##### Table of Contents



UNITED STATES
 SECURITIES AND EXCHANGE
    COMMISSION
 Washington, D.C. 20549
      FORM 10-Q
  [x]

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
    SECURITIES EXCHANGE ACT OF 1934For the fiscal quarter ended March 31, 2010OR[ ]

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, Providence, RI

02940-6687(Address of principal executive offices)

(Zip code)   401-621-4200
 (Registrants telephone
    number, including area code)
      ü.
  Regulation S-T
  Rule 12b-2
  Large accelerated filer.

Accelerated filer.

Non-accelerated
    filer ü.

Smaller reporting company.(Do not check if smaller reporting company)   Rule 12b-2  ü.
    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




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##### 



TEXTRON
    FINANCIAL CORPORATION
  TABLE OF
    CONTENTS
   
 PagePART I. FINANCIAL INFORMATIONItem 1. FINANCIAL STATEMENTSConsolidated Statements of Operations for the
    three months ended March 31, 2010 and 2009 (unaudited)


2Consolidated Balance Sheets at March 31,
    2010 and January 2, 2010 (unaudited)


3Consolidated Statements of Cash Flows for the
    three months ended March 31, 2010 and 2009 (unaudited)


4Consolidated Statements of Changes in Equity
    through March 31, 2010 (unaudited)


5Notes to the Consolidated Financial Statements
    (unaudited)


6Item 1A. RISK FACTORS


17Item 2. MANAGEMENTS DISCUSSION AND
    ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS


17Item 4. CONTROLS AND PROCEDURES


19PART II. OTHER INFORMATIONItem 6. EXHIBITS


20EX-12EX-31.1EX-31.2EX-32.1EX-32.2   1




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##### Table of Contents



PART I.
    FINANCIAL INFORMATION  Item 1.
    Financial
    Statements  TEXTRON
    FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF
    OPERATIONS
 (Unaudited)
  Three Months EndedMarch 31,



March 31,2010



2009(In millions)Finance charges


$
85



$
115Rental revenues on operating leases



6




8Portfolio losses



(13
)



(10
)Securitization losses:Total
    other-than-temporary
    impairments








(6
)Portion of
    other-than-temporary
    impairments recognized in Other comprehensive income, before
    income taxes








Net
    other-than-temporary
    impairment recognized in securitization losses








(6
)Other securitization losses








(1
)Securitization losses








(7
)Other (loss) income



(5
)



16Total revenues



73




122Interest expense



32




54Depreciation of equipment on operating leases



4




5Net interest margin



37




63Provision for losses



55




76Operating and administrative expenses



41




53Restructuring charges



3




3Loss before income taxes



(62
)



(69
)Income tax benefit



(21
)



(16
)Net loss


$
(41
)


$
(53
)    2




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATION
 CONSOLIDATED BALANCE SHEETS
 (Unaudited)
  March 31,



January 2,2010



2010(In millions)AssetsCash and equivalents


$
93



$
144Finance receivables held for investment, net of unearned income:Installment contracts



2,174




2,327Revolving loans



1,032




1,137Golf course, timeshare and hotel mortgages



1,024




1,073Distribution finance receivables



584




771Leveraged leases



314




313Finance leases



247




403Total finance receivables held for investment



5,375




6,024Allowance for losses on finance receivables held for investment



(363
)



(339
)Finance receivables held for investment  net



5,012




5,685Finance receivables held for sale



721




819Equipment on operating leases  net



212




216Other assets



426




460Total assets


$
6,464



$
7,324Liabilities and equity LiabilitiesAccrued interest and other liabilities


$
343



$
423Amounts due to Textron Inc.



664




472Deferred income taxes



126




137Debt



4,617




5,488Total liabilities



5,750




6,520Shareholders EquityCapital surplus



1,562




1,487Subsidiary preferred stock



1




1Investment in parent company preferred stock



(25
)



(25
)Accumulated other comprehensive loss



(48
)



(49
)Retained deficit



(776
)



(610
)Total shareholders equity



714




804Total liabilities and shareholders equity


$
6,464



$
7,324    3




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATIONCONSOLIDATED STATEMENTS OF CASH
    FLOWS THREE MONTHS ENDED MARCH 31, 2010 and
    2009
    (Unaudited)
  2010


2009(In millions)Cash flows from operating activities:Net loss


$
(41
)


$
(53
)Adjustments to reconcile net loss to net cash provided by
    operating activities:(Decrease) increase in income taxes payable



(65
)



92Provision for losses



55




76Portfolio losses



28




10Decrease in accrued interest and other liabilities



(26
)



(1
)Deferred income tax provision



(9
)



(121
)Depreciation and amortization



8




8Valuation allowance on finance receivables held for sale



4




Restructuring charges



(1
)



(2
)Other  net



(3
)



9Net cash (used) provided by operating activities



(50
)



18Cash flows from investing activities:Finance receivables originated or purchased



(198
)



(1,325
)Finance receivables repaid



655




1,513Proceeds from receivable sales, including securitizations



263




59Proceeds from disposition of other assets, including repossessed
    assets and properties and operating leases



37




72Other investments



28




11Purchase of assets for operating leases



(5
)



(3
)Net cash provided by investing activities



780




327Cash flows from financing activities:Proceeds from line of credit








1,740Principal payments on long-term debt



(791
)



(221
)Net decrease in commercial paper








(735
)Principal payments on secured debt



(108
)



(193
)Principal payments on nonrecourse debt



(21
)



(129
)Net increase (decrease) in intercompany loan due to Textron
    Inc.



190




(133
)Capital contributions from Textron Inc.



77




2Dividends paid to Textron Inc.



(127
)



(86
)Other  net








29Net cash (used) provided by financing activities



(780
)



274Effect of exchange rate changes on cash



(1
)



2Net (decrease) increase in cash and equivalents



(51
)



621Cash and equivalents at beginning of year



144




16Cash and equivalents at end of period


$
93



$
637    4




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TEXTRON
    FINANCIAL CORPORATION
 CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
 (Unaudited)
  InvestmentIn Parent





Accumulated





TotalCompany


Subsidiary


Other


Retained


Share-


Non-Capital


Preferred


Preferred


Comprehensive


Earnings


holders


controlling


TotalSurplus


Stock


Stock


Income (Loss)


(Deficit)


Equity


Interest


EquityBalance January 3, 2009

$
1,217


$
(25
)

$



$
(55
)

$
(58
)

$
1,079


$



$
1,079Comprehensive loss:Net loss


















(203
)


(203
)


(2
)


(205
)Other comprehensive income:Foreign currency translation, net of income taxes














7







7







7Change in unrealized net losses on retained interests, net of
    income tax benefit














(1
)






(1
)






(1
)Other comprehensive income














6







6







6Comprehensive loss






















(197
)


(2
)


(199
)Capital contributions from Textron Inc.


279



















279







279Dividends to Textron Inc.


(9
)














(349
)


(358
)






(358
)Sale of subsidiary preferred stock










1











1







1Sale of noncontrolling interest


























21



21Repurchase of noncontrolling interest


























(19
)


(19
)Balance January 2, 2010


1,487



(25
)


1



(49
)


(610
)


804







804Comprehensive loss:Net loss


















(41
)


(41
)






(41
)Other comprehensive income:Change in unrealized net losses on hedge contracts, net of
    income tax benefit














2







2







2Foreign currency translation, net of income taxes














(1
)






(1
)






(1
)Other comprehensive income














1







1







1Comprehensive loss
    (1)






















(40
)






(40
)Capital contributions from Textron Inc.


77



















77







77Dividends to Textron Inc.


(2
)














(125
)


(127
)






(127
)Balance March 31, 2010

$
1,562


$
(25
)

$
1


$
(48
)

$
(776
)

$
714


$



$
714    (1)
    
    Comprehensive loss was
    $40 million for the three months ended March 31, 2010
    as compared to $53 million for the three months ended
    March 31, 2009.   5




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##### Table of Contents



TEXTRON
    FINANCIAL CORPORATIONNOTES TO THE CONSOLIDATED FINANCIAL
    STATEMENTS(Unaudited)
  Note 1.
    Basis of Presentation
  Form 10-K
    Note 2.
    Special Charges
  Restructuring
    charges
        Severance andPensionCurtailmentCosts(In millions)Balance at January 2, 2010


$
13Additions



3Cash Paid



(4
)Balance at March 31, 2010


$
12  6




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##### Table of Contents



Captive



Non-captiveFinance



Finance



Total(In millions)Severance and pension curtailment costs


$
1



$
29



$
30Non-cash asset impairments



3




8




11Contract termination costs








2




2Total Restructuring costs


$
4



$
39



$
43     Note 3.
    Finance Receivables
  Managed
    Finance Receivables
    March 31,







January 2,2010







2010(Dollars in millions)Captive FinanceAviation


$
2,189




36%



$
2,353




34%Golf Equipment



391




6%




417




6%Non-captive FinanceTimeshare



1,202




20%




1,302




19%Golf Mortgage



913




15%




933




14%Distribution Finance



697




11%




1,076




16%Structured Capital



351




6%




349




5%Asset-Based Lending



152




3%




170




2%Hotel



114




2%




182




3%Other Liquidating



87




1%




91




1%Total managed finance receivables


$
6,096




100%



$
6,873




100%   Finance
    Receivables Held for Investment
       7




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Impaired Finance ReceivablesMarch 31,



January 2,2010



2010(In millions)Impaired nonaccrual finance receivables


$
966



$
984Impaired accrual finance receivables



158




217Total impaired finance receivables



1,124




1,201Less: Impaired finance receivables without identified reserve
    requirements



347




362Impaired nonaccrual finance receivables with identified reserve
    requirements


$
777



$
839Allowance for losses on impaired nonaccrual finance receivables


$
174



$
153     Nonaccrual Finance ReceivablesMarch 31,



January 2,2010



2010(In millions)Impaired nonaccrual finance receivables


$
966



$
984Nonaccrual homogeneous finance receivables



66




56Total nonaccrual finance receivables


$
1,032



$
1,040     March 31, 2010



January 2, 2010Allowance










Allowance forfor Losses










Losses onImpaired



on Impaired







Impaired


ImpairedNonaccrual



Nonaccrual



Nonaccrual



Nonaccrual



Nonaccrual


NonaccrualFinance



Finance



Finance



Finance



Finance


FinanceCollateral Type


Receivables



Receivables



Receivables



Receivables



Receivables


Receivables(In millions)Captive Finance:General aviation aircraft


$
244



$
232



$
52



$
286



$
272


$
46Golf equipment



27




6




1




16




2



1Non-captive Finance:Notes receivable
    (1)(2)


$
246



$
245



$
72



$
259



$
254


$
53Golf course property



200




199




30




166




165



27Resort
    construction/inventory(2)



105




105









104




104



Dealer inventory



78




52









88




68



14Marinas



59




59




8




12




12



Hotels



58




58




9




78




78



7Land



3




3




1




17




17



4Other



12




7




1




14




12



1Total


$
1,032



$
966



$
174



$
1,040



$
984


$
153  8




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##### Table of Contents



(1)
    
    Finance receivables collateralized primarily by timeshare notes
    receivable may also be collateralized by certain real estate and
    other assets of our borrowers.(2)
    
    Timeshare lending relationships often include both revolving
    loans secured by notes receivable and construction/inventory
    loans secured by real property. These loan balances have been
    presented in their respective categories in the table above.
    These loans are cross-collateralized, therefore the allowance
    for loan losses related to the entire lending relationship is
    presented in the Notes receivable collateral type in the table
    above.        Three Months EndedMarch 31,



March 31,2010



2009(Dollars in millions)Allowance for losses on finance receivables beginning of period


$
339



$
191Provision for losses



55




76Less net charge-offs:Captive FinanceAviation



10




6Golf Equipment



2




2Non-captive FinanceGolf Mortgage



7




21Distribution Finance



6




12Hotel



4




Timeshare



2




Other Liquidating








6Total net charge-offs



31




47Allowance for losses on finance receivables end of period



363




220Annualized net charge-offs as a percentage of average finance
    receivables held for investment



2.18
%



2.82
%   March 31,



January 2,2010



2010(Dollars in millions)Nonaccrual finance receivables as a percentage of finance
    receivables held for investment



19.20
%



17.26
%Allowance for losses on finance receivables held for investment
    as a percentage of finance receivables held for investment



6.75
%



5.63
%Allowance for losses on finance receivables held for investment
    as a percentage of nonaccrual finance receivables held for
    investment



35.2
%



32.6
%60+ days contractual delinquency as a percentage of finance
    receivables held for investment



9.66
%



9.51
%60+ days contractual delinquency


$
515



$
569Operating assets received in satisfaction of troubled finance
    receivables


$
115



$
112Repossessed assets and properties



110




119  9




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Note 4.
    Other Assets
    and/or
  other-than-temporarily
  Note 5.
    Derivative Financial Instruments
   10




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##### Table of Contents



Notional
    Amount                          Fair
    Value
    AmountAssets                    LiabilitiesMarch 31,


January 2,


March 31,


January 2,


March 31,


January 2,2010


2010


2010


2010


2010


2010(In millions)Fair Value HedgesInterest Rate Exchange AgreementsFixed-rate debt

$
946


$
946


$
40


$
40


$



$
Fixed-rate receivables


391



419







3



(3
)


(3
)Net Investment HedgesForeign Currency Forward Exchange AgreementsForeign-dollar functional currency subsidiary equity


101



71















(2
)Cash Flow HedgesCross-Currency Interest Rate Exchange AgreementsForeign-dollar denominated variable-rate debt


140



161



19



18







$
1,578


$
1,597


$
59


$
61


$
(3
)

$
(5
)         Amount of Gain/(Loss)Three Months EndedGain/(Loss) Location


March 31, 2010


March 31, 2009(In millions)Fair Value HedgesInterest rate exchange agreements


Interest expense


$
10


$
4Interest rate exchange agreements


Finance charges



(4
)


(2
)    11




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##### Table of Contents



Note 6.
    Fair Value of Financial Instruments
    Assets
    Recorded at Fair Value on a Recurring Basis
    March 31, 2010(In millions)Level 2Derivative financial instruments, net

$
56   Derivatives
    Changes
    in Fair Value for Unobservable Input
    March 31,


March 31,2010


2009(In millions)Retained Interests in SecuritizationsBalance, beginning of period

$
3


$
12Reclassification to Finance receivables held for investment


(3
)


Net losses for the period:Change in value recognized in Other comprehensive income






(3
)Impairments recognized in earnings






(6
)Balance, end of period

$



$
3  12




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##### Table of Contents



Assets
    Recorded at Fair Value on a Nonrecurring Basis
    March 31,


Total2010


Gain/(Loss)(In millions)Finance receivables held for sale

$
598


$
(10
)Impaired finance receivables


510



(46
)Repossessed assets and properties


37



(8
)Other investments


29



(9
)Operating assets received in satisfaction of troubled finance
    receivables


1



(1
)Total

$
1,175


$
(74
)   Finance
    Receivables Held for Sale
    and/or
  Impaired
    Finance Receivables
   13




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##### Table of Contents



Repossessed
    Assets and Properties / Operating Assets Received in
    Satisfaction of Troubled Finance Receivables
    Other
    Investments
   14




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##### Table of Contents



Assets
    and Liabilities Not Recorded at Fair Value
    March 31,
    2010            January 2,
    2010Carrying


Estimated


Carrying


EstimatedValue


Fair Value


Value


Fair Value(In millions)Assets:Installment contracts

$
2,046


$
1,912


$
2,204


$
2,007Golf course, timeshare and hotel mortgages


956



858



1,008



924Revolving loans


938



812



1,058



902Distribution finance receivables


525



514



709



690Investment in other marketable securities


63



57



68



56Retained interests in securitizations, excluding interest-only
    securities










6



6$
4,528


$
4,153


$
5,053


$
4,585Liabilities:Bank line of credit

$
1,740


$
1,667


$
1,740


$
1,682Fixed-rate debt


1,492



1,462



1,534



1,490Variable-rate debt


603



596



1,355



1,333Securitized on-balance sheet debt


482



482



559



548Subordinated debt


300



240



300



207Amounts due to Textron Inc.


664



660



472



469$
5,281


$
5,107


$
5,960


$
5,729   Finance
    Receivables Held for Investment
  and/or
  Investments
    in Other Marketable Securities
   15




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##### Table of Contents



Debt
    Note 7.
    Contingencies
    Note 8.
    Financial Information about Operating Segments
    Three Months EndedMarch 31,


March 31,2010


2009(Dollars in millions)Revenues:Captive Finance

$
36



49%


$
53



43%Non-captive Finance


37



51%



69



57%Total revenues

$
73



100%


$
122



100%Loss before income taxes: (1)(2)Captive Finance

$
(10
)





$
(25
)Non-captive Finance


(49
)






(41
)Segment loss


(59
)






(66
)Restructuring charges


3







3Loss before income taxes

$
(62
)





$
(69
)   March 31,


January 2,2010


2010(In millions)Finance assets: (3)Captive Finance

$
2,839


$
3,016Non-captive Finance


3,803



4,404Total finance assets

$
6,642


$
7,420   (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 allocation matches variable-rate finance assets in
    the Captive Finance segment with variable-rate debt of similar
    duration and fixed-rate finance assets in the Captive Finance
    segment with fixed-rate debt of similar duration to the extent
    possible. The remaining balance of interest expense incurred is
    included in the Non-captive Finance segments interest
    expense. 16




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##### Table of Contents



(2)
    
    Direct operating expenses are included in each segments
    loss. Due to the plan to exit all of our Non-captive Finance
    segment and the resulting variations in personnel levels and job
    responsibilities, indirect corporate oversight expenses,
    comprised primarily of executive salaries and benefits, are
    included in the segment loss of the Non-captive Finance segment,
    although a portion of these expenses relate to oversight of the
    Captive Finance segment.(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; investments in other marketable
    securities; retained interests in securitizations and other
    short- and long-term investments (some of which are classified
    in Other assets on Textron Financials Consolidated Balance
    Sheets). Item 1A.Risk Factors  Form 10-K
 Item 2.Managements Discussion and Analysis of Financial Condition
    and Results of Operations  Liquidity
    and Capital Resources
         17




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##### Table of Contents



Results
    of Operations
  Revenues
    2010vs. 2009(In millions)Lower average finance receivables of $1.7 billion

$
(29
)Lower other income


(11
)Decrease in servicing and investment income related to
    securitizations


(10
)Suspended earnings on nonaccrual finance receivables


(8
)Lower securitization losses, including impairments


7Accretion of valuation allowance


6   Loss
    before Income Taxes
    2010vs. 2009(In millions)Decrease in the provision for loan losses

$
21Lower operating and administrative expenses


12Lower securitization losses, including impairments


7Lower borrowing costs relative to market rates


6Accretion of valuation allowance


6Lower average finance receivables of $1.7 billion


(13
)Decrease in servicing and investment income related to
    securitizations


(10
)Lower other income


(11
)Suspended earnings on nonaccrual finance receivables


(8
)           Income
    Tax Benefit
   18




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##### Table of Contents



Forward-looking
    Information
  Certain statements in this Quarterly Report on
    Form 10-Q
    and other oral and written statements made by Textron Financial
    from time to time are forward-looking statements, including
    those that discuss strategies, goals, outlook or other
    non-historical matters; or project revenues, income, returns or
    other financial measures. These forward-looking statements speak
    only as of the date on which they are made, and we undertake no
    obligation to update or revise any forward-looking statements.
    These forward-looking statements are subject to risks and
    uncertainties that may cause actual results to differ materially
    from those contained in the statements, including the Risk
    Factors contained in our Annual Report on
    Form 10-K
    and the following: (a) changes in worldwide economic,
    political or regulatory conditions that impact interest and
    foreign exchange rates; (b) the occurrence of slowdowns or
    downturns in customer markets in which Textron products are sold
    or supplied and financed or where we hold finance receivables;
    (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; (e) increases in pension expenses
    and other postretirement employee costs; (f) the impact of
    changes in tax legislation; (g) the ability to maintain
    portfolio credit quality and certain minimum levels of financial
    performance required under our committed bank line of credit and
    under our Support Agreement with Textron; (h) access to
    financing, including securitizations, at competitive rates;
    (i) access to equity in the form of retained earnings and
    capital contributions from Textron; (j) uncertainty in
    estimating contingent liabilities and establishing reserves to
    address such contingencies; (k) risks and uncertainties
    related to dispositions, including difficulties or unanticipated
    expenses in connection with the consummation of dispositions or
    the disruption of current plans and operations; (l) the
    ability to successfully exit from our commercial finance
    business, other than the captive finance business;
    (m) uncertainty in estimating the market value of our
    Finance receivables held for sale and our Allowance for losses
    on finance receivables held for investment; (n) bankruptcy
    or other financial problems at major customers that could cause
    disruptions or difficulty in collecting amounts owed by such
    customers; (o) legislative or regulatory actions impacting
    our operations; (p) difficult conditions in the financial
    markets which may adversely impact our ability to obtain
    financing which enables us to offer competitive terms for our
    new finance receivable originations and, with respect to
    businesses which we are exiting, our customers ability to
    obtain alternative financing negatively impacting their ability
    to repay amounts owed to us; and (q) continued volatility
    in the economy resulting in a prolonged downturn in the markets
    in which we do business.
 Item 4.Controls and Procedures  Rule 13a-15(e) 15d-15(e)
   19




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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  20




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SIGNATURES
      
       21