<HTML> <HEAD> <TITLE>SECURITIES AND EXCHANGE COMMISSION</TITLE> </HEAD> <BODY> <B><P ALIGN="CENTER">SECURITIES AND EXCHANGE COMMISSION</P> </B><P ALIGN="CENTER">Washington, DC 20549</P> <P ALIGN="CENTER"></P> <P ALIGN="CENTER">_______________</P> <P ALIGN="CENTER"></P> <B><FONT SIZE=5><P ALIGN="CENTER">FORM 10-Q</P> </B></FONT><P ALIGN="CENTER"></P> <TABLE CELLSPACING=0 WIDTH=660> <TR><TD WIDTH="6%" VALIGN="TOP"> <FONT SIZE=3><P>[X]</FONT></TD> <TD WIDTH="94%" VALIGN="TOP"> <FONT SIZE=3><P>QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES <BR> EXCHANGE ACT OF 1934<BR> For the fiscal quarter ended October 2, 1999</FONT></TD> </TR> <TR><TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="94%" VALIGN="TOP"> <FONT SIZE=3><P>OR </FONT></TD> </TR> <TR><TD WIDTH="6%" VALIGN="TOP"> <FONT SIZE=3><P>[  ]</FONT></TD> <TD WIDTH="94%" VALIGN="TOP"> <FONT SIZE=3><P>TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES <BR> EXCHANGE ACT OF 1934 </FONT></TD> </TR> </TABLE> <P ALIGN="CENTER"></P> <P ALIGN="CENTER">Commission file number 1-5480</P> <P ALIGN="CENTER"></P> <P ALIGN="CENTER">_______________</P> <P ALIGN="CENTER"></P> <B><FONT SIZE=5><P ALIGN="CENTER">TEXTRON INC.</P> </B></FONT><P ALIGN="CENTER"></P> <I><P ALIGN="CENTER">(Exact name of registrant as specified in its charter)</P> </I><P ALIGN="CENTER"></P> <P ALIGN="CENTER">_______________</P> <P ALIGN="CENTER"></P> <TABLE CELLSPACING=0 WIDTH=683> <TR><TD WIDTH="46%" VALIGN="TOP" ROWSPAN=2> <P ALIGN="CENTER">Delaware<BR> (State or other jurisdiction of<BR> incorporation or organization) </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> <TD WIDTH="36%" VALIGN="TOP" ROWSPAN=2> <P>05-0315468<BR> (I.R.S. Employer Identification No.) </TD> </TR> <TR><TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> </TABLE> <P ALIGN="CENTER"></P> <P ALIGN="CENTER">40 Westminster Street, Providence, RI 02903<BR> 401-421-2800<BR> <I>(Address and telephone number of principal executive offices)</P> </I><P ALIGN="CENTER"></P> <P ALIGN="CENTER">_______________</P> <P ALIGN="CENTER"></P> <P ALIGN="JUSTIFY">Indicate by check mark whether the registrant (1) has filed all reports required to be filed by <BR> Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or <BR> for such shorter period that the registrant was required to file such reports) and (2) has been <BR> subject to such filing requirements for the past 90 days.</P> <P ALIGN="JUSTIFY"></P> <P ALIGN="JUSTIFY"> </P> <P ALIGN="RIGHT"><TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=643> <TR><TD VALIGN="TOP"> <P ALIGN="RIGHT">Yes <U> X </U> No<U>   </U></TD> </TR> </TABLE> </P> <P ALIGN="JUSTIFY"></P> <P ALIGN="CENTER">Common stock outstanding at October 30, 1999 - 148,741,000 shares</P> <B><FONT SIZE=2><P ALIGN="CENTER"></P> <P ALIGN="CENTER">PART I. FINANCIAL INFORMATION</P> </B> <P>Item 1. <U>FINANCIAL STATEMENTS</P> </U><B><P ALIGN="CENTER">TEXTRON INC.<BR> Condensed Consolidated Statement of Income (unaudited)<BR> </B>(Dollars in millions except per share amounts)</P></FONT> <TABLE CELLSPACING=1 CELLPADDING=2 WIDTH=739> <TR><TD WIDTH="48%" VALIGN="TOP"> </TD> <TD WIDTH="26%" VALIGN="TOP" COLSPAN=2> <FONT SIZE=2><P ALIGN="CENTER">Three months ended</FONT></TD> <TD WIDTH="26%" VALIGN="TOP" COLSPAN=2> <FONT SIZE=2><P ALIGN="CENTER">Nine months ended</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="CENTER">October 2,<BR> 1999</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="CENTER">October 3,<BR> 1998</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="CENTER">October 2,<BR> 1999</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="CENTER">October 3,<BR> 1998</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Textron Manufacturing</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Revenues</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2,587</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2,253</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$8,023</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$6,813</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Cost and Expenses</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Cost of sales</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">2,108</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">1,833</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">6,565</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">5,545</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Selling and administrative</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">271</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">232</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">802</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">694</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Gain on sale of division</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(97)</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Special charges/(credits)</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(3)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(1)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">87</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Interest expense</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">11</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">37</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">27</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">106</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Interest income</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(4)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(26)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Total costs and expenses</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">2,383</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">2,102</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">7,367</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">6,335</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Manufacturing income</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">204</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">151</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">656</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">478</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Textron Finance</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Revenues</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">122</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">99</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">322</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">275</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Costs and Expenses</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Interest</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">45</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">40</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">135</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">116</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Selling and administrative</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">29</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">20</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">71</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">58</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Provision for losses on collection of finance receivables</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">10</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">6</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">22</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">16</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Total costs and expenses</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">84</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">66</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">228</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">190</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Finance income</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">38</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">33</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">94</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">85</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Total Company</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Income from continuing operations before income taxes and<BR>      distributions on preferred securities of subsidiary trust</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> 242</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> 184</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> 750</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> 563</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(90)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(70)</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(278)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(221)</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Distributions on preferred securities of subsidiary trust,<BR>      net of income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (6)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (6)</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (19)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (19)</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Income from continuing operations</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">146</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">108</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">453</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">323</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Discontinued operations, net of income taxes:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Income from operations</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">34</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">125</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Gain on disposal</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">1,615</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">34</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">1,615</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">125</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Income before extraordinary loss</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">146</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">142</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">2,068</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">448</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Extraordinary loss from debt retirement, net of income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">(43)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <B><FONT SIZE=2><P>Net income</B></FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$146</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$142</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2,025</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$448</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Per common share:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Basic:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Income from continuing operations</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.97</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.67</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$3.00</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.99</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Discontinued operations, net of income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">.20</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">10.68</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">.76</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Extraordinary loss from debt retirement, net of<BR>           income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (.28)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Net income</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.97</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.87</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$13.40</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2.75</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Diluted:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Income from continuing operations</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.95</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.65</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2.93</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.94</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Discontinued operations, net of income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">.20</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">10.44</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">.74</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Extraordinary loss from debt retirement, net of<BR>           income taxes</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> (.27)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT"><BR> -</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Net income</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.95</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.85</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$13.10</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$2.68</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Average shares outstanding:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Basic</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">150,069,000</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">162,156,000</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">151,153,000</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">162,718,000</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Diluted</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">153,406,000</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">166,116,000</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">154,654,000</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">166,927,000</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>Dividends per share:</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     $2.08 Preferred stock, Series A</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.52</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.52</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.56</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.56</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     $1.40 Preferred stock, Series B</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.35</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.35</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.05</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$1.05</FONT></TD> </TR> <TR><TD WIDTH="48%" VALIGN="TOP"> <FONT SIZE=2><P>     Common stock</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.325</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.25</FONT></TD> <TD WIDTH="12%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.975</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=2><P ALIGN="RIGHT">$.855</FONT></TD> </TR> </TABLE> <I><FONT SIZE=2><P>See notes to the condensed consolidated financial statements.</P> </I></FONT><P>Item 1.     <U>FINANCIAL STATEMENTS</U> (Continued)</P> <B><P ALIGN="CENTER">TEXTRON INC.<BR> Condensed Consolidated Balance Sheet (unaudited)</B><BR> (Dollars in millions)<BR> </P> <TABLE CELLSPACING=1 CELLPADDING=7 WIDTH=655> <TR><TD WIDTH="58%" VALIGN="TOP"> </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="CENTER">January 2,<BR> 1999</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"><DIR> <B><P>Assets</DIR> </B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Textron Manufacturing</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Cash and cash equivalents</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$356</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">$31</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Commercial and U.S. government receivables - net</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,388</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,160</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Inventories</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,968</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,640</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other current assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">309</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">348</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Investment in discontinued operations</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,176</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total current assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">4,021</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">4,355</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Property, plant, and equipment, less accumulated<BR>      depreciation of $2,011 and $1,874</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> 2,389</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> 2,185</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Goodwill, less accumulated amortization of $473 and<BR>      $388</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> 2,587</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> 2,119</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other (including net deferred income taxes)</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,418</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,277</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total Textron Manufacturing assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">10,415</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">9,936</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Textron Finance</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Cash</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">54</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">22</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Finance receivables - net</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">4,334</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">3,528</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">295</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">235</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total Textron Finance assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">4,683</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">3,785</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total assets</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$15,098</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">$13,721</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Liabilities and shareholders' equity</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Liabilities</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Textron Manufacturing</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Current portion of long-term debt and short-term debt</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$194</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,735</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Accounts payable</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,104</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,010</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Income taxes payable</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">361</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">76</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other accrued liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,215</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,098</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total current liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">2,874</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">3,919</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Accrued postretirement benefits other than pensions</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">745</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">762</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,307</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,367</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Long-term debt</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,095</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">880</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total Textron Manufacturing liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">6,021</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">6,928</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Textron Finance</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Other liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">216</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">162</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Deferred income taxes</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">337</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">322</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Debt</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">3,603</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">2,829</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total Textron Finance liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">4,156</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">3,313</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total liabilities</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">10,177</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">10,241</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Textron - obligated mandatorily redeemable<BR>      preferred securities of subsidiary trust holding<BR>      solely Textron junior subordinated debt securities</B></TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> 483</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> 483</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <B><P>Shareholders' equity</B></TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Capital stock:</TD> <TD WIDTH="17%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Preferred stock</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">12</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">13</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Common stock</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">24</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">24</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Capital surplus</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">991</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">931</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Retained earnings</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">5,665</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">3,786</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Accumulated other comprehensive income (loss)</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">(86)</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">(96)</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">6,606</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">4,658</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Less cost of treasury shares</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">2,168</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">1,661</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total shareholders' equity</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">4,438</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">2,997</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>     Total liabilities and shareholders' equity</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$15,098</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">$13,721</TD> </TR> <TR><TD WIDTH="58%" VALIGN="TOP"> <P>Common shares outstanding</TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">149,714,000</TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="18%" VALIGN="TOP"> <P ALIGN="RIGHT">154,742,000</TD> </TR> </TABLE> <DIR> <I><P>See notes to condensed consolidated financial statements</P></DIR> </I><FONT SIZE=3><P ALIGN="JUSTIFY">Item 1.     <U>FINANCIAL STATEMENTS</U> (Continued)</P> <B><P ALIGN="CENTER">TEXTRON INC.<BR> Condensed Consolidated Statement of Cash Flows (Unaudited)<BR> </B>(In millions)</P></FONT> <TABLE CELLSPACING=1 CELLPADDING=7 WIDTH=757> <TR><TD WIDTH="67%" VALIGN="TOP"> </TD> <TD WIDTH="33%" VALIGN="TOP" COLSPAN=3> <FONT SIZE=3><P ALIGN="CENTER">Nine Months Ended</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER">October 2,<BR> 1999</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER">October 3,<BR> 1998</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <B><FONT SIZE=3><P>Cash flows from operating activities:</B></FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Income from continuing operations</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$453</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$323</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Adjustments to reconcile income from continuing operations to<BR>      net cash provided by operating activities:</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Depreciation</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">255</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">205</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Amortization</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">63</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">56</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Gain on sale of division</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(97)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Special charges/(credits)</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(1)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">87</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Provision for losses on receivables</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">23</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">17</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Dividends from discontinued operations</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">140</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Deferred income taxes</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">43</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(33)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>          Changes in assets and liabilities excluding those related to acquisitions<BR>                and divestitures:</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>                    (Increase) in commercial and U.S. government receivables</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(36)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(131)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>                    (Increase) in inventories</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(139)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(224)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>                    (Increase) in other assets</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(134)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(143)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>                    Increase (decrease) in accounts payable</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">36</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(12)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>                    (Decrease) increase in accrued liabilities</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(57)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">224</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Other - net</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(3)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">18</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Net cash provided by operating activities</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">503</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">430</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <B><FONT SIZE=3><P>Cash flows from investing activities:</B></FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Finance receivables:</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Originated or purchased</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(3,455)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(2,899)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Repaid or sold</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,808</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,613</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Proceeds from sale of securitized assets</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">260</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Cash used in acquisitions</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(692)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(458)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Investments in joint ventures</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(41)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Net proceeds from dispositions</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">3,155</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">160</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Capital expenditures</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(350)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(302)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Other investing activities - net</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">45</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">17</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Net cash provided (used) by investing activities</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">1,470</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(609)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <B><FONT SIZE=3><P>Cash flows from financing activities:</B></FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>(Decrease) increase in short-term debt</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(1,802)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">633</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Proceeds from issuance of long-term debt</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">1,962</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">368</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Principal payments and retirements on long-term debt</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(1,123)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(430)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Proceeds from exercise of stock options</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">47</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">44</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Purchases of Textron common stock</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(512)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(281)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Dividends paid</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(188)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(138)</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>     Net cash (used) provided by financing activities</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(1,616)</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">196</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <B><FONT SIZE=3><P>Net increase in cash and cash equivalents</B></FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">357</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">17</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Cash and cash equivalents at beginning of period</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">53</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">43</FONT></TD> </TR> <TR><TD WIDTH="67%" VALIGN="TOP"> <FONT SIZE=3><P>Cash and cash equivalents at end of period</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$410</FONT></TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$60</FONT></TD> </TR> </TABLE> <FONT SIZE=3><P ALIGN="JUSTIFY"></P> <I><P ALIGN="JUSTIFY">See notes to condensed consolidated financial statements.</P> </I><P ALIGN="JUSTIFY"></P> </FONT><B><P ALIGN="CENTER">TEXTRON INC.<BR> </B>Notes to Condensed Consolidated Financial Statements (unaudited)</P> <P ALIGN="CENTER"> </P> <B><P>Note 1:   Basis of presentation</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">The financial statements should be read in conjunction with the financial statements <BR> included in Textron's Annual Report on Form 10-K for the year ended January 2, <BR> 1999. The financial statements reflect all adjustments (consisting only of normal <BR> recurring adjustments) which are, in the opinion of management, necessary for a fair <BR> presentation of Textron's consolidated financial position at October 2, 1999, and its <BR> consolidated results of operations and cash flows for each of the respective three and <BR> nine month periods ended October 2, 1999 and October 3, 1998. Certain prior year <BR> balances have been reclassified to conform to the current year presentation. <BR> Consistent with prior periods, Textron Finance's third quarter ended on <BR> September 30, 1999.</P></DIR> </DIR> </DIR> <B><P ALIGN="JUSTIFY">Note 2:   Disposition</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">On August 11, 1998, Textron announced that it had reached an agreement to sell <BR> Avco Financial Services (AFS) to Associates First Capital Corporation for $3.9 <BR> billion in cash. The sale was completed on January 6, 1999. Net after-tax proceeds <BR> are expected to approximate $2.9 billion, resulting in an after-tax gain of $1.6 <BR> billion. Textron has presented AFS as a discontinued operation in these financial <BR> statements.</P></DIR> </DIR> </DIR> <B><P ALIGN="JUSTIFY">Note 3:   Extraordinary Loss from Debt Retirement</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">During the first quarter of 1999, Textron retired $168 million of 6.625% debentures <BR> originally due 2007, $165 million of 8.75% debentures originally due 2022, $146 <BR> million of medium term notes with interest rates ranging from 9.375% to 10.01% <BR> and other debt totaling $74 million with interest rates ranging from 3.5% to 10.04%. <BR> As a result of these transactions, Textron recorded an after-tax loss of $43 million, <BR> which has been reflected in the condensed consolidated statement of income as an <BR> extraordinary item.</P></DIR> </DIR> </DIR> <B><P ALIGN="JUSTIFY">Note 4:   Earnings per Share</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">FAS 128 requires companies to present basic and diluted earnings per share <BR> amounts. The dilutive effect of convertible preferred shares and stock options was <BR> 3,337,000 and 3,960,000 shares for the three month periods ended October 2, 1999 <BR> and October 3, 1998 and 3,501,000 and 4,209,000 shares for the nine month periods <BR> ending October 2, 1999 and October 3, 1998, respectively. Income available to <BR> common shareholders used to calculate both basic and diluted earnings per share <BR> approximated net income for all periods.</P></DIR> </DIR> </DIR> <B><P ALIGN="JUSTIFY">Note 5:   Cash and Cash Equivalents</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">Cash and cash equivalents consist of cash and short-term, highly liquid securities <BR> with original maturities of ninety days or less.</P></DIR> </DIR> </DIR> <B><P>Note 6:   Inventories</P></B> <TABLE CELLSPACING=1 WIDTH=665> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">January 2,<BR> 1999</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> </TD> <TD WIDTH="37%" VALIGN="TOP" COLSPAN=3> <P ALIGN="CENTER">(In millions)</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> <P>Finished goods </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$659</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$483</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> <P>Work in process </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">1,046</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">878</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> <P>Raw materials </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">489</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">454</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">2,194</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">1,815</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> <P>Less progress payments and customer deposits </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">226</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">175</TD> </TR> <TR><TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="51%" VALIGN="TOP"> </TD> <TD WIDTH="17%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,968</TD> <TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,640</TD> </TR> </TABLE> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=638> <TR><TD WIDTH="12%" VALIGN="TOP"> <B><P>Note 7:</B></TD> <TD WIDTH="88%" VALIGN="TOP"> <B><P>Textron-obligated mandatorily redeemable preferred securities of subsidiary <BR> trust holding solely Textron junior subordinated debt securities</B></TD> </TR> </TABLE> <DIR> <DIR> <DIR> <P ALIGN="JUSTIFY">In 1996, a trust sponsored and wholly-owned by Textron issued preferred securities <BR> to the public (for $500 million) and shares of its common securities to Textron (for <BR> $15.5 million), the proceeds of which were invested by the trust in $515.5 million <BR> aggregate principal amount of Textron's newly issued 7.92% Junior Subordinated <BR> Deferrable Interest Debentures, due 2045. The debentures are the sole asset of the <BR> trust. The amounts due to the trust under the debentures and the related income <BR> statement amounts have been eliminated in Textron's consolidated financial <BR> statements. The preferred securities accrue and pay cash distributions quarterly at a <BR> rate of 7.92% per annum. Textron has guaranteed, on a subordinated basis, <BR> distributions and other payments due on the preferred securities. The guarantee, <BR> when taken together with Textron's obligations under the debentures and in the <BR> indenture pursuant to which the debentures were issued and Textron's obligations <BR> under the Amended and Restated Declaration of Trust governing the trust, provides a <BR> full and unconditional guarantee of amounts due on the preferred securities.</P> <P ALIGN="JUSTIFY">The preferred securities are mandatorily redeemable upon the maturity of the <BR> debentures on March 31, 2045, or earlier to the extent of any redemption by Textron <BR> of any debentures. The redemption price in either such case will be $25 per share <BR> plus accrued and unpaid distributions to the date fixed for redemption.</P></DIR> </DIR> </DIR> <B><P>Note 8:   Contingencies</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">Textron is subject to a number of lawsuits, investigations and claims arising out of <BR> the conduct of its business, including those relating to commercial transactions, <BR> government contracts, product liability, and environmental, safety and health <BR> matters. Some seek compensatory, treble or punitive damages in substantial <BR> amounts; fines, penalties or restitution; or remediation of contamination. Some are or <BR> purport to be class actions. Under federal government procurement regulations, some <BR> could result in suspension or debarment of Textron or its subsidiaries from U.S. <BR> government contracting for a period of time. On the basis of information presently <BR> available, Textron believes that any liability for these suits and proceedings would <BR> not have a material effect on Textron's net income or financial condition.</P></DIR> </DIR> </DIR> <B><P>Note 9:   Comprehensive Income</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">During the first nine months of 1999 and 1998, total comprehensive income <BR> amounted to $2,035 million and $421 million, respectively. For the three month <BR> period ended October 2, 1999 and October 3, 1998, total comprehensive income <BR> amounted to $146 million and $145 million, respectively.</P></DIR> </DIR> </DIR> <B><P>Note 10:   Intercompany Financing</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">In the first quarter of 1999, Textron Manufacturing entered into a promissory note <BR> agreement with Textron Finance, whereby Textron Finance could borrow up to <BR> $1.25 billion from Textron Manufacturing. The maximum amount outstanding <BR> under this agreement during the first nine months of 1999 was $1.0 billion. The <BR> amount of interest expense/income incurred/earned by Textron Finance and Textron <BR> Manufacturing, respectively, was approximately $15 million for the nine month <BR> period ending October 2, 1999. Textron Finance's operating income includes <BR> interest expense incurred under this agreement. This agreement was cancelled <BR> during the second quarter of 1999.</P></DIR> </DIR> </DIR> <B><P>Note 11:   Special Charges/(Credits)</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">In the second quarter of 1999, the Company reassessed the remaining actions <BR> anticipated in the 1998 program and determined that certain projects should be <BR> delayed or cancelled while other provisions were no longer necessary. Specifically, <BR> provisions for severance and exit costs associated with the decision to exit certain <BR> automotive product lines were no longer required due to a decision to build different <BR> products in a plant originally anticipated to be closed. In the Industrial segment, <BR> certain cost reduction programs in the Fluid and Power Group have been suspended <BR> as a result of management's evaluation of the opportunities presented by the David <BR> Brown acquisition. Some smaller programs have been delayed as the Company re-<BR> examines strategic alternatives. Others were completed at costs less than originally <BR> anticipated.</P> <P ALIGN="JUSTIFY">Concurrently, the Company initiated a series of new cost reduction efforts in the <BR> Industrial segment designed to significantly reduce headcount from levels at the <BR> beginning of the year. Significant actions include the downsizing of an <BR> underperforming plant in Europe and targeted headcount reductions across most <BR> Industrial divisions. Headcount reductions were also effected at Bell Helicopter.</P> <P ALIGN="JUSTIFY">As a result of the above, in the second quarter the Company reversed approximately <BR> $24 million of reserves no longer deemed necessary for the 1998 program and <BR> recorded severance accruals of approximately $21 million and recorded a charge <BR> related to asset impairment of $5 million.</P> <P ALIGN="JUSTIFY">In the third quarter, Textron recorded additional restructuring charges for the <BR> Industrial segment, primarily for severance and asset impairment associated with the <BR> announced closing of seven facilities. The Company continues to evaluate <BR> additional programs and expects cost reduction efforts to continue over the next <BR> year. Additional charges may be required in the future when such programs become <BR> finalized. As of October 2, 1999, approximately 1,500 employees had been <BR> terminated under these severance programs.</P> <P ALIGN="JUSTIFY">The following table summarizes the activity associated with 1998 and 1999 <BR> programs:</P></DIR> </DIR> </DIR> <P ALIGN="RIGHT"><TABLE CELLSPACING=1 CELLPADDING=2 WIDTH=667> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> </TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P ALIGN="JUSTIFY"><BR> (In millions)</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">Asset<BR> impairments</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="CENTER">Severance &<BR> other</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="CENTER"><BR> Total</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>Balance January 1, 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$-</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">$40</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">$40</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     Utilized first half of 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">(3)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">(3)</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     No longer required</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">(24)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">(24)</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     Second quarter programs</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">5</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">21</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">26</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     Utilized third quarter of 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">(5)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">(6)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">(11)</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     Third quarter programs</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">9</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">7</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">16</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>     Utilized third quarter 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">(9)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">(6)</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">(15)</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="40%" VALIGN="TOP"> <P>Balance October 2, 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$-</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="19%" VALIGN="TOP"> <P ALIGN="RIGHT">$29</TD> <TD WIDTH="1%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">$29</TD> </TR> </TABLE> </P> <DIR> <DIR> <DIR> <P ALIGN="JUSTIFY">Included in special charges/(credits) is a gain of $19 million as a result of shares <BR> granted to Textron from Manulife Financial Corp.'s initial public offering on their <BR> demutualization of the Manufacturers Life Insurance Company.</P></DIR> </DIR> </DIR> <B><P ALIGN="JUSTIFY">Note 12:   New Accounting Pronouncements</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">In June 1998, the Financial Accounting Standards Board (FASB) issued FAS 133 <BR> "Accounting for Derivative Instruments and Hedging Activities." FAS 133 requires <BR> an entity to recognize all derivatives as either assets or liabilities and measure those <BR> instruments at fair value. In June 1999, the FASB issued FAS 137 which deferred <BR> the effective date of FAS 133 to all fiscal quarters of all fiscal years beginning after <BR> June 15, 2000. Textron is evaluating the potential impact of this pronouncement on <BR> future reporting.</P> <P ALIGN="JUSTIFY">At the September 23, 1999 meeting, the EITF reached a consensus on Issue 99-5, <BR> "Accounting for Pre-Production Costs Related to Long-Term Supply Arrangements." <BR> The Issue addresses pre-production costs incurred by original equipment <BR> manufacturers (OEM) suppliers (e.g., automotive manufacturers) to perform certain <BR> services related to the design and development of the parts they will supply to the <BR> OEM as well as the design and development costs to build molds, dies and other <BR> tools that will be used in producing the parts. The consensus generally requires all <BR> design and development costs for products to be sold under long term supply <BR> arrangements to be expensed unless there is a contractual guarantee that provides for <BR> specific required payments for design and development costs.</P> <P ALIGN="JUSTIFY">The Task Force concluded that the provisions of this consensus should be applied <BR> prospectively for costs incurred after December 31, 1999 with the option to elect <BR> adoption through a cumulative effect of change in accounting principle. At October <BR> 2, 1999, other assets includes approximately $87 million of customer engineering <BR> costs for which customer reimbursement is anticipated but not contractually <BR> guaranteed. Textron expects to comply with the provisions of this consensus by <BR> writing-off all capitalized customer engineering costs that would not qualify for <BR> capitalization as a cumulative effect of change in accounting principle in the first <BR> quarter of fiscal 2000.</P></DIR> </DIR> </DIR> <B><P>Note 13:   Financial information by borrowing group</P><DIR> <DIR> <DIR> </B><P ALIGN="JUSTIFY">Textron's financings are conducted through two borrowing groups, Textron Finance <BR> and Textron Manufacturing. This framework is designed to enhance the Company's <BR> borrowing power by separating the Finance segment, which is a borrowing unit of a <BR> specialized business nature. Textron Finance consists of Textron Financial <BR> Corporation consolidated with its subsidiaries, which are the entities through which <BR> Textron operates its Finance segment. Textron Finance finances its operations by <BR> borrowing from its own group of external creditors. Textron Manufacturing is <BR> Textron Inc., the parent company, consolidated with the entities which operate in the <BR> Aircraft, Automotive and Industrial business segments.</P></DIR> </DIR> </DIR> <P>Item 1.   <U>FINANCIAL STATEMENTS</U> (Continued)</P> <B><P>Note 13:  Financial information by borrowing group (continued)</P> <P>Textron Manufacturing<BR> </B>(unaudited) (In millions)</P> <TABLE CELLSPACING=1 CELLPADDING=2 WIDTH=704> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="37%" VALIGN="TOP" COLSPAN=3 HEIGHT=18> <P ALIGN="CENTER">Nine Months Ended</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP"> <B> <P>Condensed Statement of Cash Flows </B></TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> <P ALIGN="CENTER">October 3,<BR> 1998</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP"> <B><P>Cash flows from operating activities:</B></TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Income from continuing operations</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">$454</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">$323</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Adjustments to reconcile income from continuing<BR>      operations to net cash provided by operating activities:</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18><P></P></TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Earnings of Finance Group greater than<BR>           distributions to Parent Group</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT"><BR> (22)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT"><BR> -</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Depreciation</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">246</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">203</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Amortization</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">59</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">51</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Gain on sale of division</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">-</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(97)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Special charges/(credits)</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(1)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">87</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Dividends received from discontinued operation</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">-</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">140</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Deferred taxes</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">27</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(27)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Changes in assets and liabilities excluding those<BR>           related to acquisitions and divestitures:</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18><P></P></TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>               (Increase) in receivables</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(36)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(131)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>               (Increase) in inventories</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(139)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(224)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>               (Increase) in other assets</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(123)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(172)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>               (Increase) decrease in accounts payable and accrued<BR>                     liabilities</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT"><BR> (58)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT"><BR> 143</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>     Other - net</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">4</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">26</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>          Net cash provided by operating activities</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">411</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">322</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <B><P>Cash flows from investing activities:</B></TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18><P></P></TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Capital expenditures</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(343)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(293)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Cash used in acquisitions</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(588)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(443)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Investments in joint ventures</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(41)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">-</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Net proceeds from dispositions</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">3,150</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">160</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Other investing activities - net</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">42</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">27</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=17> <P>          Net cash provided (used) by investing activities</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=17> <P ALIGN="RIGHT">2,220</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=17><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=17> <P ALIGN="RIGHT">(549)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <B><P>Cash flows from financing activities:</B></TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18><P></P></TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>(Decrease) increase in short-term debt</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(1,555)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">745</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Proceeds from issuance of long-term debt</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">794</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">7</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Principal payments and retirements on long-term debt</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(858)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(100)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Proceeds from exercise of stock options</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">47</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">44</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Purchases of Textron common stock</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(512)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(281)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Dividends paid</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(188)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(138)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Contributions paid to Finance Group</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(34)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(23)</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>          Net cash (used) provided by financing activities</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">(2,306)</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">254</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <B><P>Net increase in cash and cash equivalents</B></TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">325</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">27</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=18> <P>Cash and cash equivalents at beginning of period</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">31</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=18><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=18> <P ALIGN="RIGHT">30</TD> </TR> <TR><TD WIDTH="63%" VALIGN="TOP" HEIGHT=19> <P>Cash and cash equivalents at end of period</TD> <TD WIDTH="16%" VALIGN="TOP" HEIGHT=19> <P ALIGN="RIGHT">$356</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=19><P></P></TD> <TD WIDTH="14%" VALIGN="TOP" HEIGHT=19> <P ALIGN="RIGHT">$57</TD> </TR> </TABLE> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=709> <TR><TD WIDTH="9%" VALIGN="TOP"> <P>Item 2.</TD> <TD WIDTH="91%" VALIGN="TOP"> <U><P>MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION <BR> AND RESULTS OF OPERATIONS</U></TD> </TR> </TABLE> <U> </U><B><P ALIGN="CENTER">TEXTRON INC.<BR> Revenues and Income by Business Segment<BR> </B>(In millions)</P> <TABLE CELLSPACING=1 CELLPADDING=7 WIDTH=750> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="32%" VALIGN="TOP" COLSPAN=3> <P ALIGN="CENTER">Three Months Ended</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="32%" VALIGN="TOP" COLSPAN=3> <P ALIGN="CENTER">Nine Months Ended</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="CENTER">October 3,<BR> 1998</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="CENTER">October 3,<BR> 1998</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <B><P>REVENUES</B></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>MANUFACTURING:</TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Aircraft</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$899</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$826</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$2,611</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$2,340</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Automotive</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">662</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">534</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">2,153</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">1,735</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Industrial</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">1,026</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">893</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">3,259</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">2,738</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">2,587</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">2,253</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">8,023</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">6,813</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>FINANCE</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">122</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">99</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">322</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">275</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Total revenues</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$2,709</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$2,352</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$8,345</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$7,088</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <B><P>INCOME</B></TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>MANUFACTURING:</TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Aircraft</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$91</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$91</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$233</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">$243</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Automotive</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">38</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">29</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">162</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">128</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>     Industrial</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">116</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">103</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">371</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">306</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">245</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">223</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">766</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">677</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>FINANCE</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">38</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">33</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">94</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">85</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">283</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">256</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">860</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">762</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Gain on sale of division</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">97</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Special (charges)/credits *</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">3</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">1</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(87)</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Segment income</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">286</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">256</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">861</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">772</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Corporate expenses and other - net</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(37)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(35)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(110)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(103)</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Interest income</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">4</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">26</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">-</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Interest expense</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(11)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(37)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(27)</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT">(106)</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Income from continuing<BR>      operations before income taxes<BR>      and distributions on preferred<BR>      securities of subsidiary trust</TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> $242</TD> <TD WIDTH="3%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> $184</TD> <TD WIDTH="3%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> $750</TD> <TD WIDTH="3%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="RIGHT"><BR> <BR> <BR> $563</TD> </TR> </TABLE> <UL> <P ALIGN="JUSTIFY"><LI>The third quarter results reflected a gain of $19 million as a result of shares granted to <BR> Textron from Manulife Financial Corp.'s initial public offering on their demutualization of <BR> Manufacturers Life Insurance Company. This benefit was offset by additional restructuring <BR> reserves for the Industrial segment ($16M). Year to date 1999 special (charges)/credits also <BR> include ($26) million primarily for the Industrial segment and a reversal of $24 million of <BR> reserves no longer deemed necessary for the 1998 program ($8 million Automotive segment, <BR> $16 million Industrial segment).</LI></P></UL> <P ALIGN="JUSTIFY"></P> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=638> <TR><TD WIDTH="4%" VALIGN="TOP"> </TD> <TD WIDTH="96%" VALIGN="TOP"> <P ALIGN="JUSTIFY">The October 3, 1998 special (charges)/credits consist of ($10) million for the Aircraft <BR> segment, ($25) million for the Automotive segment and $(52) million for the Industrial <BR> segment. The gain on sale of division relates to the Industrial segment.</TD> </TR> </TABLE> <P ALIGN="JUSTIFY"> </P> <B><P ALIGN="JUSTIFY">Liquidity and Capital Resources</P> </B><P ALIGN="JUSTIFY">The Statements of Cash Flows for Textron Inc. and Textron Manufacturing detailing the changes <BR> in cash balances are on pages 4 and 10, respectively. Textron Manufacturing's operating cash <BR> flow includes dividends received from Textron Finance of $36 million and $52 million during <BR> the first nine months of 1999 and 1998, respectively. Dividend payments to shareholders for the <BR> first nine months of 1999 include four payments as opposed to the first nine months of 1998 <BR> when three payments were made. Dividend payments to shareholders for the first nine months of <BR> 1999 amounted to $188 million, an increase of $50 million over the first nine months of 1998.</P> <P ALIGN="JUSTIFY">On January 6, 1999 Textron completed its sale of Avco Financial Services to Associates First <BR> Capital Corporation for $3.9 billion in cash. Net after-tax proceeds will approximate $2.9 <BR> billion, resulting in an after-tax gain of $1.6 billion.</P> <P ALIGN="JUSTIFY">During the first quarter of 1999, Textron retired $553 million of long-term high coupon debt and <BR> terminated $479 million of interest rate exchange agreements designated as hedges of the retired <BR> borrowings. As a result, Textron recorded, as an extraordinary item, an after-tax loss of $43 <BR> million.</P> <P ALIGN="JUSTIFY">Textron typically finances foreign acquisitions with domestic borrowings. In most cases, such <BR> borrowings are converted synthetically into foreign currency borrowings by means of foreign <BR> currency exchange agreements. Under the terms of the agreements, Textron is obligated to make <BR> floating rate foreign currency interest payments to the counterparties, and the counterparties, in <BR> turn, are obligated to make floating rate US dollar interest payments to Textron. These payments <BR> are recorded as an adjustment to interest expense. In June 1999, Textron entered into fixed rate <BR> interest rate exchange agreements to fix the interest rate on the above-noted foreign currency <BR> exchange agreements and other floating rate debt. The purpose of the fixed rate interest rate <BR> exchange agreements, which all mature by March 21, 2000, is to insulate Textron against <BR> potentially higher interest rates around year end 1999. The fixed rate interest rate exchange <BR> agreements have the following notional principal amounts: $323 million in euros; $352 million <BR> in British Pound sterling; and, $437 million in US dollars.</P> <P ALIGN="JUSTIFY">Textron Manufacturing's debt to total capital ratio was 21% at October 2, 1999, down from 43% <BR> at year end.</P> <P ALIGN="JUSTIFY">A summary of credit line facilities is as follows:</P> <TABLE CELLSPACING=1 CELLPADDING=2 WIDTH=662> <TR><TD WIDTH="33%" VALIGN="TOP"> <B><P>Credit Facilities</B></TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> </TD> <TD WIDTH="32%" VALIGN="TOP" COLSPAN=2> <P ALIGN="CENTER">Textron Manufacturing</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="32%" VALIGN="TOP" COLSPAN=2> <P ALIGN="CENTER">Textron Finance</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P><BR> (in millions)</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">January 2,<BR> 1999</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">October 2,<BR> 1999</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">December 31,<BR> 1998</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="CENTER">September 30,<BR> 1999</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Total lines</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$2,755</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,266</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,200</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">$1,200</TD> </TR> <TR><TD WIDTH="33%" VALIGN="TOP"> <P>Amount available</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">1,084</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">1,161</TD> <TD WIDTH="3%" VALIGN="TOP"> </TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">114</TD> <TD WIDTH="16%" VALIGN="TOP"> <P ALIGN="RIGHT">365</TD> </TR> </TABLE> <P ALIGN="JUSTIFY">Early in the third quarter, Textron issued $300 million of 6-3/8% senior notes which mature in <BR> 2004. The proceeds from the sale of notes will be used for general corporate purposes. Textron <BR> entered into two $300 million interest rate swaps in connection with these notes. The first swap <BR> effectively converts the fixed rate notes to floating rate. The second swap is to insulate Textron <BR> against potentially higher floating rate interest rates around year end 1999. On August 5, <BR> Textron filed a shelf registration statement with the Securities and Exchange Commission <BR> registering up to $2 billion in common stock, preferred stock and debt securities of Textron and <BR> preferred securities of trusts sponsored by Textron. During the third quarter Textron issued $500 <BR> million of 6.75% senior notes due 2002 under this registration. At October 2, 1999, Textron had <BR> $1.5 billion available under its shelf registration statement.</P> <P ALIGN="JUSTIFY">During the first nine months of 1999, Textron Finance increased its medium-term note facility by <BR> $1 billion and issued $1.4 billion under the facility. Remaining under this facility at September <BR> 30, 1999 was $92 million.</P> <P ALIGN="JUSTIFY">During the first nine months of 1999, Textron repurchased 6.5 million shares of common stock <BR> under its Board authorized share repurchase program at an aggregate cost of $505 million.</P> <P ALIGN="JUSTIFY">During the first nine months of 1999, Textron acquired 10 companies and commenced two joint <BR> ventures. The largest of these acquisitions were Flexalloy Inc., a provider of vendor managed <BR> inventory services for the North American fastener markets, and Omniquip International, Inc., a <BR> leading manufacturer of light construction equipment including telescopic material handlers, <BR> aerial work platforms and skid steer loaders. The total cost of the acquisitions and investments <BR> in joint ventures was approximately $947 million.</P> <P ALIGN="JUSTIFY">Management believes that Textron will continue to have adequate access to credit markets and <BR> that its credit facilities, cash flows from operations and proceeds from the sale of AFS, will <BR> continue to be more than sufficient to meet its operating needs and to finance growth.</P> <B><P ALIGN="JUSTIFY">Quantitative Risk Measures</P> </B><P ALIGN="JUSTIFY">Textron has used a sensitivity analysis to quantify the market risk inherent in its financial <BR> instruments. Financial instruments held by the Company that are subject to market risk (interest <BR> rate risk and foreign exchange rate risk) include finance receivables (excluding lease <BR> receivables), debt (excluding capital lease obligations), interest rate exchange agreements, <BR> foreign exchange contracts and currency swaps.</P> <P ALIGN="JUSTIFY">Presented below is a sensitivity analysis of the fair value of Textron's financial instruments for <BR> October 2, 1999 and January 2, 1999. The following table illustrates the hypothetical change in <BR> the fair value of the Company's financial instruments at October 2, 1999 and year-end assuming <BR> a 10% decrease in interest rates and a 10% strengthening in exchange rates against the U.S. <BR> dollar. The estimated fair value of the financial instruments was determined by discounted cash <BR> flow analysis and by independent investment bankers. This sensitivity analysis is most likely not <BR> indicative of actual results in the future.</P> <FONT SIZE=3></FONT> <TABLE CELLSPACING=1 CELLPADDING=7 WIDTH=667> <TR><TD WIDTH="31%" VALIGN="TOP"> </TD> <TD WIDTH="35%" VALIGN="TOP" COLSPAN=3> <FONT SIZE=3><P ALIGN="CENTER">October 2, 1999</FONT></TD> <TD WIDTH="35%" VALIGN="TOP" COLSPAN=3> <FONT SIZE=3><P ALIGN="CENTER">January 2, 1999</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3> <P><BR> <BR> (In millions)</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER"><BR> Carrying<BR> Value</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER"><BR> Fair<BR> Value</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER">Hypothetical<BR> Change<BR> In Fair Value</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER"><BR> Carrying<BR> Value</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER"><BR> Fair<BR> Value</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="CENTER">Hypothetical<BR> Change<BR> In Fair Value</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <B><FONT SIZE=3><P>Interest Rate Risk</B></FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>Textron Manufacturing:</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Debt</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$1,266</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$1,269</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$22</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$2,615</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$2,706</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">$27</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Interest rate exchange           agreements</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> 2</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> (11)</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> (11)</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> (18)</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>Textron Finance:</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Finance receivables</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">3,457</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">3,515</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">34</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,774</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,837</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">28</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Debt</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">3,603</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">3,610</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">23</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,829</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">2,836</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">12</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Interest rate exchange           agreements</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> 1</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> -</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> 1</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT"><BR> 1</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <B><FONT SIZE=3><P>Foreign Exchange Rate Risk</B></FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>Textron Manufacturing:</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="14%" VALIGN="TOP"> </TD> <TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Debt</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">206</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">207</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">21</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">319</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">334</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">33</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Foreign exchange contracts</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(5)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(11)</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">-</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">9</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(23)</FONT></TD> </TR> <TR><TD WIDTH="31%" VALIGN="TOP"> <FONT SIZE=3><P>     Currency swaps</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(15)</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">(5)</FONT></TD> <TD WIDTH="14%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">105</FONT></TD> <TD WIDTH="11%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">14</FONT></TD> <TD WIDTH="9%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">10</FONT></TD> <TD WIDTH="15%" VALIGN="TOP"> <FONT SIZE=3><P ALIGN="RIGHT">84</FONT></TD> </TR> </TABLE> <B><P>Year 2000 Readiness Disclosure</P> </B><P>Introduction</P> <P ALIGN="JUSTIFY">Much of the world's computer hardware and software is not designed to process date information <BR> after 1999. This is largely because computer programs have historically used only two digits to <BR> identify the year in a date, but problems related to processing of date information also may arise <BR> because some software assigns special meaning to certain dates. This Year 2000 problem could, <BR> if uncorrected, cause computers and other equipment used and manufactured by Textron and <BR> Textron's suppliers and customers to fail to operate properly.</P> <B><P>Year 2000 Program</P> </B><P ALIGN="JUSTIFY">In early 1997, Textron began a company-wide program (the "Program") to assess the possible <BR> vulnerability of Textron to the Year 2000 problem and to minimize the effect of the problem on <BR> Textron's operations. The Program is centrally directed from the Year 2000 Program Office at <BR> Textron's corporate headquarters and is executed at each Textron business unit. The Program <BR> addresses five "Major Elements" at the corporate headquarters and each business unit:</P><DIR> <DIR> <DIR> <P ALIGN="JUSTIFY">-     Business Systems: management information systems and personal computer <BR> applications, including the computing environments that support them.</P> <P ALIGN="JUSTIFY">-     Factory and Facilities Equipment: equipment that uses a computer to control its <BR> operation either for producing an end-product or providing services.</P> <P ALIGN="JUSTIFY">-     End-Products: software products, delivered either alone or as a component of <BR> another product, that are supplied to Textron customers.</P> <P ALIGN="JUSTIFY">-     Suppliers: assurance that those who sell goods and services to Textron will not <BR> interrupt Textron operations due to the Year 2000 problem.</P> <P ALIGN="JUSTIFY">-     Customers: assurance that those who buy goods and services from Textron will not <BR> interrupt Textron operations due to the Year 2000 problem.</P></DIR> </DIR> </DIR> <P ALIGN="JUSTIFY">For each of the Major Elements, the Program measures five "Readiness Levels":</P> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=637> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Level I)</TD> <TD WIDTH="76%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Management has become aware of the issue. An inventory is being taken <BR> of the items that the Year 2000 problem may affect.</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Level II)</TD> <TD WIDTH="76%" VALIGN="TOP"> <P ALIGN="JUSTIFY">The inventory of Year 2000 items has been completed. The priority of <BR> each item is being assessed. Actions are being planned to assure that each <BR> item is ready for the Year 2000. Resources are being committed to do <BR> the work.</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Level III)</TD> <TD WIDTH="76%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Planning has been completed. The prescribed actions are being <BR> performed, including testing to verify that the actions are effective. <BR> Suppliers and customers are being surveyed and their progress is being <BR> tracked.</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Level IV)</TD> <TD WIDTH="76%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Items critical to operations have been remediated and have been put in <BR> normal operation. Surveys of critical suppliers and customers have been <BR> completed. Core business systems continue to be tested. Follow-up <BR> checking of suppliers and customers is in process. Contingency plans are <BR> being prepared. Audits to verify readiness are being performed. <BR> Remediation of items that are important to operations, but not critical, is <BR> being performed.</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Level V)</TD> <TD WIDTH="76%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Systems critical to operations have been tested. Audits and associated <BR> corrective actions have been completed. Contingency plans have been <BR> completed. Follow-up checking of suppliers and customers is <BR> continuing. In all material respects, Textron is ready for Year 2000.</TD> </TR> </TABLE> <P ALIGN="JUSTIFY">For systems critical to operations, Textron has fully reached Readiness Level V, except for assessments and <BR> corrective actions at two business units that were acquired during the second quarter of 1999. <BR> Textron has had a combination of independent parties and Textron personnel complete an <BR> assessment of the implementation of the Program at the corporate headquarters and each <BR> business unit. Except as previously noted, all assessments are complete.</P> <P ALIGN="JUSTIFY">The Readiness Level of the Major Elements items that have been inventoried as of October 2, <BR> 1999 is shown in the following table. Major Element inventories are under continuous review <BR> and additional items may be identified in the future. For the Major Elements of "Suppliers" and <BR> "Customers" the indicated Readiness Level refers to Textron's progress in reviewing the <BR> readiness of customers and suppliers, and not to Textron's assessment of their readiness.</P> <TABLE CELLSPACING=1 CELLPADDING=7 WIDTH=643> <TR><TD WIDTH="51%" VALIGN="TOP" HEIGHT=16> <P ALIGN="JUSTIFY">Major Element</TD> <TD WIDTH="49%" VALIGN="TOP" COLSPAN=5 HEIGHT=16> <P ALIGN="CENTER">Percent of Identified Major Element Items<BR> at Readiness Level</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP" HEIGHT=16><P></P></TD> <TD WIDTH="12%" VALIGN="TOP" HEIGHT=16> <P ALIGN="CENTER">III</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=16><P></P></TD> <TD WIDTH="12%" VALIGN="TOP" HEIGHT=16> <P ALIGN="CENTER">IV</TD> <TD WIDTH="7%" VALIGN="TOP" HEIGHT=16><P></P></TD> <TD WIDTH="12%" VALIGN="TOP" HEIGHT=16> <P ALIGN="CENTER">V</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Business Systems</TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">1%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">99%</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Factory and Facilities Equipment</TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">100%</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> <P ALIGN="JUSTIFY">End-Products</TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">100%</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Suppliers</TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">0%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">6%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">94%</TD> </TR> <TR><TD WIDTH="51%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Customers</TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">8%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">21%</TD> <TD WIDTH="7%" VALIGN="TOP"> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="RIGHT">71%</TD> </TR> </TABLE> <B><P>Year 2000 Costs</P> </B><P ALIGN="JUSTIFY">The total cost of the Year 2000 Program for continuing operations is estimated to be <BR> approximately $113 million. Approximately $59 million is for modifications to existing items <BR> and other program expenses and $54 million is for replacement systems which have been or are <BR> expected to be capitalized in accordance with Company policy. Through October 2, 1999, total <BR> expenditures were $102 million. The estimated future cost to complete the Program is expected <BR> to be approximately $11 million including approximately $3 million for replacement systems. <BR> These future costs relate to assessments and corrections at two business units acquired in the <BR> second quarter of 1999, the planned remediation of items that are not critical to operations, <BR> follow-up checking of vendors and customers and continued review of contingency plans. The <BR> Company anticipates incurring costs related to remediation of these non-critical items during the <BR> remainder of fiscal 1999 as well as in fiscal 2000. Funds for the Program have been provided <BR> from special project appropriations and from normal operating and capital budgets. The Year <BR> 2000 Program has delayed certain other Textron information management projects. Delay of <BR> these projects is not expected to have an adverse impact on Textron.</P> <B><P>Risks and Contingency Plans</P> </B><P ALIGN="JUSTIFY">Year 2000 issues have the potential, if not remediated, to severely disrupt Textron's business <BR> operations and to adversely affect Textron's financial condition. The Year 2000 Program is <BR> expected to significantly reduce Textron's exposure to these issues, particularly with respect to <BR> Textron's Business Systems, Factory & Facilities Equipment, and End-Products. However, it is <BR> possible that unanticipated problems may arise in the course of Textron's implementation of the <BR> Year 2000 Program. In addition, while monitoring of Year 2000 readiness by Textron's <BR> suppliers and customers is a major part of the Year 2000 Program, Textron has very limited <BR> ability to ensure Year 2000 readiness by such parties. Textron could also be affected by failure of <BR> government agencies, in the U.S. and elsewhere, to maintain governmental services that are <BR> essential to Textron's operations. Textron cannot identify all possible scenarios. However, the <BR> most reasonably likely worst case scenario would be the inability of third parties, including <BR> utilities, to deliver supplies and services that are critical to Textron's operations and that could <BR> not quickly be replaced by other suppliers or internally. In such situation, operations at the <BR> affected Textron facilities could be interrupted, with adverse effects on Textron's financial <BR> results.</P> <P ALIGN="JUSTIFY">Contingency plans to cover situations in which Year 2000 problems arise despite Textron's <BR> efforts are substantially ready. Textron is monitoring the Year 2000 readiness of critical <BR> suppliers and has identified qualified alternate suppliers that can be substituted if necessary. <BR> Also, Textron is prepared to increase certain inventories prior to the end of 1999 if necessary to <BR> assure timely deliveries to critical customers. Textron has established procedures to curtail and, <BR> if necessary, shut down production at operations affected by disruptions in services provided by <BR> utilities. Textron is preparing facilities, procedures and alternate utility sources to support critical <BR> communications if there are disruptions in normal communications services.</P> <P ALIGN="JUSTIFY">Forward-looking statements contained in this report relating to Year 2000 issues, including <BR> expectations of readiness, possible effects on Textron and similar matters, are subject to the risks <BR> described in this section.</P> <B><P ALIGN="JUSTIFY">Results of Operations - Three months ended October 2, 1999 vs Three months ended <BR> October 3, 1998</P> </B><P ALIGN="JUSTIFY">Diluted earnings per share from continuing operations in the third quarter of 1999 were $0.95 per <BR> share, up 46% from the 1998 amount of $0.65. Income from continuing operations in 1999 of <BR> $146 million was up 35% from $108 million in 1998. Revenues increased 15% to $2.7 billion in <BR> 1999 from $2.4 billion in 1998. Net income was $146 million vs $142 million in 1998, which <BR> included $34 million from a discontinued operation.</P> <P ALIGN="JUSTIFY">The <B>Aircraft segment's</B> revenues increased $73 million (9%), while income was unchanged. <BR> Cessna Aircraft's revenues increased $33 million as a result of higher sales of business jets, <BR> primarily the Citation Excel and the Citation X, and higher single engine aircraft sales. Its <BR> income decreased as the contribution from the higher sales was more than offset by increased <BR> manufacturing costs associated with the ramp-up in production of new aircraft, higher warranty <BR> expense and increased new product development expense related to the Citation CJ2. Bell <BR> Helicopter's revenues increased $40 million due to higher revenues on the Huey and Cobra <BR> upgrade and V-22 production contracts and higher foreign military sales. Bell's income <BR> increased due primarily to a change in product mix reflecting sales of higher margin commercial <BR> aircraft and the recognition into income ($10 million) of cash received in the fourth quarter of <BR> 1998 on the formation of a joint venture on the 609 program. These benefits were partially offset <BR> by favorable contract adjustments in 1998 related to the Bell-Boeing V-22 Engineering, <BR> Manufacturing and Development contract and higher expense related to new product <BR> development.</P> <P ALIGN="JUSTIFY">The <B>Automotive segment's</B> revenues increased $128 million (24%), while income increased $9 <BR> million (31%). The increase in revenues was due primarily to higher North American market <BR> penetration by Kautex and higher sales at Trim, reflecting increased production at <BR> DaimlerChrysler, Ford and General Motors, which was depressed in 1998 by a strike. The <BR> increase in revenues also reflected the benefit of the Midland Industrial Plastics acquisition and <BR> the Textron Breed Automotive S.r.l. joint venture. Despite customer price reductions, income <BR> increased due to the contribution from higher organic sales and improved performance at Trim <BR> and Kautex.</P> <P ALIGN="JUSTIFY">The <B>Industrial segment's</B> revenues and income increased $133 million (15%) and $13 million <BR> (13%), respectively. These increases reflected the contribution from acquisitions, primarily <BR> David Brown and Flexalloy, and organic growth at Greenlee, E-Z-GO and Fastening Systems <BR> Americas. These factors were partially offset by lower sales at Fastening Systems Europe and <BR> the remaining businesses, reflecting weaker demand, adverse foreign exchange impact and the <BR> timing of scheduled shipments. Overall margins approximated last year's level as the impact of <BR> lower margin acquisitions was offset by the gain on the sale of a product line.</P> <P ALIGN="JUSTIFY">The <B>Finance segment's</B> revenues increased $23 million (23%), while income increased $5 <BR> million (15%). Revenues increased due to a higher level of average receivables and a higher <BR> yield, partially offset by a decrease in syndication income and operating lease revenues. Income <BR> increased as the benefit of higher revenues more than offset higher expenses related to growth in <BR> managed receivables and a higher provision for loan losses related to the revolving credit and <BR> term loans and leases portfolios. Included in 1999 results is a gain on the sale of an investment <BR> of $4.7 million; 1998 included a gain on portfolio securitization of $3.4 million.</P> <B><P ALIGN="JUSTIFY">Special charges (credits) - </B>in the third quarter, Textron recorded additional restructuring <BR> charges for the Industrial segment ($16 million), primarily for asset impairment ($9 million) and <BR> severance ($7 million) associated with the announced closure of seven facilities. In addition, the <BR> company recorded a gain of $19 million as a result of shares granted to Textron from Manulife <BR> Financial Corp.'s initial public offering on their demutualization of Manufacturers Life Insurance <BR> Company.</P> <B><P ALIGN="JUSTIFY">Corporate expenses and other - net</B> increased to $37 million in the third quarter of 1999, <BR> compared to $35 million in third quarter of 1998. Included in the third quarter 1999 expenses is <BR> a $3 million contribution to the Textron Charitable Trust. Year to date contribution expense <BR> totals $6 million. There was no contribution to the Textron Charitable Trust for the first nine <BR> months of 1998.</P> <B><P ALIGN="JUSTIFY">Interest income and expense - net</B> for Textron Manufacturing decreased $30 million as a result <BR> of the proceeds received in January 1999 from the divestiture of Avco Financial Services. <BR> Interest income increased $4 million, as a result of Textron's net investment position, while <BR> interest expense decreased $26 million due to a lower level of average debt, resulting from the <BR> pay down of debt with the Avco Financial Services proceeds.</P> <B><P ALIGN="JUSTIFY">Income taxes -</B> the current quarter's effective income tax rate of 37.2% was lower than the <BR> corresponding prior year rate of 38.0%, due primarily to the benefit of tax planning initiatives <BR> that are being realized in 1999.</P> <B><P ALIGN="JUSTIFY">Results of Operations - Nine months ended October 2, 1999 vs Nine months ended <BR> October 3, 1998</P> </B><P ALIGN="JUSTIFY">Diluted earnings per share from continuing operations for the first nine months of 1999 were <BR> $2.93 per share, up 51% from the 1998 amount of $1.94. Income from continuing operations in <BR> 1999 of $453 million was up 40% from $323 million in 1998. Revenues increased 18% to $8.3 <BR> billion in 1999 from $7.1 billion in 1998.</P> <P ALIGN="JUSTIFY">In August, 1998, Textron announced that it had reached an agreement to sell Avco Financial <BR> Services (AFS) to Associates First Capital Corporation for $3.9 billion in cash. The sale of AFS <BR> was completed on January 6, 1999 and a gain of $1.62 billion on the sale of AFS was recorded in <BR> the first quarter 1999. Textron also recorded an extraordinary loss of $43 million on the early <BR> retirement of debt in the first quarter 1999. Net income, including the gain and extraordinary <BR> loss, was $2.03 billion vs. $448 million in 1998, which included $125 million from a <BR> discontinued operation.</P> <P ALIGN="JUSTIFY">The <B>Aircraft segment's</B> revenues increased $271 million (12%) while income decreased $10 <BR> million (4%). Cessna's revenues increased $225 million as a result of higher sales of business <BR> jets, primarily the Citation Excel and the Citation X, and higher single engine aircraft sales. Its <BR> income decreased slightly as the contribution from the higher sales was more than offset by <BR> increased manufacturing costs associated with the ramp-up in production of new aircraft, lower <BR> margins on increased fleet sales, higher warranty expense and increased new product <BR> development expense related to the Citation CJ2. Bell Helicopter's revenues increased $46 <BR> million, due primarily to higher revenues on the V-22 production contract and the Huey and <BR> Cobra upgrade contracts and higher foreign military sales, partially offset by lower commercial <BR> and U. S. Government helicopter sales. Bell's income decreased slightly due primarily to <BR> favorable contract adjustments in 1998 related to the Bell-Boeing V-22 Engineering, <BR> Manufacturing and Development contract, a change in product mix, reflecting lower margin <BR> U. S. Government business and higher expense related to new product development. This <BR> unfavorable impact was partially offset by the recognition into income ($28 million) of cash <BR> received in the fourth quarter of 1998 on the formation of a joint venture on the 609 program.</P> <P ALIGN="JUSTIFY">The <B>Automotive segment's</B> revenues increased $418 million (24%), while income increased $34 <BR> million (27%). The increase in revenues was due primarily to higher North American market <BR> penetration by Kautex and higher sales at Trim, reflecting increased production at <BR> DaimlerChrysler, Ford and General Motors, which was depressed in 1998 by a strike. The <BR> increase in revenues also reflected the benefit of the Midland Industrial Plastics acquisition and <BR> the Textron Breed Automotive S.r.l. joint venture. Despite customer price reductions, income <BR> increased due to the contribution from higher organic sales and improved performance at Trim <BR> and Kautex.</P> <P ALIGN="JUSTIFY">The <B>Industrial segment's</B> revenues and income increased $521 million (19%) and $65 million <BR> (21%), respectively. These increases reflected the contribution from acquisitions, primarily <BR> David Brown, Flexalloy, Ring Screw Works, Ransomes and Sukosim, and higher organic growth <BR> at Greenlee and E-Z-Go. In addition, 1998 results were depressed by a one-month strike at <BR> Textron's Jacobsen plant and a strike at General Motors. These benefits were partially offset by <BR> the divestiture of Fuel Systems in the second quarter 1998 and lower sales at Fastening Systems <BR> Europe and the remaining businesses, reflecting weaker demand and adverse foreign exchange <BR> impact. Overall margins approximated last year's level as the impact of lower margin <BR> acquisitions was offset by the gain on the sale of a product line.</P> <P ALIGN="JUSTIFY">The <B>Finance segment's</B> revenues increased $47 million (17%), while income increased $9 <BR> million (11%). Revenues increased due to a higher level of average receivables and an increase <BR> in servicing fee income, partially offset by lower yields on receivables and a decrease in <BR> operating lease revenues. Income increased as the benefit of higher revenues more than offset <BR> higher expenses related to growth in managed receivables and a higher provision for loan losses <BR> related to the revolving credit and term loans and leases portfolios. Included in the 1999 results <BR> is a gain on the sale of investment of $4.7 million; 1998 included a gain on portfolio <BR> securitization of $3.4 million.</P> <B><P ALIGN="JUSTIFY">Special charges (credits) - </B>in the second quarter of 1999, Textron reassessed the remaining <BR> actions anticipated in the special charge recorded in the second quarter of 1998 and determined <BR> that certain projects should be delayed or canceled while other provisions were no longer <BR> necessary. Specifically, provisions for severance and exit costs associated with the decision to <BR> exit certain automotive product lines were no longer required due to a decision to build different <BR> products in a plant originally anticipated to be closed. In the Industrial segment, certain cost <BR> reduction programs in the Fluid and Power Systems Group have been suspended as a result of <BR> management's evaluation of the opportunities presented by the David Brown acquisition. Some <BR> smaller programs have been delayed as Textron re-examines strategic alternatives. Others were <BR> completed at costs less than originally anticipated.</P> <P ALIGN="JUSTIFY">Concurrently, Textron initiated a series of new cost reduction efforts in the Industrial segment <BR> designed to significantly reduce headcount from levels at the beginning of the year. Significant <BR> actions include the downsizing of an underperforming plant in Europe and targeted headcount <BR> reductions across all Industrial divisions. Headcount reductions were also effected at Bell <BR> Helicopter.</P> <P ALIGN="JUSTIFY">As a result of the above, in the second quarter Textron reversed approximately $24 million of <BR> reserves no longer deemed necessary for the 1998 program and recorded a provision of <BR> approximately $21 million for severance and write downs of approximately $5 million for <BR> impaired assets. </P> <P ALIGN="JUSTIFY">In the third quarter, Textron recorded additional restructuring charges for the Industrial segment <BR> ($16 million), primarily for asset impairment ($9 million) and severance ($7 million) associated <BR> with the announced closure of seven facilities. In addition, the Company recorded a gain of $19 <BR> million as a result of shares granted to Textron from Manulife Financial Corp.'s initial public <BR> offering on their demutualization of Manufacturers Life Insurance Company. Textron continues <BR> to evaluate additional programs and expects cost reduction efforts to continue over the next year. <BR> Additional charges may be required in the future when such programs become finalized.</P> <B><P ALIGN="JUSTIFY">Interest income and expense - net</B> for Textron Manufacturing decreased $105 million as a <BR> result of the proceeds received in January 1999 from the divestiture of Avco Financial Services. <BR> Interest income increased $26 million, as a result of Textron's net investment position, while <BR> interest expense decreased $79 million due to a lower level of average debt, resulting from the <BR> pay down of debt with the Avco Financial Services proceeds.</P> <B><P ALIGN="JUSTIFY">Income taxes -</B> the effective income tax rate of 37.1% for the first nine months of 1999 was <BR> lower than the corresponding prior year rate of 39.3%, due primarily to the nontax deductibility <BR> of goodwill related to the second quarter 1998 divestiture of Fuel Systems Textron and the <BR> benefit of tax planning initiatives that are being realized in 1999.</P> <I><P ALIGN="JUSTIFY">Forward-looking Information: Certain statements in this Report, and other oral and written <BR> statements made by Textron from time to time, are forward-looking statements, including those <BR> that discuss strategies, goals, outlook or other non-historical matters; or project revenues, <BR> income, returns or other financial measures. These forward-looking statements are subject to <BR> risks and uncertainties that may cause actual results to differ materially from those contained in <BR> the statements, including the following: (a) the extent which Textron is able to successfully <BR> integrate acquisitions, (b) changes in worldwide economic and political conditions and <BR> associated impact on interest and foreign exchange rates, (c) the occurrence of work stoppages <BR> and strikes at key facilities of Textron or Textron's customers or suppliers, (d) the extent to which <BR> the Company is able to successfully develop, introduce, and launch new products and enter new <BR> markets, (e) the level of government funding for Textron products and (f) Textron's ability to <BR> complete Year 2000 conversion without unexpected complications and the ability of its suppliers <BR> and customers to successfully modify their own programs. For the Aircraft Segment: (a) the <BR> timing of certifications of new aircraft products and (b) the occurrence of a severe downturn in <BR> the U.S. economy that discourages businesses from purchasing business jets. For the Automotive <BR> Segment: (a) the level of consumer demand for the vehicle models for which Textron supplies <BR> parts to automotive original equipment manufacturers ("OEM's") and (b) the ability to offset, <BR> through cost reductions, pricing pressure brought by automotive OEM customers. For the <BR> Industrial Segment: the ability of Textron Fastening Systems to offset, through cost reductions, <BR> pricing pressure brought by automotive OEM customers. For the Finance Segment: (a) the level <BR> of sales of Textron products for which TFC offers financing and (b) the ability of TFC to <BR> maintain credit quality and control costs when entering new markets. </P></I> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=637> <TR><TD WIDTH="10%" VALIGN="TOP" HEIGHT=65> <B><P>Item 3.</B></TD> <TD WIDTH="90%" VALIGN="TOP" HEIGHT=65> <B><U><P>QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK</B></U></TD> </TR> </TABLE> <P ALIGN="JUSTIFY">See the Company's Management Discussion and Analysis "Quantitative Risk Measures" section <BR> on page 13 for updated information.</P> <B><FONT SIZE=2><P ALIGN="CENTER">PART II. OTHER INFORMATION </P></B></FONT> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=590> <TR><TD WIDTH="11%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Item 1.</TD> <TD WIDTH="89%" VALIGN="TOP" COLSPAN=3> <U><P ALIGN="JUSTIFY">LEGAL PROCEEDINGS</U></TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="89%" VALIGN="TOP" COLSPAN=3> <P ALIGN="JUSTIFY">The previously reported proceeding brought by the U.S. Environmental <BR> Protection Agency alleging violations of the Clean Air Act and the Resource <BR> Conservation and Recovery Act at one of Bell Helicopter Textron's plants in <BR> Fort Worth, Texas, was settled on September 28, 1999, by Bell paying a <BR> penalty of $175,000. The previously reported enforcement action brought by <BR> the U.S. EPA in connection with air permits at Textron Automotive's Rantoul, <BR> Illinois, plant was settled on September 29, 1999, by Textron Automotive <BR> paying a penalty of $80,500.</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="89%" VALIGN="TOP" COLSPAN=3> <P ALIGN="JUSTIFY">On August 13, 1999, Kautex Textron's Wilmington Ohio plant had an order <BR> issued to it by the Ohio Environmental Protection Agency seeking a $210,000 <BR> fine in connection with air emissions relating to its magni-coating line. The <BR> order alleges failure to capture certain fugitive emissions, failure to file a <BR> particular permit, failure on certain occasions to operate the incinerator <BR> controlling emissions at a specified temperature and failure to maintain and <BR> submit certain required records and reports. Kautex challenges certain of the <BR> order's findings and is negotiating the resolution of this matter with the Ohio <BR> EPA.</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Item 6.</TD> <TD WIDTH="89%" VALIGN="TOP" COLSPAN=3> <U><P>EXHIBITS AND REPORTS ON FORM 8-K</U></TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> <P>(a)</TD> <TD WIDTH="83%" VALIGN="TOP" COLSPAN=2> <U><P>Exhibits</U></TD> </TR> <TR><TD WIDTH="17%" VALIGN="TOP" COLSPAN=2> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="JUSTIFY">12.1</TD> <TD WIDTH="70%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Computation of ratio of income to combined fixed charges <BR> and preferred securities dividends of the Parent Group</TD> </TR> <TR><TD WIDTH="17%" VALIGN="TOP" COLSPAN=2> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="JUSTIFY">12.2</TD> <TD WIDTH="70%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Computation of ratio of income to combined fixed charges <BR> and preferred securities dividends of Textron Inc. including <BR> all majority-owned subsidiaries</TD> </TR> <TR><TD WIDTH="17%" VALIGN="TOP" COLSPAN=2> </TD> <TD WIDTH="12%" VALIGN="TOP"> <P ALIGN="JUSTIFY">27</TD> <TD WIDTH="70%" VALIGN="TOP"> <P ALIGN="JUSTIFY">Financial Data Schedule (filed electronically only)</TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> <P>(b)</TD> <TD WIDTH="83%" VALIGN="TOP" COLSPAN=2> <U><P>Reports on Form 8-K</U></TD> </TR> <TR><TD WIDTH="11%" VALIGN="TOP"> </TD> <TD WIDTH="6%" VALIGN="TOP"> </TD> <TD WIDTH="83%" VALIGN="TOP" COLSPAN=2> <P>No reports on Form 8-K were filed during the third quarter ended <BR> October 2, 1999.</TD> </TR> </TABLE> <U><P ALIGN="CENTER"></P> <P ALIGN="CENTER">SIGNATURES</P> </U><P ALIGN="CENTER"></P> <P ALIGN="JUSTIFY">     Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has <BR> duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.</P> <P ALIGN="JUSTIFY"></P> <P> </P> <TABLE CELLSPACING=1 WIDTH=633> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="30%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="45%" VALIGN="TOP"> <P>TEXTRON INC.</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="30%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="45%" VALIGN="TOP"> </TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> <P>Date: </TD> <TD WIDTH="30%" VALIGN="TOP"> <P> November 8, 1999</TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="45%" VALIGN="TOP"> <P>s/R. L. Yates</TD> </TR> <TR><TD WIDTH="9%" VALIGN="TOP"> </TD> <TD WIDTH="30%" VALIGN="TOP"> </TD> <TD WIDTH="15%" VALIGN="TOP"> </TD> <TD WIDTH="45%" VALIGN="TOP"> <P>R. L. Yates<BR> Vice President and Controller<BR> (principal accounting officer) </TD> </TR> </TABLE> <B><P ALIGN="CENTER">LIST OF EXHIBITS</P> </B><P ALIGN="CENTER"></P> <P ALIGN="JUSTIFY">The following exhibits are filed as part of this report on Form 10-Q:</P> <U><P ALIGN="CENTER">Name of Exhibit</P> </U> <TABLE CELLSPACING=0 CELLPADDING=7 WIDTH=667> <TR><TD WIDTH="10%" VALIGN="TOP"> <P>12.1</TD> <TD WIDTH="90%" VALIGN="TOP"> <P>Computation of ratio of income to combined fixed charges and preferred securities <BR> dividends of Textron Manufacturing </TD> </TR> <TR><TD WIDTH="10%" VALIGN="TOP"> <P>12.2</TD> <TD WIDTH="90%" VALIGN="TOP"> <P>Computation of ratio of income to combined fixed charges and preferred securities <BR> dividends of Textron Inc. including all majority-owned subsidiaries </TD> </TR> <TR><TD WIDTH="10%" VALIGN="TOP"> <P>27</TD> <TD WIDTH="90%" VALIGN="TOP"> <P>Financial Data Schedule (filed electronically only)</TD> </TR> </TABLE> <P ALIGN="JUSTIFY"></P></BODY> </HTML>