Consolidated Results of Operations

Revenues and Segment Profit
Revenues decreased $780 million, or 24%, to $2.5 billion in the first quarter of 2009, compared with the first quarter of 2008. This decrease is primarily due to lower volume of $718 million, lower revenue in the Finance segment of $92 million and unfavorable foreign exchange in the Industrial Segment of $34 million, partially offset by higher pricing of $61 million.

Segment profit decreased $274 million to $136 million in the first quarter of 2009, compared with the first quarter of 2008. This decrease is primarily due to $263 million in lower volume in our Manufacturing group, a $49 million increase in the provision for loan losses at the Finance segment, $51 million in lower securitization gains and other income at the Finance segment and $12 million of higher inventory write-downs for used aircraft, partially offset by a $50 million gain on the sale of the assets of CESCOM and pricing in excess of inflation of $27 million.

Backlog
Our aircraft and defense business backlog totaled $21.1 billion at April 4, 2009
and was primarily comprised of the following:
                   April 4,       January 3,
(In millions)          2009             2009
Bell              $   6,118     $      6,192
Textron Systems       1,996            2,192
Cessna               13,026           14,530

The decrease in backlog at Cessna is mainly attributable to cancelled business jet orders due to the deepening recession. Backlog does not take into account the ability of our customers to take delivery of the aircraft and the timing of such delivery due to the present credit scarcity and its effect on financing availability. We have continued to experience cancellations since the end of the first quarter of 2009 and expect ongoing volatility in our Cessna backlog until economic conditions stabilize.

At April 4, 2009, Cessna's backlog includes $2.3 billion in orders for the Citation Columbus aircraft, which began development in 2008. Subsequent to the end of the first quarter, we decided to suspend the development of the Citation Columbus due to current economic conditions. Once economic conditions improve and overall demand for business jets strengthens, it is our intention to resume the development of this product. We have begun the process of notifying suppliers and do not believe that winding down our contracts with suppliers will have a material effect on our financial position or cash flows. At April 4, 2009, we had $56 million in cash for deposits received on the Citation Columbus and approximately $50 million in capitalized tooling and facility costs and other deferred costs related to this development project.

Special Charges
In the fourth quarter of 2008, we initiated a restructuring program to reduce overhead costs and improve productivity across the company, which includes corporate and segment direct and indirect workforce reductions and streamlining of administrative overhead, and announced the exit of portions of our commercial finance business. We expect to eliminate approximately 8,300 positions worldwide representing approximately 19% of our global workforce at the inception of the program. As of April 4, 2009, we have exited 9 facilities and plants under this program.

We record restructuring costs in special charges as these costs are generally of a nonrecurring nature and are not included in segment profit, which is our measure used for evaluating performance and for decision-making purposes. Severance costs related to an approved restructuring program are classified as special charges unless the costs are for volume-related reductions of direct labor that are deemed to be of a temporary or cyclical nature.

Through April 4, 2009, we have incurred $96 million in restructuring costs in special charges with $74 million in severance, $20 million in asset impairment charges and $2 million in contract termination costs. Since inception of the program, we have incurred restructuring charges of $30 million in the Finance segment, $26 million in the Industrial segment, $31 million at Cessna, $8 million at Corporate and $1 million at Textron Systems. In the first quarter of 2009, we classified severance costs for certain volume-related direct labor reductions as special charges as these reductions were not considered to be of a seasonal/temporary nature.

Restructuring costs by segment for the first quarter of 2009 are as follows:

                 Severance          Contract               Total
(In millions)        Costs      Terminations       Restructuring
Cessna          $       26     $           -     $            26
Industrial               1                 -                   1
Finance                  2                 1                   3
Corporate                2                 -                   2
                $       31     $           1     $            32

We estimate that we will incur approximately $43 million in additional pre-tax restructuring costs in the remainder of 2009, largely related to workforce reductions at Cessna that will result in future cash outlays. We may have additional restructuring costs as a result of further headcount reductions and other actions; however, an estimate of additional charges cannot be made at this time. Due to the magnitude of the headcount reductions under this program, as well as additional reductions that may occur in 2009, we are currently assessing the potential curtailment impact such reductions may have on our pension and other postretirement benefit plans.

Corporate Expenses and Other, net
Corporate expenses and other, net decreased $6 million in the first quarter of 2009, compared with 2008, primarily due to $10 million in lower executive compensation and department expenses and a $6 million foreign exchange rate gain realized on the ineffective portion of our net investment hedge, partially offset by $11 million due to lower share based compensation depreciation.

Income Taxes
A reconciliation of the federal statutory income tax rate to the effective
income tax rate is provided below:

                                                         Three Months Ended
                                                      April 4,         March 29,
                                                          2009              2008
     Federal statutory income tax rate                    35.0 %            35.0 %
     Increase (decrease) in taxes resulting from:
     State income taxes                                    7.0               1.9
     Valuation allowance on contingent receipts          (16.5 )               -
     Foreign tax rate differential                       (10.4 )            (5.7 )
     Manufacturing deduction                              (5.2 )            (1.4 )
     Equity hedge loss                                    10.5               3.4
     Tax contingencies and related interest              (17.9 )             1.2
     Research credit                                      (5.2 )               -
     Other, net                                           (2.2 )            (0.8 )
     Effective income tax rate                            (4.9 )%           33.6 %

In the first quarter of 2009, the tax rate decreased significantly compared with 2008. The decrease was primarily attributable to the adoption, for Canadian tax purposes, of the US dollar as the functional currency for one of our wholly-owned Canadian subsidiaries, a reduction in unrecognized tax benefits due to the recognition of a capital gain in connection with the sale of CESCOM and a reduction in a valuation allowance related to contingent payments on a prior year transaction.

Discontinued Operations
Income from discontinued operations, net of income taxes, increased $37 million to $43 million in the first quarter 2009, compared with the corresponding quarter of 2008, primarily due to a $7 million gain on the sale of HR Textron, the tax benefit from the reduction in tax contingencies as a result of the HR Textron sale and a valuation allowance reversal on a previously established deferred tax asset.

Segment Analysis

Segment profit is an important measure used to evaluate performance and for decision-making purposes. Segment profit for the manufacturing segments excludes interest expense, certain corporate expenses and special charges. The measurement for the Finance segment includes interest income and expense and excludes special charges.

Cessna
                                          Three Months Ended
                                       April 4,         March 29,
                     (In millions)         2009              2008
                     Revenues         $     769       $     1,246
                     Segment profit   $      90       $       207

In the first quarter of 2009, Cessna's revenues and segment profit decreased $477 million and $117 million, respectively, compared with the first quarter of 2008. Revenues decreased at Cessna primarily due to lower volume of $504 million, partially offset by higher pricing of $27 million. Cessna's volume reduction occurred in most of its product lines and is largely due to the $404 million impact of delivering 69 jets in the first quarter of 2009 compared with 95 jets in the first quarter of 2008.

Segment profit decreased primarily due to the $176 million impact from lower volume and $12 million in higher inventory write-downs for used aircraft, partially offset by a $50 million gain on the sale of assets and $14 million in pricing in excess of inflation. The gain on the sale of assets relates to CESCOM, which provided maintenance tracking services to Cessna's customers.

Bell
                                          Three Months Ended
                                       April 4,        March 29,
                     (In millions)         2009             2008
                     Revenues         $     742       $      574
                     Segment profit   $      69       $       53

Revenues and segment profit increased $168 million and $16 million, respectively, in the first quarter of 2009, compared with the first quarter of 2008. Revenues increased at Bell primarily due to higher volume of $149 million and higher pricing of $19 million. The volume increase primarily related to the V-22 program, commercial aircraft and spares and services.

Segment profit increased primarily due to higher volume and mix of $24 million and pricing in excess of inflation of $10 million, partially offset by higher product development costs for the 429 program of $8 million and favorable 427 performance in the first quarter of 2008 of $6 million.

Textron Systems
                                          Three Months Ended
                                       April 4,        March 29,
                     (In millions)         2009             2008
                     Revenues         $     418       $      519
                     Segment profit   $      52       $       67

Revenues and segment profit decreased $101 million and $15 million, respectively, in the first quarter of 2009 compared with the first quarter of 2008. Revenues decreased primarily due to $46 million in lower Unmanned

Aircraft Systems (UAS) volume, $26 million in lower training and simulation systems business volume and a decline in aircraft engine volume of $20 million. The lower UAS volume reflects the slippage of units from the fourth quarter of 2007 into the first quarter of 2008. Segment profit decreased primarily due to the impact of the lower volume of $21 million and inflation in excess of pricing of $10 million, partially offset by favorable cost performance of $16 million.

Industrial
                                          Three Months Ended
                                       April 4,        March 29,
                     (In millions)         2009             2008
                     Revenues         $     475       $      753
                     Segment profit   $      (9 )     $       41

Revenues and segment profit in the Industrial segment decreased $278 million and $50 million, respectively, in the first quarter of 2009, compared with the first quarter of 2008. Revenues decreased primarily due to lower volume of $260 million across all of the Industrial businesses and an unfavorable foreign exchange impact of $34 million, partially offset by higher pricing of $13 million. Segment profit decreased primarily due to the impact of the lower volume of $90 million, partially offset by higher pricing of $13 million and improved cost performance of $18 million.

Finance
                                          Three Months Ended
                                       April 4,        March 29,
                     (In millions)         2009             2008
                     Revenues         $     122       $      214
                     Segment profit   $     (66 )     $       42

Revenues and segment profit decreased $92 million and $108 million, respectively, in the first quarter of 2009, compared with the first quarter of 2008, significant drivers of these decreases include the following:

                                                                                 Segment
(In millions)                                                    Revenues         Profit
Lower market interest rates                                    $      (39 )   $        -
Lower securitization gains                                            (21 )          (21 )
Lower other income, including asset impairments and
prepayment income                                                     (19 )          (19 )
Acceleration of deferred loan origination cost amortization            (8 )           (8 )
Lower average finance receivables of $389 million                      (7 )           (7 )
Increased impairments of retained interests in
securitizations                                                        (6 )           (6 )
Gain on the sale of a leveraged lease investment in 2008               (5 )           (5 )
Benefit from variable-rate receivable interest rate floors             16             16
Increase in the provision for loan losses                               -            (49 )
Higher borrowing costs relative to market rates                         -             (8 )

The higher provision for loan losses was primarily the result of increases in general reserves due to the current economic environment including: resort finance ($26 million), aviation finance ($20 million), marine ($6 million) and golf finance ($5 million). In addition, specific reserving actions were taken on several accounts within these portfolios totaling $30 million. These increases were partially offset by a decrease related to the liquidation of certain finance receivables.

Credit Quality
For the first quarter of 2009, we have decided to present nonaccrual finance receivables, repossessed assets and properties and operating assets received in satisfaction of troubled finance receivables separately as opposed to combining these categories as nonperforming assets due to their increasing significance and inherent differences. Nonaccrual finance receivables are carried at their amortized cost, net of the allowance for losses, while repossessed assets and properties and operating assets received in satisfaction of troubled finance receivables are both initially recorded at the lower of their previous carrying value or net realizable value. In addition, operating

assets received in satisfaction of troubled finance receivables are assets we intend to operate for a substantial period of time and/or make substantial improvements to prior to sale.

The following table reflects information about the Finance segment's credit performance related to finance receivables held for investment. Finance receivables held for sale are reflected at fair value on the Consolidated Balance Sheets. As a result, finance receivables held for sale are not included in the credit performance statistics below.

                                                                 April 4,        January 3,
 (Dollars in millions)                                               2009              2009
Nonaccrual finance receivables                                 $      444      $       277
Allowance for losses                                           $      220      $       191
Ratio of nonaccrual finance receivables to finance
receivables held for investment                                      6.11  %          4.01   %
Ratio of allowance for losses on finance receivables to
nonaccrual finance receivables held for investment                   49.6  %          68.9   %
Ratio of allowance for losses on finance receivables to
finance receivables held for investment                              3.03  %          2.76   %
60+ days contractual delinquency as a percentage of finance
receivables                                                          4.29  %          2.59   %
Repossessed assets and properties                              $       94      $        70
Operating assets received in satisfaction of troubled
finance receivables                                            $      167      $        84

We believe that nonaccrual finance receivables generally will continue to increase as we execute our liquidation plan under the current economic conditions. The liquidation plan is also likely to result in a slower rate of liquidation for nonaccrual finance receivables. The increase in nonaccrual finance receivables is primarily attributable to a $122 million increase in the resort finance portfolio related to several hotel and land development accounts and to a significant increase in delinquent accounts, combined with weakening collateral values in the aviation finance portfolio, which accounted for $49 million of the increase.

The ratio of allowance for losses to nonaccrual finance receivables held for investment decreased primarily as a result of the resort and aviation accounts mentioned above for which specific reserves were not considered necessary based on our best estimate of loss upon a detailed review of our workout strategy and estimates of collateral value.

The increase in operating assets received in satisfaction of troubled finance receivables primarily reflects golf courses for which ownership was transferred from the borrower during the quarter. We intend to operate and improve the performance of these properties prior to their eventual disposition.

Liquidity and Capital Resources

Borrowing Group Presentation
Our financings are conducted through two separate borrowing groups. The Manufacturing group consists of Textron Inc. consolidated with all of its majority-owned subsidiaries that operate in the Cessna, Bell, Textron Systems and Industrial segments, except for the entities comprising the Finance group. The Finance group consists of Textron Financial Corporation along with the entities consolidated into it. We designed this framework to enhance our borrowing ability by separating the Finance group. Our Manufacturing group operations include the development, production and delivery of tangible goods and services, while our Finance group provides financial services. Due to the fundamental differences between each borrowing group's activities, investors, rating agencies and analysts use different measures to evaluate each group's performance. To support those evaluations, we present balance sheet and cash flow information for each borrowing group within the Consolidated Financial Statements.

Overview
Due to unprecedented levels of volatility and disruption in the credit markets, we experienced difficulty in accessing the commercial paper markets for our short-term liquidity needs at favorable rates and terms. The adverse impact on us of the credit market deterioration was exacerbated by the downgrades of our credit ratings, which, in turn, have adversely impacted our ability to access the term debt market. For these reasons, coupled with the risks associated with the capital markets in general, on February 3, 2009, we drew on the balance of the $3.0 billion committed bank credit lines available to Textron and Textron Financial Corporation. We expect that

the borrowings under the bank lines, together with the cash proceeds of planned liquidations and cash flow from our Manufacturing group, will be more than sufficient to repay the Finance group's maturing term debt during 2009.

In the fourth quarter of 2008, our Board of Directors approved a plan to exit all of the commercial finance business of the Finance segment, other than that portion of the business supporting customer purchases of Textron-manufactured products. We made the decision to exit this business due to continued weakness in the economy and in order to address our long-term liquidity position in light of continuing disruption and instability in the capital markets. In total, the exit plan will impact approximately $6.5 billion of the Finance segment's $9.9 billion managed receivable portfolio as of April 4, 2009. The exit plan will be effected through a combination of orderly liquidation and selected sales and is expected to be substantially complete over the next two to four years.

Under the exit plan, in 2009, we originally expected to reduce managed finance receivables by at least $2.6 billion, net of originations, of which approximately $2.0 billion is to be used to pay down off-balance sheet securitized debt. Most of the remainder of cash generated will be utilized to repay a portion of the term debt issued by the Finance group that is maturing in 2009. In the first quarter of 2009, we reduced managed finance receivables by $926 million. Repossession, foreclosure or the maturity of leveraged leases with residual values represented $171 million of the managed finance receivable reduction. We now expect to reduce managed finance receivables by at least $3.0 billion, net of originations, by the end of 2009.

We expect the economic uncertainty and capital market turbulence to continue in 2009. In order to ensure that we have sufficient liquidity to repay our maturing debt obligations during the first quarter of 2010 and beyond, our focus will be the maximization of cash flow through the following initiatives:

· Liquidation of finance receivables, including selected sales of finance receivables held for sale by our Finance group;

· Realignment of production in our commercial manufacturing businesses to match lower expected demand;

· Cost reduction activities, including reducing our workforce, freezing salaries, plant/facility closures, curtailing most discretionary spending, including some reductions in product development, and reducing most areas of discretionary capital spending; and

· Reduction of working capital with a focus on inventory management.

On February 25, 2009, we announced that our Board of Directors voted to reduce our quarterly dividend to $0.02 per share for the first quarter of 2009. This decision was made to increase our liquidity in the long-term interest of our shareholders. The decision to pay a dividend is reviewed quarterly and requires declaration by our Board of Directors.

As demonstrated by our recently announced offerings, we are continuing to explore other potential avenues of liquidity, including additional funding sources in the capital markets and are actively pursuing new financing structures for the Finance group, which would be secured directly by its finance receivable portfolio, as well as transfers of existing funding obligations to new financing providers. Depending on the success of the above cash flow initiatives and changes in external factors affecting the marketability and value of our assets, we may consider the sale of additional assets in the finance business or the sale of certain manufacturing businesses. We believe that with the successful execution of the Finance group's exit plan, combined with other liquidity actions discussed above and the cash we expect to generate from our manufacturing operations, we will have cash sufficient to meet our future liquidity needs.

Contractual Obligations

Manufacturing Group

We maintain defined benefit pension plans and postretirement benefit plans other than pensions. Our funding policy is to contribute amounts sufficient to meet minimum funding requirements as set forth in employee benefit and tax laws, plus such additional amounts as we may determine to be appropriate. We expect to make contributions to our funded pension plans of approximately $70 million in 2009. Our annual contribution for 2010 is now estimated to be approximately $50 million to $55 million and approximately $375 million to $400 million

in each of the years from 2011 through 2013, under the plan provisions in place at this time. These estimates may change based on market conditions.

Finance Group

We have updated our Form 10-K disclosure of the Finance group's contractual obligations, as defined by reporting regulations, to provide an update on the status of our liquidation plan. Due to the nature of finance companies, we believe that it is meaningful to include contractual cash receipts that we expect to receive in the future. The Finance group has historically borrowed funds at various contractual maturities to match the maturities of its finance receivables.

The following table summarizes the Finance group's liquidity position, including all managed finance receivables and both on- and off-balance sheet funding sources as of April 4, 2009, for the specified periods:

                                                            Payments/Receipts Due by Period
                                  Less than         1-2         2-3         3-4         4-5       More than
(In millions)                        1 year       Years       Years       Years       Years         5 years        Total
Payments due: (1)
Multi-year credit facilities
and commercial paper            $         8     $     -     $     -     $ 1,740     $     -     $         -     $  1,748
Other short-term debt                    16           -           -           -           -               -           16
Term debt                             2,075       2,211          53         203         428             147        5,117
Securitized on-balance sheet
debt (2)                                218          67          79          87          71             153          675
Subordinated debt                         -           -           -           -           -             300          300
Securitized off-balance sheet
debt (2)                              2,031           5           -           -           -              31        2,067
Loan commitments                         42           6           2           -           -              66          116
Operating lease rental
. . .