##### Table of Contents



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

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal quarter ended
    June 30, 2009ORo

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   Commission file number
    001-15515
      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, RI(Address of principal
    executive offices)

02940-6687(Zip
    code)   401-621-4200 (Registrants telephone
    number, including area code)
      þ o
  Regulation S-T o o
  12b-2
  Large
    accelerated
    filer o
    Accelerated
    filer o
    Non-accelerated
    filer þ
    Smaller
    reporting
    company o   Rule 12b-2 o þ
    REGISTRANT MEETS THE CONDITIONS SET FORTH IN GENERAL
    INSTRUCTION H (1) (a) AND (b) OF
    FORM 10-Q
    AND IS THEREFORE FILING THIS FORM WITH THE REDUCED
    DISCLOSURE FORMAT




---



##### 



TEXTRON
    FINANCIAL CORPORATION
  TABLE OF
    CONTENTS
   
 PagePART I. FINANCIAL INFORMATIONItem 1. FINANCIAL STATEMENTSConsolidated Statements of Operations for the
    three and six months ended June 30, 2009 and 2008
    (unaudited)


2Consolidated Balance Sheets at June 30, 2009
    and January 3, 2009 (unaudited)


3Consolidated Statements of Cash Flows for the six
    months ended June 30, 2009 and 2008 (unaudited)


4Consolidated Statements of Changes in Equity
    through June 30, 2009 (unaudited)


5Notes to the Consolidated Financial Statements
    (unaudited)


6Item 1A. RISK FACTORS


22Item 2. MANAGEMENTS DISCUSSION AND
    ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


22Item 3. QUANTITATIVE AND QUALITATIVE
    DISCLOSURES ABOUT MARKET RISK


35Item 4. CONTROLS AND PROCEDURES


36PART II. OTHER INFORMATIONItem 6. EXHIBITS


36Ex-12 - Computation of Ratio of Earnings to Fixed ChargesEx-31.1 - Certification of Chief Executive 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 Executive Officer Pursuant to 18 U.S.C. Section 1350Ex-32.2 - Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF OPERATIONS
 (Unaudited)
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Finance charges

$
104


$
127


$
219


$
282Gains on early extinguishment of debt


37







39



Rental revenues on operating leases


7



8



15



17Securitization (losses) gains


(20
)


20



(27
)


40Portfolio (losses) gains


(50
)


(3
)


(60
)


2Other income


8



25



22



50Total revenues


86



177



208



391Interest expense


41



71



95



157Depreciation of equipment on operating leases


4



4



9



9Net interest margin


41



102



104



225Provision for losses


87



40



163



67Selling and administrative expenses


53



49



106



103(Loss) income before special charges, income taxes and
    noncontrolling interest


(99
)


13



(165
)


55Special charges


5







8



(Loss) income before income taxes and noncontrolling
    interest


(104
)


13



(173
)


55Income tax (benefit) expense


(39
)


9



(55
)


20Net (loss) income before noncontrolling interest


(65
)


4



(118
)


35Noncontrolling interest, net of income taxes


1







1



Net (loss) income

$
(66
)

$
4


$
(119
)

$
35    2




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
 (Unaudited)
  June 30,


January 3,2009


2009(In millions)ASSETSCash and equivalents

$
521


$
16Finance receivables held for investment, net of unearned income:Installment contracts


2,622



2,787Revolving loans


1,200



1,208Golf course and resort mortgages


1,133



1,206Distribution finance receivables


932



647Finance leases


560



608Leveraged leases


358



459Total finance receivables held for investment


6,805



6,915Allowance for losses on finance receivables held for investment


(284
)


(191
)Finance receivables held for investment  net


6,521



6,724Finance receivables held for sale


613



1,658Equipment on operating leases  net


235



247Other assets


629



699Total assets

$
8,519


$
9,344LIABILITIES AND EQUITYLiabilitiesAccrued interest and other liabilities

$
348


$
379Amounts due to Textron Inc.


28



161Deferred income taxes


206



337Debt


7,057



7,388Total liabilities


7,639



8,265EquityShareholders equityCapital surplus


1,305



1,217Investment in parent company preferred stock


(25
)


(25
)Accumulated other comprehensive loss


(61
)


(55
)Retained deficit


(361
)


(58
)Total shareholders equity


858



1,079Noncontrolling interest


22



Total equity


880



1,079Total liabilities and equity

$
8,519


$
9,344    3




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CASH FLOWS
 SIX
    MONTHS ENDED JUNE 30, 2009 AND 2008
 (Unaudited)
  2009


2008(In millions)Cash flows from operating activities:Net (loss) income

$
(119
)

$
35Net income attributable to noncontrolling interest


1



Net (loss) income before noncontrolling interest


(118
)


35Adjustments to reconcile net (loss) income before noncontrolling
    interest to net cash provided by operating activities:Provision for losses


163



67Deferred income tax provision


(123
)


(41
)Increase in income taxes payable


73



6Portfolio losses


60



3Gains on early extinguishment of debt


(39
)


Impairments/gains in excess of collections on securitizations
    and syndications


21



(9
)Depreciation and amortization


19



19Decrease in accrued interest and other liabilities


(18
)


(14
)Other  net


34



17Net cash provided by operating activities


72



83Cash flows from investing activities:Finance receivables originated or purchased


(2,234
)


(6,338
)Finance receivables repaid


2,905



5,690Proceeds from receivable sales, including securitizations


184



617Proceeds from disposition of other assets, including repossessed
    assets and properties and operating leases


134



16Other investments


60



(105
)Purchase of assets for operating leases


(6
)


(14
)Net cash provided (used) by investing activities


1,043



(134
)Cash flows from financing activities:Proceeds from line of credit


1,740



Proceeds from issuance of long-term debt






822Principal payments on long-term debt


(877
)


(833
)Net decrease in commercial paper


(743
)


(103
)Net (decrease) increase in other short-term debt


(16
)


55Proceeds from issuance of secured debt


16



300Principal payments on secured debt


(384
)


Principal payments on nonrecourse debt


(144
)


(53
)Net decrease in intercompany loan due to Textron Inc.


(133
)


Proceeds from sale of noncontrolling interest


21



Capital contributions from Textron Inc.


93



5Dividends paid to Textron Inc.


(189
)


(147
)Net cash (used) provided by financing activities


(616
)


46Effect of exchange rate changes on cash


6



1Net increase (decrease) in cash and equivalents


505



(4
)Cash and equivalents at beginning of year


16



60Cash and equivalents at end of period

$
521


$
56    4




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION



CONSOLIDATED
    STATEMENTS OF CHANGES IN EQUITY

(Unaudited)  Investment


Accumulatedin Parent


Other





TotalCompany


Comprehensive


Retained


Share-Capital


Preferred


Income


Earnings


holders


Noncontrolling


TotalSurplus


Stock


(Loss)


(Deficit)


Equity


Interest


EquityBalance December 29, 2007

$
592


$
(25
)

$
26


$
545


$
1,138


$



$
1,138Comprehensive loss:Net loss














(461
)


(461
)






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










(79
)






(79
)






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










(1
)






(1
)






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










(1
)






(1
)






(1
)Other comprehensive loss










(81
)






(81
)






(81
)Comprehensive loss


















(542
)






(542
)Capital contributions from Textron Inc.


634















634







634Dividends to Textron Inc.


(9
)










(142
)


(151
)






(151
)Balance January 3, 2009


1,217



(25
)


(55
)


(58
)


1,079







1,079Comprehensive loss:Net (loss) income














(119
)


(119
)


1



(118
)Other comprehensive loss:Change in unrealized net losses on retained interests, net of
    income tax benefit










(9
)






(9
)






(9
)Foreign currency translation, net of income taxes










3







3







3Other comprehensive loss










(6
)






(6
)






(6
)Comprehensive loss


















(125
)






(125
)Capital contributions from Textron Inc.


93















93







93Dividends to Textron Inc.


(5
)










(184
)


(189
)






(189
)Sale of noncontrolling interest






















21



21Balance June 30, 2009

$
1,305


$
(25
)

$
(61
)

$
(361
)

$
858


$
22


$
880    5




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 1.
    Basis of
    Presentation  Form 10-K
  E-Z-GO
  Note 2.
    Recent
    Accounting Pronouncements      Note 3.
    Portfolio
    (Losses) Gains and Other income   6




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Servicing income

$
7


$
11


$
17


$
21Investment income


2



6



6



10Late charges


1



1



2



2Prepayment income






1



(1
)


2Syndication income














2Other


(2
)


6



(2
)


13Total other income

$
8


$
25


$
22


$
50     Note 4.
    Special
    Charges    Severanceand PensionCurtailment


ContractCosts


Terminations


Total(In millions)Balance at January 3, 2009

$
11


$
1


$
12Additions


7



1



8Cash Paid


(7
)


(1
)


(8
)Balance at June 30, 2009

$
11


$
1


$
12   Note 5.
    Managed
    and Serviced Finance Receivables    June 30,


January 3,2009


2009(In millions)Total managed and serviced finance receivables

$
9,836


$
12,173Nonrecourse participations


(793
)


(820
)Third-party portfolio servicing


(430
)


(532
)Total managed finance receivables


8,613



10,821Securitized finance receivables


(1,195
)


(2,248
)Finance receivables


7,418



8,573Finance receivables held for sale


(613
)


(1,658
)Finance receivables held for investment

$
6,805


$
6,915  7




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
        Note 6.
    Finance
    Receivables Held for Investment  Portfolio
    Maturities
    Less Than


1-2


2-3


3-4


4-5


More Than1 Year


Years


Years


Years


Years


5 Years


Total(In millions)Installment contracts

$
411


$
327


$
363


$
363


$
329


$
829


$
2,622Revolving loans


264



405



376



196



4



22



1,267Golf course and resort mortgages


132



268



221



175



108



242



1,146Distribution finance receivables


680



174



52



49



38



3



996Finance leases


141



128



112



55



14



110



560Leveraged leases


(3
)






(3
)


(10
)


(2
)


376



358Total finance receivables held for investment

$
1,625


$
1,302


$
1,121


$
828


$
491


$
1,582


$
6,949      8




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Loan
    Impairment
    June 30,


January 3,2009


2009(In millions)Impaired nonaccrual finance receivables

$
629


$
234Impaired accrual finance receivables


96



19Total impaired finance receivables

$
725


$
253Impaired nonaccrual finance receivables with identified reserve
    requirements

$
585


$
182Allowance for losses on impaired nonaccrual finance receivables

$
134


$
43     June 30,


January 3,2009


2009(In millions)Impaired nonaccrual finance receivables

$
629


$
234Nonaccrual homogeneous finance receivables


54



43Total nonaccrual finance receivables

$
683


$
277      9




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Note 7.
    Other
    Assets  June 30,


January 3,2009


2009(In millions)Operating assets received in satisfaction of troubled finance
    receivables

$
192


$
84Retained interests in securitizations


119



200Investments in other marketable securities


80



95Derivative financial instruments


77



133Repossessed assets and properties


75



70Other long-term investments


25



30Fixed assets  net


26



24Other


35



63Total other assets

$
629


$
699         and/or
   10




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Note 8.
    Debt and
    Credit Facilities  June 30,


January 3,2009


2009(In millions)Short-term debt:Commercial paper

$



$
743Other short-term debt


9



25Total short-term debt


9



768Line of credit facility:Due 2012 (0.99%)


1,740



Long-term debt:Fixed-rate notesDue 2009 (weighted-average rates of 5.83% and 5.62%,
    respectively)


568



698Due 2010 (weighted-average rates of 4.82% and 4.82%,
    respectively)


833



1,018Due 2011 (weighted-average rates of 5.03% and 5.04%,
    respectively)


377



452Due 2012 (weighted-average rates of 4.43% and 4.43%,
    respectively)


52



52Due 2013 (weighted-average rates of 5.19% and 5.19%,
    respectively)


478



478Due 2014 and thereafter (weighted-average rates of 5.79% and
    5.05%, respectively)


164



152Total fixed-rate notes


2,472



2,850Variable-rate notesDue 2009 (weighted-average rates of 0.92% and 2.78%,
    respectively)


383



836Due 2010 (weighted-average rates of 1.21% and 3.09%,
    respectively)


1,262



1,297Due 2011 (weighted-average rates of 1.31% and 3.40%,
    respectively)


239



275Due 2013 (weighted-average rates of 1.56% and 3.07%,
    respectively)


100



100Total variable-rate notes


1,984



2,508Securitized on-balance sheet debt:Amortization beginning 2009 (weighted-average rates of 1.56% and
    3.90%, respectively)


484



853Subordinated debt:Due 2017 and thereafter (6.00%)


300



300Unamortized premium (discount)


3



(3
)Fair value adjustments


65



112Total long-term, securitized on-balance sheet and subordinated
    debt


5,308



6,620Total debt

$
7,057


$
7,388    11




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Note 9.
    Comprehensive
    (Loss) Income    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Net (loss) income

$
(66
)

$
4


$
(119
)

$
35Net deferred loss on retained interests, net of income tax
    benefit of $3.6 million, $0.7 million and
    $4.7 million, respectively


(7
)


(1
)


(9
)


Foreign currency translation, net of income taxes


1



5



3



(11
)Net deferred loss on hedge contracts, net of income tax benefit
    of $0.3 million






(1
)






Comprehensive (loss) income

$
(72
)

$
7


$
(125
)

$
24   Note 10.
    Fair
    Value of Financial Instruments    Assets
    Recorded at Fair Value on a Recurring Basis
    June 30, 2009Level 2


Level 3(In millions)Derivative financial instruments, net

$
60


$
Interest-only securities






3Total assets

$
60


$
3  12




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Changes
    in Fair Value for Unobservable Input
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Interest-only securitiesBalance, beginning of period

$
3


$
52


$
12


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






21







42Change in value recognized in Other income














1Change in value recognized in Other comprehensive income


2



(2
)


(1
)


Impairments recognized in earnings


(2
)






(8
)


Collections






(18
)






(33
)Balance, end of period

$
3


$
53


$
3


$
53   Assets
    Recorded at Fair Value on a Nonrecurring Basis
    June 30, 2009(Level 3)(In millions)Finance receivables held for sale

$
613Impaired loans


451Retained interests in securitizations, excluding interest-only
    securities


110Operating assets received in satisfaction of troubled finance
    receivables


41Repossessed assets and properties


34Total assets

$
1,249   Finance
    Receivables Held for Sale
    Impaired
    Loans
    Retained
    Interests in Securitizations, excluding Interest-only
    securities
   13




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  other-than-temporary,
  Repossessed
    Assets and Properties/Operating Assets Received in Satisfaction
    of Troubled Finance Receivables
    Assets
    and Liabilities Not Recorded at Fair Value
    June 30, 2009


January 3, 2009Carrying


Estimated


Carrying


EstimatedValue


Fair Value


Value


Fair Value(In millions)Assets:Installment contracts

$
2,515


$
2,165


$
2,748


$
2,408Revolving loans


1,111



796



1,170



986Golf course and resort mortgages


1,097



898



1,150



931Distribution finance receivables


892



888



597



503Investment in other marketable securities


80



60



95



78Retained interests in securitizations, excluding interest-only
    securities


6



6



188



178$
5,701


$
4,813


$
5,948


$
5,084Liabilities:Fixed-rate debt

$
2,540


$
2,213


$
2,959


$
2,518Variable-rate debt


1,984



1,840



2,508



2,292Bank line of credit


1,740



1,434







Securitized on-balance sheet debt


484



462



853



824Subordinated debt


300



129



300



105Short-term debt


9



9



768



768Amounts due to Textron Inc.


28



23



161



156$
7,085


$
6,110


$
7,549


$
6,663  14




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Finance
    Receivables
  and/or
  Investments
    in Other Marketable Securities
    Debt
    Note 11.
    Derivative
    Financial Instruments   15




---



##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Notional Amount


Fair Value AmountAssets


LiabilitiesJune 30,


January 3,


June 30,


January 3,


June 30,


January 3,2009


2009


2009


2009


2009


2009(In millions)Fair Value HedgesInterest Rate Exchange AgreementsFixed-rate debt

$
1,682


$
2,055


$
65


$
112


$



$
Fixed-rate receivable


352



32











(12
)


(7
)Net Investment HedgesForeign Currency Forward Exchange AgreementsForeign-dollar functional currency subsidiary equity


71



139



3











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


140



140



12



21







Foreign-dollar denominated variable-rate receivable


5



5











(1
)


(1
)$
2,250


$
2,371


$
80


$
133


$
(13
)

$
(8
)       Notional Amount


Fair Value AmountAssets


LiabilitiesJune 30,


January 3,


June 30,


January 3,


June 30,


January 3,2009


2009


2009


2009


2009


2009(In millions)Foreign currency forward exchange agreements

$
572


$
536


$



$



$
(7
)

$
Interest rate exchange agreements






336















(13
)$
572


$
872


$



$



$
(7
)

$
(13
)    16




---



##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  back-to-back
    Amount of Gain/(Loss)Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,Gain/(Loss) Location

2009


2008


2009


2008(In millions)Fair Value HedgesInterest rate exchange agreements

Interest expense

$
(19
)

$
(37
)

$
(15
)

$
13Interest rate exchange agreements

Finance charges


8



1



6



(1
)Non-designated HedgesInterest rate exchange agreements

Other income

$



$



$
1


$
Foreign currency forward exchange agreements

Selling and
    administrative expenses


(52
)






(52
)


(3
)   Note 12.
    Receivable
    Securitizations      Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Net pre-tax (losses) gains, including impairments

$
(20
)

$
15


$
(27
)

$
30Proceeds from securitizations














250Cash flows received on retained interests


42



16



42



29Servicing fees received


7



9



15



17    17




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
      No. 115-2 FAS 124-2 Other-Than-Temporary other-than-temporary other-than-temporary other-than-temporary
  other-than-temporarily other-than-temporary
  Six Months EndedJune 30, 2009(In millions)Total
    other-than-temporary
    impairment

$
(39
)Portion of
    other-than-temporary
    impairment recognized in Other comprehensive income, before
    income taxes


13Net
    other-than-temporary
    impairment recognized in earnings

$
(26
)   other-than-temporary
    Assumptions at


25% Adverse


50% AdverseJune 30, 2009


Change


Change(Dollars in millions)Expected credit losses (annual rate)


2.85
%

$
(9
)

$
(18
)Monthly payment rate


12.1
%


(4
)


(7
)Residual cash flows discount rate


12.9
%


(6
)


(12
)    18




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  Note 13.
    Income
    Taxes    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008Federal statutory income tax rate


(35.0
)%


35.0
%


(35.0
)%


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


(2.4
)


43.8



(1.4
)


11.7Foreign tax rate differential


(6.6
)


15.2



(0.5
)


(6.1
)Canadian dollar functional currency






0.2







0.1Change in state valuation allowance


0.2



(83.8
)


(0.3
)


(20.1
)Tax contingencies


1.2



73.8



1.6



21.4Tax credits


(0.7
)


(6.8
)


(0.8
)


(3.0
)Change in status of foreign subsidiary


4.5







4.3



Other, net


0.3



(9.1
)


0.1



(2.4
)Effective income tax rate


(38.5
)%


68.3
%


(32.0
)%


36.6
%           Note 14.
    Contingencies   19




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
    Note 15.
    Financial
    Information about Operating Segments    E-Z-GO
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues:Captive Finance

$
42


$
58


$
95


$
120Resort Finance


24



31



52



66Golf Mortgage Finance


10



20



22



42Asset-Based Lending


8



17



20



37Structured Capital


(8
)


(9
)


(10
)


Distribution Finance


(16
)


60



4



125Corporate and Other


26







25



1Total revenues

$
86


$
177


$
208


$
391(Loss) income before special charges, income taxes and
    noncontrolling interest:(1)(2)Captive Finance

$
(19
)

$
18


$
(44
)

$
36Resort Finance


(7
)


15



(21
)


30Golf Mortgage Finance


(7
)


(8
)


(16
)


Asset-Based Lending


4



4



9



(8
)Structured Capital


(44
)


(11
)


(49
)


(6
)Distribution Finance


(39
)


(3
)


(52
)


9Corporate and Other


13



(2
)


8



(6
)(Loss) income before special charges, income taxes and
    noncontrolling interest

$
(99
)

$
13


$
(165
)

$
55Special charges


5







8



(Loss) income before income taxes and noncontrolling
    interest

$
(104
)

$
13


$
(173
)

$
55   20




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
 (Unaudited)
  June 30,


January 3,2009


2009(In millions)Finance assets:(3)Captive Finance

$
3,462


$
3,668Resort Finance


1,644



1,727Golf Mortgage Finance


1,085



1,173Distribution Finance


1,060



1,389Structured Capital


556



603Asset-Based Lending


275



649Corporate and Other


62



90Total finance assets

$
8,144


$
9,299     (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. Due to our significant difficulty in
    accessing the capital markets, the interest rate is partially
    determined using a theoretical approach. 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. This
    resulted in the allocation of $6 million and
    $17 million of interest expense to the six operating
    segments in excess of the interest expense actually incurred by
    the Company for the three and six months ended June 30,
    2009, respectively.(2)
    
    Due to managements decision to downsize the commercial
    finance business of Textron Financial and the resulting
    variations in personnel levels and job responsibilities,
    indirect expenses are no longer being allocated to each segment.
    These indirect expenses of $16 million and $32 million
    for the three and six months ended June 30, 2009,
    respectively, were aggregated in the Corporate and Other
    segment. Prior to 2009, indirect expenses were allocated to each
    segment based on the use of such resources and were based
    primarily upon 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; equipment on
    operating leases, net of accumulated depreciation; repossessed
    assets and properties; operating assets received in satisfaction
    of troubled finance receivables; 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). 21




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##### Table of Contents



Item 1A.
    Risk
    Factors  Form 10-K Form 10-Q
  Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  TEXTRON
    FINANCIAL CORPORATION
  Key
    Business Initiatives and Trends
  E-Z-GO
     22




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)      Financial
    Condition
  Liquidity
    and Capital Resources
         23




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    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

$



$



$
1,740


$



$



$



$
1,740Other short-term debt


9























9Term debt


2,253



1,382



53



578



31



159



4,456Securitized on-balance sheet debt


68



66



96



76



71



107



484Subordinated debt






















300



300Securitized off-balance sheet debt


1,161



5















31



1,197Interest payments on debt


132



82



61



41



29



78



423Loan commitments


16



6



2











5



29Operating lease rental payments


5



4



3



1



1







14Total payments due


3,644



1,545



1,955



696



132



680



8,652Cash and contractual receipts:Finance receivable receipts  held for investment


1,625



1,302



1,121



828



491



1,582



6,949Finance receivable receipts   held for sale


198



211



109



118



18



51



705Securitized off-balance sheet finance receivable and cash
    receipts


1,302



5















31



1,338Interest receipts on finance receivables


442



328



233



166



118



214



1,501Operating lease rental receipts


27



22



18



13



7



16



103Total contractual receipts


3,594



1,868



1,481



1,125



634



1,894



10,596Cash


521























521Total cash and contractual receipts


4,115



1,868



1,481



1,125



634



1,894



11,117Net cash and contractual receipts (payments)

$
471


$
323


$
(474
)

$
429


$
502


$
1,214


$
2,465Cumulative net cash and contractual receipts

$
471


$
794


$
320


$
749


$
1,251


$
2,465      24




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)        non-U.S. buyers.
  3-year E-Z-GO
      Fitch Ratings

Moodys

Standard & PoorsLong-term ratings

BB+

Baa3

BB+Short-term ratings

B

P3

BOutlook

Negative

Negative

Developing  25




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    Six Months EndedJune 30,


June 30,2009


2008(In millions)Operating activities

$
72


$
83Investing activities


1,043



(134
)Financing activities


(616
)


46           Off-Balance
    Sheet Arrangements
     26




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)  Results
    of Operations
  Revenues
    Three Months


Six MonthsEnded


Ended2009 vs. 2008


2009 vs. 2008(In millions)Portfolio losses

$
(47
)

$
(62
)Lower market interest rates


(23
)


(62
)Lower securitization gains


(20
)


(41
)Lower other income


(17
)


(28
)Increased impairments of retained interests in securitizations


(20
)


(26
)Lower average finance receivables of $588 million and
    $488 million, respectively


(10
)


(17
)Gains on debt extinguishment


37



39Benefit from variable-rate receivable interest rate floors


12



28   (Loss)
    Income before Special Charges, Income Taxes and Noncontrolling
    Interest
    Three Months


Six MonthsEnded


Ended2009 vs. 2008


2009 vs. 2008(In millions)Increase in provision for losses

$
(47
)

$
(96
)Portfolio losses


(47
)


(62
)Lower securitization gains


(20
)


(41
)Lower other income


(17
)


(28
)Increased impairments of retained interests in securitizations


(20
)


(26
)Revenue impact of lower average finance receivables of
    $588 million and $488 million, respectively


(10
)


(17
)Gains on debt extinguishment


37



39Benefit from variable-rate receivable interest rate floors


12



28      27




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    Income
    Taxes
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008Federal statutory income tax rate


(35.0
)%


35.0
%


(35.0
)%


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


(2.4
)


43.8



(1.4
)


11.7Foreign tax rate differential


(6.6
)


15.2



(0.5
)


(6.1
)Canadian dollar functional currency






0.2







0.1Change in state valuation allowance


0.2



(83.8
)


(0.3
)


(20.1
)Tax contingencies


1.2



73.8



1.6



21.4Tax credits


(0.7
)


(6.8
)


(0.8
)


(3.0
)Change in status of foreign subsidiary


4.5







4.3



Other, net


0.3



(9.1
)


0.1



(2.4
)Effective income tax rate


(38.5
)%


68.3
%


(32.0
)%


36.6
%         Credit
    Quality
  Nonaccrual
    Finance Receivables
     28




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)  and/or
    June 30,


January 3,2009


2009(Dollars in millions)Resort Finance

$
349



22.40
%

$
78



4.96
%Captive Finance


109



3.41
%


35



1.03
%Distribution Finance


94



12.06
%


43



9.02
%Golf Mortgage Finance


88



11.48
%


107



12.11
%Structured Capital


32



8.00
%






Corporate and Other


11



23.38
%


14



20.46
%Total nonaccrual finance receivables

$
683



10.04
%

$
277



4.01
%       Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Allowance for losses on finance receivables beginning of period

$
220


$
105


$
191


$
89Provision for losses


87



40



163



67Less net charge-offs:Distribution Finance


11



14



23



23Asset-Based Lending






4







4Captive Finance


9



1



17



4Golf Mortgage Finance


1







22



Resort Finance


2







4



(1
)Corporate and Other










4



Total net charge-offs


23



19



70



30Allowance for losses on finance receivables end of period

$
284


$
126


$
284


$
126Net charge-offs as a percentage of average finance receivables
    held for investment


1.33
%


0.89
%


2.03
%


0.68
%   29




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)  June 30,


January 3,2009


2009(Dollars in millions)Nonaccrual finance receivables as a percentage of finance
    receivables held for investment


10.04
%


4.01
%Allowance for losses on finance receivables held for investment
    as a percentage of finance receivables held for investment


4.18
%


2.76
%Allowance for losses on finance receivables held for investment
    as a percentage of nonaccrual finance receivables held for
    investment


41.6
%


68.9
%60+ days contractual delinquency as a percentage of finance
    receivables held for investment


6.62
%


2.59
%Operating assets received in satisfaction of troubled finance
    receivables

$
192


$
84Repossessed assets and properties


75



70       Managed
    Finance Receivables
    June 30,


January 3,2009


2009(Dollars in millions)Captive Finance

$
3,195



37
%

$
3,403



31
%Distribution Finance


2,085



24
%


3,379



31
%Resort Finance


1,568



18
%


1,636



15
%Golf Mortgage Finance


1,039



12
%


1,177



11
%Structured Capital


405



5
%


508



5
%Asset-Based Lending


275



3
%


649



6
%Corporate and Other


46



1
%


69



1
%Total managed finance receivables

$
8,613



100
%

$
10,821



100
%     Operating
    Results by Segment
   30




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)  Captive
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
42


$
58


$
95


$
120Segment (loss) income

$
(19
)

$
18


$
(44
)

$
36       Resort
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
24


$
31


$
52


$
66Segment (loss) income

$
(7
)

$
15


$
(21
)

$
30       Golf
    Mortgage Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
10


$
20


$
22


$
42Segment loss

$
(7
)

$
(8
)

$
(16
)

$
      31




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    Asset-Based
    Lending
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
8


$
17


$
20


$
37Segment income (loss)

$
4


$
4


$
9


$
(8
)       Structured
    Capital
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
(8
)

$
(9
)

$
(10
)

$
Segment loss

$
(44
)

$
(11
)

$
(49
)

$
(6
)   FSP 13-2
    Distribution
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008(In millions)Revenues

$
(16
)

$
60


$
4


$
125Segment (loss) income

$
(39
)

$
(3
)

$
(52
)

$
9  32




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    Three Months


Six MonthsEnded


Ended2009 vs. 2008


2009 vs. 2008(In millions)Lower securitization gains

$
(15
)

$
(31
)Increased impairments of retained interests in securitizations


(20
)


(26
)Portfolio losses


(24
)


(24
)Lower average finance receivables of $525 million and
    $644 million, respectively


(5
)


(12
)Lower market interest rates


(5
)


(13
)Lower other income


(6
)


(7
)Benefit from variable-rate receivable interest rate floors


8



19       Three Months


Six MonthsEnded


Ended2009 vs. 2008


2009 vs. 2008(In millions)Lower securitization gains

$
(15
)

$
(31
)Increased impairments of retained interests in securitizations


(20
)


(26
)Portfolio losses


(24
)


(24
)Revenue impact of lower average finance receivables of
    $525 million and $644 million, respectively


(5
)


(12
)Lower other income


(6
)


(7
)Provision for losses


19



24Benefit from variable-rate receivable interest rate floors


8



19Lower selling and administrative expenses


10



18     Corporate
    and Other Segment
  Three Months Ended

Six Months EndedJune 30,

June 30,

June 30,

June 30,2009

2008

2009

2008(In millions)Revenues

$
26


$



$
25


$
1Segment income (loss)

$
13


$
(2
)

$
8


$
(6
)    33




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)    Selected
    Financial Ratios
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2009


2008


2009


2008Net interest margin as a percentage of average net investment(1)


2.13
%


4.91
%


2.63
%


5.35
%Return on average equity


(25.25
)%


1.60
%


(22.99
)%


6.46
%Return on average assets


(2.82
)%


0.17
%


(2.53
)%


0.72
%Selling and administrative expenses as a percentage of average
    managed and serviced finance receivables(2)


2.02
%


1.53
%


1.92
%


1.62
%Operating efficiency ratio(3)


129.3
%


48.0
%


101.9
%


45.8
%Net charge-offs as a percentage of average finance receivables
    held for investment


1.33
%


0.89
%


2.03
%


0.68
%   June 30,


January 3,2009


200960+ days contractual delinquency as a percentage of finance
    receivables held for investment(4)


6.62
%


2.59
%Nonaccrual finance receivables as a percentage of finance
    receivables held for investment


10.04
%


4.01
%Allowance for losses on finance receivables held for investment
    as a percentage of finance receivables held for investment


4.18
%


2.76
%Allowance for losses on finance receivables held for investment
    as a percentage of nonaccrual finance receivables held for
    investment


41.6
%


68.9
%Total debt to tangible equity(5)


7.50
x


6.52x     (1)
    
    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.(2)
    
    Average managed and serviced finance receivables include owned
    receivables, receivables serviced under securitizations,
    participations and third-party portfolio servicing agreements.(3)
    
    Operating efficiency ratio is selling and administrative
    expenses divided by net interest margin.(4)
    
    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.(5)
    
    Tangible equity equals Total equity, excluding Accumulated other
    comprehensive income (loss).  Recent
    Accounting Pronouncements
   34




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (Continued)      Forward-looking
    Information
  Certain statements in this Quarterly Report on
    Form 10-Q
    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 in our Annual Report on
    Form 10-K
    for the year ended January 3, 2009, those additional and
    updated risk factors discussed in our Quarterly Report on
    Form 10-Q
    for the fiscal quarter ended March 31, 2009, and including
    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 bank line of credit 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 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-K.
 35




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Item 4.
    Controls
    and Procedures  Rule 13a-15(e) 15d-15(e)
   PART II.
    OTHER INFORMATION  TEXTRON
    FINANCIAL CORPORATION
  Item 6.
    Exhibits  12


Computation of Ratio of Earnings to Fixed Charges31
.1

Certification of Chief Executive 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 Executive Officer Pursuant to
    18 U.S.C. Section 135032
.2

Certification of Chief Financial Officer Pursuant to
    18 U.S.C. Section 1350  36




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SIGNATURES
      
       37