TEXTRON FINANCIAL CORP - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-Q

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL QUARTER ENDED SEPTEMBER 30, 2003

OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-27559

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TEXTRON FINANCIAL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)

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DELAWARE 05-6008768
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) IDENTIFICATION NO.)

40 WESTMINSTER STREET, P.O. BOX 6687, PROVIDENCE, R.I. 02940-6687
(401) 621-4200
(ADDRESS AND TELEPHONE NUMBER OF PRINCIPAL EXECUTIVE OFFICES)

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Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes [X] No [ ]

All of the shares of common stock of the registrant are owned by Textron
Inc.

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TEXTRON FINANCIAL CORPORATION

TABLE OF CONTENTS

1

PART I. FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

TEXTRON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).
2

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).
3

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, 2003 AND 2002
(UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).
4

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY (UNAUDITED)

See notes to condensed consolidated financial statements (unaudited).
5

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

NOTE 1. BASIS OF PRESENTATION

The financial statements should be read in conjunction with the financial
statements included in Textron Financial Corporation's Annual Report on Form
10-K for the year ended December 28, 2002. The accompanying unaudited
consolidated financial statements include the accounts of Textron Financial
Corporation (Textron Financial or the Company) and its subsidiaries. All
significant intercompany transactions are eliminated. The consolidated financial
statements are unaudited and reflect all adjustments (consisting only of normal
recurring adjustments) which are, in the opinion of management, necessary for a
fair presentation of Textron Financial's consolidated financial position at
September 30, 2003 and December 28, 2002, and its consolidated results of
operations and cash flows for each of the respective three- and nine-month
periods ended September 30, 2003 and 2002. The results of operations for the
interim periods are not necessarily indicative of the results to be expected for
the full year. Certain prior balances have been reclassified to conform to the
current year presentation.

NOTE 2. OTHER INCOME

The Other component of Other income includes custodial fees, commitment
fees, residual gains, insurance fees and other miscellaneous fees, which are
primarily recognized as income when received.

NOTE 3. ALLOWANCE FOR LOSSES ON RECEIVABLES

6

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 4. MANAGED AND SERVICED FINANCE RECEIVABLES

Textron Financial manages finance receivables for a variety of investors,
participants and third-party portfolio owners.

Third-party portfolio servicing largely relates to finance receivable
portfolios of resort developers, third-party securitization servicing, as well
as private label bank and leasing company portfolio servicing.

Nonrecourse participations consist of undivided interests in loans
originated by Textron Financial, primarily in vacation interval resorts and golf
finance, which are sold to independent investors.

Owned finance receivables include approximately $94 million of finance
receivables that were unfunded at September 30, 2003, primarily as a result of
holdback arrangements. The corresponding liability is included in Accrued
interest and other liabilities on Textron Financial's Condensed Consolidated
Balance Sheets.

NOTE 5. LOAN IMPAIRMENT

Textron Financial periodically evaluates finance receivables, excluding
homogeneous loan portfolios and finance leases, for impairment. A loan is
considered impaired when it is probable that the Company will be unable to
collect all amounts due according to the contractual terms of the loan
agreement. Impairment is measured by comparing the fair value of a loan to its
carrying cost. Fair value is based on the present value of expected future cash
flows discounted at the loan's effective interest rate, the loan's observable
market price or, if the loan is collaterally dependent, at the fair value of the
collateral. If the fair value of the loan is less than its carrying amount, the
Company establishes a reserve based on this difference. This evaluation is
inherently subjective, as it requires estimates, including the amount and timing
of future cash flows expected to be received on impaired loans, that may differ
from actual results.

The Company suspends the accrual of interest income for accounts that are
contractually delinquent by more than three months, unless collection is not
doubtful. In addition, detailed reviews of loans may result in earlier
suspension if collection is doubtful. Cash payments on nonaccrual accounts,
including finance charges, generally are applied to reduce principal. The
Company had $177.4 million of nonaccrual finance receivables at September 30,
2003, compared to $181.6 million at December 28, 2002. Nonaccrual finance
receivables resulted in Textron Financial's revenues being reduced by
approximately $13.3 million and $12.5 million for the first nine months of 2003
and 2002, respectively. No interest income was recognized using the cash basis
method. Excluding homogeneous loan portfolios and finance leases, the Company
had impaired loans of $124.7 million and $122.1 million at September 30, 2003
and December 28, 2002, respectively. Impaired loans with identified reserve
requirements were $65.6 million and $109.9 million at September 30, 2003 and
December 28, 2002, respectively. The allowance for losses on receivables related
to impaired loans with

7

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

identified reserve requirements was $26.9 million and $32.7 million at September
30, 2003 and December 28, 2002, respectively. The average recorded investment in
impaired loans during the first nine months of 2003 was $129.2 million, compared
to $90.3 million in the corresponding period in 2002.

NOTE 6. GOODWILL

On December 30, 2001, Textron Financial adopted SFAS No. 142, "Goodwill and
Other Intangible Assets," which requires companies to stop amortizing goodwill
and certain intangible assets with indefinite useful lives and requires an
annual review for impairment. All existing goodwill as of December 30, 2001 was
required to be tested for impairment on a reporting unit basis with the adoption
of this standard. Goodwill is considered to be impaired when the net book value
of a reporting unit exceeds its estimated fair value. Fair values were
established using a discounted cash flow methodology.

Upon adoption, Textron Financial recorded an after-tax transitional
impairment charge of $15.4 million ($23.7 million, pre-tax) in the second
quarter of 2002, which was retroactively recorded in the first quarter of 2002.
This charge is included in the caption "Cumulative effect of change in
accounting principle, net of income taxes" in Textron Financial's Condensed
Consolidated Statements of Income. This after-tax charge related to the
Franchise Finance division within the Other segment and was primarily the result
of decreasing loan volumes and an unfavorable securitization market.

NOTE 7. OTHER ASSETS

The Investment in equipment residuals represents the remaining equipment
residual values associated principally with Textron golf and turf equipment
lease payments that were securitized in years 2000 through 2003.

The cost of fixed assets is being depreciated using the straight-line
method based on the estimated useful lives of the assets.

8

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 8. DEBT AND CREDIT FACILITIES

The weighted average interest rates on short-term borrowings have been
determined by relating the annualized interest cost to the daily average dollar
amounts outstanding. The combined weighted average interest rate was 1.49%
during the nine months ended September 30, 2003, and 1.26% at September 30,
2003.

Interest on Textron Financial's variable rate notes is predominately tied
to the three-month LIBOR for U.S. dollar deposits. The weighted average interest
rate on these notes, before consideration of the effect of interest rate
exchange agreements, was 2.44% at September 30, 2003.

The fair value adjustments to designated fixed rate debt in accordance with
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
were increases of $50 million and $67 million at September 30, 2003 and December
28, 2002, respectively.

During the third quarter, Textron Financial renewed and extended its bank
lines of credit. In addition, Textron Inc. (Textron) amended its credit
facilities to permit Textron Financial to borrow under those facilities. The
Company has bank lines of credit of $1.5 billion, of which $500 million expires
in 2004 and $1.0 billion expires in 2008. Textron Financial's lines of credit
not reserved as support for commercial paper or utilized for letters of credit
at September 30, 2003, were $385 million. Textron had unused and unreserved
primary lines of credit of $1.5 billion at September 30, 2003. The Company also
maintains a CAD 50 million committed facility under which it can borrow an
additional CAD 50 million on an uncommitted basis. At September 30, 2003, the
Company had fully used the committed portion of the facility, in addition to
borrowing CAD 13 million under the uncommitted portion of the facility. The
Canadian facility expires in the third quarter of 2004. Textron Financial also
has a $25 million multi-currency facility, of which $18 million remains unused
at September 30, 2003. Textron Financial generally pays fees in support of these
lines.

Through its subsidiary, Textron Financial Canada Funding Corp. (Textron
Canada Funding), the Company periodically issues debt securities. Textron
Financial owns 100% of the common stock of Textron Canada Funding. Textron
Canada Funding is a financing subsidiary of Textron Financial with no
operations,

9

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

revenues or cash flows other than those related to the issuance, administration
and repayment of debt securities that are fully and unconditionally guaranteed
by Textron Financial.

Securitizations are an important source of liquidity for Textron Financial
and involve the periodic transfer of finance receivables to qualified special
purpose trusts. At September 30, 2003 and December 28, 2002, the outstanding
amount of debt issued by these qualified special purpose trusts was $2.1 billion
and $2.3 billion, respectively.

The terms of certain of the Company's loan agreements and credit
facilities, under the most restrictive covenant, limit the payment of dividends
to $456 million at September 30, 2003. In the first nine months of 2003, Textron
Financial declared and paid dividends of $48.8 million.

NOTE 9. TEXTRON FINANCIAL AND LITCHFIELD OBLIGATED MANDATORY REDEEMABLE
PREFERRED SECURITIES OF TRUST SUBSIDIARY HOLDING SOLELY LITCHFIELD
JUNIOR SUBORDINATED DEBENTURES

In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain
Financial Instruments with Characteristics of Both Liabilities and Equity," that
became effective at the beginning of the third quarter of 2003. SFAS No. 150
established standards for how an issuer classifies and measures certain
financial instruments with characteristics of liabilities and equity. Financial
instruments within its scope that were previously classified as equity, such as
mandatorily redeemable shares, must be classified as a liability. Upon adoption,
Textron Financial classified its obligated mandatory redeemable preferred
securities as a liability and related distributions on preferred securities as
interest expense.

Prior to Textron Financial's acquisition of Litchfield on November 3, 1999,
a trust, sponsored and wholly-owned by Litchfield, issued to the public $26.2
million of mandatory redeemable preferred securities (Preferred Securities). The
trust subsequently invested the proceeds in $26.2 million aggregate principal
amount of Litchfield 10% Series A Junior Subordinated Debentures (Series A
Debentures), due 2029. The Series A Debentures are the sole asset of the trust.
The amounts due to the trust under the Series A Debentures and the related
income statement amounts have been eliminated in Textron Financial's
consolidated financial statements.

The Preferred Securities were recorded by Textron Financial at the fair
value of $28.6 million as of the acquisition date and the fair value adjustment
is being amortized through June 2004.

The Preferred Securities accrue and pay cash distributions quarterly at a
rate of 10% per annum. The trust's obligations under the Preferred Securities
are fully and unconditionally guaranteed by Litchfield, including, without
limitation, all obligations arising under the Declaration Trust, the Trust
Preferred Securities, the Indenture, the Debentures and the ancillary agreements
entered into in connection with the foregoing. The trust will redeem all of the
outstanding Preferred Securities when the Series A Debentures are paid at
maturity on June 30, 2029, or otherwise become due. Litchfield will have the
right to redeem 100% of the principal plus accrued and unpaid interest on or
after June 30, 2004.

As a result of the acquisition, Textron Financial has agreed to make
payments to the holders of the Preferred Securities, when due, to the extent not
paid by or on behalf of the trust or the subsidiary.

10

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

NOTE 10. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) AND COMPREHENSIVE INCOME

Accumulated other comprehensive income (loss) is as follows:

Comprehensive income is summarized below:

NOTE 11. CONTINGENCIES

In March 2003, the United States Department of Justice (DOJ) authorized the
filing of a civil action against Textron Financial and its Litchfield Financial
Corporation (Litchfield), and other third parties, arising from the financing of
certain land purchases by consumers through a third-party land developer. Also,
during the third quarter, the Florida Attorney General's office opened a
preliminary investigation into Litchfield's activities relative to Buyer's
Source. Although the Company believes it has good defenses to any governmental
or potential consumer litigation, it is engaged in settlement discussions with
the government agencies and other parties to resolve the matter. As a result of
the most recent discussions, the Company believes that it is reasonably possible
that this matter will be resolved for less than $10 million.

Textron Financial and Litchfield, together with other third parties, are
currently defending a class action arising from the sale of promissory notes
issued by, and the operation of, certain trusts organized by DynaCorp Financial
Strategies Inc. ("DFS"). The complaint, which was filed in 2001 in Superior
Court in Marin County, California, alleges that DFS and the trusts engaged in a
variety of improper dealings with regard to the sale by the trusts of
approximately $50 million of notes and the operation of the trusts. During a
portion of the time that the allegedly improper activities occurred, Litchfield
extended credit to DFS and was a shareholder of DFS, and a Litchfield officer
was a director on DFS' Board. The plaintiffs allege several bases

11

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

for liability, including that Litchfield's former officer participated in the
misrepresentations, that Litchfield received favorable treatment as a creditor,
and that Litchfield was a controlling person of DFS. Litchfield denies these
allegations and is aggressively defending the litigation. On August 8, 2003,
Litchfield was notified that the judge hearing the class action issued an order
affirming her preliminary ruling denying Litchfield's motion to dismiss
Litchfield from the case. The preliminary ruling became final in September,
2003. The Company intends to vigorously defend this action and believes that a
substantial part of any settlement or judgment would be covered by insurance.
The Company anticipates this matter will proceed to trial in the first quarter
of 2004.

There are other pending or threatened lawsuits and other proceedings
against Textron Financial and its subsidiaries. Some of these suits and
proceedings seek compensatory, treble or punitive damages in substantial
amounts. These suits and proceedings are being defended by, or contested on
behalf of, Textron Financial and its subsidiaries. On the basis of information
presently available, Textron Financial believes any such liability would not
have a material effect on Textron Financial's financial position or results of
operations.

NOTE 12. NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003.
Textron Financial had not entered into any new arrangements with variable
interest entities subsequent to January 31, 2003.

On October 8, 2003, the FASB deferred the implementation date for variable
interest entities that existed prior to February 1, 2003 from the third quarter
to the fourth quarter of 2003. With this deferral and due to the recently issued
and pending FASB staff positions, management is continuing to evaluate the
impact of the adoption of FIN 46. Textron Financial is party to various
arrangements that are being evaluated from a FIN 46 perspective. At this time,
based on the interpretations issued to date, management does not anticipate that
adoption will have a material effect on Textron Financial's results of
operations or financial position.

NOTE 13. FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

During the third quarter of 2002, the Company made a strategic decision to
realign its business units into seven operating segments based on the markets
served and the products offered: Aircraft Finance, Asset-Based Lending,
Distribution Finance, Golf Finance, Resort Finance, and Structured Capital. In
addition, the Company maintains an Other segment that includes franchise
finance, media finance and small business finance, in addition to liquidating
portfolios related to a 2001 strategic realignment of the Company's business and
product lines.

12

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

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(1) Interest expense is allocated to each segment in proportion to its net
investment in finance assets. Net investment in finance assets includes
deferred income taxes, security deposits and other specifically identified
liabilities. The interest allocated matches, to the extent possible,
variable rate debt with variable rate finance assets and fixed rate debt
with fixed rate finance assets.

13

ITEM 1. FINANCIAL STATEMENTS (CONTINUED)

TEXTRON FINANCIAL CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) -- (CONTINUED)

(2) Indirect expenses are allocated to each segment based on the use of such
resources. Most allocations are based on the segment's proportion of net
investment in finance assets, headcount, number of transactions, computer
resources and senior management time.

(3) Finance assets include: finance receivables; equipment on operating leases,
net of accumulated depreciation; repossessed assets and properties; retained
interests in securitizations; interest-only securities; investment in
equipment residuals; ADC arrangements; and other long-term investments (some
of which are classified in Other assets on Textron Financial's Condensed
Consolidated Balance Sheets).

14

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS

TEXTRON FINANCIAL CORPORATION

FINANCIAL CONDITION

Liquidity and Capital Resources

Textron Financial Corporation (Textron Financial or the Company) uses a
broad base of financial resources for its liquidity and capital needs. Cash is
provided from operations and several sources of borrowings, including the
issuance of commercial paper and other short-term debt, and sales of medium and
long-term debt in the U.S. and foreign public and private markets. For liquidity
purposes, Textron Financial has a policy of maintaining sufficient unused lines
of credit to support its outstanding commercial paper. Textron Financial has
bank lines of credit of $1.5 billion, of which $500 million expires in 2004 and
$1.0 billion expires in 2008. The $500 million facility includes a one-year term
out option, effectively extending its expiration into 2005. In addition, during
the third quarter, Textron Inc. (Textron) amended its credit facilities to
permit Textron Financial to borrow under those facilities. None of these lines
of credit were used at September 30, 2003, or December 28, 2002. Textron
Financial also maintains a CAD 50 million committed facility, under which it can
borrow an additional CAD 50 million on an uncommitted basis. At September 30,
2003, Textron Financial had fully used the committed portion of the facility, in
addition to borrowing CAD 13 million under the uncommitted portion of the
facility. The Canadian facility expires in the third quarter of 2004. Textron
Financial also has a $25 million multi-currency facility, of which $18 million
remains unused at September 30, 2003. Lines of credit not reserved as support
for commercial paper or utilized for letters of credit were $385 million at
September 30, 2003, compared to $716 million at December 28, 2002. Further,
Textron had unused and unreserved primary lines of credit of $1.5 billion at
September 30, 2003. The decrease in the unreserved portion of Textron
Financial's lines of credit is principally attributable to the maturity of term
debt, the voluntary termination and liquidation of a revolving securitization
conduit through a receivable repurchase and finance receivable growth, partially
offset by the securitization of golf equipment receivables, the sale of
franchise finance receivables and the issuance of term notes.

During the third quarter, Textron Financial filed a shelf registration
statement with the Securities and Exchange Commission enabling the Company to
issue public debt securities, in one or more offerings, up to a total maximum
offering of $4 billion. At September 30, 2003, Textron Financial had $4 billion
available under this facility. Under a shelf registration statement previously
filed with the Securities and Exchange Commission, Textron Financial issued $816
million of term notes during the first nine months that mature in 2005 and 2006.

Securitizations are an important source of funding for the Company. During
the first nine months of 2003, Textron Financial received net proceeds of $225
million, $102 million, $47 million and $38 million from the securitizations of
Distribution Finance receivables (on a revolving basis), golf equipment
receivables, Resort Finance receivables and Aircraft Finance receivables,
respectively. These securitizations provided Textron Financial with an alternate
source of liquidity. Textron used the proceeds from the securitizations to
retire commercial paper. Cash collections on current and prior period
securitization gains were $39 million and $26 million for the nine-month periods
ended September 30, 2003 and September 30, 2002, respectively. Textron Financial
anticipates that it will enter into additional securitization transactions
during the remainder of 2003.

During the first quarter of 2003, Textron Financial's short and long-term
debt credit ratings were downgraded from F1 to F2 and from A to A-,
respectively, by Fitch. In the second quarter of 2003, Standard & Poor's
affirmed the Company's long-term debt rating at A- and upgraded the outlook from
negative to stable. Further downgrades in Textron Financial's ratings could
increase borrowing spreads or limit its access to the commercial paper,
securitization and long-term debt markets. In addition, Textron Financial's $1.5
billion revolving bank line of credit agreements contain certain financial
covenants that Textron Financial needs to comply with to maintain its ability to
borrow under the facilities. Textron Financial was in full compliance with such
covenants at September 30, 2003.

15

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Textron Financial believes that it has adequate credit facilities and
access to credit markets to meet its long-term financing needs.

Cash flows provided by operations were $197 million during the first nine
months of 2003, compared to $155 million in the corresponding period last year.
The increase was principally due to the timing of payments of accrued interest
and other liabilities.

Cash flows used in investing activities were funded primarily from the
collection of receivables and through the issuance of debt. The increase in
proceeds from receivable sales primarily reflects the sales of a franchise
portfolio ($122 million).

Textron Financial declared and paid dividends to Textron of $48.8 million
during the first nine months of 2003, compared to $59.8 million of dividends
declared and $57.5 million of dividends paid during the corresponding period of
2002. The decrease in 2003 was due to the retention of capital to support
finance receivable growth.

Because the finance business involves the purchase and carrying of
receivables, a relatively high ratio of borrowings to net worth is customary.
Debt as a percentage of total capitalization was 83% at September 30, 2003 and
December 28, 2002. Textron Financial's ratio of earnings to fixed charges was
1.53x for the nine months ended September 30, 2003, compared to 1.49x for the
corresponding period in 2002. Commercial paper and Other short-term debt as a
percentage of total debt was 23% at September 30, 2003, compared to 19% at
December 28, 2002. Textron Financial has a policy of matching the duration of
its assets with its debt. Changes in short and long-term debt are primarily
related to the duration of Textron Financial's assets and liabilities, and to a
lesser extent the timing of long-term debt issuances.

Finance Assets

Textron Financial's financing activities are confined almost exclusively to
secured lending and leasing to commercial markets. Management believes that the
portfolio avoids excessive concentration of risk through diversification across
geographic regions, industries and types of collateral, and among borrowers.

Total finance assets, which includes finance receivables, equipment on
operating leases -- net of accumulated depreciation, repossessed assets and
properties, retained interests in securitizations, interest-only securities,
investment in equipment residuals, ADC arrangements and other long-term
investments (some of which are classified in Other assets on Textron Financial's
Condensed Consolidated Balance Sheets), were $6.7 billion at September 30, 2003,
up 2% from $6.5 billion at December 28, 2002. The increase in finance assets was
mostly due to small business finance within the Other segment ($175 million),
which was primarily the result of the liquidation of a revolving securitization
conduit, Distribution Finance ($106 million) and Resort Finance ($48 million),
partially offset by the liquidating portfolios within the Other segment ($220
million).

Finance receivable additions for the first nine months of 2003 were $7.4
billion, compared to $6.7 billion in the corresponding period last year. The
majority of the growth in finance receivable additions was from Distribution
Finance ($698 million).

Nonperforming Assets

Nonperforming assets, which includes independent and nonrecourse captive
finance assets, as a percentage of finance assets decreased to 2.90% ($194
million) at September 30, 2003, compared to 3.33% ($218 million) at December 28,
2002. The $24 million decrease in nonperforming assets at September 30, 2003,
compared to December 28, 2002, was due to decreases in the Other segment ($22
million), Asset-Based Lending ($9 million), Distribution Finance ($6 million)
and Aircraft Finance ($4 million) segments, partially offset by an increase in
the Resort Finance ($17 million) segment. The decrease in the Other segment is
due to a reduction in the liquidating portfolios ($33 million), partially offset
by increases in small business finance ($7 million) and franchise finance ($2
million). The Other segment represents 20% of
16

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

finance assets and 35% of nonperforming assets at September 30, 2003. The
Company believes that nonperforming assets will generally be in the range of 2%
to 4% of finance assets depending on economic conditions.

The allowance for losses on receivables was $146.3 million at September 30,
2003, as compared to $166.5 million at December 28, 2002. The reduction in the
allowance for loan losses on receivables was the result of charge-offs related
to previously reserved accounts. The allowance for losses on receivables as a
percentage of total finance receivables was 2.5% at September 30, 2003, compared
to 2.9% at December 28, 2002 (2.7% and 3.1%, respectively, excluding captive
receivables with recourse to Textron). The allowance for losses on receivables
as a percentage of nonaccrual finance receivables was 83% at September 30, 2003,
as compared to 92% at December 28, 2002. The decrease in the percentage reflects
a $44.3 million decrease in nonaccrual loans with identified reserve
requirements, to $65.6 million at September 30, 2003 from $109.9 million at
December 28, 2002.

Interest Rate Sensitivity

Textron Financial's mix of fixed and floating rate debt is continuously
monitored by management and is adjusted, as necessary, based on evaluations of
internal and external factors.

Management's strategy of matching interest-sensitive assets with
interest-sensitive liabilities limits Textron Financial's risk to changes in
interest rates, and includes entering into interest rate exchange agreements. At
September 30, 2003, interest-sensitive assets in excess of interest-sensitive
liabilities were $1.2 billion, net of $1.6 billion of interest rate exchange
agreements on long-term debt and $244 million of interest rate exchange
agreements on finance receivables. However, classified within interest-sensitive
assets are approximately $1.1 billion of floating rate loans with index rate
floors that are on average 168 basis points above the applicable index rate
(predominately the prime rate). As a consequence, these assets have become
interest-insensitive, and will remain so until the prime rate increases above
the floor rates.

Management believes that its asset/liability management policy provides
adequate protection against interest rate risks. Increases in interest rates,
however, could have an adverse effect on interest margin. Variable rate
receivables are generally tied to changes in the prime rate offered by major
U.S. banks or LIBOR. Changes in short-term borrowing costs generally precede
changes in variable rate receivable yields. Textron Financial assesses its
exposure to interest rate changes using an analysis that measures the potential
loss in net income, over a twelve-month period, resulting from a hypothetical
change in interest rates of 100 basis points across all maturities occurring at
the outset of the measurement period (sometimes referred to as a "shock test").
Textron Financial also assumes in its analysis that prospective receivable
additions will be match funded, existing portfolios will not prepay and all
other relevant factors will remain constant. This shock test model, when applied
to Textron Financial's asset and liability position at September 30, 2003,
indicates that an increase in interest rates of 100 basis points would have a
negative impact on Textron Financial's net income and cash flows of $2.3 million
for the following twelve-month period, including the effects of the rate floors.

Financial Risk Management

Textron Financial's results are affected by changes in U.S. and, to a
lesser extent, foreign interest rates. As part of managing this risk, Textron
Financial enters into interest rate exchange agreements. Textron Financial's
objective of entering into such agreements is not to speculate for profit, but
generally to convert variable rate debt into fixed rate debt and vice versa. The
overall objective of Textron Financial's interest rate risk management is to
achieve a prudent balance between floating and fixed rate debt. These agreements
do not involve a high degree of complexity or risk. Textron Financial does not
trade in interest rate exchange agreements or enter into leveraged interest rate
exchange agreements.

Textron Financial manages its foreign currency exposure by funding most
foreign currency denominated assets with liabilities in the same currency. The
Company may enter into foreign currency exchange
17

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

agreements to convert foreign currency denominated assets and liabilities into
functional currency denominated assets and liabilities. In addition, as part of
managing its foreign currency exposure, Textron Financial may enter into foreign
currency forward exchange contracts. The objective of such agreements is to
manage any remaining exposure to changes in currency rates. The notional amounts
of outstanding foreign currency forward exchange contracts were nominal.

RESULTS OF OPERATIONS

FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2003 VS. SEPTEMBER 30, 2002

REVENUES

Three months ended September 30, 2003 vs. September 30, 2002

Third quarter 2003 revenues decreased by $8.1 million, or 5.2%, compared to
the corresponding period in 2002. The decrease in revenues principally reflects
lower other income ($6.1 million) and lower finance charges and discounts ($2.8
million) due to a lower level of average finance receivables ($3.9 million),
partially offset by higher receivable pricing ($1.1 million). The lower level of
average finance receivables ($159 million) was primarily due to the Aircraft
Finance, Golf Finance and Other segments, partially offset by an increase in the
Resort Finance segment. The decrease in other income was mostly due to lower
other fee income ($3.4 million), securitization income ($3.1 million) and
investment income ($1.1 million), partially offset by higher servicing fees
($1.8 million).

Nine months ended September 30, 2003 vs. September 30, 2002

Revenues for the first nine months of 2003 increased by $4.7 million, or
1%, compared to the corresponding period in 2002. The increase in revenues
principally reflects higher finance charges and discounts ($14.7 million)
largely due to a higher level of average finance receivables ($8.7 million) and
higher receivable pricing ($6.0 million). The higher level of average finance
receivables ($208 million) was primarily due to growth in the Distribution
Finance and Resort Finance segments, partially offset by a decrease in the
Aircraft Finance and Other segments. This increase was partially offset by lower
other income ($10.6 million), primarily due to lower securitization gains ($6.4
million), investment income ($4.8 million), other fee income ($2.7 million) and
syndication gains ($2.2 million), partially offset by higher servicing fees
($4.8 million) and prepayment gains ($1.2 million).

INTEREST EXPENSE

Three months ended September 30, 2003 vs. September 30, 2002

Third quarter 2003 interest expense decreased by $3.8 million, or 7.7%, on
5.2% higher average debt outstanding. The lower interest expense reflects a
decrease in the average borrowing rate to 3.38% from 3.85%, primarily
attributable to a lower interest rate environment and the maturity of higher
cost debt.

Nine months ended September 30, 2003 vs. September 30, 2002

Interest expense for the first nine months of 2003 decreased by $6.5
million, or 4.5%, on 4.4% higher average debt outstanding. The lower interest
expense reflects a decrease in the average borrowing rate to 3.51% from 3.84%,
primarily attributable to a lower interest rate environment and the maturity of
higher cost debt.

INTEREST MARGIN

Textron Financial's earnings are influenced by the interest margin earned
on finance receivables (i.e., revenues earned less interest expense on
borrowings and operating lease depreciation).

18

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Three months ended September 30, 2003 vs. September 30, 2002

Interest margin decreased $5.4 million, or 16 basis points (6.68% versus
6.84%) for the third quarter of 2003 compared to the corresponding period in
2002. The contraction in the interest margin percentage was primarily due to
lower other income.

Nine months ended September 30, 2003 vs. September 30, 2002

Interest margin increased $8.7 million, and decreased 1 basis point (6.74%
versus 6.75%) for the first nine months of 2003 compared to the corresponding
period in 2002. The increase in interest margin was primarily due to higher
finance charges and discounts from higher average finance receivables, higher
receivable pricing and a lower relative borrowing cost, partially offset by
lower other income.

SELLING AND ADMINISTRATIVE EXPENSES

Three months ended September 30, 2003 vs. September 30, 2002

Selling and administrative expenses of $48.6 million increased $9.3 million
in the third quarter of 2003 compared to the corresponding period in 2002. The
increase in 2003 principally reflects higher legal and collection ($6.3
million), data processing ($1.1 million) and telecommunication ($0.9 million)
expenses. Selling and administrative expenses as a percentage of average managed
and serviced finance receivables were 2.01% (on an annualized basis) in the
third quarter of 2003, compared to 1.64% in 2002.

Nine months ended September 30, 2003 vs. September 30, 2002

Selling and administrative expenses of $142.4 million increased $19.6
million in the first nine months of 2003 compared to the corresponding period in
2002. The increase in 2003 principally reflects higher legal and collection
($10.0 million), data processing ($3.0 million) and telecommunication ($2.3
million) expenses as well as costs related to growth in managed and serviced
finance receivables ($4.5 million). Selling and administrative expenses as a
percentage of average managed and serviced finance receivables were 1.97% (on an
annualized basis) in the first nine months of 2003, compared to 1.76% in 2002.

PROVISION FOR LOSSES

Three months ended September 30, 2003 vs. September 30, 2002

The provision for losses of $25.4 million for the third quarter of 2003
decreased from $44.4 million for the corresponding period in 2002. The decrease
in the provision for losses reflects a declining rate of portfolio growth and an
improvement in portfolio quality. Net charge-offs were $44.3 million in the
third quarter of 2003, consistent with $44.1 million in the corresponding period
of 2002. Net charge-offs increased in Distribution Finance ($2.7 million),
Resort Finance ($1.0 million) and Golf Finance ($0.5 million), mostly offset by
decreases in Aircraft Finance ($2.8 million) and Asset-Based Lending ($1.0
million). Net charge-offs within the Other segment were consistent with prior
year, however, net charge-off decreases in syndicated bank loans ($10.5 million)
and small-ticket equipment finance ($4.9 million), were offset by increases in
the other liquidating portfolios.

Nine months ended September 30, 2003 vs. September 30, 2002

The provision for losses of $86.4 million for the first nine months of 2003
decreased from $99.8 million for the corresponding period in 2002. The decrease
in the provision for losses reflects a declining rate of portfolio growth and an
improvement in portfolio quality. Net charge-offs of $106.6 million for the
first nine months of 2003, increased by $12.8 million compared to the
corresponding period in 2002. The increase in net charge-offs was primarily
related to the Distribution Finance ($7.8 million), Resort Finance ($3.1
million), Golf Finance ($2.5 million) and Aircraft Finance ($1.5 million)
segments, partially offset by a decrease in the Other segment ($1.8 million).
19

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Although management believes it has made adequate provision for anticipated
losses, realization of these 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 for such assets.

OPERATING RESULTS BY SEGMENT

Segment income below represents income before special charges, income
taxes, distributions on preferred securities and cumulative effect of change in
accounting principle.

Three months ended September 30, 2003 vs. September 30, 2002

Distribution Finance income increased $4.9 million reflecting higher
interest margin ($10.3 million), partially offset by higher operating expenses
($3.7 million) and higher provision for losses ($1.7 million) largely related to
growth in finance receivables. The higher interest margin was primarily due to
higher receivable pricing ($4.4 million), higher other income ($4.7 million),
principally securitization related income, and higher average finance
receivables ($78 million).

Resort Finance income decreased $12.9 million primarily reflecting higher
operating expenses ($6.4 million), mostly legal and collection, and lower
interest margin ($5.9 million). The lower interest margin largely reflects lower
other income ($3.8 million), principally securitization gains, and lower
receivable pricing ($3.5 million), despite higher average finance receivables
($105 million).

Golf Finance income decreased $2.7 million reflecting higher operating
expenses ($1.8 million), primarily related to the golf equipment portfolio, and
lower interest margin ($0.9 million), reflecting lower average finance
receivables ($86 million).

Aircraft Finance income increased $6.6 million reflecting lower provision
for losses ($6.1 million) and lower operating expenses ($1.4 million), partially
offset by lower interest margin ($0.9 million).

Asset-Based Lending income decreased $2.5 million principally reflecting
lower interest margin ($1.4 million) primarily due to lower average finance
receivables ($39 million) and lower other income ($0.7 million).

Structured Capital income decreased $3.2 million primarily due to higher
provision for losses ($1.8 million) and lower interest margin ($1.5 million).

Other segment income increased $14.0 million reflecting lower provision for
losses ($17.5 million) and lower operating expenses ($1.7 million), partially
offset by lower interest margin ($5.2 million). The decrease in interest margin
principally reflects lower securitization income.

Nine months ended September 30, 2003 vs. September 30, 2002

Distribution Finance income increased $18.6 million reflecting higher
interest margin ($37.5 million), partially offset by higher operating expenses
($12.3 million) and higher provision for losses ($6.6 million) largely related
to growth in finance receivables. The higher interest margin was principally due
to higher average finance receivables ($291 million), higher receivable pricing
($13.0 million) and higher other income ($10.2 million).

Resort Finance income decreased $21.8 million reflecting lower interest
margin ($11.3 million), higher operating expenses ($8.4 million), mostly legal
and collection, and higher provision for losses ($2.1 million). The decrease in
interest margin largely reflects lower receivable pricing ($10.5 million)
despite higher average finance receivables ($90 million) and lower other income
($4.6 million), principally securitization gains.

Golf Finance income increased $3.5 million reflecting higher interest
margin ($6.5 million), partially offset by higher operating expenses ($3.0
million). The increase in interest margin was mostly due to higher other income
($5.0 million), principally securitization related income and residual gains.
20

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Aircraft Finance income increased by $4.8 million principally reflecting
lower provision for losses ($8.4 million), partially offset by a lower interest
margin ($3.3 million). The decrease in interest margin was primarily due to
lower other income ($2.2 million).

Asset-Based Lending income increased $0.3 million reflecting lower
provision for losses ($4.2 million), partially offset by lower interest margin
($2.8 million) and higher operating expenses ($1.1 million). The decrease in
interest margin was mostly due to lower average finance receivables ($55
million) and lower other income ($1.0 million), partially offset by higher
receivable pricing ($0.9 million).

Structured Capital income decreased $3.2 million primarily reflecting
higher provision for losses ($2.2 million).

Other segment income increased $0.3 million reflecting a lower provision
for losses ($11.6 million) and lower operating expenses ($5.5 million),
partially offset by a lower interest margin ($16.8 million). The lower interest
margin largely reflects lower other income ($18.8 million), primarily
securitization related income.

INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING PRINCIPLE

Three months ended September 30, 2003 vs. September 30, 2002

Income before cumulative effect of change in accounting principle for the
third quarter was $15.9 million, $3.7 million or 29.7% higher than the
corresponding period in 2002. The increase reflects a lower provision for losses
($18.9 million) and a lower effective tax rate, partially offset by higher
selling and administrative expenses ($9.3 million) and a lower interest margin
($5.4 million).

Nine months ended September 30, 2003 vs. September 30, 2002

Income before cumulative effect of change in accounting principle for the
first nine months of 2003 was $48.5 million, $3.5 million or 7.9% higher than
the corresponding period in 2002. The increase reflects a lower provision for
losses ($13.4 million), a higher interest margin ($8.7 million) and a lower
effective tax rate, partially offset by higher selling and administrative
expenses ($19.6 million).

CONTINGENCIES

In March 2003, the United States Department of Justice (DOJ) authorized the
filing of a civil action against Textron Financial and its Litchfield Financial
Corporation (Litchfield), and other third parties, arising from the financing of
certain land purchases by consumers through a third-party land developer. Also,
during the third quarter, the Florida Attorney General's office opened a
preliminary investigation into Litchfield's activities relative to Buyer's
Source. Although the Company believes it has good defenses to any governmental
or potential consumer litigation, it is engaged in settlement discussions with
the government agencies and other parties to resolve the matter. As a result of
the most recent discussions, the Company believes that it is reasonably possible
that this matter will be resolved for less than $10 million.

Textron Financial and Litchfield, together with other third parties, are
currently defending a class action arising from the sale of promissory notes
issued by, and the operation of, certain trusts organized by DynaCorp Financial
Strategies Inc. ("DFS"). The complaint, which was filed in 2001 in Superior
Court in Marin County, California, alleges that DFS and the trusts engaged in a
variety of improper dealings with regard to the sale by the trusts of
approximately $50 million of notes and the operation of the trusts. During a
portion of the time that the allegedly improper activities occurred, Litchfield
extended credit to DFS and was a shareholder of DFS, and a Litchfield officer
was a director on DFS' Board. The plaintiffs allege several bases for liability,
including that Litchfield's former officer participated in the
misrepresentations, that Litchfield received favorable treatment as a creditor,
and that Litchfield was a controlling person of DFS. Litchfield denies these
allegations and is aggressively defending the litigation. On August 8, 2003,
Litchfield was notified that the judge hearing the class action issued an order
affirming her preliminary ruling denying Litchfield's motion to dismiss
Litchfield from the case. The preliminary ruling became final in September,
2003. The

21

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

Company intends to vigorously defend this action and believes that a substantial
part of any settlement or judgment would be covered by insurance. The Company
anticipates this matter will proceed to trial in the first quarter of 2004.

There are other pending or threatened lawsuits and other proceedings
against Textron Financial and its subsidiaries. Some of these suits and
proceedings seek compensatory, treble or punitive damages in substantial
amounts. These suits and proceedings are being defended by, or contested on
behalf of, Textron Financial and its subsidiaries. On the basis of information
presently available, Textron Financial believes any such liability would not
have a material effect on Textron Financial's financial position or results of
operations.

SELECTED FINANCIAL RATIOS

- ---------------

(1) Represents revenues earned less interest expense on borrowings and operating
lease depreciation as a percentage of average net investment. Average net
investment includes finance receivables plus operating leases, less deferred
taxes on leveraged leases.

(2) Return on average equity excludes the cumulative effect of change in
accounting principle.

(3) Return on average assets excludes the cumulative effect of change in
accounting principle.

(4) Average managed and serviced finance receivables include owned receivables,
receivables serviced under securitizations, participations and third-party
portfolio servicing agreements.

(5) Operating efficiency ratio is selling and administrative expenses divided by
net interest margin.

(6) Delinquency excludes captive receivables with recourse to Textron. Captive
receivables represent third-party finance receivables originated in
connection with the sale or lease of Textron manufactured products.
Percentages are expressed as a function of total Textron Financial
independent and nonrecourse captive receivables.

22

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)

(7) Finance assets include: finance receivables; equipment on operating leases,
net of accumulated depreciation; repossessed assets and properties; retained
interests in securitizations; interest-only securities; investment in
equipment residuals; ADC arrangements; and long-term investments (some of
which are classified in Other assets on Textron Financial's Condensed
Consolidated Balance Sheets). Nonperforming assets include independent and
nonrecourse captive finance assets.

(8) Tangible shareholder's equity equals Shareholder's equity, excluding
Accumulated other comprehensive income or loss, less Goodwill.

NEW ACCOUNTING PRONOUNCEMENTS

In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities, an Interpretation of ARB No. 51" (FIN 46). FIN 46
requires certain variable interest entities to be consolidated by the primary
beneficiary of the entity if the equity investors in the entity do not have the
characteristics of a controlling financial interest or do not have sufficient
equity at risk for the entity to finance its activities without additional
subordinated financial support from other parties. FIN 46 is effective for all
new variable interest entities created or acquired after January 31, 2003.
Textron Financial had not entered into any new arrangements with variable
interest entities subsequent to January 31, 2003.

On October 8, 2003, the FASB deferred the implementation date for variable
interest entities that existed prior to February 1, 2003 from the third quarter
to the fourth quarter of 2003. With this deferral and due to the recently issued
and pending FASB staff positions, management is continuing to evaluate the
impact of the adoption of FIN 46. Textron Financial is party to various
arrangements that are being evaluated from a FIN 46 perspective. At this time,
based on the interpretations issued to date, management does not anticipate that
adoption will have a material effect on Textron's results of operations or
financial position.

FORWARD-LOOKING INFORMATION

Certain statements in this Form 10-Q and other oral and written statements
made by Textron Financial from time to time are forward-looking statements,
including those that discuss strategies, goals, outlook or other nonhistorical
matters; or project revenues, income, returns or other financial measures. These
forward-looking statements are subject to risks and uncertainties that may cause
actual results to differ materially from those contained in the statements,
including the following: (a) changes in worldwide economic and political
conditions that impact interest and foreign exchange rates; (b) the occurrence
of further downturns in customer markets to which Textron products are sold or
supplied and financed or where Textron Financial offers financing; (c) the
ability to control costs and successful implementation of various cost reduction
programs; (d) the ability to maintain portfolio credit quality; (e) Textron
Financial's access to debt financing at competitive rates; (f) access to equity
in the form of retained earnings and capital contributions from Textron; and (g)
uncertainty in estimating contingent liabilities and establishing reserves
tailored to address such contingencies.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For information regarding Textron Financial's Quantitative and Qualitative
Disclosure About Market Risk, see "Interest Rate Sensitivity" and "Financial
Risk Management" in Item 2 of this Form 10-Q.

ITEM 4. CONTROLS AND PROCEDURES

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

We have carried out an evaluation, under the supervision and with the
participation of our management, including our Chairman and Chief Executive
Officer (the "CEO") and our Executive Vice President and Chief Financial Officer
(the "CFO"), of the effectiveness of the design and operation of our disclosure
controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Securities Exchange Act of

23

ITEM 4. CONTROLS AND PROCEDURES (CONTINUED)

1934, as amended (the "Act")) as of the end of the fiscal quarter covered by
this report. Based upon that evaluation, our CEO and CFO concluded that our
disclosure controls and procedures are effective in providing reasonable
assurance that (a) the information required to be disclosed by us in the reports
that we file or submit under the Act is recorded, processed, summarized and
reported within the time periods specified in the Securities and Exchange
Commission's rules and forms, and (b) such information is accumulated and
communicated to our management, including our CEO and CFO, as appropriate to
allow timely decisions regarding required disclosure.

There has been no change in our internal control over financial reporting
during the fiscal quarter covered by this report that has materially affected,
or is reasonably likely to materially affect, our internal control over
financial reporting.

24

PART II. OTHER INFORMATION

TEXTRON FINANCIAL CORPORATION

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(A) EXHIBITS

4.1 Indenture dated as of December 9, 1999, between Textron
Financial Corporation and SunTrust Bank (formerly known as
Sun Trust Bank, Atlanta), (including form of debt
securities). Incorporated by reference to Exhibit 4.1 to
Amendment No. 2 to Textron Financial Corporation's
Registration Statement on Form S-3 (No. 333-88509).
4.2 Indenture dated as of November 30, 2001, between Textron
Financial Canada Funding Corp. and SunTrust Bank, guaranteed
by Textron Financial Corporation. Incorporated by reference
to Exhibit 4.2 to Textron Financial Corporation's
Registration Statement on Form S-3 (No. 333-108464).
10.1 364-Day Credit Agreement dated July 28, 2003 among Textron
Financial Corporation, the Banks listed therein, and
JPMorgan Chase Bank, as Administrative Agent. Incorporated
by reference to Exhibit 10.1 to Textron Financial
Corporation's Report on 8-K as filed on August 26, 2003.
10.2 Five-Year Credit Agreement dated July 28, 2003 among Textron
Financial Corporation, the Banks listed therein, and
JPMorgan Chase Bank, as Administrative Agent. Incorporated
by reference to Exhibit 10.2 to Textron Financial
Corporation's Report on 8-K as filed on August 26, 2003.
10.3 364-Day Credit Agreement dated March 31, 2003 among Textron
Inc., the Banks listed therein, and JPMorgan Chase Bank, as
Administrative Agent. Incorporated by reference to Exhibit
10.3 to Textron Inc.'s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 2003.
10.4 Five-Year Credit Agreement dated April 1, 2002 among Textron
Inc., the Banks listed therein, and JPMorgan Chase Bank, as
Administrative Agent. Incorporated by reference to Exhibit
10.2 to Textron Inc.'s Quarterly Report on Form 10-Q for the
fiscal quarter ended March 29, 2003.
10.5 Amendment to Five-Year and 364-day Credit Agreements among
Textron Inc., the Banks listed therein, and JPMorgan Chase
Bank, as Administrative Agent.
12 Computation of Ratios of Earnings to Fixed Charges
31.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(a)
31.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(a)
32.1 Certification of Chief Executive Officer Pursuant to Rule
13a-14(b) and 18 U.S.C. Section 1350
32.2 Certification of Chief Financial Officer Pursuant to Rule
13a-14(b) and 18 U.S.C. Section 1350

NOTE: Instruments defining the rights of holders of certain issues of long-term
debt of Textron Financial Corporation have not been filed as exhibits to
this Report because the authorized principal amount of any one such issues
does not exceed 10% of the total assets of Textron Financial Corporation
and its subsidiaries on a consolidated basis. Textron Financial
Corporation agrees to furnish a copy of each such instrument to Commission
upon request.

(B) REPORTS ON FORM 8-K

The Company filed a report on Form 8-K on August 26, 2003 reporting under
Item 5 of Form 8-K on the Company's renewal of certain credit facilities and
updating its disclosure with respect to certain litigation matters.

25

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.

Date: November 7, 2003 TEXTRON FINANCIAL CORPORATION

/s/ THOMAS J. CULLEN
--------------------------------------
Thomas J. Cullen
Executive Vice President and Chief
Financial Officer
(Principal Financial Officer)

26