##### 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, 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(State or other jurisdiction
    of
    incorporation or organization)

05-6008768(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
    (Do not check if a smaller reporting company)

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 months ended March 31, 2009 and
    2008 (unaudited)


2Consolidated Balance Sheets at March 31,
    2009 and January 3, 2009 (unaudited)


3Consolidated Statements of Cash Flows for the
    three months ended March 31, 2009 and 2008 (unaudited)


4Consolidated Statements of Changes in Equity
    through March 31, 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


23Item 3.


QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
    MARKET RISK


36Item 4.


CONTROLS AND PROCEDURES


36PART II. OTHER INFORMATIONItem 6.


EXHIBITS


37Ex-12 Computation of Ratio of Earnings to Fixed ChargesEx-31.1 Certification of Chief Executive OfficerEx-31.2 Certification of Chief Financial OfficerEx-32.1 Certification of Chief Executive OfficerEx-32.2 Certification of Chief Financial Officer   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  TEXTRON
    FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF OPERATIONS
    THREE MONTHS ENDED MARCH 31, 2009 AND 2008
    (Unaudited)
  2009


2008(In millions)Finance charges

$
115


$
155Securitization (losses) gains


(7
)


20Rental revenues on operating leases


8



9Other income


6



30Total revenues


122



214Interest expense


54



86Depreciation of equipment on operating leases


5



5Net interest margin


63



123Provision for losses


76



27Selling and administrative expenses


53



54(Loss) income before special charges and income taxes


(66
)


42Special charges


3



(Loss) income before income taxes


(69
)


42Income tax (benefit) expense


(16
)


11Net (loss) income

$
(53
)

$
31    2




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##### Table of Contents



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


January 3,2009


2009(In millions)AssetsCash and equivalents

$
637


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


2,713



2,787Revolving loans


1,277



1,208Distribution finance receivables


1,183



647Golf course and resort mortgages


1,133



1,206Finance leases


579



608Leveraged leases


387



459Total finance receivables held for investment


7,272



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


(220
)


(191
)Finance receivables held for investment  net


7,052



6,724Finance receivables held for sale


887



1,658Equipment on operating leases  net


239



247Other assets


748



699Total assets

$
9,563


$
9,344Liabilities and equityLiabilitiesAccrued interest and other liabilities

$
404


$
379Amounts due to Textron Inc.


30



161Deferred income taxes


212



337Debt


7,954



7,388Total liabilities


8,600



8,265EquityShareholders equityCapital surplus


1,217



1,217Investment in parent company preferred stock


(25
)


(25
)Accumulated other comprehensive loss


(55
)


(55
)Retained deficit


(195
)


(58
)Total shareholders equity


942



1,079Noncontrolling interest


21



Total equity


963



1,079Total liabilities and equity

$
9,563


$
9,344    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, 2009 AND 2008
    (Unaudited)
  2009


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

$
(53
)

$
31Adjustments to reconcile net (loss) income to net cash provided
    by operating activities:Deferred income tax provision


(121
)


2Increase (decrease) in income taxes payable


92



(9
)Provision for losses


76



27Depreciation


7



7Collections in excess of non-cash gains/impairments on
    securitizations and syndications


6



(7
)Restructuring charges


3



Amortization


1



3Decrease in accrued interest and other liabilities


(6
)


(3
)Other  net


13



1Net cash provided by operating activities


18



52Cash flows from investing activities:Finance receivables originated or purchased


(1,325
)


(3,033
)Finance receivables repaid


1,513



2,092Proceeds from disposition of other assets, including repossessed
    assets and properties and operating leases


72



10Proceeds from receivable sales, including securitizations


59



459Other investments


11



2Purchase of assets for operating leases


(3
)


(7
)Net cash provided (used) by investing activities


327



(477
)Cash flows from financing activities:Proceeds from line of credit


1,740



Net (decrease) increase in commercial paper


(735
)


612Principal payments on long-term debt


(221
)


(471
)Proceeds from issuance of long-term debt






424Principal payments on secured debt


(193
)


Proceeds from issuance of secured debt


16



Principal payments on nonrecourse debt


(129
)


(42
)Net (decrease) increase in other short-term debt


(8
)


31Net decrease in intercompany loan due to Textron Inc.


(133
)


Proceeds from sale of noncontrolling interest


21



Capital contributions from Textron Inc.


2



2Dividends paid to Textron Inc.


(86
)


(144
)Net cash provided by financing activities


274



412Effect of exchange rate changes on cash


2



Net increase (decrease) in cash and equivalents


621



(13
)Cash and equivalents at beginning of year


16



60Cash and equivalents at end of period

$
637


$
47    4




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)  TEXTRON
    FINANCIAL CORPORATION
  CONSOLIDATED
    STATEMENTS OF CHANGES IN EQUITY
 (Unaudited)
  Investmentin Parent


Accumulated





TotalCompany


Other


Retained


Share-Capital


Preferred


Comprehensive


Earnings


holders


Noncontrolling


TotalSurplus


Stock


Income (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














(53
)


(53
)






(53
)Other comprehensive loss:Foreign currency translation, net of income taxes










2







2







2Change in unrealized net losses on interest-only securities, net
    of income tax benefit










(2
)






(2
)






(2
)Other comprehensive loss


























Comprehensive loss


















(53
)






(53
)Capital contributions from Textron Inc.


2















2







2Dividends to Textron Inc.


(2
)










(84
)


(86
)






(86
)Sale of noncontrolling interest






















21



21Balance March 31, 2009

$
1,217


$
(25
)

$
(55
)

$
(195
)

$
942


$
21


$
963    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  No. 115-2 FAS 124-2
  No. 157-4
 6




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note
    3.
    Other
    Income  Three Months EndedMarch 31,


March 31,2009


2008(In millions)Servicing income

$
10


$
10Investment income


4



4Late charges


1



1Syndication income






2Prepayment gains


(1
)


1Portfolio (losses) gains


(10
)


5Other


2



7Total other income

$
6


$
30       Note 4.
    Special
    Charges    Severance


ContractCosts


Terminations


Total(In millions)Balance at January 3, 2009

$
11


$
1


$
12Additions


2



1



3Cash Paid


(4
)






(4
)Balance at March 31, 2009

$
9


$
2


$
11  7




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Note 5.
    Managed
    and Serviced Finance Receivables    March 31,


January 3,2009


2009(In millions)Total managed and serviced finance receivables

$
11,201


$
12,173Nonrecourse participations


(813
)


(820
)Third-party portfolio servicing


(493
)


(532
)Total managed finance receivables


9,895



10,821Securitized finance receivables


(1,736
)


(2,248
)Finance receivables


8,159



8,573Finance receivables held for sale


(887
)


(1,658
)Finance receivables held for investment

$
7,272


$
6,915        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.
    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

$
410


$
337


$
346


$
359


$
338


$
923


$
2,713Revolving loans


345



466



347



189



4



26



1,377Distribution finance receivables


783



266



70



51



70







1,240Golf course and resort mortgages


103



218



274



178



105



255



1,133Finance leases


146



133



113



60



17



110



579Leveraged leases


15



1



8



(9
)


(6
)


378



387Total finance receivables held for investment

$
1,802


$
1,421


$
1,158


$
828


$
528


$
1,692


$
7,429      9




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##### Table of Contents



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


January 3,2009


2009(In millions)Rental receivable

$
1,059


$
1,252Nonrecourse debt


(623
)


(759
)Estimated residual values of leased assets


194



229630



722Less unearned income


(243
)


(263
)Investment in leveraged leases


387



459Deferred income taxes


(277
)


(350
)Net investment in leveraged leases

$
110


$
109   Loan
    Impairment
    March 31,


January 3,2009


2009(In millions)Impaired nonaccrual finance receivables

$
388


$
234Impaired accrual finance receivables


91



19Total impaired finance receivables

$
479


$
253Impaired nonaccrual finance receivables with identified reserve
    requirements

$
278


$
182Allowance for losses on impaired nonaccrual finance receivables

$
52


$
43     10




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##### Table of Contents



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


January 3,2009


2009(In millions)Impaired nonaccrual finance receivables

$
388


$
234Nonaccrual homogeneous finance receivables


56



43Total nonaccrual finance receivables

$
444


$
277         Note 7.
    Other
    Assets  March 31,


January 3,2009


2009(In millions)Retained interests in securitizations

$
191


$
200Operating assets received in satisfaction of troubled finance
    receivables


167



84Repossessed assets and properties


94



70Investments in other marketable securities


87



95Other long-term investments


27



30Fixed assets  net


26



24Other


156



196Total other assets

$
748


$
699        11




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  and/or
    Note 8.
    Comprehensive
    (Loss) Income    Three Months EndedMarch 31,


March 31,2009


2008(In millions)Net (loss) income

$
(53
)

$
31Foreign currency translation, net of income taxes


2



(16
)Net deferred gain on hedge contracts, net of income taxes of
    $0.4 million in 2008






1Net deferred (loss) gain on interest-only securities, net of
    income tax benefit of $1.2 million and income taxes of
    $0.4 million, respectively


(2
)


1Comprehensive (loss) income

$
(53
)

$
17   Note 9.
    Fair
    Value of Financial Instruments     12




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Assets
    Recorded at Fair Value on a Recurring Basis
    March 31, 2009SignificantSignificant Other


UnobservableObservable Inputs


Inputs(Level 2)


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

$
84


$
Interest-only securities






3Total assets

$
84


$
3   Changes
    in Fair Value for Unobservable Input
    March 31,


March 31,2009


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

$
12


$
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


(3
)


2Impairments


(6
)


Collections






(15
)Balance, end of period

$
3


$
52   Assets
    Recorded at Fair Value on a Nonrecurring Basis
    13




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##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  March 31, 2009SignificantUnobservableInputs(Level 3)(In millions)Finance receivables held for sale

$
887Impaired loans


226Repossessed assets and properties


6Operating assets received in satisfaction of troubled finance
    receivables


6Total assets

$
1,125   Finance
    Receivables Held for Sale
    Impaired
    Loans
    Repossessed
    Assets and Properties / Operating Assets Received in
    Satisfaction of Troubled Finance Receivables
    Note 10.
    Derivative
    Financial Instruments   14




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##### Table of Contents



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


Fair Value AmountAssets


LiabilitiesMarch 31,


January 3,


March 31,


January 3,


March 31,


January 3,2009


2009


2009


2009


2009


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

$
1,897


$
2,055


$
97


$
112


$



$
Fixed-rate receivable


379



32











(19
)


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


80



139











(3
)


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


140



140



9



21







Foreign-dollar denominated variable-rate receivable


5



5











(1
)


(1
)$
2,501


$
2,371


$
106


$
133


$
(23
)

$
(8
)
    15




---



##### Table of Contents



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


Fair Value AmountAssets


LiabilitiesMarch 31,


January 3,


March 31,


January 3,


March 31,


January 3,2009


2009


2009


2009


2009


2009(In millions)Foreign currency forward exchange agreements

$
654


$
536


$
1


$



$



$
Interest rate exchange agreements






336















(13
)$
654


$
872


$
1


$



$



$
(13
)           Amount of Gain/(Loss)Three Months EndedMarch 31,


March 31,Gain/(Loss) Location

2009


2008(In millions)Fair Value HedgesInterest rate exchange agreements

Interest expense

$
2


$
48Non-designated HedgesInterest rate exchange agreements

Other income

$
(1
)

$
Foreign currency forward exchange agreements

Selling and
    administrative
    expenses

$



$
(3
)   16




---



##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  Amount of Gain/(Loss) inOther ComprehensiveIncome Three Months




Gain/(Loss) AmountEnded




Three Months EndedMarch 31,


March 31,




March 31,


March 31,2009


2008


Gain/(Loss) Location

2009


2008(In millions)Cash Flow HedgesCross-Currency Interest
    Rate Exchange AgreementInterest impact

$
1


$
(1
)

Interest expense

$
1


$
Foreign exchange impact









Selling and administrative expenses


(12
)


1   Note 11.
    Receivable
    Securitizations      2009


2008(In millions)Net pre-tax (impairments) gains

$
(6
)

$
15Proceeds from securitizations






250Cash flows received on retained interests






13Servicing fees received


8



8    17




---



##### Table of Contents



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


10% Adverse


20% AdverseMarch 31, 2009


Change


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


1.89
%

$
(3
)

$
(5
)Monthly payment rate


12.8
%


(3
)


(5
)Residual cash flows discount rate


18.5
%


(4
)


(7
)     Note 12.
    Income
    Taxes    Three Months EndedMarch 31,


March 31,2009


2008Federal statutory income tax rate


(35.0
)%


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






1.8Foreign tax rate differential


13.0



(12.7
)Canadian dollar functional currency






0.1Change in state valuation allowance


(0.9
)


(0.5
)Tax contingencies


2.1



5.3Tax credits


(1.0
)


(1.9
)Change in status of foreign subsidiary


(0.1
)


Other, net


(0.4
)


(0.3
)Effective income tax rate


(22.3
)%


26.8
%      18




---



##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
    Note 13.
    Contingencies    Note 14.
    Financial
    Information about Operating Segments      19




---



##### Table of Contents



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


March 31,2009


2008(In millions)Revenues:Aviation Finance

$
42


$
50Resort Finance


28



35Golf Finance


23



34Distribution Finance


20



65Asset-Based Lending


12



20Structured Capital


(2
)


9Corporate and Other


(1
)


1Total revenues

$
122


$
214(Loss) income before special charges and income taxes:(1)(2)Aviation Finance

$
(20
)

$
17Resort Finance


(14
)


15Golf Finance


(14
)


9Distribution Finance


(13
)


12Asset-Based Lending


5



(12
)Structured Capital


(5
)


5Corporate and Other


(5
)


(4
)(Loss) income before special charges and income taxes

$
(66
)

$
42Special charges


3



(Loss) income before income taxes

$
(69
)

$
42   March 31,


January 3,2009


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

$
2,971


$
3,035Golf Finance


1,748



1,806Resort Finance


1,704



1,727Distribution Finance


1,405



1,389Structured Capital


559



603Asset-Based Lending


506



649Corporate and Other


72



90Total finance assets

$
8,965


$
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- 20




---



##### Table of Contents



Item 1.
    Financial
    Statements (Continued)   TEXTRON
    FINANCIAL CORPORATION
  NOTES TO
    THE CONSOLIDATED FINANCIAL STATEMENTS
 (Unaudited)
  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 determined
    based on 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 $11 million of interest expense to the six
    operating segments in excess of the interest expense actually
    incurred by the Company.(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 were aggregated in
    the Corporate and Other segment in the first quarter of 2009.
    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  Our
    ability to fund our captive financing activities at economically
    competitive levels depends on our ability to borrow and the cost
    of borrowing in the credit markets.
    If our
    estimates or assumptions used in determining the fair value of
    certain of our assets and our allowance for losses on finance
    receivables prove to be incorrect, our cash flow, profitability,
    financial condition, and business prospects could be materially
    adversely affected.
    If we
    fail to comply with the covenants contained in our various debt
    agreements, it may adversely affect our liquidity, results of
    operations and financial condition.
       22




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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
   23




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)       24




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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 and commercial paper

$
8


$



$



$
1,740


$



$



$
1,748Other short-term debt


16























16Term debt


2,075



2,211



53



203



428



147



5,117Securitized on-balance sheet debt


218



67



79



87



71



153



675Subordinated debt






















300



300Securitized off-balance sheet debt


2,031



5















31



2,067Loan commitments


42



6



2











66



116Operating lease rental payments


5



4



4



1



1



1



16Total payments due


4,395



2,293



138



2,031



500



698



10,055Cash and contractual receipts:Finance receivable receipts  held for investment


1,802



1,421



1,158



828



528



1,692



7,429Finance receivable receipts   held for sale


349



195



224



205



6



64



1,043Securitized off-balance sheet finance receivable and cash
    receipts


2,202



5















31



2,238Operating lease rental receipts


30



26



22



16



9



22



125Total contractual receipts


4,383



1,647



1,404



1,049



543



1,809



10,835Cash


637























637Total cash and contractual receipts


5,020



1,647



1,404



1,049



543



1,809



11,472Net cash and contractual receipts (payments)

$
625


$
(646
)

$
1,266


$
(982
)

$
43


$
1,111


$
1,417Cumulative net cash and contractual receipts (payments)

$
625


$
(21
)

$
1,245


$
263


$
306


$
1,417      25




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##### Table of Contents



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


March 31,2009


2008(In millions)Operating activities

$
18


$
52Investing activities


327



(477
)Financing activities


274



412  26




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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
     27




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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
    2009 vs. 2008(In millions)Lower market interest rates

$
(39
)Lower securitization gains


(21
)Lower other income, including asset impairments and prepayment
    income


(19
)Benefit from variable-rate receivable interest rate floors


16Acceleration of deferred loan origination cost amortization


(8
)Lower average finance receivables of $389 million


(7
)Increased impairments of retained interests in securitizations


(6
)Gain on sale of a leveraged lease investment in 2008


(5
)   (Loss)
    Income before Special Charges and Income Taxes
    2009 vs. 2008(In millions)Increase in the provision for loan losses

$
(49
)Lower securitization gains


(21
)Lower other income, including asset impairments and prepayment
    income


(19
)Benefit from variable-rate receivable interest rate floors


16Acceleration of deferred loan origination cost amortization


(8
)Higher borrowing costs, relative market rates


(8
)Lower average finance receivables of $389 million


(7
)Increased impairments of retained interests in securitizations


(6
)Gain on sale of a leveraged lease investment in 2008


(5
)    28




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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 EndedMarch 31,


March 31,2009


2008Federal statutory income tax rate


(35.0
)%


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






1.8Foreign tax rate differential


13.0



(12.7
)Canadian dollar functional currency






0.1Change in state valuation allowance


(0.9
)


(0.5
)Tax contingencies


2.1



5.3Tax credits


(1.0
)


(1.9
)Change in status of foreign subsidiary


(0.1
)


Other, net


(0.4
)


(0.3
)Effective income tax rate


(22.3
)%


26.8
%       Credit
    Quality
  Nonaccrual
    Finance Receivables
    and/or
 29




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##### Table of Contents



Item 2.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations (Continued)    March 31, 2009


January 3, 2009(Dollars in millions)Resort Finance

$
200



12.79
%

$
78



4.96
%Golf Finance


103



7.41
%


125



8.37
%Aviation Finance


66



2.44
%


17



0.62
%Distribution Finance


65



6.33
%


43



9.02
%Corporate and Other


10



18.48
%


14



20.46
%Total nonaccrual finance receivables

$
444



6.11
%

$
277



4.01
%       March 31,


March 31,2009


2008(Dollars in millions)Allowance for losses on finance receivables held for investment,
    beginning of year

$
191


$
89Provision for losses


76



27Less net charge-offs:Golf Finance


23



1Distribution Finance


12



9Aviation Finance


6



2Resort Finance


2



(1
)Corporate and Other


4



Total net charge-offs


47



11Allowance for losses on finance receivables held for investment,
    end of period

$
220


$
105Net charge-offs as a percentage of average finance receivables
    held for investment


2.82
%


0.47
%   30




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##### Table of Contents



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


January 3,2009


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


6.11
%


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


3.03
%


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


49.6
%


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


4.29
%


2.59
%Operating assets received in satisfaction of troubled finance
    receivables

$
167


$
84Repossessed assets and properties


94



70       Managed
    Finance Receivables
    March 31,


January 3,2009


2009(Dollars in millions)Distribution Finance

$
2,884



29
%

$
3,379



31
%Aviation Finance


2,717



28
%


2,795



26
%Golf Finance


1,675



17
%


1,785



16
%Resort Finance


1,623



16
%


1,636



15
%Asset-Based Lending


507



5
%


649



6
%Structured Capital


434



4
%


508



5
%Corporate and Other


55



1
%


69



1
%Total managed finance receivables

$
9,895



100
%

$
10,821



100
%    31




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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
    Aviation
    Finance
  March 31,


March 31,2009


2008(In millions)Revenues

$
42


$
50Net interest margin

$
15


$
25Selling and administrative expenses


5



7Provision for losses


30



1Segment (loss) income

$
(20
)

$
17     Resort
    Finance
  March 31,


March 31,2009


2008(In millions)Revenues

$
28


$
35Net interest margin

$
19


$
20Selling and administrative expenses


5



6Provision for losses


28



(1
)Segment (loss) income

$
(14
)

$
15     Golf
    Finance
  March 31,


March 31,2009


2008(In millions)Revenues

$
23


$
34Net interest margin

$
7


$
15Selling and administrative expenses


8



6Provision for losses


13



Segment (loss) income

$
(14
)

$
9  32




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##### Table of Contents



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


March 31,2009


2008(In millions)Revenues

$
20


$
65Net interest margin

$
9


$
47Selling and administrative expenses


17



25Provision for losses


5



10Segment (loss) income

$
(13
)

$
12     Asset-Based
    Lending
  March 31,


March 31,2009


2008(In millions)Revenues

$
12


$
20Net interest margin

$
8


$
11Selling and administrative expenses


3



6Provision for losses






17Segment income (loss)

$
5


$
(12
)    33




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##### Table of Contents



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


March 31,2009


2008(In millions)Revenues

$
(2
)

$
9Net interest margin

$
(4
)

$
6Selling and administrative expenses


1



1Segment (loss) income

$
(5
)

$
5     Corporate
    and Other Segment
  March 31,


March 31,2009


2008(In millions)Revenues

$
(1
)

$
1Net interest margin

$
9


$
(1
)Selling and administrative expenses


14



3Provision for losses






Segment loss

$
(5
)

$
(4
)     Selected
    Financial Ratios
  Three Months EndedMarch 31,


March 31,2009


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


3.11
%


5.79
%Return on average equity


(20.26
)%


11.05
%Return on average assets


(2.25
)%


1.29
%Selling and administrative expenses as a percentage of average
    managed and serviced finance receivables(2)


1.82
%


1.71
%Operating efficiency ratio(3)


84.1
%


43.9
%Net charge-offs as a percentage of average finance receivables
    held for investment


2.82
%


0.47
%   34




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##### Table of Contents



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


January 3,2009


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


4.29
%


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


6.11
%


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


3.03
%


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


49.6
%


68.9
%Total debt to tangible equity(5)


7.82
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
  No. 115-2 FAS 124-2
  No. 157-4
 35




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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, including the Risk
    Factors contained herein and in our 2008 Annual Report on
    Form 10-K
    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 credit facilities and under our
    Support Agreement with Textron; (h) access to financing,
    including securitizations, at competitive rates; (i) access
    to equity in the form of retained earnings and capital
    contributions from Textron; (j) uncertainty in estimating
    contingent liabilities and establishing reserves to address such
    contingencies; (k) the launching of significant new
    products or programs which could result in unanticipated
    expenses; (l) risks and uncertainties related to
    acquisitions and dispositions, including difficulties or
    unanticipated expenses in connection with the consummation of
    acquisitions or dispositions, the disruption of current plans
    and operations, or the failure to achieve anticipated synergies
    and opportunities; (m) the ability to successfully exit
    from our commercial finance business, other than the captive
    finance business, including effecting an orderly liquidation or
    sale of certain portfolios and businesses; (n) uncertainty
    in estimating the market value of our Finance receivables held
    for sale and our Allowance for losses on finance receivables
    held for investment; (o) bankruptcy or other financial
    problems at major customers that could cause disruptions or
    difficulty in collecting amounts owed by such customers;
    (p) legislative or regulatory actions impacting our
    operations; and (q) continued volatility and further
    deterioration of the capital markets.
  Item 3.
    Quantitative
    and Qualitative Disclosures About Market Risk  Form 10-K.
  Item 4.
    Controls
    and Procedures  Rule 13a-15(e) 15d-15(e)
   36




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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  37




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##### Table of Contents



SIGNATURES
      
       38