Consolidated Results of Operations

Revenues

Revenues decreased $1.1 billion, 29% and $1.9 billion, 27% in the second quarter and first half of 2009, respectively, compared with the corresponding periods of 2008. Lower volumes at Cessna accounted for approximately 60% of the revenue decrease in both periods, and were primarily due to reductions in business jet and other aircraft volume, reflecting the impact of order cancellations and reduced demand. The economic recession has also negatively impacted the automotive, construction and golf industries resulting in lower volume at the Industrial segment, which accounted for approximately 30% of the total revenue decrease for both periods. In addition, lower revenues for the Finance segment accounted for approximately 10% of the total revenue decrease for both periods, primarily due to discounts taken on the sale or early termination of finance assets and impairment charges associated with repossessed aircraft.

Cost of Sales

Cost of sales as a percentage of Manufacturing revenues was 83.2% for the second quarter of 2009, compared with 79.1% for the second quarter of 2008. For the first half of 2009, cost of sales as a percentage of Manufacturing revenues was 83.2%, compared with 78.9% for the first half of 2008. Cost of sales increased in 2009 primarily due to the impact of lower production levels and temporary plant shutdowns at Cessna and Industrial, resulting in increased conversion costs and idle capacity, along with writedowns at Cessna.

Selling and administrative expense decreased $53 million, 13%, in the second quarter of 2009 and $98 million, 13%, in the first half of 2009, compared with corresponding periods of 2008. In the second quarter of 2009, approximately $33 million of this decrease is due to lower sales commissions at Cessna as a result of lower sales, $18 million is due to lower compensation costs resulting from workforce reductions and furlough programs throughout the company and $11 million is due to lower professional service and travel costs due to cost reduction efforts. In the first half of 2009, approximately $60 million of this decrease is due to lower sales commissions at Cessna as a result of lower sales, $26 million is due to lower compensation costs resulting from workforce reductions and furlough programs throughout the company and $20 million is due to lower professional service and travel costs due to cost reduction efforts.

Interest Expense, net

Interest expense, net includes interest for both the Finance group and the Manufacturing group. For the second quarter of 2009, interest expense, net decreased $26 million, 26%, compared with the second quarter of 2008, primarily due to reduced debt in the Finance segment as it continues to liquidate its portfolio and repay indebtedness with a portion of the proceeds. Interest expense, net for the Manufacturing group increased $5 million, 17%, largely due to $10 million in interest on the 4.50% Convertible Senior Notes issued in the second quarter of 2009, partially offset by the lower rates on borrowings from our bank lines of credit compared to 2008. Interest expense for the Finance group is included within segment profit.

In the first half of 2009, interest expense, net decreased $59 million, 27%, compared with the first half of 2008, primarily due to reduced debt in the Finance segment as it continues to liquidate its portfolio and repay indebtedness with a portion of the proceeds. Interest expense, net for the Manufacturing group increased $3 million, 5%, partially due to $10 million in interest on the 4.50% Convertible Senior Notes issued in the second quarter of 2009, partially offset by the lower rates on borrowings from our bank lines of credit compared to 2008.

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. This program was expanded in the first half of 2009 to include additional workforce reductions, primarily at Cessna, and the cancellation of the Citation Columbus development project. We expect to eliminate approximately 10,000 positions worldwide representing approximately 23% of our global workforce at the inception of the program. As of July 4, 2009, we have exited 11 owned and leased facilities and plants under this program.

Restructuring costs by segment are as follows:

                                    Severance           Curtailment           Contract                                       Total
(In millions)                           Costs          Charges, Net       Terminations       Asset Impairments       Restructuring
Three Months Ended July 4, 2009
Cessna                            $        38     $              26     $            1     $                52     $           117
Industrial                                  4                    (4 )                1                       -                   1
Finance                                     4                     1                  -                       -                   5
Corporate                                   3                     -                  -                       -                   3
Textron Systems                             1                     2                  -                       -                   3
                                  $        50     $              25     $            2     $                52     $           129
Six Months Ended July 4, 2009
Cessna                            $        64     $              26     $            1     $                52     $           143
Industrial                                  5                    (4 )                1                       -                   2
Finance                                     6                     1                  1                       -                   8
Corporate                                   5                     -                  -                       -                   5
Textron Systems                             1                     2                  -                       -                   3
                                  $        81     $              25     $            3     $                52     $           161

We recorded net curtailment charges of $25 million for our pension and other postretirement benefit plans in the second quarter of 2009, as our analysis of the impact of workforce reductions on these plans indicated that curtailments had occurred and the amounts could be reasonably estimated. These net curtailment charges are based primarily on the headcount reductions through the end of the second quarter. The curtailment charge for the pension plan is primarily due to the recognition of prior service costs that were previously being amortized over a period of years. We will continue to evaluate additional workforce reductions as they take place to assess additional potential curtailments that may occur.

Asset impairment charges include a $43 million charge recorded in the second quarter of 2009 to write off assets related to the Citation Columbus development project. Due to the prevailing adverse market conditions and after analysis of the business jet market related to the product offering, Cessna formally cancelled the Citation Columbus development project in the second quarter of 2009. Cessna began this project in early 2008 for the development of an all-new, wide-bodied, eight-passenger business jet designed for international travel that would extend Cessna's product offering as its largest business jet to date. This development project had capitalized costs related to tooling and a partially-constructed manufacturing facility of which $43 million is considered not to be recoverable.

Since inception of the program, we have incurred $225 million in restructuring costs with $124 million in severance, $72 million in non-cash asset impairment charges, $25 million in net pension and other postretirement benefit plan curtailment non-cash charges and $4 million in contract termination costs. Of these amounts, $148 million was incurred at Cessna, $35 million in the Finance segment, $27 million in the Industrial segment, $11 million at Corporate and $4 million at Textron Systems. We estimate that we will incur approximately $40 million in additional pre-tax restructuring costs in 2009 that will result in future cash outlays, primarily

attributable to severance payments related to additional workforce reductions throughout the company. We expect that the program will be substantially completed by the end of 2009.

Income Taxes

A reconciliation of the federal statutory income tax rate (benefit) to the
effective income tax rate for continuing operations is provided below:


                                                   Three Months Ended               Six Months Ended
                                                  July 4,         June 28,        July 4,        June 28,
                                                     2009             2008           2009            2008
Federal statutory income tax rate (benefit)         (35.0 )%          35.0 %        (35.0 )%         35.0 %
Increase (decrease) in taxes resulting from:
State income taxes                                    4.0              0.3            4.5             1.2
Valuation allowance on contingent receipts              -                -           (8.5 )             -
Foreign tax rate differential                        (3.2 )           (4.4 )        (12.1 )          (5.1 )
Manufacturing deduction                              (1.4 )           (1.4 )         (2.1 )          (1.4 )
Equity hedge expense (income)                        (0.2 )            1.1            5.1             2.2
Tax contingencies and related interest               (2.0 )            3.8          (12.1 )           2.6
Research credit                                      (7.4 )              -          (11.2 )             -
Other, net                                           (3.1 )           (1.1 )         (4.5 )          (1.0 )
Effective income tax rate                           (48.3 )%          33.3 %        (75.9 )%         33.5 %

In the first half of 2009, the effective tax rate changed significantly compared with 2008 primarily attributable to the adoption, for Canadian tax purposes, of the U.S. 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.

Backlog

Our aircraft and defense business backlog totaled $16.0 billion at July 4, 2009
and was primarily comprised of the following:
                   July 4,       January 3,
(In millions)         2009             2009
Bell              $  5,887     $      6,192
Textron Systems      1,975            2,192
Cessna               8,167           14,530

Backlog at Cessna represents firm orders from customers who have made deposits to purchase aircraft in the future. We work with our customers to provide estimated delivery dates, which may be adjusted based on the customers' needs or our production schedule, but do not establish definitive delivery dates until approximately six months before expected delivery. There is considerable uncertainty as to when backlog will convert to revenues as the conversion depends on production capacity, customer needs and credit availability; these factors may also be impacted by the economy and public perceptions of private corporate jet usage. Therefore, while backlog is an indicator of future revenues, we cannot reasonably estimate the year each order in backlog will ultimately result in revenues and cash flows.

In the second quarter of 2009, Cessna decided to formally cancel the development of the Citation Columbus. The decrease in backlog at Cessna includes $2.1 billion attributable to orders for the Citation Columbus aircraft that were cancelled in the second quarter of 2009, along with cancellations of other business jet orders due to the economic recession. 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.

Discontinued Operations

On April 3, 2009, we sold HR Textron, an operating unit previously reported within the Textron Systems segment, for $376 million in cash. The sale resulted in an after-tax gain of $7 million and net after-tax proceeds of approximately $275 million.

In November 2008, we completed the sale of our Fluid & Power business unit and received approximately $527 million in cash, a six-year note with a face value of $28 million and may receive up to $50 million based on final 2008 operating results that would be primarily payable in a six-year note. During the first quarter of 2009, the final settlement of this transaction was extended until later this year.

Results of our discontinued businesses are as follows:

                                                Three Months Ended                Six Months Ended
                                               July 4,         June 28,        July 4,           June 28,
(In millions)                                     2009             2008           2009               2008
Revenue                                    $         -       $      236     $       48       $        447
Income (loss) from discontinued
operations before income taxes             $         -       $       14     $       (1 )     $         25
Income tax expense (benefit)                        (4 )              6            (41 )               11
                                                     4                8             40                 14
Gain on sale, net of income taxes                    -                -              7                  -
Income from discontinued operations, net
of income taxes                            $         4       $        8     $       47       $         14

In the first half of 2009, we had a $34 million 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            Six Months Ended
                  July 4,        June 28,       July 4,       June 28,
(In millions)        2009            2008          2009           2008
Revenues         $    871       $   1,501     $   1,640     $    2,747
Segment profit         48             262           138            469

The deterioration in the global economy over the past nine months has significantly impacted the business jet market as evidenced by a decline in new aircraft orders and an increase in order cancellations. Lower demand has also resulted in increased inventory levels of new and pre-owned aircraft. In response to these conditions, Cessna has made several reductions to its aircraft production schedule to align output with customer demand. Cessna has reduced its headcount by 7,600 employees through the end of the second quarter of 2009 and has exited or announced a plan to exit some of its facilities. See the Special Charges section regarding this restructuring program, including cancellation of the Citation Columbus development program in the second quarter of 2009.

Second Quarter of 2009
Cessna's revenues decreased $630 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to lower volume in business jets and other aircraft reflecting the impact of order cancellations and decreased demand. We delivered 84 jets in the second quarter of 2009, compared with 117 jets

in the corresponding period of 2008, resulting in a $493 million reduction in revenues. Volume also declined for spare parts, product support and maintenance activities due to lower aircraft utilization, largely as a result of the economic recession, which lowered revenues by $57 million. CitationShares volume decreased $24 million primarily due to lower demand.

Cessna's segment profit decreased $214 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to the $220 million impact of lower volumes, which includes lower sales commissions. Segment profit was also impacted by a $38 million increase in writedowns of pre-owned aircraft inventory, reflecting lower fair market values due to an excess supply on the market, and $12 million due to idle capacity related to lower production levels and temporary plant shutdowns. These decreases were partially offset by $38 million in forfeiture income from order cancellations and $30 million in lower engineering, selling and administrative expense largely due to the workforce reduction over the first half of 2009.

First half of 2009
In the first half of 2009, Cessna's revenues decreased $1,107 million compared with the corresponding period of 2008, primarily due to lower volume in business jets and other aircraft reflecting the impact of order cancellations and decreased demand. We delivered 153 jets in the first half of 2009, compared with 212 jets in the corresponding period of 2008, resulting in an $897 million reduction in revenues. Volume also declined for spare parts, product support and maintenance activities due to lower aircraft utilization, largely as a result of the economic recession, which lowered revenues by $86 million. CitationShares volume decreased $45 million primarily due to lower demand.

In the first half of 2009, Cessna's segment profit decreased $331 million compared with the corresponding period of 2008, primarily due to a $396 million impact from lower sales volume, which includes lower sales commissions, partially offset by a $50 million gain on the sale of assets in the first quarter and $15 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. Segment profit was also impacted by a $50 million increase in writedowns of pre-owned aircraft inventory, reflecting lower fair market values due to an excess supply on the market, and $12 million due to idle capacity related to lower production levels. These decreases were partially offset by $50 million in forfeiture income from order cancellations and $27 million in lower engineering, selling and administrative expense largely due to the workforce reduction over the first half of 2009.

Bell
                    Three Months Ended             Six Months Ended
                   July 4,        June 28,       July 4,       June 28,
(In millions)         2009            2008          2009           2008
Revenues         $     670       $     698     $   1,412     $    1,272
Segment profit          72              68           141            121

Second Quarter of 2009
Bell's revenues have decreased $28 million in the second quarter of 2009, compared with the corresponding period of 2008. While overall unit volume for commercial helicopters increased, a change in product mix lowered revenues by $34 million. In addition, the ARH program contributed $20 million to the revenue decrease as this program was cancelled in 2008. These decreases were partially offset by increased pricing of $20 million, primarily for certain commercial helicopters and spares and support.

Bell's segment profit increased by $4 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to higher pricing in excess of inflation of $11 million and increased royalty income of $5 million, partially offset by an increase in costs related to the termination of certain commercial models of $8 million and the impact of the change in product mix of commercial helicopters.

On June 13, 2009, almost 2,500 manufacturing employees at Bell's Fort Worth, Texas plant went on strike after rejecting a new three-year contract, principally over healthcare changes. The impact of the strike on segment profit for the quarter was not significant and the strike was subsequently settled in July.

First half of 2009
In the first half of 2009, Bell's revenues have increased $140 million compared with the corresponding period of 2008, primarily due to increased volumes of $101 million and improved pricing of $39 million. The volume increase primarily relates to a $75 million increase in the V-22 program, $21 million in Huey II Kits and $19 million in the Kiowa Warrior Safety Enhancement Program, partially offset by a $29 million decrease attributed to the ARH program, which was cancelled in 2008.

In the first half of 2009, Bell's segment profit increased by $20 million compared with the corresponding period of 2008, primarily due to higher pricing in excess of inflation of $20 million and higher volume of $15 million, partially offset by $16 million in unfavorable cost performance. The unfavorable cost performance includes higher product development costs for the 429 program of $10 million and an increase in costs related to the termination of certain commercial models of $8 million.

Textron Systems
                     Three Months Ended             Six Months Ended
                    July 4,        June 28,      July 4,         June 28,
(In millions)          2009            2008         2009             2008
Revenues          $     477       $     467     $    895       $      986
Segment profit           55              60          107              127

Second Quarter of 2009
Textron Systems' revenue increased $10 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to higher net volume. Sensor-Fused Weapon (SFW) volume increased $35 million, largely due to deliveries made under a contract in the second quarter of 2009 for which there were no deliveries in the second quarter of 2008, and volume in our training and simulation systems business increased $18 million primarily due to timing of deliveries in the first two quarters of 2009. These increases were partially offset by lower aircraft engine volume of $25 million, which is due to the decline in aircraft production as aircraft manufacturers cut production levels in response to lower demand, and lower Armored Security Vehicle (ASV) aftermarket volume of $15 million. The lower aftermarket volume for the ASV is primarily due to upgrade kits sold in 2008 for ASVs already in the field; for 2009, the capabilities of these kits have been incorporated into the new ASV design.

Textron Systems' segment profit decreased by $5 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to the $14 million impact of lower aircraft engine volume, including idle facility costs resulting from lower production, and inflation in excess of higher pricing of $10 million, partially offset by an $11 million impact from higher SFW volume and improved cost performance of $10 million.

First Half of 2009
In the first half of 2009, Textron Systems' revenue decreased $91 million compared with the corresponding period of 2008, primarily due to lower net volume. Aircraft engine volume decreased $45 million, largely due to the decline in aircraft production as aircraft manufacturers cut production levels in response to lower demand, Unmanned Aircraft Systems (UAS) volume decreased $39 million, which reflects the slippage of units from the fourth quarter of 2007 into the first quarter of 2008, and ASV aftermarket volume decreased $16 million, primarily due to the upgrade kits discussed above. These decreases were partially offset by higher SFW volume of $34 million, largely due to deliveries made under a contract in the second quarter of 2009 for which there were no deliveries in the second quarter of 2008.

In the first half of 2009, Textron Systems' segment profit decreased by $20 million compared with the corresponding period of 2008, primarily due to the $23 million impact of lower aircraft engine volume, including idle facility costs resulting from lower production, and inflation in excess of higher pricing of $20 million, partially offset by improved cost performance of $26 million. Improved cost performance includes $9 million in improved labor efficiencies in the UAS program and $7 million for our aircraft engine business related to a settlement received in the first quarter of 2009 and the reversal of a reserve for an expired service bulletin.

Industrial
                    Three Months Ended             Six Months Ended
                   July 4,        June 28,      July 4,         June 28,
(In millions)         2009            2008         2009             2008
Revenues         $     508       $     841     $    983       $    1,594
Segment profit          12              44            3               85

Second Quarter of 2009
The deterioration of the global economy over the past nine months, particularly in the automotive, construction and golf markets, has negatively impacted our industrial businesses, which have experienced a significant decline in demand. Revenues for the Industrial segment decreased $333 million in the second quarter of 2009, compared with the corresponding period of 2008, primarily due to lower volumes of $305 million and an unfavorable foreign exchange impact of $35 million, largely due to fluctuations with the Euro.

The Industrial segment's profit decreased $32 million in the second quarter of 2009, compared with the corresponding quarter of 2008, primarily due to lower volume of $88 million and unfavorable product sales mix of $12 million, primarily in the golf-related businesses, partially offset by improved cost performance of $60 million. Cost performance has improved largely due to significant efforts made to reduce costs through workforce reductions, employee furloughs, temporary plant shutdowns and lower engineering, selling and administrative costs.

First Half of 2009
In the first half of 2009, revenues for the Industrial segment decreased $611 million, compared with the first half of 2008, primarily due to lower volume of $565 million reflecting lower demand due to the economic recession and an unfavorable foreign exchange impact of $69 million, largely due to fluctuations with the Euro, partially offset by $17 million in higher pricing.

In the first half of 2009, the Industrial segment's profit decreased $82 million compared with the first half of 2008, primarily due to lower volume of $178 million, partially offset by improved cost performance of $82 million and higher . . .