Consolidated Results of Operations

Revenues

Revenues decreased $922 million, 27% and $2.8 billion, 27% in the three and nine months ended October 3, 2009, respectively, compared with the corresponding periods of 2008. Lower volumes at Cessna accounted for approximately 65% and 63% of the total revenue decrease in both periods, respectively, 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 21% and 27% of the total revenue decrease for both periods, respectively. In addition, lower revenues for the Finance segment accounted for approximately 12% and 11% of the total revenue decrease for both periods, respectively, primarily due to discounts taken on the sale or early termination of finance assets and impairment charges associated with repossessed aircraft, and lower average finance receivables.

Cost of Sales

Cost of sales as a percentage of Manufacturing revenues was 82.6% and 83.0% for the three and nine months ended October 3, 2009, respectively, compared with 78.9% for both of the corresponding periods 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 inventory writedowns at Cessna.

Selling and Administrative Expense

Selling and administrative expense decreased $71 million, 17%, and $169 million, 14%, for the three and nine months ended October 3, 2009, respectively, compared with corresponding periods of 2008, primarily due to workforce reductions and furlough programs resulting in lower compensation and related costs, lower sales commissions at Cessna, and a decline in professional service and travel costs due to cost reduction efforts. For the three and nine months ended October 3, 2009, Cessna's sales commissions represented approximately $8 million and $61 million, respectively, of the decrease due to lower sales.

Interest Expense, net

Interest expense, net includes interest for both the Finance group and the Manufacturing group. For the third quarter of 2009, interest expense, net decreased $29 million, 28%, compared with the third quarter of 2008, primarily due to lower debt in the Finance segment as it continues to liquidate its portfolio. Interest expense, net for the Manufacturing group increased $8 million, 25%, largely due to $14 million in interest on the Convertible Notes issued in the second quarter of 2009, partially offset by lower rates in 2009 due to our borrowings from our bank lines of credit. Interest expense for the Finance group is included within segment profit.

For the nine months ended October 3, 2009, interest expense, net decreased $88 million, 28%, compared with the corresponding period of 2008, primarily due to reduced debt in the Finance segment as it continues to liquidate its portfolio. Interest expense, net for the Manufacturing group increased $11 million, 12%, primarily due to $24 million in interest on the Convertible Notes issued in the second quarter of 2009, partially offset by lower rates in 2009 due to our borrowings from our bank lines of credit.

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. In the third quarter of 2009, the program was further expanded to include additional headcount reductions at Corporate and Bell. We expect to eliminate approximately 10,700 positions worldwide representing approximately 25% of our global workforce at the inception of the program. As of October 3, 2009, we have terminated approximately 10,100 employees and have exited 22 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       Asset Impairments      Terminations and Other       Restructuring
Three Months Ended October 3, 2009
Cessna                               $        10     $               -     $                 2     $                     5     $            17
Industrial                                     1                     -                       -                           -                   1
Bell                                           8                     -                       -                           -                   8
Textron Systems                                1                     -                       -                           -                   1
Finance                                        1                     -                       -                           -                   1
Corporate                                     14                     -                       -                           -                  14
                                     $        35     $               -     $                 2     $                     5     $            42
Nine Months Ended October 3, 2009
Cessna                               $        74     $              26     $                54     $                     6     $           160
Industrial                                     6                    (4 )                     -                           1                   3
Bell                                           8                     -                       -                           -                   8
Textron Systems                                2                     2                       -                           -                   4
Finance                                        7                     1                       -                           1                   9
Corporate                                     19                     -                       -                           -                  19
                                     $       116     $              25     $                54     $                     8     $           203

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 the inception of the restructuring program, we have incurred the following costs through October 3, 2009:

                                    Severance           Curtailment                                            Contract               Total
(In millions)                           Costs          Charges, Net       Asset Impairments      Terminations and Other       Restructuring
Cessna                            $        79     $              26     $                54     $                     6     $           165
Industrial                                 22                    (4 )                     9                           1                  28
Bell                                        8                     -                       -                           -                   8
Textron Systems                             3                     2                       -                           -                   5
Finance                                    22                     1                      11                           2                  36
Corporate                                  25                     -                       -                           -                  25
                                  $       159     $              25     $                74     $                     9     $           267

We estimate that we will incur approximately $40 million in additional pre-tax restructuring costs in the fourth quarter 2009 most of which will result in future cash outlays, primarily attributable to severance payments related to additional workforce reductions throughout the company and a realignment of our management structure. We expect that the program will be substantially completed in 2010. We also expect to incur additional costs to exit then non-captive portion of our Finance segment over the next two to three years. These costs are expected to be primarily attributable to severance and retention benefits and are not reasonably estimable at this time.

Income Taxes

The tax benefit for continuing operations of $11 million and $71 million for the three and nine months ended October 3, 2009, equated to an effective tax rate of 220.0% and 84.5% (benefits on a loss), compared with an effective tax rate for continuing operations of 36.1% and 34.3% (provision on income) during the corresponding periods of 2008, respectively.

The third quarter 2009 effective tax rate benefit of 220% differs from the U.S. Federal statutory rate of 35% due primarily to a 416% benefit attributed to our international operations as a result of favorable tax settlements of prior year tax disputes, partially offset by a 173% detriment for un-benefited losses attributable to CitationShares, now called CitationAir.

For the nine months ended October 3, 2009, the effective tax rate benefit of 84.5% differs from the U.S. Federal statutory rate due primarily to a 34% favorable impact attributed to our international operations as a result of favorable tax settlements of prior year tax disputes and the benefit 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, 14% due to a reduction in unrecognized tax benefits resulting from a capital gain on the sale of CESCOM and 9% due to a reduction in a valuation allowance related to contingent payments on a prior year transaction.

Backlog

Our aircraft and defense business backlog totaled $14.4 billion at October 3,
2009 and was primarily comprised of the following:

                  October 3,       January 3,
(In millions)     2009             2009
Bell              $      5,633     $      6,192
Textron Systems          1,845            2,192
Cessna                   6,887           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 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 $8 million after final settlement and net after-tax proceeds of approximately $280 million.

Income from discontinued operations, net of income taxes was $45 million for the nine months ended October 3, 2009, primarily due to 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 in the first half of 2009.

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                    Nine Months Ended
                   October 3,         September 27,      October 3,       September 27,
(In millions)            2009                  2008            2009                2008
Revenues         $        825       $         1,418     $     2,465     $         4,165
Segment profit             32                   238             170                 707

The deterioration in the global economy in 2009 has significantly impacted the business jet market as evidenced by a decline in new aircraft orders and an increase in order cancellations. 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 approximately 7,900 employees through the end of the third quarter of 2009. See the Special Charges section regarding this restructuring program, including cancellation of the Citation Columbus development program in the second quarter of 2009.

Third Quarter of 2009
Cessna's revenues decreased $593 million in the third 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 68 jets in the third quarter of 2009, compared with 124 jets in the corresponding period of 2008, representing 91% of the decrease in revenue. Cessna's spare parts, product support and maintenance activities also experienced lower volume and represented 6% of the decrease in revenue largely due to a decline in aircraft utilization primarily due to the economic recession. Cessna's lower revenues were partially offset by an increase in used aircraft volume of $31 million.

Cessna's segment profit decreased $206 million in the third quarter of 2009, compared with the corresponding period of 2008, primarily due to a $243 million impact from lower volume. The volume impact also includes

$21 million due to idle capacity related to lower production levels and temporary plant shutdowns. The impact of lower volume was partially offset by $50 million in lower engineering, selling and administrative expenses, largely due to the workforce reduction in 2009.

Year-to-date 2009
For the nine months ended October 3, 2009, Cessna's revenues decreased $1.7 billion 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 221 jets in the nine months ended October 3, 2009, compared with 336 jets in the corresponding period of 2008, representing 85% of the decrease in revenues. Cessna's spare parts, product support and maintenance activities also experienced lower volume and represented 7% of the decrease in revenue largely due to a decline in aircraft utilization primarily due to the economic recession. Lower CitationAir volume represented 4% of the decrease in revenues primarily due to lower demand.

For the nine months ended October 3, 2009, Cessna's segment profit decreased $537 million compared with the corresponding period of 2008, primarily due to a $639 million impact from lower sales volume, which includes both the impact of lower sales commissions and $34 million due to idle capacity related to lower production levels and temporary plant shutdowns. This decrease was partially offset by $50 million of favorable cost performance and a $50 million gain in the first quarter of 2009 on the sale of assets related to CESCOM, which provided maintenance tracking services to Cessna's customers.

Cessna's favorable cost performance includes $77 million in lower engineering, selling and administrative expense, largely due to the workforce reductions in 2009, and $66 million in forfeiture income from order cancellations, partially offset by a $43 million increase in write-downs of pre-owned aircraft inventory, reflecting lower fair market values due to an excess supply in the market, higher warranty expense of $14 million, an increase in inventory reserves of $14 million and unfavorable performance at CitationAir of $11 million.

Bell
                         Three Months Ended                    Nine Months Ended
                   October 3,         September 27,      October 3,       September 27,
(In millions)            2009                  2008            2009                2008
Revenues         $        628       $           702     $     2,040     $         1,974
Segment profit             79                    63             220                 184

Third Quarter of 2009
Bell's revenues decreased $74 million in the third quarter of 2009, compared with the corresponding period of 2008. The decrease in revenues primarily reflects lower commercial helicopter volume of $80 million, reflecting the timing of certain deliveries and lower customer demand, and the impact of the 2008 cancellation of the ARH program, which contributed $32 million of revenue in 2008. These decreases were partially offset by increased pricing of $23 million, primarily for certain commercial helicopters.

Bell's segment profit increased by $16 million in the third quarter of 2009, compared with the corresponding period of 2008, primarily due to lower selling and administrative expenses of $16 million, an $11 million gain on a Canadian currency exchange contract, lower research and development costs of $10 million and a $9 million impact of higher pricing in excess of inflation. These increases were partially offset by lower volume of $18 million and a change in product mix of $13 million, which principally relates to commercial helicopters. We recognized a gain on a Canadian currency exchange contract that was unwound during the quarter due to a significant decline in the production activity that we had hedged.

Year-to-date 2009
For the nine months ended October 3, 2009, Bell's revenues increased $66 million compared with the corresponding period of 2008. Approximately 94% of the increase is due to higher pricing, primarily related to certain commercial helicopters, while higher volume accounted for 6% of the increase. Our volume increased $89 million for the V-22 program, $27 million in the Kiowa Warrior Safety Enhancement Program and $14 million in Huey II Kits, while volume decreased $72 million for commercial helicopters and $61 million related to the ARH program.

For the nine months ended October 3, 2009, Bell's segment profit increased by $36 million compared with the corresponding period of 2008, primarily due to higher pricing in excess of inflation of $29 million and improved cost performance of $22 million, partially offset by a change in product mix primarily due to commercial helicopters of $12 million. The improved cost performance primarily reflects lower selling and administrative expenses of $16 million, lower research and development costs of $10 million and an $11 million gain on the Canadian currency exchange contract unwound in the third quarter, as discussed above. These cost improvements were partially offset by higher warranty costs of $10 million and an increase in costs related to the termination of certain commercial models of $8 million.

Textron Systems
                         Three Months Ended                    Nine Months Ended
                   October 3,         September 27,      October 3,       September 27,
(In millions)            2009                  2008            2009                2008
Revenues         $        502       $           441     $     1,397     $         1,427
Segment profit             68                    67             175                 194

Third Quarter of 2009
Textron Systems' revenue and segment profit increased $61 million and $1 million, respectively, in the third quarter of 2009, compared with the corresponding period of 2008. The revenue increase was primarily due to higher defense volumes largely related to Unmanned Aircraft Systems (UAS), which had an $8 million favorable impact on segment profit. This increase was partially offset by lower aircraft engine volume of $17 million, which had a $3 million unfavorable impact on segment profit and is largely due to a decline in aircraft production as aircraft manufacturers cut production levels in response to lower demand. Segment profit was also impacted by a $4 million intangible impairment charge.

Year-to-date 2009
For the nine months ended October 3, 2009, Textron Systems' revenue decreased $30 million compared with the corresponding period of 2008, primarily due to lower volume. Aircraft engine volume decreased $62 million, largely due to the decline in aircraft production as aircraft manufacturers cut production levels in response to lower demand, while Armed Security Vehicles (ASV) aftermarket volume decreased $28 million. These decreases were partially offset by higher Sensor Fused Weapon volume of $35 million and an increase in UAS volume of $23 million.

For the nine months ended October 3, 2009, Textron Systems' segment profit decreased by $19 million compared with the corresponding period of 2008, primarily due to an $11 million impact from lower aircraft engine volume, idle facility costs resulting from lower production, lower defense volumes of $4 million and a $4 million intangible impairment charge.

Industrial
                         Three Months Ended                    Nine Months Ended
                   October 3,         September 27,      October 3,       September 27,
(In millions)            2009                  2008            2009                2008
Revenues         $        523       $           726     $     1,506     $         2,320
Segment profit              6                     6               9                  91

Third Quarter of 2009
Revenues for the Industrial segment decreased $203 million in the third quarter of 2009, compared with the corresponding period of 2008, and segment profit was unchanged. Approximately 96% of the revenue decrease is attributed to lower volumes, while the remainder was primarily due to unfavorable foreign exchange impact of fluctuations of the Euro. Lower volume had a $61 million impact on segment profit, which was offset by improved cost performance of $55 million and lower inflation of $6 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 and selling and administrative costs.

Year-to-date 2009
For the nine months ended October 3, 2009, revenues for the Industrial segment decreased $814 million, compared with the corresponding period of 2008. Lower volume comprised approximately 93% of the decrease, reflecting lower

demand due to the economic recession. An unfavorable foreign exchange impact of $82 million was largely due to fluctuations of the Euro, and was partially offset by $22 million in higher pricing.

For the nine months ended October 3, 2009, the Industrial segment's profit decreased $82 million compared with the corresponding period of 2008, primarily due to lower volume of $239 million, partially offset by improved cost performance of $137 million and higher pricing of $21 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.

Finance
                                                   Three Months Ended                     Nine Months Ended
                                             October 3,         September 27,      October 3,         September 27,
(In millions)                                      2009                  2008            2009                  2008
Revenues                                   $         71       $           184     $       279       $           575
Segment profit (loss)                               (64 )                  18            (229 )                  73

Third Quarter of 2009
Revenues for the Finance group decreased $113 million and segment profit
decreased $82 million in the third quarter of 2009, compared with the
corresponding quarter of 2008, primarily due to the following:
                                                                                 Segment
(In millions)                                                     Revenue         Profit
Portfolio losses                                               $      (53 )   $      (53 )
Increase in provision for loan losses                                   -             (9 )
Lower other income                                                    (26 )          (26 )
. . .