron Financial
    Corporations Statement on Form 10
    (File No. 0-27559).10
.3

Tax Sharing Agreement between Textron Financial and Textron
    dated as of December 29, 1990. Incorporated by reference to
    Exhibit 10.3 to Textron Financial Corporations
    Statement on Form 10 (File
    No. 0-27559).10
.4A

5-Year
    Credit Agreement, dated as of March 28, 2005, among
    Textron, the Banks listed therein, JPMorgan Chase Bank, N.A., as
    Administrative Agent, and Citibank, N.A., as Syndication Agent.
    Incorporated by reference to Exhibit 10.1 to Textrons
    Current Report on
    Form 8-K
    filed March 31, 2005.10
.4B

Amendment No. 1, dated as of April 21, 2006, to the
    5-Year
    Credit Agreement, dated as of March 28, 2005, among
    Textron, the Banks listed therein, JPMorgan Chase Bank, N.A., as
    Administrative Agent, and Citibank, N.A., as Syndication Agent.
    Incorporated by reference to Exhibit 10.1 to Textrons
    Current Report on
    Form 8-K
    filed April 25, 2006.10
.4C

Amendment No. 2, dated as of April 20, 2007, to the
    5-Year
    Credit Agreement, dated as of March 28, 2005, as amended on
    April 21, 2006, among Textron the Banks listed therein,
    JPMorgan Chase Bank, N.A., as Administrative Agent, and
    Citibank, N.A., as Syndication Agent, incorporated herein by
    reference to Exhibit 10.1 of Textron Inc.s Current
    Report on
    Form 8-K
    filed April 25, 2007.10
.5A

364-Day
    Credit Agreement dated March 31, 2003 among Textron Inc.,
    the Banks listed therein, and JPMorgan Chase Bank, as
    Administrative Agent. Incorporated by reference to
    Exhibit 10.3 to Textron Inc.s Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 29, 2003.10
.5B

Amendment, dated as of July 28, 2003, to the
    364-Day
    Credit Agreement among Textron Inc., the Banks listed therein,
    and JPMorgan Chase Bank, as Administrative Agent. Incorporated
    by reference to Exhibit 10.5 to Textron Financial
    Corporations Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2003.10
.5C

Amendment No. 2, dated as of March 29, 2004, to the
    364-day
    Credit Agreement among Textron Inc., the Banks listed therein,
    and JPMorgan Chase Bank, as Administrative Agent. Incorporated
    by reference to Exhibit 10.1 to Textrons Quarterly
    Report on
    Form 10-Q
    for the fiscal quarter ended April 3, 2004.10
.6A

364-Day
    Credit Agreement dated July 28, 2003 among Textron
    Financial Corporation, the Banks listed therein, and JPMorgan
    Chase Bank, as Administrative Agent. Incorporated by reference
    to Exhibit 10.1 to Textron Financial Corporations
    Current Report on
    Form 8-K
    filed August 26, 2003.10
.6B

Amendment, dated as of July 26, 2004, to the
    364-day
    Credit Agreement dated as of July 28, 2003, among Textron
    Financial Corporation, the Banks listed therein, and JPMorgan
    Chase Bank, as Administrative Agent. Incorporated by reference
    to Exhibit 10.1 to Textron Financial Corporations
    Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended September 30, 2004.10
.6C

Amendment No. 2, dated as of July 25, 2005, to the
    364-Day
    Credit Agreement dated as of July 28, 2003, among Textron
    Financial, the Banks listed therein, and JPMorgan Chase Bank
    N.A., as Administrative Agent. Incorporated by reference to
    Exhibit 10.2 to Textron Financial Corporations
    Current Report on
    Form 8-K
    filed July 27, 2005.10
.7A

Five-Year Credit Agreement dated July 28, 2003 among
    Textron Financial Corporation, the Banks listed therein, and
    JPMorgan Chase Bank, as Administrative Agent. Incorporated by
    reference to Exhibit 10.2 to Textron Financial
    Corporations Current Report on
    Form 8-K
    filed August 26, 2003.10
.7B

Amendment No. 1, dated as of July 25, 2005, to the
    Five-Year Credit Agreement dated as of July 28, 2003 among
    Textron Financial, the Banks listed therein, and JPMorgan Chase
    Bank N.A., as Administrative Agent. Incorporated by reference to
    Exhibit 10.1 to Textron Financial Corporations
    Current Report on
    Form 8-K
    filed July 27, 2005.10
.7C

Amendment No. 2, dated as of April 28, 2006, to the
    Five-Year Credit Agreement, dated as of July 28, 2003,
    among Textron Financial Corporation, the Banks listed therein
    and JPMorgan Chase Bank N.A., as Administrative Agent.
    Incorporated by reference to Exhibit 10.1 to Textron
    Financial Corporations Current Report on
    Form 8-K
    filed May 1, 2006. 73




---



##### Table of Contents



ExhibitNo.10
.7D

Amendment No. 3, dated as of April 27, 2007, to the
    Five-Year Credit Agreement, dated as of July 28, 2003, as
    amended on March 28, 2005 and April 28, 2006, among
    Textron Financial Corporation, the Banks listed therein and
    JPMorgan Chase Bank N.A., as Administrative Agent. Incorporated
    by reference to Exhibit 10.1 to Textron Financial
    Corporations Current Report on
    Form 8-K
    filed April 27, 2007.12


Computation of Ratio of Earnings to Fixed Charges.23


Consent of Independent Registered Public Accounting Firm.24


Power of Attorney dated as of February 26, 2009.31
.1

Certification of Chief Operating Officer Pursuant to
    Rule 13a-14(a).31
.2

Certification of Chief Financial Officer Pursuant to
    Rule 13a-14(a).32
.1

Certification of Chief Operating Officer Pursuant to
    18 U.S.C. Section 1350.32
.2

Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350.     Note:
    Instruments defining the rights of holders of certain issues of
    long-term debt of Textron Financial have not been filed as
    exhibits to this Report because the authorized principal amount
    of any one of such issues does not exceed 10% of the total
    assets of Textron Financial and its subsidiaries on a
    consolidated basis. Textron Financial agrees to furnish a copy
    of each such instrument to the Commission upon request.  Textron Financial, Textron, Bell
    Helicopter, Cessna, Cessna Finance Corporation, Textron Business
    Services, Inc., Asset
 Control, a division of Textron
    Business Services, Inc., Textron Golf, Turf and Specialty
    Products,
    E-Z-GO,
    Jacobsen
 turf-care and their related
    trademark designs and logotypes (and variations of the
    foregoing) are trademarks,
 trade names or service marks of
    Textron Inc., its subsidiaries, affiliates or joint
    ventures.
 74




---



##### Table of Contents



SIGNATURES
  Form 10-K
  
  By:
    *       By:
    *      By:
    *     By:
    /s/  Thomas
    J. Cullen      By:
    /s/  Thomas
    N. Nichipor      *By:
    /s/  Elizabeth
    C. Perkins    75