##### 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
    March 31, 2008oro

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(Address of principal
    executive offices)

02940-6687(Zip code)    401-621-4200
 (Registrants telephone
    number, including area code)
      þ o
   Rule 12b-2
  Large accelerated
    filer o

Accelerated
    filer o

Non-accelerated
    filer þ
    (Do not check if a smaller reporting company)

Smaller reporting
    company o   Rule 12b-2 o þ
  All of the
    shares of common stock of the registrant are owned by Textron
    Inc.




---



##### 





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


FINANCIAL STATEMENTSConsolidated Statements of Income for the three months ended
    March 31, 2008 and 2007 (unaudited)


2Consolidated Balance Sheets at March 31, 2008 and
    December 29, 2007 (unaudited)


3Consolidated Statements of Cash Flows for the three months ended
    March 31, 2008 and 2007 (unaudited)


4Consolidated Statements of Changes in Shareholders Equity
    through March 31, 2008 (unaudited)


5Notes to the Consolidated Financial Statements (unaudited)


6Item 2.


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


17Item 3.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK


27Item 4.


CONTROLS AND PROCEDURES


27PART II. OTHER INFORMATIONItem 6.


EXHIBITS


28EX-12 Computation of Ratio of Earnings 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 CORPORATIONCONSOLIDATED STATEMENTS OF INCOME
    THREE MONTHS ENDED MARCH 31, 2008 AND 2007
    (Unaudited)
  2008


2007(In millions)Finance charges

$
155


$
166Securitization gains


20



15Rental revenues on operating leases


9



8Other income


30



21Total revenues


214



210Interest expense


86



100Depreciation of equipment on operating leases


5



4Net interest margin


123



106Selling and administrative expenses


54



49Provision for losses


27



5Income before income taxes


42



52Income taxes


11



17Net income

$
31


$
35    2




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    BALANCE SHEETS
 (Unaudited)
  March 31,


December 29,2008


2007(In millions)AssetsCash and equivalents

$
47


$
60Finance receivables, net of unearned income:Revolving loans


2,262



2,254Installment contracts


2,007



2,052Distribution finance receivables


1,938



1,900Golf course and resort mortgages


1,380



1,240Finance leases


606



613Leveraged leases


546



544Total finance receivables


8,739



8,603Allowance for losses on finance receivables


(105
)


(89
)Finance receivables  net


8,634



8,514Equipment on operating leases  net


256



259Goodwill


169



169Other assets


857



381Total assets

$
9,963


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

$
517


$
437Amounts due to Textron Inc.


23



25Deferred income taxes


474



472Debt


7,936



7,311Total liabilities


8,950



8,245Shareholders equityCapital surplus


592



592Investment in parent company preferred stock


(25
)


(25
)Accumulated other comprehensive income


12



26Retained earnings


434



545Total shareholders equity


1,013



1,138Total liabilities and shareholders equity

$
9,963


$
9,383    3




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH FLOWS
    THREE MONTHS ENDED MARCH 31, 2008 AND 2007
    (Unaudited)
  2008


2007(In millions)Cash flows from operating activities:Net income

$
31


$
35Adjustments to reconcile net income to net cash provided by
    operating activities:Provision for losses


27



5(Decrease) increase in accrued interest and other liabilities


(12
)


9Depreciation


7



7Amortization


3



2Non-cash gains in excess of collections on securitizations and
    syndications


(7
)


(3
)Deferred income tax provision


2



2Other  net


1



12Net cash provided by operating activities


52



69Cash flows from investing activities:Finance receivables originated or purchased


(3,033
)


(3,111
)Finance receivables repaid


2,092



2,469Proceeds from receivable sales, including securitizations


459



613Other investments


5



7Proceeds from disposition of operating lease and other assets


10



11Other capital expenditures


(3
)


(2
)Purchase of assets for operating leases


(7
)


(15
)Net cash used by investing activities


(477
)


(28
)Cash flows from financing activities:Proceeds from issuance of long-term debt


424



574Principal payments on long-term debt


(471
)


(82
)Proceeds from issuance of subordinated debt






300Net increase (decrease) in commercial paper


612



(684
)Net increase in other short-term debt


31



6Principal payments on nonrecourse debt


(42
)


(19
)Capital contributions from Textron Inc.


2



2Dividends paid to Textron Inc.


(144
)


(137
)Net cash provided (used) by financing activities


412



(40
)Net (decrease) increase in cash and equivalents


(13
)


1Cash and equivalents at beginning of year


60



47Cash and equivalents at end of period

$
47


$
48    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 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 income:Net income














31



31Other comprehensive loss:Foreign currency translation










(16
)






(16
)Change 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










1







1Other comprehensive loss










(14
)






(14
)Comprehensive income


















17Capital contributions from Textron Inc.


2















2Dividends to Textron Inc.


(2
)










(142
)


(144
)Balance March 31, 2008

$
592


$
(25
)

$
12


$
434


$
1,013    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.
    Other
    Income  Three Months EndedMarch 31,


March 31,2008


2007(In millions)Servicing income

$
10


$
8Investment income


4



3Syndication income


2



Prepayment gains


1



2Late charges


1



1Other


12



7Total other income

$
30


$
21     Note 3.  Managed
    and Serviced Finance Receivables
    March 31,


December 29,2008


2007(In millions)Total managed and serviced finance receivables

$
13,042


$
12,478Nonrecourse participations


(785
)


(760
)Third-party portfolio servicing


(615
)


(592
)Small business administration sales agreements


(2
)


(3
)Total managed finance receivables


11,640



11,123Securitized receivables


(2,901
)


(2,520
)Owned finance receivables

$
8,739


$
8,603  6




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
          March 31,


December 29,2008


2007(In millions)Rental receivable

$
1,516


$
1,561Nonrecourse debt


(988
)


(1,030
)Estimated residual values of leased assets


297



297825



828Less unearned income


(279
)


(284
)Investment in leveraged leases


546



544Deferred income taxes


(415
)


(408
)Net investment in leveraged leases

$
131


$
136   Note 4.
    Loan
    Impairment    March 31,


December 29,2008


2007(In millions)Impaired nonaccrual finance receivables

$
116


$
59Impaired accrual finance receivables


23



143Total impaired finance receivables

$
139


$
202Impaired nonaccrual finance receivables with identified reserve
    requirements

$
90


$
40Allowance for losses on impaired nonaccrual finance receivables

$
29


$
15  7




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    March 31,


December 29,2008


2007(In millions)Impaired nonaccrual finance receivables

$
116


$
59Nonaccrual homogeneous finance receivables


23



20Total nonaccrual finance receivables


139



79Repossessed assets and properties


40



44Total nonperforming assets

$
179


$
123         Note 5.
    Other
    Assets  March 31,


December 29,2008


2007(In millions)Retained interests in securitizations

$
249


$
203Other long-term investments


49



52Repossessed assets and properties


40



44Fixed assets  net


34



33Other


485



49Total other assets

$
857


$
381      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.
    Debt and
    Credit Facilities  March 31,


December 29,2008


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

$
2,053


$
1,447Other short-term debt


44



14Total short-term debt


2,097



1,461Long-term debt:Fixed-rate notesDue 2008 (weighted-average rates of 4.23% and 4.15%,
    respectively)


204



654Due 2009 (weighted-average rates of 5.59% and 5.60%,
    respectively)


713



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)


453



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


52



42Due 2013 and thereafter (weighted-average rates of 4.94% and
    5.19%, respectively)


280



177Total Fixed-rate notes


2,720



3,048Variable-rate notesDue 2008 (weighted-average rates of 3.08% and 5.05%,
    respectively)


605



605Due 2009 (weighted-average rates of 3.79% and 5.09%,
    respectively)


823



825Due 2010 (weighted-average rates of 3.86% and 5.06%,
    respectively)


952



906Due 2011 (weighted-average rates of 3.40% and 5.02%,
    respectively)


275



150Due 2013 and thereafter (weighted-average rate of 3.09)%


100



Total Variable-rate notes


2,755



2,486Subordinated debt:Due 2017 and thereafter (6.00)%


300



300Unamortized discount


(3
)


(4
)Fair value adjustments


67



20Total long-term and subordinated debt


5,839



5,850Total debt

$
7,936


$
7,311    9




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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


$
2,053


$
10


$
(313
)Textron multi-year facility expiring in 2012


1,250



97



23



1,130Total

$
3,000


$
2,150


$
33


$
817     March 31,


March 31,2008


2007Commercial paper:U.S.


3.27
%


5.41
%Canadian


3.44
%


4.33
%Other short-term debt


3.69
%


4.48
%       and/or
   10




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
            Note 7.
    Accumulated
    Other Comprehensive Income (Loss) and Comprehensive
    Income    Three Months EndedMarch 31,


March 31,2008


2007(In millions)Beginning of year

$
26


$
7Foreign currency translation


(16
)


(1
)Amortization of deferred loss on hedge contracts, net of income
    taxes of $0.9 million in 2007






1Net deferred gain (loss) on hedge contracts, net of income taxes
    of $0.4 million and income tax benefit of
    $0.5 million, respectively


1



(1
)Net deferred gain on interest-only securities, net of income
    taxes of $0.4 million in both 2008 and 2007


1



1End of period

$
12


$
7     Three Months EndedMarch 31,


March 31,2008


2007(In millions)Net income

$
31


$
35Other comprehensive income


(14
)


Comprehensive income

$
17


$
35  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.
    Fair
    Value of Financial Instruments  No. 157-2,
  No. 157-2
    Assets
    Recorded at Fair Value on a Recurring Basis
    March 31, 2008Quoted Prices in





SignificantActive Markets for


Significant Other


UnobservableIdentical Assets


Observable Inputs


InputsAssets

Total


(Level 1)


(Level 2)


(Level 3)(In millions)Interest-only strips

$
52


$



$



$
52Other marketable securities


18







18



Derivative financial instruments, net


64







64



Total assets

$
134


$



$
82


$
52  12




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Valuation
    Techniques
        Changes
    in Fair Value for Unobservable Input
    Interest-onlyStrips(In millions)Balance, beginning of period

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


21Change in value recognized in Other income


1Change in value recognized in Other comprehensive income


2Collections


(15
)Balance, end of period

$
52    13




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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    March 31,


March 31,2008


2007Federal statutory income tax rate


35.0
%


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


1.8



1.6Foreign tax rate differential


(12.7
)


(1.8
)Canadian dollar functional currency


0.1



(4.0
)Change in state valuation allowance


(0.5
)


Interest on tax contingencies  leveraged leases


4.2



3.3Tax credits


(1.8
)


(1.6
)Other, net


0.7



1.0Effective income tax rate


26.8
%


33.5
%       Note 10.
    Contingencies     14




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Note 11.
    Financial
    Information About Operating Segments    Three Months EndedMarch 31,


March 31,2008


2007(In millions)Revenues:Distribution Finance

$
65


$
83Aviation Finance


50



40Resort Finance


35



32Golf Finance


34



34Asset-Based Lending


20



23Structured Capital


9



(3
)Corporate and Other


1



1Total revenues

$
214


$
210Income before income taxes:(1)(2)Distribution Finance

$
12


$
28Aviation Finance


17



11Resort Finance


15



13Golf Finance


9



8Asset-Based Lending


(12
)


8Structured Capital


5



(8
)Corporate and Other


(4
)


(8
)Income before income taxes

$
42


$
52   March 31,


December 29,2008


2007(In millions)Finance assets:(3)Distribution Finance

$
2,378


$
1,936Aviation Finance


2,265



2,279Golf Finance


1,794



1,680Resort Finance


1,531



1,521Asset-Based Lending


1,017



1,004Structured Capital


631



631Corporate and Other


104



109Total finance assets

$
9,720


$
9,160  15




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    (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
    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.(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). 16




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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
     17




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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


$
2,053


$
10


$
(313
)Textron multi-year facility expiring in 2012


1,250



97



23



1,130Total

$
3,000


$
2,150


$
33


$
817                18




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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
    March 31,


December 29,2008


2007(Dollars in millions)Distribution Finance

$
4,113



35
%

$
3,812



34
%Aviation Finance


2,528



22
%


2,448



22
%Golf Finance


1,776



15
%


1,663



15
%Resort Finance


1,520



13
%


1,506



14
%Asset-Based Lending


1,017



9
%


1,004



9
%Structured Capital


609



5
%


608



5
%Corporate and Other


77



1
%


82



1
%Total managed finance receivables

$
11,640



100
%

$
11,123



100
%   Nonperforming
    Assets
   19




---



##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)    March 31,


December 29,2008


2007(Dollars in millions)Asset-Based Lending

$
62



6.09
%

$
23



2.31
%Distribution Finance


42



1.78
%


23



1.20
%Golf Finance


20



1.13
%


21



1.24
%Aviation Finance


17



0.72
%


20



0.89
%Resort Finance


10



0.67
%


9



0.57
%Corporate and Other


28



26.59
%


27



24.73
%Total nonperforming assets

$
179



1.84
%

$
123



1.34
%     Interest
    Rate Sensitivity
       20




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Financial
    Risk Management
      RESULTS
    OF OPERATIONS
  For
    the three months ended March 31, 2008 vs. March 31,
    2007
  Revenues
    and Net Interest Margin
    March 31,


March 31,2008


2007(Dollars in millions)Finance charges

$
155


$
166Securitization gains


20



15Rental revenues on operating leases


9



8Other income


30



21Total revenues


214



210Interest expense


86



100Depreciation of equipment on operating leases


5



4Net interest margin

$
123


$
106Portfolio yield


7.52
%


8.30
%Net interest margin as a percentage of average net investment


5.79
%


5.15
%    21




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)      Selling
    and Administrative Expenses
  March 31,


March 31,2008


2007(Dollars in millions)Selling and administrative expenses

$
54


$
49Selling and administrative expenses as a percentage of managed
    and serviced finance receivables


1.71
%


1.68
%Operating efficiency ratio


43.9
%


46.2
%     Provision
    for Losses
    March 31,


March 31,2008


2007(In millions)Allowance for losses on finance receivables beginning of year

$
89


$
93Provision for losses


27



5Less net charge-offs:Distribution Finance


9



3Aviation Finance


2



Golf Finance


1



Resort Finance


(1
)


Corporate and Other






1Total net charge-offs


11



4Allowance for losses on finance receivables end of period

$
105


$
94      22




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Income
    Taxes
    March 31,


March 31,2008


2007Federal statutory income tax rate


35.0
%


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


1.8



1.6Foreign tax rate differential


(12.7
)


(1.8
)Canadian dollar functional currency


0.1



(4.0
)Change in state valuation allowance


(0.5
)


Interest on tax contingencies  leveraged leases


4.2



3.3Tax credits


(1.8
)


(1.6
)Other, net


0.7



1.0Effective income tax rate


26.8
%


33.5
%       Operating
    Results by Segment
    Distribution
    Finance
  March 31,


March 31,2008


2007(In millions)Revenues

$
65


$
83Net interest margin

$
47


$
56Selling and administrative expenses


25



23Provision for losses


10



5Segment income

$
12


$
28    23




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Aviation
    Finance
  March 31,


March 31,2008


2007(In millions)Revenues

$
50


$
40Net interest margin

$
25


$
17Selling and administrative expenses


7



5Provision for losses


1



1Segment income

$
17


$
11     Resort
    Finance
  March 31,


March 31,2008


2007(In millions)Revenues

$
35


$
32Net interest margin

$
20


$
16Selling and administrative expenses


6



6Provision for losses


(1
)


(3
)Segment income

$
15


$
13     Golf
    Finance
  March 31,


March 31,2008


2007(In millions)Revenues

$
34


$
34Net interest margin

$
15


$
15Selling and administrative expenses


6



5Provision for losses






2Segment income

$
9


$
8    24




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Asset-Based
    Lending
  March 31,


March 31,2008


2007(In millions)Revenues

$
20


$
23Net interest margin

$
11


$
12Selling and administrative expenses


6



5Provision for losses


17



(1
)Segment (loss) income

$
(12
)

$
8     Structured
    Capital
  March 31,


March 31,2008


2007(In millions)Revenues

$
9


$
(3
)Net interest margin

$
6


$
(7
)Selling and administrative expenses


1



1Segment income (loss)

$
5


$
(8
)     Corporate
    and Other Segment
  March 31,


March 31,2008


2007(In millions)Revenues

$
1


$
1Net interest margin

$
(1
)

$
(3
)Selling and administrative expenses


3



4Provision for losses






1Segment loss

$
(4
)

$
(8
)    25




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)  Selected
    Financial Ratios
  Three Months EndedMarch 31,


March 31,2008


2007Net interest margin as a percentage of average net investment(1)


5.79
%


5.15
%Return on average equity


11.05
%


12.73
%Return on average assets


1.29
%


1.54
%Selling and administrative expenses as a percentage of average
    managed and serviced finance receivables(2)


1.71
%


1.68
%Operating efficiency ratio(3)


43.9
%


46.2
%Net charge-offs as a percentage of average finance receivables


0.47
%


0.13
%March 31,


December 29,2008


200760+ days contractual delinquency as a percentage of finance
    receivables(4)


0.33
%


0.43
%Nonperforming assets as a percentage of finance assets(5)


1.84
%


1.34
%Allowance for losses on finance receivables as a percentage of
    finance receivables


1.21
%


1.03
%Allowance for losses on finance receivables as a percentage of
    nonaccrual finance receivables


75.9
%


111.7
%Total debt to tangible shareholders equity(6)


9.55
x


7.76x     (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 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. 26




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##### 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, such as the Risk Factors
    contained in our 2007 Annual Report on Form
    10-K and
    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 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 tailored to address such
    contingencies; (k) the launching of significant new
    products or programs which could result in unanticipated
    expenses; and (l) risks and uncertainties related to
    acquisitions and dispositions.
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-Q.
  Item 4.
    Controls
    and Procedures  Rule 13a-15(e) 15d-15(e)
   27




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##### Table of Contents



PART II.
    OTHER INFORMATION



TEXTRON
    FINANCIAL CORPORATION  Item 6.
    Exhibits  4
.1

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, 2008.12


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  28




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##### Table of Contents



SIGNATURES
      /s/  Thomas
    J. Cullen       29