8.

Amortization expense for the three and nine months ended September 28, 2002 totaled $2 million and $8 million, respectively, and is expected to be approximately $3 million for the fourth quarter of 2002. Amortization expense for fiscal years 2003, 2004, 2005, 2006, and 2007 is estimated to be approximately $10 million, $6 million, $6 million, $4 million and $4 million, respectively.

During the three months ended September 28, 2002, the effective tax rate was lower primarily due to the $12 million impact of a tax refund as a result of the settlement of a prior year tax dispute.

11.

Pursuant to a settlement of post-closing obligations under the purchase and sale agreement for the sale of the Trim division, during the second quarter of 2002, Textron received $110 million from Collins & Aikman Products Company (C&A), resulting in an additional gain of $25 million ($9 million, net of income taxes). The proceeds included $95 million for the repurchase of $126 million of face value of C&A preferred shares and $15 million to settle all other matters under the purchase and sale agreement. In addition, the fair value of the C&A common stock was revised following C&A's recapitalization through a share offering in the second quarter of 2002. Textron also received $5 million for accumulated preferred dividends in the second quarter of 2002.

Under this restructuring program, excluding Automotive Trim, Textron has reduced its workforce by approximately 6,400 employees through September 28, 2002 and has closed 65 facilities, including 29 manufacturing plants. Textron expects a total reduction of at least 9,500 employees, excluding Automotive Trim, representing approximately 16% of its global workforce since the restructuring was first announced.

Restructuring costs and related asset impairment charges recorded in earnings have been included in special charges on the consolidated statement of income. An analysis of Textron's special charges for restructuring and related reserve accounts is summarized below:

Severance costs are generally paid on a monthly basis over the severance period granted to each employee or on a lump sum basis when required. Severance costs include outplacement costs which are paid in accordance with normal payment terms. Facilities and other costs represent lease termination costs and facility and plant clean-up costs. Lease termination costs are generally paid upon exiting the facility or over the remaining lease term and facility and plant clean-up costs are paid in accordance with normal payment terms.

The specific restructuring measures and associated estimated costs are based on Textron's best judgment under prevailing circumstances. Textron believes that the restructuring reserve balance of $40 million is adequate to carry out the restructuring activities formally identified and committed to as of September 28, 2002 and anticipates that all actions specifically related to these liabilities will be completed within a twelve-month period.

13.

Textron also incurred costs related to the restructuring that have not been included in special charges and are included in segment profit only as incurred. These expenses primarily consist of costs for outsourcing certain operations, plant rearrangement, machinery and equipment relocation, employee replacement and relocation costs. Costs related to these restructuring items are reflected in the consolidated statement of income as follows:

In July 2002, the Financial Accounting Standards Board (FASB) issued Statement No. 146, "Accounting for Costs Associated with Exit or Disposal Activities." The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. The provisions of this statement are to be applied prospectively to exit or disposal activities initiated after December 31, 2002. The adoption of this statement will not have a material effect on Textron's results of operations or financial position.

Textron's financings are conducted through two borrowing groups, Textron Finance and Textron Manufacturing. This framework is designed to enhance Textron's borrowing power by separating the Finance segment, which is a borrowing unit of a specialized business nature. Textron Finance consists of Textron Financial Corporation consolidated with its subsidiaries, which are the entities through which Textron operates its Finance segment. Textron Finance's operations are financed primarily by borrowing from its own group of external creditors. Textron Manufacturing is Textron Inc., the parent company, consolidated with the entities that operate in the Aircraft, Fastening Systems, Industrial Products and Industrial Components business segments.

14.

15.

      16.

Revenues decreased to $2.6 billion in the third quarter of 2002 from $2.8 billion in the third quarter of 2001, primarily due to the divestitures of Automotive Trim (Trim), Turbine Engine Components Textron (TECT) and a number of other businesses that contributed $371 million to the decrease and lower revenue in the Finance segment, partially offset by higher organic sales in most other segments, as more fully discussed in the segment commentary that follows. Net income was $71 million in the third quarter of 2002, compared to a loss of $330 million in the third quarter of 2001. Diluted earnings per share were $0.51 in the third quarter of 2002, compared to a loss of $2.34 in the third quarter of 2001.

In January 2002, Textron reorganized management responsibility for several divisions which were previously reported in the Automotive and Industrial Products segments into the newly created Industrial Components segment. The Industrial Components segment includes the Fluid and Power divisions, the former Automotive divisions and TECT. In addition, management responsibility for Textron Lycoming was transferred to the Aircraft segment.

Effective December 30, 2001, Textron adopted Statement of Financial Accounting Standards (SFAS) No. 142, "Goodwill and Other Intangible Assets". Under this Statement, goodwill and certain assets with indefinite lives are no longer amortized and must be tested for impairment annually. Textron also adopted the remaining provisions of SFAS No. 141 "Business Combinations" on December 30, 2001, which requires intangible assets that do not meet the new criteria set by this Statement to be classified as goodwill upon adoption. Amortization will continue to be recorded on other intangible assets not classified as goodwill. In the third quarter of 2001, the reported pro forma net loss excluding amortization of goodwill was $307 million, or $2.18 per diluted share. To reflect the adoption of SFAS No. 142 and the fact that the Company does not include amortization of goodwill in its internal evaluation of segment performance, the Company has recast its segment data for comparability by reclassifying goodwill amortization from segment profit in prior periods.

Segment profit of $180 million in the third quarter of 2002 increased $138 million from $42 million in the third quarter of 2001 primarily due to unfavorable 2001 profit adjustments at Bell Helicopter, improved performance, higher pricing, the contribution from higher organic sales, and the benefit of restructuring activities. These increases were partially offset by lower results in the Finance segment and the cost related to the recall, inspection and customer care program in the Aircraft Segment. The preceding items are discussed more fully in the segment commentary that follows. Segment profit represents a measurement used by Textron to evaluate operating performance. Segment profit for manufacturing segments does not include interest, certain corporate expenses, special charges and gains and losses from the disposition of significant business units. The measurement for the Finance segment includes interest income, interest expense and distributions on preferred securities of Finance subsidiary trust, and excludes special charges. For a reconciliation of segment profit to income (loss) from operations before income taxes and distributions on preferred securities of subsidiary trusts, see Note 14 of Textron's financial statements.

17.

The Aircraft segment's revenues and profit increased $60 million and $115 million, respectively.

• Cessna's revenues increased $43 million primarily due to higher pricing of $31 million (including $13 million related to the expiration of lower introductory pricing on certain business jet models and $6 million of lower trade-in allowances for used aircraft), higher Caravan sales of $16 million, higher used aircraft sales volume of $13 million and higher spare parts and service sales of $6 million. These increases were partially offset by $21 million in lower sales volume of single engine piston aircraft and aircraft engines that have been affected by the weak economy. Profit decreased $6 million from the third quarter of 2001 as pricing of $31 million and the benefit of $16 million from the increase in sales volume and a favorable mix were fully offset by the cost of $31 million related to the recall, inspection and customer care program at the Lycoming aircraft engine business, a higher net write-down of $8 million for used aircraft valuations and start-up costs of $4 million related to the new Sovereign business jet.

In August 2002, Lycoming recalled approximately 950 airplane engines to replace potentially faulty crankshafts manufactured by a third party supplier. In conjunction with a Federal Aviation Administration (FAA) directive, aircraft with these engines have been grounded. After detecting a potentially defective crankshaft in an aircraft beyond the group included in the August recall, Lycoming and the FAA mandated inspection of all turbocharged aircraft with engines that use this specific component. This precautionary measure applies to an additional 736 engines, which will be tested in the field within the next 50 hours of operation or within six months, whichever comes first. Lycoming anticipates that only a portion of the crankshafts in the additional engines will need to be replaced. Lycoming has initiated a comprehensive customer care program to replace the defective crankshafts, make any necessary related repairs, and compensate its customers for the loss of use of their aircraft during the recall. Lycoming also initiated a program for the inspection and possible replacement of potentially defective zinc-plated bolts manufactured by a third party supplier for use in certain aircraft engines. Textron recorded a total net charge of $31 million related to these matters during the third quarter of 2002. Textron's reserves for the recall, inspection and customer care program are based on management's best estimate as of September 28, 2002. Actual costs could vary depending upon the actual experience of the program, as well as recoveries from third parties.

• Bell Helicopter's revenues increased $17 million as higher revenue of $33 million from the U.S. Government, primarily on the V-22 program, was partially offset by lower commercial sales of $16 million. Sales in the commercial business primarily reflected lower commercial aircraft sales of $19 million and lower sales of $7 million for kits used to modernize older model Huey helicopters, partially offset by higher foreign military sales of $9 million and higher commercial spares and service sales of $3 million. Bell's profit increased $121 million primarily as a result of unfavorable 2001 profit adjustments of $115 million including $95 million related to reduced profitability expectations or losses on certain development and production contracts and $20 million related primarily to receivable and inventory reserve increases. Excluding the 2001 profit adjustments, profit increased $6 million due to higher profit of $4 million in the U. S. Government business and $2 million in the commercial helicopter business. The profit increase for the commercial helicopter business primarily reflected improved contribution of $8 million from higher spares and service sales and lower engineering expense of $7 million, primarily associated with the BA609 program, partially offset by reduced pricing of $5 million related to one commercial helicopter model, increased costs of $3 million on a foreign military contract and lower income of $3 million from Bell's joint venture in the BA609 program.

18.

As authorized by an Acquisition Decision Memorandum signed by the Department of Defense in December 2001, the V-22 program continues to proceed at low-rate production levels. Under the low-rate production, Textron continues to manufacture aircraft which will subsequently be modified for engineering changes required by the Department of Defense. On August 1, 2002, Bell was awarded a modification to its contract for the next two lots, totaling twenty aircraft. The V-22 returned to flight operations on May 29, 2002 for extensive flight testing which is a prerequisite for returning to operational use.

The delays experienced in the V-22 program have also slowed the development and certification of the BA609 civil tiltrotor aircraft. Management believes that the V-22 should lead tiltrotor technology into the marketplace and is currently working with its joint venture partner, suppliers and customers in the BA609 program to adjust the planned program arrangements and schedule for these delays.

The Fastening Systems segment's revenues and profit increased $22 million and $16 million, respectively. The revenue increase was primarily due to higher sales volume of $27 million and the favorable impact of $6 million from foreign exchange, partially offset by customer price reductions of $7 million and the divestiture of non-core product lines of $3 million. Profit increased primarily due to the contribution of $10 million from the higher sales volume, the benefit of $7 million from restructuring activities and the impact of a $4 million loss on the sale of a non-core product line in the third quarter of 2001, partially offset by customer price reductions of $7 million.

The Industrial Products segment's revenues decreased $2 million while profit increased $33 million. Revenues decreased in most of the segment's businesses primarily due to lower sales volume of $31 million from depressed markets and the divestiture of non-core product lines of $3 million during 2001, partially offset by higher revenue of $27 million in the golf car and turf care business and higher pricing of $4 million. Profit increased primarily due to improved cost performance including a $10 million benefit from restructuring activities and higher pricing of $4 million, partially offset by the impact of an unfavorable sales mix of $11 million.

The Industrial Components segment's revenues decreased $314 million, while profit increased $6 million. Revenues and profit declined $364 million and $8 million, respectively, due to the divestitures of Trim, TECT and several small product lines in 2001. Excluding the divestitures, revenues increased $50 million and profit increased $14 million. The revenue increase was primarily due to higher volume of $55 million at Kautex as a result of new product launches and a stronger automotive market and the favorable impact of $11 million of foreign exchange, partially offset by lower volume of $10 million in the other industrial businesses as a result of soft markets and $5 million of customer price reductions. Excluding the divestitures, the profit increase was primarily due to the contribution of $6 million from the higher sales, improved performance at Kautex and the benefit of $3 million from restructuring activities, partially offset by customer price reductions of $5 million.

19.

The Finance segment's revenues and profit decreased $22 million and $32 million, respectively. Revenues decreased primarily due to a lower average yield of $22 million (7.6% in the third quarter of 2002 compared to 9.1% in the third quarter of 2001) reflecting the lower interest rate environment. Profit decreased primarily due to a higher provision for loan losses of $24 million and lower interest margin of $5 million primarily as a result of higher relative borrowing costs. The increase in the provision for losses reflects higher net charge-offs of $26 million in syndicated bank loans, primarily in the telecommunications industry, franchise finance and aircraft finance. Although management believes it has made adequate provision for anticipated losses, realization of finance assets remains subject to uncertainties. Subsequent evaluations of nonperforming assets, in light of factors then prevailing, including economic conditions, may require additional increases in the allowance for losses of such assets. The current economic conditions will likely put continued pressure on the performance of all finance receivable portfolios.

Special charges and other costs related to restructuring for the third quarter of 2002 were $28 million and $6 million, respectively, compared to $338 million and $11 million, respectively, in the third quarter of 2001. The table below summarizes the special charges which include restructuring expenses associated a) with reducing overhead, and closing, consolidating and downsizing manufacturing facilities, b) corporate personnel reductions and c) outsourcing, consolidating operations and exiting non-core product lines.

20.

Costs related to restructuring of $6 million in the third quarter of 2002 and $11 million in the third quarter of 2001 are included in segment profit as incurred. For the third quarter of 2002, costs related to restructuring totaled $3 million each for Aircraft and Industrial Products. For the third quarter of 2001, costs related to restructuring totaled $4 million for Industrial Components, $3 million each for Fastening Systems and Industrial Products and $1 million for Aircraft.

In October 2002, Textron announced an expansion of its restructuring program as part of its strategic effort to improve operating efficiencies, primarily in its industrial businesses. The expanded restructuring program, which will include further reductions of about 2,000 employees, is expected to result in additional special charges and costs related to restructuring of about $150 million and should be substantially completed by the end of 2004. The special charges will be taken as each project is formally identified and committed to and the costs related to restructuring will be recorded as incurred. The $150 million in costs will be in addition to the $325 million previously announced, of which $225 million has been incurred as of September 28, 2002. Textron's restructuring program includes corporate and segment direct and indirect workforce reductions, consolidation of facilities primarily in the United States and Europe, rationalization of certain product lines, outsourcing of non-core production activity, the divestiture of non-core businesses and streamlining of sales and administrative overhead. Restructuring savings were $177 million for the first nine months of 2002 and are expected to be at least $250 million in 2002, $325 million in 2003 and $400 million in 2004.

Under the restructuring program, excluding Trim, Textron has reduced its workforce by approximately 6,400 employees through September 28, 2002, including approximately 2,200 in Industrial Products, 1,800 in Fastening Systems, 1,200 in Industrial Components, 1,000 in Aircraft and 200 in Finance and Corporate. Textron expects a total reduction of at least 9,500, excluding Trim, representing approximately 16% of its global workforce since the restructuring was first announced. Through the consolidations, Textron has approved the closing of 91 facilities, including 42 manufacturing plants representing over 3.5 million square feet of manufacturing floor space. As of September 28, 2002, 65 facilities, including 29 manufacturing plants, have been closed primarily in the Industrial Components, Industrial Products and Fastening Systems segments.

Corporate expenses and other, net decreased $7 million primarily due to lower costs of $5 million as a result of organizational changes made in the third quarter of 2001, higher income of $4 million related to retirement plans and royalty income of $3 million in 2002 related to the divestiture of Trim, partially offset by an increase of $4 million in product liability reserves related to discontinued operations.

Interest expense, net decreased $11 million primarily due to a lower level of average debt primarily as a result of the pay down of debt with the proceeds from the divestiture of Trim and the benefit of a lower interest rate environment.

21.

Income taxes - The effective tax rate for the third quarter of 2002 decreased to 19.8% primarily due to the $12 million impact of a tax refund as a result of the settlement of a prior year tax dispute. Excluding the impact of the refund, the effective tax rate was 31.5% compared to 35.2% in the third quarter of 2001 excluding the impact of the goodwill write-off. The 3.7% decrease is primarily due to a decrease of 4.9% in the effective tax rate from the elimination of goodwill amortization under SFAS No. 142, which is primarily a non-tax deductible expense, and a favorable change in the tax law related to the deductibility of dividends paid on company stock held by an employee stock ownership plan that reduced the effective tax rate by 2.8% (1.6% of this reduction represents a nonrecurring benefit upon implementation of the new tax law). These were partially offset by an increase in the foreign tax rate of 2.4% and a lower R&D credit of 1.1%.

Revenues decreased to $7.8 billion in the first nine months of 2002 from $9.1 billion in the first nine months of 2001, primarily due to the divestitures of Trim, TECT and a number of other businesses that contributed $1.3 billion to the decrease and softer sales in most of Textron's segments, partially offset by higher sales in the Aircraft segment, as more fully discussed in the segment commentary that follows. Income before cumulative effect of change in accounting principle, net of income taxes, was $233 million for the first nine months of 2002, compared to a loss of $91 million for the first nine months of 2001. Diluted earnings per share before cumulative effect of change in accounting principle, net of income taxes, were $1.66, compared to a loss of $0.65 for the first nine months of 2001.

Textron recorded a net loss of $255 million in the first nine months of 2002, compared to a net loss of $91 million in the first nine months of 2001. The net loss for the first nine months of 2002 included the cumulative effect of a change in accounting principle, net of income taxes, of $488 million. In the first nine months of 2001, the pro forma net loss excluding amortization of goodwill was $24 million, or $0.17 per diluted share.

During the second quarter of 2002, Textron recorded an after-tax transitional goodwill impairment charge of $488 million, which is reported in the caption "Cumulative effect of change in accounting principle, net of income taxes" retroactive to the beginning of fiscal year 2002. This after-tax charge relates to the following segments: $274 million in Industrial Products; $111 million in Industrial Components; $88 million in Fastening Systems; and $15 million in Finance. For Industrial Products, the primary factor resulting in the impairment charge was the difficult economic environment in the telecommunication industry which has experienced a significant decline in demand. This decline has resulted in lower sales and operating margins than originally anticipated with the acquisitions of the InteSys and Tempo businesses. For Industrial Components and Fastening Systems, the primary factor was the decline in demand in certain industries in which these segments operate due to the economic slowdown. The Finance segment's impairment charge was in its franchise finance division and was primarily the result of decreasing loan volumes and an unfavorable securitization market. No impairment charge was appropriate for these segments under the previous goodwill impairment accounting standard, which Textron applied based on undiscounted cash flows.

22.

Segment profit of $573 million in the first nine months of 2002 decreased $150 million from $723 million in the first nine months of 2001 primarily due to an unfavorable mix, the divestitures of Trim and TECT, which contributed $87 million to the decrease, lower results in the Finance segment, low volume manufacturing inefficiencies, an increase in reserves for receivables and inventory and the cost related to the recall, inspection and customer care program at the aircraft engine business. These decreases were partially offset by unfavorable 2001 profit adjustments at Bell Helicopter, the benefit of restructuring activities and higher pricing. The preceding items are discussed more fully in the segment commentary that follows.

The Aircraft segment's revenues and profit increased $150 million and $114 million, respectively.

• Cessna's revenues increased $150 million primarily due to higher used aircraft sales volume of $77 million, higher pricing of $68 million (including $40 million related to the expiration of lower introductory pricing on certain business jet models), higher Citation business jet volume of $61 million, higher spare parts and service sales of $15 million and higher Caravan sales of $10 million. These increases were partially offset by $75 million in lower sales volume of single engine piston aircraft and aircraft engines that have been affected by the weak economy. Profit increased $13 million primarily as a result of pricing of $68 million, a benefit of $26 million from the changes in sales volume and a favorable mix and lower engineering expenses of $4 million, partially offset by the cost of $36 million related to the recall, inspection and customer care program at the Lycoming aircraft engine business (as more fully described in the Aircraft segment commentary on page 17), a higher net write-down of $13 million for used aircraft valuations, start-up costs of $12 million related to the new Sovereign business jet, higher LIFO expense of $8 million and the impact of higher overhead rates.
  

• Bell Helicopter's revenues were unchanged as higher revenue of $67 million from the U.S. Government, primarily on the V-22 program, was offset by lower commercial sales of $67 million. Sales in the commercial business primarily reflected lower commercial aircraft sales of $64 million, lower foreign military sales of $17 million and lower sales of $8 million for kits used to modernize older model Huey helicopters, partially offset by higher commercial spares and service sales of $35 million. Bell's profit increased $101 million primarily as a result of unfavorable 2001 profit adjustments of $124 million including $104 million related to reduced profitability expectations or losses on certain development and production contracts and $20 million related primarily to receivable and inventory reserve increases. Excluding the 2001 profit adjustments, profit decreased $23 million as a result of lower profit of $36 million in the commercial helicopter business, partially offset by 2001 expenses of $8 million associated with outsourcing certain operations and higher profit of $5 million in the U.S. Government business. Lower profit of $36 million in the commercial helicopter business primarily reflected reduced pricing of $20 million related to one commercial helicopter model, a lower contribution of $18 million from the decrease in commercial helicopter sales, increased production and warranty costs of $14 million, increased reserves for receivables of $10 million, lower income of $8 million from a joint venture partner related to the BA609 program and increased costs of $7 million on a foreign military contract, partially offset by lower engineering expense of $25 million primarily associated with the BA609 program and a benefit of $16 million related to the higher spares and service sales.

23.

The Fastening Systems segment's revenues and profit decreased $68 million and $33 million, respectively. The revenue decrease was primarily due to the divestiture of non-core product lines of $28 million, customer price reductions of $23 million and lower sales volume of $20 million from depressed markets, partially offset by the favorable impact of foreign exchange of $3 million in its European operations. Profit decreased primarily due to low volume manufacturing inefficiencies, customer price reductions of $23 million and a reduced contribution of $13 million from the lower sales, partially offset by the benefit of $24 million from restructuring activities, the favorable impact of a $7 million customer warranty issue in the second quarter of 2001 and the impact of a $6 million loss on the sale of non-core product lines in 2001.

The Industrial Products segment's revenues and profit decreased $119 million and $50 million, respectively. Revenues decreased in most of the segment's businesses primarily due to lower sales of $144 million from depressed markets and the divestiture of non-core product lines of $18 million during 2001, partially offset by higher revenues of $27 million in the aerospace and defense business and higher pricing of $12 million. Profit decreased primarily due to a reduced contribution of $86 million from the lower sales volume and an unfavorable mix, a $39 million increase in receivables and inventory reserves and the nonrecurring impact of a gain of $5 million on the sale of a product line in 2001, partially offset by improved cost performance, including the benefit of $39 million from restructuring activities, higher pricing of $12 million and the favorable impact of $7 million from losses recorded in 2001 related to divested product lines.

The Industrial Components segment's revenues and profit decreased $1.241 billion and $108 million, respectively. Revenues and profit declined $1.287 billion and $86 million, respectively, due to the divestitures of Trim, TECT and several small product lines in 2001. Excluding the divestitures, revenues increased $46 million while profit decreased $22 million. The revenue increase was primarily due to higher sales volume of $108 million at Kautex, primarily as a result of new product launches and a stronger automotive market, and the favorable impact of foreign exchange of $3 million, partially offset by lower volume of $47 million in the industrial businesses as a result of soft markets and customer price reductions of $18 million. Excluding the divestitures, the profit decrease was primarily due to low volume manufacturing inefficiencies, customer price reductions of $18 million and the nonrecurring impact of a gain of $7 million on the sale of a product line in 2001, partially offset by the benefit of $16 million from restructuring activities.

The Finance segment's revenues and profit decreased $64 million and $73 million, respectively. Revenues decreased primarily due to a lower average yield of $80 million (7.6% in the first nine months of 2002 compared to 9.6% in the first nine months of 2001) reflecting the lower interest rate environment, partially offset by higher fee income of $10 million and higher operating lease revenue of $6 million. Profit decreased primarily due to a higher provision for loan losses of $56 million and higher operating expenses of $23 million, partially offset by higher interest margin of $6 million. The increase in the provision for losses reflects higher net charge-offs of $48 million and the strengthening of the allowance for losses on receivables. Higher net charge-offs were primarily related to syndicated bank loans, small business finance, aircraft finance and liquidating portfolios. The increase in operating expenses was primarily related to higher legal and collection expenses of $10 million, higher expenses of $8 million related to growth in managed receivables and higher operating lease depreciation of $5 million.

24.

The Finance segment's nonperforming assets include non-accrual accounts that are not guaranteed by Textron Manufacturing, for which interest has been suspended, and repossessed assets. During the first nine months of 2002, nonperforming assets increased $72 million to 2.98% of finance assets from 2.13% at December 29, 2001. The significant components of this increase include $37 million in highly-collateralized aircraft loans, $17 million in media finance, $17 million in resort finance and $14 million in syndicated bank loans. The increases in net charge-offs and nonperforming assets in syndicated bank loans are primarily related to the telecommunications industry, which has experienced economic weakness. The allowance for losses on receivables as a percentage of nonaccrual finance receivables was 92% at September 28, 2002, compared to 126% at December 29, 2001. The decrease in the percentage reflects management's assessment of the adequacy of collateral values supporting the increase in nonaccrual finance receivables at September 28, 2002. The current economic conditions will likely put continued pressure on the performance of all finance receivable portfolios.

Special charges and other costs related to restructuring for the first nine months of 2002 were $64 million and $13 million, respectively, compared to $415 million and $27 million, respectively, in the first nine months of 2001. The table below summarizes the special charges which include restructuring expenses associated a) with reducing overhead, and closing, consolidating and downsizing manufacturing facilities, b) corporate personnel reductions and c) outsourcing, consolidating operations and exiting non-core product lines.

25.