##### 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, 2007oro

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934   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, RI
    02940-6687
 401-621-4200
 (Address and telephone number of
    principal executive offices)
      þ o
  Rule 12b-2
  o o þ
  Rule 12b-2 o þ




---



##### 



TEXTRON
    FINANCIAL CORPORATION
  TABLE OF
    CONTENTS
  
  PagePART
    I. FINANCIAL INFORMATIONItem 1.


FINANCIAL
    STATEMENTSConsolidated
    Statements of Income for the three and six months ended
    June 30, 2007 and 2006 (unaudited)

2Consolidated
    Balance Sheets at June 30, 2007 and December 30, 2006
    (unaudited)

3Consolidated
    Statements of Cash Flows for the six months ended June 30,
    2007 and 2006 (unaudited)

4Consolidated
    Statements of Changes in Shareholders Equity through
    June 30, 2007 (unaudited)

5Notes to the
    Consolidated Financial Statements (unaudited)

6Item 2.


MANAGEMENTS
    DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
    OPERATIONS

16Item 3.


QUANTITATIVE AND
    QUALITATIVE DISCLOSURES ABOUT MARKET RISK

28Item 4.


CONTROLS AND
    PROCEDURES

28PART II. OTHER
    INFORMATIONItem 6.


EXHIBITS

29EX-12 Computation of Ration of Earning to Fixed ChargesEX-31.1 Section 302 Certification of CEOEX-31.2 Section 302 Certification of CFOEX-32.1 Section 906 Certification of CEOEX-32.2 Section 906 Certification of CFO   1




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Finance charges

$
173


$
156


$
339


$
301Securitization gains


15



10



30



21Rental revenues on operating leases


8



9



16



16Other income


43



17



64



36Total revenues


239



192



449



374Interest expense


102



84



202



157Depreciation of equipment on
    operating leases


4



5



8



9Net interest margin


133



103



239



208Selling and administrative expenses


54



48



103



95Provision for losses


11



(1
)


16



8Income before income
    taxes


68



56



120



105Income taxes


27



20



44



38Net income

$
41


$
36


$
76


$
67    2




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
 (Unaudited)
  June 30,


December 30,2007


2006(In millions)AssetsCash and equivalents

$
66


$
47Finance receivables, net of
    unearned income:Revolving loans


2,101



1,948Distribution finance receivables


1,999



2,423Installment contracts


1,949



1,674Golf course and resort mortgages


1,118



1,060Finance leases


628



590Leveraged leases


544



615Total finance receivables


8,339



8,310Allowance for losses on finance
    receivables


(86
)


(93
)Finance receivables  net


8,253



8,217Equipment on operating
    leases  net


239



238Goodwill


169



169Other assets


329



329Total assets

$
9,056


$
9,000Liabilities and
    shareholders equityLiabilitiesAccrued interest and other
    liabilities

$
547


$
479Amounts due to Textron Inc.


20



20Deferred income taxes


492



497Debt


6,937



6,862Total liabilities


7,996



7,858Shareholders
    equityCapital surplus


592



592Investment in parent company
    preferred stock


(25
)


(25
)Accumulated other comprehensive
    income


17



7Retained earnings


476



568Total shareholders equity


1,060



1,142Total liabilities and
    shareholders equity

$
9,056


$
9,000    3




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS
    SIX MONTHS ENDED JUNE 30, 2007 AND 2006
    (Unaudited)
  2007


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

$
76


$
67Adjustments to reconcile net
    income to net cash provided by operating activities:Increase in accrued interest and
    other liabilities


12



51Provision for losses


16



8Depreciation


14



14Amortization


5



5Deferred income tax provision


12



5Non-cash gains in excess of
    collections on securitizations and syndications


(2
)


4Other  net


20



1Net cash provided by operating
    activities of continuing operations


153



155Net cash used by operating
    activities of discontinued operations






(4
)Net cash provided by operating
    activities


153



151Cash flows from investing
    activities:Finance receivables originated or
    purchased


(6,489
)


(5,996
)Finance receivables repaid


5,795



4,974Proceeds from receivable sales,
    including securitizations


711



50Proceeds from disposition of
    operating leases and other assets


33



46Purchase of assets for operating
    leases


(28
)


(48
)Other capital expenditures


(4
)


(5
)Other investments


5



8Net cash provided (used) by
    investing activities of continuing operations


23



(971
)Cash flows from financing
    activities:Proceeds from issuance of
    long-term debt


1,069



1,009Principal payments on long-term
    debt


(958
)


(652
)Net (decrease) increase in
    commercial paper


(119
)


519Net increase (decrease) in other
    short-term debt


18



(7
)Proceeds from issuance of
    nonrecourse debt






25Principal payments on nonrecourse
    debt


(31
)


Capital contributions from Textron
    Inc.


5



23Dividends paid to Textron
    Inc.


(140
)


(85
)Net cash (used) provided by
    financing activities of continuing operations


(156
)


832Effect of exchange rate changes on
    cash


(1
)


1Net cash provided by continuing
    operations


19



17Net cash used by discontinued
    operations






(4
)Net increase in cash and
    equivalents


19



13Cash and equivalents at beginning
    of year


47



10Cash and equivalents at end of
    period

$
66


$
23    4




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CHANGES IN SHAREHOLDERS EQUITY
 (Unaudited)
  Investment


Accumulatedin Parent


Other





TotalCompany


Comprehensive





Share-Capital


Preferred


Income


Retained


holdersSurplus


Stock


(Loss)


Earnings


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














76



76Other comprehensive income:Foreign currency translation










9







9Change in unrealized net losses on
    hedge contracts, net of income taxes










1







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


















Other comprehensive income










10







10Comprehensive income


















86Cumulative effect of a change in
    accounting principle














(33
)


(33
)Capital contributions from Textron
    Inc.


5















5Dividends to Textron Inc.


(5
)










(135
)


(140
)Balance June 30,
    2007

$
592


$
(25
)

$
17


$
476


$
1,060    5




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 1.
    Basis of
    Presentation  Form 10-K
  Note 2.
    Recent
    Accounting Pronouncements      Note 3.
    Other
    Income  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Servicing income

$
9


$
8


$
17


$
15Investment income


4



4



7



8Syndication income


2







2



Prepayment income


1







3



2Late charges






1



1



2Other


27



4



34



9Total other income

$
43


$
17


$
64


$
36      6




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 4.
    Managed
    and Serviced Finance Receivables    June 30,


December 30,2007


2006(In millions)Total managed and serviced finance
    receivables

$
12,284


$
11,536Nonrecourse participations


(885
)


(695
)Third-party portfolio servicing


(635
)


(581
)Small business administration
    sales agreements


(16
)


(19
)Total managed finance receivables


10,748



10,241Securitized receivables


(2,409
)


(1,931
)Owned finance receivables

$
8,339


$
8,310           June 30,


December 30,2007


2006(In millions)Rental receivable

$
1,628


$
1,838Nonrecourse debt


(1,094
)


(1,292
)Estimated residual values of
    leased assets


306



329840



875Less unearned income


(296
)


(260
)Investment in leveraged leases


544



615Deferred income taxes


(399
)


(410
)Net investment in leveraged leases

$
145


$
205   No. 13-2 (FSP 13-2). FSP 13-2
 7




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  FSP 13-2
  FSP 13-2
  Note 5.
    Loan
    Impairment    June 30,


December 30,2007


2006(In millions)Impaired nonaccrual finance
    receivables

$
36


$
60Impaired accrual finance
    receivables






101Total impaired finance receivables

$
36


$
161Impaired nonaccrual finance
    receivables with identified reserve requirements

$
24


$
36Allowance for losses on impaired
    nonaccrual finance receivables

$
11


$
17     June 30,


December 30,2007


2006(In millions)Impaired nonaccrual finance
    receivables

$
36


$
60Nonaccrual homogenous finance
    receivables


15



15Total nonaccrual finance
    receivables


51



75Repossessed assets and properties


38



38Total nonperforming assets

$
89


$
113    8




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
      Note 6.
    Other
    Assets  June 30,


December 30,2007


2006(In millions)Retained interests in
    securitizations

$
192


$
179Repossessed assets and properties


38



38Fixed assets  net


33



34Other long-term investments


32



40Investment in equipment residuals






3Other


34



35Total other assets

$
329


$
329          9




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 7.
    Debt and
    Credit Facilities  June 30,


December 30,2007


2006(In millions)Short-term debt:Commercial paper

$
1,624


$
1,719Other short-term debt


83



60Total short-term debt


1,707



1,779Long-term debt:Fixed-rate notesDue 2007 (weighted-average rates
    of 4.31% and 5.50%, respectively)


35



843Due 2008 (weighted-average rates
    of 4.12% and 4.12%, respectively)


620



611Due 2009 (weighted-average rates
    of 5.66% and 5.67%, respectively)


656



649Due 2010 (weighted-average rates
    of 4.58% and 4.58%, respectively)


557



557Due 2011 and thereafter
    (weighted-average rates of 5.03% and 5.03%, respectively)


651



651Total Fixed-rate notes


2,519



3,311Variable-rate notesDue 2007 (weighted-average rates
    of 5.81% and 5.80%, respectively)


200



275Due 2008 (weighted-average rates
    of 5.44% and 5.45%, respectively)


355



355Due 2009 (weighted-average rates
    of 5.46% and 5.47%, respectively)


863



913Due 2010 (weighted-average rates
    of 5.32% and 5.49%, respectively)


897



276Due 2011 (weighted-average rate of
    5.49%)


150



Total Variable-rate notes


2,465



1,819Subordinated debt:Due 2017 and thereafter (6.00%)


300



Unamortized discount


(4
)


(3
)Fair value adjustments


(50
)


(44
)Total long-term and subordinated
    debt


5,230



5,083Total debt

$
6,937


$
6,862    10




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Amount notReserved as SupportCommercial


Letters of Credit


for CommercialFacility


Paper


Issued Under


Paper and Letters ofAmount


Outstanding


Facility


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

$
1,750


$
1,624


$
12


$
114Textron multi-year facility
    expiring in 2012


1,250







20



1,230Total

$
3,000


$
1,624


$
32


$
1,344     June 30,

June 30,2007

2006Commercial paper


5.20
%


5.31
%Other short-term debt


4.51
%


5.33
%       and/or
     11




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
          Note 8.
    Accumulated
    Other Comprehensive Income and Comprehensive Income    Six Months EndedJune 30,


June 30,2007


2006(In millions)Beginning of year

$
7


$
5Foreign currency translation


9



4Amortization of deferred losses on
    hedge contracts, net of income taxes of $2 million and
    $1 million, respectively


3



2Net deferred (loss) gain on hedge
    contracts, net of income tax benefit of $1 million and
    income taxes of $1 million, respectively


(2
)


2Net deferred loss on interest-only
    securities, net of income tax benefit of $1 million in 2006






(2
)End of period

$
17


$
11     Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Net income

$
41


$
36


$
76


$
67Other comprehensive income


10



3



10



6Comprehensive income

$
51


$
39


$
86


$
73  12




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 9.
    Income
    Taxes      non-U.S. income
    Note 10.
    Contingencies      Note 11.
    Financial
    Information about Operating Segments   13




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues:Distribution Finance

$
76


$
64


$
159


$
123Aviation Finance


44



32



84



60Golf Finance


37



32



71



62Resort Finance


33



30



65



60Structured Capital


24



8



21



15Asset-Based Lending


23



23



46



44Corporate and Other


2



3



3



10Total revenues

$
239


$
192


$
449


$
374Income before income taxes:(1)(2)Distribution Finance

$
27


$
26


$
55


$
48Aviation Finance


11



10



22



16Golf Finance


11



11



19



17Resort Finance


10



8



23



21Structured Capital


19



3



11



5Asset-Based Lending


4



4



12



6Corporate and Other


(14
)


(6
)


(22
)


(8
)Income before income taxes

$
68


$
56


$
120


$
105   June 30,


December 30,2007


2006(In millions)Finance assets:(3)Distribution Finance

$
2,078


$
2,422Aviation Finance


2,047



1,776Golf Finance


1,583



1,524Resort Finance


1,401



1,296Asset-Based Lending


943



864Structured Capital


655



756Corporate and Other


134



170Total finance assets

$
8,841


$
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 14




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  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 to measure the results of each segment more
    consistently with the economic characteristics of their existing
    portfolio, which is consistent with how management internally
    evaluates segment operating performance. The 2006 results have
    not been restated under the new methodology. This change had a
    $4 million and $8 million positive effect on the
    collective results of the six core portfolio segments for the
    three and six months ended June 30, 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; 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; and other short- and long-term
    investments (some of which are classified in Other assets on
    Textron Financials Consolidated Balance Sheets). 15




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  TEXTRON
    FINANCIAL CORPORATION
  Key
    Business Initiatives and Trends
            Financial
    Condition
  Liquidity
    and Capital Resources
     16




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)     Amount notReserved as SupportCommercial


Letters of Credit


for CommercialFacility


Paper


Issued Under


Paper and Letters ofAmount


Outstanding


Facility


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

$
1,750


$
1,624


$
12


$
114Textron multi-year facility
    expiring in 2012


1,250







20



1,230Total

$
3,000


$
1,624


$
32


$
1,344                  17




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)   Off-Balance
    Sheet Arrangements
      Managed
    Finance Receivables
    June 30,


December 30,2007


2006(Dollars in millions)Distribution Finance

$
3,952



37
%

$
3,753



37
%Aviation Finance


2,142



20
%


1,939



19
%Golf Finance


1,570



14
%


1,518



15
%Resort Finance


1,401



13
%


1,295



13
%Asset-Based Lending


943



9
%


864



8
%Structured Capital


633



6
%


730



7
%Corporate and Other


107



1
%


142



1
%Total managed finance receivables

$
10,748



100
%

$
10,241



100
%   No. 13-2 (FSP 13-2).
  Nonperforming
    Assets
   18




---



##### Table of Contents



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


December 30,2007


2006(Dollars in millions)Golf Finance

$
20



1.24
%

$
29



1.89
%Resort Finance


14



0.98
%


16



1.22
%Aviation Finance


11



0.56
%


12



0.70
%Distribution Finance


10



0.49
%


7



0.28
%Asset-Based Lending


4



0.39
%


16



1.81
%Corporate and Other


30



22.31
%


33



19.74
%Total nonperforming assets

$
89



1.00
%

$
113



1.28
%     Interest
    Rate Sensitivity
      Financial
    Risk Management
   19




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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
  For
    the three and six months ended June 30, 2007 vs.
    June 30, 2006
  Revenues
    and Net Interest Margin
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(Dollars in millions)Finance charges

$
173


$
156


$
339


$
301Securitization gains


15



10



30



21Rental revenues on operating leases


8



9



16



16Other income


43



17



64



36Total revenues


239



192



449



374Interest expense


102



84



202



157Depreciation of equipment on
    operating leases


4



5



8



9Net interest margin

$
133


$
103


$
239


$
208Portfolio yield


8.67
%


9.11
%


8.49
%


9.00
%Net interest margin as a
    percentage of average net investment


6.47
%


5.81
%


5.81
%


6.01
%     FSP 13-2
 20




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  FSP 13-2
  FSP 13-2
  Selling
    and Administrative Expenses
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(Dollars in millions)Selling and administrative expenses

$
54


$
48


$
103


$
95Selling and administrative
    expenses as a percentage of average managed and serviced finance
    receivables


1.76
%


1.89
%


1.72
%


1.90
%Operating efficiency ratio


40.6
%


46.6
%


43.1
%


45.7
%     Provision
    for Losses
    Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Allowance for losses on finance
    receivables beginning of period

$
94


$
100


$
93


$
96Provision for losses


11



(1
)


16



8Less net charge-offs:Asset-Based Lending


8







8



2Distribution Finance


3



1



6



1Golf Finance


2







2



1Aviation Finance


1







1



1Resort Finance


(1
)






(1
)


1Corporate and Other


6



6



7



6Total net charge-offs


19



7



23



12Allowance for losses on finance
    receivables end of period

$
86


$
92


$
86


$
92  21




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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 30,2007


2006


2007


2006Federal statutory income tax rate


35.0
%


35.0
%


35.0
%


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


2.6



1.0



2.0



1.0Foreign tax rate differential


(0.3
)


(0.5
)


(1.0
)


(1.1
)Canadian dollar functional currency










(1.7
)


Interest on tax
    contingencies  leveraged leases


2.5



2.1



2.8



2.3Tax credits


(1.0
)


(1.7
)


(1.2
)


(1.3
)Other, net


1.4



1.0



1.4



0.7Effective income tax rate


40.2
%


36.9
%


37.3
%


36.6
%      22




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Operating
    Results by Segment
    Distribution
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
76


$
64


$
159


$
123Net interest margin

$
53


$
44


$
109


$
87Selling and administrative expenses


23



21



46



40Provision for losses


3



(3
)


8



(1
)Segment income

$
27


$
26


$
55


$
48       Aviation
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
44


$
32


$
84


$
60Net interest margin

$
18


$
14


$
35


$
26Selling and administrative expenses


5



5



10



10Provision for losses


2



(1
)


3



Segment income

$
11


$
10


$
22


$
16      23




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
37


$
32


$
71


$
62Net interest margin

$
17


$
13


$
32


$
26Selling and administrative expenses


5



4



10



9Provision for losses


1



(2
)


3



Segment income

$
11


$
11


$
19


$
17       Resort
    Finance
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
33


$
30


$
65


$
60Net interest margin

$
16


$
16


$
32


$
34Selling and administrative expenses


6



5



12



11Provision for losses






3



(3
)


2Segment income

$
10


$
8


$
23


$
21      24




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##### Table of Contents



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


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
24


$
8


$
21


$
15Net interest margin

$
20


$
4


$
13


$
7Selling and administrative expenses


1



1



2



2Segment income

$
19


$
3


$
11


$
5   FSP 13-2
  FSP 13-2 FSP 13-2
  Asset-Based
    Lending
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
23


$
23


$
46


$
44Net interest margin

$
12


$
13


$
24


$
26Selling and administrative expenses


7



6



12



12Provision for losses


1



3







8Segment income

$
4


$
4


$
12


$
6      25




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Corporate
    and Other Segment
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006(In millions)Revenues

$
2


$
3


$
3


$
10Net interest margin

$
(3
)

$
(1
)

$
(6
)

$
2Selling and administrative expenses


7



6



11



11Provision for losses


4



(1
)


5



(1
)Segment loss

$
(14
)

$
(6
)

$
(22
)

$
(8
)     Selected
    Financial Ratios
  Three Months Ended


Six Months EndedJune 30,


June 30,


June 30,


June 30,2007


2006


2007


2006Net interest margin as a
    percentage of average net investment(1)


6.47
%


5.81
%


5.81
%


6.01
%Return on average equity


15.73
%


13.40
%


14.09
%


12.71
%Return on average assets


1.79
%


1.74
%


1.67
%


1.70
%Selling and administrative
    expenses as a percentage of average managed and serviced finance
    receivables(2)


1.76
%


1.89
%


1.72
%


1.90
%Operating efficiency ratio(3)


40.6
%


46.6
%


43.1
%


45.7
%Net charge-offs as a percentage of
    average finance receivables


0.91
%


0.39
%


0.52
%


0.35
%   June 30,


December 30,2007


200660+ days contractual delinquency
    as a percentage of finance receivables(4)


0.56
%


0.77
%Nonperforming assets as a
    percentage of finance assets(5)


1.00
%


1.28
%Allowance for losses on finance
    receivables as a percentage of finance receivables


1.04
%


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


171.3
%


123.1
%Total debt to tangible
    shareholders equity(6)


7.94
x


7.10x     (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. 26




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)   (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 receivables.(5)
    
    Finance assets include: finance receivables; equipment on
    operating leases, net of accumulated depreciation; repossessed
    assets and properties; retained interests in securitizations;
    interest-only securities; investment in equipment residuals;
    Acquisition, Development and Construction arrangements; 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.(6)
    
    Tangible shareholders equity equals Shareholders
    equity, excluding Accumulated other comprehensive income (loss),
    less Goodwill.  Recent
    Accounting Pronouncements
      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 following:
    (a) changes in worldwide economic and political 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 receivables and investments in securities; (d) the
    ability to control costs and successful implementation of
    various cost reduction programs; (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; (h) access to debt
    financing 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 tailored to address such
    contingencies; (k) the launching of significant new
    products or programs which could result in unanticipated
    expenses; and (l) performance of acquisitions.
 27




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##### Table of Contents



Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-Q.
  Item 4.
    Controls
    and Procedures  Rule 13a-15(e) 15d-15(e)
   28




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##### Table of Contents



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  29




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##### Table of Contents



SIGNATURES
      
       30