10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

ý	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended January 1, 2005
	Commission File Number 1-5480

Textron Inc.

(Exact name of registrant as specified in charter)

Delaware	05-0315468
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
40 Westminster Street, Providence, R.I. 02903 (401) 421-2800
(Address and telephone number of principal executive offices)
Securities registered pursuant to Section 12(b) of the Act:

Title of Class	Name of Each Exchange on Which Registered
Common Stock – par value 121/2¢ (135,156,872	New York Stock Exchange
shares outstanding at February 12, 2005);	Pacific Stock Exchange
Preferred Stock Purchase Rights	Chicago Stock Exchange
$2.08 Cumulative Convertible Preferred Stock,	New York Stock Exchange
Series A – no par value
$1.40 Convertible Preferred Dividend Stock, Series B	New York Stock Exchange
(preferred only as to dividends) – no par value

Securities registered pursuant to Section 12(g) of the Act:

None

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.  o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2.) Yes ý.  No o.

The aggregate market value of the voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold as of the last business day of Textron’s most recently completed second fiscal quarter, July 3, 2004, was approximately $8,024,486,784. Textron has no non-voting common equity.

Portions of Textron’s Proxy Statement for its Annual Meeting of Shareholders to be held on April 27, 2005, are incorporated by reference in Part III of this Report.

PART I

Item 1. Business of Textron

	Textron Inc. is a global multi-industry company with more than 44,000 employees and operations in nearly 40 countries. Our business was founded in 1923 and reincorporated in Delaware on July 31, 1967. Today, we leverage our global network of aircraft, industrial and finance businesses to provide customers with innovative solutions and services.
Business Segments
	We operate in five business segments – Bell, Cessna, Fastening Systems, Industrial and Finance. Our business segments include operations that are unincorporated divisions of Textron Inc. or its subsidiaries and others that are separately incorporated subsidiaries. A description of the business done and intended to be done by each of our business segments is set forth below. Financial information by business segment and geographic area appears in Note 18 of the consolidated financial statements on pages 67 through 69 of this Annual Report on Form 10-K.
Bell Segment	The Bell segment is composed of Bell Helicopter and Textron Systems.
	Bell Helicopter
	Bell Helicopter is one of the largest suppliers of helicopters, tiltrotors, and helicopter-related spare parts and services in the world.  Bell Helicopter manufactures for both military and commercial applications. Bell Helicopter’s revenues accounted for approximately 16%, 18% and 16% of our total revenues in 2004, 2003 and 2002, respectively.
	Bell Helicopter supplies advanced military helicopters and support (including spare parts, support equipment, technical data, trainers, pilot and maintenance training, component repairs, aircraft modifications, contractor maintenance and field and product support engineering services) to the U.S. Government and to military customers outside the U.S. Bell Helicopter is one of the leading suppliers of helicopters to the U.S. Government and, in association with The Boeing Company, the only supplier of military tiltrotors. Bell Helicopter is teamed with The Boeing Company to develop, produce and support the V-22 Osprey tiltrotor aircraft for the U.S. Department of Defense. Tiltrotor aircraft are designed to provide the benefits of both helicopters and fixed-wing aircraft. Through Production Lot 9, the U.S. Government has issued contracts for 83 production V-22 aircraft. An expanded V-22 flight test program is ongoing in preparation for the Operational Evaluation (“OPEVAL”) that is scheduled to commence in the first half of 2005.
	Bell Helicopter is nearing completion of the engineering and manufacturing development phase of the H-1 upgrade program for the U.S. Marine Corps. This program will produce an advanced attack and a utility model helicopter, the AH-1Z and UH-1Y, respectively, both of which are designed to have 84% parts commonality, which meets the U.S. Government’s intent to reduce operational life cycle costs. In December 2003, Bell Helicopter received a contract from the U.S. Government to furnish six UH-1Y aircraft and three AH-1Z aircraft for Low Rate Initial Production (“LRIP”) Lot 1. This contract includes an option to acquire additional aircraft for LRIP Lot 2, and this option may be exercised in early 2005.
	Bell Helicopter is also a leading supplier of commercially certified helicopters to corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical helicopter operators.
	Bell Helicopter is a member of Bell/Agusta Aerospace Company, L.L.C., a joint venture with Agusta, a leading helicopter manufacturer based in Italy, for the design, manufacture, sale and customer support of a new medium twin-engine helicopter, the AB139, and a commercial tiltrotor, the BA609. The AB139 received IFR certification from the Italian airworthiness authorities in June 2003, and received U.S. Federal Aviation Administration certification in December 2004. Ground run testing of the BA609 commenced in December 2002 and the aircraft achieved its maiden flight on March 7, 2003, in helicopter mode. The aircraft is now undergoing manufacturing modification to add equipment and upgraded software for additional flight testing to be conducted beginning in 2005.

1

	Bell Helicopter and AgustaWestland North America Inc. formed the AgustaWestlandBell Limited Liability Company (“AWB LLC”) in January 2004 for the joint design, development, manufacture, sale, customer training and product support of the US101 helicopter and certain variations and derivatives thereof, to be offered and sold to departments or agencies of the U.S. Government. On January 28, 2005, Lockheed Martin, with AWB LLC as its principal subcontractor, was selected to design, develop, manufacture and support the Presidential helicopter for the U.S. Marine Corps Marine 1 Helicopter Squadron (VXX) Program. Bell Helicopter will assemble the production aircraft at its Assembly & Integration Center in Amarillo, Texas.
	Bell’s helicopter business competes against a number of competitors based in the United States and other countries, and its spare parts business competes against numerous competitors around the world. Competition is based primarily on price, quality, product support, performance, reliability and reputation.
	Textron Systems
	Textron Systems is a primary supplier to the defense and aerospace markets. Its principal strategy and focus are to address the emphasis being placed by the United States Department of Defense on network centric warfare and the leveraging of advances in information technology by focusing on the development and production of networked sensors, weapons and the associated algorithms and software. Textron Systems manufactures “smart” weapons, airborne and ground-based surveillance systems, aircraft landing systems, hovercraft, search and rescue vessels, armored vehicles and turrets, reciprocating piston aircraft engines, and aircraft and missile control actuators, valves and related components. Textron Systems is involved in supplying the U.S. Air Force with some of its premier smart weapons as prime contractor for the Sensor Fuzed Weapon (“SFW”) and is a subcontractor to The Boeing Company for tail actuation systems on the Joint Direct Attack Munition (“JDAM”). Textron Systems is a tier one supplier of unattended ground sensors and intelligent munitions systems for the U.S. Army’s Future Combat System. While Textron Systems sells most of its products directly to U.S. customers, it also sells an increasing number of products in over 35 other countries through a growing, global network of sales representatives and distributors.
	Actuation products for the aerospace, defense and industrial markets are sold under trade names of HR Textron and APCO. Specialty marine, land vehicle, and turret products are sold under the trade names of Textron Marine & Land Systems and Cadillac Gage. The recognized need for armored vehicles for secure transport of United States and other armed forces has resulted in increased demand for the highly protected and cost effective vehicles offered by Textron Systems. Weapons, surveillance, and landing systems are sold under the Textron Systems name. Reciprocating piston aircraft engines are sold under the Lycoming name directly to general aviation airframe manufacturers and in the aftermarket through domestic and international distributors. Lycoming also is the exclusive supplier of engines for Cessna’s product line of new single engine aircraft.
	Textron Systems competes against a number of competitors in the United States and other countries on the basis of technology, performance, price, quality and reliability, product support, installed base and reputation.
Cessna Segment	Based on unit sales, Cessna Aircraft Company is the world’s largest manufacturer of general aviation aircraft. Cessna currently has four major product lines: Citation business jets, single engine turboprop Caravans, Cessna single engine piston aircraft and after-market services. Revenues in the Cessna segment accounted for approximately 24%, 23% and 31% of our total revenues in 2004, 2003 and 2002, respectively.
	The family of business jets currently produced by Cessna includes the Citation CJ1, Citation CJ2, Citation CJ3, Citation Bravo, Citation Encore, Citation XLS, Citation Sovereign and Citation X. The Citation X is the world’s fastest business jet with a maximum operating speed of Mach .92. By the end of 2004, Cessna had delivered its 4,250th business jet. Under development is the entry-level Citation Mustang, which will be built at Cessna’s plant in Independence, Kansas. First customer deliveries of the Citation CJ1+, an upgrade to the CJ1, are scheduled to commence in 2005, and customer deliveries of the Citation CJ2+, an upgrade to the CJ2, and the Mustang are scheduled to commence in 2006.
	The Cessna Caravan is the world’s best selling utility turboprop. Through the end of 2004, more than 1,478 Caravans have been sold by Cessna since the first Caravan was delivered in 1985. Caravans are offered in four models: the Grand Caravan, the Super Cargomaster, the Caravan Floatplane and the Caravan 675. Caravans are used in the U.S. primarily to carry overnight express package shipments, and also are used for personal transportation. International uses of Caravans include commercial transportation, humanitarian flights, tourism and freight.

2

	Cessna now has six models in its single engine piston product line: the four-place 172 Skyhawk, 172 Skyhawk SP, 182 Skylane and Turbo 182 Skylane, and the six-place 206 Stationair and T206 Turbo Stationair. In 2004, certification of the Garmin 1000 (“G1000”) avionics package was completed for all models other than the 172 Skyhawk, and aircraft deliveries commenced with the G1000 installed. Certification of the G1000 avionics package for the Skyhawk is expected in 2005. By the end of 2004, Cessna had delivered 5,582 single engine piston aircraft since deliveries were restarted in 1997, marking the delivery of the 150,000th single engine aircraft since Cessna aircraft production began. Reliability and product support are significant factors in the sale of these aircraft.
	The Citation family of aircraft is currently supported by a total of 10 Citation Service Centers owned and operated by Cessna, along with authorized independent service stations and centers in more than 16 countries throughout the world. In 2004, Cessna opened new Citation Service Centers in Orlando, Florida, and Wichita, Kansas, increasing Cessna’s hangar capacity for aircraft service by 42%. The Wichita Citation Service Center is the world’s largest general aviation maintenance facility. The Cessna-owned Service Centers provide customers 24-hour service and maintenance. Cessna Caravan and single engine piston customers receive product support through independently owned service stations and 24-hour spare parts support through Cessna.
	Cessna markets its products worldwide primarily through its own sales force, as well as through a network of authorized independent sales representatives, depending upon the product line. Cessna has several competitors in the business jet market. Cessna’s aircraft compete with other aircraft that vary in size, speed, range, capacity, handling characteristics and price.
	Cessna engages in the business jet fractional ownership sales through a joint venture with TAG Aviation USA, Inc., a worldwide aircraft management and charter enterprise. This joint venture, called CitationShares, began in late 2000 and offers shares of Citation aircraft for operation in the entire contiguous United States. On June 30, 2004, Cessna acquired an additional 25% interest in CitationShares for a total ownership interest of 75%. CitationShares achieved Part 135 status and is currently offering its customers the ability to purchase jet aircraft charter time in advance through the Vector card program.
Fastening Systems Segment	Our Fastening Systems segment, Textron Fastening Systems (“TFS”), offers a full range of fastening technologies – which include fasteners, engineered assemblies and automation equipment – to global customers in the aerospace, automotive, computer, construction, electronics, electrical equipment, industrial equipment, non-automotive transportation, telecommunications and white good markets. Its customers are global and regional original equipment manufacturers, contract producers, component manufacturers and distributors. TFS provides products, services and solutions that simplify manufacturing processes and maximize efficiencies resulting in lower total system costs to its customers. Revenues of TFS accounted for approximately 19%, 18%, and 16% of our total revenues in 2004, 2003 and 2002, respectively.
	TFS is headquartered in Troy, Michigan, and has facilities located in the following 17 countries: Australia, Austria, Brazil, Canada, China, France, Germany, Italy, Japan, Korea, Malaysia, Mexico, Singapore, Spain, Taiwan, the U.K. and the U.S.
	TFS took significant steps in the completion of its global restructuring activity during 2004, including the consolidation of production from three plants in Michigan and Illinois, primarily into a refurbished 300,000 sq. ft. facility in Greenville, Mississippi. By October, the plant had begun production for customers.
	Capping a sequence of new-product introductions, TFS launched the Intevia intelligent fastening technology through a license agreement with Telezygology Inc. (“TZ”), a wholly owned subsidiary of TZ Limited. The agreement provides TFS exclusive global rights to develop, commercialize and manufacture products using TZ-developed proprietary intelligent fastening technology.
	TFS produces engineered threaded fasteners, fastening automation and installation tools, cold formed components, engineered and laser welded assemblies, blind fastening systems and metal stampings. TFS’ Full Service Provider approach integrates its product offering with supply chain management services such as vendor managed inventory programs, plant provider programs and global sourcing. TFS provides a wide range of design and engineering services to its customers, and also derives a portion of its revenue from licensing selected intellectual property assets to third parties.
	TFS has hundreds of competitors in the global fastener market, in essentially three tiers: global multinationals with a global market presence, typically strong in a market or in one or more product lines; mid-sized regionals with some global activity but primarily focused on regional markets; and small local firms with a limited range within a particular product category. Competition is based

3

	primarily on price, quality, delivery, service, support and reputation. In addition, larger customers of fastening systems and engineered assemblies primarily tend to procure products and services from the larger suppliers. TFS’ broad range of products, customers and markets reduces its risk of a business loss that would have a material adverse effect on Textron.
Industrial Segment	The Industrial Segment is composed of our E-Z-GO, Jacobsen, Kautex, Greenlee and Fluid & Power businesses.
	E-Z-GO
	E-Z-GO designs, manufactures and sells golf cars and off-road utility vehicles powered by electric and internal combustion engines under the E-Z-GO name, as well as multipurpose utility vehicles under the E-Z-GO and Cushman brand names.
	E-Z-GO’s commercial customers consist primarily of golf courses, resort communities and municipalities, as well as commercial and industrial users such as airports and factories. E-Z-GO’s off-road utility vehicles and golf cars are also sold into the consumer market. Sales are made through a network of distributors and directly to end users. Many of E-Z-GO’s sales are financed through Textron Financial Corporation.
	E-Z-GO has two major competitors for golf cars and several other competitors for utility vehicles. Competition is based primarily on price, quality, product support, performance, reliability and reputation.
	Jacobsen
	Jacobsen designs, manufactures and sells professional turf maintenance equipment, lawn care machinery and specialized industrial vehicles. Major brand names include Ransomes, Jacobsen, Cushman, Ryan, Steiner, Brouwer, Bunton and Bob-Cat.
	Jacobsen’s commercial customers consist primarily of golf courses, resort communities and municipalities, as well as commercial and industrial users such as airports, factories and professional lawn care services. Sales are made through a network of distributors and directly to end-users. Many sales are financed through Textron Financial Corporation.
	Jacobsen has two major competitors for professional turf maintenance equipment and several other competitors for specialized industrial vehicles and professional lawn care machinery. Competition is based primarily on price, quality, product support, performance, reliability and reputation.
	Kautex
	Kautex, headquartered in Bonn, Germany, is a leading global manufacturer of blow-molded fuel systems and other blow-molded parts for automobile original equipment manufacturers and other industrial customers. Kautex operates plants in all major markets around the world. Kautex is also a leading supplier of windshield and headlamp washer systems in the original equipment automobile market. In North America, Kautex also produces metal fuel fillers and engine camshafts for the automotive market and automatic assembly machines and systems, perishable tools and abrasives, and hydraulic components for industrial markets. In Germany, Kautex produces plastic containers and sheeting for household and industrial uses.
	Revenues of Kautex accounted for approximately 15%, 15% and 12% of our total revenues in 2004, 2003 and 2002, respectively.
	Kautex has a number of competitors worldwide, some of whom are owned by the automotive original equipment manufacturers that compose Kautex’s targeted customer base. Competition is typically based on a number of factors including price, quality, reputation, prior experience and available manufacturing capacity.
	Greenlee
	Greenlee consists of Greenlee, Klauke and Tempo. These companies manufacture powered equipment, electrical test and measurement instruments, hand and hydraulic powered tools, and electrical and fiber optic connectors under the Greenlee, Fairmont, Klauke and Tempo brand names. The products are principally used in the electrical construction and maintenance, telecommunications and plumbing industries, and are distributed through a global network of sales representatives and distributors, and also directly to home improvement retailers and original equipment manufacturers. The Greenlee businesses face competition from numerous manufacturers based primarily on price, quality, performance, reliability, delivery and reputation. On December 31, 2004, Textron entered into a joint venture, Rothenberger LLC, with Rothenberger AG to manufacture and sell plumbing tools in the U.S. and Canada. Through a series of transactions during 2004 and concluding in February 2005, Textron divested its InteSys Technologies business, a manufacturer of injection molded components and assemblies for telecommunications and other markets.

4

		Fluid & Power
		Fluid & Power consists of four business units: Engineered Products, Hydrocarbon Processing Products, Polymer Systems and Standard Products. Engineered Products designs and manufactures industrial gears, mechanical transmission systems, gear motors, and gear sets under the David Brown brand name. Hydrocarbon Processing Products designs and manufactures industrial pumps for the oil, gas, petrochemical and desalinization industries under the David Brown Union Pump and David Brown Guinard Pump brands. Polymer Systems designs and manufactures industrial pumps, extrusion equipment and screen changers for the polymer industry under the Maag brand name. Standard Products designs and manufactures industrial gears and gear sets, double enveloping worm gear speed reducers, screwjacks and hydraulic products under the Benzlers, Cone Drive, Radicon and David Brown Hydraulics brands. These products are sold to a variety of customers, including original equipment manufacturers, governments, distributors and end users. Fluid & Power faces competition from other manufacturers based primarily on price, quality, product support, performance, reliability, delivery and reputation.
Finance Segment		Our Finance segment consists of Textron Financial Corporation and its subsidiaries. Textron Financial Corporation is a diversified commercial finance company with core operations in six markets:
	•	Aircraft Finance provides financing for new and used Cessna business jets, Caravans and piston-engine airplanes, Bell helicopters and other general aviation aircraft;
	•	Asset-Based Lending provides asset-based loans to middle-market companies that manufacture or distribute finished goods and provides factoring arrangements for freight companies;
	•	Distribution Finance offers inventory finance programs for dealers of Textron manufactured products and for dealers of a variety of other household, housing, leisure, agricultural and technology products;
	•	Golf Finance makes mortgage loans for the acquisition and refinancing of golf courses and provides term financing for E-Z-GO golf cars and Jacobsen turf-care equipment;
	•	Resort Finance extends loans to developers of vacation interval resorts, secured primarily by notes receivable and interval inventory; and
	•	Structured Capital engages in tax-oriented, long-term leases of large-ticket equipment and real estate, primarily with investment grade lessees.
		Textron Financial Corporation’s other financial services and products include transaction syndication, equipment appraisal and disposition, and portfolio servicing offered through TBS Business Services, Inc.
		Textron Financial Corporation’s financing activities are confined almost exclusively to secured lending and leasing to commercial markets. Textron Financial Corporation’s services are offered primarily in the United States and Canada. However, Textron Financial Corporation finances Textron products worldwide, principally Bell helicopters and Cessna aircraft.
		In 2004, 2003 and 2002, Textron Financial Corporation paid Textron $0.9 billion, $0.9 billion and $1.0 billion, respectively, relating to the sale of manufactured products to third parties that were financed by Textron Financial Corporation. Textron also received proceeds in those years of $77 million, $56 million and $104 million from the sale of equipment from its manufacturing operations to Textron Financial for use under operating lease agreements.
		The commercial finance environment in which Textron Financial Corporation operates is highly fragmented and extremely competitive. Textron Financial Corporation is subject to competition from various types of financing institutions, including banks, leasing companies, insurance companies, commercial finance companies and finance operations of equipment vendors. Competition within the commercial finance industry is primarily focused on price, terms, structure and service.
		Textron Financial Corporation’s largest business risk is the collectibility of its finance receivable portfolio. See “Finance Portfolio Quality” in Management’s Discussion and Analysis of Financial Condition and Results of Operations on page 19 for a detailed discussion of the credit quality of this portfolio.

5

Backlog

U.S. Government backlog was $3.3 billion and $1.9 billion at the end of 2004 and 2003, respectively, including backlog at Bell Helicopter of $2.5 billion in 2004 and $1.2 billion in 2003. The increase in U.S. Government backlog is primarily related to approximately $1 billion of increased production contracts for the V-22. Approximately 97% of the 2004 backlog was funded at January 1, 2005. Unfunded backlog represents the award value of U.S. Government contracts received, generally related to cost-plus type contracts, in excess of the funding formally appropriated by the U.S. Government. The U.S. Government is obligated only up to the funded amount of the contract. Additional funding is appropriated as the contract progresses.

Commercial backlog from unaffiliated customers was $6.8 billion and $5.0 billion at the end of 2004 and 2003, respectively, including backlog at Cessna of $5.3 billion in 2004 and $3.9 billion in 2003. The increase in Cessna’s backlog is primarily related to increased orders for recently introduced Citation jet models, including XLS, CJ1+ and CJ2+ models. A significant portion of Cessna’s backlog represents orders from a major fractional jet customer. Orders from this fractional aircraft operator are included in backlog when the customer enters into a definitive master agreement and has established preliminary delivery dates for the aircraft. Preliminary delivery dates are subject to change through amendment to the master agreement. Final delivery dates are established approximately 12 to 18 months prior to delivery. Orders from other customers are included in backlog upon the customer entering into a definitive purchase order and receipt of required deposits.

The 2004 year-end backlog with the major fractional jet customer was approximately $1.3 billion. The major fractional jet customer also has an option to acquire 50 additional aircraft, which will be placed into backlog upon execution of a definitive master agreement and establishment of preliminary delivery dates. The remaining $4 billion of Cessna’s backlog at the end of 2004 is with other commercial customers covering a wide spectrum of industries. This backlog includes $0.6 billion in orders for the new Mustang aircraft that is scheduled to begin its first deliveries to customers in 2006.

Approximately 49% of our total backlog of $10.1 billion at January 1, 2005 represents orders which are not expected to be filled within our 2005 fiscal year.

U.S. Government Contracts

In 2004, 12% of our consolidated revenues were generated by or resulted from contracts with the U.S. Government. U.S. Government business is subject to competition, changes in procurement policies and regulations, the continuing availability of Congressional appropriations, world events, and the size and timing of programs in which we may participate.

Our contracts with the U.S. Government generally may be terminated by the U.S. Government for convenience or default in whole or in part. If the U.S. Government terminates a contract for convenience, we normally will be entitled to payment for the cost of contract work performed before the effective date of termination plus reasonable profit on such work, adjusted to reflect any rate of loss had the contract been completed, plus reasonable costs of settlement of the work terminated. If, however, the U.S. Government terminates a contract for default, generally: (a) we will be paid the contract price for completed supplies delivered and accepted, an agreed upon amount for manufacturing materials delivered and accepted and for the protection and preservation of property, and for partially completed products accepted by the U.S. Government; (b) the U.S. Government will not be liable for our costs with respect to unaccepted items and will be entitled to repayment of advance payments and progress payments related to the terminated portions of the contract; and (c) we may be liable for excess costs incurred by the U.S. Government in procuring undelivered items from another source.

Research and Development

Information regarding our research and development expenditures is contained in Note 17 to the consolidated financial statements on page 67 of this Annual Report on Form 10-K.

Patents and Trademarks

We own, or are licensed under, numerous patents throughout the world relating to products, services and methods of manufacturing. Patents have been of value in the past and are expected to be of value in the future. However, the loss of any single patent or group of patents would not, in our opinion, materially affect the conduct of our business.

6

We also own or license trademarks, trade names and service marks that are important to our business. Some of these trademarks, trade names and service marks are used in this Annual Report on Form 10-K and other reports, including : AB139; AB Benzlers; APCO; BA609; Bell Helicopter; Bob-Cat; Boesner; Brouwer; Brouwer RoboMax; Bunton; Cadillac Gage; Caravan 675; Caravan Floatplane; Cessna; Cessna Aircraft Company; Cessna Caravan; Cherry; Cherry Rivetless Nut Plate; Citation Bravo; Citation CJ1; Citation CJ1+; Citation CJ2; Citation CJ2+; Citation CJ3; Citation Encore; Citation Mustang; CitationShares; Citation Sovereign; Citation X; Citation XLS; Cone Drive; Cushman; David Brown; David Brown Guinard Pumps; David Brown Hydraulics; David Brown Union Pumps; E-Z-GO; Fairmont; Grand Caravan; Greenlee; HR Textron; Intevia; Jacobsen; Kautex; Klauke; Lycoming; M1117 Armored Security Vehicle; Maag; MagKnife; Maxibolt Plus; Radicon; Ransomes; Ryan; 172 Skyhawk; 172 Skyhawk SP; 182 Skylane; ST 4X4; 206 Stationair; Steiner; Super Cargomaster; T206 Turbo Stationair; Tempo; Textron; Textron Fastening Systems; Textron Financial Corporation; Textron Fluid & Power; Textron Marine & Land Systems; Textron Systems; Turbo 182 Skylane; V-22 Osprey; and Vector. These marks and their related trademark designs and logotypes (and variations of the foregoing) are trademarks, trade names or service marks of Textron Inc., its subsidiaries, affiliates, or joint ventures.

Environmental Considerations

Our operations are subject to numerous laws and regulations designed to protect the environment. Compliance with these laws and expenditures for environmental control facilities have not had a material effect on our capital expenditures, earnings or competitive position. Additional information regarding environmental matters is contained in Note 15 to the consolidated financial statements on pages 64 and 65 of this Annual Report on Form 10-K.

Employees

At January 1, 2005, we had approximately 44,000 employees.

Available Information

We make available free of charge on our Internet website (http://www.textron.com) our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as soon as reasonably practicable after we electronically file such material with, or furnish it to, the Securities and Exchange Commission.

Forward-Looking Information

Forward-looking Information: Certain statements in this report and other oral and written statements made by Textron from time to time are forward-looking statements, including those that discuss strategies, goals, outlook or other non-historical matters; or project revenues, income, returns or other financial measures. These forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update or revise any forward-looking statements. These forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from those contained in the statements, including the following: (a) the extent to which Textron is able to achieve savings from its restructuring plans; (b) uncertainty in estimating the amount and timing of restructuring charges and related costs; (c) changes in worldwide economic and political conditions that impact interest and foreign exchange rates; (d) the occurrence of work stoppages and strikes at key facilities of Textron or Textron’s customers or suppliers; (e) Textron’s ability to perform as anticipated and to control costs under contracts with the U.S. Government; (f) the U.S. Government’s ability to unilaterally modify or terminate its contracts with Textron for the Government’s convenience or for Textron’s failure to perform, to change applicable procurement and accounting policies, and, under certain circumstances, to suspend or debar Textron as a contractor eligible to receive future contract awards; (g) changes in national or international funding priorities and government policies on the export and import of military and commercial products; (h) the adequacy of cost estimates for various customer care programs including servicing warranties; (i) the ability to control costs and successful implementation of various cost reduction programs; (j) the timing of certifications of new aircraft products; (k) the occurrence of slowdowns or downturns in customer markets in which Textron products are sold or supplied or where Textron Financial offers financing; (l) changes in aircraft delivery schedules or cancellation of orders; (m) the impact of changes in tax legislation; (n) the extent to which Textron is able to pass raw material price increases through to customers or offset such price increases by reducing other costs; (o)Textron’s ability to offset, through cost reductions, pricing pressure brought by original equipment manufacturer customers; (p) Textron’s ability to realize full value of receivables and investments in securities; (q) the availability and cost of insurance; (r) increases in pension expenses related to lower than expected asset performance or changes in discount rates; (s) Textron Financial’s ability to maintain portfolio credit quality; (t) Textron Financial’s access to debt financing at competitive rates; (u) uncertainty in estimating contingent liabilities and establishing reserves to address such contingencies; (v) performance of acquisitions; and (w) the efficacy of research and development investments to develop new products.

7

Item 2. Properties
	On January 1, 2005, we operated a total of 128 plants located throughout the U.S. and 86 plants outside the U.S. Of the total of 214 plants, we owned 128 and the balance were leased. In the aggregate, the total manufacturing space was approximately 29 million square feet.
	In addition, we own or lease offices, warehouse and other space at various locations throughout the U.S. and outside the U.S. We consider the productive capacity of the plants operated by each of our business segments to be adequate. In general, our facilities are in good condition, are considered to be adequate for the uses to which they are being put, and are substantially in regular use.
Item 3. Legal Proceedings
	Two identical lawsuits purporting to be class actions were filed in 2002 in the United States District Court in Rhode Island against Textron and certain present and former officers of Textron and Bell Helicopter by Textron shareholders suing on their own behalf and on behalf of a purported class of Textron shareholders. A consolidated amended complaint alleges that the defendants failed to make certain accounting adjustments in response to alleged problems with Bell Helicopter’s V-22 and H-1 programs and that the company failed to timely write down certain assets of its OmniQuip unit. The complaint seeks unspecified compensatory damages. On June 15, 2004, the District Court ruled that the plaintiffs could not maintain the claims that were based on allegations relating to the H-1 program or to OmniQuip, and also ruled that all claims against one of the individual defendants should be dismissed. The lawsuit will continue with respect to the remaining claims. Textron believes the lawsuit is without merit and intends to continue to defend it vigorously.
	Two identical lawsuits, purporting to be class actions on behalf of Textron benefit plans and participants and beneficiaries of those plans during 2000 and 2001, were filed in 2002 in the United States District Court in Rhode Island against Textron, the Textron Savings Plan and the Plan’s trustee. A consolidated amended complaint alleges breach of certain fiduciary duties under ERISA, based on the amount of Plan assets invested in Textron stock during 2000 and 2001. The complaint seeks equitable relief and compensatory damages on behalf of various Textron benefit plans and the participants and beneficiaries of those plans during 2000 and 2001 to compensate for alleged losses relating to Textron stock held as an asset of those plans. Textron’s Motion to Dismiss the consolidated amended complaint was granted on June 24, 2003. On May 7, 2004, the United States Court of Appeals for the First Circuit affirmed dismissal of all claims against the Plan’s trustee and against the Plan itself, and also affirmed dismissal of certain other claims against Textron. However, the Court of Appeals ruled that plaintiffs should be permitted to attempt to develop their breach of fiduciary duty claims, and remanded those claims to the District Court. Textron believes this lawsuit is without merit and intends to defend this action vigorously.
	We are subject to actual and threatened legal proceedings arising out of the conduct of our business. These proceedings include claims arising from private transactions, government contracts, product liability, employment and environmental, safety and health matters. Some of these legal proceedings seek damages, fines or penalties in substantial amounts or remediation of environmental contamination. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in our suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, we believe that these legal proceedings will not have a material effect on our financial position or results of operations.

8

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our security holders during the last quarter of the period covered by this Annual Report on Form 10-K.
Executive Officers of the Registrant
The following table sets forth certain information concerning our executive officers as of February 25, 2005. All of our executive officers are members of our Management Committee and Transformation Leadership Team.
Name	Age	Current Position with Textron Inc.
Lewis B. Campbell	58	Chairman, President and Chief Executive Officer; Director
John D. Butler	57	Executive Vice President Administration and Chief Human Resources Officer
Ted R. French	50	Executive Vice President and Chief Financial Officer
Mary L. Howell	52	Executive Vice President Government, Strategy Development and International, Communications and Investor Relations
Terrence O’Donnell	60	Executive Vice President and General Counsel
Mr. Campbell joined Textron in September 1992 as Executive Vice President and Chief Operating Officer. He was named Chief Executive Officer in July 1998 and appointed Chairman of our Board of Directors in February 1999. Mr. Campbell served as President and Chief Operating Officer from January 1994 to July 1998, and reassumed the position of President in September 2001. Mr. Campbell has been a Director of Textron since January 1994, and is Chairman of our International Advisory Council.
Mr. Butler joined Textron in July 1997 as Executive Vice President and Chief Human Resources Officer, and became Executive Vice President Administration and Chief Human Resources Officer in January 1999.
Mr. French joined Textron in December 2000 as Executive Vice President and Chief Financial Officer of Textron Inc. and assumed the additional position of Chairman and Chief Executive Officer of Textron Financial Corporation in January 2004. Prior to joining Textron, Mr. French served as President, Financial Services and Chief Financial Officer for CNH Global NV, which was created through the 1999 merger of Case Corporation and New Holland NV. Prior to the merger, he spent 10 years with Case Corporation in various executive positions.
Ms. Howell has been Executive Vice President Government, Strategy Development and International, Communications and Investor Relations since October 2000 and serves on our International Advisory Council. Ms. Howell joined Textron in 1980 and became an Executive Vice President in August 1995.
Mr. O’Donnell joined Textron as Executive Vice President and General Counsel in March 2000. Mr. O’Donnell is a Senior Partner in the Washington, D.C.-based law firm of Williams & Connolly, which he first joined in 1977. From 1989 to 1992, he served as General Counsel of the Department of Defense.

9

PART II
Item 5. Markets for the Registrant’s Common Equity, Related Stockholder Matters and Issuer Repurchases of Equity Securities
	Our common stock is traded on the New York, Chicago and Pacific Stock Exchanges. At January 1, 2005, there were approximately 18,000 holders of Textron common stock. The high and low common stock prices per share as reported on the New York Stock Exchange, and the dividends paid per share, in each case for the periods described below, were as follows:
		2004									2003
		High		Low				Dividends Per Share			High		Low				Dividends Per Share
	First quarter	$	58.28	$		50.84		$	0.325		$	45.45	$	26.85			$	0.325
	Second quarter	59.43		52.45				0.325			38.69		27.46				0.325
	Third quarter	65.47		57.38				0.325			45.53		38.07				0.325
	Fourth quarter	74.63		63.04				0.350			57.70		39.45				0.325
	Issuer Repurchases of Equity Securities
	Fourth Quarter	Total Number of Shares Purchased			Average Price Paid per Share (Excluding Commissions)					Total Number of Shares Purchased as Part of Publicly Announced Plan*						Maximum Number of Shares that May Be Purchased Under the Plan
	Month 1 (October 3, 2004 – November 6, 2004)	923,200			$		68.26			923,200						11,076,800
	Month 2 (November 7, 2004 – December 4, 2004)	959,200			$		72.50			959,200						10,117,600
	Month 3 (December 5, 2004 – January 1, 2005)	1,122,463			$		73.03			1,121,100					**	8,996,500
	Total	3,004,863			$		71.39			3,003,500

*

On October 21, 2004, Textron’s Board of Directors authorized a new share repurchase plan under which Textron is authorized to repurchase up to 12 million shares of Textron common stock. Shares purchased since October 21, 2004 were purchased under this new plan. This new plan supercedes the previously existing plan. Prior to October 21, 2004, Textron was authorized to repurchase up to 12 million shares of Textron common stock under a plan that had been announced on August 3, 2001, and had no expiration date. Under this previously existing plan, there were no shares purchased during the period from October 3, 2004 through October 20, 2004, and no additional shares are eligible for repurchase.

**

Reflects the surrender of 1,363 shares of Textron common stock to pay the exercise price of employee stock options.

10

Item 6. Selected Financial Data

(Dollars in millions, except per share amounts and where otherwise noted)	2004			2003			2002			2001			2000
Revenues
Bell	$	2,254		$	2,348		$	2,235		$	2,243		$	2,194
Cessna	2,473			2,299			3,175			3,043			2,814
Fastening Systems	1,924			1,737			1,650			1,679			1,996
Industrial	3,046			2,836			2,627			4,221			4,753
Finance	545			572			584			681			691
Total revenues	$	10,242		$	9,792		$	10,271		$	11,867		$	12,448
Segment profit
Bell	$	250		$	234		$	169		$	93		$	264
Cessna	267			199			376			344			300
Fastening Systems	53			66			72			70			192
Industrial	194			150			169			289			513
Finance	139			122			118			203			202
Total segment profit	903			771			904			999			1,471
Special charges	(131		)	(152		)	(131		)	(141		)	(483		)
Total segment operating income	772			619			773			858			988
Gain on sale of businesses	—			15			25			342			—
Goodwill amortization	—			—			—			(86		)	(83		)
Corporate expenses and other, net	(149		)	(119		)	(114		)	(152		)	(164		)
Interest expense, net	(95		)	(98		)	(108		)	(162		)	(152		)
Income taxes	(155		)	(112		)	(176		)	(287		)	(295		)
Distributions on preferred securities, net of income taxes	—			(13		)	(26		)	(26		)	(26		)
Income from continuing operations*	$	373		$	292		$	374		$	487		$	268
Per share of common stock
Income from continuing operations – basic*	$	2.72		$	2.15		$	2.69		$	3.45		$	1.86
Income from continuing operations – diluted*	$	2.66		$	2.13		$	2.66		$	3.40		$	1.84
Dividends declared	$	1.33		$	1.30		$	1.30		$	1.30		$	1.30
Book value at year-end	$	26.91		$	26.81		$	24.87		$	27.76		$	28.24
Common stock price: High	$	74.63		$	57.70		$	53.17		$	59.89		$	74.94
Low	$	50.84		$	26.85		$	32.49		$	31.65		$	41.44
Year-end	$	73.80		$	57.19		$	42.16		$	42.40		$	46.50
Common shares outstanding (In thousands):
Basic average	137,337			135,875			138,745			141,050			143,923
Diluted average**	140,169			137,217			140,252			142,937			146,150
Year-end	135,373			137,238			136,500			141,251			140,933
Financial position
Total assets	$	15,875		$	15,171		$	15,672		$	16,335		$	16,370
Debt:
Textron Manufacturing	$	1,791		$	2,027		$	1,708		$	1,930		$	2,080
Textron Finance	$	4,783		$	4,407		$	4,840		$	4,188		$	4,667
Mandatorily redeemable preferred securities trusts:
Textron Manufacturing	$	—		$	—		$	485		$	485		$	484
Textron Finance	$	—		$	26		$	27		$	28		$	28
Shareholders’ equity	$	3,652		$	3,690		$	3,406		$	3,934		$	3,994
Textron Manufacturing debt to total capital (net of cash)	25		%	30		%	36		%	36		%	36		%
Investment data
Capital expenditures, including capital leases	$	346		$	323		$	315		$	523		$	512
Depreciation	$	338		$	336		$	330		$	389		$	372
Research and development	$	594		$	587		$	583		$	684		$	721
Other data
Number of employees at year-end	44,000			42,000			47,000			50,000			68,000
Number of common shareholders at year-end	18,000			19,000			20,000			21,000			21,000

* Before cumulative effect of a change in accounting principle in 2002 and 2000

** Assumes full conversion of outstanding preferred stock and exercise of stock options

11

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

Business Overview

Textron Inc. is a multi-industry company that leverages its global network of businesses to provide customers with innovative solutions and services in five business segments: Bell, Cessna, Fastening Systems, Industrial and Finance. Textron is known around the world for its powerful brands spanning the business jet, aerospace and defense, fastening systems, plastic fuel systems, golf car and turf-care markets, among others.

Economic conditions improved in 2004, with the majority of our end markets benefiting from the turnaround. Sales volumes in our manufacturing businesses reflected this recovery. Most notably, a steady flow of military orders at Bell resulted from increased spending in the defense sector, while Cessna saw a significant increase in new business jet orders as a result of improvements in the aircraft sector. In addition, our Finance segment experienced significant improvement in its portfolio credit quality with fewer charge-offs and a decrease in nonperforming assets.

Textron was, however, affected by commodity inflation in most of its businesses during 2004, including the sharp rise in steel prices which had an $81 million unfavorable impact, primarily in our Fastening Systems and Industrial segments. As a result of escalating steel prices, we took actions to raise prices and impose surcharges on many of our steel products, primarily in our Fastening Systems segment, to mitigate the impact of the higher material costs. While many of these actions were taken in 2004, we believe it will take a few quarters to determine what impact our pricing actions will have on our customers and volumes.

In addition to the higher commodity costs, pension expense increased $36 million. We were able to absorb the impact of these factors primarily as a result of our transformation strategy through ongoing cost-reduction initiatives, lean manufacturing, integrated supply chain and restructuring. We intend to continue to execute our transformation strategy and strengthen our portfolio through the divestiture of non-core businesses and strategic acquisitions to further position Textron to take advantage of the improved economic conditions.

Consolidated Results of Operations

2004 Revenues – $10.2 Billion	2004 Segment Profit* – $903 Million

*	Segment profit represents the measurement used by Textron to evaluate performance for decision-making purposes. Segment profit for manufacturing segments does not include interest expense, certain corporate expenses, special charges, and gains and losses from the disposition of significant business units. The measurement for the finance segment includes interest income, interest expense and distributions on preferred securities of Finance subsidiary trust, and excludes special charges.
	Revenues
	Revenues increased $450 million in 2004 primarily due to the favorable foreign exchange impact of $287 million, higher volume of $93 million in the manufacturing businesses, the additional revenue of $76 million from the consolidation of CitationShares and higher pricing of $45 million.
	The decrease of $479 million in 2003 was primarily due to lower Citation business jet volume of $876 million at Cessna, due to a depressed market and the reduction of 2003 deliveries by a major fractional jet customer, and lower sales volume of $123 million at E-Z-GO and Jacobsen, due to a depressed golf market. These decreases were partially offset by a favorable foreign exchange impact of $313 million in the Industrial and Fastening Systems segments and increased volume of $131 million at Kautex.
	Segment Profit
	Segment profit increased $132 million in 2004 primarily due to $303 million in cost-reduction initiatives, a $77 million benefit from restructuring activities and $45 million of higher pricing. These increases were partially offset by inflation of $254 million.

12

The decrease of $133 million in 2003 was primarily due to lower profit of $177 million at Cessna and $52 million at E-Z-GO and Jacobsen largely due to lower sales. These decreases were partially offset by higher profit of $65 million at Bell primarily in its aircraft engine and commercial helicopter businesses due to certain costs incurred in 2002, as described in the Bell segment section.
Special Charges
Special charges are summarized below:
(In millions)	2004			2003		2002
Restructuring	$	143		$	137	$	93
Unamortized issuance costs on preferred securities	—			15		—
Gain on sale of C&A common stock	(12		)	—		—
C&A common stock impairment	—			—		38
Total special charges	$	131		$	152	$	131
Restructuring Program
To improve returns at core businesses and to complete the integration of certain acquisitions, Textron approved and committed to a restructuring program in the fourth quarter of 2000 based upon targeted cost reductions. This program was expanded in 2001, and in October 2002 Textron announced a further expansion of the program as part of its strategic effort to improve operating efficiencies, primarily in its industrial businesses. Textron’s restructuring program includes corporate and segment direct and indirect workforce reductions, consolidation of facilities primarily in the United States and Europe, rationalization of certain product lines, outsourcing of non-core production activity, the divestiture of non-core businesses, and streamlining of sales and administrative overhead. Under this restructuring program, Textron has reduced its workforce by approximately 11,000 employees from continuing operations, representing approximately 19% of its global workforce since the restructuring was first announced. A total of 107 facilities have been closed under this program, including 45 manufacturing plants, primarily in the Industrial and Fastening Systems segments.
In total, Textron estimates that the entire program for continuing operations will be approximately $540 million (including $11 million related to the divested Automotive Trim business (“Trim”)). As of January 1, 2005, $519 million of cost has been incurred relating to continuing operations (including $11 million related to Trim), with $213 million in the Industrial segment, $219 million in the Fastening Systems segment, $38 million in the Cessna segment, $29 million in the Bell segment, $9 million in the Finance segment and $11 million at Corporate. Costs incurred through January 1, 2005 include $268 million in severance costs, $98 million in asset impairment charges (net of gains on the sale of fixed assets), $54 million in contract termination costs and $99 million in other associated costs.
Unamortized Issuance Costs
In July 2003, Textron redeemed its 7.92% Junior Subordinated Deferrable Interest Debentures due 2045. The debentures were held by Textron’s wholly owned trust, and the proceeds from their redemption were used to redeem all of the $500 million Textron Capital I trust preferred securities. Upon the redemption, $15 million of unamortized issuance costs were written off.
C&A Common Stock
During the second half of 2002, the Collins & Aikman Corporation common stock owned by Textron experienced a decline in market value. Textron acquired this stock as a result of the disposition of the Trim business to various operating subsidiaries of Collins & Aikman Corporation (collectively “C&A”). In December 2002, Moody’s Investor Services (“Moody’s”) lowered its liquidity rating of C&A. Due to this indicator and the extended length of time and extent to which the market value of the stock was less than the carrying value, Textron determined that the decline in the market value of the stock was other than temporary and wrote down its investment in the stock for a pre-tax loss of $38 million. Textron sold its remaining investment in C&A common stock for cash proceeds of $34 million and recorded a pre-tax gain of $12 million in the first quarter of 2004.
Corporate Expenses
Corporate expenses and other, net increased $30 million in 2004 primarily due to nonrecurring income in 2003 and increases in certain expenses in 2004. The nonrecurring income in 2003 included $7 million related to an expired royalty agreement and $7 million in proceeds from life insurance policies. In 2004, we also experienced higher premiums for Directors and Officers insurance of $6 million, provided $5 million in funding to Textron’s charitable trust and had $4 million in higher executive compensation primarily related to improved operating results.

13

Income from Continuing Operations
Fluctuations in income from continuing operations are primarily driven by segment profit changes as discussed above. In addition, Textron recorded certain items that affected the comparability of operating results in the last three years which are summarized in the table below:
(In millions)	2004			2003			2002
Special charges	$	131		$	152		$	131
Gain on sale of businesses	—			(15		)	(25		)
	131			137			106
Income tax benefit on above items	(35		)	(41		)	(27		)
	$	96		$	96		$	79
Gain on sale of businesses includes a gain of $15 million on the sale of Textron’s remaining interest in an Italian automotive joint venture to C&A in 2003 and a $25 million gain in 2002 from transactions related to the divestiture of Trim.
Income Taxes
A reconciliation of the federal statutory income tax rate to the effective income tax rate is provided below:
	2004			2003			2002
Federal statutory income tax rate	35.0		%	35.0		%	35.0		%
Increase (decrease) in taxes resulting from:
State income taxes	1.6			2.3			1.8
Special foreign dividend	2.1			—			—
Permanent items from Trim divestiture	—			—			1.2
Favorable tax settlements	—			(3.1		)	(2.1		)
ESOP dividends	(1.6		)	(2.2		)	(3.1		)
Foreign tax rate differential	(5.9		)	(2.1		)	(0.5		)
Export sales benefit	(1.1		)	(1.4		)	(1.5		)
Other, net	(0.7		)	(1.6		)	(0.2		)
Effective income tax rate	29.4		%	26.9		%	30.6		%
We expect our effective tax rate for 2005 will remain consistent with 2004.
Discontinued Operations
During the fourth quarter of 2004, Textron reached a final decision to sell the remainder of its InteSys operations. As a result of these actions, financial results of these businesses, net of income taxes, are now reported as discontinued operations. Discontinued operations also reflect the after-tax gain in the second quarter of 2004 from the sale of InteSys’ two Brazilian-based joint ventures. In the third quarter of 2003, Textron sold certain assets and liabilities related to its remaining OmniQuip business to JLG Industries, Inc. for $90 million in cash and a $10 million note that was paid in full in February 2004. In the fourth quarter of 2003, Textron Financial sold substantially all of its small business direct portfolio to MBNA America Bank, N.A. for $421 million in cash. The InteSys and OmniQuip businesses were previously reported within the Industrial segment and the small business direct portfolio was previously reported within the Finance segment.
Cumulative Effect of Change in Accounting Principle
During 2002, Textron recorded an after-tax transitional impairment charge of $488 million upon the adoption of Statement of Financial Accounting Standard No. 142, “Goodwill and Other Intangible Assets” as more fully discussed in Note 7 to the consolidated financial statements.
Outlook
We expect a modest increase in revenues in 2005 with higher revenue at Bell, Cessna and Finance, while the industrial businesses are expected to be relatively flat. At Bell, the expected revenue increase is primarily related to higher V-22 revenue from new production releases (recorded on an as-delivered basis), which is expected to more than offset lower engineering- and development-based revenues (recorded on a cost-incurred basis). At Cessna, we expect an increase in revenue due to higher sales of jets based on our current backlog. Overall segment profit and margins are expected to increase as Textron continues to realize the benefits of its cost-reduction initiatives and substantially completed restructuring program.

14

	Textron’s commercial backlog from unaffiliated customers was $6.8 billion and $5.0 billion at the end of 2004 and 2003, respectively, and is primarily related to Cessna. U.S. Government backlog was $3.3 billion and $1.9 billion at the end of 2004 and 2003, respectively, which was substantially all in the Bell segment. See “Backlog” in Item 1. Business of Textron on page 6 for more information.
Segment Analysis
Bell	(Dollars in millions)	2004			2003			2002
	Revenues	$	2,254		$	2,348		$	2,235
	Segment profit	$	250		$	234		$	169
	Profit margin	11		%	10		%	8		%
	Backlog	$	3,775		$	2,197		$	1,815
	Bell is a leading manufacturer of advanced military helicopters and tiltrotor aircraft for the U.S. Government and commercial helicopters for corporate, offshore petroleum exploration and development, utility, charter, police, fire, rescue and emergency medical customers. Additionally, Bell is a primary supplier of advanced weapon systems to meet the demanding needs of the aerospace and defense markets and the leading manufacturer of piston aircraft engines.
	Bell Helicopter has two major programs with the U.S. Government – the V-22 and the H-1 Upgrade Program. The V-22 is the pioneer program for tiltrotor technology with a current requirement of 458 aircraft. Bell expects to receive authorization to proceed to full-rate production of the V-22 in 2005. The H-1 Upgrade Program is a major contract to remanufacture the U.S. Marine Corps’ fleet of AH-1W SuperCobra and UH-1N utility helicopters to an advanced configuration featuring common avionics and flight dynamics. Bell expects to receive authorization to proceed to full-rate production in 2006 for 100 UH-1N and 180 AH-1W helicopters. Bell currently has orders for six UH-1Y aircraft and three AH-1Z aircraft, and expects to begin deliveries in 2006.
	Bell Helicopter continues to manufacture aircraft under the V-22 low-rate initial production releases that began prior to 2003. Revenues under those releases are recorded on a cost incurred basis primarily as a result of the significant engineering effort required over a lengthy period of time during the initial development phase in relation to total contract volume. Revenues for those releases are expected to decline through 2007 as the remaining effort is completed. The development effort was substantially complete for new production releases in 2003, and revenue on those releases will be recognized as units are delivered, which is expected to begin in 2005. Accordingly, during 2005, V-22 program revenues related to new production releases recorded on an as-delivered basis are expected to more than offset lower revenues associated with the diminishing development revenues recorded as costs are incurred.
	During 2004, Bell Helicopter’s commercial business rebounded with increases in orders, deliveries and backlog. Bell continued to invest in commercial programs as evidenced by the significant progress made on the newly announced 429 light twin aircraft and other program upgrades in response to customer requests to improve speed, lower operating costs and reduce noise. In December 2004, the Bell/Agusta Aerospace Company, L.L.C. received U.S. Federal Aviation Administration certification of the AB139 helicopter.
	Additionally, Textron Systems has received orders to deliver over 200 armored security vehicles (“ASV”) in 2005 with additional orders expected. Currently, production capacity is ramping up to meet these deliveries.
	Bell Revenues
	The Bell segment’s revenues decreased $94 million in 2004, compared with 2003, due to lower revenue of $166 million in the U.S. Government business, partially offset by higher commercial sales of $72 million. U.S. Government sales decreased primarily due to lower revenue of $243 million on the V-22 program and lower sales of $30 million related to a contract for training aircraft completed in 2003. In addition, revenue was reduced by $11 million related to a final agreement with the U.S. Government to settle an overhead cost rate matter. These decreases in revenue were partially offset by $34 million of higher military spares volume, increased sales of $34 million for air-launched weapons and higher H-1 revenue of $34 million. Commercial revenues increased primarily due to higher foreign military sales of $64 million, increased volume in the aircraft engine business of $18 million and higher spares volume of $14 million. These increases were partially offset by lower Huey II kit sales of $16 million and lower sales of commercial aircraft of $6 million. The lower V-22 revenue was primarily due to lower effort of $170 million on production lots three through six as these contracts near completion and decreasing development activities of $98 million.

15

	The Bell segment’s revenues increased $113 million in 2003, compared with 2002, due to higher U.S. Government revenue of $62 million primarily due to the ongoing development efforts on the V-22 program and higher foreign military sales volume of $35 million related to a contract that began shipments during the third quarter of 2002.
	Bell Segment Profit
	Segment profit increased $16 million in 2004, compared with 2003, due to higher profit of $47 million in the commercial business, partially offset by the impact of lower revenue of $31 million in the U.S. Government business. Commercial profit increased primarily due to the $34 million impact of the higher foreign military sales, favorable cost performance in the commercial helicopter business of $31 million (including the favorable resolution of a $6 million warranty issue provided for in 2003), the $9 million benefit from a favorable mix of commercial aircraft and the $5 million favorable impact of a nonrecurring 2003 charge related to a recall, inspection and customer care program at the aircraft engine business, partially offset by higher engineering expenses of $28 million. Profit in the U.S. Government business decreased primarily due to the $20 million impact of lower V-22 revenue, an $11 million settlement with the U.S. Government and lower volume of training aircraft of $11 million, partially offset by the $10 million impact of higher volume of air-launched weapons.
	Segment profit in 2003 was $65 million greater than in 2002 primarily because 2002 included $31 million of costs related to the recall, inspection and customer care programs at the aircraft engine business and higher profit of $22 million in the commercial helicopter business. The higher profit in the commercial helicopter business in 2003 was primarily due to lower receivable reserve provisions of $16 million and reduced pricing of $20 million in 2002 related to one commercial helicopter model.
	Bell Outlook
	Bell’s revenues are expected to increase about 7% in 2005 largely due to higher V-22 and ASV deliveries. V-22 revenue is expected to increase as deliveries of new production releases (recorded on an as-delivered basis) are expected to more than offset lower engineering- and development-based revenues (recorded on a cost-incurred basis). Margins are expected to remain relatively consistent as a result of ramp up costs for V-22 production.
Cessna	(Dollars in millions)	2004			2003			2002
	Revenues	$	2,473		$	2,299		$	3,175
	Segment profit	$	267		$	199		$	376
	Profit margin	11		%	9		%	12		%
	Backlog	$	5,352		$	3,947		$	4,474
	Cessna is a leading manufacturer of general aviation aircraft and the largest manufacturer of light and mid-sized business jets. Cessna provides dependable aircraft and premier service to corporate customers in over 75 countries. Cessna also participates in the fractional jet ownership business through its sales to a major fractional jet customer, as well as through CitationShares, Textron’s joint venture with Tag Aviation USA, Inc. During 2004, the economy strengthened after a prolonged downturn, leading to a significant increase in business jet and single engine aircraft orders. At the same time, Cessna also realized the benefit of its continued strategy of investment in new product development, receiving FAA certification for the Citation XLS, Sovereign and CJ3 business jets and introducing upgrades to the CJ1 and CJ2, the CJ1+ and the CJ2+.
	Cessna Revenues
	The Cessna segment’s revenues increased $174 million in 2004, compared with 2003, primarily due the $76 million increase from the consolidation of CitationShares, $39 million of higher pricing and a $12 million benefit from lower used aircraft overtrade allowances. Citation business revenue jet deliveries were 179 in 2004, compared with 194 jets in 2003.
	The Cessna segment’s revenues decreased $876 million in 2003, compared with 2002, due to lower Citation business jet volume (194 revenue jet deliveries in 2003, compared with 306 in 2002). Lower used aircraft volume of $87 million and lower Caravan volume of $32 million as a result of lower demand were essentially offset by higher spare parts and service volume of $48 million, higher pricing of $45 million related to the last remnants of introductory pricing on certain business jet models and a $27 million benefit from lower used aircraft overtrade allowances.
	Cessna Segment Profit
	Segment profit increased $68 million in 2004, compared with 2003, largely due to $85 million of improved cost performance, $39 million of higher pricing, $18 million of lower used aircraft valuation adjustments, a $12 million benefit from lower used aircraft overtrade allowances and an $8 million benefit related to the expiration of prior year residual value guarantees, partially offset by

16

	$70 million of inflation and the unfavorable impact of lower business jet volume and unfavorable mix of $20 million. The benefit from lower used aircraft overtrade allowances and valuation adjustments was primarily due to fewer trade-ins and a stabilization in market values for used jets in 2004.
	Segment profit decreased $177 million in 2003, compared with 2002, primarily due to reduced margin of $305 million from lower sales volume and inflation of $67 million, partially offset by improved cost performance of $125 million and higher pricing of $45 million related to the last remnants of introductory pricing on certain business jet models and a $27 million benefit from lower used aircraft overtrade allowances.
	Cessna Outlook
	We expect Cessna’s revenues to increase in 2005 due to higher sales of jets based on our current backlog. Margins are also expected to increase primarily as a result of the higher business jet volume. Cessna plans to continue its investment in new products such as the CJ1+, CJ2+ and Mustang, broadening its product line to take advantage of the improving business jet market.
Fastening Systems	(Dollars in millions)			2004					2003						2002
	Revenues			$	1,924				$	1,737					$	1,650
	Segment profit			$	53				$	66					$	72
	Profit margin			3			%		4			%			4		%
	Textron Fastening Systems is one of the world’s largest providers of integrated fastening systems solutions and offers a full range of fastening technologies, including fasteners, engineered assemblies and automation equipment. Major markets served include aerospace, automotive, computer, construction, electronics, electrical equipment, industrial equipment, non-automotive transportation, telecommunications and white good markets. These markets are highly competitive, and suppliers are often required to make price concessions to win new business and maintain existing customers. Consequently, significant cost reductions are required not only to offset inflation and price concessions, but also to improve margins.
	During 2004, an increase in the global demand for steel resulted in significantly higher prices for materials used in the manufacturing process at Fastening Systems, a major supplier of steel fasteners. As a result, Fastening Systems took action to raise prices and impose surcharges on its steel products to mitigate the impact of higher raw material costs. There has been about a six-month lag between the increases in cost and full implementation of the new customer pricing programs. These price increases for steel have been partially offset by price concessions required to win new business and retain existing customers.
	Fastening Systems Revenues
	The Fastening Systems segment’s revenues increased $187 million in 2004, compared with 2003, primarily due to favorable foreign exchange of $116 million, higher volume of $57 million, largely due to improvements in many of its end markets, and $20 million of higher pricing. The Fastening Systems segment’s revenues increased $87 million in 2003, compared with 2002, primarily due to a favorable foreign exchange impact of $128 million, reflecting a weak U.S. dollar, partially offset by higher pricing concessions of $13 million in 2003 and lower volume primarily in the European industrial markets.
	Fastening Systems Segment Profit
	Segment profit decreased $13 million in 2004, compared with 2003, primarily due to inflation of $88 million, partially offset by improved cost performance of $35 million, pricing of $20 million, the impact of the higher sales volume of $10 million and favorable foreign exchange of $10 million. Inflation includes $62 million of higher steel prices, which were partially offset by $35 million in price increases and surcharges to customers. Segment profit in 2003 remained relatively flat with some deterioration, compared with 2002, reflecting the soft demand for the segment’s products and higher pricing concessions of $13 million.
	Fastening Systems Outlook
	We expect revenues at Fastening Systems will remain relatively flat in 2005 with a slight improvement in profit margin as we begin to realize the full benefit of our substantially completed restructuring program and other process improvements.
Industrial	(Dollars in millions)	2004					2003						2002
	Revenues	$	3,046				$	2,836					$	2,627
	Segment profit	$	194				$	150					$	169
	Profit margin	6				%	5				%		6				%

17

	The Industrial segment is composed of five businesses, including E-Z-GO, Jacobsen, Kautex, Greenlee and Fluid & Power. Through these businesses, the segment provides its customers with innovative solutions and services, including golf cars and turf-care equipment, plastic fuel systems, wire and cable installation equipment, and industrial pumps and gears. These markets are highly competitive and price sensitive. Consequently, significant cost reductions are required not only to offset inflation and price concessions but also to improve margins.
	Industrial Revenues
	The Industrial segment’s revenues increased $210 million in 2004, compared with 2003, primarily due to a favorable foreign exchange impact of $167 million and higher sales volume of $61 million, partially offset by $17 million related to the divestiture of a non-core product line during the second quarter of 2004. The higher sales volume primarily reflects an increase of $44 million at Kautex, largely due to new product launches and growth in its international markets, and to a lesser degree increases of $18 million and $12 million at E-Z-GO and Jacobsen, respectively.
	The Industrial segment’s revenues increased $209 million in 2003, compared with 2002, primarily due to a favorable foreign exchange impact of $185 million and higher sales volume of $131 million at Kautex as a result of new product launches and a continued strong automotive market. These increases were partially offset by lower sales volume of $123 million at E-Z-GO and Jacobsen, reflecting reduced demand that was largely attributable to a depressed golf market.
	Industrial Segment Profit
	Segment profit increased $44 million in 2004, compared with 2003, primarily due to $92 million of improved cost performance, improved credit performance of $16 million, the favorable foreign exchange impact of $13 million, the $10 million impact of higher volume and lower fair market value adjustments of $8 million for used golf cars. These increases were partially offset by inflation of $59 million and lower profit of $24 million at a North American Kautex plant due to increased costs from manufacturing inefficiencies.
	Segment profit decreased $19 million in 2003, compared with 2002, primarily due to lower profit of $52 million at E-Z-GO and Jacobsen, due to lower sales as a result of the depressed golf market, the impact of adjusting production schedules to the lower demand and $12 million in higher bad debt provisions as a result of a financially weakened customer base. This decrease was partially offset by $33 million related to improved results in each of the other businesses primarily as a result of improved cost performance.
	Industrial Outlook
	Industrial revenues are expected to remain flat in 2005, with slightly lower revenues at Kautex, as a result of model changeovers, expected to be offset with modest growth in the remaining businesses. Segment margins are forecasted to increase to about 7%, as the segment continues to realize the benefit of its substantially completed restructuring program and other process improvements.
Finance	(Dollars in millions)	2004			2003			2002
	Revenues	$	545		$	572		$	584
	Segment profit	$	139		$	122		$	118
	Profit margin	26		%	21		%	20		%
	The Finance segment is a diversified commercial finance business with core operations in aircraft finance, asset-based lending, distribution finance, golf finance, resort finance and structured capital. Its financing activities are confined almost exclusively to secured lending and leasing to commercial markets. Within these core operations, this segment also provides financing programs for products manufactured by Textron. In 2004, management continued its focus on growing its core business while liquidating non-core assets.
	Finance Revenues
	The Finance segment’s revenues decreased $27 million in 2004, compared with 2003. The decrease was primarily due to lower finance charges and discounts of $35 million, largely due to the continued liquidation of non-core assets resulting in lower average finance receivables of $269 million, and a reduction of discount earnings in the distribution finance business. The decrease was partially offset by higher securitization gains of $13 million, primarily due to improved yield, and $20 million from an increase in average finance receivables sold to the distribution finance revolving conduit, partially offset by a $6 million reduction in resort finance gains.

18

The Finance segment’s revenues decreased $12 million in 2003, compared with 2002, primarily due to lower finance charges and discounts of $9 million from lower average finance receivables and a decline in syndication income due to a nonrecurring gain in 2002 of $9 million on the sale of a franchise finance portfolio.
Finance Segment Profit
Segment profit increased $17 million in 2004, compared with 2003, primarily due to a $23 million decrease in the provision for loan losses, reflecting an improvement in portfolio quality, partially offset by lower net interest margin of $10 million.
Segment profit increased $4 million in 2003, compared with 2002, primarily due to a lower provision for loan losses of $30 million ($81 million in 2003 vs. $111 million in 2002), partially offset by higher operating expense of $26 million. The 27% decrease in the provision for loan losses reflects an improvement in portfolio quality as measured by improvements in nonperforming assets as discussed below and, to a lesser extent, declining portfolio growth. The higher operating expense includes $12 million in higher legal and collection expense primarily related to the continued resolution of nonperforming accounts and the accrual of settlement costs associated with litigation during 2003.
Finance Portfolio Quality
The following table presents information about the credit quality of the Finance segment’s portfolio:
(In millions, except for ratios)	2004			2003			2002
Provision for loan losses	$	58		$	81		$	111
Nonperforming assets	$	140		$	162		$	214
Ratio of nonperforming assets to total finance assets	2.18		%	2.80		%	3.41		%
Allowance for losses on finance receivables recorded on balance sheet	$	99		$	119		$	145
Ratio of allowance for losses on receivables to nonaccrual finance receivables	83.7		%	78.4		%	81.7		%
Net charge-offs	$	79		$	117		$	103
60+ days contractual delinquency as a percentage of finance receivables	1.47		%	2.39		%	2.86		%
During the last two years, the Finance segment has experienced improvements in portfolio quality as indicated by improved credit quality measures and a lower provision for losses. The improvements in credit quality were evident through lower nonperforming asset levels and 60+ days contractual delinquency.
Textron Finance’s nonperforming assets include nonaccrual accounts that are not guaranteed by Textron Manufacturing, for which interest has been suspended, and repossessed assets. Nonperforming assets for each of the last three year-ends by business are as follows:
(In millions)	2004			2003			2002
Resort finance	$	53		$	55		$	45
Aircraft finance	12			26			34
Golf finance	26			22			15
Distribution finance	5			11			21
Asset-based lending	7			6			13
Other	37			42			86
Total nonperforming assets	$	140		$	162		$	214
We believe that nonperforming assets will generally be in the range of 2% to 4% of finance assets depending on economic conditions. Textron Finance experienced significant improvement in total nonperforming assets with a $22 million decrease in 2004 and a $52 million decrease in 2003. The decrease in 2004 was primarily attributable to the core businesses, including $14 million in aircraft finance and $6 million in distribution finance, largely related to improved general economic conditions. Excluding an increase of $13 million in nonperforming assets related to one customer within its golf mortgage portfolio, the golf finance business experienced improvements of $7 million in its golf mortgage portfolio and $2 million in its golf equipment finance portfolio. The non-core businesses within the other line continued to decrease with a $5 million reduction in telecommunications, $10 million in media finance and $7 million in other liquidating portfolios, partially offset by a $22 million increase in franchise finance primarily related to one customer. These non-core businesses continue to compose a disproportionate amount of Textron Finance’s nonperforming assets accounting for 27% of total nonperforming assets, while composing only 7% of the total finance assets at January 1, 2005. Overall, we expect continued modest improvement as these portfolios liquidate.

19

	Finance Outlook
	In 2005, we expect the Finance segment’s profit to increase primarily as a result of improved interest margin due to higher average finance receivables and lower relative borrowing costs.
Special Charges	Special charges are more fully discussed on page 13 and are summarized below by segment:
by Segment
		Restructuring Expense
	(In millions)	Severance Costs		Contract Terminations		Fixed Asset Impairments			Other Associated Costs		Total			Other Charges			Total Special Charges
	2004
	Bell	$	—	$	—	$	(1	)	$	—	$	(1	)	$	—		$	(1	)
	Cessna	—		—		—			—		—			—			—
	Fastening Systems	37		7		9			19		72			—			72
	Industrial	28		37		1			6		72			—			72
	Finance	—		—		—			—		—			—			—
	Corporate	—		—		—			—		—			(12		)	(12		)
		$	65	$	44	$	9		$	25	$	143		$	(12	)	$	131
	2003
	Bell	$	2	$	—	$	—		$	—	$	2		$	—		$	2
	Cessna	8		—		1			—		9			—			9
	Fastening Systems	34		—		34			7		75			—			75
	Industrial	17		2		10			13		42			—			42
	Finance	4		—		2			—		6			—			6
	Corporate	3		—		—			—		3			15			18
		$	68	$	2	$	47		$	20	$	137		$	15		$	152
	2002
	Bell	$	4	$	—	$	1		$	1	$	6		$	—		$	6
	Cessna	23		—		2			4		29			—			29
	Fastening Systems	12		2		4			4		22			—			22
	Industrial	14		2		6			13		35			—			35
	Finance	—		—		—			—		—			—			—
	Corporate	1		—		—			—		1			38			39
		$	54	$	4	$	13		$	22	$	93		$	38		$	131
Liquidity & Capital Resources
	Textron’s financings are conducted through two borrowing groups: Textron Manufacturing and Textron Finance. This framework is designed to enhance Textron’s borrowing power by separating the Finance segment. Textron Manufacturing consists of Textron Inc., the parent company, consolidated with the entities that operate in the Bell, Cessna, Fastening Systems and Industrial business segments, whose financial results are a reflection of the ability to manage and finance the development, production and delivery of tangible goods and services. Textron Finance consists of Textron’s wholly owned commercial finance subsidiary, Textron Financial Corporation, consolidated with its subsidiaries. The financial results of Textron Finance are a reflection of its ability to provide financial services in a competitive marketplace, at appropriate pricing, while managing the associated financial risks. The fundamental differences between each borrowing group’s activities result in different measures used by investors, rating agencies and analysts.
	A portion of Textron Finance’s business involves financing retail purchases and leases for new and used aircraft and equipment manufactured by Textron Manufacturing’s Bell, Cessna and Industrial segments. The cash flows related to these captive financing activities are reflected as operating activities (by Textron Manufacturing) and as investing activities (by Textron Finance) based on each group’s operations. These captive financing transactions have been eliminated and cash from customers or from securitizations is recognized in operating activities within the consolidated statement of cash flows when received.

20

Textron Inc. provides a support agreement to Textron Finance that requires Textron Inc. to maintain 100% ownership of Textron Finance. The agreement also requires Textron Finance to maintain fixed charge coverage of no less than 125% and consolidated shareholder’s equity of no less than $200 million. Textron Finance’s bank agreements prohibit the termination of the support agreement.
Textron’s financial position continued to be strong at the end of 2004 and included cash and cash equivalents of $732 million, compared with $838 million at the end of 2003. During 2004, cash flows from operations were the primary source of funds for the operating needs, restructuring activities, dividends and capital expenditures. Management analyzes operating cash flows for Textron Manufacturing by tracking free cash flow, which is calculated using net cash provided by operating activities, adding back after-tax cash used for restructuring activities and proceeds on the sale of fixed assets, then subtracting capital expenditures, including those financed with capital leases.
Operating Cash Flows
(In millions)	2004			2003			2002
Consolidated	$	949		$	985		$	676
Textron Manufacturing	$	973		$	691		$	481
Textron Finance	$	161		$	242		$	198
On a consolidated basis, operating cash flows have remained fairly consistent over the past two years.Textron Manufacturing’s operating cash flows have increased significantly over the past two years, reflecting improved operating performance and enterprise management initiatives. The $282 million increase in Textron Manufacturing’s operating cash flows is largely due to a decrease in working capital of $205 million in 2004, compared with a $65 million increase in working capital in 2003. A significant portion of this decrease was due to an increase in customer deposits in the Bell and Cessna segments largely due to an increase in orders for jets and commercial helicopters. Textron Manufacturing’s operating cash flows include after-tax cash used to finance Textron’s restructuring program totaling $67 million in 2004, $54 million in 2003 and $57 million in 2002. Operating cash flows in 2003 included a $109 million tax refund received in 2003.
Investing Cash Flows
(In millions)	2004			2003			2002
Consolidated	$	(844	)	$	(65	)	$	(734	)
Textron Manufacturing	$	(202	)	$	(210	)	$	324
Textron Finance	$	(756	)	$	272		$	(1,008	)
On a consolidated basis, investing cash flows are largely driven by Textron Finance. Textron Finance increased its use of cash for investing activities primarily due to a $768 million decrease in proceeds from the sale of finance receivables and securitizations and a $227 million increase in finance receivable originations, net of repayments. The reduction in proceeds from receivable sales was largely attributable to the sale of a small-ticket equipment portfolio in 2003 for $329 million, a $130 million increase in the utilization of the distribution finance conduit and franchise portfolio sales of $123 million in 2003. The significant increase in 2003 was primarily due to a $389 million decrease in finance receivable originations, net of repayments, $196 million in higher proceeds from finance receivable sales and a nonrecurring $510 million repayment in 2002 of an advance made to Textron Manufacturing.
Excluding the nonrecurring repayment in 2002 of an advance of $510 million from Textron Finance, Textron Manufacturing’s use of cash for investing activities has been fairly consistent and is largely driven by capital expenditures. Capital expenditures for Textron Manufacturing totaled $334 million in 2004, $306 million in 2003 and $298 million in 2002, including expenditures purchased through capital leases of $44 million in 2004, $26 million in 2003 and $23 million in 2002.
Textron Finance’s investing activities include $892 million, $886 million and $969 million in non-cash activity for finance receivables originated in connection with the sale of inventory in 2004, 2003 and 2002, respectively. Cash received from customers and securitizations related to the sale of inventory is also included within Textron Finance’s investing activities totaling $727 million, $972 million and $1,059 million, in 2004, 2003 and 2002, respectively. Within the consolidated statement of cash flows these amounts have been eliminated from investing activities and are recorded as a net amount in operating cash flows under the caption “Captive finance receivables, net.”

21

Financing Cash Flows
(In millions)	2004			2003			2002
Consolidated	$	(276	)	$	(746	)	$	36
Textron Manufacturing	$	(708	)	$	(469	)	$	(803	)
Textron Finance	$	361		$	(354	)	$	786
On a consolidated basis, the changes in financing cash flows over the past few years are largely driven by changes in the cash flows for Textron Finance. The increase in cash provided by financing activities in 2004 at Textron Finance is primarily due to a net increase in commercial paper and other short-term debt to fund asset growth. The cash used in 2003 primarily relates to the pay-down of commercial paper and other short-term debt from the proceeds received from finance receivable sales. In addition, in 2003, under new and existing shelf registration statements, Textron Finance issued $1.2 billion of term notes, primarily in U.S. and Canadian markets. In 2002, Textron Finance issued $2.0 billion of term notes to refinance maturing term debt and to repay the 2001 advance of $510 million from Textron Manufacturing.
During 2004, Textron Manufacturing repaid a $300 million 6.375% note using cash and proceeds from commercial paper issuances. During 2003, Textron Manufacturing issued $250 million in term notes under Textron Inc.’s existing shelf registration filed with the Securities and Exchange Commission and used the proceeds for the redemption of $500 million in mandatorily redeemable preferred securities in July 2003.
Proceeds from the exercise of stock options increased $120 million to $187 million in 2004 as more options were exercised primarily due to the increasing stock price.
Principal Payments and Retirements of Long-Term Debt and Mandatorily Redeemable Preferred Securities
In 2004, 2003 and 2002, Textron Manufacturing made principal payments of $362 million, $508 million and $544 million, respectively. In 2004, 2003 and 2002, Textron Finance made principal payments on long-term debt of $1.3 billion, $1.4 billion and $1.7 billion, respectively.
Stock Repurchases
In October 2004, Textron’s Board of Directors authorized a new 12-million-share repurchase program. This program supercedes Textron’s previous authorization, under which less than one million shares remained. In 2004, 2003 and 2002, Textron repurchased approximately 6,396,000, 1,951,000 and 5,734,000 shares of common stock, respectively, under its Board authorized share repurchase programs for an aggregate cost of $415 million, $66 million and $248 million, respectively.
Dividends
In October 2004, the Board of Directors authorized a $0.10 per share increase in Textron’s annualized common stock dividend, from $1.30 per share to $1.40 per share. The first increased dividend payment was paid on January 3, 2005 to holders of record at the close of business on December 10, 2004, resulting in an annual dividend per common share of $1.325 in 2004, compared with $1.30 each in 2003 and 2002. Dividend payments to shareholders totaled $135 million, $222 million and $182 million in 2004, 2003 and 2002, respectively. The 2003 payments include an additional payment made for the fourth quarter dividend, which is typically paid in the following year.
Discontinued Operations Cash Flows
Net cash provided by discontinued operations for Textron Manufacturing includes the OmniQuip and InteSys businesses and totaled $32 million in 2004, $158 million in 2003 and $20 million in 2002. In 2003, Textron Manufacturing received a $90 million cash payment upon the sale of its remaining OmniQuip business and a $108 million tax refund related to the sale of the Snorkel product line and the capital stock of the OmniQuip Textron Inc. holding company.
Net cash provided by discontinued operations for Textron Finance includes the small business finance operation and totaled $175 million in 2003 and $27 million in 2002. In the fourth quarter of 2003, Textron Finance sold substantially all of its small business direct portfolio for $421 million in cash.
Capital Resources
Textron Manufacturing’s debt (net of cash) to total capital ratio as of January 1, 2005 was 25%, compared with 30% at January 3, 2004. Textron Manufacturing has established a long-term debt-to-capital ratio target in the mid-thirties. Consistent with the methodology used by members of the financial community, leverage of the manufacturing operations excludes the debt of Textron Finance. In turn, Textron Finance limits its borrowings to an amount, taking into account the risk profile of its assets, consistent with a single A credit rating. Surplus capital of Textron Finance is returned to Textron Inc.

22

Borrowings have historically been a secondary source of funds for Textron Manufacturing and, along with the collection of finance receivables, are a primary source of funds for Textron Finance. Both Textron Manufacturing and Textron Finance utilize a broad base of financial sources for their respective liquidity and capital needs. Our credit ratings are predominantly a function of our ability to generate operating cash flow and satisfy certain financial ratios. Since high-quality credit ratings provide us with access to a broad base of global investors at an attractive cost, we target a long-term A rating from the independent debt-rating agencies. As of January 1, 2005, our credit ratings are as follows:
							Fitch			Moody’s					Standard & Poor’s
Long-term:
Textron Manufacturing							A-			A3					A-
Textron Finance							A-			A3					A-
Short-term:
Textron Manufacturing							F2			P2					A2
Textron Finance							F2			P2					A2
For liquidity purposes, Textron Manufacturing and Textron Finance have a policy of maintaining sufficient unused lines of credit to support their outstanding commercial paper. None of these lines of credit were used at January 1, 2005 or at January 3, 2004. Textron Manufacturing has primary revolving credit facilities of $1.25 billion, of which $1.0 billion will expire in 2007 and $0.25 billion will expire in March 2005. Textron Manufacturing’s credit facilities permit Textron Finance to borrow under those facilities. Textron Finance also has bank lines of credit of $1.5 billion, of which $500 million expires in July 2005 and $1.0 billion expires in 2008. The facilities that expire in 2005 both include one-year term out options that effectively extend their expirations into 2006. At January 1, 2005, the lines of credit not reserved as support for commercial paper and letters of credit were $1.2 billion for Textron Manufacturing and $187 million for Textron Finance.
Under a shelf registration statement filed with the Securities and Exchange Commission, Textron Finance may issue public debt securities in one or more offerings up to a total maximum offering of $4.0 billion. Under this registration statement, Textron Finance issued $370 million of term notes during 2004. The proceeds from these issuances were used to refinance maturing debt. At January 1, 2005, Textron Finance had $3.3 billion available under this registration statement. Under a shelf registration statement filed with the Securities and Exchange Commission that became effective on August 4, 2004, Textron Manufacturing may issue public debt and other securities in one or more offerings up to a total maximum offering of $2.0 billion. At January 1, 2005, Textron Manufacturing had $2.0 billion available under this registration statement.
Contractual Obligations
The following table summarizes Textron Manufacturing’s known contractual obligations to make future payments or other consideration pursuant to certain contracts as of January 1, 2005, as well as an estimate of the timing in which these obligations are expected to be satisfied:
	Payment Due by Period
	Less than												More than
(In millions)	1 Year		2 Years		3 Years			4 Years			5 Years		5 Years			Total
Textron Manufacturing:
Liabilities reflected in balance sheet:
Long-term debt	$	427	$	4	$	34		$	346		$	—	$	848		$	1,659
Capital lease obligations	6		4		3			2			3		114			132
Pension benefits for unfunded plans	15		14		13			14			13		150			219
Postretirement benefits other than pensions	60		61		59			58			54		455			747
Other long-term liabilities	135		74		51			33			30		246			569
Liabilities not reflected in balance sheet:
Operating leases	70		55		37			28			28		127			345
Purchase obligations	1,412		132		35			7			—		12			1,598
Total Textron Manufacturing	$	2,125	$	344	$	232		$	488		$	128	$	1,952		$	5,269
Long-term debt and capital lease obligations included in the table above do not include interest payments.

23

Textron maintains defined benefit pension plans and postretirement benefit plans other than pensions as discussed in Note 12 to the consolidated financial statements. Included in the table above are discounted estimated benefit payments to be made by Textron related to unfunded pension and other postretirement benefit plans. Actual benefit payments are dependent on a number of factors, including mortality assumptions, expected retirement age, rate of compensation increases and medical trend rates, which are subject to change in future years. Textron also expects to make contributions to its funded pension plans in the range of $30 million to $35 million per year over the next five years, which are not reflected in this table.
Other long-term liabilities primarily include undiscounted amounts on the consolidated balance sheet as of January 1, 2005 representing obligations under deferred compensation arrangements and estimated environmental remediation costs. Payments under deferred compensation arrangements have been estimated based on management’s assumptions of expected retirement age, mortality, stock price and rates of return on participant deferrals. Timing of cash flows associated with environmental remediation costs are largely based on historical experience.
Operating leases represent undiscounted obligations under noncancelable leases.
Purchase obligations represent undiscounted obligations for which Textron is committed to purchase goods and services as of January 1, 2005. Textron’s ultimate liability for these obligations may be reduced based upon termination provisions included in certain purchase contracts, the costs incurred to date by vendors under these contracts or by recourse under firm contracts with the U.S. Government under normal termination clauses.
Effective January 2, 2005, Textron engaged a third-party service provider to assume oversight of its information technology infrastructure, including maintenance, operational oversight and purchases of hardware (the “IT Contract”). The IT Contract covers a ten-year period and is subject to variable pricing and quantity provisions for both purchases of computer hardware and system design modifications. Textron retains the right to approve significant design, equipment purchase and related decisions by the service provider. Textron has the ability to terminate the IT Contract prior to its full-term and would consequently be subject to variable termination fees that decline over time and do not exceed $70 million in 2005.
The following table summarizes Textron Finance’s known contractual obligations to make future payments. Due to the nature of finance companies, Textron Finance also has contractual cash receipts that will be received in the future. Textron Finance generally borrows funds at various contractual maturities to match the maturities of its finance receivables. The contractual payments and receipts as of January 1, 2005 are detailed below:
	Payment Due by Period
	Less than													More than
(In millions)	1 Year		2 Years			3 Years			4 Years		5 Years			5 Years		Total
Textron Finance:
Contractual payments:
Commercial paper and other short-term debt	$	1,307	$	—		$	—		$	—	$	—		$	—	$	1,307
Term debt	656		985			983			42		542			268		3,476
Operating leases	5		5			4			4		2			3		23
Total contractual payments	1,968		990			987			46		544			271		4,806
Contractual receipts:
Finance receivables	2,303		683			526			516		397			1,412		5,837
Operating leases	27		19			16			12		10			24		108
Total contractual receipts	2,330		702			542			528		407			1,436		5,945
Cash	127		—			—			—		—			—		127
Total cash and contractual receipts	2,457		702			542			528		407			1,436		6,072
Net cash and contractual receipts (payments)	$	489	$	(288	)	$	(445	)	$	482	$	(137	)	$	1,165	$	1,266
Cumulative net cash and contractual receipts (payments)	$	489	$	201		$	(244	)	$	238	$	101		$	1,266
Finance receivables are based on contractual cash flows. These amounts could differ due to prepayments, charge-offs and other factors. Contractual receipts and payments exclude finance charges and discounts from receivables, debt interest payments, proceeds from sale of operating lease equipment and other items.

24

As shown in the preceding table, cash collections from finance assets are expected to be sufficient to cover maturing debt and other contractual liabilities. At January 1, 2005, Textron Finance had $2.0 billion in debt and $399 million in other liabilities that are payable within the next twelve months.

At January 1, 2005, Textron Finance had unused commitments to fund new and existing customers under $1.0 billion of committed revolving lines of credit, compared with $1.1 billion at January 3, 2004. The decrease is largely related to the continued liquidation of the non-core syndicated bank loan portfolio in 2004. Since many of the agreements will not be used to the extent committed or will expire unused, the total commitment amount does not necessarily represent future cash requirements.

Off-Balance Sheet Arrangements

Textron has certain ventures where we have guaranteed debt up to an aggregate amount of approximately $18 million. Textron also has other guarantee arrangements as more fully discussed in Notes 4 and 16 to the consolidated financial statements.

Bell Helicopter has partnered with The Boeing Company in the development of the V-22 tiltrotor, with Agusta Aerospace Corporation in the development of the AB139 and BA609, and with AgustaWestland North America Inc. (“AWNA”) in the development of the US101. These agreements enable us to share expertise and costs, and ultimately the profits, with our partners. Bell and AWNA formed the AgustaWestlandBell Limited Liability Company (“AWB LLC”) for the joint design, development, manufacture, sale, customer training and product support of the US101 Helicopter.

Lockheed Martin, with AWB LLC as its principal subcontractor, has been selected to design, develop, manufacture and support the Presidential helicopter for the U.S. Marine Corps Marine 1 Helicopter Squadron (VXX) Program. Bell Helicopter has guaranteed to Lockheed Martin 49% of the performance of AWB LLC under subcontracts received by AWB LLC from Lockheed Martin as more fully discussed in Note 16 to the consolidated financial statements.

Textron Manufacturing enters into a forward contract in Textron common stock on an annual basis. The contract is intended to hedge the earnings and cash volatility of stock-based incentive compensation indexed to Textron stock. The forward contract requires annual cash settlement between the counter parties based upon a number of shares multiplied by the difference between the strike price and the prevailing Textron common stock price. As of January 1, 2005, the contract was for approximately 2 million shares with a strike price of $57.51. The market price of the stock was $73.80 at January 1, 2005, resulting in a receivable of $31 million, compared with a receivable of $25 million at January 3, 2004.

Textron Finance sells finance receivables utilizing both securitizations and whole-loan sales. As a result of these transactions, finance receivables are removed from the balance sheet, and the proceeds received are used to reduce the recorded debt levels. Despite the reduction in the recorded balance sheet position, Textron Finance generally retains a subordinate interest in the finance receivables sold through securitizations, which may affect operating results through periodic fair value adjustments. These retained interests are more fully discussed in the securitizations section of Note 4 to the consolidated financial statements. Textron Finance utilizes these off-balance sheet financing arrangements (primarily asset-backed securitizations) to further diversify funding alternatives. These arrangements are an important source of funding that provided net proceeds from continuing operations of $394 million and $765 million in 2004 and 2003, respectively. Textron Finance has used the proceeds from these arrangements to fund the origination of new finance receivables and to retire commercial paper.

Whole-loan finance receivable sales in which Textron Finance maintains a continuing interest differ from securitizations as loans are sold directly to investors and no portion of the sale proceeds is deferred. Limited credit enhancement is typically provided for these transactions in the form of a contingent liability related to finance receivable credit losses and, to a lesser extent, prepayment risk. Textron Finance has a contingent liability related to the sale of equipment lease rental streams in 2003 and 2001. The maximum liability at January 1, 2005 was $42 million, and in the event Textron Finance’s credit rating falls below BBB, it is required to pledge a related pool of equipment residuals that amount to $10 million. Textron Finance has valued this contingent liability based on assumptions for annual credit losses and prepayment rates of 0.25% and 7.50%, respectively. An instantaneous 20% adverse change in these rates would have an insignificant impact on the valuation of this contingent liability.

Termination of Textron Finance’s off-balance sheet financing arrangements would significantly reduce its short-term funding alternatives. While these arrangements do not contain provisions that require Textron Finance to repurchase significant balances of receivables previously sold, there are risks that could reduce the availability of these funding alternatives in the future. Potential barriers to the continued use of these arrangements include deterioration in finance receivable portfolio quality, downgrades in Textron Finance’s debt credit ratings and a reduction of new finance receivable originations in the businesses that utilize these funding arrangements. Textron Finance does not expect any of these factors to have a material impact on its liquidity or income from continuing operations.

25

Critical Accounting Policies
	The preparation of our consolidated financial statements in conformity with generally accepted accounting principles requires management to make complex and subjective judgments in the selection and application of accounting policies. The accounting policies that we believe are most critical to the portrayal of Textron’s financial condition and results of operations, and that require management’s most difficult, subjective and complex judgments in estimating the effect of inherent uncertainties, are listed below. This section should be read in conjunction with Note 1 to the consolidated financial statements, which includes other significant accounting policies.
	Receivable and Inventory Reserves
	We evaluate the collectibility of our commercial and finance receivables based on a combination of factors. In circumstances where we are aware of a specific customer’s inability to meet its short-term financial obligations to us (e.g., bankruptcy filings, substantial downgrading of credit scores, geographic economic conditions, etc.), we record a specific reserve for bad debts for amounts we estimate to be potentially uncollectible. Receivables are charged off when deemed uncollectible. For homogeneous loan pools and all other receivables, we recognize reserves for bad debts based on current delinquencies, the characteristics of the existing accounts, historical loss experience, the value of underlying collateral, and general economic conditions and trends. Finance receivables are written down to the fair value (less estimated costs to sell) of the related collateral at the earlier of the date when the collateral is repossessed or when no payment has been received for six months, unless we deem the receivable collectible.
	Reserves on certain finance receivables are determined using estimates of related collateral values based on historical recovery rates and current market conditions. Management reviews the market conditions for used equipment and aircraft inventories on a periodic basis. A deterioration in market conditions resulting in lower recovery rates would result in lower estimated collateral values, increasing the amount of reserves required on related receivables and used inventories on hand. Based on current market conditions and recovery rates, we believe our reserves are adequate as of January 1, 2005.
	Long-Term Contracts
	We recognize revenue and profit as work on certain government long-term engineering, development and production contracts progresses using the contract method of accounting, which relies on estimates of the total contract cost and revenue. Estimated contract cost and revenue are based on current contract specifications, expected engineering requirements and the achievement of contract milestones, including product deliveries. Contract costs are typically incurred over a period of several years, and the estimation of these costs requires substantial judgments. The cost estimation process is based on the professional knowledge and experience of engineers and program managers along with finance professionals. We update our projections of costs at least semiannually or when circumstances significantly change. Adjustments to projected costs are recognized in net earnings when determinable. Favorable changes in estimates result in additional profit recognition, while unfavorable changes in estimates result in the reversal of previously recognized earnings. Any anticipated losses on contracts are charged to earnings when identified. Earnings on long-term contracts could be reduced by a material amount resulting in a charge to income if (a) total estimated contract costs are significantly higher than expected due to changes in customer specifications prior to contract amendment, (b) total estimated contract costs are significantly higher than previously estimated due to cost overruns or inflation, (c) there is a change in engineering efforts required during the development stage of the contract or (d) we are unable to meet contract milestones.
	Goodwill
	We evaluate the recoverability of goodwill annually in the fourth quarter or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows or material adverse changes in the business climate, indicate that the carrying value of an asset might be impaired. We completed our annual impairment test in the fourth quarter of 2004 using the estimates from our long-term strategic plans. No adjustment was required to the carrying value of our goodwill based on the analysis performed.
	Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are primarily established using a discounted cash flow methodology using assumptions consistent with market participants. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts. The revenue growth rates included in the plans are management’s best estimates based on current and forecasted market conditions, and the profit margin assumptions are projected by each reporting unit based on the current cost structure and anticipated net cost reductions. If different assumptions were used in these plans, the related undiscounted cash flows used in measuring impairment could be different, potentially resulting in an impairment charge.

26

Securitized Transactions

Securitized transactions involve the sale of finance receivables to qualified special purpose trusts. While the assets sold are no longer on our balance sheet, our retained interests are included in other assets. We may retain an interest in the transferred assets in the form of interest-only securities, subordinated certificates, cash reserve accounts, and servicing rights and obligations. Our retained interests are subordinate to other investors’ interests in the securitizations. Generally, we do not provide legal recourse to third-party investors that purchase interests in our securitizations beyond the credit enhancement inherent in the retained interest-only securities, subordinated certificates and cash reserve accounts. However, Textron Manufacturing has provided a guarantee on a limited basis to a certain securitization trust sponsored by a third-party financial institution that purchases timeshare note receivables from Textron Finance, as discussed more fully in Note 4 to the consolidated financial statements.

We estimate the fair value of the retained interests based on the present value of future cash flows expected using our best estimates of credit losses, prepayment speeds and discount rates commensurate with the risks involved. These assumptions are reviewed each quarter, and the retained interests are written down when the carrying value exceeds the fair value based on revised estimates and the decline is estimated to be other than temporary. Based on our sensitivity analysis, as discussed in Note 4 to the consolidated financial statements, a 20% adverse change in either the prepayment speed, expected credit losses or the residual cash flows discount rate would not result in a material charge to income.

Pension and Other Postretirement Benefits

We maintain various pension and postretirement plans for our employees globally. These plans include significant pension and postretirement benefit obligations which are calculated based on actuarial valuations. Key assumptions used in determining these obligations and related expenses include expected long-term rates of return on plan assets, discount rates and healthcare cost projections. These assumptions are evaluated and updated annually by management in consultation with outside actuaries and investment advisors. Other assumptions used include employee demographic factors such as retirement patterns, mortality, turnover and the rate of compensation increases.

To determine the expected long-term rate of return on plan assets, we consider the current and expected asset allocation, as well as historical and expected returns on each plan asset class. A lower expected rate of return on plan assets will increase pension expense. For 2004, we have reduced the assumed expected long-term rate of return on plan assets used in calculating pension expense to 8.65% from 8.71% in 2003. While historical rates have exceeded 8.75%, the expected long-term rate of return assumption was lowered to reflect the generally expected moderation of long-term rates of return in the financial markets. Our qualified domestic plans compose over 80% of our total pension obligations. In 2004, the assumed rate of return for our qualified domestic plans was 8.9%. A 50-basis-point decrease in this long-term rate of return would result in a $20 million increase in pension expense.

The discount rate enables us to state expected future benefit payments as a present value on the measurement date, reflecting the current rate at which the pension liabilities could be effectively settled. This rate should be in line with rates for high-quality fixed income investments available for the period to maturity of the pension benefits and changes as long-term interest rates change. A lower discount rate increases the present value of the benefit obligations and increases pension expense. In 2004, we decreased our weighted-average discount rate used in calculating pension expense to 6.14% in 2004 from 6.61% in 2003. For our qualified domestic plans, the assumed discount rate was 6.25% for 2004. A 50-basis-point decrease in this discount rate would result in a $10 million increase in pension expense.

The estimated accumulated benefit obligations for the pension plans exceeded the fair value of the plan assets at January 1, 2005 as a result of a reduction in the discount rate and changes in foreign exchange rates which more than offset the favorable impact of strong pension asset returns and the contributions made by us during 2004. Accordingly, we recorded a non-cash adjustment to shareholders’ equity for the minimum pension liability of $131 million, net of income taxes, in the fourth quarter of 2004.

The trend in healthcare costs is difficult to estimate, and it has an important effect on postretirement liabilities. The 2004 healthcare cost trend rate, which is the weighted-average annual projected rate of increase in the per capita cost of covered benefits, was 11%. This rate is assumed to decrease to 5% by 2009 and then remain at that level. See Note 12 to the consolidated financial statements for the impact of a one-percentage-point change in the cost trend rate.

Income Taxes

Deferred tax assets and liabilities are determined based on temporary differences between the financial reporting and tax bases of assets and liabilities, applying enacted tax rates expected to be in effect for the year in which the differences are expected to

27

	reverse. Based on the evaluation of available evidence, we recognized future tax benefits, such as net operating loss carryforwards, to the extent that we believe it is more likely than not that we will realize these benefits. We periodically assess the likelihood that we will be able to recover our deferred tax assets and reflect any changes in our estimates in the valuation allowance, with a corresponding adjustment to earnings or other comprehensive loss, as appropriate.
	In assessing the need for a valuation allowance, we look to the future reversal of existing taxable temporary differences, taxable income in prior carryback years, the feasibility of tax planning strategies and estimated future taxable income. The valuation allowance can be affected by changes to tax laws, changes to statutory tax rates and changes to future taxable income estimates. See Note 13 to the consolidated financial statements for further detail.
	The amount of income taxes we pay is subject to ongoing audits by federal, state and foreign tax authorities, which may result in proposed assessments. Our estimate for the potential outcome for any uncertain tax issue is highly judgmental. We believe we have adequately provided for any reasonably foreseeable outcome related to these matters. However, our future results may include favorable or unfavorable adjustments to our estimated tax liabilities due to closure of income tax examinations, new regulatory or judicial pronouncements, or other relevant events. As a result, our effective tax rate may fluctuate significantly on a quarterly basis.
Recently Issued Accounting Pronouncements
	In December 2004, the Financial Accounting Standards Board issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123-R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes Accounting Principles Board Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123-R requires companies to measure compensation costs for share-based payments to employees, including stock options, at fair value and expense such compensation over the service period beginning with the first interim or annual period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Textron is required to adopt SFAS 123-R in the third quarter of fiscal 2005. Under SFAS 123-R, companies must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Management is evaluating the requirements of SFAS 123-R. Management believes the impact of adopting SFAS 123-Rwill result in additional expense of approximately $15 million, net of income taxes, for 2005. This estimate is subject to change based on a number of factors, including the actual number of stock option awards granted, changes in assumptions underlying the option value estimates, such as the risk-free interest rate, and tax deductions for employee disqualifying dispositions, if any.
Item 7A. Quantitative and Qualitative Disclosure About Market Risk
	Interest Rate Risks
	Textron’s financial results are affected by changes in U.S. and foreign interest rates. As part of managing this risk, Textron enters into interest rate exchange agreements to convert certain floating-rate debt to fixed-rate debt and vice versa. The overall objective of Textron’s interest rate risk management is to achieve a prudent balance between floating- and fixed-rate debt. Textron’s mix of floating- and fixed-rate debt is continuously monitored by management and is adjusted, as necessary, based on evaluation of internal and external factors. The difference between the rates Textron Manufacturing received and the rates it paid on interest rate exchange agreements did not significantly impact interest expense in 2004, 2003 or 2002.
	Within its Finance segment, Textron’s strategy of matching floating-rate assets with floating-rate liabilities limits its risk to changes in interest rates. This strategy includes the use of interest rate exchange agreements. At January 1, 2005, floating-rate liabilities in excess of floating-rate assets were $421 million, net of $2.0 billion of interest rate exchange agreements on fixed-rate long-term debt and $168 million of interest rate exchange agreements on fixed-rate finance receivables. For Textron Finance, interest rate exchange agreements designated as hedges of debt had the effect of decreasing interest expense by $40 million, $43 million and $20 million in 2004, 2003 and 2002, respectively.

28

Foreign Exchange Risks
Textron’s financial results are affected by changes in foreign currency exchange rates and economic conditions in the foreign markets in which products are manufactured and/or sold. For 2004, the impact of foreign exchange rate changes from 2003 increased revenues by approximately $287 million (2.9%) and increased segment profit by approximately $27 million (3.5%).
Textron Manufacturing manages its exposures to foreign currency assets and earnings primarily by funding certain foreign currency denominated assets with liabilities in the same currency and, as such, certain exposures are naturally offset. During 2004, Textron Manufacturing primarily used borrowings denominated in Euro and British Pound Sterling for these purposes.
In addition, as part of managing its foreign currency transaction exposures, Textron Manufacturing enters into foreign currency forward exchange and option contracts. These contracts are generally used to fix the local currency cost of purchased goods or services or selling prices denominated in currencies other than the functional currency. The notional amount of outstanding foreign exchange contracts, foreign currency options and currency swaps was approximately $493 million at the end of 2004 and $519 million at the end of 2003.
Quantitative Risk Measures
Textron utilizes a sensitivity analysis to quantify the market risk inherent in its financial instruments. Financial instruments held by Textron that are subject to market risk (interest rate risk, foreign exchange rate risk and equity price risk) include finance receivables (excluding lease receivables), debt (excluding lease obligations), interest rate exchange agreements, foreign exchange contracts, marketable equity securities and marketable security price forward contracts.
Presented below is a sensitivity analysis of the fair value of Textron’s financial instruments entered into for purposes other than trading at year-end. The following table illustrates the sensitivity to a hypothetical change in the fair value of the financial instruments at year-end assuming a 10% decrease in interest rates, a 10% strengthening in exchange rates against the U.S. dollar and a 10% decrease in the quoted market prices of applicable marketable equity securities. The estimated fair value of the financial instruments was determined by discounted cash flow analysis and by independent investment bankers. This sensitivity analysis is most likely not indicative of actual results in the future.
	2004									2003
(In millions)	Carrying Value*			Fair Value*			Sensitivity of Fair Value to a 10% change			Carrying Value*			Fair Value*			Sensitivity of Fair Value to a 10% change
Interest Rate Risk
Textron Manufacturing:
Debt	$	(1,791	)	$	(1,902	)	$	(34	)	$	(2,027	)	$	(2,177	)	$	(38	)
Interest rate exchanges	(2		)	(2		)	4			(1		)	(1		)	5
Textron Finance:
Finance receivables	4,888			4,842			42			4,313			4,274			43
Interest rate exchanges — receivables	12			12			4			(15		)	(15		)	(6		)
Debt	(4,783		)	(4,864		)	(66		)	(4,407		)	(4,552		)	(48		)
Interest rate exchanges — debt	3			3			10			22			22			7
Foreign Exchange Rate Risk
Textron Manufacturing:
Debt	(779		)	(817		)	(82		)	(683		)	(751		)	(75		)
Foreign currency exchange contracts	34			34			36			20			20			48
Equity Price Risk
Textron Manufacturing:
Available for sale securities	—			—			—			24			24			(2		)
Marketable security price forward contracts	31			31			(14		)	25			25			(12		)
* Asset or (liability)

29

Item 8. Financial Statements and Supplementary Data
	The consolidated financial statements of Textron Inc. and the related reports of Textron’s independent registered public accounting firm thereon are included in this Annual Report on Form 10-K on the page indicated below.
		Page
	Report of Management	31
	Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting	32
	Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements and Schedule	33
	Consolidated Statements of Operations for each of the years in the three-year period ended January 1, 2005	34
	Consolidated Balance Sheets at January 1, 2005 and January 3, 2004	35
	Consolidated Statements of Changes in Shareholders’ Equity for each of the years in the three-year period ended January 1, 2005	36
	Consolidated Statements of Cash Flows for each of the years in the three-year period ended January 1, 2005	37
	Notes to Consolidated Financial Statements	39
	Business Segment Data	67
	Supplementary Information:
	Quarterly Data for 2004 and 2003 (Unaudited)	70
	Schedule II — Valuation and Qualifying Accounts	71
	All other schedules are omitted either because they are not applicable or not required or because the required information is included in the financial statements or notes thereto.

30

Report of Management

Management is responsible for the integrity and objectivity of the financial data presented in this Annual Report on Form 10-K. The consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States and include amounts based on management’s best estimates and judgments. Management is also responsible for establishing and maintaining adequate internal control over financial reporting for Textron Inc., as such term is defined in Exchange Act Rules 13a-15(f). With the participation of our management, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on our evaluation under the framework in Internal Control – Integrated Framework, we have concluded that Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2005.
The independent registered public accounting firm, Ernst & Young LLP, has audited the consolidated financial statements of Textron Inc. and has issued an attestation report on our assessment of the effectiveness of Textron’s internal control over financial reporting as of January 1, 2005, as stated in its reports, which are included herein.
We conduct our business in accordance with the standards outlined in the Textron Business Conduct Guidelines, which is communicated to all employees. Honesty, integrity and high ethical standards are the core values of how we conduct business. Every Textron business prepares and carries out an annual Compliance Plan to ensure these values and standards are maintained. Our internal control structure is designed to provide reasonable assurance, at appropriate cost, that assets are safeguarded and that transactions are properly executed and recorded. The internal control structure includes, among other things, established policies and procedures, an internal audit function, and the selection and training of qualified personnel. Textron’s management is responsible for implementing effective internal control systems and monitoring their effectiveness, as well as developing and executing an annual internal control plan.
The Audit Committee of our Board of Directors, on behalf of the shareholders, oversees management’s financial reporting responsibilities. The Audit Committee, comprised of five directors who are not officers or employees of Textron, meets regularly with the independent auditors, management and our internal auditors to review matters relating to financial reporting, internal accounting controls and auditing. Both the independent auditors and the internal auditors have free and full access to senior management and the Audit Committee.
/s/ Lewis B. Campbell	/s/ Ted R. French
Lewis B. Campbell	Ted R. French
Chairman, President and Chief Executive Officer	Executive Vice President and Chief Financial Officer
February 16, 2005

31

Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting

To the Board of Directors and Shareholders of Textron Inc.	We have audited management’s assessment, included in the accompanying Report of Management, that Textron Inc. (the “Company”) maintained effective internal control over financial reporting as of January 1, 2005, based on criteria established in Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (the “COSO criteria”). Textron’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting. Our responsibility is to express an opinion on management’s assessment and an opinion on the effectiveness of the Company’s internal control over financial reporting based on our audit.
	We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, evaluating management’s assessment, testing and evaluating the design and operating effectiveness of internal control, and performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.
	A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.
	Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
	In our opinion, management’s assessment that Textron Inc. maintained effective internal control over financial reporting as of January 1, 2005, is fairly stated, in all material respects, based on the COSO criteria. Also, in our opinion, Textron Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2005, based on the COSO criteria.
	We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheets of Textron Inc. as of January 1, 2005 and January 3, 2004, and the related consolidated statements of operations, cash flows and changes in shareholders’ equity for each of the three years in the period ended January 1, 2005. Textron Inc. and our report dated February 16, 2005 expressed an unqualified opinion thereon.
	/s/ Ernst & Young LLP
	Boston, Massachusetts February 16, 2005

32

Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements and Schedule

To the Board of Directors and Shareholders of Textron Inc.	We have audited the accompanying consolidated balance sheets of Textron Inc. (the “Company”) as of January 1, 2005 and January 3, 2004, and the related consolidated statements of operations, cash flows and changes in shareholders’ equity for each of the three years in the period ended January 1, 2005. Our audits also included the financial statement schedule contained on page 71. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.
	We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.
	In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Textron Inc. at January 1, 2005 and January 3, 2004 and the consolidated results of its operations and its cash flows for each of the three years in the period ended January 1, 2005, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.
	We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the effectiveness of Textron Inc.’s internal control over financial reporting as of January 1, 2005, based on criteria established in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission and our report dated February 16, 2005 expressed an unqualified opinion thereon.
	As discussed in Note 7 to the consolidated financial statements, in 2002 Textron adopted Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets” and the remaining provisions of Financial Accounting Standards No. 141, “Business Combinations.”
	As discussed in Note 10 to the consolidated financial statements, in 2003 Textron adopted Financial Accounting Standards No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity.”
	/s/ Ernst & Young LLP
	Boston, Massachusetts February 16, 2005

33

Consolidated Statements of Operations

For each of the years in the three-year period ended January 1, 2005

(In millions, except per share amounts)	2004			2003			2002
Revenues
Manufacturing revenues	$	9,697		$	9,220		$	9,687
Finance revenues	545			572			584
Total revenues	10,242			9,792			10,271
Costs, expenses and other
Cost of sales	7,894			7,595			7,893
Selling and administrative	1,383			1,287			1,286
Interest expense, net	248			275			299
Provision for losses on finance receivables	58			81			111
Special charges	131			152			131
Gain on sale of businesses	—			(15		)	(25		)
Total costs, expenses and other	9,714			9,375			9,695
Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trusts	528			417			576
Income taxes	(155		)	(112		)	(176		)
Distributions on preferred securities of subsidiary trusts, net of income taxes	—			(13		)	(26		)
Income from continuing operations	373			292			374
Loss from discontinued operations, net of income taxes	(8		)	(33		)	(10		)
Income before cumulative effect of change in accounting principle	365			259			364
Cumulative effect of change in accounting principle, net of income taxes	—			—			(488		)
Net income (loss)	$	365		$	259		$	(124	)
Per common share:
Basic:
Income from continuing operations	$	2.72		$	2.15		$	2.69
Loss from discontinued operations, net of income taxes	(.06		)	(.24		)	(.07		)
Cumulative effect of change in accounting principle, net of income taxes	—			—			(3.52		)
Net income (loss)	$	2.66		$	1.91		$	(.90	)
Diluted:
Income from continuing operations	$	2.66		$	2.13		$	2.66
Loss from discontinued operations, net of income taxes	(.05		)	(.24		)	(.06		)
Cumulative effect of change in accounting principle, net of income taxes	—			—			(3.48		)
Net income (loss)	$	2.61		$	1.89		$	(.88	)

See notes to the consolidated financial statements.

34

Consolidated Balance Sheets

As of January 1, 2005 and January 3, 2004

(Dollars in millions, except share data)	2004			2003
Assets
Textron Manufacturing
Cash and cash equivalents	$	605		$	481
Accounts receivable, net	1,211			1,124
Inventories	1,742			1,503
Other current assets	581			525
Assets of discontinued operations	29			72
Total current assets	4,168			3,705
Property, plant and equipment, net	1,922			1,901
Goodwill	1,439			1,420
Other intangible assets, net	44			39
Other assets	1,564			1,773
Total Textron Manufacturing assets	9,137			8,838
Textron Finance
Cash	127			357
Finance receivables, net	5,738			5,016
Goodwill	169			169
Other assets	704			791
Total Textron Finance assets	6,738			6,333
Total assets	$	15,875		$	15,171
Liabilities and Shareholders’ Equity
Liabilities
Textron Manufacturing
Current portion of long-term debt and short-term debt	$	433		$	316
Accounts payable	719			689
Accrued liabilities	1,818			1,311
Liabilities of discontinued operations	5			21
Total current liabilities	2,975			2,337
Accrued postretirement benefits other than pensions	564			590
Other liabilities	1,623			1,519
Long-term debt	1,358			1,711
Total Textron Manufacturing liabilities	6,520			6,157
Textron Finance
Other liabilities	467			501
Deferred income taxes	453			390
Debt	4,783			4,407
Mandatorily redeemable preferred securities	—			26
Total Textron Finance liabilities	5,703			5,324
Total liabilities	12,223			11,481
Shareholders’ equity
Capital stock:
Preferred stock:
$2.08 Cumulative Convertible Preferred Stock, Series A (liquidation value $11)	4			4
$1.40 Convertible Preferred Dividend Stock, Series B (preferred only as to dividends)	6			6
Common stock (203,360,698 and 198,957,000 shares issued and 135,373,000 and 137,238,000 outstanding)	25			25
Capital surplus	1,369			1,148
Retained earnings	5,792			5,606
Accumulated other comprehensive loss	(97		)	(64		)
	7,099			6,725
Less cost of treasury shares	3,447			3,035
Total shareholders’ equity	3,652			3,690
Total liabilities and shareholders’ equity	$	15,875		$	15,171

See notes to the consolidated financial statements.

35

Consolidated Statements of Changes in Shareholders’ Equity

For each of the years in the three-year period ended January 1, 2005

	Shares Outstanding* (In thousands)						Dollars (In millions)
	2004		2003		2002		2004			2003			2002
$2.08 Preferred stock
Beginning balance	112		120		133		$	4		$	5		$	5
Conversion to common stock	(7	)	(8	)	(13	)	—			(1		)	—
Ending balance	105		112		120		$	4		$	4		$	5
$1.40 Preferred stock
Beginning balance	52		56		62		$	6		$	6		$	6
Conversion to common stock	(2	)	(4	)	(6	)	—			—			—
Ending balance	50		52		56		$	6		$	6		$	6
Common stock
Beginning balance	137,238		136,500		141,251		$	25		$	25		$	25
Purchases	(6,534	)	(1,951	)	(5,734	)	—			—			—
Exercise of stock options	4,351		1,788		689		—			—			—
Conversion of preferred stock to common stock	41		48		79		—			—			—
Other issuances of common stock	277		853		215		—			—			—
Ending balance	135,373		137,238		136,500		$	25		$	25		$	25
Capital surplus
Beginning balance							$	1,148		$	1,080		$	1,064
Conversion of preferred stock to common stock							—			—			—
Exercise of stock options and other issuances							221			68			16
Ending balance							$	1,369		$	1,148		$	1,080
Retained earnings
Beginning balance							$	5,606		$	5,526		$	5,829
Net income (loss)							365			259			(124		)
Dividends declared ($1.33, $1.30 and $1.30 per share, respectively)							(179		)	(179		)	(179		)
Ending balance							$	5,792		$	5,606		$	5,526
Treasury stock
Beginning balance							$	3,035		$	3,011		$	2,772
Purchases of common stock							425			66			249
Issuance of common stock							(13		)	(42		)	(10		)
Ending balance							$	3,447		$	3,035		$	3,011
Accumulated other comprehensive loss
Beginning balance							$	(64	)	$	(225	)	$	(223	)
Currency translation adjustment							97			159			78
Deferred gains on hedge contracts							4			37			13
Unrealized (losses) gains on securities							(3		)	—			2
Minimum pension liability adjustment							(131		)	(35		)	(95		)
Other comprehensive (loss) income							(33		)	161			(2		)
Ending balance							$	(97	)	$	(64	)	$	(225	)
Comprehensive income (loss)
Net income (loss)							$	365		$	259		$	(124	)
Other comprehensive (loss) income							(33		)	161			(2		)
Comprehensive income (loss)							$	332		$	420		$	(126	)

*Shares issued at the end of 2004, 2003, 2002 and 2001, were as follows (In thousands): $2.08 Preferred 174; 181; 189 and 202 shares, respectively; $1.40 Preferred – 537; 540; 543 and 549 shares, respectively; Common – 203,361; 198,957; 197,110 and 196,337 shares, respectively.

See notes to the consolidated financial statements.

36

Consolidated Statements of Cash Flows

For each of the years in the three-year period ended January 1, 2005

	Consolidated
(In millions)	2004			2003			2002
Cash flows from operating activities:
Income from continuing operations	$	373		$	292		$	374
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Earnings of Textron Finance greater than distributions	—			—			—
Depreciation	338			336			330
Amortization	15			18			26
Provision for losses on finance receivables	58			81			111
Gain on sale of businesses	—			(15		)	(25		)
Special charges	131			152			131
Non-cash gain on securitizations, net	2			(15		)	(28		)
Deferred income taxes	29			(41		)	326
Changes in assets and liabilities excluding those related to acquisitions and divestitures:
Accounts receivable, net	(41		)	82			(20		)
Inventories	(222		)	279			—
Other assets	6			(208		)	(311		)
Accounts payable	5			(201		)	(160		)
Accrued liabilities	340			95			(178		)
Captive finance receivables, net	(105		)	86			90
Other, net	20			44			10
Net cash provided by operating activities of continuing operations	949			985			676
Cash flows from investing activities:
Finance receivables:
Originated or purchased	(9,725		)	(8,938		)	(7,905		)
Repaid	8,762			8,137			6,703
Proceeds on receivables sales and securitization sales	264			846			658
Cash used in acquisitions	(5		)	—			—
Net proceeds from sale of businesses	3			14			27
Capital expenditures	(302		)	(297		)	(292		)
Proceeds on sale of property, plant and equipment	24			24			41
Proceeds on sale of investments	38			—			—
Due (from) to Textron (Finance) Manufacturing	—			—			—
Other investing activities, net	97			149			34
Net cash (used) provided by investing activities of continuing operations	(844		)	(65		)	(734		)
Cash flows from financing activities:
Increase (decrease) in short-term debt	790			(321		)	154
Proceeds from issuance of long-term debt	963			1,682			2,495
Principal payments and retirements of long-term debt and mandatorily redeemable preferred securities	(1,666		)	(1,882		)	(2,207		)
Proceeds from employee stock ownership plans	187			67			24
Purchases of Textron common stock	(415		)	(64		)	(248		)
Dividends paid	(135		)	(222		)	(182		)
Dividends paid to Textron Manufacturing	—			—			—
Other financing activities, net	—			(8		)	—
Net cash (used) provided by financing activities of continuing operations	(276		)	(748		)	36
Effect of exchange rate changes on cash and cash equivalents	33			32			17
Net cash (used) provided by continuing operations	(138		)	204			(5		)
Net cash provided by discontinued operations	32			333			47
Net (decrease) increase in cash and cash equivalents	(106		)	537			42
Cash and cash equivalents at beginning of year	838			301			259
Cash and cash equivalents at end of year	$	732		$	838		$	301
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred to finance future construction	$	—		$	—		$	79
Capital expenditures financed through capital leases	$	44		$	26		$	23

*Textron is segregated into two borrowing groups, Textron Manufacturing and Textron Finance, as described in Note 1 to the consolidated financial statements along with the principles of consolidation. Textron Manufacturing’s cash flows exclude the pre-tax income from Textron Finance in excess of dividends paid to Textron Manufacturing. All significant transactions between Textron Manufacturing and Textron Finance have been eliminated from the “Consolidated” column as discussed in Note 1 to the consolidated financial statements.

See notes to the consolidated financial statements.

37

	Textron Manufacturing*									Textron Finance*
(In millions)	2004			2003			2002			2004			2003			2002
Cash flows from operating activities:
Income from continuing operations	$	373		$	292		$	374		$	94		$	79		$	76
Adjustments to reconcile income from continuing operations to net cash provided by operating activities:
Earnings of Textron Finance greater than distributions	(23		)	(4		)	(23		)	—			—			—
Depreciation	302			302			303			36			34			27
Amortization	5			7			16			10			11			10
Provision for losses on finance receivables	—			—			—			58			81			111
Gain on sale of businesses	—			(15		)	(25		)	—			—			—
Special charges	131			146			131			—			6			—
Non-cash gain on securitizations, net	—			—			—			2			(15		)	(28		)
Deferred income taxes	(40		)	(12		)	268			69			(29		)	58
Changes in assets and liabilities excluding those related to acquisitions and divestitures:
Accounts receivable, net	(41		)	82			(20		)	—			—			—
Inventories	(192		)	257			55			—			—			—
Other assets	(17		)	(223		)	(312		)	2			(4		)	(14		)
Accounts payable	5			(202		)	(137		)	—			1			(23		)
Accrued liabilities	450			21			(159		)	(110		)	74			(19		)
Captive finance receivables, net	—			—			—			—			—			—
Other, net	20			40			10			—			4			—
Net cash provided by operating activities of continuing operations	973			691			481			161			242			198
Cash flows from investing activities:
Finance receivables:
Originated or purchased	—			—			—			(10,617		)	(9,824		)	(8,874		)
Repaid	—			—			—			9,359			8,793			7,454
Proceeds on receivables sales and securitization sales	—			—			—			394			1,162			966
Cash used in acquisitions	(5		)	—			—			—			—			—
Net proceeds from sale of businesses	3			14			27			—			—			—
Capital expenditures	(290		)	(280		)	(275		)	(12		)	(17		)	(17		)
Proceeds on sale of property, plant and equipment	46			55			62			—			—			—
Proceeds on sale of investments	38			—			—			—			—			—
Due (from) to Textron (Finance) Manufacturing	—			—			510			—			—			(510		)
Other investing activities, net	6			1			—			120			158			(27		)
Net cash (used) provided by investing activities of continuing operations	(202		)	(210		)	324			(756		)	272			(1,008		)
Cash flows from financing activities:
Increase (decrease) in short-term debt	3			(10		)	(156		)	787			(311		)	310
Proceeds from issuance of long-term debt	14			246			303			949			1,436			2,192
Principal payments and retirements of long-term debt and mandatorily redeemable preferred securities	(362		)	(508		)	(544		)	(1,304		)	(1,374		)	(1,663		)
Proceeds from employee stock ownership plans	187			67			24			—			—			—
Purchases of Textron common stock	(415		)	(64		)	(248		)	—			—			—
Dividends paid	(135		)	(222		)	(182		)	—			—			—
Dividends paid to Textron Manufacturing	—			30			—			(71		)	(105		)	(53		)
Other financing activities, net	—			(8		)	—			—			—			—
Net cash (used) provided by financing activities of continuing operations	(708		)	(469		)	(803		)	361			(354		)	786
Effect of exchange rate changes on cash and cash equivalents	29			31			18			4			1			(1		)
Net cash (used) provided by continuing operations	92			43			20			(230		)	161			(25		)
Net cash provided by discontinued operations	32			158			20			—			175			27
Net (decrease) increase in cash and cash equivalents	124			201			40			(230		)	336			2
Cash and cash equivalents at beginning of year	481			280			240			357			21			19
Cash and cash equivalents at end of year	$	605		$	481		$	280		$	127		$	357		$	21
Supplemental schedule of non-cash investing and financing activities:
Capital lease obligations incurred to finance future construction	$	—		$	—		$	79		$	—		$	—		$	—
Capital expenditures financed through capital leases	$	44		$	26		$	23		$	—		$	—		$	—

38

Notes to Consolidated Financial Statements

Note 1 Summary of Significant Accounting Policies

Nature of Operations
Textron Inc. (“Textron”) is a global, multi-industry company with manufacturing and finance operations primarily in North America, Western Europe, South America and Asia/Pacific. Textron’s principal markets are summarized below by segment:
Segment	Principal Markets
Bell	• Commercial and military helicopters and tiltrotors
	• Defense and aerospace
	• Piston aircraft engines
Cessna	• General aviation aircraft
	• Business jets including fractional ownership
	• Commercial transportation, humanitarian flights, tourism and freight
Fastening Systems	• Aerospace
	• Automotive
	• Computer, electronics, electrical and industrial equipment
	• Construction
	• Non-automotive transportation
	• Telecommunications
Industrial	• Automotive original equipment manufacturers and other industrial suppliers
	• Golf courses, resort communities and municipalities, and commercial and industrial users
	• Original equipment manufacturers, governments, distributors and end users of fluid and power systems
	• Electrical construction and maintenance, telecommunications and plumbing industries
Finance	• Secured commercial loans and leases
Principles of Consolidation and Financial Statement Presentation
The consolidated financial statements include the accounts of Textron Inc. and all of its majority-owned subsidiaries (more than 50%) along with entities that are required to be consolidated in accordance with Textron’s consolidation policy. This policy requires the consolidation of variable interest entities in which Textron is designated as the primary beneficiary in accordance with Financial Accounting Standards Board (“FASB”) Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”), as amended. FIN 46 requires the consolidation of variable interest entities in which an enterprise absorbs a majority of the entity’s expected losses, receives a majority of the entity’s expected residual returns, or both, as a result of ownership, contractual or other financial interests in the entity. Variable interest entities are defined as entities with a level of invested equity insufficient to fund future activities to operate on a standalone basis, or whose equity holders lack certain characteristics of a controlling financial interest. If an entity does not meet the definition of a variable interest entity under FIN 46, Textron accounts for the entity under the provisions of Accounting Principles Board (“APB”) Opinion No. 18, “The Equity Method of Accounting for Investments in Common Stock,” which requires the consolidation of all majority-owned subsidiaries where the company has the ability to exercise control.
Textron’s financings are conducted through two borrowing groups: Textron Manufacturing and Textron Finance. This framework is designed to enhance Textron’s borrowing power by separating the Finance segment. To support creditors in evaluating the separate borrowing groups, Textron presents separate balance sheets and statements of cash flows for each borrowing group. Textron Manufacturing consists of Textron Inc., the parent company, consolidated with the entities that operate in the Bell, Cessna, Fastening Systems and Industrial business segments. Textron Finance consists of Textron’s wholly owned commercial finance subsidiary, Textron Financial Corporation, consolidated with its subsidiaries, which are the entities through which Textron operates its Finance segment. Textron Finance finances its operations by borrowing from its own group of external creditors. All significant intercompany transactions are eliminated, including retail and wholesale financing activities for inventory sold by Textron Manufacturing financed by Textron Finance.
Reclassifications
A portion of Textron Finance’s business involves financing retail purchases and leases for new and used aircraft and equipment manufactured by Textron Manufacturing’s Bell, Cessna and Industrial segments. The cash flows related to these captive financing activities are reflected as operating activities (by Textron Manufacturing) and as investing activities (by Textron Finance) based on each group’s operations. For example, when product is sold to a customer and financed by Textron Finance, Textron Finance

39

records the origination of the finance receivable within investing activities as a cash outflow. Textron Manufacturing records the cash received from Textron Finance on the customer’s behalf within operating activities. Although cash is transferred between the businesses, there is no cash transaction for the consolidated group at the time of the original financing.
Historically, Textron’s consolidated statement of cash flows has presented a combination of the cash flows of both borrowing groups with no elimination of the captive financing activity. Based on recent views expressed by the staff of the Securities and Exchange Commission about this industry-wide practice followed by companies with captive finance companies, in 2004, management elected to change the consolidated classification of these cash flows. Accordingly, the captive financing transactions have been eliminated, and cash from customers and securitizations is recognized in operating activities within the consolidated statement of cash flows when received. Prior period amounts reported in the consolidated statement of cash flows have been reclassified to conform with this new presentation; however, the separate cash flow presentations of Textron Manufacturing and Textron Finance are unchanged.
The impact of the reclassification of these cash flows between investing and operating activities, on a consolidated basis, for the prior periods presented is as follows:
	Year Ended January 3, 2004					Year Ended December 28, 2002
(In millions)	As Reported		As Reclassified			As Reported			As Reclassified
Net cash provided by operating activities	$	858	$	985		$	626		$	676
Net cash provided (used) by investing activities	$	62	$	(65	)	$	(684	)	$	(734	)
Certain other prior period amounts have been reclassified to conform with the current year presentation.
Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in these statements and accompanying notes. Some of the more significant estimates include inventory valuation, residual values of leased assets, allowance for credit losses on receivables, product liability, workers’ compensation, actuarial assumptions for the pension and postretirement plans, estimates of future cash flows associated with long-lived assets, environmental and warranty reserves, and amounts reported under long-term contracts. Management’s estimates are based on the facts and circumstances available at the time estimates are made, historical experience, risk of loss, general economic conditions and trends, and management’s assessments of the probable future outcomes of these matters. Actual results could differ from such estimates.
Cash and Cash Equivalents
Cash and cash equivalents consist of cash and short-term, highly liquid investments with original maturities of three months or less.
Revenue Recognition
Revenue is generally recognized when products are delivered or services are performed. With respect to aircraft, delivery is upon completion of manufacturing, customer acceptance, and the transfer of the risk and rewards of ownership.
When a sale arrangement involves multiple elements, such as sales of products that include customization and other services, the deliverables in the arrangement are evaluated to determine whether they represent separate units of accounting. This evaluation occurs at inception of the arrangement and as each item in the arrangement is delivered. The total fee from the arrangement is allocated to each unit of accounting based on its relative fair value, taking into consideration any performance, cancellation, termination or refund type provisions. Fair value for each element is established generally based on the sales price charged when the same or similar element is sold separately. Revenue is recognized when revenue recognition criteria for each unit of accounting are met.
Revenue from certain qualifying noncancelable aircraft and other product lease contracts are accounted for as sales-type leases. The present value of all payments (net of executory costs and any guaranteed residual values) is recorded as revenue, and the related costs of the product are charged to cost of sales. Generally, these leases are financed through Textron Finance, and the associated interest is recorded over the term of the lease agreement using the interest method. Lease financing transactions that do not qualify as sales-type leases are accounted for under the operating method wherein revenue is recorded as earned over the lease period.

40

Aircraft sales with guaranteed minimum resale values are viewed as leases and are accounted for in accordance with Emerging Issues Task Force No. 95-1, “Revenue Recognition on Sales with a Guaranteed Minimum Resale Value.” To determine whether the transaction should be classified as an operating lease or as a sales-type lease, the minimum lease payments generally represent the difference between the proceeds upon the equipment’s initial transfer and the present value of the residual value guarantee to the purchaser as of the first exercise date of the guarantee. If residual value insurance is obtained, the present value of the residual value insurance is also included in the minimum lease payments. Textron assesses the market values of the aircraft using both industry publications as well as actual sales of used aircraft. For fixed-wing aircraft, specific information related to the individual aircraft such as hours and condition may be available, and market value assessments are appropriately adjusted accordingly. For rotor aircraft, the guarantee arrangements require certain physical condition minimums, and/or require the aircraft to be covered under an extended maintenance plan. Rotor aircraft fair value estimates are valued accordingly. Losses are recorded currently if the estimated market value of the aircraft at the exercise date is less than the guaranteed amount.

Long-Term Contracts

Long-term contracts are accounted for under American Institute of Certified Public Accountants Statement of Position No. 81-1, “Accounting for Performance of Construction-Type and Certain Production-Type Contracts.” Revenue under fixed-price contracts is generally recorded as deliveries are made under the units-of-delivery method. Certain long-term fixed-price contracts provide for periodic delivery after a lengthy period of time over which significant costs are incurred or require a significant amount of development effort in relation to total contract volume. Revenues under those contracts and all cost-reimbursement-type contracts are recorded as costs are incurred under the cost-to-cost method. Certain contracts are awarded with fixed-price incentive fees. Incentive fees are considered when estimating revenues and profit rates and are recorded when these amounts are reasonably determined. Long-term contract profits are based on estimates of total sales value and costs at completion. Such estimates are reviewed and revised periodically throughout the contract life. Revisions to contract profits are recorded when the revisions to estimated sales value or costs are made. Estimated contract losses are recorded when identified.

Bell Helicopter has a joint venture with The Boeing Company (“Boeing”) to provide engineering, development and test services related to the V-22 aircraft, as well as to produce the V-22 aircraft, under a number of separate contracts with the U.S. Government (the “V-22 Contracts”). The V-22 Contracts include the development contract and various production release contracts (i.e., lots) that may run concurrently with multiple earlier lots still being produced as new lots are started. The development contract and the first three production lots are under cost-reimbursement-type contracts, while subsequent lots are under fixed-price incentive contracts. The first three lots under fixed-price incentive contracts have been accounted for under the cost-to-cost method, primarily as a result of the significant engineering effort required over a lengthy period of time during the initial development phase in relation to total contract volume. The production releases on the first six production lots include separately contracted modifications to meet the additional requirements of the U.S. Government’s Blue Ribbon Panel. In 2003, the development effort was considered substantially complete for the new production releases beginning in 2003 and management believed a consistent production specification had been met as these units incorporate many of these modifications on the production line. Accordingly, revenue on the new production releases that began in 2003 is recognized under the units-of-delivery method.

Finance Revenues

Finance revenues include interest on finance receivables, which is recognized using the interest method to provide a constant rate of return over the terms of the receivables. Finance revenues also include direct loan origination costs and fees received, which are deferred and amortized over the contractual lives of the respective receivables using the interest method. Unamortized amounts are recognized in revenues when receivables are sold or prepaid. Accrual of interest income is suspended for accounts that are contractually delinquent by more than three months unless collection is not doubtful. In addition, detailed reviews of loans may result in earlier suspension if collection is doubtful. Accrual of interest is resumed when the loan becomes contractually current, and suspended interest income is recognized at that time.

Losses on Finance Receivables

Provisions for losses on finance receivables are charged to income in amounts sufficient to maintain the allowance at a level considered adequate to cover losses in the existing receivable portfolio. Management evaluates the allowance by examining current delinquencies, the characteristics of the existing accounts, historical loss experience, the value of the underlying collateral and general economic conditions and trends. Finance receivables are charged off when they are deemed to be uncollectible. Finance receivables are written down to the fair value (less estimated costs to sell) of the related collateral at the earlier of the date the collateral is repossessed or when no payment has been received for six months unless management deems the receivable collectible.

41

Loan Impairment

Textron Finance periodically evaluates finance receivables, excluding homogeneous loan portfolios and finance leases, for impairment. A loan is considered impaired when it is probable that Textron Finance will be unable to collect all amounts due according to the contractual terms of the loan agreement. In addition, Textron Finance identifies loans that are considered impaired due to the significant modification of the original loan terms to reflect deferred principal payments generally at market interest rates but which continue to accrue finance charges since full collection of principal and interest is not doubtful. Impairment is measured by comparing the fair value of a loan with its carrying amount. Fair value is based on the present value of expected future cash flows discounted at the loan’s effective interest rate, the loan’s observable market price or, if the loan is collateral dependent, at the fair value of the collateral, less selling costs. If the fair value of the loan is less than its carrying amount, Textron Finance establishes a reserve based on this difference. This evaluation is inherently subjective, as it requires estimates, including the amount and timing of future cash flows expected to be received on impaired loans, that may differ from actual results.

Securitized Transactions

Textron Finance sells or securitizes loans and leases and retains servicing responsibilities and subordinated interests, including interest-only securities, subordinated certificates and cash reserves, all of which are retained interests in the securitized receivables. These retained interests are subordinate to other investors’ interests in the securitizations. A gain or loss on the sale of finance receivables depends, in part, on the previous carrying amount of the finance receivables involved in the transfer, allocated between the assets sold and the retained interests based on their relative fair values at the date of transfer. Retained interests are recorded at fair value as a component of other assets.

Textron Finance estimates fair value based on the present value of future expected cash flows using management’s best estimates of key assumptions: credit losses, prepayment speeds, forward interest rate yield curves and discount rates commensurate with the risks involved. Textron Finance reviews the fair values of the retained interests quarterly using updated assumptions and compares such amounts with the carrying value of the retained interests. When the carrying value exceeds the fair value of the retained interests and the decline in fair value is determined to be other than temporary, the retained interest is written down to fair value. When a change in the fair value of the retained interest is deemed temporary, any unrealized gains or losses are included in shareholders’ equity as a component of accumulated other comprehensive loss.

Investments

Investments in marketable equity securities are classified as available for sale and are recorded at fair value as a component of other assets. Unrealized gains and losses on these securities, net of income taxes, are included in shareholders’ equity as a component of accumulated other comprehensive loss. Investments in non-marketable equity securities are accounted for under either the cost or equity method of accounting. Textron periodically reviews investment securities for impairment based on criteria that include the duration of the market value decline, Textron’s ability to hold to recovery, information regarding the market and industry trends for the investee’s business, the financial strength and specific prospects of the investee, and investment analyst reports, if available. If a decline in the fair value of an investment security is judged to be other than temporary, the cost basis is written down to fair value with a charge to earnings.

In the normal course of business, Textron has entered into various joint venture agreements that are not controlled by Textron, but where Textron has the ability to exercise significant influence over the operating and financial policies. Textron’s investments in these ventures are accounted for under the equity method of accounting. At January 1, 2005 and January 3, 2004, the investment in these unconsolidated joint ventures totaled $14 million and $26 million, respectively, and is included in other assets. Under the equity method, only Textron’s share of the ventures’ net earnings and losses is included in the consolidated statement of operations. The net loss totaled $11 million in 2004, $12 million in 2003 and $13 million in 2002. Since these losses are not considered material for separate presentation, they are included within cost of sales.

Textron’s joint venture agreement with Boeing creates contractual, rather than ownership, rights related to the V-22. Accordingly, Textron does not account for this joint venture under the equity method of accounting. Textron accounts for all of Bell Helicopter’s rights and obligations under the specific requirements of the V-22 Contracts allocated to Bell Helicopter under the joint venture agreement. Revenues and cost of sales reflect Bell Helicopter’s performance under the V-22 Contracts. All assets used in performance of the V-22 Contracts owned by Bell Helicopter, including inventory and unpaid receivables, and all liabilities arising from Bell Helicopter’s obligations under the V-22 Contracts, are included in the consolidated balance sheet.

42

Inventories

Inventories are carried at the lower of cost or estimated net realizable value. The cost of approximately 65% of inventories is determined using the last-in, first-out method. The cost of remaining inventories, other than those related to certain long-term contracts, is generally valued by the first-in, first-out method. Costs for commercial helicopters are determined on an average cost basis by model considering the expended and estimated costs for the current production release. Customer deposits are recorded against inventory when the right of offset exists. All other customer deposits are recorded as liabilities.

Property, Plant and Equipment

Property, plant and equipment are recorded at cost and are depreciated primarily using the straight-line method. Land improvements and buildings are depreciated primarily over estimated lives ranging from 5 to 40 years, while machinery and equipment are depreciated primarily over 3 to 15 years. Expenditures for improvements that increase asset values and extend useful lives are capitalized.

Impairment of Long-Lived Assets

Long-lived assets, including intangible assets subject to amortization, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the asset may not be recoverable. Management assesses the recoverability of the cost of the asset based on a review of projected undiscounted cash flows. In the event an impairment loss is identified, it is recognized based on the amount by which the carrying value exceeds the estimated fair value of the long-lived asset. If an asset is held for sale, management reviews its estimated fair value less cost to sell. Fair value is determined using pertinent market information, including appraisals or brokers’ estimates, and/or projected discounted cash flows.

Goodwill

Management evaluates the recoverability of goodwill annually or more frequently if events or changes in circumstances, such as declines in sales, earnings or cash flows, or material adverse changes in the business climate, indicate that the carrying value of a reporting unit or indefinite-lived intangible asset might be impaired. The reporting unit represents the operating segment unless discrete financial information is prepared and reviewed by segment management for businesses one level below that operating segment (a “component”), in which case such component is the reporting unit. In certain instances, components of an operating segment have been aggregated and deemed to be a single reporting unit based on similar economic characteristics of the components. Goodwill is considered to be impaired when the net book value of a reporting unit exceeds its estimated fair value. Fair values are established primarily using a discounted cash flow methodology. The determination of discounted cash flows is based on the businesses’ strategic plans and long-range planning forecasts. When available, comparative market multiples are used to corroborate discounted cash flow results.

Derivative Financial Instruments

Textron is exposed to market risk primarily from changes in interest rates, currency exchange rates and securities pricing. To manage the volatility relating to these exposures, Textron nets the exposures on a consolidated basis to take advantage of natural offsets. For the residual portion, Textron enters into various derivative transactions pursuant to Textron’s policies in areas such as counterparty exposure and hedging practices. All derivative instruments are reported on the balance sheet at fair value. Designation to support hedge accounting is performed on a specific exposure basis. Changes in fair value of financial instruments qualifying as fair value hedges are recorded in income, offset in part or in whole, by corresponding changes in the fair value of the underlying exposures being hedged. Changes in fair values of derivatives accounted for as cash flow hedges, to the extent they are effective as hedges, are recorded in other comprehensive (loss) income, net of deferred taxes. Changes in fair value of derivatives not qualifying as hedges are reported in income. Textron does not hold or issue derivative financial instruments for trading or speculative purposes.

Foreign currency denominated assets and liabilities are translated into U.S. dollars with the adjustments from the currency rate changes recorded in the cumulative translation adjustment account in shareholders’ equity until the related foreign entity is sold or substantially liquidated. Foreign currency financing transactions, including currency swaps, are used to effectively hedge long-term investments in foreign operations with the same corresponding currency. Foreign currency gains and losses on the hedge of the long-term investments are recorded in the cumulative translation adjustment account in accumulated other comprehensive loss with the offset recorded as an adjustment to the non-U.S. dollar financing liability.

43

Fair Values of Financial Instruments
Fair values of cash and cash equivalents, accounts receivable, accounts payable and variable-rate receivables and debt approximate carrying value. The estimated fair values of other financial instruments, including debt, equity and risk management instruments, have been determined using available market information and valuation methodologies, primarily discounted cash flow analysis or independent investment bankers. The estimated fair value of nonperforming loans included in finance receivables is based on discounted cash flow analyses using risk-adjusted interest rates or the fair value of the related collateral. Because considerable judgment is required in interpreting market data, the estimates are not necessarily indicative of the amounts that could be realized in a current market.
Stock-Based Compensation
Textron’s 1999 Long-Term Incentive Plan (“1999 Plan”) authorizes awards to key employees. The 1999 Plan and related awards are described more fully in Note 11. Stock-based compensation awards to employees under the 1999 Plan are accounted for using the intrinsic value method prescribed in APB Opinion No. 25, “Accounting for Stock Issued to Employees” and related Interpretations. No stock-based employee compensation cost related to stock options awards is reflected in net income, as all options granted under the 1999 Plan had an exercise price equal to the market value of the underlying common stock on the date of grant.  Employee compensation cost related to Textron’s performance share program and restricted stock awards is reflected in net income over the awards’ vesting period. Textron has entered into cash settlement forward contracts on its common stock to mitigate the impact of stock price fluctuations on compensation expense. The following table illustrates the effect on net income and earnings per share if Textron had applied the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation,” to stock-based employee compensation:
(Dollars in millions, except per share data)		2004					2003					2002
Net income (loss), as reported		$	365				$	259				$	(124	)
Add back: Stock-based employee compensation expense included in reported net income (loss)*		20					14					9
Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards*		(26			)		(29			)		(40		)
Pro forma net income (loss)		$	359				$	244				$	(155	)
Income (loss) per share:
Basic - as reported		$	2.66				$	1.91				$	(0.90	)
Basic - pro forma		$	2.61				$	1.80				$	(1.12	)
Diluted - as reported		$	2.61				$	1.89				$	(0.88	)
Diluted - pro forma		$	2.56				$	1.78				$	(1.10	)
* Net of related cash settlement forward income or expense and related tax effects
The compensation cost calculated under the fair value approach shown above is recognized over the vesting period of the stock options. The fair value of options granted after 1995 are estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:
	2004					2003					2002
Dividend yield	2			%		3			%		3			%
Expected volatility	37			%		38			%		36			%
Risk-free interest rate	3			%		3			%		4			%
Expected lives (years)	3.7					3.6					3.7
Under these assumptions, the weighted-average fair value of an option to purchase one share granted in 2004 was approximately $14 and approximately $10 in 2003 and in 2002.
Product and Environmental Liabilities
Product liability claims are accrued on the occurrence method based on insurance coverage and deductibles in effect at the date of the incident and management’s assessment of the probability of loss when reasonably estimable.

44

	Accruals for environmental matters are recorded on a site-by-site basis when it is probable that a liability has been incurred and the amount is reasonably estimated. Textron’s environmental liabilities are undiscounted and do not take into consideration possible future insurance proceeds or significant amounts from claims against other third parties.
	Research and Development Costs
	Research and development costs not specifically covered by contracts and those related to Textron’s share of research and development activity in connection with cost sharing arrangements are charged to expense as incurred.  Research and development costs incurred under contracts with others are reported as cost of sales over the period that revenue is recognized, consistent with Textron’s contract accounting policy.
	Recently Issued Accounting Pronouncements
	In December 2004, the FASB issued SFAS No. 123 (Revised 2004), “Share-Based Payment” (“SFAS 123-R”), which replaces SFAS No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and supercedes APB Opinion No. 25, “Accounting for Stock Issued to Employees.” SFAS 123-R requires companies to measure compensation costs for share-based payments to employees, including stock options, at fair value and expense such compensation over the service period beginning with the first interim or annual period after June 15, 2005. The pro forma disclosures previously permitted under SFAS 123 will no longer be an alternative to financial statement recognition. Textron is required to adopt SFAS 123-R in the third quarter of fiscal 2005. Under SFAS 123-R, companies must determine the appropriate fair value model to be used for valuing share-based payments, the amortization method for compensation cost and the transition method to be used at date of adoption. The transition methods include prospective and retroactive adoption options. Management is evaluating the requirements of SFAS 123-R. Management believes the impact of adopting SFAS 123-R will result in additional expense of approximately $15 million, net of income taxes, for 2005. This estimate is subject to change based on a number of factors, including the actual number of stock option awards granted, changes in assumptions underlying the option value estimates, such as the risk-free interest rate, and tax deductions for employee disqualifying dispositions, if any.
Note 2 Acquisitions and Dispositions
	Acquisitions
	Textron has a joint venture, CitationShares, with TAG Aviation USA, Inc. (“TAG”) to sell fractional share interests in business jets. On June 30, 2004, Textron acquired an additional 25% interest in CitationShares from TAG for cash and the assumption of debt guarantees previously provided by TAG. Additional cash consideration may also be payable to TAG based on CitationShares’ future operating results. TAG has the right to sell its remaining 25% interest to Textron in the years 2009 through 2011, and Textron has the right to purchase the remaining interest in 2010 or 2011, for an amount based on a multiple of earnings.
	As a result of this transaction, Textron owns 75% of CitationShares and has consolidated its financial results prospectively as of June 30, 2004. Assets acquired of $47 million included $22 million of inventory, primarily Citation jets, and liabilities acquired of $59 million included $47 million of third-party debt that was immediately repaid. Additionally, CitationShares had approximately $31 million of operating lease obligations as of the acquisition date that Textron has fully guaranteed.
	Discontinued Operations
	During the fourth quarter of 2004, Textron reached a final decision to sell the remainder of its InteSys operations, and as a result, financial results of this business, net of income taxes, are now reported as discontinued operations. The carrying value of this business approximated fair value at the date of the decision to sell. Textron’s consolidated statements of operations and related footnote disclosures have been recast to reflect the InteSys business, previously included in the Industrial segment, as a discontinued operation for the periods presented. The amounts exclude general corporate overhead previously allocated to the business for reporting purposes. Textron uses a centralized approach to the cash management and financing of its operations, and accordingly, does not allocate debt or interest expense to its discontinued businesses.

45

The assets and liabilities of the InteSys discontinued business are as follows:
(In millions)	January 1, 2005							January 3, 2004
Accounts receivable, net	$	12						$	11
Inventories	2							9
Property, plant and equipment, net	—							24
Other assets	15							28
Total assets	$	29						$	72
Accounts payable and accrued liabilities	$	4						$	14
Other liabilities	1							7
Total liabilities	$	5						$	21
Discontinued operations also include the results of OmniQuip and the small business direct portfolio which were both sold in 2003. Operating results of the discontinued businesses are as follows:
(In millions)			2004			2003					2002
Revenue			$	70		$	236				$	386
Income (loss) from discontinued operations before special charges			12			(6				)	(66		)
Special charges			(19		)	(36				)	(19		)
Loss from discontinued operations			(7		)	(42				)	(85		)
Income tax (expense) benefit			(1		)	9					75
Loss from discontinued operations, net of income taxes			$	(8	)	$	(33			)	$	(10	)
Discontinued operations include a second quarter 2004 pre-tax gain of $7 million from the sale of InteSys’ interest in two Brazilian-based joint ventures. Prior to the disposition of these businesses, approximately $32 million and $27 million in restructuring costs related to InteSys and OmniQuip, respectively, were recorded in special charges since the inception of Textron’s restructuring program.
On August 1, 2003, Textron consummated the sale of its remaining OmniQuip business to JLG Industries, Inc. for $90 million in cash and a $10 million promissory note that was paid in full in February 2004. In the second quarter of 2003, Textron recorded $30 million in special charges for the impairment of $15 million in intangible assets and $15 million in goodwill based on the fair value implied by the sale price of OmniQuip under negotiation at that time. There was no further gain or loss recorded upon the consummation of the sale.
Textron Manufacturing has retained certain non-operating assets and liabilities of the OmniQuip business. These remaining assets and liabilities are included in the consolidated balance sheet as of January 1, 2005 and are composed of assets of approximately $3 million and liabilities of approximately $27 million. The liabilities retained include $22 million in reserves related to a recourse liability to cover potential losses on approximately $52 million in finance receivables held by Textron Finance. See Note 4 for further discussion on transactions between Textron’s Manufacturing and Finance borrowing groups.
Other Dispositions
During 2004, Textron sold its Energy Manufacturing and Williams Machine and Tool business in the Industrial segment. There was no gain or loss on the sale as the proceeds received approximated book value, including goodwill. During 2003, Textron sold its remaining 50% interest in an Italian joint venture to Collins & Aikman Corporation for a $12 million after-tax gain.
On December 19, 2003, Textron Finance sold its small business direct portfolio for $421 million in cash.  Based upon the terms of the transaction, no gain or loss was recorded. Textron Finance entered into a loss sharing agreement related to the sale, which requires Textron Finance to reimburse the purchaser for a portion of losses incurred on the portfolio above a predetermined level. Textron Finance originally recorded a liability of $14 million representing the estimated fair value of the guarantee, which expires in 2008. At January 1, 2005, the estimated fair value of the guarantee was a $13 million liability.

46

	Textron completed the sale of its Automotive Trim business to various operating subsidiaries of Collins & Aikman Corporation (collectively “C&A”) in December 2001. The proceeds from the sale included 326,400 shares of non-marketable preferred stock of Collins & Aikman Products Company, a subsidiary of C&A, valued at $147 million. In addition to the proceeds received from C&A, prior to completing the sale, the Automotive Trim business entered into an $87 million lease agreement whereby equipment used by the business was retained by Textron and leased back to the business through Textron Finance.  See Note 4 to the consolidated financial statements under the caption “Transactions between Finance and Manufacturing Groups” for more details.  In addition, Textron guaranteed certain other operating lease payments transferred to C&A as described in Note 16 under the caption “Guarantees.”
	The purchase and sale agreement provided for an adjustment to the selling price based on an audit of the closing balance sheet in 2002. Pursuant to the audit and final settlement of the post-closing obligations under the purchase and sale agreement, Textron received $110 million from C&A. The final negotiated settlement provided C&A the ability to repurchase a portion of its preferred stock in advance of the original terms, and C&A repurchased those preferred shares in June 2002. As of January 1, 2005, Textron had 200,000 shares remaining of the original preferred stock valued at $90 million. In conjunction with this transaction and following C&A’s recapitalization through a share offering, the carrying value of the C&A common stock held by Textron was revised. An additional gain of $25 million was recorded in 2002 upon the final settlement of the post-closing obligations and valuation of the common stock received from C&A. The C&A common stock was subsequently written down and sold as discussed in Note 14.
Note 3 Accounts Receivable
	Accounts receivable is composed of the following:
	(In millions)	January 1, 2005		January 3, 2004
	Commercial and customers	$	1,055	$	966
	U.S. Government contracts	220		224
		1,275		1,190
	Less allowance for doubtful accounts	64		66
		$	1,211	$	1,124
	Unbillable receivables on U.S. Government contracts arise when the revenues based on performance attainment, though appropriately recognized, cannot be billed yet under terms of the contract. Unbillable receivables within accounts receivable totaled $133 million at January 1, 2005 and $126 million at January 3, 2004. Long-term contract receivables due from the U.S. Government do not include significant amounts billed but unpaid due to contractual retainage provisions or subject to collection uncertainty.
Note 4 Finance Receivables and Securitizations
	Finance Receivables
	Textron Finance provides financial services primarily to the aircraft, golf, vacation interval resort, dealer floorplan and middle market industries under a variety of financing vehicles with various contractual maturities.
	Installment contracts generally require the customer to pay a significant down payment, along with periodic scheduled principal payments that reduce the outstanding balance through the term of the loan. Finance leases include residual values expected to be realized at contractual maturity. Finance leases with no significant residual value at the end of the contractual term are classified as installment contracts, as their legal and economic substance is more equivalent to a secured borrowing than a finance lease with a significant residual value. Installment contracts and finance leases have initial terms ranging from two to 20 years and are primarily secured by the financed equipment.
	Distribution finance receivables are generally secured by the inventory of the financed distributor and include floor plan financing for third party dealers for inventory sold by E-Z-GO and Jacobsen businesses. Revolving loans are secured by trade receivables, inventory, plant and equipment, pools of vacation interval notes receivables, pools of residential and recreational land loans, and the underlying property. Distribution finance and revolving loans generally mature within one to five years.

47

Golf course and resort mortgages are secured by real property and are generally limited to 75% or less of the property’s appraised market value at loan origination.  Golf course mortgages have initial terms ranging from five to seven years with amortization periods from 15 to 25 years. Resort mortgages generally represent construction and inventory loans with terms up to two years. Leveraged leases are secured by the ownership of the leased equipment and real property and have initial terms up to approximately 30 years.
The following table displays the contractual maturity of the finance receivables. It does not necessarily reflect future cash collections because of various factors, including the repayment or refinancing of receivables prior to contractual maturity:
	Contractual Maturities																			Finance Receivables Outstanding
(In millions)	2005			2006		2007			2008		2009				Thereafter					2004		2003
Installment contracts	$	226		$	176	$	159		$	182	$		142		$	570				$	1,455	$	1,396
Distribution finance	1,020			6		—			—		—				—					1,026		778
Revolving loans	754			201		169			64		70				144					1,402		1,194
Finance leases	140			53		55			59		17				86					410		309
Golf course and resort mortgages	168			245		152			138		130				172					1,005		945
Leveraged leases	(5		)	2		(9		)	73		38				440					539		513
	$	2,303		$	683	$	526		$	516	$		397		$	1,412				5,837		5,135
Less allowance for credit losses																				99		119
																				$	5,738	$	5,016
Contractual maturities for finance leases classified as installment contracts include the minimum lease payments, net of the unearned income to be recognized over the life of the lease. Total minimum lease payments and unearned income related to these finance leases were $708 million and $136 million, respectively, at January 1, 2005, and $670 million and $99 million, respectively, at January 3, 2004. Minimum lease payments due under these contracts for each of the next five years are as follows: $137 million in 2005, $120 million in 2006, $101 million in 2007, $92 million in 2008 and $92 million in 2009.
Textron Finance’s net investment in finance leases, excluding leases classified as installment contracts, is provided below:
(In millions)												2004						2003
Total minimum lease payments receivable												$		383				$		287
Estimated residual values of leased equipment												205						188
												588						475
Less unearned income												(178					)	(166						)
Net investment in finance leases												$		410				$		309
Minimum lease payments due under finance leases for each of the next five years are as follows: $83 million in 2005, $54 million in 2006, $47 million in 2007, $29 million in 2008 and $10 million in 2009.
The net investment in leveraged leases was as follows:
(In millions)												2004						2003
Rental receivable, net of nonrecourse debt												$		545				$		457
Estimated residual values on leased assets												286						389
												831						846
Unearned income												(292					)	(333						)
Investment in leveraged leases												539						513
Deferred income taxes												(358					)	(353						)
Net investment in leveraged leases												$		181				$	160
Excluding receivables with recourse to Textron Manufacturing, at the end of 2004 and 2003 Textron Finance had nonaccrual finance receivables totaling $119 million and $152 million, respectively, of which $85 million and $99 million, respectively, were

48

impaired. In addition, Textron Finance had impaired accrual finance receivables totaling $58 million at January 1, 2005 and $137 million at January 3, 2004. The allowance for losses on finance receivables related to impaired loans is determined using assumptions related to the fair market value of the underlying collateral, and totaled $16 million and $18 million at the end of 2004 and 2003, respectively. The average recorded investment in impaired loans during 2004 was $123 million, compared with $201 million in 2003. No interest income was recognized on these loans using the cash basis method.
Textron Finance manages and services finance receivables for a variety of investors, participants and third-party portfolio owners. The total managed and serviced finance receivable portfolio, including owned finance receivables, was $9.3 billion at the end of 2004 and $8.8 billion at the end of 2003. Managed receivables include owned finance receivables and finance receivables sold in securitizations and private transactions where Textron Finance has retained some element of credit risk and continues to service the portfolio.
At January 1, 2005, Textron Finance’s receivables were primarily diversified geographically across the United States, along with 13% in other countries. The most significant collateral concentration was in general aviation aircraft, which accounted for 20% of managed receivables. Textron Finance also has industry concentrations in the golf and vacation interval industries, which each accounted for 18% and 14%, respectively, of managed receivables at January 1, 2005.
Transactions between Finance and Manufacturing Groups
A portion of Textron Finance’s business involves financing retail purchases and leases for new and used aircraft and equipment manufactured by Textron Manufacturing’s Bell, Cessna and Industrial segments. The captive finance receivables for these inventory sales included in Textron Finance’s balance sheet are composed of the following:
(In millions)	January 1, 2005		January 3, 2004
Installment contracts	$	628	$	627
Distribution finance	42		31
Finance leases	279		139
Total	$	949	$	797
Operating agreements specify that Textron Finance has recourse to Textron Manufacturing for outstanding balances from some of these transactions. For those receivables for which collection has been guaranteed by Textron Manufacturing, reserves have been established for losses on Textron Manufacturing’s balance sheet and are recorded in current or long-term liabilities. These reserves are established for amounts that are potentially uncollectible or if the collateral values may be insufficient to cover the outstanding receivable. If an account is deemed uncollectible and the collateral is repossessed, Textron Finance will charge Textron Manufacturing for any deficiency. In some cases, the collateral is not repossessed by Textron Finance, and the receivable is transferred to Textron Manufacturing’s balance sheet for additional collection efforts. When this occurs, any related reserve previously established is reclassified from Textron Manufacturing’s current or long-term liabilities and is netted against either accounts receivable or notes receivable within other assets.
In 2004, 2003 and 2002, Textron Finance paid Textron Manufacturing $0.9 billion, $0.9 billion and $1.0 billion, respectively, relating to the sale of manufactured products to third parties that were financed by Textron Finance, and $77 million, $56 million and $104 million, respectively, for the purchase of operating lease equipment. At the end of 2004 and 2003, the amounts guaranteed by Textron Manufacturing totaled $384 million and $467 million, respectively. In addition, at the end of 2004 and 2003, Textron Finance had recourse to Textron Manufacturing for a lease with C&A totaling $82 million and $87 million, respectively.
Included in the finance receivables guaranteed by Textron Manufacturing are past due loans of $31 million and $41 million at the end of 2004 and 2003, respectively, that meet the nonaccrual criteria but are not classified as nonaccrual by Textron Finance due to the guarantee. Textron Finance continues to recognize income on these loans. Concurrently, Textron Manufacturing is charged for their obligation to Textron Finance under the guarantee so that there are no net interest earnings for the loans on a consolidated basis. Textron Manufacturing has established reserves for losses related to these guarantees that are included in other current liabilities. Textron Manufacturing’s reserves for these recourse liabilities to Textron Finance totaled $48 million and $64 million at the end of 2004 and 2003, respectively.

49

	Securitizations
	Textron Finance received proceeds of $0.4 billion in 2004 and $0.7 billion in 2003 from the securitization and sale (with servicing rights retained) of finance receivables. Pre-tax gains from securitized trust sales were approximately $56 million in 2004, $43 million in 2003 and $45 million in 2002. At the end of 2004, $2.3 billion in securitized loans were outstanding, with $17 million in past due loans. Textron Finance has securitized certain receivables generated by Textron Manufacturing for which it has retained full recourse to Textron Manufacturing.
	Textron Manufacturing provides a guarantee to a securitization trust sponsored by a third-party financial institution that purchases timeshare note receivables from Textron Finance. The guarantee requires Textron Manufacturing to make payments to the trust should the cash flows from the timeshare notes fall below a minimum level. The maximum potential payment required under the credit enhancement agreement is $31 million. At January 1, 2005, Textron has a fair value liability recorded of approximately $0.2 million that was established upon the sale of additional timeshare note receivables into the trust. Textron has not been required to make any payments to the trust under the credit enhancement agreement, and based on historical experience with the collateral in the trust, no additional liability is considered necessary.
	Textron Finance retained subordinated interests in the trusts which are approximately 2% to 10% of the total trust. Servicing fees range from 75 to 150 basis points. During 2004, key economic assumptions used in measuring the retained interests at the date of each securitization included prepayment speeds ranging from 12.4% to 23.0%, weighted-average lives ranging from 0.3 to 3.3 years, expected credit losses ranging from 0.5% to 2.8%, and residual cash flows discount rates ranging from 5.0% to 7.3%. At January 1, 2005, key economic assumptions used in measuring these retained interests were as follows:
	(Dollars in millions)	Aircraft Loans					Distribution Finance Receivables					Vacation Interval Loans
	Carrying amount of retained interests in securitizations, net	$		98			$	121				$	14
	Weighted-average life (years)	2.4					0.3					2.0
	Prepayment speed (annual rate)	23.0				%	—					20.0		%
	Expected credit losses (annual rate)	0.2				%	0.7				%	3.7		%
	Residual cash flows discount rate	4.2				%	4.8				%	4.5		%
	Hypothetical adverse changes of 10% and 20% to either the prepayment speed, expected credit losses or residual cash flows discount rates assumptions would not have a material impact on the current fair value of the residual cash flows associated with the retained interests. These hypothetical sensitivities should be used with caution, as the effect of a variation in a particular assumption on the fair value of the retained interest is calculated without changing any other assumption. In reality, a change in one factor may result in a change in another factor that may magnify or counteract the sensitivities losses. For example, increases in market interest rates may result in lower prepayments and increased credit losses.
Note 5 Inventories
	(In millions)		January 1, 2005						January 3, 2004
	Finished goods		$		643				$	686
	Work in process		1,206						681
	Raw materials		231						202
			2,080						1,569
	Less progress/milestone payments		338						66
			$		1,742				$	1,503
	Inventories aggregating $1.1 billion and $1.0 billion at the end of 2004 and 2003, respectively, were valued by the last-in, first-out (“LIFO”) method. Had such LIFO inventories been valued at current costs, their carrying values would have been approximately $238 million and $224 million higher at those respective dates. The remaining inventories, other than those related to certain long-term contracts, are valued primarily by the first-in, first-out (“FIFO”) method. Inventories related to long-term contracts, net of progress/milestone payments were $259 million at the end of 2004 and $137 million at the end of 2003.

50

Note 6 Property, Plant and Equipment, net
	Property, plant and equipment, net for Textron Manufacturing is composed of the following:
	(In millions)					January 1, 2005								January 3, 2004
	Land and buildings					$		1,210						$		1,084
	Machinery and equipment					3,364								3,256
						4,574								4,340
	Less accumulated depreciation and amortization					2,652								2,439
						$		1,922						$		1,901
Note 7 Goodwill and Other Intangible Assets
	On December 30, 2001, Textron adopted SFAS No. 142, “Goodwill and Other Intangible Assets,” which required companies to stop amortizing goodwill and certain intangible assets with indefinite useful lives and requires an annual review for impairment. All existing goodwill as of December 30, 2001 was required to be tested for impairment on a reporting unit basis. With the implementation in 2002, an after-tax transitional impairment charge of $488 million ($561 million, a pre-tax) was taken in the second quarter and retroactively recorded in the first quarter. The after-tax charge is included in the caption “Cumulative effect of change in accounting principle, net of income taxes” and relates to the following segments: $385 million in Industrial, $88 million in Fastening Systems and $15 million in Finance. For the Industrial and Fastening Systems segments, the primary factor resulting in the impairment charge was the decline in demand in certain industries in which these segments operate, especially the telecommunications industry, due to the economic slowdown. The Finance segment’s impairment charge related to the franchise finance division and was primarily the result of decreasing loan volumes and an unfavorable securitization market. No impairment charge was appropriate for these segments under the previous goodwill impairment accounting standard, which Textron applied based on undiscounted cash flows.
	Textron also adopted the remaining provisions of SFAS No. 141, “Business Combinations,” on December 30, 2001. These provisions broaden the criteria for recording intangible assets separate from goodwill and require that certain intangible assets that do not meet the new criteria, such as assembled workforce and customer base, be reclassified into goodwill. Upon adoption of these provisions, intangible assets totaling $37 million, net of related deferred taxes, were reclassified into goodwill within the Industrial and Finance segments.
	Changes in goodwill are summarized below:
	(In millions)	Bell		Cessna			Fastening Systems				Industrial				Finance				Total
	Balance at December 29, 2001	$	101	$	306		$		473		$	931			$		192		$	2,003
	Reclassification of intangible assets	—		—			—				36				1				37
	Transitional impairment charge	—		—			(100			)	(437		)		(24			)	(561		)
	Foreign currency translation	—		—			17				26				—				43
	Balance at December 28, 2002	$	101	$	306		$		390		$	556			$		169		$	1,522
	Foreign currency translation	—		—			30				37				—				67
	Balance at January 3, 2004	$	101	$	306		$		420		$	593			$		169		$	1,589
	Acquisitions/dispositions	—		16			—				(20		)		—				(4		)
	Foreign currency translation	—		—			20				20				—				40
	Other	—		—			(3			)	(14		)		—				(17		)
	Balance at January 1, 2005	$	101	$	322		$		437		$	579			$		169		$	1,608

51

	All of Textron’s acquired intangible assets are subject to amortization and are composed of the following:
		Weighted- Average Amortization Period (In years)	January 1, 2005						January 3, 2004
	(Dollars in millions)		Gross Carrying Amount		Accumulated Amortization		Net		Gross Carrying Amount						Accumulated Amortization							Net
	Trademarks	20	$	28	$	5	$	23	$	28					$	4						$	24
	License	15	10		—		10		—						—							—
	Patents	8	12		7		5		12						5							7
	Other	5	13		7		6		12						4							8
			$	63	$	19	$	44	$	52					$	13						$	39
	Amortization expense totaled $6 million in 2004 and $9 million in both 2003 and 2002. Amortization expense for fiscal years 2005, 2006, 2007, 2008 and 2009 is estimated to be approximately $5 million, $4 million, $4 million, $3 million and $3 million, respectively.
Note 8 Debt and Credit Facilities
	(In millions)										January 1, 2005							January 3, 2004
	Textron Manufacturing:
	Long-term senior debt:
	Medium-term notes due 2010 to 2011 (average rate of 9.85%)										$		17					$		17
	6.375% due 2004										—							300
	5.625% due 2005										406							372
	6.375% due 2008										300							300
	4.50% due 2010										250							250
	6.50% due 2012										300							300
	6.625% due 2020										288							265
	Other long-term debt (average rate of 6.1% and 6.5%, respectively)										230							223
	Total debt										$		1,791					$		2,027
	Current portion of long-term debt										(433						)	(316						)
	Total long-term debt										$		1,358					$		1,711
	Textron Manufacturing maintains credit facilities with various banks for both short- and long-term borrowings. Textron Manufacturing has primary revolving credit facilities of $1.25 billion, of which $1.0 billion will expire in 2007 and $250 million will expire in March 2005. The $250 million facility includes a one-year term out option that can effectively extend its expiration into 2006. Textron Manufacturing’s credit facilities permit Textron Finance to borrow under these facilities. At January 1, 2005 and January 3, 2004, none of the lines of credit were used or reserved as support for commercial paper. The weighted-average interest rates for these facilities in 2004 and 2003 were 1.7% and 1.3%, respectively.
	(In millions)											January 1, 2005							January 3, 2004
	Textron Finance:
	Borrowings under or supported by credit facilities*											$		1,307					$		520
	Fixed-rate debt at average rate of 4.95% and 6.36%, respectively											2,360							2,831
	Variable-rate notes at average rate of 3.04% and 2.29%, respectively											1,116							1,056
	Total Textron Finance debt											$		4,783					$		4,407
	*      The weighted-average interest rates on these borrowings, before the effect of interest rate exchange agreements, were 2.4% and 1.3% at year-end 2004 and 2003, respectively. Weighted-average interest rates during the years 2004 and 2003 were 1.6% and 1.5%, respectively.

52

	Textron Finance has committed bank lines of credit of $1.5 billion of which $500 million expires in July 2005 and $1.0 billion expires in 2008. The $500 million facility includes a one-year term out option that can effectively extend its expiration into 2006. Textron Finance’s lines of credit, not reserved as support for outstanding commercial paper or letters of credit at January 1, 2005, were $187 million. None of these lines of credit were used at January 1, 2005 or January 3, 2004. Lending agreements limit Textron Finance’s net assets available for dividends and other payments to Textron Manufacturing to approximately $451 million of Textron Finance’s net assets of $1.0 billion at the end of 2004. These lending agreements also contain various restrictive provisions regarding additional debt (not to exceed 800% of consolidated net worth and qualifying subordinated obligations), minimum net worth ($200 million), creation of liens and the maintenance of a fixed charges coverage ratio (no less than 125%).
	The following table shows required payments during the next five years on debt outstanding at the end of 2004. The payment schedule excludes amounts that are payable under or supported by long-term credit facilities:
	(In millions)	2005		2006		2007		2008		2009
	Textron Manufacturing	$	433	$	8	$	37	$	348	$	3
	Textron Finance	656		985		983		42		542
		$	1,089	$	993	$	1,020	$	390	$	545
	Textron Manufacturing has agreed to cause Textron Finance to maintain certain minimum levels of financial performance. No payments from Textron Manufacturing were necessary in 2004, 2003 or 2002 for Textron Finance to meet these standards.
	Cash paid for interest by Textron Manufacturing totaled $109 million, $117 million and $125 million in 2004, 2003 and 2002, respectively, and included $4 million, $5 million and $8 million in 2004, 2003 and 2002, respectively, paid to Textron Finance. Cash paid for interest by Textron Finance totaled $157 million, $182 million and $196 million in 2004, 2003 and 2002, respectively.
Note 9 Derivatives and Other Financial Instruments
	Fair Value Interest Rate Hedges
	Textron Manufacturing’s policy is to manage interest cost using a mix of fixed- and variable-rate debt. To manage this mix in a cost efficient manner, Textron Manufacturing will enter into interest rate exchange agreements to agree to exchange, at specified intervals, the difference between fixed and variable interest amounts calculated by reference to an agreed upon notional principal amount. Since the critical terms of the debt and the interest rate exchange match and the other conditions of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” are met, the hedge is considered perfectly effective. The mark-to-market values of both the fair value hedge instruments and underlying debt obligations are recorded as equal and offsetting unrealized gains and losses in interest expense. At January 1, 2005, Textron Manufacturing had $6 million of deferred gains related to discontinued hedges. The deferred gains are being amortized as an adjustment to interest expense over the remaining life of the underlying debt of 45 months. Textron Manufacturing has interest rate exchange agreements with a fair value liability of $2 million at January 1, 2005.
	Textron Finance enters into interest rate exchange agreements in order to mitigate exposure to changes in the fair value of its fixed-rate portfolios of receivables and debt due to changes in interest rates. These agreements convert the fixed-rate cash flows to floating rates. At January 1, 2005, Textron Finance had interest exchange agreements with a fair value of $11 million designated as fair value hedges, compared with a fair value of $8 million at January 3, 2004.
	Textron Finance utilizes foreign currency interest rate exchange agreements to hedge its exposure, in a Canadian dollar functional currency subsidiary, to changes in the fair value of $60 million U.S. dollar denominated fixed-rate debt as a result of changes in both foreign currency exchange rates and Canadian Banker’s Acceptance rates. At January 1, 2005, these instruments had a fair value liability of $6 million, compared with $1 million at January 3, 2004. Textron Finance’s fair value hedges are highly effective, resulting in an immaterial net impact to earnings due to hedge ineffectiveness.
	Cash Flow Interest Rate Hedges
	Textron Finance enters into interest rate exchange, cap and floor agreements to mitigate its exposure to variability in the cash flows received from its investments in interest-only securities resulting from securitizations, which is caused by fluctuations in interest rates. The combination of these instruments convert net residual floating-rate cash flows expected to be received by Textron

53

Finance as a result of the securitization trust’s assets, liabilities and derivative instruments to fixed-rate cash flows. Changes in the fair value of these instruments are recorded net of the tax effect in other comprehensive (loss) income. At January 1, 2005, these instruments had a fair value liability of $8 million, compared with $14 million at January 3, 2004. Textron Finance expects approximately $1 million of net tax deferred gains to be reclassified to earnings related to these hedge relationships in 2005.

Textron Finance utilizes foreign currency interest rate exchange agreements to hedge the exposure through March 2005, in a Canadian dollar functional currency subsidiary, to fluctuations in the cash flows to be received on $107 million of LIBOR based U.S. dollar variable rate notes receivable as a result of changes in both foreign currency exchange rates and LIBOR. At January 1, 2005, these instruments had a fair value of $42 million, compared with $26 million at January 3, 2004. Textron Finance expects approximately $0.3 million of net tax deferred gains to be reclassified to earnings related to these hedge relationships in 2005.

At January 1, 2005, Textron Finance had $6 million of net tax deferred losses recorded in other comprehensive (loss) income related to terminated forward starting interest rate exchange agreements. These agreements were executed to hedge the exposure to the variability in cash flows from anticipated future issuances of fixed-rate debt and were terminated upon issuance of the debt. Textron Finance is amortizing the deferred losses into interest expense over the remaining life of the hedged debt of 38 months and expects approximately $2 million, net of income taxes, in deferred losses to be reclassified to earnings in 2005.

For cash flow hedges, Textron Finance recorded an after-tax loss of $7 million in 2004, a gain of $12 million in 2003, and a loss of $4 million in 2002 to accumulated other comprehensive loss with no impact to the statement of operations. Textron Finance has not incurred or recognized any gains or losses in earnings as the result of the ineffectiveness or the exclusion from its assessment of hedge effectiveness of its cash flow hedges.

Textron had minimal exposure to loss from nonperformance by the counterparties to its interest rate exchange agreements at the end of 2004 and does not anticipate nonperformance by counterparties in the periodic settlements of amounts due. Textron currently minimizes this potential for risk by entering into contracts exclusively with major, financially sound counterparties having no less than a long-term bond rating of “A,” by continuously monitoring such credit ratings and by limiting exposure to any one financial institution. The credit risk generally is limited to the amount by which the counterparties’ contractual obligations exceed Textron’s obligations to the counterparty.

Cash Flow Foreign Exchange Rate Hedges

Textron manufactures and sells its products in a number of countries throughout the world and, as a result, is exposed to movements in foreign currency exchange rates. The primary purpose of Textron’s foreign currency hedging activities is to manage the volatility associated with foreign currency purchases of materials, foreign currency sales of its products, and other assets and liabilities created in the normal course of business. Textron primarily utilizes forward exchange contracts and purchased options with maturities of no more than 18 months that qualify as cash flow hedges. These are intended to offset the effect of exchange rate fluctuations on forecasted sales, inventory purchases and overhead expenses. The fair value of these instruments at January 1, 2005 was a $32 million asset. At year-end 2004, $21 million of after-tax gain was reported in accumulated other comprehensive loss from qualifying cash flow hedges. This gain is generally expected to be reclassified to earnings in the next 12 months as the underlying transactions occur. Textron Manufacturing also enters into certain foreign currency derivative instruments that do not meet hedge accounting criteria, and are primarily intended to protect against exposure related to intercompany financing transactions and income from international operations. The fair value of these instruments at the end of 2004 and the net impact of the related gains and losses on selling and administrative expense in 2004 were not material.

Net Investment Hedging

Textron hedges its net investment position in major currencies and generates foreign currency interest payments that offset other transactional exposures in these currencies. To accomplish this, Textron borrows directly in foreign currency and designates a portion of foreign currency debt as a hedge of net investments. In addition, certain currency forwards are designated as hedges of Textron’s related foreign net investments. Currency effects of these hedges, which are reflected in the cumulative translation adjustment account within other comprehensive (loss) income, produced a $32 million after-tax loss during 2004, leaving an accumulated net loss balance of $19 million.

Stock-Based Compensation Hedging

Textron manages the expense related to stock-based compensation awards using cash settlement forward contracts on its common stock. The use of these forward contracts modifies compensation expense exposure to changes in the stock price with the intent to reduce potential variability. The fair value of these instruments at January 1, 2005 and January 3, 2004 was a receivable of

54

	$31 million and $25 million, respectively. Gains and losses on these instruments are recorded as an adjustment to compensation expense when the award is charged to expense. These contracts impacted net income by $28 million in 2004, $23 million in 2003 and $(3) million in 2002. Cash received or paid on the contract settlement is included in cash flows from operating activities, consistent with the classification of the cash flows on the underlying hedged compensation expense.
	Fair Values of Financial Instruments
	The carrying amounts and estimated fair values of Textron’s financial instruments that are not reflected in the financial statements at fair value are as follows:
		January 1, 2005						January 3, 2004
	(In millions)	Carrying Value			Estimated Fair Value			Carrying Value			Estimated Fair Value
	Textron Manufacturing:
	Debt	$	(1,791	)	$	(1,902	)	$	(2,027	)	$	(2,177	)
	Textron Finance:
	Finance receivables	$	4,888		$	4,842		$	4,313		$	4,274
	Debt	$	(4,783	)	$	(4,864	)	$	(4,407	)	$	(4,552	)
	Finance receivables exclude the fair value of finance and leveraged leases totaling $949 million at January 1, 2005 and $822 million at January 3, 2004, as these leases are recorded at fair value in the consolidated balance sheet.
Note 10 Mandatorily Redeemable Preferred Securities
	Textron adopted SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity,” in the third quarter of 2003. Upon adoption, Textron Finance classified its obligated mandatorily redeemable preferred securities previously classified as equity as a liability.
	In June 2004, Textron Financial Corporation redeemed all of its $26 million Litchfield 10% Series A Junior Subordinated Debentures, due 2029. The debentures were held by a trust sponsored and wholly owned by Litchfield Financial Corporation, a subsidiary of Textron Financial Corporation. The proceeds from the redemption were used to redeem all of the $26 million Litchfield Capital Trust I 10% Series A Trust Preferred Securities at par value of $10 per share. There was no gain or loss on the redemption.
	In July 2003, Textron redeemed its 7.92% Junior Subordinated Deferrable Interest Debentures, due 2045. The debentures were held by Textron’s wholly owned trust, and the proceeds from their redemption were used to redeem all of the $500 million Textron Capital I trust preferred securities with a 7.92% dividend yield. Upon the redemption, $15 million in unamortized issuance costs were written off and recorded in special charges.
Note 11 Shareholders’ Equity
	Capital Stock
	Textron has authorization for 15,000,000 shares of preferred stock and 500,000,000 shares of 12.5 cent per share par value common stock. Each share of $2.08 Preferred Stock ($23.63 approximate stated value) is convertible into 4.4 shares of common stock and can be redeemed by Textron for $50 per share. Each share of $1.40 Preferred Dividend Stock ($11.82 approximate stated value) is convertible into 3.6 shares of common stock and can be redeemed by Textron for $45 per share.
	Performance Share Units and Stock Options
	Textron’s 1999 Long-Term Incentive Plan (the “1999 Plan”) authorizes awards to key employees of Textron in three forms: (a) options to purchase Textron shares, (b) performance share units and (c) restricted stock. Options to purchase Textron shares have a maximum term of ten years and vest ratably over a three-year period, beginning with the 2003 grants. Prior grants vested ratably over two years. Restricted stock grants vest one-third each in the third, fourth and fifth year following the grant. In 2004 and 2003, Textron’s shareholders approved amendments to the 1999 Plan to revise the maximum number of shares authorized to 17,500,000 options to purchase Textron shares, 2,000,000 performance units and 2,000,000 shares of restricted stock.

55

At the end of 2004, 5,196,760 stock options were available for future grant under the 1999 Plan, as amended. Stock option activity is summarized as follows:
	2004							2003											2002
(Shares in thousands)	Number of Options			Weighted- Average Exercise Price				Number of Options						Weighted- Average Exercise Price					Number of Options				Weighted- Average Exercise Price
Outstanding at beginning of year	13,158			$	49.24			14,140						$		49.62			10,976				$		53.50
Granted	1,532			54.07				1,905						39.67					5,135				41.29
Exercised	(4,363	)		42.48				(1,797				)		39.59					(696			)	34.25
Canceled or expired	(1,066	)		59.52				(1,090				)		53.29					(1,275			)	57.89
Outstanding at end of year	9,261			$	52.05			13,158						$		49.24			14,140				$		49.62
Exercisable at end of year	7,176			$	52.70			9,115						$		53.02			9,043				$		54.08
Stock options outstanding at the end of 2004 are summarized as follows:
(Shares in thousands)			Options Outstanding																Options Exercisable
Range of Exercise Prices			Number				Weighted- Average Remaining Contractual Life						Weighted- Average Exercise Price					Number				Weighted- Average Exercise Price
$27 - $41			3,509				7.22 Years						$		39.89			2,745				$		40.25
$42 - $57			3,227				6.95 Years						$		49.82			1,917				$		45.90
$58 - $95			2,525				4.27 Years						$		71.44			2,514				$		71.45
			9,261															7,176
In 2004 and 2003, Textron granted 459,000 and 408,000 shares, respectively, of restricted stock at a weighted-average grant price of $57.30 and $40.61, respectively.  There were no restricted shares granted in 2002.
Reserved Shares of Common Stock
At the end of 2004, common stock reserved for the subsequent conversion of preferred stock and shares reserved for the exercise of stock options were 2,698,000 and 9,261,000, respectively.
Preferred Stock Purchase Rights
Each outstanding share of Textron common stock has attached to it one-half of a preferred stock purchase right. One preferred stock purchase right entitles the holder to buy one one-hundredth of a share of Series C Junior Participating Preferred Stock at an exercise price of $250. The rights become exercisable only under certain circumstances related to a person or group acquiring or offering to acquire a substantial block of Textron’s common stock. In certain circumstances, holders may acquire Textron stock, or in some cases the stock of an acquiring entity, with a value equal to twice the exercise price. The rights expire in September 2005 but may be redeemed earlier for $0.05 per right.
Income per Common Share
A reconciliation of income from continuing operations and basic to diluted share amounts is presented below:
			2004						2003											2002
(Dollars in millions, shares in thousands)			Income			Average Shares			Income								Average Shares			Income			Average Shares
Income from continuing operations available to common shareholders			$		373	137,337			$		292						135,875			$	374		138,745
Dilutive effect of convertible preferred stock and stock options			—			2,832			—								1,342			—			1,507
Available to common shareholders and assumed conversions			$		373	140,169			$	292							137,217			$	374		140,252

56

	Accumulated Other Comprehensive Loss
	(In millions)	Currency Translation Adjustment			Unrealized Gains (Losses) on Securities			Pension Liability Adjustment			Deferred Gains (Losses) on Hedge Contracts			Total
	Balance at December 29, 2001	$	(190	)	$	1		$	(2	)	$	(32	)	$	(223	)
	Other comprehensive income (loss), net of tax	78			2			(95		)	13			(2		)
	Net unrealized losses, net of tax	—			(25		)	—			—			(25		)
	Reclassification adjustment, net of tax	—			25			—			—			25
	Balance at December 28, 2002	$	(112	)	$	3		$	(97	)	$	(19	)	$	(225	)
	Other comprehensive income (loss), net of tax	159			—			(35		)	37			161
	Balance at January 3, 2004	$	47		$	3		$	(132	)	$	18		$	(64	)
	Other comprehensive income (loss), net of tax	97			—			(131		)	4			(30		)
	Reclassification adjustment, net of tax	—			(3		)	—			—			(3		)
	Balance at January 1, 2005	$	144		$	—		$	(263	)	$	22		$	(97	)
	Included in other comprehensive income (loss) is an income tax (expense) benefit of $(22) million, $3 million and $55 million in 2004, 2003 and 2002, respectively.
Note 12 Pension Benefits and Postretirement Benefits Other Than Pensions
	Textron has defined benefit and defined contribution pension plans that together cover substantially all employees. The costs of the defined contribution plans amounted to approximately $29 million in 2004, $22 million in 2003 and $44 million in 2002. Defined benefits under salaried plans are based on salary and years of service. Hourly plans generally provide benefits based on stated amounts for each year of service. Textron’s funding policy is consistent with federal law and regulations. Textron also offers healthcare and life insurance benefits for certain retired employees which are included in the “Postretirement Benefits Other Than Pensions” caption.
	The components of Textron’s net periodic benefit costs (income) are as follows:

	Pension Benefits									Postretirement Benefits Other Than Pensions
(In millions)	2004			2003			2002			2004			2003			2002
Service cost	$	119		$	105		$	99		$	9		$	7		$	4
Interest cost	291			283			278			39			41			45
Expected return on plan assets	(431		)	(432		)	(454		)	—			—			—
Amortization of unrecognized transition asset	1			(6		)	(17		)	—			—			—
Amortization of prior service cost	17			16			15			(10		)	(8		)	(4		)
Amortization of net loss (gain)	7			2			(16		)	9			4			3
Curtailments	—			—			(6		)	(1		)	—			1
Net periodic benefit costs (income)	$	4		$	(32	)	$	(101	)	$	46		$	44		$	49
Weighted-average assumptions used to determine net periodic benefit costs (income):
Discount rate	6.14		%	6.61		%	7.06		%	6.25		%	6.75		%	7.25		%
Expected long-term rate of return on plan assets	8.65		%	8.71		%	8.72		%	—			—			—
Rate of compensation increase	4.20		%	4.20		%	4.50		%	—			—			—

57

Obligations and Funded Status

The following summarizes the changes in the benefit obligation and in the fair value of plan assets and provides a reconciliation of the funded status to the amounts recognized in the balance sheet for the pension and postretirement benefit plans, along with the assumptions used to determine benefit obligations:

	Pension Benefits						Postretirement Benefits Other Than Pensions
(In millions)	2004			2003			2004			2003
Change in benefit obligation:
Beginning balance	$	4,813		$	4,342		$	681		$	675
Service cost	119			105			9			7
Interest cost	291			283			39			41
Amendments	2			33			(1		)	(41		)
Plan participants’ contributions	4			4			7			6
Actuarial losses	452			277			40			68
Benefits paid	(296		)	(297		)	(78		)	(76		)
Foreign exchange rate changes	67			68			1			1
Curtailments	—			(2		)	(3		)	—
Ending balance	$	5,452		$	4,813		$	695		$	681
Change in fair value of plan assets:
Beginning balance	$	4,583		$	4,008		$	—		$	—
Actual return on plan assets	532			790			—			—
Employer contributions	45			29			—			—
Plan participants’ contributions	4			4			—			—
Benefits paid	(296		)	(297		)	—			—
Foreign exchange rate changes	50			49			—			—
Ending balance	$	4,918		$	4,583		$	—		$	—
Reconciliation of funded status:
Funded status	$	(534	)	$	(230	)	$	(695	)	$	(681	)
Unrecognized actuarial loss	1,209			839			168			137
Unrecognized prior service cost (benefit)	148			163			(37		)	(46		)
Unrecognized transition net asset	1			2			—			—
Net amount recognized	$	824		$	774		$	(564	)	$	(590	)
Amounts recognized in the balance sheet consist of:
Prepaid benefit cost asset	$	836		$	892		$	—		$	—
Accrued benefit liability	(376		)	(312		)	(564		)	(590		)
Intangible assets	59			4			—			—
Accumulated other comprehensive loss	305			190			—			—
Net amount recognized	$	824		$	774		$	(564	)	$	(590	)
Weighted-average assumptions used to determine benefit obligations at year-end:
Discount rate	5.67		%	6.14		%	5.75		%	6.25		%
Rate of compensation increase	4.50		%	4.20		%	—			—

58

Pension Benefits
The accumulated benefit obligation for all defined benefit pension plans was $5.0 billion at January 1, 2005 and $4.4 billion at January 3, 2004. Pension plans with accumulated benefit obligations exceeding the fair value of plan assets were as follows at year-end:
(In millions)	2004		2003
Projected benefit obligation	$	2,282	$	798
Accumulated benefit obligation	$	2,053	$	716
Fair value of plan assets	$	1,700	$	417
In addition to the plans in the above table, Textron has plans with the projected benefit obligation in excess of plan assets as follows:
(In millions)	2004		2003
Projected benefit obligation	$	67	$	1,238
Accumulated benefit obligation	$	44	$	1,129
Fair value of plan assets	$	44	$	1,167
Textron’s pension assets are invested with the objective of achieving a total rate of return over the long term, sufficient to fund future pension obligations and to minimize future pension contributions. Textron is willing to tolerate a commensurate level of risk to achieve this objective based on the funded status of the plans and the long-term nature of Textron’s pension liability. Risk is controlled by maintaining a portfolio of assets that is diversified across a variety of asset classes, investment styles and investment managers. All of the assets are managed by external investment managers, and the majority of the assets are actively managed. Where possible, investment managers are prohibited from owning Textron stock in the portfolios that they manage on behalf of Textron.
Asset allocation target ranges were established consistent with the investment objectives, and the assets are rebalanced periodically. The expected long-term rate of return on plan assets was determined based on a variety of considerations, including the established asset allocation targets and expectations for those asset classes, historical returns of the plans’ assets and the advice of outside advisors. At January 1, 2005, the target allocation range is 44%-70% for equity securities, 13%-33% for debt securities and 7%-13% for both real estate and for other assets.

Textron’s percentages of the fair value of total pension plan assets by major category are as follows:
Asset Category	January 1, 2005		January 3, 2004
Equity securities	59	%	61	%
Debt securities	24	%	24	%
Real estate	8	%	7	%
Other	9	%	8	%
Total	100	%	100	%

59

Other Postretirement Benefits
For measurement purposes, Textron has assumed an annual healthcare cost trend rate of 11% for covered healthcare benefits in 2005. The rate was assumed to decrease gradually to 5% in 2009 and remain at that level thereafter. Assumed healthcare cost trend rates have a significant effect on the amounts reported for the healthcare plans. A one-percentage-point change in assumed healthcare cost trend rates would have the following effects:
(In millions)				One- Percentage- Point Increase					One- Percentage- Point Decrease
Effect on total of service and interest cost components				$		5			$	(4	)
Effect on postretirement benefit obligations other than pensions				$		59			$	(51	)
During the third quarter of 2004, Textron adopted FASB Staff Position No. 106-2, “Accounting and Disclosure Requirements related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003” (the “Act”). The Act provides for a prescription drug benefit under Medicare (“Medicare Part D”) as well as a federal subsidy to sponsors of retiree healthcare benefit plans that provide benefits that are at least actuarially equivalent to Medicare Part D. Textron has determined that the benefits it provides meet the equivalency tests as defined in the Act and has included the effects of the subsidy as a reduction to the accumulated projected benefit obligation of approximately $50 million. The total impact of the subsidy on the net periodic benefit cost for postretirement benefits other than pensions in 2004 is approximately $7 million.
Estimated Future Cash Flow Impact
In 2005, Textron expects to contribute in the range of $30 million to $35 million to fund its qualified pension plans and does not expect to contribute to its other postretirement benefit plans. The benefit payments provided below reflect expected future employee service, as appropriate, that are expected to be paid, net of estimated participant contributions. The benefit payments are based on the same assumptions used to measure Textron’s benefit obligation at the end of fiscal 2004. Pension benefit payments will primarily be made out of qualified pension trusts. Postretirement benefits other than pensions are paid out of Textron’s assets.
(In millions)	Pension Benefits		Post- retirement Benefits Other Than Pensions				Expected Medicare Part D Subsidy
2005	$	292	$		62		$	—
2006	296		66				(4					)
2007	301		68				(4					)
2008	307		70				(5					)
2009	314		70				(5					)
2010 – 2014	1,678		324				(23					)

Note 13 Income Taxes
	Textron files a consolidated federal income tax return for all U.S. subsidiaries and separate returns for foreign subsidiaries. Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trusts is as follows:
	(In millions)	2004		2003		2002
	United States	$	296	$	253	$	475
	Foreign	232		164		101
	Total	$	528	$	417	$	576

60

Income tax expense for continuing operations is summarized as follows:
(In millions)	2004			2003			2002
Federal:
Current	$	33		$	40		$	54
Deferred	61			8			82
State	13			15			15
Foreign	48			49			25
Income tax expense	$	155		$	112		$	176
The following reconciles the federal statutory income tax rate to the effective income tax rate reflected in the consolidated statements of operations:
	2004			2003			2002
Federal statutory income tax rate	35.0		%	35.0		%	35.0		%
Increase (decrease) in taxes resulting from:
State income taxes	1.6			2.3			1.8
Special foreign dividend	2.1			—			—
Permanent items from Trim divestiture	—			—			1.2
Favorable tax settlements	—			(3.1		)	(2.1		)
ESOP dividends	(1.6		)	(2.2		)	(3.1		)
Foreign tax rate differential	(5.9		)	(2.1		)	(0.5		)
Export sales benefit	(1.1		)	(1.4		)	(1.5		)
Other, net	(0.7		)	(1.6		)	(0.2		)
Effective income tax rate	29.4		%	26.9		%	30.6		%

The tax effects of temporary differences that give rise to significant portions of Textron’s net deferred tax assets and liabilities were as follows:
(In millions)	January 1, 2005			January 3, 2004
Deferred tax assets:
Deferred revenue	$	31		$	15
Restructuring reserve	25			11
Warranty and product maintenance reserves	99			110
Self-insured liabilities, including environmental	98			90
Deferred compensation	166			156
Obligation for postretirement benefits	30			31
Investment securities	—			20
Allowance for credit losses	75			77
Amortization of goodwill and other intangibles	35			52
Loss carryforwards	91			52
Other, principally timing of other expense deductions	132			59
Total deferred tax assets	782			673
Valuation allowance for deferred tax assets	(155		)	(74		)
	$	627		$	599
Deferred tax liabilities:
Textron Finance transactions, principally leasing	$	(505	)	$	(442	)
Property, plant and equipment, principally depreciation	(130		)	(113		)
Inventory	(48		)	(24		)
Currency translation adjustment	(3		)	(6		)
Total deferred tax liabilities	(686		)	(585		)
Net deferred tax (liability) asset	$	(59	)	$	14

61

At January 1, 2005 and January 3, 2004, Textron had non-U.S. net operating loss carryforwards for income tax purposes of $165 million and $162 million, respectively, of which $148 million and $140 million, respectively, can be carried forward indefinitely. The balance expires at various dates through 2013. At January 1, 2005, Textron had U.S. federal net operating loss carryforwards for income tax purposes of $64 million that expire in 2025.

A valuation allowance at January 1, 2005 and January 3, 2004 of $155 million and $74 million, respectively, has been recognized to offset the related deferred tax assets due to the uncertainty of realizing the benefits of the deferred tax assets. The increase in the valuation allowance was primarily related to deferred tax assets resulting from minimum pension liability adjustments recorded in other comprehensive (loss) income in certain foreign jurisdictions.

The undistributed earnings of Textron’s foreign subsidiaries on which tax is not provided, which approximated $910 million at the end of 2004, are considered to be indefinitely reinvested.  If the earnings of foreign subsidiaries were distributed, taxes, net of foreign tax credits, would be increased by approximately $219 million in 2004.

On October 22, 2004, the American Jobs Creation Act (“AJCA”) was signed into law and includes a deduction of 85% of certain foreign earnings that are repatriated, as defined in the AJCA. Textron intends to repatriate approximately $200 million in non-U.S. cash and has recognized a related tax expense of $11 million in the fourth quarter of 2004.  Textron is continuing to evaluate the effects of the AJCA and expects to complete this evaluation in 2005.  It is possible that Textron may repatriate an additional amount within the range of zero to $200 million in 2005, resulting in an income tax expense within the range of zero to $11 million.

Cash payments for taxes, net of tax refunds received, for Textron Manufacturing including discontinued operations totaled $(32) million in 2004, $(158) million in 2003 and $42 million in 2002. Cash payments for taxes, net of tax refunds, for Textron Finance totaled $61 million in 2004, $(6) million in 2003 and $(31) million in 2002.

Note 14 Special Charges
	Special charges are summarized below for the applicable segments:
		Restructuring Expense
	(In millions)	Severance Costs		Contract Terminations		Fixed Asset Impairments			Other Associated Costs		Total			Other Charges			Total Special Charges
	2004
	Bell	$	—	$	—	$	(1	)	$	—	$	(1	)	$	—		$	(1	)
	Cessna	—		—		—			—		—			—			—
	Fastening Systems	37		7		9			19		72			—			72
	Industrial	28		37		1			6		72			—			72
	Finance	—		—		—			—		—			—			—
	Corporate	—		—		—			—		—			(12		)	(12		)
		$	65	$	44	$	9		$	25	$	143		$	(12	)	$	131
	2003
	Bell	$	2	$	—	$	—		$	—	$	2		$	—		$	2
	Cessna	8		—		1			—		9			—			9
	Fastening Systems	34		—		34			7		75			—			75
	Industrial	17		2		10			13		42			—			42
	Finance	4		—		2			—		6			—			6
	Corporate	3		—		—			—		3			15			18
		$	68	$	2	$	47		$	20	$	137		$	15		$	152
	2002
	Bell	$	4	$	—	$	1		$	1	$	6		$	—		$	6
	Cessna	23		—		2			4		29			—			29
	Fastening Systems	12		2		4			4		22			—			22
	Industrial	14		2		6			13		35			—			35
	Finance	—		—		—			—		—			—			—
	Corporate	1		—		—			—		1			38			39
		$	54	$	4	$	13		$	22	$	93		$	38		$	131

62

To improve returns at core businesses and to complete the integration of certain acquisitions, Textron approved and committed to a restructuring program in the fourth quarter of 2000 based upon targeted cost reductions. This program was expanded in 2001, and in October 2002 Textron announced a further expansion of the program as part of its strategic effort to improve operating efficiencies, primarily in its industrial businesses. Textron’s restructuring program includes corporate and segment direct and indirect workforce reductions, consolidation of facilities primarily in the United States and Europe, rationalization of certain product lines, outsourcing of non-core production activity, the divestiture of non-core businesses, and streamlining of sales and administrative overhead. Under this restructuring program, Textron has reduced its workforce by approximately 11,000 employees from continuing operations, representing approximately 19% of its global workforce since the restructuring was first announced. A total of 107 facilities have been closed under this program, including 45 manufacturing plants, primarily in the Industrial and Fastening Systems segments.

In total, Textron estimates that the entire program for continuing operations will be approximately $540 million (including $11 million related to the divested Automotive Trim business (“Trim”)). As of January 1, 2005, $519 million of cost has been incurred relating to continuing operations (including $11 million related to Trim), with $213 million in the Industrial segment, $219 million in the Fastening Systems segment, $38 million in the Cessna segment, $29 million in the Bell segment, $9 million in the Finance segment and $11 million at Corporate. Costs incurred through January 1, 2005 include $268 million in severance costs, $98 million in asset impairment charges (net of gains on the sale of fixed assets), $54 million in contract termination costs and $99 million in other associated costs.

An analysis of the restructuring program and related reserve account is summarized below:
(In millions)	Severance Costs			Contract Terminations			Other Associated Costs			Fixed Asset Impairments			Total
Balance at December 29, 2001	$	28		$	3		$	—		$	—		$	31
Additions	60			5			22			13			100
Reserves deemed unnecessary	(6		)	(1		)	—			—			(7		)
Non-cash utilization	—			—			—			(13		)	(13		)
Cash paid	(60		)	(4		)	(22		)	—			(86		)
Balance at December 28, 2002	$	22		$	3		$	—		$	—		$	25
Additions	69			2			20			47			138
Reserves deemed unnecessary	(1		)	—			—			—			(1		)
Non-cash utilization	—			—			—			(47		)	(47		)
Cash paid	(58		)	(2		)	(20		)	—			(80		)
Balance at January 3, 2004	$	32		$	3		$	—		$	—		$	35
Additions	67			44			25			13			149
Reserves deemed unnecessary	(2		)	—			—			—			(2		)
Gains on sale of fixed assets	—			—			—			(4		)	(4		)
Non-cash utilization	—			—			—			(9		)	(9		)
Cash paid	(66		)	(4		)	(25		)	—			(95		)
Balance at January 1, 2005	$	31		$	43		$	—		$	—		$	74
Severance costs are generally paid on a monthly basis over the severance period granted to each employee or on a lump sum basis when required. Severance costs include outplacement costs, which are paid in accordance with normal payment terms. Contract termination costs are generally paid upon exiting the facility or over the remaining lease term. Other associated costs primarily include outsourcing certain operations, plant rearrangement, machinery and equipment relocation, and employee replacement and relocation costs, which are paid in accordance with normal payment terms.
The specific restructuring measures and associated estimated costs are based on Textron’s best judgment under prevailing circumstances. Textron believes that the restructuring reserve balance of $74 million is adequate to cover the costs presently accruable relating to activities formally identified and committed to under approved plans as of January 1, 2005 and anticipates that all actions related to these liabilities will be completed within a twelve-month period.

63

	Other Charges
	In July 2003, Textron redeemed its 7.92% Junior Subordinated Deferrable Interest Debentures due 2045. The debentures were held by Textron’s wholly owned trust, and the proceeds from their redemption were used to redeem all of the $500 million Textron Capital I trust preferred securities. Upon the redemption, $15 million of unamortized issuance costs were written off and recorded in special charges.
	During the second half of 2002, the C&A common stock owned by Textron experienced a decline in market value. Textron acquired this stock as a result of the disposition of the Trim business. In December 2002, Moody’s lowered its liquidity rating of C&A. Due to this indicator and the extended length of time and extent to which the market value of the stock was less than the carrying value, Textron determined that the decline in the market value of the stock was other than temporary and wrote down its investment in the stock. The write-down resulted in a pre-tax loss of $38 million, which is included in special charges. Textron sold its remaining investment in C&A common stock for cash proceeds of $34 million and recorded a pre-tax gain of $12 million in the first quarter of 2004.
Note 15 Contingencies
	Textron is subject to legal proceedings and other claims arising out of the conduct of Textron’s business, including proceedings and claims relating to private sector transactions; government contracts; production partners; product liability; employment; and environmental, safety, and health matters. Some of these legal proceedings and claims seek damages, fines, or penalties in substantial amounts or remediation of environmental contamination. Under federal government procurement regulations, certain claims brought by the U.S. Government could result in Textron’s suspension or debarment from U.S. Government contracting for a period of time. On the basis of information presently available, Textron believes that these proceedings and claims will not have a material effect on Textron’s financial position or results of operations.

During 2002, the Lycoming aircraft engine business, in conjunction with the U.S. Federal Aviation Administration (“FAA”), recalled approximately 950 turbocharged airplane engines and mandated the inspection of another 736 engines to replace potentially faulty crankshafts manufactured by a third-party supplier. Lycoming initiated a comprehensive customer care program to replace the defective crankshafts, make any necessary related repairs, and compensate its customers for the loss of use of their aircraft during the recall. This program is substantially complete. It is possible, however, that additional engines outside of the current recall could potentially be affected. Accordingly, Textron has continued to monitor the performance of the crankshafts previously supplied by the third-party to ensure that the reserve adequately covers all engines with potentially faulty crankshafts. Textron has reserves of $11 million for costs directly related to potential crankshaft issues that may not specifically be a part of the recall program.

In connection with the recall, the third-party supplier filed a lawsuit against Lycoming claiming that the supplier had been wrongly blamed for aircraft engine failures resulting from its crankshaft forging process and that Lycoming’s design was the cause of the engine failures. On February 14, 2005, a jury returned a verdict against Lycoming for $1.7 million in increased insurance costs and $2.7 million in expert fees. The following day the jury returned a verdict for $86 million in punitive damages. The court may also award attorneys’ fees, based upon a jury finding that $5.3 million in fees incurred by the supplier was reasonable. While the ultimate outcome of the litigation cannot be assured, management disagrees with the verdicts and believes that it is probable that they will be reversed through the appellate process.

On September 20, 2004, the third-party supplier filed for bankruptcy protection and ceased delivering crankshafts to Lycoming. Management estimates that current crankshaft inventories on hand should be adequate to cover planned production requirements through early 2005. In conjunction with the FAA, Lycoming is in the process of certifying a new supplier. The new supplier has begun manufacturing crankshafts pending completion of the certification process. Textron is working with the FAA and the supplier, and is not aware of any issues with the certification process at this time. Based on the current status of the certification process and the forecasted production requirements, the transition to the new supplier is not expected to have a material impact on Textron’s results of operations or financial position.

Environmental Remediation

As with other industrial enterprises engaged in similar businesses, Textron is involved in a number of remedial actions under various federal and state laws and regulations relating to the environment that impose liability on companies to clean up, or contribute to the cost of cleaning up, sites on which hazardous wastes or materials were disposed or released. Expenditures to evaluate and remediate contaminated sites approximated $6 million, $6 million and $16 million in 2004, 2003 and 2002, respectively.

64

	Textron’s accrued estimated environmental liabilities are based upon currently available facts, existing technology and presently enacted laws and regulations and are subject to a number of factors and uncertainties. Accrued liabilities relate to disposal costs, U.S. Environmental Protection Agency oversight costs, legal fees, and operating and maintenance costs for both currently and formerly owned or operated facilities. Circumstances that can affect the reliability and precision of the accruals include the identification of additional sites, environmental regulations, level of cleanup required, technologies available, number and financial condition of other contributors to remediation, and the time period over which remediation may occur. Textron believes that any changes to the accruals that may result from these factors and uncertainties will not have a material effect on Textron’s financial position or results of operations. Based upon information currently available, Textron estimates potential environmental liabilities to be in the range of $41 million to $140 million. At the end of 2004, environmental reserves of approximately $69 million, of which $9 million are classified as current liabilities, have been established to address these specific estimated potential liabilities. Textron estimates that its accrued environmental remediation liabilities will likely be paid over the next five to ten years.
Note 16 Arrangements with Off-Balance Sheet Risk
	Textron enters into arrangements with off-balance sheet risk in the normal course of business, as discussed below.
	Guarantees
	Textron has joint venture agreements with external financing arrangements for which Textron has guaranteed approximately $18 million in debt obligations. Textron would be required to make payments under these guarantees if a joint venture defaults under the debt agreements.
	Bell Helicopter and AgustaWestland North America Inc. (“AWNA”) formed the AgustaWestlandBell Limited Liability Company (“AWB LLC”) in January 2004 for the joint design, development, manufacture, sale, customer training and product support of the US101 helicopter and certain variations and derivatives thereof, to be offered and sold to departments or agencies of the U.S. Government. It is anticipated that AWB LLC will contract with either Bell Helicopter or AWNA for any workshare required under any US101 contracts received.
	Bell Helicopter has guaranteed to Lockheed Martin, the prime contractor for the U.S. Marine Corps Marine 1 Helicopter Squadron (VXX) Program (“VXX Program”), the due and prompt performance of AWB LLC’s obligations under any subcontracts received from Lockheed Martin, not to exceed 49% of AWB LLC’s aggregate liability. AgustaWestland N.V., AWNA’s parent company, has guaranteed the remaining 51% to Lockheed Martin. Bell Helicopter and AgustaWestland N.V. have entered into cross-indemnification agreements in which each party indemnifies the other related to any payments required under these agreements that result from the indemnifying party’s workshare under any subcontracts received.
	The maximum amount that Bell Helicopter could be required to pay related to this guarantee is dependent on the value of subcontracts received by AWB LLC from Lockheed Martin. As of January 1, 2005, AWB LLC had completed work under subcontracts received in 2004. On January 28, 2005, Lockheed Martin, with AWB LLC as its principal subcontractor, was selected to design, develop, manufacture and support the helicopters for the VXX Program; a subcontract for this effort is expected to be issued in the first quarter of 2005.
	In the ordinary course of business, Textron enters into standby letters of credit and surety bonds with financial institutions, principally to guarantee payment or performance to certain third parties in accordance with specified terms and conditions. At January 1, 2005, there were $168 million of standby letters of credit outstanding and $81 million of surety bonds outstanding. Management knows of no event of default that would require Textron to satisfy these guarantees at the end of 2004.
	Textron has a number of guaranteed minimum resale value contracts associated with certain past aircraft sales. These guarantees require Textron to make possible future payments to a customer in the event that the fair value of an aircraft falls below a minimum guaranteed amount or to stipulate a minimum trade-in value. The agreements generally include operating restrictions such as maximum usage over the guarantee period or minimum maintenance requirements. In addition, Textron has guaranteed the minimum resale value of certain customer-owned aircraft anticipated to be traded in upon completion of a model currently under development. Textron has recorded a $2 million liability related to the estimated fair value of the guarantee under these agreements.  The total amount of resale value guaranteed under these agreements at January 1, 2005 was approximately $33 million. Based on the estimated fair values of the guaranteed aircraft prevailing at January 1, 2005, there is no additional liability related to Textron’s obligation under these agreements. The guarantee contracts expire as follows: $2 million in 2005, $3 million in 2006, $2 million in 2008, $3 million in 2009, $2 million in 2010, $2 million in 2011 and $19 million in 2012.

65

Textron Finance sells receivables in whole-loan sales where limited credit enhancement is typically provided in the form of a contingent liability related to finance receivable credit losses and, to a lesser extent, prepayment risk. Textron Finance has a contingent liability related to the sale of equipment lease rental streams in 2003 and 2001. The maximum liability at January 1, 2005 was $42 million, and in the event Textron Finance’s credit rating falls below BBB, it is required to pledge a related pool of equipment residuals that amount to $10 million. Textron Finance has valued this contingent liability based on assumptions for annual credit losses and prepayment rates of 0.25% and 7.5%, respectively.

In connection with the sale of Trim, certain operating leases were transferred to C&A. Textron has guaranteed C&A’s payments under these operating leases up to an aggregate remaining amount of $13 million. Textron is required to make payments under these guarantees upon a default by C&A under the lease agreements. These guarantees expire along with the underlying lease agreements. Textron believes it has sufficient recourse against C&A under the indemnity provisions of the purchase and sale agreement should it be required to make any payments under these guarantees.

Variable Interest Entities

Textron entered into an agreement with Agusta Aerospace Corporation in November 1998 to share certain costs and profits for the joint design, development, manufacture, marketing, sale, customer training and product support of the commercial tiltrotor Model BA609 and the Model AB139. As of the end of 2004, only certain marketing and administrative costs are charged to the venture, while development costs are recorded separately by the partners. Bell’s share of the development costs are charged to Textron’s earnings as a period expense. This venture is a variable interest entity as it relies on its partners to fund the development and provide services for substantially all of the venture’s operations. Since Bell does not absorb more than half of this venture’s expected losses or residual returns, it is not the primary beneficiary and cannot consolidate this venture. Bell is not obligated to continue funding this venture other than to execute existing contracts. As of January 1, 2005, this venture had total assets of approximately $41 million and no debt.

	Leases
	Rental expense approximated $102 million, $105 million and $102 million in 2004, 2003 and 2002, respectively. Future minimum rental commitments for noncancelable operating leases in effect at the end of 2004 approximated $75 million for 2005, $60 million for 2006, $41 million for 2007, $32 million for 2008, $30 million for 2009 and a total of $130 million thereafter.
	Loan Commitments
	At January 1, 2005, Textron Finance had unused commitments to fund new and existing customers under $1.0 billion of committed revolving lines of credit, compared with $1.1 billion at January 3, 2004. Generally, interest rates on these commitments are not set until the loans are funded so Textron Finance is not exposed to interest rate changes. Since many of the agreements will not be used to the extent committed or will expire unused, the total commitment amount does not necessarily represent future cash requirements.
Note 17 Supplemental Financial Information
	Accrued Liabilities
	Textron Manufacturing’s accrued liabilities are composed of the following:
	(In millions)	January 1, 2005		January 3, 2004
	Customer deposits	$	549	$	253
	Warranty and product maintenance contracts	282		304
	Salaries, wages and employer taxes	281		254
	Deferred revenue	114		95
	Accrued interest	52		48
	Dividends payable	48		2
	Other	492		355
	Total accrued liabilities	$	1,818	$	1,311

66

Warranty and Product Maintenance Contracts
Textron provides limited warranty and product maintenance programs, including parts and labor, for certain products for periods ranging from one to five years. Textron estimates the costs that may be incurred under warranty programs and records a liability in the amount of such costs at the time product revenue is recognized. Factors that affect this liability include the number of products sold, historical and anticipated rates of warranty claims and cost per claim. Textron periodically assesses the adequacy of its recorded warranty and product maintenance liabilities and adjusts the amounts as necessary.
Changes in Textron’s warranty and product maintenance liability are as follows:
(In millions)	2004			2003			2002
Accrual at beginning of year	$	304		$	295		$	251
Provision	147			150			165
Settlements	(152		)	(151		)	(156		)
Adjustments to prior accrual estimates	(17		)	10			35
Accrual at end of year	$	282		$	304		$	295
For 2002, the adjustments to prior accrual estimates include $31 million in costs for the recall, inspection and customer care program at Lycoming described in Note 15.

	Research and Development Costs
	Company-funded and customer-funded research and development costs are as follows:
	(In millions)	2004		2003		2002
	Company-funded	$	307	$	255	$	204
	Customer-funded	283		332		379
	Total research and development	$	590	$	587	$	583
	Customer-funded research and development costs are primarily related to U.S. Government contracts, including the V-22 and H-1 development contracts.
Note 18 Segment Reporting and Geographic Data
	Textron has five reportable segments: Bell, Cessna, Fastening Systems, Industrial and Finance. See Note 1 for the principal markets, and Item 1. Business of Textron on pages 1 through 5 for products, of the segments.
	Textron’s reportable segments are strategically aligned based on the manner in which Textron manages its various operations. The accounting policies of the segments are the same as those described in the summary of significant accounting policies in Note 1. Textron evaluates segment performance based on segment profit. Segment profit for Textron Manufacturing excludes interest expense, certain corporate expenses, special charges, and gains and losses from the disposition of significant business units. Textron Finance includes interest income, interest expense and distributions on preferred securities of Finance subsidiary trust, and excludes special charges as part of segment profit. Provisions for losses on finance receivables involving the sale or lease of Textron products are recorded by the selling manufacturing division.

67

	Revenues						Segment Profit
(In millions)	2004		2003		2002		2004			2003			2002
Bell	$	2,254	$	2,348	$	2,235	$	250		$	234		$	169
Cessna	2,473		2,299		3,175		267			199			376
Fastening Systems	1,924		1,737		1,650		53			66			72
Industrial	3,046		2,836		2,627		194			150			169
Finance	545		572		584		139			122			118
	$	10,242	$	9,792	$	10,271	903			771			904
Special charges							(131		)	(152		)	(131		)
Segment operating income							772			619			773
Gain on sale of businesses							—			15			25
Corporate expenses and other, net							(149		)	(119		)	(114		)
Interest expense, net							(95		)	(98		)	(108		)
Income from continuing operations before income taxes and distributions on preferred securities							$	528		$	417		$	576
	Assets						Property, Plant and Equipment Expenditures*
(In millions)	2004		2003		2002		2004			2003			2002
Bell	$	1,674	$	1,496	$	1,556	$	62		$	50		$	29
Cessna	1,751		1,622		1,823		98			99			92
Fastening Systems	1,585		1,464		1,451		52			34			43
Industrial	2,601		2,468		2,304		100			105			120
Finance	6,738		6,333		6,383		12			17			17
Corporate	1,497		1,716		1,580		22			18			14
Discontinued operations	29		72		575		—			4			3
	$	15,875	$	15,171	$	15,672	$	346		$	327		$	318
* Includes capital expenditures financed through capital leases

	Amortization								Depreciation
(In millions)	2004			2003			2002		2004		2003		2002
Bell	$	2		$	2		$	1	$	47	$	52	$	48
Cessna	—			—			—		71		75		78
Fastening Systems	—			—			4		73		76		70
Industrial	6			9			9		101		93		103
Finance	10			11			10		36		34		27
Corporate	(3		)	(4		)	2		10		6		4
	$	15		$	18		$	26	$	338	$	336	$	330

68

The following summarizes revenues by type of products:
					Revenues
(In millions)					2004					2003						2002
Bell:
Rotor aircraft					$		1,615			$			1,755			$	1,636
Other					639					593						599
Cessna: fixed-wing aircraft					2,473					2,299						3,175
Fastening Systems					1,924					1,737						1,650
Industrial:
Fuel systems and functional components					1,582					1,454						1,226
Golf and turf-care products					708					665						756
Fluid & Power					463					446						383
Other					293					271						262
Finance					545					572						584
					$	10,242				$		9,792				$	10,271
Revenues include sales to the U.S. Government of $1.3 billion in 2004, $1.4 billion in 2003 and $1.3 billion in 2002, primarily in the Bell segment.
Geographic Data
Presented below is selected financial information by geographic area of Textron’s operations:
	Revenues*										Property, Plant and Equipment, net**
(In millions)	2004		2003					2002			2004			2003				2002
United States	$	6,069	$	6,093				$	6,790		$		1,283	$	1,281			$	1,384
Canada	348		364					383			71			74				63
Latin America and Mexico	509		466					511			32			34				27
Germany	866		822					611			252			231				198
Asia and Australia	670		471					396			66			54				41
United Kingdom	356		317					324			82			95				108
France	374		350					260			93			91				86
Other	1,050		909					996			84			88				72
	$	10,242	$	9,792				$	10,271		$		1,963	$	1,948			$	1,979
* Revenues are attributed to countries based on the location of the customer
** Property, plant and equipment, net are based on the location of the asset.

69

Quarterly Data

(Unaudited)		2004												2003
(Dollars in millions, except per share amounts)		Q4			Q3			Q2			Q1			Q4			Q3			Q2			Q1
Revenues
Bell		$	590		$	570		$	587		$	507		$	675		$	521		$	616		$	536
Cessna		856			699			500			418			620			516			575			588
Fastening Systems		479			454			494			497			457			404			447			429
Industrial		763			697			805			781			773			639			734			690
Finance		145			129			137			134			154			136			142			140
Total revenues		$	2,833		$	2,549		$	2,523		$	2,337		$	2,679		$	2,216		$	2,514		$	2,383
Segment profit
Bell		$	68		$	59		$	71		$	52		$	69		$	69		$	56		$	40
Cessna		119			82			44			22			43			31			66			59
Fastening Systems		8			1			24			20			17			10			21			18
Industrial		47			42			57			48			44			26			43			37
Finance		44			28			36			31			52			24			23			23
Total segment profit		286			212			232			173			225			160			209			177
Special charges		(46		)	(16		)	(17		)	(52		)	(63		)	(41		)	(21		)	(27		)
Total segment operating income		240			196			215			121			162			119			188			150
Gain on sale of businesses		—			—			—			—			—			—			—			15
Corporate expenses and other, net		(48		)	(30		)	(36		)	(35		)	(38		)	(19		)	(30		)	(32		)
Interest expense, net		(22		)	(23		)	(25		)	(25		)	(26		)	(26		)	(22		)	(24		)
Income taxes		(48		)	(42		)	(45		)	(20		)	(12		)	(25		)	(41		)	(34		)
Distribution on preferred securities of manufacturing subsidiary trust, net of income taxes		—			—			—			—			—			—			(7		)	(6		)
Income from continuing operations		122			101			109			41			86			49			88			69
Income (loss) from discontinued operations, net of income taxes		3			2			(9		)	(4		)	(3		)	(2		)	(25		)	(3		)
Net income		$	125		$	103		$	100		$	37		$	83		$	47		$	63		$	66
Earnings per common share
Basic:
Income from continuing operations		$	0.90		$	0.73		$	0.79		$	0.30		$	0.63		$	0.36		$	0.65		$	0.51
Income (loss) from discontinued operations		0.02			0.02			(0.07		)	(0.03		)	(0.02		)	(0.01		)	(0.18		)	(0.03		)
Net income		$	0.92		$	0.75		$	0.72		$	0.27		$	0.61		$	0.35		$	0.47		$	0.48
Average shares outstanding (In thousands)		136,571			137,896			137,749			137,380			136,335			135,627			135,380			135,991
Diluted:
Income from continuing operations		$	0.87		$	0.72		$	0.78		$	0.29		$	0.62		$	0.36		$	0.65		$	0.50
Income (loss) from discontinued operations		0.02			0.01			(0.07		)	(0.03		)	(0.02		)	(0.02		)	(0.19		)	(0.02		)
Net income		$	0.89		$	0.73		$	0.71		$	0.26		$	0.60		$	0.34		$	0.46		$	0.48
Average shares outstanding (In thousands)		139,704			140,618			140,287			140,229			138,326			136,828			136,257			137,059
Segment profit margins
Bell		11.5		%	10.4		%	12.1		%	10.3		%	10.2		%	13.2		%	9.1		%	7.5		%
Cessna		13.9			11.7			8.8			5.3			6.9			6.0			11.5			10.0
Fastening Systems		1.7			0.2			4.9			4.0			3.7			2.5			4.7			4.2
Industrial		6.2			6.0			7.1			6.1			5.6			4.1			5.9			5.4
Finance		30.3			21.7			26.3			23.1			33.8			17.6			16.2			16.4
Segment profit margin		10.1			8.3			9.2			7.4			8.4			7.2			8.3			7.4
Common stock information
Price range:	High	$	74.63		$	65.47		$	59.43		$	58.28		$	57.70		$	45.53		$	38.69		$	45.45
	Low	$	63.04		$	57.38		$	52.45		$	50.84		$	39.45		$	38.07		$	27.46		$	26.85
Dividends per share		$	0.350		$	0.325		$	0.325		$	0.325		$	0.325		$	0.325		$	0.325		$	0.325

70

Schedule II – Valuation and Qualifying Accounts

	Allowance for Doubtful Accounts Reserves
	(In millions)		2004			2003			2002
	Textron Manufacturing:
	Balance at beginning of year		$	66		$	48		$	50
	Charged to costs and expenses		22			43			23
	Deductions from reserves*		(24		)	(25		)	(25		)
	Balance at end of year		$	64		$	66		$	48
	Textron Finance:
	Balance at beginning of year		$	119		$	145		$	125
	Charged to costs and expenses		58			81			111
	Deduction from reserves*		(78		)	(107		)	(91		)
	Balance at end of year		$	99		$	119		$	145
	Textron Manufacturing’s Reserves for Recourse Liability to Textron Finance
	(In millions)		2004			2003			2002
	Balance at beginning of year		$	64		$	59		$	60
	Charged to costs and expenses		10			37			47
	Reclassifications to other assets		(14		)	(4		)	(20		)
	Reclassification from discontinued operations line		—			21			—
	Deductions from reserves*		(12		)	(49		)	(28		)
	Balance at end of year		$	48		$	64		$	59
	Textron Manufacturing’s Inventory FIFO Reserves
	(In millions)		2004			2003			2002
	Balance at beginning of year		$	124		$	139		$	131
	Charged to costs and expenses		38			52			81
	Deductions from reserves*		(46		)	(67		)	(73		)
	Balance at end of year		$	116		$	124		$	139
	*	Represents uncollectible accounts written off (less recoveries), inventory disposals, acquisitions and translation adjustments.
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
	None.
Item 9A. Controls and Procedures
	Disclosure Controls and Procedures - We have carried out an evaluation, under the supervision and the participation of our management, including our Chairman, President and Chief Executive Officer (our “CEO”) and our Executive Vice President and Chief Financial Officer (our “CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Act”) as of the end of the fiscal year covered by this report. Based upon that evaluation, our CEO and CFO concluded that our disclosure controls and procedures are effective in providing reasonable assurance that (a) the information required to be disclosed by us in the reports that we

71

	file or submit under the Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms, and (b) such information is accumulated and communicated to our management, including our CEO and CFO, as appropriate to allow timely decisions regarding required disclosure.
	Report of Management – See page 31
	Report of Independent Registered Public Accounting Firm on Internal Control over Financial Reporting – See page 32.
	Changes in Internal Controls – There has been no change in our internal control over financial reporting during the fourth fiscal quarter of the fiscal year covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
Item 9B. Other Information
	None
PART III
Item 10. Directors and Executive Officers of the Registrant
	The information appearing under “Audit Committee,” “Nominees for Director,” “Directors Continuing in Office,” “Corporate Governance,” “Code of Ethics” and “Section 16(a) Beneficial Ownership Reporting Compliance” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 27, 2005, is incorporated by reference into this Annual Report on Form 10-K.
	Information regarding our executive officers is contained in Part I of this Annual Report on Form 10-K.
Item 11. Executive Compensation
	The information appearing under “Compensation of Directors,” “Report of the Organization and Compensation Committee on Executive Compensation,” “Executive Compensation” and “Performance Graph” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 27, 2005, is incorporated by reference into this Annual Report on Form 10-K.
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
	The information appearing under “Security Ownership of Certain Beneficial Holders,” “Security Ownership of Management,” and “Equity Compensation Plan Information ” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 27, 2005, is incorporated by reference into this Annual Report on Form 10-K.

72

Item 13. Certain Relationships and Related Transactions
	The information appearing under “Transactions with Management and Others” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 27, 2005, is incorporated by reference into this Annual Report on Form 10-K.
Item 14. Principal Accountant Fees and Services
	The information appearing under “Fees to Independent Auditors” in the Proxy Statement for our Annual Meeting of Shareholders to be held on April 27, 2005, is incorporated by reference into this Annual Report on Form 10-K.
PART IV
Item 15. Exhibits and Financial Statement and Schedules
	Financial Statements and Schedules – See Index on Page 30
	Exhibits
	3.1	Restated Certificate of Incorporation of Textron as filed January 29, 1998. Incorporated by reference to Exhibit 3.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 1998.
	3.2	By-Laws of Textron. Incorporated by reference to Exhibit 3.2 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
	4.1	Indenture dated as of December 9, 1999, between Textron Financial Corporation and SunTrust Bank (formerly known as Sun Trust Bank, Atlanta) (including form of debt securities). Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to Textron Financial Corporation’s Registration Statement on Form S-3 (No. 333-88509).
	4.2	Indenture dated as of November 30, 2001, between Textron Financial Canada Funding Corp. and SunTrust Bank, guaranteed by Textron Financial Corporation. Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to Textron Financial Corporation’s Registration Statement on Form S-3 (No. 333-108464).
	4.3	Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Registration Statement on Form 10.
	NOTE:	Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request.
	NOTE:	Exhibits 10.1 through 10.18 below are management contracts or compensatory plans, contracts or agreements.
	10.1A	Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 10.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
	10.1B	Amendment to Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999.
	10.1C	2005 Objectives for Executive Officers Under Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 99.1 to Textron’s Current Report on Form 8-K filed January 31, 2005.

73

10.2	Deferred Income Plan for Textron Key Executives. Incorporated by reference to Exhibit 10.2 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.3	Supplemental Benefits Plan for Textron Key Executives, as amended. Incorporated by reference to Exhibit 10.3 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.4	Supplemental Retirement Plan for Textron Key Executives. Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.5	Survivor Benefit Plan For Textron Key Executives, as amended. Incorporated by reference to Exhibit 10.5 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.6A	Textron 1994 Long-Term Incentive Plan (“1994 Plan”). Incorporated by reference to Exhibit 10 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 1994.
10.6B	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.9B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 1999.
10.6C	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.6 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999.
10.6D	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.8D to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
10.7	Textron 1999 Long-Term Incentive Plan (2003 Restatement). Incorporated by reference to Exhibit 10 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2003.
10.7A	Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7B	Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7C	Form of Restricted Stock Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7D	Performance Factors for Executive Officers for 2005 – 2007 Cycle for Performance Share Units Issued under the Textron 1999 Long-Term Incentive Plan. Incorporated by reference to Exhibit 99.2 to Textron’s Current Report on Form 8- K filed January 31, 2005.
10.8	Form of Indemnity Agreement between Textron and its directors and executive officers. Incorporated by reference to Exhibit A to Textron’s Proxy Statement for its Annual Meeting of Shareholders on April 29, 1987.
10.9	Deferred Income Plan for Non-Employee Directors. Incorporated by reference to Exhibit 10.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002.
10.10A	Employment Agreement between Textron and John D. Butler dated July 23, 1998. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.10B	Restricted Stock Equivalent Award granted to John Butler on January 15, 2002. Incorporated by reference to Exhibit 10.1 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.11A	Employment Agreement between Textron and Lewis B. Campbell dated July 23, 1998. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.11B	Retention Award granted to Lewis B. Campbell on December 14, 1995. Incorporated by reference to Exhibit 10.16B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
10.11C	Retention Award granted to Lewis B. Campbell on June 1, 1999. Incorporated by reference to Exhibit 10.13C to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.

74

10.11D	Retention Award granted to Lewis B. Campbell on January 1, 2001, and revision of vesting schedule for the Retention Award granted on June 1, 1999. Incorporated by reference to Exhibit 10.14D to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.11E	Amendments to Retention Awards granted to Lewis B. Campbell. Incorporated by reference to Exhibit 10.14D to Textron’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001.
10.12A	Employment Agreement between Textron and Ted R. French dated December 21, 2000. Incorporated by reference to Exhibit 10.15A to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.12B	Retention Award granted to Ted R. French on January 1, 2001. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.13A	Employment Agreement between Textron and Mary L. Howell dated July 23, 1998. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.13B	Restricted Stock Equivalent Award granted to Mary L. Howell on January 15, 2002. Incorporated by reference to Exhibit 10.2 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.14	Employment Agreement between Textron and Steven R. Loranger dated February 6, 2003. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.15A	Employment Agreement between Textron and Terrence O’Donnell dated March 10, 2000. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2000.
10.15B	Restricted Stock Equivalent Award granted to Terrence O’Donnell on January 15, 2002. Incorporated by reference to Exhibit 10.3 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.16	Director Stock Awards. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002.
10.17	CitationShares Director’s Evaluation Program.
10.18	Amendment to 13 plans to comply with the American Jobs Creation Act of 2004.
10.19	5-Year Credit Agreement dated as of April 1, 2002, among Textron, the Banks listed therein and JPMorgan Chase Bank as Administrative Agent (the “5-year Credit Agreement”) . Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.20	364-day Credit Agreement dated March 31, 2003, among Textron Inc., the Banks listed therein and JPMorgan Chase Bank as Administrative Agent (the “364-day Credit Agreement”). Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.21	Amendment to the 5-Year Credit Agreement and the 364-day Credit Agreement. Incorporated by reference to Exhibit 10.19 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.22	Amendment No. 2 to the 364-day Credit Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2004.
10.23	364-Day Credit Agreement dated July 28, 2003, among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Current Report on Form 8-K as filed on August 26, 2003.
10.24	Amendment to 364-Day Credit Agreement dated July 28, 2003, among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004.
10.25	Five-Year Credit Agreement dated July 28, 2003 among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.2 to Textron Financial Corporation’s Current Report on Form 8-K as filed on August 26, 2003.

75

	10.26	Master Services Agreement between Textron Inc. and Computer Sciences Corporation dated October 27, 2004. Confidential treatment has been requested for portions of this agreement.
	12.1	Computation of ratio of income to combined fixed charges and preferred stock dividends of Textron Manufacturing.
	12.2	Computation of ratio of income to combined fixed charges and preferred stock dividends of Textron including all majority-owned subsidiaries.
	21	Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list.
	23	Consent of Independent Registered Public Accounting Firm.
	24	Power of attorney.
	31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
	31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
	32.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350.
	32.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350.
Signatures
	Pursuant to the requirement of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this Annual Report on Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized on this 24th day of February 2005.
			TEXTRON INC.
			Registrant
		By:	/s/Ted R. French
			Ted R. French
			Executive Vice President
			and Chief Financial Officer

76

Pursuant to the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below on this 24th day of February 2005, by the following persons on behalf of the registrant and in the capacities indicated:
Name		Title
	/s/Lewis B. Campbell	Chairman, President and Chief Executive Officer,
	Lewis B. Campbell	Director
	*	Director
	H. Jesse Arnelle
	*	Director
	Kathleen M. Bader
	*	Director
	R. Kerry Clark
	*	Director
	Ivor J. Evans
	*	Director
	Lawrence K. Fish
	*	Director
	Joe T. Ford
	*	Director
	Paul E. Gagné
	*	Director
	Lord Powell of Bayswater KCMG
	*	Director
	Brian H. Rowe
	*	Director
	Martin D. Walker
	*	Director
	Thomas B. Wheeler
	/s/Ted R. French	Executive Vice President and
	Ted R. French	Chief Financial Officer
		(principal financial officer)
	/s/Richard L. Yates	Senior Vice President and Controller
	Richard L. Yates	(principal accounting officer)
*By:	/s/Michael D. Cahn
	Michael D. Cahn
	Attorney-in-fact

77

Index to Exhibits

Exhibits	Description
3.1	Restated Certificate of Incorporation of Textron as filed January 29, 1998. Incorporated by reference to Exhibit 3.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 1998.
3.2	By-Laws of Textron. Incorporated by reference to Exhibit 3.2 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
4.1	Indenture dated as of December 9, 1999, between Textron Financial Corporation and SunTrust Bank (formerly known as Sun Trust Bank, Atlanta) (including form of debt securities). Incorporated by reference to Exhibit 4.1 to Amendment No. 2 to Textron Financial Corporation’s Registration Statement on Form S-3 (No. 333-88509).
4.2	Indenture dated as of November 30, 2001, between Textron Financial Canada Funding Corp. and SunTrust Bank, guaranteed by Textron Financial Corporation. Incorporated by reference to Exhibit 4.2 to Amendment No. 1 to Textron Financial Corporation’s Registration Statement on Form S-3 (No. 333-108464).
4.3	Support Agreement dated as of May 25, 1994, between Textron Inc. and Textron Financial Corporation. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Registration Statement on Form 10.
NOTE:	Instruments defining the rights of holders of certain issues of long-term debt of Textron have not been filed as exhibits because the authorized principal amount of any one of such issues does not exceed 10% of the total assets of Textron and its subsidiaries on a consolidated basis. Textron agrees to furnish a copy of each such instrument to the Commission upon request.
NOTE:	Exhibits 10.1 through 10.18 below are management contracts or compensatory plans, contracts or agreements.
10.1A	Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 10.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
10.1B	Amendment to Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999.
10.1C	2005 Objectives for Executive Officers Under Annual Incentive Compensation Plan for Textron Employees. Incorporated by reference to Exhibit 99.1 to Textron’s Current Report on Form 8-K filed January 31, 2005.

78

10.2	Deferred Income Plan for Textron Key Executives. Incorporated by reference to Exhibit 10.2 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.3	Supplemental Benefits Plan for Textron Key Executives, as amended. Incorporated by reference to Exhibit 10.3 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.4	Supplemental Retirement Plan for Textron Key Executives. Incorporated by reference to Exhibit 10.4 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.5	Survivor Benefit Plan For Textron Key Executives, as amended. Incorporated by reference to Exhibit 10.5 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.6A	Textron 1994 Long-Term Incentive Plan (“1994 Plan”). Incorporated by reference to Exhibit 10 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 2, 1994.
10.6B	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.9B to Textron’s Annual Report on Form 10-K for the fiscal year ended January 2, 1999.
10.6C	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.6 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 1999.
10.6D	Amendment to 1994 Plan. Incorporated by reference to Exhibit 10.8D to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.
10.7	Textron 1999 Long-Term Incentive Plan (2003 Restatement). Incorporated by reference to Exhibit 10 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended June 28, 2003.
10.7A	Form of Non-Qualified Stock Option Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7B	Form of Incentive Stock Option Agreement. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7C	Form of Restricted Stock Grant Agreement. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 3, 2004.
10.7D	Performance Factors for Executive Officers for 2005 – 2007 Cycle for Performance Share Units Issued under the Textron 1999 Long-Term Incentive Plan. Incorporated by reference to Exhibit 99.2 to Textron’s Current Report on Form 8- K filed January 31, 2005.
10.8	Form of Indemnity Agreement between Textron and its directors and executive officers. Incorporated by reference to Exhibit A to Textron’s Proxy Statement for its Annual Meeting of Shareholders on April 29, 1987.
10.9	Deferred Income Plan for Non-Employee Directors. Incorporated by reference to Exhibit 10.1 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002.
10.10A	Employment Agreement between Textron and John D. Butler dated July 23, 1998. Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.10B	Restricted Stock Equivalent Award granted to John Butler on January 15, 2002. Incorporated by reference to Exhibit 10.1 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.11A	Employment Agreement between Textron and Lewis B. Campbell dated July 23, 1998. Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.11B	Retention Award granted to Lewis B. Campbell on December 14, 1995. Incorporated by reference to Exhibit 10.16B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 1995.
10.11C	Retention Award granted to Lewis B. Campbell on June 1, 1999. Incorporated by reference to Exhibit 10.13C to Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2000.

79

10.11D	Retention Award granted to Lewis B. Campbell on January 1, 2001, and revision of vesting schedule for the Retention Award granted on June 1, 1999. Incorporated by reference to Exhibit 10.14D to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.11E	Amendments to Retention Awards granted to Lewis B. Campbell. Incorporated by reference to Exhibit 10.14D to Textron’s Annual Report on Form 10-K for the fiscal year ended December 29, 2001.
10.12A	Employment Agreement between Textron and Ted R. French dated December 21, 2000. Incorporated by reference to Exhibit 10.15A to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.12B	Retention Award granted to Ted R. French on January 1, 2001. Incorporated by reference to Exhibit 10.15B to Textron’s Annual Report on Form 10-K for the fiscal year ended December 30, 2000.
10.13A	Employment Agreement between Textron and Mary L. Howell dated July 23, 1998. Incorporated by reference to Exhibit 10.5 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended October 3, 1998.
10.13B	Restricted Stock Equivalent Award granted to Mary L. Howell on January 15, 2002. Incorporated by reference to Exhibit 10.2 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.14	Employment Agreement between Textron and Steven R. Loranger dated February 6, 2003. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.15A	Employment Agreement between Textron and Terrence O’Donnell dated March 10, 2000. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended July 1, 2000.
10.15B	Restricted Stock Equivalent Award granted to Terrence O’Donnell on January 15, 2002. Incorporated by reference to Exhibit 10.3 of Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 30, 2002.
10.16	Director Stock Awards. Incorporated by reference to Exhibit 10.17 to Textron’s Annual Report on Form 10-K for the fiscal year ended December 28, 2002.
10.17	CitationShares Director’s Evaluation Program.
10.18	Amendment to 13 plans to comply with the American Jobs Creation Act of 2004.
10.19	5-Year Credit Agreement dated as of April 1, 2002, among Textron, the Banks listed therein and JPMorgan Chase Bank as Administrative Agent (the “5-year Credit Agreement”) . Incorporated by reference to Exhibit 10.2 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.20	364-day Credit Agreement dated March 31, 2003, among Textron Inc., the Banks listed therein and JPMorgan Chase Bank as Administrative Agent (the “364-day Credit Agreement”). Incorporated by reference to Exhibit 10.3 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended March 29, 2003.
10.21	Amendment to the 5-Year Credit Agreement and the 364-day Credit Agreement. Incorporated by reference to Exhibit 10.19 to Textron’s Annual Report on Form 10-K for the fiscal year ended January 3, 2004.
10.22	Amendment No. 2 to the 364-day Credit Agreement. Incorporated by reference to Exhibit 10.1 to Textron’s Quarterly Report on Form 10-Q for the fiscal quarter ended April 3, 2004.
10.23	364-Day Credit Agreement dated July 28, 2003, among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Current Report on Form 8-K as filed on August 26, 2003.
10.24	Amendment to 364-Day Credit Agreement dated July 28, 2003, among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.1 to Textron Financial Corporation’s Quarterly Report on Form 10-Q for the fiscal quarter ended September 30, 2004.
10.25	Five-Year Credit Agreement dated July 28, 2003 among Textron Financial Corporation, the Banks listed therein, and JPMorgan Chase Bank, as Administrative Agent. Incorporated by reference to Exhibit 10.2 to Textron Financial Corporation’s Current Report on Form 8-K as filed on August 26, 2003.

80

10.26	Master Services Agreement between Textron Inc. and Computer Sciences Corporation dated October 27, 2004. Confidential treatment has been requested for portions of this agreement.
12.1	Computation of ratio of income to combined fixed charges and preferred stock dividends of Textron Manufacturing.
12.2	Computation of ratio of income to combined fixed charges and preferred stock dividends of Textron including all majority-owned subsidiaries.
21	Certain subsidiaries of Textron. Other subsidiaries, which considered in the aggregate do not constitute a significant subsidiary, are omitted from such list.
23	Consent of Independent Registered Public Accounting Firm.
24	Power of attorney.
31.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(a).
31.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(a).
32.1	Certification of Chief Executive Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350.
32.2	Certification of Chief Financial Officer Pursuant to Rule 13a-14(b) and 18 U.S.C. 1350.

EX-10.17

Exhibit 10.17

CitationShares Director’s Evaluation Program

Non-employee directors participate in the CitationShares Director’s Evaluation Program established by Textron to provide ongoing evaluation of the performance of the CitationShares fractional ownership program, a joint venture between Cessna Aircraft Company, a wholly-owned subsidiary of Textron, and TAG Aviation USA.  Under the program, Textron purchased a one-eighth ownership share of two Cessna Citation aircraft from CitationShares entitling it to a fixed number of hours of usage of the aircraft during the year, and makes flight time available for personal use to the non-employee directors.  Following each flight, a participating director is expected to complete an evaluation of his or her travel experience to assist Textron in ensuring that CitationShares maintains its customer service focus.  The aircraft also are utilized by Textron for travel by executives and directors to and from Board meetings and other Board-related activities.  Participating directors are required to reimburse Textron for its cost per hour of flight time purchased, to the extent their personal use of the aircraft exceeds ten hours of flight time per calendar year.

EX-10.18

Exhibit 10.18

AMENDMENT TO

DEFERRED INCOME PLAN
FOR TEXTRON KEY EXECUTIVES

TEXTRON INC. DEFERRED INCOME
PLAN FOR EXECUTIVES

DEFERRED INCOME PLAN
FOR NON-EMPLOYEE DIRECTORS

SUPPLEMENTAL BENEFITS PLAN
FOR TEXTRON KEY EXECUTIVES

TEXTRON SUPPLEMENTAL BENEFITS
PLAN FOR EXECUTIVES

SUPPLEMENTAL RETIREMENT PLAN
FOR TEXTRON KEY EXECUTIVES

TEXTRON SUPPLEMENTAL PENSION PLAN
IN LIEU OF STOCK OPTIONS

1999 LONG TERM INCENTIVE PLAN

1994 LONG TERM INCENTIVE PLAN

SURVIVOR BENEFIT PLAN
FOR TEXTRON KEY EXECUTIVES

ANNUAL INCENTIVE COMPENSATION PLAN
FOR TEXTRON EMPLOYEES

SEVERANCE COMPONENT OF TEXTRON BENEFITS PLAN

SEVERANCE PLAN FOR TEXTRON KEY EXECUTIVES

1.Each of the plans listed above (individually, a “Plan,” and collectively, the “Plans”) shall be operated and administered in good-faith compliance with the American Jobs Creation Act of 2004 (the “AJCA”), including any regulations or other guidance interpreting the AJCA, effective with respect to amounts deferred after December 31, 2004.

2.To the extent that any provision of the Plans is inconsistent with the restrictions imposed by the AJCA (including, but not limited to, restrictions on the timing of elections, the time or form of distributions, the acceleration of benefits, or the events that will constitute a substantial risk of forfeiture), that provision shall be deemed to be amended to the extent necessary to bring it into good-faith compliance with the AJCA.

3.The foregoing amendments shall not affect any amounts that are deferred before January 1, 2005, within the meaning of the AJCA, and no change shall be made in the administration of the Plans that would constitute a “material modification” of the Plans with respect to such amounts.

4.To the extent permitted in regulations or other guidance issued by the Treasury Department or Internal Revenue Service, the Plans may be amended to offer eligible participants an opportunity to terminate their participation in the Plans or to cancel an outstanding deferral election relating to amounts deferred after December 31, 2004.

5.This amendment shall remain in effect until the Plans are further amended to reflect the requirements of the AJCA, as interpreted in regulations or other guidance issued by the Treasury Department or Internal Revenue Service.

Effective:  January 1, 2005

EX-10.26

Exhibit 10.26

Pursuant to 17 CFR 240.24b-2, confidential information has been omitted and has been filed separately with the Securities and Exchange Commission pursuant to a Confidential Treatment Application filed with the Commission.

Textron CSC

Dated: October 27, 2004

MASTER SERVICES AGREEMENT

Between

TEXTRON INC.

and

COMPUTER SCIENCES CORPORATION

Textron Inc
Master Services Agreement	Company Proprietary and Confidential

TABLE OF CONTENTS

MASTER SERVICES AGREEMENT
BETWEEN
1.	DEFINITIONS
2.	TERM
	2.1	Term
	2.2	Extension of Term
3.	SERVICES
	3.1	Scope of Services
	3.2	Textron Web Portal
	3.3	Services Performed by Textron or Third Parties
	3.4	Other Service Recipients
	3.5	Removal of Service Recipients
	3.6	Transition and Transformation
	3.7	Extraordinary Events
	3.8	Decrease in Resource Unit Usage Volume
	3.9	Disaster Recovery
4.	PERFORMANCE STANDARDS AND SERVICE CREDITS
	4.1	Performance of the Services
	4.2	Quality Assurance and Improvement Programs
	4.3	Periodic Reviews
	4.4	Failure to Perform
	4.5	Service Credits
	4.6	Measurement and Monitoring Tools
5.	SERVICE CHARGES
	5.1	General
	5.2	Pass-Through Expenses
	5.3	Cost Improvement
	5.4	Significant Advances in Technology
	5.5	Taxes
	5.6	Incidental Expenses
	5.7	Benchmarking
6.	INVOICING AND PAYMENT
	6.1	Invoicing
	6.2	Payment Due
	6.3	Proration
	6.4	Prepaid Amounts
	6.5	Refunds and Credits
	6.6	Deductions
	6.7	Accountability
	6.8	Disputed Charges
	6.9	Net Payments to Textron
7.	TEXTRON FACILITIES
	7.1	Provision of Textron Facilities
	7.2	Rights in Textron Facilities
	7.3	Use of Textron Facilities
	7.4	Relocation of Facilities
	7.5	Return of Textron Facilities
8.	EQUIPMENT AND THIRD PARTY CONTRACTS
	8.1	Textron-Owned Existing Equipment
	8.2	Managed Contracts
	8.3	Transfer of Third Party Contracts
	8.4	Right of Use Under Managed Contracts
	8.5	Equipment Acquisitions during the Term
	8.6	Required Consents

i

	8.7	Shared-Host Processor License
	8.8	Subcontractors
	8.9	Relocation of Equipment
9.	SOFTWARE AND PROPRIETARY RIGHTS
	9.1	Intellectual Property Rights Existing at the Signature Date
	9.2	Textron Software and Textron Material
	9.3	CSC Software and CSC Material
	9.4	Third Party Software
	9.5	Work Product
	9.6	Third Party Application Software Acquired During Term
	9.7	Third Party Systems Software Acquired During the Term
	9.8	Non-Infringement, Conformity to Specifications and Confirmation of Ownership
	9.9	Relocation of Software
10.	EMPLOYEES
	10.1	Transfer of Employees
	10.2	Key CSC Positions
	10.3	Key CSC Position Approvals Procedure
	10.4	Retaining Key CSC Positions
	10.5	Use and Compliance of CSC Personnel
	10.6	Turnover of CSC Personnel
	10.7	Replacement of CSC Personnel at Textron’s Request
	10.8	In-Scope Contractors
	10.9	Assignment and Reassignment of CSC Employees
11.	SUBCONTRACTORS
	11.1	Approval of Material Subcontractors
	11.2	Key Subcontracts
	11.3	CSC Subcontractor Compliance
	11.4	Remediation of CSC Subcontractor Problems
	11.5	Revocation of Approval
	11.6	Procedure After Revocation
	11.7	Requirements for CSC Subcontractors
	11.8	Liability for Contractors
12.	TEXTRON RESPONSIBILITIES
	12.1	Cooperation
	12.2	Savings Section
	Nothing in this Section 12.2 is intended to relieve Textron of liability for direct, provable damages that may be incurred by CSC as a result of any of the circumstances described in Section 12.2.1.
13.	CONTRACT MANAGEMENT
	13.1	Governance
	13.2	Reports
	13.3	Technology Plan
14.	DUE DILIGENCE
15.	AUDITS AND RECORD KEEPING
	15.1	Audit Rights
	15.2	CSC Audits
	15.3	Audit Follow-Up
	15.4	Records Retention
	15.5	CSC Subcontractor and Pass-Through Expenses
	15.6	Duration of Rights
16.	CONFIDENTIAL INFORMATION
	16.1	Protection of Confidential Information
	16.2	Use of Confidential Information
	16.3	Handling Textron Confidential Information
	16.4	Handling CSC’s Confidential Information
	16.5	Exceptions to Obligations of Confidentiality
	16.6	Period of Confidentiality
	16.7	Returning Material, Data and Information
17.	REPRESENTATIONS, WARRANTIES AND COVENANTS

ii

	17.1	Representations, Warranties and Covenants by CSC
	17.2	Representations and Warranties By Textron
	17.3	Compliance with Laws
	17.4	No Additional Representations and Warranties
18.	INDEMNITIES
	18.1	Indemnity by CSC
	18.2	Indemnity by Textron
	18.3	Anticipation of Infringement
	18.4	Enforcement of Indemnities
	18.5	Indemnification Procedures
	18.6	Employee Indemnities
19.	LIMITATION OF LIABILITY
	19.1	Limitation of Liability
20.	INSURANCE AND RISK
	20.1	Insurance Coverage
	20.2	Terms of Insurance
	20.3	Risk of Loss and Damage
21.	FORCE MAJEURE
	21.1	Force Majeure Events
	21.2	Allocation of Resources
	21.3	Subcontractors
	21.4	Textron Option
	21.5	No Compensation
22.	DISPUTE RESOLUTION AND CHOICE OF LAW
	22.1	Informal Dispute Resolution
	22.2	Alternative Dispute Resolution
	22.3	Special Procedure following a Notice of Termination
	22.4	Formal Dispute Resolution
	22.5	Equitable Relief
	22.6	Continued Performance
	22.7	Governing Law
	22.8	Waiver of Right to Trial by Jury
23.	STEP-IN RIGHTS
24.	TERMINATION
	24.1	Termination for Cause or Insolvency by Textron
	24.2	Termination for Convenience by Textron
	24.3	Termination by Textron for Change of Control of CSC
	24.4	Termination by CSC for Non-Payment
	24.5	Effective Date of Termination
	24.6	Termination Charges
	24.7	Effect of Termination
	24.8	Termination Assistance
	24.9	Equitable Remedies
	24.10	Accrued Rights
	24.11	Survival
25.	GENERAL
	25.1	Non-Solicitation of Employees
	25.2	Public Statement
	25.3	Notices
	25.4	Relationship of Parties
	25.5	No Security
	25.6	Waivers, Consents and Approval
	25.7	Entire Agreement
	25.8	Amendments
	25.9	Counterparts
	25.10	Cumulative Rights
	25.11	Severability, etc.
	25.12	Costs
	25.13	Third Party Rights
	25.14	Further Assurances

iii

25.15	Assignment
25.16	Interpretation
25.17	Precedence
25.18	Conflicts of Interest

iv

SCHEDULES
Schedule A	Definitions
Schedule B	Cross-Functional Obligations
Schedule C	Service Recipients and Textron Facilities
Schedule D	Pricing
Schedule E	Employees
Schedule F	Existing Equipment and Software
Schedule G	Omitted Intentionally
Schedule H	Termination Assistance
Schedule I	A. Transition Plan and Milestones
	B. Transformation Plans and Milestones
Schedule J	Key Subcontracts and Material Subcontractors
Schedule K	Governance
Schedule L	Competitors
Schedule M	Minimum IT General Controls
Schedule N	Refresh Schedule
Schedule O	Omitted Intentionally
Schedule P	In-flight Projects
ATTACHMENTS
Tower Services Agreement
Attachment 1	Mainframe Services Agreement
	Appendix 1A: Service Description
	Appendix 1B: Service Level Agreement
	Appendix 1C: Pricing
Attachment 2	Midrange Services Agreement
	Appendix 2A: Service Description

v

	Appendix 2B: Service Level Agreement
	Appendix 2C: Pricing
Attachment 3	Network Services Agreement
	Appendix 3A: Service Description
	Appendix 3B: Service Level Agreement
	Appendix 3C: Pricing
	Appendix 3D: Network Sites
	Appendix 3E: Allocation of AT&T Charges
Attachment 4	Workstation Services Agreement
	Appendix 4A: Service Description
	Appendix 4B: Service Level Agreement
	Appendix 4C: Pricing
Attachment 5	Service Desk Services Agreement
	Appendix 5A: Service Description
	Appendix 5B: Service Levels
	Appendix 5C: Pricing
	Appendix 5D: Non-Infrastructure Related Service Desk Services
	Appendix 5E: Key Personnel for Platinum Executive Support
	Appendix 5F: U.S. Restricted Facilities
	Appendix 5G: U.K. Restricted Facilities
	Appendix 5H: Non-U.S. Facilities Possessing Controlled Data

vi

MASTER SERVICES AGREEMENT

THIS MASTER SERVICES AGREEMENT is made as of the [       ] day of       , 2004, (the “Signature Date”) by and between TEXTRON INC., a Delaware corporation with its principal place of business at 40 Westminster Street, Providence, Rhode Island 02903-2596, (“Textron”) and COMPUTER SCIENCES CORPORATION, a Nevada corporation with its principal place of business at 2100 East Grand Avenue, El Segundo, California 90245 (“CSC”).

RECITALS

(A)On April 30, 2004, Textron issued a Request for Proposal to CSC for the outsourcing of certain global IT infrastructure services, including Mainframe Services, Midrange Services, Network Services, Workstation Services and Service Desk Services (each referred to as a “Tower of Services”).

(B)In response to the Request for Proposal and the subsequent evaluation and clarification process, CSC has represented to Textron that CSC has the necessary skill and experience to provide the Services as required by Textron and the Service Recipients.

(C)Consistent with the global nature of Textron’s requirements and the scope of Services involved, Textron and CSC have agreed to enter into this Agreement which will govern each Tower of Services.

(D)Pursuant to the terms of this Agreement, (i) Textron and CSC have contemporaneously entered into individual agreements for each Tower of Services which are attached hereto as Attachments 1 through 5 (collectively, with any other Attachments that may be added in the future by mutual agreement of the parties, the “Tower Services Agreements”) that set forth additional terms and conditions that are unique to each Tower of Services, including a description of the relevant Services in the form of an attached Service Description and the Service Levels and Service Charges applicable to those Services, and (ii) certain Service Recipients and certain Affiliates of CSC have entered or shall enter into individual agreements, substantially in the form of Annex C-1 to Schedule C, in order to give the parties thereto the benefit of this Agreement and/or to conform to the Laws, customs and practices of the relevant jurisdiction (collectively, the “Local Enabling Agreements”).

(E)Subject to the terms of this Agreement, the Tower Services Agreements and the Local Enabling Agreements, CSC has agreed to provide IT infrastructure services for the benefit of Textron, the Service Recipients and the End Users.

NOW, THEREFORE, IN CONSIDERATION OF THEIR MUTUAL PROMISES, THE PARTIES HERETO DO HEREBY AGREE AS FOLLOWS:

1.DEFINITIONS

In this Agreement capitalized terms not expressly defined in the body of this Agreement shall have the meaning set forth in Schedule A (Definitions).

1

2.TERM

2.1Term

The term of this Agreement shall begin on the Signature Date and shall expire, unless terminated earlier in accordance with Section 23.1.3 or extended in accordance with Section 2.2, on the latest-to-occur of (a) the tenth (10^th) anniversary of the earliest Handover Date or (b) the expiration of the last-to-expire Tower Services Agreement in accordance with its terms, or (c) completion of the Termination Assistance described in Section 24.8 in connection with the last-to-expire Tower Services Agreement (the “Term”).

2.2Extension of Term

By giving CSC written notice not less than [***] prior to the then applicable expiration date of this Agreement (other than the expiration date established pursuant to Section 2.1(b)), Textron shall have the right to extend the Term for a further period of up to [***] on the terms of this Agreement (including pricing) then in effect.  Textron shall have [***] such extension options of up to [***].

3.SERVICES

3.1Scope of Services

Except as otherwise expressly provided in this Agreement, any Tower Services Agreement or any Local Enabling Agreement, CSC shall, commencing on the applicable Handover Date, provide to Textron and each of the Service Recipients the following services and functions and undertake the following responsibilities, as they may be supplemented, enhanced, modified or replaced in accordance with this Agreement, but excluding those services, functions or responsibilities that are specifically identified in this Agreement, a Tower Services Agreement or a Local Enabling Agreement as Textron’s responsibility or not CSC’s responsibility (collectively, the “Services”):

3.1.1the services, functions and responsibilities specified in this Agreement, together with all Schedules and Annexes hereto, the Tower Services Agreements, together with all Appendices thereto and Local Enabling Agreements;

3.1.2any service, function or responsibility that relates to Infrastructure Systems performed within the [***] period preceding the Signature Date by the employees of Textron, the Service Recipients and their respective contractors who are identified in Schedule E who were displaced or transitioned to CSC or whose functions were displaced as a result of this Agreement, even if such service, function or responsibility is not specifically described in this Agreement at the same level as in effect on the Signature Date.

3.1.3any service, function or responsibility that was performed within the [***] period preceding the Signature Date under any Assigned Contract listed in Annex F-2 to Schedule F (Existing Equipment and Software) or any portion of any Managed Contract listed in Annex F-3 to Schedule F (Existing Equipment and Software) as of the Signature Date that is related to any Services described in any Tower Services Agreement or other obligations of CSC.

3.1.4new services and Projects requested by Textron that are related to the Services, subject to Scope Change Procedure;

3.1.5any incidental services, functions and responsibilities not specified in this Agreement, a Tower Services Agreement or a Local Enabling Agreement as within the scope of CSC’s responsibilities but that are reasonably and necessarily required for, or related to,

2

the proper performance and provision of the services, functions and responsibilities set forth above; the foregoing is not intended to expand materially the scope of CSC’s responsibilities under this Agreement; and

3.1.6consulting to Textron related to the Services cost benefit analysis, project planning and estimates, project coordination and management, audit, impact analysis of current operations, timing and schedule considerations, CSC coordination, and completion of configuration and quality management as necessary to provide the Services.

3.1.7The applicability of the above sections shall not override the express limitations on work effort agreed by the Parties elsewhere in the Agreement (e.g., limits on Resource Unit volumes and associated Pricing in Schedule D).

3.2Textron Web Portal

CSC shall develop, operate, maintain and support a secure interactive internet web portal/s for exclusive access and use by Textron, Textron’s designees and the Service Recipients, in order to enable them to view and track all relevant processes, functions, changes and status required by them in relation to the Services, in form and content, and with timing, satisfactory to Textron, including but not limited to governance matters, invoicing and payment matters, all reports required of CSC and Changes.

3.3Services Performed by Textron or Third Parties

3.3.1Textron, at any time, may perform itself, or retain Third Parties to perform, any of the Services.  If, and to the extent that, the scope of Services being performed by CSC is reduced pursuant to this Section 3.3.1, then the Service Charges shall be adjusted in accordance with the Resource Unit Change Procedure and Schedule D (Pricing).

3.3.2To the extent that Textron performs or retains Third Parties to perform any services that formed part of the Services pursuant to Section 3.3.1, or any other services related to the Services, CSC shall cooperate with Textron and such Third Parties to cause such services to be carried out in a coordinated, effective and timely manner, provided that Textron shall be responsible for any increased costs to CSC, and CSC shall not be responsible for degradation in Services, resulting therefrom.  In the case of services that formed part of the Services, such CSC cooperation shall include, as necessary to enable such services to be performed:

(a)providing reasonable access to any facilities used to provide the Services;

(b)providing reasonable access to Infrastructure Systems, to the extent permitted under any underlying agreements with Third Parties; and

(c)providing such then-existing information regarding the operating environment, system constraints and other operating parameters as a person with reasonable commercial skills and expertise would find reasonably necessary to perform the Services.

3.3.3Third Parties retained by Textron, to the extent that they have been provided access to the facilities, assets and information specified in Section 3.3.2, shall comply with CSC’s reasonable security and confidentiality requirements.  CSC shall immediately notify Textron if an act or omission of such a Third Party causes a problem or delay in providing the Services and shall work with Textron to prevent or circumvent such problem or delay.

3.3.4Notwithstanding the foregoing, CSC shall not be required to disclose any of CSC’s proprietary information to a CSC Competitor.

3

3.4Other Service Recipients

3.4.1Except as otherwise expressly provided in the Agreement, any Tower Services Agreement or any Local Enabling Agreement, CSC shall, (a) as of the Signature Date, commence providing such preliminary Services in support of the Transition Plan as may be performed prior to the applicable Handover Date(s), and (b) as of the applicable Handover Date (s), provide the Services specified in the Tower Services Agreements to Textron, to the Service Recipients and to End Users in accordance with the provisions of the Agreement.  Textron shall retain all operational responsibility for services included in the Services until the applicable Handover Date(s).  Subject to the Resource Unit Change Procedure and, if applicable, the Scope Change Procedure and Schedule D (Pricing), CSC shall also provide the Services to such other entities who otherwise meet the definition of a Service Recipient as Textron may designate in writing from time to time, each of which shall become a Service Recipient as of the date specified by Textron in its written designation and deemed to be added to Schedule C attached hereto as of such date.

3.4.2With respect to the entities identified in or added (pursuant to Section 3.4.1) to Schedule C as Service Recipients:

(a)Services rendered to Service Recipients and End Users (including under Local Enabling Agreements) shall be deemed Services rendered to Textron and Textron shall have all the rights, responsibilities and obligations with respect to such Services as if they were directly rendered to Textron;

(b)Textron shall be responsible for the compliance by Service Recipients and End Users with Textron’s obligations to the extent Textron performs such obligations through such End Users and Service Recipients;

(c)Textron shall ensure that any claims that the Service Recipients may have under this Agreement or otherwise in connection with the Services against CSC or any CSC Affiliate or CSC Subcontractor are assigned by the Service Recipients to Textron, and CSC agrees that such claims may be so assigned; any such claims that are not so assigned shall be void; and

(d)the Parties agree that no consent from the Service Recipients is required for the Parties to vary or terminate this Agreement (whether or not in a way that varies or extinguishes rights or benefits in favor of such Service Recipients).

3.4.3CSC shall ensure that any claims that the CSC Affiliates and CSC Subcontractors may have under this Agreement or otherwise in connection with the Services against Textron or any Service Recipient or End User are assigned by the CSC Affiliates and CSC Subcontractors to CSC, and Textron agrees that such claims may be so assigned; any such claims that are not so assigned shall be void.

3.4.4As and when reasonably requested by Textron for use in the process of evaluating whether to designate any entity for addition to Schedule C as a Service Recipient or an End User, CSC shall provide to Textron such information and other cooperation regarding performance of the Services for that entity as would be reasonably necessary for Textron to submit a proposal for performing the Services for that entity.  CSC’s cooperation shall include performing due diligence on any such entity.

3.4.5Notwithstanding the foregoing, Textron and certain Service Recipients identified in Schedule C (Service Recipients) as “Contracting Service Recipients” and CSC and

4

certain CSC Affiliates identified in Schedule Jas “Contracting CSC Affiliates”shall enter into Local Enabling Agreements.  CSC shall be liable as a principal for all obligations of CSC and the Contracting CSC Affiliates under the Local Enabling Agreements or otherwise in connection with the Services, as either such Local Enabling Agreements or the Services may change from time to time.  Textron shall be liable as a principal for all obligations of Textron and the Contracting Service Recipients under the Local Enabling Agreements or otherwise in connection with the Services as either such Local Enabling Agreements or the Services may change from time to time.  No notification to or consent of CSC, Textron, any Contracting Service Recipient or any Contracting CSC Affiliate shall be required to continue in effect the liability of CSC for any and all obligations, whether now existing or hereafter created, of CSC and the Contracting CSC Affiliates and the liability of Textron for any and all obligations, whether now existing or hereafter created, of Textron and the Contracting Service Recipients.  In the event any Local Enabling Agreement is not entered into on the Signature Date for the applicable Services and Services which would otherwise be covered by a Local Enabling Agreement are rendered, then the designated Contracting CSC Affiliate shall be deemed to have provided such Services and the designated Contracting Service Recipient shall be deemed to have accepted such Services under the terms of this  MSA and all Schedules, Annexes, Appendices, Attachments and Exhibits thereto unless and until a Local Enabling Agreement is entered into.

3.5Removal of Service Recipients

3.5.1Subject to the Resource Unit Change Procedure and Schedule D (Pricing), Textron may, at any time and from time to time in its sole discretion, remove any Service Recipient from the list of entities identified on Schedule C upon written notice to CSC, which entity shall no longer be a Service Recipient as of the date specified by Textron in its written notice and shall be deemed to be deleted from Schedule C attached hereto as of such date.

3.5.2In addition, subject to the Resource Unit Change Procedure and Schedule D (Pricing), in the event that:

(a)	Textron disposes of Textron’s interest in any Service Recipient;
(b)	Textron or any Service Recipient transfers its business or operations that receive the Services to another entity; or
(c)	Textron terminates Textron’s relationship with a Service Recipient for that Service Recipient’s receipt of the Services, either by decision of Textron or the Service Recipient,

then:

(i)Textron may remove that Service Recipient or the transferred business or operations from the scope of this Agreement as of the date specified by Textron in a written notice to CSC;

(ii)the Service Charges shall be adjusted to reflect the reduction in Resource Units in accordance with the procedure set forth in Schedule D (Pricing) to reflect the reduced scope and/or volume of the Services;

(iii)CSC shall, at Textron’s request, provide Termination Assistance in relation to the removed Service Recipient; and

5

(iv)if the Service Recipient or business or operations are removed from the scope of this Agreement pursuant to this Section 3.5.2 and the disposal or transfer is to another entity, then CSC shall, if requested by Textron, provide (a) the Services to that entity pursuant to this Agreement for up to [***] after the effective date of such removal, and (b) Termination Assistance to that entity for a Termination Assistance Period determined in accordance with Section 24.8.1 by considering the expiration of this Agreement to be, solely for purposes of such determination, the end of the period for which Textron requests the provision of Services to that entity.

3.5.3Textron may partially remove a Service Recipient from the scope of this Agreement based upon the principles of this Section 3.5 and upon so doing CSC shall comply with the other provisions of this Section.

3.6Transition and Transformation

3.6.1The Transition shall be carried out as follows:

(a)	within [***] following the Signature Date, CSC shall propose and agree with Textron on changes to the overall written Transition Plan set forth in Schedule I.A (Transition) for the orderly handover of the Services from Textron and the Service Recipients to CSC, including staff loading charts for both Textron and CSC and scope of required activities for implementing the provision of the Services to Textron and the Service Recipients;
(b)	the In-Scope Employees shall be dealt with in accordance with Schedule E (Employees);
(c)	the Assigned Contracts and the Transferred Equipment shall be transferred from Textron to CSC in accordance with Section 8;
(d)	the use of the Existing Equipment that is Supported Equipment, other than the Transferred Equipment, shall be provided by Textron to CSC in accordance with Section 8; and
(e)	the Textron Facilities and related facility management services shall be provided by Textron to CSC in accordance with Schedule C (Service Recipients and Textron Facilities).

3.6.2Within [***] following the Signature Date, CSC shall propose and agree with Textron on changes to the Transformation Plan set forth in Schedule I.B (Transformation) to include an overall written timetable for the completion of detailed plans for transformation of the Infrastructure System to the status that shall enable CSC to provide the Services and meet the End-State Service Levels that are required by each Tower Services Agreement.  Each proposed plan shall include a specific description of each proposed Systems Change and a corresponding Impact Analysis, and upon mutual agreement by the Parties, each such plan shall be referred to individually as a “Transformation Plan,” and such plans shall be referred to collectively as the “Transformation Plans.”

3.6.3CSC shall perform the Transition and Transformation with minimal disruption to the business of Textron or any of the Service Recipients.

3.6.4CSC shall be responsible for the overall management of the Transition and Transformation and shall keep the Transition and Transformation on schedule in

6

accordance with the timetable set forth in the Transition Plan and the Transformation Plans, respectively.  In addition, CSC shall identify and resolve, or assist Textron and any Service Recipient in the resolution of (in the case of a Textron responsibility), any problems encountered in the timely completion of each task identified in the Transition Plan or in any Transformation Plan, whether the task is the responsibility of CSC or Textron.  CSC shall utilize information technology quality procedures of a level at least as high as those utilized by Textron immediately prior to the Signature Date and comply, insofar as practicable, with all relevant requirements under Section 8.2 (Managed Contracts), Section 8.3.5 (Transfer of Third Party Contracts), Section 8.7 (Required Consents) and the proper transfer of employees as part of CSC’s Transition and Transformation obligations.  Textron shall comply with all obligations specifically identified as Textron obligations in the Transition Plan and the Transformation Plans.

3.6.5CSC shall provide Textron and those Service Recipients designated by Textron with weekly written progress reports that describe, in reasonable detail, the current status of the Transition (during the Transition Period) and Transformation (during the Transformation Period), indicate the progress of the work being performed, identify any actual or anticipated problems or delays, assess the impact of such problems or delays on CSC’s provision of the Services and describe all actions being taken or to be taken to remedy such problems or delays.

3.6.6In the event that CSC fails to fulfill any of CSC’s material obligations with respect to the Transition or Transformation in accordance with the Transition Plan or any Transformation Plan and this Section 3 by the dates specified in the Transition Plan or the Transformation Plan, as the case may be, CSC shall, at Textron’s request and without prejudice to Textron’s other rights and remedies in Law or under this Agreement, arrange (at CSC’s own cost, except as provided below) all such additional resources as may be reasonably necessary to satisfy said obligations as early as practicable thereafter.  CSC shall notify Textron as soon as CSC becomes aware of the failure and shall follow any applicable escalation procedures in the Transition Plan or the applicable Transformation Plan.

3.6.7In the event that CSC’s failure to fulfill any obligation in the Transition Plan or any Transformation Plan by the date specified in the Transition Plan or the applicable Transformation Plan, respectively, is primarily due to:

(a)	a material breach by Textron or any Service Recipient;
(b)	a failure by Textron, a Service Recipient, or an End User to perform Textron’s obligations under the Transition Plan or any Transformation Plan, as modified from time to time by mutual agreement of the Parties; or
(c)	subject, as applicable, to fulfillment by CSC of its management obligations for the Managed Contracts and CSC’s advising Textron within a reasonable time of any failure by a Textron contractor in performing any of Textron’s obligations under the Transition Plan or any Transformation Plan about which CSC knew, and which was unknown to Textron, a failure by any of Textron’s contractors in performing any of Textron’s obligations under the Transition Plan or any Transformation Plan,

then the costs of the nature described in Section 3.6.6 shall be borne by Textron.

7

3.6.8Delivery and Delays Generally

(a)CSC acknowledges and accepts that it is material to Textron’s strategic business and financial interests that CSC complete each deliverable specified in the Transition Plan and the Transformation Plans by the applicable Milestone Date and, accordingly, time is of the essence with respect thereto.

(b)It is acknowledged and accepted by CSC that the Transition Plan and the Transformation Plans shall be designed so as to enable Textron to efficiently schedule Textron’s resources so as to complete Textron’s tasks outlined in such plans without disrupting Textron’s business.

(c)The Transition Plan and the Transformation Plans may be modified during their operation only in accordance with the Change Control Procedures.

3.6.9Textron Delay

(a)In the event that CSC reasonably believes that Textron has, other than for reasons of a Force Majeure Event or default by CSC of any of its obligations, failed to complete a material task within Textron’s control and which is specified as Textron’s responsibility in the Transition Plan or in any Transformation Plan, and that failure to complete such material task will significantly hinder or delay the successful completion of the applicable plan’s next Key Deliverable, then CSC will promptly give Textron written notice thereof, and the Parties will agree on:

(i)whether or to what extent Textron has failed to complete such material task;

(ii)when Textron will complete such material task; and

(iii)the date by which such material task must be completed before the applicable Transition or Transformation Plan will be significantly impacted (the “Completion Date”).

(b)On the applicable Completion Date, if CSC reasonably believes that Textron has not completed such material task, then CSC will promptly give Textron written notice thereof and the Parties will agree on:

(i)whether such material task has been completed or not;

(ii)if not, the steps necessary for Textron to complete such material task;

(iii)an estimate of when Textron will complete such material task;

(iv)the impact, if any on the applicable Transition or Transformation Plan; and

(v)an appropriate adjustment to the relevant Milestone Dates to take account of the impact (if any) of the delayed completion of such material task.

3.6.10CSC and Textron shall each use commercially reasonable efforts to minimize the impact of a delay described in this Section 3.6 (each a “Delaying Event”) on the Transition Plan or any Transformation Plan, provided that such efforts do not adversely impact the quality of the tasks performed or the resulting Work Product.

8

3.6.11For the purpose of avoiding a Delaying Event, CSC shall promptly notify the Textron Program Executive in writing upon identifying Textron’s failure or likelihood of failure to complete a material task which is the responsibility of Textron in the Transition Plan or any Transformation Plan.  If CSC is of the reasonable view that the applicable plan cannot be adjusted (including by reprioritizing other obligations) to prevent CSC completing a certain obligation late, then that notice will specify:

(a)that obligation or part thereof that CSC cannot carry out because of Textron’s failure (or likelihood of failure) to complete a material task; and

(b)the date from which such failure to complete such material task will have a material effect on CSC being able to carry out all or any part of any of its obligations under the applicable Transition or Transformation Plan.

3.6.12CSC Delay.

(a)If CSC fails to satisfy a material obligation or provide an item of Work Product by the relevant Milestone Date in the Transition Plan or any Transformation Plan (which Milestone Date may be adjusted because of a Delaying Event, as contemplated above, or pursuant to a Change Request approved by Textron), CSC will accelerate work under the Transition Plan or the applicable Transformation Plan at no additional charge to Textron (by the provision of additional resources, including additional CSC Personnel and Subcontractors, if necessary) in order to facilitate the earliest completion of that late obligation or Work Product without there being any impact on the timing of any other obligation or Work Product.

(b)If CSC fails to complete a material obligation or provide an item of Work Product in accordance with the Transition Plan or any Transformation Plan, Textron (in addition to being entitled to enforce CSC’s obligations above) may withhold payment with respect to that obligation, Work Product or the Transition Plan or Transformation Plan until such completion or provision, and CSC shall grant to Textron a credit against the charges as set forth in the Transition Plan, the Transformation Plan or Schedule I, as applicable.

(c)CSC shall not be liable under this Section 3.6.12 if the reason for the failure to meet a Milestone Date for an obligation or Work Product is described in Section 3.6.7 or is a Force Majeure Event.

3.6.13Textron shall have the right to test, accept and/or approve each Key Deliverable in the Transition Plan and the Transformation Plan (or components of any such plan), as applicable, in accordance with the acceptance criteria included in the applicable plan.

3.7Extraordinary Events

3.7.1A Party shall promptly notify the other Party of any event or series of events that it believes constitutes or is likely to constitute an Extraordinary Event.  If the Parties agree that an Extraordinary Event has occurred (or shall occur), the Parties shall (i) discuss the impact of such Extraordinary Event upon the Services or any part thereof; and (ii) renegotiate and adjust pricing for the affected Services, provided that Textron shall not be subject to any penalties by CSC as a result of any Extraordinary Event, and any revised pricing terms shall not put either Party in any worse a position (including the Service Charges payable by Textron or the quality of the Services) than it occupied prior to the occurrence of the Extraordinary Event.

9

3.7.2An “Extraordinary Event” means an increase or decrease of [***] percent ([***]%) or more during any [***] period, in the actual average [***] usage volume of any Resource Unit when compared with the applicable [***] Baseline Usage Volume for such period, to be calculated in accordance with the applicable provisions of Appendix C (Pricing) of each Tower Services Agreement.

3.8Decrease in Resource Unit Usage Volume

3.8.1In the event of a decrease at any Site outside of the United States of [***] percent ([***]%) or more, during any [***] period, in the actual average [***] usage volume at such Site of any Resource Unit when compared with the actual [***] usage volume of such Resource Unit during the [***] following the applicable Handover Date, CSC or its designated applicable CSC Affiliate shall be entitled to reimbursement of all redundancy payments in respect of employees (whether or not Transitioned Employees) of CSC or the applicable CSC Affiliate who devote at least [***] percent ([***]%) of their time to performing Services at the affected Site, whose employment is terminated in connection with such Resource Unit usage reduction and who are not redeployed to other tasks.  CSC shall use commercially reasonable efforts to mitigate the costs set forth herein.

3.8.2For purposes of Section 3.8.1, “all redundancy payments” payments means, and shall be limited to, an amount equal to the higher of any redundancy payments required by (a) statute or other Law, or (b) either (i) redundancy payments made pursuant to contractual arrangements with the employee, subject to the Contractual Redundancy Cap (as defined below) or (ii) where there is no contractual arrangement with the employee, a settlement with the employee not to exceed an amount equal to [***] salary for each year of year of service recognized by CSC or the applicable CSC Affiliate (which may include years of employment by prior employers), with the salary rate being that in effect at the time of termination. The Contractual Redundancy Cap shall mean and be limited to an amount equal to the average amount of redundancy payments which Transitioned Employees in the country where the employee whose employment is terminated resides, having a comparable number of years of service, would have received at the time of termination from Textron under contractual arrangements with Textron in effect at the time of the applicable Handover Date.

3.8.3Notwithstanding the foregoing, no redundancy reimbursement shall be payable by Textron with respect to: (a) termination for cause of an employee by CSC or a CSC Affiliate which is later determined to have been improper; (b) termination for the convenience of any employee of CSC or a CSC Affiliate under circumstances where the employee is replaced by an employee who performs the same work; or (c) circumstances where the employee is redeployed by CSC or a CSC Affiliate or is offered employment by Textron or a Textron Affiliate resulting in a failure to trigger applicable statutory or contractual provisions related to redundancy payments and thereby relieving CSC or the applicable CSC Affiliate from redundancy payment obligations.

3.9Disaster Recovery

3.9.1Beginning on the applicable Handover Date, CSC will be responsible for the testing and recovery of each of the Services in compliance with the provisions of Schedule B (Cross-Functional Obligations).

3.9.2CSC shall maintain disaster recovery plans or take other measures with respect to its business not related to this Agreement or Textron such that a disaster with respect to such business will not impact CSC’s ability to perform its obligations under this

10

Agreement, provided that this provision shall not obligate CSC to provide more disaster recovery services for Textron than Textron has purchased under the terms of this Agreement.

4.PERFORMANCE STANDARDS AND SERVICE CREDITS

4.1Performance of the Services

4.1.1From the applicable Handover Date, in accordance with an agreed upon implementation schedule for Service Levels for the applicable Services, CSC shall at all times achieve or exceed the Performance Standards with respect to such Services and shall, unless otherwise agreed, perform the Services:

(a)at least at the same level of performance with respect to accuracy, quality, completeness, timeliness, responsiveness and efficiency as was provided by or for Textron prior to the applicable Handover Date, as documented using a consistent measurement methodology;

(b)with promptness, diligence and in a professional manner, in accordance with the practices and professional standards used by, and consistent with levels of performance achieved by, well-managed operations performing services similar to the Services;

(c)using efficiently the resources or services necessary to provide the Services, where the charges to Textron are dependent upon such efficiency;

(d)in a cost-effective manner consistent with the required level of quality and performance;

(e)using, consistent with the Systems Change Management Procedure and the Technology Plan, proven, current technology that enables Textron to take advantage of technological advances in the information technology industry and supports Textron’s efforts to maintain competitiveness in the markets in which Textron competes; and

(f)using adequate numbers of individuals that:

(i)are appropriately experienced, qualified and trained, provided however that all In-Scope Employees performing work similar to the work they previously performed shall be deemed to fulfill these requirements with respect to the functions performed by such individuals as of the applicable Handover Date;

(ii)are familiar with the requirements set forth in this Agreement, the Tower Services Agreements and the Local Enabling Agreements; and

(iii)shall perform the Services with all reasonable skill, care and diligence.

4.1.2CSC shall maintain the Infrastructure Systems in accordance with the Technology Plan as approved by Textron and, if required as a result of such plan, the Scope Change Procedure, so that they operate in accordance with this Agreement, including Schedule B (Cross-Functional Obligations) and the Policy and Procedures Manuals that are prepared in accordance with Schedule B.

4.2Quality Assurance and Improvement Programs

4.2.1Subject to Section 4.2.2, CSC shall utilize information technology quality procedures of a level at least as high as those utilized by Textron immediately prior to the applicable Handover Date, including Six Sigma and Lean Principles.

11

4.2.2In accordance with the Transformation Plans and the Technology Plans, CSC shall significantly enhance the delivery of the Services through the introduction of Software Tools, procedures and other improvements into Textron’s information technology environment so that the Services are performed at least in accordance with the Performance Standards, as those Performance Standards may be enhanced over the Term.  Such enhancements shall include:

(a)        as part of CSC’s total quality management process, CSC providing continuous quality assurance and

                     quality improvement through:

(i)the identification and application of proven techniques and Software Tools from other installations within CSC’s operations that would benefit Textron operationally and/or financially;

(ii)the implementation of programs, practices and measures (including checkpoint reviews, testing, acceptance, and other procedures for Textron to assure the quality of CSC’s performance) which shall be specified in the Policy and Procedures Manuals;

(iii)utilizing such quality assurance and improvement tools and methodologies as Textron may specify from time to time, including those specified in Schedule B (Cross-Functional Obligations); and

(b)       CSC carrying out the initial enhancements described in Schedule I.A (Transition) and Schedule I.B (Transformation).

4.3Periodic Reviews

Within [***] following the last to occur of the Transformation Completion Dates under the Tower Services Agreements and at least [***] each Contract Year thereafter, Textron and CSC shall review the Service Levels and shall make adjustments to them as appropriate to reflect improved performance capabilities associated with advances in the technology and methods used to perform the Services.  The Parties expect and understand that the Service Levels will be improved over time.  It is Textron’s desire to improve the Service Levels based on quality assurance and improvement tools and methodologies referenced in Section 4.2.2(a)(iii).  CSC shall also comply with any relevant reviews regarding CSC’s performance of the Services pursuant to Schedule B (Cross-Functional Obligations).

4.4Failure to Perform

Subject to Section 12.2, if CSC fails to meet any Performance Standard (a “Service Problem”), CSC shall promptly:

4.4.1[***] failure to meet the Performance Standard [***] the Service Problem;

4.4.2[***] the Service Problem [***] the Service Level Agreement attached to the applicable Tower Services Agreement and [***];

4.4.3[***] the Service Problem [***];

4.4.4[***] the Service Problem [***] the Performance Standard; and

4.4.5[***].

4.5Service Credits

4.5.1If CSC fails to meet a Service Level and such failure is not excused in accordance with Section 11.8 of Schedule B (Cross Functional Obligations), CSC shall pay Textron a service credit (or Textron may deduct that service credit from the Service Charges payable to CSC) in accordance with Schedule B (Cross-Functional Obligations).

12

4.5.2CSC acknowledges and agrees that the Service Credits are a price adjustment and are not an estimate of the loss or damage that may be suffered by Textron as a result of CSC’s failure to meet any Service Level.  Payment of any Service Credit by CSC under this Agreement is without prejudice to any entitlement Textron may have to damages at law or in equity from CSC resulting from, or otherwise arising with respect to, any such breach of this Agreement, or to any right of Textron to terminate this Agreement pursuant to Section 24.1, except as they may apply as a credit against such damages.

4.6Measurement and Monitoring Tools

CSC shall use the necessary measurement and monitoring tools and procedures required to measure and report CSC’s performance of the Services against the applicable Performance Standards.  Such measurement and monitoring shall permit reporting at the enterprise level (Textron and all Service Recipients) with a level of detail sufficient to verify compliance with the Performance Standards, and shall be subject to Audit by Textron in accordance with Section 15.  CSC shall provide such data in a format commonly understood (e.g., Microsoft Access or Excel) that includes the identification of Business Unit and Site for Problems identified by Textron and, as much as possible, for Problems identified by CSC.  Textron and Service Recipients shall be able to review Service Level measurement and reporting information through the Textron web portal(s) described in Section 3.2.

5.SERVICE CHARGES

5.1General

All Service Charges shall be calculated in accordance with the terms of the Agreement, and Textron shall only be required to pay CSC amounts calculated in accordance with the Agreement.

5.2Pass-Through Expenses

Textron’s payment of the Pass-Through Expenses shall be in accordance with, and subject to, the following:

5.2.1If Annex D-2 to Schedule D (Pricing) identifies a particular expense as a Pass-Through Expense, CSC shall ensure that the original invoice for such Pass-Through Expense shall be addressed to Textron but sent to CSC and shall, as soon as practicable and in any event not more than [***] following receipt of the original Third Party invoice:

(a)provide Textron with such original Third Party invoice;

(b)review the invoice charges to determine the validity of the Pass-Through Expense; and

(c)provide Textron with a written statement that the charges on the invoice are proper.

5.2.2With respect to services or materials paid for on a Pass-Through Expenses basis, Textron reserves the right to:

(a)obtain such services or materials directly from a Third Party;

(b)designate the Third Party who will provide such services or materials;

(c)designate the particular services or materials (e.g., equipment make and model) that CSC shall obtain, provided that if CSC demonstrates to Textron that such designation will have an adverse impact on CSC’s ability to meet the Service Levels, such designation shall be subject to CSC’s reasonable approval;

13

(d)designate the terms for obtaining such services or materials (e.g., purchase,  lease, lump sum payment or payment over time);

(e)require CSC to identify and consider multiple sources for such services or materials, or to conduct a competitive procurement; and

(f)review and approve the Pass-Through Expenses for such services or materials before entering into a contract for such services or materials.

5.2.3CSC shall use commercially reasonable efforts to secure invoices from vendors and suppliers whose charges are designated as Pass-Through Expenses, and to validate and forward such invoices to Textron, within [***] after the provision of products or services to which such invoices relate.  CSC shall notify Textron of any invoice that it is unable to secure within a reasonable time after applicable products are delivered or services are provided.

5.3Cost Improvement

5.3.1During the Term, CSC shall plan for, identify and realize opportunities to reduce the Service Charges and the Pass-Through Expenses, and in so doing shall advise Textron in writing of each savings opportunity that is identified together with an estimate of the potential savings.

5.3.2CSC shall use commercially reasonable efforts to persuade vendors to reduce their Pass-Through Expenses such that they are lower than, or equivalent to, the vendor’s current market prices for equivalent goods or services.  CSC shall identify ways in which, and assist Textron, to reduce volumes and consumption of the Services.

5.3.3In the event CSC provides Textron with procurement services for information technology products and services, CSC will use commercially reasonable efforts to obtain for Textron the best pricing and financing rates then available for the products and services being procured.

5.3.4If CSC offers services to any Third Party other than a government agency that are substantially similar to locations, volumes, scope, technological base and contract terms and conditions of the Services provided under this Agreement, and such services are offered or provided at a lower aggregate price than those charged to Textron, then Textron will receive the same aggregate price as such Third Party.

5.4Significant Advances in Technology

5.4.1Subject to Sections 13.3.1 and the Systems Change Management Procedure in Schedule K (Governance), if CSC adopts advanced state-of-the-art technology or processes that were not contemplated in the Transformation Plans, the Service Charges and the Services Descriptions as of the Signature Date and, as a result, the cost to CSC of supplying the Services materially decreases, CSC shall notify Textron in writing of the extent of the change.

5.4.2As soon as reasonably practicable following such adoption, the Service Charges shall be revised so that CSC and Textron share the net benefit of the decreased cost equitably.

5.5Taxes

5.5.1Except as otherwise expressly provided below in this Section 5.5, each of Textron and CSC shall be responsible for:

14

(a)any Taxes assessed or imposed on or with respect to property or assets or interests therein owned or used (to the extent such use permits the imposition of such a Tax) by it (collectively, “Property Taxes”);

(b)any Taxes imposed on or attributable to its business, employees, contractors, subcontractors or operations (collectively, “Business Taxes”); and

(c)any Taxes imposed on or attributable to its income or receipts (collectively, “Income Taxes”).

5.5.2The Parties shall, wherever legally permissible, use commercially reasonable efforts to enable each to determine and minimize its own Taxes arising from or associated with this Agreement, including, without limitation, the consummation of the transactions contemplated herein and the provision of the Services.

5.5.3CSC shall be liable for any Business Taxes or Property Taxes payable by CSC on or with respect to any goods and services used or consumed by CSC exclusively for purposes of providing the Services.

5.5.4CSC shall be liable for all Business Taxes and Property Taxes that are assessed against or incurred on or in connection with the transfer of assets from Textron to CSC, including without limitation the transfer of the Transferred Equipment, Software or the Assigned Contracts, together with any other goods or services transferred or provided by Textron to CSC.

5.5.5The Parties shall, wherever legally permissible, use commercially reasonable efforts to cause the transfer of Assigned Contracts, Transferred Equipment or Software from Textron to CSC and, on the termination or expiration of this Agreement, from CSC to a Third Party supplier or back to Textron as part of Transition, Transformation  or Termination Assistance, or otherwise, to not be subject to any Business Taxes or Property Taxes; provided, if such treatment is not possible or permissible, the Parties shall, wherever legally permissible, use commercially reasonable efforts to minimize the amount of such Taxes.

5.5.6Textron shall be liable for all Service Taxes.

5.5.7CSC shall, where applicable, provide Textron with a Service Tax invoice or equivalent document to enable Textron, where possible, to reclaim or obtain a refund of the Service Tax from the relevant taxing authority and such invoice or document shall be provided by CSC in the format and within the timeframes required by law.

5.5.8In the event that the use without charge by CSC of the Textron’s premises in the provision of the Services constitutes additional consideration for Property Tax purposes, each Party will issue to the other a tax invoice for the amount of the additional consideration, and shall pay to the other the amount of tax due thereon or agree on any other mutually convenient procedure which allows both Parties to discharge their tax obligations.

5.5.9If a new Tax increases the cost of an item included in the Service Charges, CSC may apply to adjust the Service Charges to take account of the net effect of the new Tax, but that increase will not take effect, and Textron is not obliged to pay the amount claimed to be attributable to that new Tax, unless and until Textron is notified thereof in writing and is satisfied that:

(a)the claimed increase is actually attributable to that Tax and takes into account reductions in any other Taxes; and

(b)the Tax increase has affected the Service Charges for supplying the Services.

15

5.5.10Textron may withhold from any payments to CSC any Tax as required by Law but will provide CSC with a formal receipt or other document evidencing the withholding in the format and timeframe required by Law.  As soon as reasonably possible after Textron has determined that there is an obligation to deduct withholding Tax, Textron will inform CSC of the same.

5.5.11In the event of any transfer of assets or Intellectual Property Rights under this Agreement, the transferee shall pay any applicable Business Taxes, Property Taxes or Service Taxes.  Textron and CSC shall use commercially reasonable efforts to minimize any such Taxes to the extent permitted by Law.

5.6Incidental Expenses

Unless otherwise expressly stated in this Agreement, in a Project order or order for new services, all expenses that CSC incurs in performing the Services (including travel and lodging, document reproduction, shipping, and telephone expenses) are included in CSC’s Service Charges and rates as set forth in this Agreement.  Accordingly, such CSC expenses are not separately reimbursable by Textron unless, on a case-by-case basis for unusual expenses, Textron has agreed in advance in writing to reimburse CSC for such expenses.

5.7Benchmarking

5.7.1Textron shall have the right during the Term, beginning as of the [***] anniversary of the Signature Date, to benchmark the Service Charges for all of the Services in one or more Towers of Services, provided that the benchmarking of the Services for an individual Tower of Services cannot be undertaken more than [***].

5.7.2A benchmarking under this Section shall be conducted by an independent industry recognized benchmarking service provider designated by Textron and approved by CSC (the “Benchmarker”), which approval shall not be unreasonably withheld or delayed, and CSC agrees that [***] and [***] are each acceptable as the Benchmarker.  Textron shall pay the charges for the Benchmarker.  The Parties shall each, at their own cost, cooperate with the Benchmarker and provide reasonable information requested by the Benchmarker relating to the Services, (including making available knowledgeable Personnel and pertinent documents and records but excluding CSC’s cost data) subject to the Benchmarker agreeing to comply with reasonable confidentiality restrictions.

5.7.3The Benchmarker shall perform the benchmarking in accordance with the Benchmarker’s documented procedures and shall compare the Service Charges under this Agreement for the Services being benchmarked to the costs being incurred in a representative sample of information technology operations run by or for other entities.  The Benchmarker shall select the representative sample from entities:

(a)identified by the Benchmarker and approved by the Parties, such approval not to be unreasonably withheld; and

(b)identified by a Party and approved by the Benchmarker.

5.7.4The following conditions shall apply to the representative sample contemplated in Section 5.7.3:

(a)the representative sample shall include no more than [***] ([***]) entities;

(b) that have outsourced information technology operations to entities similar to CSC; and

16

(c)the representative sample may include entities that are outsourcing customers of CSC.

5.7.5The Benchmarker is to conduct a benchmarking as promptly as is prudent in the circumstances.  In conducting the benchmarking, the Benchmarker shall normalize the data used to perform the benchmarking to accommodate (a) differences in volume of services, scope of services, service levels, location, financing or payment streams between the Services and services performed for the comparison entity or entities, (b) the proportion of the Services in the individual Tower(s) of Services being benchmarked to the aggregate of Services provided by CSC and the pricing for such Services, and (c) other pertinent factors as determined by the Benchmarker.  Each Party shall be provided the opportunity to review, comment on and request changes in the Benchmarker’s proposed findings.  Following such review and comment, the Benchmarker shall issue a final report of its findings and conclusions.

5.7.6If, in the final report of the Benchmarker after normalization, the charges to Textron under this Agreement for the benchmarked Services are not in the [***], then either of the following shall apply:

(a)CSC shall give Textron written notice within [***] after issuance of Benchmarker’s final report that CSC accepts such final report, and CSC will promptly develop a plan and schedule, subject to approval of Textron, to bring CSC within the [***] in a reasonable amount of time but in no event longer than [***] after the final report being issued.  CSC shall then implement the plan and achieve the [***] in the designated period of time; or

(b)if CSC (i) does not provide notification, (ii) fails promptly to develop a plan and schedule to the approval of Textron, or (iii) fails to implement the plan and achieve the [***] in the designated period, all as contemplated in Section 5.7.6(a), then Textron may terminate the benchmarked Services or any portion of them, subject to compliance with the termination provisions set forth in Section 12 of Schedule D (Pricing), by giving CSC not less than [***] written notice.  In the case of termination by Textron of Services in accordance with this Section, the charges payable under this Agreement for continuing Services shall be decreased to reflect the Services that are terminated.

(c)In the event either Party disputes the final report and requests a subsequent benchmarking, the requesting Party shall pay for the subsequent Benchmarker.

6.INVOICING AND PAYMENT

6.1Invoicing

6.1.1CSC (or a CSC Affiliate, as the case may be)shall render invoices for all amounts due under this Agreement on a [***] basis, as follows:

(a)for each of the [***] prior to [***], the invoice shall be rendered on the [***] that immediately precedes the [***] in which the applicable Services are provided (or Signature Date, whichever is later), in an amount set forth in Annex D-4 to Schedule D (Pricing); applicable to [***] only.

(b)for each of the [***] beginning with the [***] during which the [***] occurs, the invoice shall be rendered on the [***] that immediately precedes the [***] in which the applicable Services are provided, in an amount calculated by (i) multiplying the [***] for each Resource Unit set forth in Appendix C (adjusted where applicable and upon agreement of both Parties) to each Tower Services

17

Agreement by the [***], totalling the resulting calculations, and (ii) adding to the foregoing total the [***] that is set forth in Annex D-4 to Schedule D (Pricing);

(c)for the [***] beginning with the [***] during which the [***] occurs, the invoice shall be rendered on the [***] that immediately precedes the [***] in which the applicable Services are provided, in an amount calculated by:

(i)multiplying the [***] for each Resource Unit set forth in Appendix C to each Tower Services Agreement by the [***] and totaling the resulting calculations,

(ii)calculating the difference between the invoice rendered for [***] and the [***] based upon actual Resource Unit usage volume for[***],

(iii)calculating the difference between the invoice rendered for each of the [***] beginning with the [***] during which the [***] occurs and the [***] beginning with the [***] during which the [***] occurs based upon actual Resource Unit usage volume for each of the [***] beginning with the [***] during which the [***] occurs

(iv)adjusting the total amount of (i) to reflect the differences calculated in items (ii) and (iii) and totaling the resulting calculations

(v)adding to the result of item (iv) the [***] for the applicable Contract Year that is set forth in Annex D-4 to Schedule D (Pricing).

(d)for each [***] beginning with the [***] during which the [***] occurs and ending with the [***] during which [***] occurs, the invoice shall be rendered on the [***] that immediately precedes the [***] in which the applicable Services are provided, in an amount calculated by:

(i)multiplying the [***] for each Resource Unit set forth in Appendix C to each Tower Services Agreement by the [***] and totaling the resulting calculations,

(ii)calculating the difference between the invoice rendered for [***] and the [***] based upon actual Resource Unit usage volume for [***],

(iii)adjusting the total amount of (i) to reflect the differences calculated in item (ii) and totaling the resulting calculations

(iv)adding to the result of item (iii) the [***] for the applicable Contract Year that is set forth in Annex D-4 to Schedule D (Pricing).

(e)for the [***] beginning with the [***] during which the [***] occurs, the invoice shall be rendered in arrears on the [***] following the [***] in which the applicable Services are provided, in an amount calculated by:

(i)multiplying the [***] in which the applicable Services are provided for each Resource Unit set forth in Appendix C to each Tower Services Agreement by the [***] and totaling the resulting calculations,

(ii)calculating the difference between the invoice rendered for [***] and the [***] based upon [***],

(iii)calculating the difference between the [***] and the [***] based upon [***],

(iv)adjusting the total amount of (i) to reflect the differences calculated in items (ii) and (iii) and totaling the resulting calculations

(v)adding to the result of item (iv) the [***] for the applicable Contract Year that is set forth in Annex D-4 to Schedule D (Pricing).

18

(f)for the [***] beginning with the [***] during which the [***] occurs, and onward, the invoice shall be rendered in arrears on the [***] following the [***] in which the applicable Services are provided, in an amount calculated by:

(i)multiplying the [***] in which the applicable Services are provided for each Resource Unit set forth in Appendix C to each Tower Services Agreement by the applicable [***] and totaling the resulting calculations,

(ii)adding to the result of item (i) the [***] for the applicable Contract Year that is set forth in Annex D-4 to Schedule D (Pricing), provided, however, that if the [***] has not occurred by the [***] after the [***] during which the [***] occurs, Textron shall be entitled, without respect to the limitations set forth in Section 6.8, to withhold all further amounts covered by this item until the final Transformation Completion Date has occurred, and all amounts so withheld shall become due and payable within [***] after the occurrence of the final Transformation Completion Date.

CSC shall promptly and properly bill and invoice all Service Charges, Pass-Through Expenses and any other charges for which Textron is responsible.

6.1.2Invoices shall be rendered to Textron and to individual Service Recipients designated by Textron, as follows:

(a)individual Service Recipients designated in Annex D-3 to Schedule D (Pricing) will be invoiced by designated CSC Affiliates for Services performed for the designated invoice recipients and, if applicable, for other designated Service Recipients; and

(b)Textron will be invoiced by CSC for all Services not included on invoices rendered to designated Service Recipients.

6.1.3Invoices shall set forth the following:

(a)	the calculations utilized to establish the Service Charges, including Resource Units consumed and applicable Service Charges for Resource Units;
(b)	for each Service Charge listed, the specific part of the Services on which such Service Charge is based, broken down by Tower Services Agreement and then by each sub-service within the Tower Services Agreement;
(c)	the Service Recipient to which the Service Charge is applicable (i.e., that Service Recipient which incurred the Service Charge) and the country and local currency amount applicable to the Service Charge;
(d)	the other amounts of any Taxes and a summary of invoices previously submitted for Pass-Through Expenses; and
(e)	such resource usage related details as may be reasonably specified by Textron to assist in internal chargeback requirements, including necessary creation of a data file.

6.1.4CSC acknowledges that Textron’s invoicing and payment requirements will need to be designed jointly by Textron and CSC, will need toremain flexible and will change from time to time, and that CSC shall comply with and accommodate such changes to invoicing and payment requirements as Textron may require; provided that such changes do not have a material adverse affect on CSC.  Such changes shall not include changing the due date for payment.

19

6.2Payment Due

Subject to the other provisions of this Section 6 and CSC performing the Services in accordance with this Agreement, invoices provided in accordance with Section 6.1 will be due and payable by Textron within [***] of the date the invoices were received.  CSC may charge interest at an annual percentage rate equal to [***] percent ([***]%) or the maximum rate permitted by Law, whichever is lower, calculated as of the original due date and accruing from such date until payment is made, in the event that Textron or a Service Recipient fails to make any payment in a timely manner.

6.3Proration

Periodic charges under this Agreement shall be calculated on a calendar [***] basis, and shall be prorated for any [***].

6.4Prepaid Amounts

6.4.1Where Textron has prepaid for a service or function for which CSC is assuming financial responsibility under this Agreement, upon either Party identifying the prepayment, CSC shall promptly refund to Textron that portion of such prepaid expense which is attributable to periods on and after the applicable Handover Date.

6.4.2Where CSC has prepaid for a service or function for which Textron is assuming upon expiration or termination of this Agreement or discontinuation of any Services, upon either Party identifying the prepayment, Textron shall promptly refund to CSC that portion of such prepaid expense which is attributable to periods on and after the applicable date of termination or expiration.

6.5Refunds and Credits

6.5.1If CSC receives a refund, credit or other rebate from a Third Party for goods or services previously paid for by Textron (including Pass-Through Expenses), CSC shall promptly notify Textron of such refund, credit or rebate and shall promptly pay the full amount of such refund, credit or rebate, as the case may be, to Textron.

6.5.2If Textron receives a refund, credit or other rebate from a Third Party for goods or services previously paid for by CSC (including Pass-Through Expenses, Textron shall promptly notify CSC of such refund, credit or rebate and shall promptly pay the full amount of such refund, credit or rebate, as the case may be, to CSC.

6.6Deductions

With respect to any amount to be paid by Textron hereunder, Textron may deduct from such amount any undisputed amount that CSC is obligated to pay Textron hereunder.

6.7Accountability

CSC shall provide Textron with documentation and other information with respect to each invoice as may be reasonably requested by Textron to verify the accuracy of the invoice and compliance with the provisions of this Agreement.  Invoices for billable resources shall include weekly time reporting records for each billable Project resource showing hours worked during that month, sorted by Project code (or reference to the applicable Change Request).

20

6.8Disputed Charges

Textron shall pay undisputed charges when those payments are due.  Textron may withhold payment of any charges that Textron disputes in good faith; provided however, disputed amounts withheld by Textron in good faith may not exceed (a) an aggregate amount of [***] prior billing measured at the time the first disputed amount is withheld (if the total amount withheld includes amounts withheld in more than [***]) plus (b) any amounts withheld solely due to computational errors in the invoice disputed.  Except as set forth in the preceding sentence and as otherwise expressly set forth in the Agreement, Textron shall have no other right to deduct, withhold or set off.  Nothing in the foregoing sentence shall limit or prejudice Textron’s right to dispute charges in good faith.

6.9Net Payments to Textron

If, for any month, the amounts payable by CSC to Textron exceed the amounts payable by Textron to CSC for that month, CSC shall pay that net amount to Textron within [***] following the end of such month.

7.TEXTRON FACILITIES

7.1Provision of Textron Facilities

7.1.1During the Term, Textron shall provide to CSC, and CSC shall utilize in providing the Services, the space, furnishings and fixtures specified in Schedule C (Service Recipients and Textron Facilities) or comparable facilities (collectively, the “Textron Facilities”).  CSC shall be responsible for providing, at CSC’s own cost, any other facilities and support CSC needs to provide the Services and to perform CSC’s obligations under this Agreement.

7.1.2CSC acknowledges that the Textron Facilities are provided by Textron in their “as is, where is” condition without warranty, express or implied, as of the applicable Handover Date (or such later date that such Textron Facilities are provided).

7.1.3Textron shall bear the costs of providing the Textron Facilities and all lease, support, maintenance or related leasehold improvements (subject to Section 7.3.2) with respect to the Textron Facilities, including the structures, roof, exterior and interior walls, electrical systems, water, sewer, lights, heating, ventilation and air conditions (HVAC) systems, physical security systems, fire suppression systems, general custodial services and other infrastructure components relating to the facilities (including monitoring and maintaining all uninterruptable power supply (UPS) system, backup power generators, air handlers and water chillers that support the facilities).  Textron will maintain, and support such facilities to the extent necessary for CSC to utilize the facilities in order to provide the Services in accordance with the Service Levels and CSC’s other obligations.  In addition, Textron shall improve, modify, expand and upgrade the facilities upon mutual agreement by the Parties.

7.1.4CSC shall permit Textron and its agents and representatives to enter into those portions of the Textron Facilities occupied by CSC or CSC’s Personnel at any time and for any reason, including to perform maintenance and services related to such Textron Facilities, subject to reasonable safety and security requirements.

7.1.5Textron shall be entitled to schedule and undertake pre-planned maintenance, repairs, shutdowns and alterations with respect to the Textron Facilities to the extent it does not degrade Services or increase CSC’s cost.  Textron shall be entitled to undertake emergency repairs, shutdowns and alterations with respect to the Textron Facilities. 

21

Other than in the case of emergencies, Textron shall give CSC reasonable notice of the same, and in all cases shall work with CSC to minimize the impact of such activities on CSC’s ability to perform the Services.

7.2Rights in Textron Facilities

7.2.1Nothing in this Agreement shall be deemed to grant to CSC a leasehold or other property interest in the Textron Facilities, nor any exclusive right to occupy or use the same, or to transfer any title in the Textron Facilities to CSC and CSC hereby expressly disclaims any such interest or title.

7.2.2In the event that a Textron Facility is subject to a lease or mortgage (each a “Property Interest”), then the limited licenses to utilize the Textron Facilities granted to CSC hereunder shall be subject, and subordinate, to such Property Interest.  CSC shall comply with the terms of such Property Interests.

7.2.3At the request of Textron, CSC and Textron shall enter into a license with respect to each of the Textron Facilities in such form as may be needed to comply with any Property Interest.

7.3Use of Textron Facilities

7.3.1CSC shall use the Textron Facilities in a reasonably efficient manner, minimizing interference with Textron’s or Textron’s subcontractors’ operations.  To the extent that the Parties agree that CSC utilizes the space in a manner that unnecessarily increases the Textron Facilities operational costs incurred by Textron, Textron shall have the right to deduct the excess Textron Facilities costs of such utilization pursuant to Section 6.6.

7.3.2CSC shall keep the Textron Facilities in good order, shall not commit or permit waste or damage to such Textron Facilities, shall not use such Textron Facilities for any unlawful purpose or act, and shall comply with Textron’s standard policies and procedures as made available to CSC regarding access to and use of the Textron Facilities, including procedures for the security and health and safety requirements of the Textron Facilities.

7.3.3CSC shall only use the Textron Facilities for the purpose of providing the Services or back office activities related to the Services.  CSC shall not perform any services for any of its other clients, and shall not permit any CSC Subcontractors to perform any services for any other clients, while at the Textron Facilities and/or from the Textron Facilities.  CSC shall not permit any other person or entity to use the Textron Facilities, other than the CSC Subcontractors, without Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.

7.3.4CSC shall be responsible for any damage or waste to the Textron Facilities resulting from the abuse, misuse, neglect or negligence by CSC’s Personnel or other failure to comply with CSC’s obligations in respect to the Textron Facilities.  In the event of such damage or waste, CSC shall repair such damage or, if Textron repairs such damage, compensate Textron for the cost of such repair.

7.3.5CSC shall not make any improvements or alterations involving structural, mechanical or electrical modifications to the Textron Facilities without Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.  Any

22

improvements or alterations to the Textron Facilities shall automatically become the property of Textron.

7.3.6CSC shall coordinate the installation of Equipment at the Textron Facilities with Textron.  The installation of Equipment that materially increases the power, cooling or weight requirements for a Textron Facility shall be subject to Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.

7.4Relocation of Facilities

7.4.1Textron may, upon reasonable notice to CSC, (a) relocate any space being used by CSC in a Textron Facility or (b) direct CSC to cease using all or part of any space in a Textron Facility.  If the requirement for CSC to relocate results in additional costs to CSC, the Parties will follow the Scope Change Procedure to reflect the increase in CSC’s costs of delivering the Services as well as any moving expense. Through the Scope Change Procedure, the Parties will also agree upon, if necessary, Changes in CSC’s performance obligations to the extent that they are affected by the relocation, whether on a one-time or ongoing basis or both.  CSC will use commercially reasonable efforts to minimize such costs and Changes to its performance obligations.

7.4.2Except as specified in Section 7.4.1, CSC shall not relocate, migrate or consolidate the performance of the Services without Textron’s prior written consent; provided that relocations, migrations and consolidations provided in mutually agreed upon Transformation Plans and Technology Plans are deemed approved by Textron.

7.5Return of Textron Facilities

In the event the Parties mutually agree that any of the Textron Facilities are no longer required for the performance of the Services or upon Termination of this Agreement, CSC shall promptly return such Textron Facilities to Textron in substantially the same condition as when CSC began to use such Textron Facilities, subject to ordinary wear and tear.

8.EQUIPMENT AND THIRD PARTY CONTRACTS

8.1Textron-Owned Existing Equipment

8.1.1As of the applicable Handover Date, Textron shall sell, and CSC shall purchase, the Transferred Equipment owned by Textron as identified in Annex F-4 of Schedule F (Existing Equipment and Software) for the amount set forth in such Annex.  Usual and customary bills of sale and other similar documents shall be provided to a Party in respect of any Transferred Equipment at such Party’s request.

8.1.2With respect to:

(a)Existing Equipment other than the Transferred Equipment set forth in Annex F-5 of Schedule F (Existing Equipment and Software) that is owned or leased by Textron; and

(b)Equipment purchased by Textron pursuant to Sections 8.5.2 or 8.5.3,

Textron grants to CSC, during the Term, the rights of access to and use of Textron-Owned Equipment and Textron-Leased Equipment to the extent necessary to provide the Services for the benefit of Textron and CSC’s use of Textron-Leased Equipment shall be subject to the terms of any relevant Lease.  CSC shall manage Textron-

23

Retained Leases to Textron-Leased Equipment as Managed Contracts, as set forth in Section 8.2.

8.1.3CSC shall not perform any services for any of its other clients, and shall not permit any CSC Subcontractors to perform any services for any other clients, using any Textron-Owned Equipment or Textron-Leased Equipment.  CSC shall not permit any other person to use Textron-Owned Equipment or Textron-Leased Equipment, other than CSC Subcontractors that have been previously approved by Textron for such use and CSC Affiliates providing Services to Service Recipients.  CSC shall be responsible for any damage to or loss of Textron-Owned Equipment or Textron-Leased Equipment located at any CSC Facility and for any damage to or loss caused by CSC Personnel of Textron-Owned Equipment or Textron-Leased Equipment located at any CSC Facility.  In the event of such damage or loss, CSC shall repair the damage or loss and/or (if Textron rectifies) compensate Textron for the cost of such rectification.

8.1.4CSC acknowledges and agrees that CSC has no legal or equitable claim to the Existing Equipment owned by Textron or leased by Textron from any Third Party.  CSC further agrees that CSC’s access and use of the Existing Equipment during the Term will not give rise any such ownership or other rights in the Existing Equipment and that CSC will not contest the ownership of such Equipment.

8.1.5Throughout the Term and thereafter for the purposes of Termination Assistance, CSC shall keep any Existing Equipment that CSC uses to provide the Services separately identified from the property of CSC and of Third Parties.

8.1.6CSC shall not pledge or encumber, or in any way agree to or permit the imposition of a lien or any security interest attributable to actions of CSC or any CSC Subcontractor on, any of the Existing Equipment, which shall at all times remain Textron’s or the applicable Third Party lessor’s property.  CSC hereby waives and agrees to waive any rights which may arise under Law for CSC to impose a lien on the Existing Equipment for any sums due to CSC by Textron pursuant to this Agreement.

8.1.7Should Textron wish to consolidate or relocate some or all of the Textron-Owned Equipment or Textron-Leased Equipment during the Term, then the Parties must first agree to a consolidation/relocation plan (which may include the sale of Textron-Owned Equipment to or the assumption of relevant Leases by CSC and allocation of risk associated with such consolidation or relocation).  The sale of any Textron-Owned Equipment shall be made in accordance with this Agreement, and Textron-Leased Equipment shall be transferred pursuant to Section 8.5 with CSC obtaining all Required Consents, including in accordance with Section 8.7.

8.1.8Textron shall be responsible for terminating existing Leases for Textron-Leased Equipment on the applicable expiration dates and for avoiding automatic renewal of any such Leases.  CSC shall cooperate with Textron  in connection with termination of such Leases and in planning and preparation for Refresh of Textron-Leased Equipment upon Lease expiration.

8.2Managed Contracts

8.2.1Subject to Section 8.6, CSC will, from the applicable Handover Date, administer the Managed Contracts.  For purposes of this section, the “Handover Date” for a Third Party Contract added to Annex F-3 to Schedule F (Existing Equipment and Software)

24

after the Signature Date shall be the later of the actual Handover Date or the date that the Third Party Contract is added to Annex F-3 to Schedule F.

8.2.2Subject to CSC obtaining any Required Consents pursuant to Section 8.6, Textron hereby authorizes CSC to administer the Managed Contracts and will promptly notify all appropriate Third Party suppliers of such authorization.  CSC shall not have any right to sue, claim or take any legal actions (or any precursors to such actions) in Textron’s name with respect to the Managed Contracts, and CSC shall inform Textron of any issues arising out of or relating to the Managed Contracts.

8.2.3CSC shall, from the applicable Handover Date, administer the Managed Contracts including managing Third Party suppliers, informing Textron when any Managed Contracts are due for renewal, and using Equipment, Software or other subject matter of any Managed Contract in compliance with the provisions of the applicable Managed Contracts.  CSC’s responsibility for the Managed Contracts shall be to manage only, and it shall not have any liability for the operational or other failure of any seller or other provider under a Managed Contract (except insofar as such failure is due to a failure to manage properly). In the event of an operational or other failure of any seller or other provider under a Managed Contract, CSC shall, upon request, demonstrate to Textron that it has exercised reasonable managerial measures.

8.2.4Textron shall pay the charges under the Managed Contracts directly.

8.3Transfer of Third Party Contracts

8.3.1Subject to the CSC having obtained any Required Consents pursuant to Section 8.6, as of the applicable Handover Date, Textron shall assign or novate, as Textron shall deem appropriate in its sole discretion, to CSC, and CSC shall accept such assignment or novation, as applicable, for, those Existing Equipment Leases, Third Party Service Contracts and Third Party Software Contracts listed in Annex F-2 of Schedule F (Existing Equipment and Software) (collectively, the “Assigned Contracts”).  The Parties shall enter into an assignment or a novation agreement, as applicable, substantially in the form attached to Schedule F (Existing Equipment and Software) with respect to the Assigned Contracts.

8.3.2CSC shall comply with the duties imposed on Textron under the Assigned Contracts and shall pay directly (or reimburse Textron if Textron has paid) the charges under the Assigned Contracts that are attributable to periods on and after the applicable Handover Date.  Textron shall be responsible for compliance and charges attributable to periods prior to the applicable Handover Date.  For purposes of this section, the “Handover Date” for a Third Party Contract added to Annex F-2 to Schedule F (Existing Equipment and Software) after the Signature Date shall be the later of the actual Handover Date or the date that the Third Party Contract is added to Annex F-2 to Schedule F.

8.3.3Textron shall be responsible for charges for maintenance under any Lease for Midrange Legacy Servers in accordance with Appendix 2C to Attachment 2), and except for such Midrange Legacy Servers CSC shall be responsible for maintenance charges for any other Supported Equipment under any Lease which is a Managed Contract or an Assigned Contract.

8.3.4CSC shall pay any fees or charges associated with the assignment, novation or consent, as applicable, of the Assigned Contracts and Managed Contracts that have been

25

identified by Textron or CSC on Annex F-2 and F-3 to Schedule F (Existing Equipment and Software).  Textron shall pay any fees or charges associated with the assignment, novation or consent, as applicable, of any Third Party Contracts related to the Services which have been identified by Textron or CSC subsequent to the Signature Date and prior to the first anniversary of the first Handover Date and which Textron elects to add to Annex F-2 or F-3 to Schedule F.  In connection with any such contract, CSC shall provide a proposal showing the difference in pricing (up or down) if the contract is to assigned to CSC.  Upon receipt of the proposal, Textron shall elect to: (i) add the contract to Annex F-2 to Schedule F, in which case the pricing shall be adjusted up or down in accordance with CSC’s proposal; (ii) add the contract to Annex F-3 to Schedule F and treat the contract as a Managed Contract; or (iii) terminate the contract at Textron’s expense. CSC shall use commercially reasonable efforts to minimize the costs to Textron of any consents. If during the first year after the applicable Handover Date Textron elects to treat the contract as a Managed Contract, and CSC can administer such contract with its existing dedicated staff without incurring additional cost and without impacting its ability to perform other Services, there shall be no adjustment in pricing. If CSC will incur additional cost or if its ability to perform other Services using the existing dedicated staff for other Services is impaired, the election to add the contract as a Managed Contract shall be treated as a Scope Change.  Any Third Party Contract which Textron elects to add as an Assigned Contract or Managed Contract subsequent to the first anniversary of the applicable Handover Date shall be treated a Scope Change.

8.3.5CSC shall pay (or reimburse Textron if Textron has paid) the charges under the Assigned Contracts that are attributable to periods on and after the applicable Handover Date to Textron directly.  Textron shall be responsible for charges attributable to periods prior to the applicable Handover Date.  For purposes of this section, the “Handover Date” for a Third Party Contract added to Annex F-2 to Schedule F (Existing Equipment and Software) after the Signature Date shall be the later of the actual Handover Date or the date that the Third Party Contract is added to Annex F-2 to Schedule F.

8.4Right of Use Under Managed Contracts

8.4.1Other than with respect to the Assigned Contracts and subject to the Parties having obtained any Required Consents, with effect from the applicable Handover Date, Textron grants to CSC during the Term and solely to the extent necessary for performing the Services, rights of access to and use of the Managed Contracts (“Rights of Use”).

8.4.2CSC shall comply with the duties, other than payment obligations, that are imposed on Textron under the Managed Contracts, including, without limitation, use restrictions and confidentiality obligations, and CSC shall not seek to modify or otherwise revoke such terms.

8.4.3Textron will, from the applicable Handover Date, not terminate, extend, amend or substitute for any Managed Contract without prior written notice to CSC.  CSC will, from the applicable Handover Date, be authorized to serve as Textron’s agent to terminate, extend or amend any Managed Contract with the prior written consent of Textron. Textron shall exercise termination, extension and other rights thereunder as CSC reasonably directs in writing with respect to such Managed Contracts after consultation with Textron; provided that CSC shall be responsible for all costs, charges and fees associated with the exercise of such rights with respect to a Managed Contract

26

unless such costs and fees are incurred as a result of termination of the Managed Contract by reason of a material breach by the Textron contractor, in which case Textron shall be responsible.  If Textron exercises termination, extension and other rights under a Managed Contract on Textron’s own initiative, without request by CSC, Textron shall be responsible for all costs, charges and fees associated with the exercise of such rights.  Nothing in this Section 8.4.3 shall be construed as altering Textron’s financial responsibility for Managed Contracts other than as described with respect to termination or extension.

8.4.4Except as otherwise requested or approved by Textron (or the relevant licensor), CSC shall cease all exercise of rights under the Managed Contracts, upon Termination of this Agreement.

8.5Equipment Acquisitions during the Term

8.5.1Subject to Section 8.5.3 and the Technology Plan, CSC shall acquire Equipment, including modifications, upgrades, enhancements, additions and replacements of Existing Equipment that is Supported Equipment, as necessary or appropriate to provide the Services.  Such Equipment shall be acquired in the name of CSC and title shall vest in CSC, except as set forth in Sections 8.5.2 and 8.5.3.

8.5.2Modifications, upgrades and enhancements of Existing Equipment that is Supported Equipment shall be acquired in the name of Textron (and title shall vest in Textron), to the extent that Textron or any of its Affiliates remains the owner of such Existing Equipment, and shall be treated in accordance with the governing lease to the extent that Textron remains the lessee of such Existing Equipment.

8.5.3With respect to Equipment acquisitions identified in Section 8.3 of Schedule B (Cross Functional Obligations), acquisition costs for such Equipment shall be treated as described in such Section 8.3, and such Equipment shall be purchased or leased in the name of Textron unless Textron requires otherwise in writing.

8.6Required Consents

CSC shall obtain, insofar as practicable as of the applicable Handover Date, the Required Consents for Third Party Contracts identified in Schedule F (Existing Equipment and Software) prior to the applicable Handover Date.  If a Required Consent is not obtained, then unless and until such Required Consent is obtained, CSC shall determine and adopt such alternative approaches as are appropriate to provide the Services without such Required Consents subject to Textron’s prior approval.  Required Consents include any consents necessary to enable CSC Subcontractors to perform the Services.

8.7Shared-Host Processor License

In the event CSC performs any Services using a shared-host processor, CSC will be responsible, and will not charge Textron, for any software license and maintenance fees attributable to CSC’s use of a processor larger than would be necessary to run Textron’s work alone.

8.8Subcontractors

The grant by Textron to CSC of a license to use or of rights of access and use pursuant to this Section 8 shall be deemed to include the grant of such license or rights to CSC Subcontractors subject to Textron’s prior written approval and to the provisions of this Agreement.

27

8.9Relocation of Equipment

Except as provided in any Transformation Plan or Technology Plan that has been mutually agreed upon by the Parties, CSC shall not migrate, consolidate or relocate any Equipment related to the Services, or the performance of the Services, to any location or facility, without Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.

9.SOFTWARE AND PROPRIETARY RIGHTS

9.1Intellectual Property Rights Existing at the Signature Date

This Agreement shall not be deemed to assign to any Party any Intellectual Property Rights existing at the Signature Date.  Neither the existence of this Agreement nor the provision of Services hereunder shall be used as a justification by a Party to contest the other’s ownership of any such Intellectual Property Rights.

9.2Textron Software and Textron Material

9.2.1Textron shall have and retain all right, title and interest in and to the Textron Software, the Textron Material and the Work Product (to the extent that rights in the same have been assigned to Textron pursuant to Section 9.5), including all Intellectual Property Rights therein.

9.2.2Textron hereby grants to CSC a world-wide, fully paid-up, non-exclusive, non-transferable license during the Term to access and execute the Textron Software, the Textron Material and the Work Product (to the extent that rights in the same have been assigned to Textron pursuant to Section 9.5) solely to the extent necessary and for the sole purpose of performing CSC’s obligations under this Agreement, with the right to grant sublicenses thereunder to the CSC Subcontractors solely for such purpose.

9.2.3The Textron Software, the Textron Material and the Work Product (to the extent that rights in the same have been assigned to Textron pursuant to Section 9.5) shall be made available to CSC in such form and on such media as exists at the Signature Date and, with respect to the Textron Software, the Textron Material and the Work Product (to the extent that rights in the same have been assigned to Textron pursuant to Section 9.5) supplied after the Signature Date, in such form and on such media as may be agreed between the Parties.

9.2.4CSC shall cease any and all access and use of the Textron Software, the Textron Material, and the Work Product (in which rights have been assigned to Textron pursuant to Section 9.5) upon expiration or Termination of this Agreement, except during any Termination Assistance Period.

9.3CSC Software and CSC Material

9.3.1Subject to the license and rights granted in Section 9.3.4, CSC shall retain all right, title and interest in and to the CSC Software and the CSC Material, including all derivative works and other Intellectual Property Rights therein.

9.3.2CSC shall not use any of the CSC Software (other than Software such as tools, scripts, monitoring and similar types of software, and software CSC uses for its internal administration) as part of, or in the provision of, the Services without obtaining Textron’s prior written approval.

28

9.3.3CSC shall be responsible for installing, operating and maintaining the CSC Software at CSC’s own expense.

9.3.4CSC hereby grants to Textron, solely for its internal use, a worldwide, fully paid-up, non-exclusive, non-transferable license to use, execute, operate, adapt, copy, maintain, support, modify, display, distribute, perform and enhance (as may be reasonably necessary for Textron and the Service Recipients to receive the Services under this Agreement or to enjoy all of the benefits hereof) the CSC Software and the CSC Material for the purpose of Textron and the Service Recipients obtaining the benefit of the Services during the Term and without further consideration to CSC.  The license granted under this Section 9.3.4 includes the right to grant sublicenses to Service Recipients and End Users and to contractors of Textron, Service Recipients and End Users and shall take effect on the date that the relevant CSC Software or CSC Material is first used by or on behalf of CSC to provide the Services.

9.3.5With effect from and after the Termination Date, CSC grants to Textron, solely for its internal use, a worldwide, fully paid-up, non-exclusive, non-transferable license to use, execute, operate, adapt, copy, maintain, support, modify, display, distribute, perform and enhance the CSC Software and the CSC Material as may be reasonably necessary for the purpose of enabling Textron, the Service Recipients and the End Users to receive services similar to the Services but not for any commercialization purposes, without further consideration.  The license granted under this Section 9.3.5 includes the right to grant sublicenses to Service Recipients and End Users and to contractors of Textron, Service Recipients and End Users.

9.3.6Prior to the Termination Date, at Textron’s request, the Parties shall use commercially reasonable efforts to agree to the terms pursuant to which CSC will support the CSC Software and the CSC Material after Termination, provided that such terms shall be no more restrictive than those offered by CSC to entities similarly situated to Textron.

9.3.7For purposes of clarification, the provisions of this Agreement shall not apply to any of CSC’s software licensed directly to Textron outside the scope of this Agreement.

9.4Third Party Software

9.4.1CSC shall secure the grant to Textron, the Service Recipients, and its and their respective employees and designees, solely for their internal use, of a license to all Third Party Software adequate to permit Textron, the Service Recipients and End Users to receive the Services during the Term without further consideration.  For the avoidance of doubt, financial responsibility for Software is allocated between the Parties as set forth in Schedule B and nothing in this Section 9.4.1 is intended to broaden CSC’s financial responsibility.

9.4.2CSC shall not introduce any Third Party Software that is not commercially available as part of, or in the provision of, the Services without obtaining Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.

9.4.3If Textron so requests, CSC shall promptly supply Textron with a list of Third Party Software licensed or otherwise supplied to CSC in connection with the Services.

9.4.4With effect from and after the Termination Date, CSC shall use commercially reasonable efforts but without additional cost to CSC to secure the grant to Textron, the Service Recipients, and its and their respective employees and designees, of a world-

29

wide, fully paid-up, non-exclusive, non-transferable license to use, execute, operate, adapt, copy, maintain, support, modify, prepare derivative works based on, display, distribute, perform and enhance the Third Party Software, without further consideration, as may be reasonably necessary for the purpose of enabling them to receive services similar to the Services performed under this Agreement.

9.5Work Product

9.5.1Subject to Section 9.1 and the rights of any Third Party, Textron shall have and hold all right, title and interest (including Intellectual Property Rights) in and to any and all Work Product, together with all copies thereof, subject, in the case of Modifications to Textron Software, Textron Material, or Third Party Software, to the terms of the relevant licenses or contracts; provided however that Textron shall not obtain any such rights (except rights necessary to receive the Services during the term of this Agreement and thereafter) in any derivative works based on CSC Material, CSC Software, or Third Party Software ..  Notwithstanding the foregoing, Textron’s rights in Textron Data and, without Textron’s prior written consent, derivative works based on Textron Software and Textron Material shall not be subject to the rights of any Third Party.  To the extent that any such right, title and interest does not vest in Textron by operation of Law, CSC hereby irrevocably assigns and agrees to assign (free from any encumbrance) all right, title and interest (including all Intellectual Property Rights) in and to the Work Product without further consideration.  CSC shall secure a waiver of all applicable Intellectual Property Rights from the holders of such rights.  For the avoidance of doubt, this assignment shall not be affected in any way by the rejection of any Work Product by Textron under this Agreement or the termination, in whole or in part, of this Agreement by Textron.

9.5.2Textron hereby grants CSC a world-wide, fully paid-up, non-exclusive, non-transferable license to access and use the Work Product to the extent necessary and for the sole purpose of performing CSC’s obligations under this Agreement, with the right to grant sublicenses thereunder to CSC Subcontractors only for such purpose.  The license granted under this Section 9.5.2 shall take effect on the date that the relevant Work Product is created and shall continue until the date that item ceases to be used in the performance of the Services (in which event CSC shall promptly comply with Section 16.7) and, in any event, such license shall cease on the later of the date of Termination and the end of the period during which Termination Assistance is provided.

9.6Third Party Application Software Acquired During Term

CSC shall not use any Third Party Software in Tier 3 for which Textron has financial responsibility, and in Tier 4 and Tier 5 that is not commercially available as part of, or directly in the provision of, the Services, other than service delivery software that is not used by Textron or any Service Recipient or End User, without Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion. Subject to the Change Control Procedure, CSC shall install, operate, and support (and otherwise treat in the same manner as Third Party Applications Software existing as of the applicable Handover Date) additional Third Party Applications Software that Textron may designate from time to time during the Term.

9.7Third Party Systems Software Acquired During the Term

In accordance with CSC’s financial responsibility, as described in Section 9.3 of Schedule B, and subject to Sections 8.3.1 and 9.6, the Technology Plan and the applicable Change Control

30

Procedure, CSC shall acquire Third Party Software, including modifications, enhancements, upgrades, additions, and replacements of Third Party Software, as necessary or appropriate to provide the Services.  Third Party Software acquisitions shall be in CSC’s name; provided that prior to the introduction of such Software:

9.7.1CSC shall use commercially reasonable efforts at no additional cost to CSC to obtain the right to grant to Textron, the Service Recipients, End Users and its and their contractors, a perpetual, non-exclusive, non-transferable license to use, execute, operate, adapt, copy, maintain, support, modify, display, distribute and perform and enhance such Third Party Software at the Termination of this Agreement and at no additional charge to Textron; and

9.7.2if CSC is unable to obtain such right, CSC shall notify Textron in writing of its inability to grant Textron, the Service Recipients, the End Users and its and their contractors, such a license and of the cost and viability of any other Software that can perform the requisite functions and with respect to which CSC has the ability to grant such a license.  Such notice shall contain the proposed Third Party supplier’s then current terms and conditions, if any, for making the Software available to Textron after Termination of this Agreement.  With Textron’s prior written approval, CSC may introduce such Software to use, execute, operate, adapt, copy, maintain, support, modify, display, distribute, perform and enhance as necessary or appropriate to provide the Services.

9.8Non-Infringement, Conformity to Specifications and Confirmation of Ownership

9.8.1CSC represents, warrants and covenants to Textron that the Material, Work Product or all or any part of the Infrastructure Systems or their configurations or any other product or service provided by CSC or any CSC Subcontractor, and its use by Textron, the Service Recipients and its or their respective Personnel in the intended manner, does not and shall not infringe or misappropriate any Intellectual Property Right of any Third Party.

9.8.2CSC represents, warrants and covenants to Textron that CSC and CSC Subcontractors:

(a)own or have the right to use or otherwise exploit, and shall, at all relevant times, own or have the right to use or otherwise exploit the Equipment, and all Intellectual Property Rights necessary to provide the Services;

(b)shall not infringe Textron’s or any Third Party’s Intellectual Property Rights in providing the Services; and

(c)have, and shall at all relevant times have, full right and authority to grant the licenses and provide the Equipment and the Software to Textron as set forth in this Agreement.

9.9Relocation of Software

Except as set forth in any (a) Transformation Plan or project definition thereunder, or (b) Technology Plan, that is mutually agreed upon by the Parties, CSC shall not migrate, consolidate or relocate any Software related to the Services, or the performance of the Services, to any location or facility, without Textron’s prior written approval, which may be granted or withheld in Textron’s sole discretion.

31

10.EMPLOYEES

10.1Transfer of Employees

10.1.1The In-Scope Employees shall transfer to CSC on the applicable Handover Date, in accordance with Schedule E (Employees).  Such transfers shall be done pursuant to applicable local Law in each relevant jurisdiction.

10.1.2On Termination of this Agreement for any reason, in whole or in part, the Parties shall comply with their respective obligations set forth in Schedule E (Employees).

10.2Key CSC Positions

10.2.1The Key CSC Positions as of the Signature Date together with CSC employees approved as of the Signature Date to fill such positions are set forth in Annex E-2 to Schedule E (Employees).

10.2.2Textron may, from time to time, designate new or alternative Key CSC Positions.

10.3Key CSC Position Approvals Procedure

Before assigning an individual to a Key CSC Position, whether as an initial assignment or a subsequent assignment, CSC shall comply with the following procedure:

10.3.1CSC shall:

(a)notify Textron in writing of the proposed assignment;

(b)introduce the individual to appropriate Textron representatives (and, upon request, provide such representatives with the opportunity to meet with the individual); and

(c)provide Textron with such information as Textron may request about the individual’s training, experience and skills relevant to the requirements of the Key CSC Position;

10.3.2if Textron objects in writing to the proposed assignment, Textron and CSC shall each use commercially reasonable efforts to resolve Textron’s concerns; and

10.3.3if Textron and CSC are unable to resolve Textron’s concerns within [***] after Textron’s written objection, CSC shall not assign the individual to the Key CSC Position and shall propose to Textron the assignment of another individual with training, experience and skills suitable to the requirements of that position and the provisions of this Section 10.3 shall apply to such other individual.

10.4Retaining Key CSC Positions

10.4.1CSC shall fill the Key CSC Positions at all times and:

(a)shall cause each of the CSC employees identified in Annex E-2 to Schedule E (Employees) as filling the Key CSC Positions to devote substantially his or her full working time and effort to providing the Services in the Key CSC Position initially assigned to him or her for at least [***] from the applicable Handover Date;

32

(b)except as otherwise provided in Section 10.4.1(a), shall not reassign or replace CSC employees filling Key CSC Positions during the Term for at least [***] following assignment to those positions; and

(c)shall use commercially reasonable efforts to continue to offer each of CSC employee filling Key CSC Positions terms and conditions of employment which are competitive with those offered elsewhere by CSC,

unless such CSC employee resigns from his or her employment, or terminates his or her contract with CSC (other than in circumstances in which such CSC employee is claiming constructive dismissal), or is unable to work owing to mental or physical incapacity for a period exceeding [***], or is reasonably dismissed or terminated by CSC for misconduct.

10.4.2CSC shall not replace a person filling a Key CSC Position without first complying in full with Section 10.3 and:

(a)demonstrating to Textron’s satisfaction that the new person is fully qualified to meet the requirements of the Key CSC Position; and

(b)obtaining Textron’s prior written approval.

10.5Use and Compliance of CSC Personnel

CSC shall:

10.5.1use an adequate number of CSC Personnel to provide the Services;

10.5.2cause all CSC Personnel who perform the Services to be properly trained and capable of meeting the requirements of the Services tasks assigned to them in a professional and timely manner and to a standard acceptable to Textron, provided however that all In-Scope Employees performing work similar to the work they performed prior to the applicable Handover Date shall be deemed to fulfill this requirement with respect to Services of the type performed as of such Handover Date;

10.5.3require that all CSC Personnel comply with:

(a)any applicable policies or procedures identified by Textron to CSC from time to time which shall include, without limitation, any health or safety requirements, building access and security procedures and policies relating to conduct of personnel admitted to Textron’s (or a Third Party’s) premises; and

(b)CSC’s obligations under this Agreement with respect to Confidential Information and data security; and

10.5.4involve only CSC Personnel who are authorized in accordance with the provisions of this Section 10 in supplying the Services.

10.6Turnover of CSC Personnel

Textron and CSC agree that it is in their best interests to minimize the turnover rate of CSC employees performing the Services and employees of CSC Subcontractors that are substantially dedicated to performing the Services (the “Turnover Rate”).  Accordingly, CSC shall use commercially reasonable efforts keep the Turnover Rate to a level comparable to industry norms.  If CSC is experiencing performance failures and Textron notifies CSC that Textron deems the Turnover Rate contributes to such failures and is not acceptable, CSC shall as soon as reasonably practicable:

33

10.6.1provide to Textron sufficient data to establish the actual extent of the Turnover Rate including, in particular, the Turnover Rate among CSC employees and employees of CSC Subcontractors that are substantially dedicated to performing the Services;

10.6.2meet with Textron to discuss the impact of the level of the Turnover Rate; and

10.6.3submit to Textron a proposal for reducing the Turnover Rate.

10.7Replacement of CSC Personnel at Textron’s Request

10.7.1Textron may notify CSC at any time during the Term that Textron requires CSC to replace any of the CSC Personnel directly providing or adversely affecting the Services for the reasons stated in the notice.  After receipt of such notice, CSC shall have [***] in which to investigate the matters stated in the notice and discuss CSC’s findings with Textron.  If, following that period, Textron still requires replacement of the individual, CSC shall promptly replace that individual with another individual with training, experience and skills suitable to meet the requirements of the assigned Services tasks.

10.7.2If Textron believes, in its sole discretion, that an individual is a threat to the health, safety or security of any of Textron’s, Service Recipient’s or a Third Party’s Personnel, data or property, is materially in breach of any Textron, Service Recipient or Third Party policy or procedure which was previously notified to CSC or places either Textron, a Service Recipient or CSC at risk of violating any applicable Laws, then CSC shall immediately remove that individual from the provision of the Services and thereafter follow the procedures set forth in Section 10.7.1.

10.7.3Nothing in this Agreement shall grant Textron the right to require CSC to terminate any individual’s employment or contract with CSC or to violate any Law relating to employment.

10.8In-Scope Contractors

If applicable, the Parties will, following the Signature Date, cooperate to effect the novation or, where novation is not possible or, in the opinion of Textron, not economically feasible, the assignment of the contracts between Textron and the In-Scope Contractors, listed on Annex E-3 to Schedule E (Employees) who, after the applicable Handover Date, shall form part of the CSC Personnel.  CSC shall cooperate with Textron to procure the consent of the In-Scope Contractors to the novation or assignment of their contracts to CSC, such novation or assignment to take effect on the applicable Handover Date.

10.9Assignment and Reassignment of CSC Employees

10.9.1Without the prior written consent of Textron, CSC shall not reassign to perform services for any Textron Competitor any CSC employee who has performed Services for Textron or a Service Recipient in a Key CSC Position at any time during the [***] period immediately following such employee’s performance of such Services.

10.9.2Without the prior written consent of Textron, CSC shall not assign to the performance of Services for Textron or any Service Recipient any CSC employee who has performed any services for a Textron Competitor in a position comparable to a Key CSC Position at any time during the [***] period immediately following such employee’s employment by or performance of services for a Textron Competitor.

34

11.SUBCONTRACTORS

11.1Approval of Material Subcontractors

11.1.1CSC shall obtain Textron’s written approval prior to appointing any CSC Subcontractor with respect to which (i) the value of the Services to be performed under the subcontract is greater than $[***] annually, or (ii) the proposed CSC Subcontractor will have the ability to access, either physically, logically or electronically, any Textron Data; or (iii) the proposed CSC Subcontractor will be providing a service (including any of the Services) which requires Textron or any Service Recipient to impose specific additional terms and conditions upon such CSC Subcontractor to enable that Textron or the Service Recipients to comply with all applicable Laws, or the proposed CSC Subcontractor otherwise must receive Textron’s or a Service Recipient’s specific approval in order for Textron or such Service Recipient to comply with all applicable Laws (a “Material Subcontractor”). CSC shall submit a written request for approval to Textron which shall specify:

(a)the actual components of the Services that CSC proposes to subcontract;

(b)the scope of the proposed subcontract;

(c)the type of contract between CSC and the CSC Subcontractor, including any provisions material to, or inconsistent with, this Agreement;

(d)the identity, background and qualifications of the proposed CSC Subcontractor; and

(e)that all relevant consents have been obtained in accordance with Section 8.

11.1.2The Parties agree that the CSC Subcontractors listed in Schedule J (Key Subcontracts and Material Subcontractors) are approved by Textron as Material Subcontractors as of the Signature Date.

11.2Key Subcontracts

Schedule J (Key Subcontracts and Material Subcontractors) identifies “Key Subcontracts”.  These comprise:

11.2.1“Key Textron Subcontracts” that are, in Textron’s opinion, important to the on-going performance of any of the Services.  The Parties agree, for any Key Textron Subcontracts that are identified as Assigned Contracts in Annex F-2 on or following the Signature Date, to cooperate to effect the novation, or where novation is not possible or, in the opinion of Textron, not economically feasible, the assignment, of such Key Textron Subcontracts to CSC.  Provided that it does not result in additional costs to CSC or degrade the Services, CSC shall not during the Term terminate such an assigned Key Textron Subcontract or allow it to expire without renewal without the prior written consent of Textron.  Any Key Textron Subcontracts that are identified as Managed Contracts in Annex F-3 shall be managed in accordance with Section 8 of this MSA; and

11.2.2“Key CSC Subcontracts” between CSC and Third Parties which are, in Textron’s opinion, essential to the performance of the Services. Provided that it does not result in additional costs to CSC or degrade the Services, CSC shall not terminate the Key CSC Subcontracts or allow them to expire without renewal without the prior written consent of Textron.

35

11.3CSC Subcontractor Compliance

CSC shall require that each of the CSC Subcontractors complies with:

11.3.1the terms, conditions and obligations of this Agreement as applicable to the CSC Subcontractors;

11.3.2all of Textron’s rules, guidelines, policies and procedures that are relevant to the CSC Subcontractor’s performance of the Services or the CSC Subcontractor’s access to or use of Confidential Information, data or resources or facilities provided by Textron; and

11.3.3all applicable Laws and any other regulatory requirements (including rights of access and audit) which may apply to CSC Subcontractors in the performance of the Services under this Agreement.

11.4Remediation of CSC Subcontractor Problems

CSC shall:

11.4.1immediately notify Textron if an act or omission of any CSC Subcontractor causes a problem or delay that has a material impact on CSC’s ability to provide the Services;

11.4.2immediately notify Textron if, in good faith, CSC has doubts concerning a CSC Subcontractor’s ability to render future performance because of changes in such CSC Subcontractor’s ownership, management, financial condition, or otherwise, or there have been material representations by or concerning such CSC Subcontractor’s ability or CSC reasonably believes that the CSC Subcontractor (or its employees) is a threat to the health, safety or security of Textron or any Service Recipient (or its or their Personnel); and

11.4.3work with Textron and all other CSC Subcontractors promptly and use CSC’s best efforts to prevent, resolve or circumvent the problem or delay.

11.5Revocation of Approval

Textron may request, by notice in writing, that CSC replace any CSC Subcontractor for the reasons stated in the notice.  After receipt of such notice, CSC shall have [***] in which to investigate the matters stated in the notice and discuss CSC’s findings with Textron.  If, following that [***] period, Textron still requests replacement of the CSC Subcontractor and provided that such action is not anticipated to lead to a degradation in Services or an increase in cost to CSC, CSC shall, subject to the other provisions of this Agreement, cease using such CSC Subcontractor to provide the Services.  For the avoidance of doubt, Textron will not have the right under this Section 11 to require CSC, or any CSC Subcontractor, to terminate any individual’s employment with CSC or with the CSC Subcontractor.

11.6Procedure After Revocation

Any subcontractor proposed by CSC to replace a Material Subcontractor must be approved by Textron in accordance with this Section 11, except that as an interim measure, where necessary to continue to provide the Services, CSC may replace the Material Subcontractor concerned with a subcontractor which has not been so approved until such approval has been obtained for that replacement subcontractor or an alternative replacement has been approved.

36

11.7Requirements for CSC Subcontractors

11.7.1Unless otherwise specified below, each subcontract with a CSC Subcontractor, entered into by CSC after the applicable Handover Date, shall reflect the terms of this Agreement to the extent that they apply to the Services to be supplied by such CSC Subcontractor and CSC will, using commercially reasonable efforts, attempt to include:

(a)the right of termination without cause by CSC of the subcontract;

(b)the right of Textron to take a novation of the subcontract if this Agreement expires, there is a Termination of this Agreement for any reason or if there is a termination of the Services related to such subcontract;

(c)obligations no less favorable to Textron than those contained in this Agreement, the Tower Services Agreements or the Local Enabling Agreements, as applicable, with respect to confidentiality, privacy, data security, data protection and Intellectual Property Rights;

(d)an assignment to Textron of all right, title and interest, including without limitation Intellectual Property Rights, in and to Work Product, including Textron Data, created by the CSC Subcontractor (or its employees) in the course of providing the Services under the subcontract;

(e)no right to subcontract or assign the CSC Subcontractor’s rights or transfer the CSC Subcontractor’s obligations under the subcontract without first obtaining CSC’s and Textron’s prior written consent;

(f)an obligation to comply with the terms of this Agreement as they affect the CSC Subcontractor;

(g)the CSC Subcontractor’s covenant and warranty that the CSC Subcontractor is the employer of its employees;

(h)the CSC Subcontractor’s obligation to indemnify, defend and hold harmless Textron, the Service Recipients, its and their Affiliates, and any of their respective directors, officers and contractors and Personnel from and against any Losses arising from or related to any Claim by any employee, worker or agent of the CSC Subcontractor that he or she has an employment relationship with Textron; and

(i)the CSC Subcontractor’s obligation to indemnify defend and hold harmless Textron, the Service Recipients, its and their Affiliates, and any of their respective directors, officers, contractors, Personnel, professional advisors, predecessors, successors and assigns harmless against any Losses arising from or related to any decision of any statutory, legal or regulatory authority that Textron, a Service Recipient or one of its or their Affiliates is the employer of such individual.

CSC shall notify Textron if it is unable to obtain any of the foregoing provisions, in which case CSC shall not subcontract any Services to such proposed Subcontractor without Textron’s prior written consent.

11.7.2Unless prohibited by the provisions of the subcontract, CSC shall provide Textron with a copy of each subcontract executed between CSC and a Material Subcontractor (excluding payment provisions), upon request.

11.7.3CSC shall not include in any subcontract any provision the effect of which would be to limit the ability of a CSC Subcontractor to contract directly with Textron.

11.8Liability for Contractors

CSC will remain liable at all times for all acts or omissions of any of the CSC Subcontractors or their employees to the extent engaged to work with, or provide Services for, Textron or any

37

Service Recipient. Textron will remain liable at all time for all acts or omissions of any of the Textron’s and Service Recipients’ contractors and their employees to the extent engaged to work with, or provide Services for, CSC or any CSC Affiliate.

12.TEXTRON RESPONSIBILITIES

12.1Cooperation

Textron shall cooperate with CSC by making information and granting or denying approvals of Textron available as required in this Agreement within the time periods specified herein for such information or approvals or, where no time period is specified, within a reasonable time period, and such approvals shall not be unreasonably withheld or delayed, unless qualified herein as being within Textron’s sole discretion, and Textron shall be responsible for any increased CSC cost resulting from any unreasonable delay.

12.2Savings Section

The failure by Textron to perform any of Textron’s responsibilities set forth in this Agreement shall not be deemed to be grounds for Termination by CSC (other than as provided for in Section 24.4); provided, however, that CSC’s non-performance of CSC’s obligations under this Agreement shall be excused if and to the extent that:

12.2.1CSC’s non-performance results (a) from the failure by Textron, Textron Affiliate, Textron contractor, Textron Personnel or a Service Recipient to perform any of Textron’s obligations under this Agreement or to comply with a reasonable request by CSC or (b) from an act or omission of Textron, Textron Affiliate, Textron contractor, Textron Personnel, a Service Recipient, or Textron’s, Textron’s Affiliate or a Service Recipient’s contractors of which CSC gives Textron prior written notice and a reasonable opportunity to correct; and

12.2.2CSC promptly provides Textron with notice of such non-performance and uses commercially reasonable efforts to perform the Services to the extent possible, notwithstanding the failure by Textron to perform.

Nothing in this Section 12.2 is intended to relieve Textron of liability for direct, provable damages that may be incurred by CSC as a result of any of the circumstances described in Section 12.2.1.

13.CONTRACT MANAGEMENT

13.1Governance

The Parties shall facilitate communications between them and establish structures and procedures for governing their relationship and managing the performance of their respective obligations under this Agreement in accordance with Schedule K (Governance) and the Service Level Agreement attached thereto as Annex K-1.

13.2Reports

13.2.1Within [***] after the earliest Handover Date, the Parties shall determine an appropriate set of periodic reports to be issued by CSC to Textron.  CSC shall provide Textron with suggested formats for such reports, for Textron’s review and approval.  Such reports shall:

38

(a)be no less comprehensive than the internal reporting of Textron prior to the Signature Date;

(b)be issued at the frequency requested by Textron;

(c)enable Textron to secure TS 16949 quality certification annually to the extent being handled by In-Scope Employees as of the Signature Date; and

(d)include the reports described in Section 7.7 of Schedule B (Cross-Functional Obligations), Section 4 of Schedule K (Governance) and Section 13.2.2.

13.2.2In addition to the reports to be provided by CSC in accordance with Section 13.2.1, CSC shall provide a written [***] performance report, which shall be delivered to Textron within [***] after the end of each [***] (commencing with the [***] during which the applicable Handover Date occurs), describing CSC’s performance of the Services in that [***] at the enterprise level (Textron and all the Service Recipients) and including the identification of Business Unit and Site for Problems identified by Textron and, as much as possible, for Problems identified by CSC.  Such report shall be provided in a format commonly understood (e.g., Microsoft Access or Excel) and shall:

(a)separately address CSC’s performance in each Tower of Services in a form and format acceptable to Textron;

(b)for each Tower of Services, assess the degree to which CSC has attained or failed to attain the pertinent objectives in that area, including measurements with respect to the Performance Standards and Service Level Agreements applicable thereto;

(c)explain deviations from the Performance Standards and Service Level Agreements and include a plan for corrective action where appropriate;

(d)describe the status of any Software development projects, problem resolution efforts, and other initiatives;

(e)if requested by Textron, set forth a record of all Supported Equipment and Software installed thereon, and to the extent billable to Textron, changes to CSC employees in Key CSC Positions, in each case that pertain to each Tower of Services and describe planned changes during the upcoming [***] that may affect such Tower of Services;

(f)set forth the utilization of resources for the [***] and report on utilization trends and statistics;

(g)include softcopy database extracts from the management databases that track Projects, Problems and issues; and

(h)include such documentation and other information as Textron may reasonably request to verify CSC’s compliance with this Agreement.

13.3Technology Plan

13.3.1The responsibility for establishing the information technology architecture, standards, and the strategic direction of Textron shall at all times remain with Textron.  CSC, in performing the Services, shall conform to and shall support such architecture, standards and strategic direction, provided that (a) the Transformation Plans and the project definitions thereunder, and (b) the Technology Plans, each in a form approved by Textron, are deemed to be in accordance with such strategic direction.

13.3.2For each Tower of Services, CSC shall prepare an annual technology plan in accordance with the provisions of this Section 13.3 (each a “Technology Plan”) and shall perform the Services in accordance with the Technology Plans. The Technology Plans shall address comprehensively the information technology requirements of Textron’s activities and shall include, at a minimum:

39

(a)a comprehensive assessment and strategic analysis of Textron’s then-current information technology systems and services requirements for the next [***], including:

(i)an assessment of the appropriate direction for such systems and services, in light of Textron’s business priorities and strategies and competitive market forces (to the extent such business information is provided by Textron to CSC);

(ii)a specific identification of proposed Infrastructure Systems, new technologies, strategies and direction;

(iii)a cost projection;

(iv)a cost/benefit analysis of any proposed changes;

(v)a description of the types of individual skills and abilities needed to respond to any recommended changes or upgrades in technology;

(vi)a general plan and a projected time schedule for developing and achieving the recommended elements; and

(vii)references to appropriate information services operations platforms that support Performance Standard requirements and exploit industry trends in production capabilities, and offer potential price performance improvement opportunities; and

(b)as necessary to support the overall objectives and directions of the [***] plan described above, an annual implementation plan which shall:

(i)provide specific guidance as to the information services requirements, projects, and plans for the upcoming [***] period, including details on operations, maintenance backlog and development activities; and

(ii)include a summary review of CSC’s performance of the Services in the previous [***] period, then concluding and review and assess the Technology Plan with respect to that period.

13.3.3The annual Technology Plans shall be submitted and revised annually in accordance with Section 4.1 of Schedule B (Cross Functional Obligations) and in a manner that supports Textron’s annual business planning cycle.  The Technology Plans shall also be updated during the year as necessary to reflect changes in the business or strategies of Textron which materially impact the validity of the then-existing Technology Plans.  CSC shall recommend modifications to the Technology Plans as it deems appropriate, and shall revise the Technology Plans as requested or approved by Textron.  Changes in Services relating to changes in the Technology Plan shall be subject to the Change Control Procedure.

13.3.4CSC shall submit to Textron a draft of each Technology Plan for Textron’s review and approval, which draft shall have been developed with input from key Personnel of Textron.  CSC shall submit the final Technology Plans within [***] of receiving Textron’s comments.  The draft of the Technology Plan for the first year shall be provided within [***] of the Signature Date.

14.DUE DILIGENCE

14.1          Textron represents, to its knowledge, that it has identified and made reasonably available to CSC for its review all contracts for Equipment, Software and related services having an annual value in excess of [***] Dollars and all specifically requested due diligence material, that such material was current, accurate and complete at the time of the review and that such material did not materially change between the date of CSC’s due diligence review and the execution of the Agreement.

40

14.2CSC acknowledges and agrees that CSC was solely responsible for due diligence, any additional information that was necessary to provide the Services in accordance with this Agreement, and the evaluation of information and data obtained (during due diligence) prior to the Signature Date, and that CSC carried out to its satisfaction, adequate due diligence exercises and validation and verification activities on Textron, the Service Recipients, its and their systems, and the Services CSC shall perform under this Agreement.  CSC acknowledges that there shall not be any due diligence or joint verification with Textron or the Service Recipients after the Signature Date, and that failure to carry out due diligence prior to the Signature Date on any part of or relating to the Services or associated expenses shall not be used as a reason to increase the Service Charges, alter the Performance Standards or Service Levels specified in this Agreement or refuse to provide any Services under this Agreement.

14.3Notwithstanding Sections 14.1 and 14.2, In the event that CSC reasonably demonstrates to Textron that: (i) new information exists which was not made available to CSC as part of the due diligence process or that (ii) information provided was incomplete or incorrect and that as a result of either (i) or (ii) there has been a demonstrable adverse impact on CSC’s costs, CSC shall be entitled to an equitable adjustment to the pricing.  Without limiting the meaning of “equitable adjustment” as used elsewhere in this Agreement, such equitable adjustment shall include all elements included in CSC’s pricing including an appropriate profit element. The adjustment shall be implemented as a Scope Change.  Textron shall have the right to have a Textron Audit Representative verify CSC’s assertions regarding cost impact. In the event of a dispute, the dispute resolution process shall apply.

15.AUDITS AND RECORD KEEPING

15.1Audit Rights

15.1.1CSC shall provide the Textron Audit Representatives with access at all reasonable times (and in the case of regulators, at any time required by such regulator) to any facility or part of a facility at which either CSC or any CSC Subcontractor is providing the Services, and shall grant the Textron Audit Representatives access to CSC Subcontractors and CSC Personnel and to all data, records and information relating to the Services (including the right to copy such data, records and information) for the purpose of performing audits and inspections, including, without limitation, SAS 70 Type II examinations (collectively, “Audits”) of either CSC or any of CSC Subcontractors, subject to confidentiality obligations, to:

(a)verify the accuracy of Service Charges and invoices;

(b)verify the integrity of Textron Information and examine the systems that process, store, support and transmit Textron Information;

(c)verify CSC’s and CSC Subcontractors’ performance of the Services and compliance with the terms of this Agreement including, to the extent applicable to the Services and to the relevant Service Charges, performing Audits of:

(i)practices and procedures;

(ii)systems;

(iii)general controls and security practices and procedures (including the performance of penetration testing);

(iv)disaster recovery and back-up procedures;

(v)the use of any Equipment or Software owned by Textron or licensed or leased by a Third Party to Textron and used by or on behalf of CSC;

(vi)Performance Standards, Service Levels and supporting information and calculations, including the tools and procedures specified in Section 4.6; and

41

(d)enable Textron to meet, or to confirm that CSC is meeting, all requirements of applicable Laws.

15.1.2CSC shall cooperate with the Textron Audit Representatives and provide such assistance as the Textron Audit Representatives reasonably require (including installing and operating audit software) in carrying out the Audits.  The Parties shall cooperate to minimize any disruption caused by, and the cost incurred by CSC in connection with, Audits.  If the CSC Program Executive believes that the number of Audits adversely impacts CSC’s costs for performing the Services, the CSC Program Executive will engage in a discussion with the Textron Program Executive about this impact.

15.1.3Textron shall provide at least [***] notice of any Audit it intends to carry out pursuant to this Section 15 unless any of the following circumstances apply:

(a)such Audit is required by Textron for reasons of suspected fraud or to validate compliance with the security requirements set forth in Schedule B (Cross-Functional Obligations) to this Agreement;

(b)Textron has reasonable grounds to suspect that CSC may be in material breach of CSC’s obligations;

(c)a shorter time is required by applicable Laws; or

(d)other circumstances have arisen which would give Textron the right to terminate this Agreement.

15.1.4The Textron Audit Representatives (other than regulatory Textron Audit Representatives) shall not be CSC Competitors except with the prior consent of CSC and shall comply with CSC’s reasonable security requirements provided to Textron.

15.1.5CSC shall cooperate with Textron in dealing with regulatory Audits, including:

(a)notifying Textron as soon as practicable of any regulatory Audits;

(b)permitting Textron or its representatives to be present and to participate in such regulatory Audits;

(c)providing Textron with copies of any reports or written communications with such regulators; and

(d)liaising with Textron with respect to responses to such regulators’ communications.

15.1.6Where any government or regulatory body or agency of competent jurisdiction requests information and/or cooperation from Textron for any general compliance or regulatory purposes relating to the Services, then where required by Textron, CSC shall assist Textron in responding to such request, by providing Textron or any such government, regulatory body or agency of competent jurisdiction (as directed by Textron), with all relevant cooperation and information relevant to CSC or CSC Subcontractors’ Services, whether or not the request relates to a regulatory Audit.

15.2CSC Audits

15.2.1CSC shall conduct reviews and Audits of, or pertaining to, the Services in a manner consistent with customary audit practices.  CSC shall cause a security audit and a SAS 70 Type II examination of CSC’s services performed at CSC’s Data Centers at Norwich, Connecticut and Chesterfield, England to be carried out by an independent Third Party at least [***], covering at least the period January 1-September 30 and shall furnish a copy of the portions thereof relevant to the Services, and the relevant portions of any other available SAS 70 reports relating to Textron Services, subject to

42

confidentiality restrictions imposed on such reports, to Textron’s auditors not later than November 15 of such Contract Year, at no additional charge to Textron.  Annual SAS 70 Type II examinations shall cover at least the period from January 1 through September 30 of the year in which the resulting report is provided.  Subject to written confidentiality agreements that are consistent with Textron’s obligations set forth in the Agreement to maintain the confidentiality of CSC’s confidential information and that identify CSC as a third party beneficiary, Textron shall be entitled to provide a copy of any such Audit reports to others as necessary to evidence its internal control structure.

15.2.2CSC shall promptly make available in writing to Textron a summary of the results of any review or Audit conducted by CSC or any CSC Subcontractors relating to the Services and any finding or report concerning any actual or suspected error with respect to amounts charged to Textron under this Agreement.

15.2.3In no event shall CSC disclose to any Third Party any Textron Confidential Information contained in any Audit, Audit report or Audit summary unless required to do so by Law.

15.3Audit Follow-Up

15.3.1Following an Audit, Textron shall conduct (in the case of an internal Audit), or request Textron’s external Textron Audit Representatives to conduct, a review meeting with CSC to obtain factual concurrence with issues identified in the Audit.  Either Party shall be entitled to invoke the dispute resolution procedure set forth in Section 22 in connection with a disagreement regarding the results of any Audit.

15.3.2CSC and Textron shall meet to review each Audit report promptly after the issuance thereof and shall mutually agree upon the appropriate manner, if any, in which to respond to the changes suggested by the Audit report.  CSC shall provide to Textron a plan and schedule for any necessary corrective actions for Textron’s approval and shall complete such corrective actions in accordance with the approved plan and schedule.

15.3.3Textron and CSC shall develop and follow procedures for the sharing of reports for Audits carried out pursuant to this Section 15.

15.3.4To the extent that any Audit reveals any error or incorrect charging in any CSC invoice that is undisputed (or if disputed, after resolution of the dispute), an appropriate correcting payment or credit or the net amount thereof shall be promptly made as follows:

(a)in the case of an overpayment by Textron, a payment or credit shall be made by CSC together with interest at an annual percentage rate equal to [***] percent ([***]%) or the maximum rate permitted by Law, whichever is lower, calculated as of the date the incorrect payment was made and accruing from such date until the date of reimbursement to Textron of the overcharge by CSC; or

(b)in the case of an underpayment by Textron, a payment shall be made by Textron to CSC, less the cost of the Audit which resulted in the discovery of such underpayment.

15.4Records Retention

15.4.1CSC shall maintain and provide access for the Textron Audit Representatives to the records, documents and other information (including any data contained in the foregoing, and any other data related to all relevant transactions containing any data

43

with controlled access pursuant to this Agreement or applicable Laws) required to meet Textron’s audit rights under this Agreement until the later of:

(a)[***] after the Termination Date of the Agreement;

(b)the date that all pending matters relating to this Agreement (including disputed Tax audits) are closed; and

(c)the date when such records, documents and other information are no longer required to meet Textron’s records retention policy, as such policy may be amended from time to time.

15.4.2Without limiting Section 15.4.1, CSC shall maintain complete and accurate records of, and supporting documentation for, invoices submitted to Textron and the payments made by Textron under this Agreement in accordance with generally accepted accounting principles applied on a consistent basis.

15.4.3Before destroying or otherwise disposing of information of the type referred to in this Section 15.4, CSC shall provide Textron with [***] prior written notice and shall offer Textron, at Textron’s expense, the opportunity to recover such information or to request CSC to deliver such information to Textron.

15.5CSC Subcontractor and Pass-Through Expenses

15.5.1CSC shall use commercially reasonable efforts to provide in each subcontract with a Material Subcontractor entered into after the Signature Date that such Subcontractor will give Textron the same rights and agree to fulfill the same obligations as are undertaken by CSC under this Section 15, and shall advise Textron in writing if it is unable to obtain such provisions, in which case CSC shall not subcontract any Services to such proposed Subcontractor without Textron’s prior written consent.

15.5.2CSC shall use commercially reasonable efforts to cause arrangements which CSC enters into with Third Parties and which are to be paid by Textron as Pass-Through Expenses to provide for the right for Textron to audit such third party’s charges and invoicing with respect to such Pass-Through Expenses.

15.6Duration of Rights

Except for such longer periods otherwise expressly provided herein, Textron may exercise any of its rights set forth in this Section 15 for a period of [***] following the later of the date of expiration or Termination of this Agreement or the end of the Termination Assistance Period.

16.CONFIDENTIAL INFORMATION

16.1Protection of Confidential Information

Textron and CSC each shall:

16.1.1keep confidential all Confidential Information given by one Party (the “Disclosing Party”) to the other Party (the “Recipient”), or otherwise obtained by the Recipient, and shall not (except as expressly permitted by this Agreement or by the Disclosing Party in writing) disclose the Confidential Information, make copies of Material containing the Confidential Information or otherwise use the Confidential Information;

44

16.1.2safeguard the Disclosing Party’s Confidential Information and comply with any reasonable security requirements specified by the Disclosing Party from time to time with respect thereto;

16.1.3implement rigorous security practices against any unauthorized copying, use, disclosure, access, damage or destruction of the Disclosing Party’s Confidential Information no less stringent than such Party applies to its own Confidential Information;

16.1.4immediately notify the Disclosing Party if the Recipient suspects or becomes aware of any unauthorized access, copying, use, disclosure, in any form, or if the Recipient is required by Law to disclose any of the Disclosing Party’s Confidential Information;

16.1.5take all reasonable steps to enforce against any Third Party (and to assist the Disclosing Party to so enforce) any obligation of confidence imposed or required to be imposed by this Agreement; and

16.1.6do all things, execute all documents and give all assistance reasonably required by the Disclosing Party to enforce any obligation of confidence imposed or required to be imposed by this Agreement.

16.2Use of Confidential Information

Subject to Sections 16.3, 16.4 and 25.2, the Recipient may only use and copy the Disclosing Party’s Confidential Information solely to the extent necessary:

16.2.1to comply with its obligations under this Agreement; or

16.2.2to enable the Recipient to exercise its rights under this Agreement.

16.3Handling Textron Confidential Information

16.3.1During the Term, CSC may disclose Textron Confidential Information to (a) CSC Personnel, CSC Subcontractors and CSC’s professional advisors and (b) other persons approved by Textron in writing on a “need to know” basis and only for the purposes identified in Section 16.2 above.  CSC shall not disclose Textron Confidential Information to any other party unless CSC:

(i)obtains Textron’s prior written consent, which may be granted or withheld in Textron’s sole discretion;

(ii)notifies Textron of all persons to whom Textron Confidential Information is to be disclosed or who may become aware of Textron Confidential Information before those persons are permitted access to Textron Confidential Information; and

(iii)if required by Textron, arranges for any persons who are permitted access to Textron Confidential Information to give a written confidentiality undertaking directly to, or in favor of, Textron in a form reasonably required by Textron.

16.3.2CSC shall require that CSC’s Personnel, CSC Subcontractors, CSC’s professional advisors and any other person approved by Textron comply with the provisions of this Section 16.

16.4Handling CSC’s Confidential Information

Textron and the Service Recipients may:

45

16.4.1use CSC’s Confidential Information to receive and use the full benefit of the Services;

16.4.2disclose CSC’s Confidential Information to (a) any of the other Service Recipients, its and their Personnel and professional advisors, and (b) other persons approved by CSC in writing, all on a “need to know” basis provided that Textron makes the Recipient aware of Textron’s obligations under this Section 16; and

16.4.3with CSC’s written consent, which shall not be unreasonably withheld or delayed, use and disclose CSC’s Confidential Information following the Termination of this Agreement to the extent necessary to enable Textron to continue receiving services equivalent or similar to the Services as of the Termination Date.

16.5Exceptions to Obligations of Confidentiality

16.5.1Nothing in this Agreement shall prohibit the use, copying or disclosure by the Recipient of the Disclosing Party’s Confidential Information to the extent that:

(a)such Confidential Information has been placed in the public domain other than through the fault of the Recipient or a person that was provided with the information by the Recipient;

(b)such Confidential Information has been or is subsequently independently developed by the Recipient or its Affiliates without access to the Disclosing Party’s Confidential Information;

(c)the Disclosing Party has approved in writing the particular use or disclosure of the Confidential Information;

(d)such Confidential Information is already known by the Recipient without an obligation of confidentiality; or

(e)such Confidential Information has been or will be independently or rightfully received from a Third Party without any obligation of confidentiality.

16.5.2Nothing in this Agreement shall prevent the Recipient from disclosing any of the Disclosing Party’s Confidential Information where the disclosure is expressly required by Law or otherwise by any relevant stock exchange, governmental or regulatory authority or court entitled by Law to disclosure of the same, provided that the Recipient:

(a)uses commercially reasonable efforts to minimize any such disclosure or to assist the Disclosing Party to prevent or restrict the disclosure;

(b)gives the Disclosing Party prompt notice of such requirement to disclose to enable the Disclosing Party to seek a protective order or other appropriate relief; and

(c)uses commercially reasonable efforts to require the Recipient of such Confidential Information to preserve the confidential nature of the Confidential Information once disclosed.

16.6Period of Confidentiality

The obligations with respect to Confidential Information disclosed under this Agreement shall survive Termination of this Agreement and continue for as long as such information remains confidential.

46

16.7Returning Material, Data and Information

Upon Textron’s request, and, in any event, on expiration or Termination of this Agreement, CSC shall promptly return to Textron all or any specified part of Textron’s Confidential Information and all physical and written records containing Textron’s Confidential Information, and all documentation relating to or concerning Textron’s Confidential Information or, if requested by Textron, destroy or delete in the manner specified by Textron and promptly certify to Textron in writing that CSC has done so.

17.REPRESENTATIONS, WARRANTIES AND COVENANTS

17.1Representations, Warranties and Covenants by CSC

17.1.1CSC represents and warrants to Textron that:

(a)CSC’s execution, delivery and performance of this Agreement shall not:

(i)constitute a violation of any applicable Laws, or of any judgment, order or decree of any court or governmental agency to which CSC is a party or by which CSC is bound;

(ii)constitute a violation, breach or default under any contract by which CSC or any of its assets (whether tangible or intangible) are bound (whether by charge, pledge, lien or otherwise); or

(iii)result in the termination, cancellation or acceleration (whether after the giving of notice, lapse of time, or both) of any material contract by which CSC or any of its material assets (whether tangible or intangible) are bound (whether by charge, pledge, lien or otherwise);

(b)CSC has the requisite power, capacity and authority to enter into this Agreement and to carry out CSC’s obligations contemplated herein;

(c)there is no proceeding pending or, to the knowledge of CSC, threatened which challenges or may have a material adverse affect on this Agreement or on the ability of CSC to carry out its obligations under this Agreement;

(d)CSC is not insolvent or unable to pay its debts as they become due, no order has been made or petition presented or resolution passed for its winding up or liquidation and no receiver or trustee has been appointed by any person or court of its business or assets or any part thereof, nor has any equivalent event taken place;

(e)CSC does not have any commitments to Third Parties that will conflict in any material way with CSC’s obligations under this Agreement;

(f)CSC has not violated any applicable Laws or Textron policies of which CSC is aware regarding the offering of inducements in connection with this Agreement; and

(g)the Service Charges were independently established by CSC and proposed to Textron without collusion with any Third Party or any employee or representative of Textron.

Each of the above shall be construed as a separate warranty or representation on behalf of CSC and shall not be limited or restricted by reference to, or inference from, the terms of any other

47

warranty or representation or any other terms of this Agreement, and CSC acknowledges and agrees that its compliance with any or all of the warranties and representations contained in this Section 17.1 shall not of itself constitute performance of any of CSC’s other obligations under this Agreement.

17.1.2CSC covenants that:

(a)CSC will, at its own cost, (i) comply with CSC Laws related to export and import, including, without limitation, ITAR, EAR and OFAC and (ii) adhere to any policies and procedures of Textron or any Service Recipient that have been implemented and disclosed to CSC prior to the applicable Handover Date, for purposes of enabling Textron and the Service Recipients to comply, or to facilitate compliance by Textron and the Service Recipients, with any Textron Laws related to export and import, including, without limitation, ITAR, EAR and OFAC.  The completion and implementation of those policies and procedures existing as of the applicable Handover Date and not fully implemented shall be at no additional cost to Textron, provided that there is no incremental cost to CSC and the implementation would have been a continuation (in terms of both nature and time expended) of the normal and regular job functions of In-Scope Employees.  In all other instances, including any such completion and implementation and any modifications to the Services that Textron may request in order to enable Textron or a Service Recipient to comply, or to facilitate compliance by Textron or a Service Recipient, with any Textron Laws related to export and import, including, without limitation, ITAR, EAR and OFAC, existing as of the Signature Date or becoming effective thereafter, the implementation shall be a Scope Change subject to the Change Control Procedure.  Except as expressly set forth herein, Textron will comply at its own cost with Textron Laws related to export and import, including, without limitation, ITAR, EAR and OFAC existing as of the signature date or becoming effective thereafter.

(b)CSC acknowledges that the export control regulations of the United States and other countries in which certain Textron Facilities specifically identified by Textron to CSC are located may limit access to certain Textron Data residing on the computer systems of such Textron Facilities without appropriate government licenses or other approvals, and in such case CSC will not allow access to such Textron Data to anyone other than individuals who meet the requirements that have been implemented and disclosed to CSC prior to the applicable Handover Date by Textron or the applicable Service Recipients prior to the applicable Handover Date. The completion and implementation of those requirements existing as of the applicable Handover Date and not fully implemented shall be at no additional cost to Textron, provided that there is no incremental cost to CSC and the implementation would have been a continuation (in terms of both nature and time expended) of the normal and regular job functions of In-Scope Employees.  In all other instances, including compliance with changes to such requirements from time to time, compliance shall be a Scope Change subject to the Change Control Procedures.

(c)CSC shall be responsible for obtaining any necessary export licenses and permissions for any CSC data, goods, or software that CSC exports from any country where such data is located.  CSC shall notify the Textron Facility point of contact prior to (i) any export by CSC of Textron Data, Software or goods from any country where such data, software or goods are located, (ii) the

48

provision of Services by CSC Personnel from outside the United States, or (iii) the transmittal, transfer, shipment or discussion of Textron Data, Software or goods by CSC to or with a citizen of a country other than the country where such Textron Data, Software or goods are located, whether within the United States or outside.  Textron shall be responsible for obtaining any required export licenses or permissions prior to shipment, transfer, shipment or discussion.  CSC shall not make or permit any shipment of Textron Data, Software or goods outside the country where they are located without prior written authorization from Textron or the applicable Service Recipient.

(d)Textron shall be responsible for obtaining any required export licenses or permissions prior to transmittal, transfer, shipment or discussion of any Textron Data, goods or Software that Textron exports from any country where such  Textron Data, goods or Software is located.  CSC shall not make or permit any transmittal, transfer or shipment of Textron Data, Software or goods outside the country where they are located or to a citizen of a country other than the one where they are located without prior written authorization from Textron or the applicable Service Recipient. For the avoidance of doubt, Textron or the applicable Service Recipient, and not CSC, shall be deemed to have made or permitted the transmittal, transfer or shipment of Textron Data, Software or goods if Textron or the Service Recipient directs the destination and CSC’s role is to provide the computing capacity, network, and other capabilities as part of the Services.

(e)In particular, CSC shall:

(i)establish and provide to Textron procedures to prevent technical data residing on computer systems at certain Textron Facilities identified by Textron to CSC as having Textron Data that is subject to the ITAR or that has an ECCN other than EAR99 from being accessed by CSC Personnel other than individuals who meet the requirements implemented by Textron or the applicable Service Recipient as of the Handover Date as such procedures may be changed from time to time as a Scope Change in accordance with the Change Control Procedures; and

(ii)for purposes of this Section 17.1.2, be able at all times to identify the nationality and status as a “U.S. Person” of all of CSC Personnel performing Services that from time to time have access to Textron Data Software or goods that are subject to ITAR, EAR and OFAC, and to provide written certification with respect thereto to Textron from time to time upon Textron’s request.

17.2Representations and Warranties By Textron

Textron represents and warrants to CSC as follows:

17.2.1Textron’s execution, delivery and performance of this Agreement shall not constitute a violation of any applicable Laws, or of any judgment, order or decree of any court or governmental agency to which Textron is a party or by which Textron is bound or, subject to performance by CSC of its obligation under Section 8.6, constitute a violation, breach or default under any contract by which Textron or any of its assets (whether tangible or intangible) are bound (whether by charge, pledge, lien or otherwise); or result in the termination, cancellation or acceleration (whether after the giving of notice, lapse of time, or both) of any material contract by which Textron or

49

any of its material assets (whether tangible or intangible) are bound (whether by charge, pledge, lien or otherwise);

17.2.2Textron has the requisite power, capacity and authority to enter into this Agreement and to carry out Textron’s obligations contemplated herein;

17.2.3no Textron Software or Textron Material or their configurations, nor their use by CSC in the intended manner, to the knowledge of Textron, infringe any Intellectual Property Right of any Third Party;

17.2.4to its knowledge, Textron, the Service Recipients and their respective subcontractors are, as of the Signature Date, in full compliance with all the Assigned Contracts, Managed Contracts and Textron-Retained Leases; and

17.2.5Except as Textron may inform CSC from time to time, Textron has, and shall at all relevant times have, full right and authority to grant the licenses to use Textron Software to CSC as set forth in this Agreement.

Each of the above shall be construed as a separate warranty or representation on behalf of Textron and shall not be limited or restricted by reference to or inference from the terms of any other warranty or representation or any other terms of this Agreement, and Textron acknowledges and agrees that compliance by it with the warranties and representations contained in this Section 17.2 (or any of them) shall not of itself constitute performance of any of Textron’s other obligations under this Agreement.

17.3Compliance with Laws

17.3.1Each Party shall perform its obligations under this Agreement in a manner that complies with all applicable Laws in relation to, or otherwise relevant to its obligations under, this Agreement and shall promptly notify the other Party if it receives a written allegation of non-compliance with any such Law by any person which relates to its performance of such obligations.

17.3.2CSC shall be responsible for any governmental filings, notifications and registrations, and identifying and procuring governmental permits, certificates, approvals and inspections as are required of CSC to perform the Services and CSC’s other obligations under this Agreement.

17.4No Additional Representations and Warranties

17.4.1The Materials, Equipment, Software, Textron Facilities, Assigned Contracts, Textron Information and other assets or resources to be transferred, licensed, provided or otherwise made available by Textron to CSC under this Agreement (collectively, the “Textron Assets”) shall be transferred, licensed, provided or otherwise made available on an “as is, where is” basis, and CSC acknowledges and accepts that, to the extent permitted by Law, no representation or warranty (whether express or implied) is, has been or will be made or given, by or on behalf of Textron with respect to:

(a)the condition, state of repair, design, quality or fitness for purpose of any of Textron Assets; or

(b)the accuracy, completeness, currency, design, suitability or efficacy of any of the Materials or Textron Information provided by Textron.

50

17.4.2EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, THERE ARE NO OTHER WARRANTIES OR CONDITIONS, EXPRESS OR IMPLIED, AND ALL IMPLIED WARRANTIES OR CONDITIONS (INCLUDING ANY IMPLIED WARRANTIES OR CONDITIONS OF FITNESS FOR A PARTICULAR USE, MERCHANTABILITY OR NON-INFRINGEMENT) ARE HEREBY EXPRESSLY EXCLUDED.

18.INDEMNITIES

18.1Indemnity by CSC

CSC shall indemnify, defend and hold harmless Textron, the Service Recipients, its and their Affiliates, and each of their respective predecessors, successors and assigns, together with the officers, directors and employees of any of them, from and against any Losses arising from or in connection with any of the following:

18.1.1any claim, demand, proceeding or other action (each a “Claim”) by a Third Party that (a) the performance of the Services, (b) or any part of the Infrastructure Systems, any CSC Material or any CSC Software, (c) any Material or any other resource provided or used by CSC or by any CSC Subcontractor or other third party on behalf of CSC in performing the Services or any Work Product (excluding, subject to Section 18.1.2, any Textron Material and Textron Software), or (d) the possession, use, Modification, reproduction or exploitation of any of the same by or on behalf of Textron in the intended manner, actually or allegedly infringes a Third Party’s Intellectual Property Rights or rights with respect to its confidential information, provided that such Claim is not based on items or work provided for or specified (if such specification cannot be met in a noninfringing manner) by Textron, Textron’s Affiliates or its contractors, and that the rights claimed to have been violated are recognized under the Laws applicable to the use of the item as applying to CSC’s actions;

18.1.2any Claim by a Third Party that any Textron Software or Textron Material infringes such Third Party’s Intellectual Property Rights if the claim is based on or attributable to the fact that CSC has Modified, or has had Modified by a Third Party acting on behalf of CSC, any of the Textron Software or Textron Material, or has used, Modified, reproduced or exploited Textron Software or Textron Material in violation of any term or condition that Textron has disclosed to CSC, provided that such Claim is not based on items or work provided for or specified by Textron, Textron’s Affiliates or its contractors, that the rights claimed to have been violated are recognized under the Laws applicable to the use of the item as applying to CSC’s actions;

18.1.3any violation or alleged violation of Law by CSC or by any CSC Subcontractor or by any other Third Party acting on behalf of CSC;

18.1.4any breach by CSC or by any CSC Subcontractor of CSC’s confidentiality obligations under this Agreement;

18.1.5Claims for loss or damage to real or tangible personal property or any criminal claims caused by a wrongful, willful or negligent act or omission of CSC or any CSC Subcontractor;

18.1.6Claims for loss or damage resulting from personal or bodily injury or death resulting from any act or omission of CSC or any CSC Subcontractor;

51

18.1.7any Claim by a Third Party arising from any act or omission of CSC relating to the Managed Contracts, or the Assigned Contracts, (cumulatively known for the purposes of this Section 18.1.7 as the “Third Party Contracts”) or arising from an act or omission by CSC in performing any of the obligations to be performed by CSC relating to Rights of Use under Third Party Contracts, on or after the applicable Handover Date, including, provided Textron has taken actions required of it under this Agreement in relation thereto,  any Claim arising from the failure by CSC to obtain a Required Consent or any Right of Use with respect to any Third Party Contract;

18.1.8any Claim under this Agreement or otherwise in connection with the Services brought against a Service Recipient or End User by any CSC Affiliate or CSC Subcontractor; provided, however, that this obligation shall not prejudice CSC’s rights to bring such Claim directly against Textron;

18.1.9any Claim by a Third Party arising after the applicable Handover Date from any act or omission of CSC other nonpayment or past due payment relating to a Managed Contract; and

18.1.10Claims by employees of CSC in which such employee alleges that while employed by CSC, an employer-employee relationship existed between Textron and such employee subsequent to the applicable Handover Date and such claim arises from a failure of CSC to perform such acts as are reasonably necessary to impart knowledge to the employee that he or she is an employee of CSC.  CSC shall not be responsible for any acts of Textron which give rise to a claim that the employee is an employee of Textron.

18.2Indemnity by Textron

Textron shall indemnify, defend and hold harmless CSC, CSC’s Subcontractors and Affiliates, and each of their respective predecessors, successors, and assigns, together with the officers, directors and employees of any of them, from and against any Losses arising from or in connection with any of the following:

18.2.1Subject to Section 18.1.2, any Claim by a Third Party that any Textron Software or Textron Material or Textron-owned or -leased Equipment provided to or used or reproduced by or on behalf of CSC under this Agreement in the intended manner infringes a Third Party’s Intellectual Property Rights or right of that Third Party with respect to its confidential information, unless such Claim is based on or attributable to the fact that CSC or any other person seeking indemnity hereunder has Modified the same, or has had the same Modified by a Third Party, provided that such Claim is not based on items or work provided for or specified (if such specification cannot be met in a noninfringing manner) by CSC or its Subcontractors, and that the rights claimed to have been violated are recognized under the Laws applicable to the use of the item as applying to Textron’s actions;

18.2.2any violation or alleged violation of Law by Textron or a Service Recipient;

18.2.3any breach by Textron or a Service Recipient of its confidentiality obligations under this Agreement;

18.2.4Claims for loss or damage to real or tangible personal property caused by a wrongful, willful or negligent act or omission of Textron or Service Recipient;

52

18.2.5Claims for loss or damage resulting from personal or bodily injury or death resulting from any act or omission of Textron, a Service Recipient or an End User or any contractor of Textron, a Service Recipient or an End User;

18.2.6any Claim under this Agreement or otherwise in connection with the Services brought against a CSC Affiliate or a CSC Subcontractor by any Service Recipient or End User; provided, however, that this obligation shall not prejudice Textron’s rights to bring such Claim directly against CSC; and

18.2.7any Claim by a Third Party arising (a) prior to the applicable Handover Date from any act or omission of Textron relating to the Assigned Contracts or Managed Contracts, or (b) after the applicable Handover Date from any nonpayment or past due payment relating to a Managed Contract.

18.3Anticipation of Infringement

18.3.1If any item (including any Infrastructure Systems, Work Product, Material or Textron Data) prepared by CSC or a CSC Affiliate as part of the Services becomes, or in CSC’s reasonable opinion is likely to become, the subject of a Claim for which CSC has an indemnification obligation related to infringement, CSC shall, at its own expense and in addition to CSC’s obligation to indemnify and to the other rights Textron may have under this Agreement, promptly either:

(a)secure the right for the item to continue to be used on terms which are acceptable to Textron;

(b)replace or Modify the item to make it non-infringing if Section (a) cannot be accomplished with commercially reasonable efforts, provided that any such replacement or Modification shall not degrade the performance, functionality or quality of the affected component of the Services; or

(c)remove the item from the Services if Sections (a) or (b) cannot be accomplished with commercially reasonable efforts, in which event Textron shall have the option to terminate such portion of the Services, or any Tower(s) of Services, as are materially adversely affected thereby in accordance with Section 24.1, without further obligation to CSC, or the Service Charges shall be equitably reduced to reflect such removal and the effect thereof.

18.3.2If any item (including any Infrastructure Systems, Material or Textron Data) provided to CSC by Textron or a Service Recipient becomes, or in the reasonable opinion of Textron or the applicable Service Recipient is likely to become, the subject of a Claim for which Textron has an indemnification obligation related to infringement, Textron or the applicable Service Recipient shall, at its own expense and in addition to Textron’s obligation to indemnify and to the other rights CSC may have under this Agreement, promptly either:

(a)secure the right for the item to continue to be used on terms which are acceptable to CSC;

(b)replace or Modify the item to make it non-infringing if Section 18.3.2(a) cannot be accomplished with commercially reasonable efforts, provided that any such replacement or Modification shall not increase CSC’s costs for performing the Services; or

53

(c)remove the item from the Services if Sections 18.3.2(a) or (b) cannot be accomplished with commercially reasonable efforts, in which event the Service Charges shall be equitably adjusted to reflect such removal and the effect thereof.

18.4Enforcement of Indemnities

It is not necessary for a Party to incur any expense or make any payment before enforcing a right of indemnity conferred by this Agreement.

18.5Indemnification Procedures

18.5.1Each Party (the “Indemnified Party”) shall notify the other Party (the “Indemnifying Party”) in detail in writing (a “Notice of Claim”) promptly after it becomes aware of any event or any Claim against it, which it believes may give rise to a claim for indemnification under the provisions of Section 18.1 or Section 18.2 these indemnity obligations (an “Indemnified Claim”), provided that a delay in promptly notifying the Indemnifying Party shall not relieve the Indemnifying Party of its obligations hereunder, except and to the extent that the Indemnifying Party can demonstrate damages attributable to such failure.

18.5.2Within [***] following receipt of Notice of Claim from the Indemnified Party, but no later than [***] before the date on which any response to legal process is due, the Indemnifying Party shall notify the Indemnified Party in writing if the Indemnifying Party acknowledges and unconditionally accepts its indemnification obligation and elects to assume control of the defense and settlement of that Indemnified Claim (a “Notice of Election”).

18.5.3Provided that the Indemnifying Party delivers a suitable Notice of Election within the specified period, the Indemnifying Party shall be entitled, at own its expense, to control the conduct, defense and settlement of any litigation and negotiations arising with respect to the Indemnified Claim, subject to Section 18.5.8, and provided that where there is an impact on the Indemnified Party, the Indemnifying Party will consult with the Indemnified Party and will at all times keep the Indemnified Party informed of all material matters.  The Indemnified Party shall be entitled to participate and employ legal assistance in any such litigation or negotiations, provided that unless the participation of the Indemnified Party was in response to a request by the Indemnifying Party, the Indemnifying Party shall not be liable to the Indemnified Party for any legal costs and expenses relating to the Indemnified Claim incurred after the Indemnifying Party delivered a Notice of Election in a timely manner.

18.5.4At the request of the Indemnifying Party, the Indemnified Party shall afford to the Indemnifying Party reasonable assistance and documentation for the purpose of contesting any Indemnified Claim, and act as or be joined as defendant in legal proceedings.  The Indemnifying Party shall reimburse the Indemnified Party for reasonable costs and expenses (including reasonable attorneys’ fees and any disbursements and costs) incurred in so doing.

18.5.5If the Indemnifying Party does not deliver a Notice of Election relating to the Indemnified Claim, or otherwise fails to acknowledge and accept unconditionally its indemnification obligation or to assume the defense of the Indemnified Claim within the required notice period, or ceases to defend the Indemnified Claim, the Indemnified Party shall have the right to defend the Indemnified Claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party, including payment

54

of any judgment or award and the costs of settlement or compromise of the Indemnified Claim.  The Indemnifying Party shall promptly reimburse the Indemnified Party for all such costs and expenses (including reasonable attorneys’ fees and any disbursements and costs of investigation).

18.5.6At the request of the Indemnified Party, the Indemnifying Party shall assign or otherwise pass through to the Indemnified Party, to the extent the Indemnifying Party is able, the benefit of any indemnities given to the Indemnifying Party by third parties which are applicable to the Indemnified Claim.

18.5.7The Indemnified Party shall not make any admissions (except where required by court order or governmental regulations), which may be prejudicial to the defense or settlement of any Indemnified Claim, without the prior written approval of the Indemnifying Party.

18.5.8The Indemnifying Party shall not cease to defend, compromise or settle any Indemnified Claim without the Indemnified Party’s prior written consent, if such compromise or settlement:

(a)would impose an injunction or other equitable relief upon the Indemnified Party;

(b)calls for an admission of liability or other statement against the interests of the Indemnified Party; or

(c)does not include the third party’s release of the Indemnified Party from all liability relating to such Indemnified Claim.

18.5.9In the event that an Indemnifying Party is obliged to indemnify an Indemnified Party pursuant to this Section 18, the Indemnifying Party shall, upon fulfillment of its obligations with respect to the Indemnified Claim, including payment in full of all amounts due pursuant to its indemnification obligations, be subrogated to the rights of the Indemnified Party with respect to the Indemnified Claim.

18.6Employee Indemnities

The Parties agree to be bound by the indemnities set forth at Schedule E (Employees).

19.LIMITATION OF LIABILITY

19.1Limitation of Liability

19.1.1Subject to Section 19.1.3, NOTWITHSTANDING ANY OTHER PROVISION OF THIS AGREEMENT, IN NO EVENT SHALL EITHER PARTY, ITS AFFILIATES, SERVICE RECIPIENTS OR END USERS BE LIABLE TO THE OTHER PARTY OR ITS AFFILIATES, SERVICE RECIPIENTS OR END USERS FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES WHATSOEVER (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION, LOSS OF DATA OR OTHER PECUNIARY LOSS) WHETHER ARISING IN CONTRACT OR TORT (INCLUDING NEGLIGENCE) ARISING OUT OF OR RELATED TO THIS AGREEMENT, EVEN IF THE OFFENDING PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

19.1.2Subject to Section 19.1.3;

55

(a)CSC’s and its Affiliates’ total liability to Textron and its Affiliates for all claims, losses and liabilities  under or in connection with the Services, the Agreement and the Local Enabling Agreements, whether arising in contract, tort (including negligence), misrepresentation (other than fraudulent misrepresentation), breach of statutory duty or otherwise pursuant to this Agreement, shall be limited, in the aggregate, to an amount equal to [***] Dollars ($[***]) United States currency; and

(b)Textron’s and its Affiliates’ total liability to CSC and its Affiliates for all claims, losses and liabilities under or in connection with the Services, the Agreement, and the Local Enabling Agreements, whether arising in contract, tort (including negligence), misrepresentation (other than fraudulent misrepresentation), breach of statutory duty or otherwise pursuant to this Agreement (excluding the obligation to pay CSC the Service Charges pursuant to Section 6.2), shall be limited, in the aggregate, to an amount equal to [***] Dollars ($[***]) United States currency.

19.1.3Nothing in this Agreement shall be deemed to exclude or limit a Party’s liability with respect to:

(a)death or personal or bodily injury arising as a result of any act or omission of such Party or any of its contractors or Subcontractors;

(b)any indemnity given such Party under the Agreement;

(c)any breach such Party of:

(i)its obligations under this Agreement with respect to the other Party’s Intellectual Property Rights or Confidential Information; or

(ii)Section 17.3; or

(d)losses occasioned by wrongful termination of this Agreement, or abandonment of a material portion of the Services which is not cured within [***] after written notice thereof given by Textron; provided, however, that this Section shall not apply to a request for Services that are not then being performed.

19.1.4For purposes of this Section 19, the term “Affiliates” shall include, in the case of CSC, all CSC Affiliates, and, in the case of Textron, all Affiliates, all Service Recipients and all End Users, whether denominated as End Users, Permitted Users, Authorized Users or otherwise.

20.INSURANCE AND RISK

20.1Insurance Coverage

20.1.1Without limitation to any other term of this Agreement, for the Term, CSC shall take out and maintain, at CSC’s own cost and expense, the following insurance coverage with a reputable insurance company and on terms usual and customary to CSC’s business:

(a)commercial general liability insurance including product and public liability insurance for an insured amount of not less than $[***] per occurrence and in the aggregate during any one insurance period; limits may be provided by umbrella and/or excess liability policies

56

(b)professional liability and errors and omissions insurance for an insured amount of not less than $[***] per claim and in the aggregate during any one insurance period; the policy will contain a retroactive date no later than the Signature Date and if there is an interruption in the retroactive date an extended reporting period will be purchased according to the terms of the policy in force at the time of the retroactive date interruption;

(c)property insurance to cover CSC’s risk of loss under Section 20.3;

(d)employee dishonesty insurance and computer fraud insurance for an insured amount of not less than $[***] per loss and in the aggregate during any one insurance period;

(e)employer’s liability and/or workers’ compensation as required by Law;

(f)business automobile liability covering vehicles that CSC owns, hires or leases for an insured amount of not less than $[***] per occurrence; limits may be provided by umbrella and/or excess liability policies; and

(g)any other insurance required to comply with any applicable Law.

The above insurance coverage (items a, b, d and e) shall be primary and non-contributory with regard to CSC’s acts or omissions regardless of any insurance which may be carried by Textron and shall be procured from insurance companies of recognized financial responsibility with an A rating or better, as rated by the A.M. Best’s rating guide for property and casualty insurance companies; provided, however, that CSC shall not be required to change a company as a result of a drop in rating after insurance has been procured until [***] after such drop in rating has occurred and provided, further, that CSC may procure insurance from an insurance company having a rating lower than A, as rated by the A.M. Best’s rating guide for property and casualty insurance companies, with Textron’s prior written consent for the specific insurance company.

20.1.2This Section 20.1 shall not be constructed as to constitute acceptance by Textron of any responsibility for liability in excess of the insurance coverage contemplated herein.

20.1.3If CSC fails or refuses to obtain appropriate insurance cover as contemplated in this Section 20.1, in addition to any other remedies available to Textron under this Agreement or at Law, Textron may follow the procedures set forth in Section 23.

20.2Terms of Insurance

CSC shall:

20.2.1provide Textron with a certificate of insurance evidencing that coverage and policy endorsements required under this Agreement are maintained and containing a summary of the key provisions (including, without limitation, the commencement and expiration dates and the territorial limits) for each of the insurance policies set forth in Section 20.1 within [***] following the Signature Date and, with respect to renewals, within [***] of expiration of coverage;

20.2.2note on each insurance policy taken out to provide the coverage contemplated in Section 20.1 that the insurer shall notify Textron in the event of any cancellation for nonpayment of premium or any other reason by, or any adverse modification of the terms of such insurance on the part of CSC or its insurers;

57

20.2.3take out insurance policies that are primary and without any right of contribution by Textron or any insurance effected by Textron;

20.2.4cause the CSC Subcontractors to maintain insurance coverage commensurate with the scope of Services to be performed by the CSC Subcontractor, naming CSC as an additional insured or loss payee where relevant;

20.2.5be solely responsible, in the case of loss or damage or other event that requires notice or other action under the terms of any insurance coverage specified in Section 20.1, to take such action.  CSC shall provide Textron with contemporaneous notice and with such other information as Textron may request regarding the event if Textron is named as a party to the claim and if the Textron is an additional insured under the relevant insurance policy;

20.2.6comply with the insurance policies taken out to provide the coverage contemplated in Section 20.1;

20.2.7cause all insurance policies contemplated under Sections 20.1.1(a), (c), (e) and (f) to include a waiver by the insurer of its right to subrogation under such policies in favor of Textron; and

20.2.8cause Textron to be named as loss payee under the insurance policies contemplated in Sections 20.1.1(c) and (d) and as an additional insured under the insurance policies contemplated in Section 20.1.1 (a) and (f).

20.3Risk of Loss and Damage

CSC shall be responsible for the risk of loss of, and physical damage to, any Equipment and Software that is owned or leased by Textron or a Service Recipient and is in the custody or control of CSC or the CSC Subcontractors and used to provide the Services, except to the extent that any loss of, or damage to, any such Equipment and Software is caused by a wrongful or negligent act or omission of Textron, any of the Service Recipients or its or their respective contractors or Personnel.Textron shall be responsible for the risk of loss of, and physical damage to, any Equipment and Software that is owned or leased by CSC or a CSC Affiliate and is in the custody or control of Textron, any of the Service Recipients or its or their respective contractors or Personnel except to the extent that any loss of, or damage to, and such Equipment and Software is caused by a wrongful or negligent act or omission of CSC or the CSC Subcontractors.  Textron shall provide property insurance to cover Textron’s risk of loss under this Section 20.3.

21.FORCE MAJEURE

21.1Force Majeure Events

21.1.1Subject to Section 21.1.2, neither Party shall be liable for any breach, or delay in performance, of its obligations under this Agreement if, and to the extent that:

(a)the breach or delay is directly caused by:

(i)fire, flood, earthquake or act of God;

(ii)war, riot, rebellion, terrorism, civil disorder or revolution;

(iii)epidemic or outbreak of disease;

(iv)strikes, lockouts or labor disputes (but in each case, other than of the non-performing Party’s employees); or

(v)other causes similar to the above that are beyond its reasonable control; and

58

(b)such breach or delay:

(i)is not the fault of the non-performing Party; and

(ii)could not have been prevented by the non-performing Party taking reasonable precautions,

(iii)(each a “Force Majeure Event”).

21.1.2Upon the occurrence of a Force Majeure Event, the non-performing Party shall:

(a)immediately notify the other Party of the occurrence of the Force Majeure Event, describing the circumstances causing such delay of performance to a reasonable level of detail, and giving an estimate of when performance will recommence; and

(b)use commercially reasonable efforts to perform (or recommence performing) its obligations as soon as, and to the extent, possible, including through the use of alternative sources, workarounds, plans and, in the case of CSC, complying with its obligations to perform disaster recovery services as described in this Agreement.

21.2Allocation of Resources

21.2.1If a Force Majeure Event causes CSC to allocate limited resources between CSC’s customers, CSC shall not place Textron or any Service Recipient lower in priority to any other similarly-affected customer.

21.2.2CSC shall not redeploy or reassign any person in a Key CSC Position to another customer account in the event of a Force Majeure Event.

21.3Subcontractors

The failure of any of the CSC Subcontractors to perform any obligation owed to CSC shall only constitute a Force Majeure Event with respect to CSC’s performance of its obligations under this Agreement if, and to the extent that, the failure by the CSC Subcontractor is directly caused by a Force Majeure Event.

21.4Textron Option

21.4.1If a Force Majeure Event substantially prevents or delays performance of any of the Services, CSC shall attempt to restore such Services or procure such Services from an alternative source, as follows:

(a)if the prevented or delayed Services are covered by a disaster recovery plan, within the time, and to the extent, specified in an applicable disaster recovery plan;

(b)if the prevented or delayed Services are not covered by a disaster recovery plan, but are reasonably identified to CSC in writing by Textron as critical, within [***] after the Force Majeure event; or

(c)for all other prevented or delayed Services,  within [***] after the Force Majeure event.

CSC shall be liable for payment for Services procured from an alternate source for not less than [***] and thereafter, at CSC’s election, Textron shall reimburse CSC for the amount such Services; provided, however that for so long during the Term as CSC

59

procures substitute Services, Textron shall continue to pay CSC’s Service Charges for the Services.

21.4.2To the extent that the Force Majeure Event requires temporary or permanent replacement of a Textron Facility or components of the Supported Infrastructure System that are located at a Textron Facility, Textron shall be liable for payment of costs for procuring such components from an alternative source.

21.4.3If CSC fails to restore, or procure from an alternative source, in accordance with Section 21.4.1, or fails to maintain substituted Services, or requires Textron to reimburse CSC for any substituted Services, for any Services that are prevented or delayed by a Force Majeure occurrence, Textron may, at its option [***], (a) [***]; or (b) [***].

21.5No Compensation

Except as provided in the disaster recovery plan or Sections 21.4.1 and 21.4.3 above, CSC shall not have the right to any additional payments from Textron as a result of any Force Majeure Event or the performance of its obligations under this Section 21.

22.DISPUTE RESOLUTION AND CHOICE OF LAW

Any dispute between the Parties arising out of or relating to this Agreement will be resolved as provided in this Section 22 and Schedule K (Governance).

22.1Informal Dispute Resolution

22.1.1Subject to Section 22.1.2 and Section 22.4 below, the Parties will attempt to resolve disputes between the Parties arising out of or relating to this Agreement using the informal dispute resolution procedure as set forth in this Section 22.1 and Schedule K (Governance) prior to the initiation of the formal dispute resolution procedures set forth in Section 22.4.

22.1.2Nothing in this Section 22.1 will, at any time while the informal dispute resolution or alternative dispute resolution procedures described in Section 22.2 are in progress or before or after they are invoked, restrict either Party’s freedom to commence legal proceedings to preserve any legal right or remedy or to protect its Confidential Information or its Intellectual Property Rights.

22.1.3Subject to Section 22.1.2, disputes that cannot be resolved by the Textron Program Executive and the CSC Program Executive shall follow the procedures as set forth below and in Schedule K (Governance). The Policy and Procedures Manual will set forth any escalation procedures for disputes arising between the Parties and will govern how the dispute is escalated to the Textron Program Executive and the CSC Program Executive. Nothing set forth in the Policy and Procedures Manual will supersede the provisions set forth in this Agreement nor prevent either Party from escalating a dispute to the Textron Program Executive and the CSC Program Executive, as applicable.

22.1.4Upon the written request of a Party, each Party will appoint a designated representative who does not devote substantially all of his or her time to performance under this Agreement, whose task it will be to meet with each other and with the appropriate representatives of each Party, as set forth in Schedule K (Governance), for the purpose of attempting to resolve such dispute.

60

22.1.5The designated representatives will hold an initial meeting within [***] of their appointment to attempt to resolve the dispute and thereafter meet as often as the Parties reasonably deem necessary in order to gather and furnish to the other all information with respect to the matter in issue that the Parties believe to be appropriate and germane in connection with its resolution.  The designated  representatives will discuss the dispute and attempt to resolve the dispute without unreasonable delay and without the necessity of any formal proceeding.  If the unresolved dispute is having a material effect on the Services, the Parties will use their respective best efforts to reduce the elapsed time in reaching a resolution of the dispute.

22.1.6During the course of discussion, all reasonable requests made by either Party for non-privileged information reasonably related to this Agreement will be honored in order that each of the Parties may be fully advised of the other’s position.

22.1.7Each Party will use all commercially reasonable efforts to reach a negotiated resolution through the above dispute resolution procedure. The specific format for such resolution will be left to the reasonable discretion of the Parties, but may include the preparation and submission of statements of fact or of position.

22.2Alternative Dispute Resolution

22.2.1If the dispute is not resolved pursuant to Section 22.1, either Party may propose to the other in writing that structured negotiations are entered into with the assistance of a neutral advisor or mediator (“Neutral Adviser”).

22.2.2The Neutral Adviser will either be agreed upon by the Parties or, in the absence of agreement within [***] of the written proposal described in Section 22.2.1, appointed by the American Arbitration Association (“AAA”).

22.2.3Within [***] of the appointment of the Neutral Adviser, the Parties will meet with him or her in order to agree on a program for the exchange of any relevant information and the structure to be adopted for the negotiations.

22.2.4Unless concluded with a written legally binding agreement, all negotiations connected with the dispute will be conducted in confidence and without prejudice to the rights of the Parties in any future proceedings.

22.2.5The Parties may request the Neutral Adviser to issue written recommendations and if the Neutral Adviser is willing to make such recommendations and the Parties accept such recommendations or otherwise reach agreement on the resolution of the dispute, such agreement will be reduced to writing and, once it is signed by the authorized representatives of each Party, will be binding on the Parties.

22.2.6In the event that alternative dispute resolution in accordance with this Section 22.2 is initiated and the Parties fail to reach agreement in the structured negotiations within [***] of the appointment of the Neutral Adviser or otherwise withdraw from the structured negotiations, then any dispute or difference between them may be referred to the courts in accordance with Section 22.3 or Section 22.4.

22.2.7Unless agreed otherwise by the Parties, each Party will bear its own costs and expenses associated with participating in the dispute resolution process and any Third Party costs, including fees payable to the Neutral Adviser and in relation to the hiring of a venue, will be split equally between the Parties.

61

22.3Special Procedure following a Notice of Termination

If a Party has delivered a notice of termination of this Agreement, the chief executive officer (or his or her designee) of each Party shall meet within [***] after the date of such delivery for the purpose of defining the scope of the dispute, if any, that may be referred to formal dispute resolution.  Such chief executive officers (or designees) may include as attendees at such meeting a reasonable number of business managers and/or legal or other advisors as he or she requires to assist in the purpose of such meeting.

22.4Formal Dispute Resolution

22.4.1In the event that the Parties are unable to resolve a dispute by the application of the informal and/or alternative dispute resolution procedures as set forth in and in accordance with Section 22.1 and Section 22.2 respectively or the provisions of Section 22.1.1 apply, either Party may elect to seek recourse through the state and federal courts located in the State of Delaware which will have exclusive jurisdiction with respect to any such disputes provided that no exclusivity as to jurisdiction will apply with respect to:

(a)a Party seeking equitable, injunctive or other similar relief;

(b)enforcement or other similar proceedings in any court of competent jurisdiction; or

(c)an action commenced by a Third Party or in which Third-Party joinder is necessary or desirable and the Third Party is not amenable to the exclusive jurisdiction of the courts located in the State of Delaware.

22.4.2Nothing will prevent a Party from at any time commencing court proceedings relating to any dispute arising from this Agreement after having notified the other Party in writing of its intention to withdraw from a dispute resolution process set forth in Sections 22.1 or 22.2.

22.5Equitable Relief

Each Party may be entitled to equitable relief against the other Party (in addition to any other rights available under this Agreement or applicable Laws) for any breaches by the other Party of its obligations under this Agreement.

22.6Continued Performance

The Parties agree to continue, without interruption, to honor their ongoing obligations, if any, under this Agreement, including but not limited to performance of Services and payment of amounts that are required to be paid.  The Parties shall use good faith efforts and due diligence to expedite the final resolution of any dispute.

22.7Governing Law

The construction, performance and validity of this Agreement shall be governed by the law of the State of Delaware, without reference to that state’s provisions regarding choice of law.

22.8Waiver of Right to Trial by Jury

Each Party hereby waives its right to trial by jury for purposes of resolution of any dispute in accordance with Section 22.4 or 22.5.

62

23.STEP-IN RIGHTS

If a breach by CSC of this Agreement substantially prevents or delays performance of the Services necessary for the performance of a Textron function reasonably identified by Textron as critical and the applicable Services are nor restored by the later of the time specified in the disaster recovery plan for restoration of such function(s) or if such functions are not covered by a disaster recovery plan for more than [***], then without limiting any other rights of Textron (whether in Law or under the Agreement), Textron may at its option:

23.1.1[***]; or

23.1.2[***]; or

23.1.3[***].

24.TERMINATION

24.1Termination for Cause or Insolvency by Textron

24.1.1Without prejudice to any other rights or remedies it may have, Textron, by giving written notice to CSC, may terminate this Agreement, in whole or in part, as of the date specified in the notice of termination (as the same may be amended in accordance with Section 24.5), without further liability to CSC, if any of the following circumstances occur or exist:

(a)CSC commits a material breach of this Agreement, which breach is not cured within [***] after written notice of the breach from Textron to CSC, if reasonably capable of being cured in such time, and if not then cured within [***] after written notice of the breach from Textron to CSC so long as CSC makes continuous, diligent efforts to cure such breach throughout the extended cure period;

(b)CSC commits a material breach of this Agreement or a Tower Services Agreement which is not capable of being cured; or

(c)CSC commits repeated breaches of CSC’s obligations under this Agreement or a Tower Services Agreement (whether of the same or different obligations and regardless of whether these breaches are cured), the cumulative effect of which is a material breach of this Agreement or a Tower Services Agreement.

24.1.2Without prejudice to any of the rights or remedies it may have, Textron, by giving written notice to CSC, may terminate this Agreement, as of the date specified in the notice of termination (as the same may be amended in accordance with Section 24.5) if:

(a)A voluntary or involuntary petition is filed for protection of CSC under the United States Bankruptcy Code and is not dismissed within [***] after filing;

(b)CSC enters into an assignment for the benefit of creditors;

(c)is the subject of a voluntary or involuntary petition or proceeding for CSC’s liquidation or winding up, which petition, if involuntary, is not dismissed within [***]; or

(d)if a receiver, administrator, examiner, liquidator, trustee or similar officer is appointed for CSC or for substantially all of CSC’s assets or business and such appointed officer is not discharged with [***] of such appointment.

63

24.1.3If this Agreement is terminated in part pursuant to Section 24.1.1, the Service Charges shall be equitably adjusted with effect from the Termination Date to reflect the terminated Services; provided, however, that notwithstanding anything to the contrary in the Agreement, Resource Unit prices shall not be adjusted in connection with terminated Services.

24.2Termination for Convenience by Textron

24.2.1Textron, by giving at least [***] written notice to CSC, may terminate this Agreement, or  any one or more of the Tower Services Agreements, for convenience, as of the date specified in the notice of termination (as the same may be amended in accordance with Section 24.5).

24.2.2If Textron terminates this Agreement or part of the Services pursuant to Section 24.2.1:

(a)Textron shall comply with the applicable termination provisions set forth in Section 12 of Schedule D (Pricing); and

(b)Textron’s total liability to CSC arising from such Termination shall be limited to compliance with Section (a).  If a purported Termination of all or part of this Agreement by Textron for cause by Textron under Section 24.1 is determined by a court of competent jurisdiction not properly to be a Termination for cause or Termination for change of control, then such Termination shall be deemed to be a Termination for convenience for the purpose of Section 24.2.

24.3Termination by Textron for Change of Control of CSC

24.3.1Textron, by giving written notice to CSC, may terminate this Agreement as of the date specified in the notice of termination (as the same may be amended in accordance with Section 24.5) in the event of a Change of Control of CSC; provided, however, that such right of termination shall only be exercisable by Textron giving notice of such termination within [***] of the completion by CSC of the transaction (or in the case of a series of related transactions, the final transaction) constituting the Change of Control.  Notwithstanding any other provision of this Agreement, CSC shall provide prompt notice to Textron in the event of a Change of Control of CSC, and in such event, the [***] period during which Textron has a right to exercise termination in accordance with this Section 24.3.1 shall not commence until receipt of such notice from CSC.  If Textron terminates this Agreement pursuant to Section 24.3.1, Textron shall comply with the applicable termination provisions in Section 12 of Schedule D (Pricing).

24.3.2Textron’s total liability arising from Textron terminating this Agreement in accordance with this Section 24.3 shall be limited to the amount payable in accordance with Section 24.3.1.

24.4Termination by CSC for Non-Payment

24.4.1Subject to Section 24.4.2 below, CSC, by giving written notice to Textron, may terminate the Agreement as of the date specified in the notice of termination, which date shall not fall before the expiration of the [***] period described in Section 24.4.2 below, if:

(a)Textron fails to pay any undisputed Service Charges or Pass-Through Expenses (to the extent that such Pass-Through Expenses have been paid by CSC) when

64

due with respect to the Agreement which exceed in aggregate [***] Dollars ($[***]), or

(b)withholds any amount in excess of the total amount that Textron is entitled to withhold in accordance with Section 6.8 in connection with disputed payments or makes any other deduction, withholding or setoff not permitted by Section 6.8.

24.4.2CSC shall not terminate this Agreement in accordance with Section 24.4.1 above unless CSC has given Textron:

(a)[***] of notice of Textron’s failure to make such payment; and

(b)a further written notice to Textron not less than [***] prior to the date of termination.

24.4.3CSC acknowledges and agrees that Section 24.4.1 sets forth the only grounds upon which CSC may terminate this Agreement.

24.5Effective Date of Termination

Textron may extend the Termination Date with respect to any notice of termination, other than a notice of termination by CSC, given in accordance with Section 24.1 [***] upon no less than [***] notice of such extension, provided that the total of such extensions shall not exceed [***] from the date the notice of termination was given.

24.6Termination Charges

Any Termination by Textron in accordance with this Section 24 shall not result in the payment of any termination or other charges except as expressly provided in Section 12 of Schedule D (Pricing).

24.7Effect of Termination

Upon the expiration or termination of this Agreement or any Tower Services Agreement, upon Textron’s request, CSC shall:

24.7.1provide to Textron (or to the Successor Supplier) all of the following as related to the terminated Services:

(a)Textron data, Textron Materials, Textron Confidential Information, Work Product, Textron-owned or leased Equipment, Textron-owned or licensed Software and any items provided by Textron to CSC that are capable of being returned (“Returnable Material”); and

(b)tapes and other removable computer-readable media which contain any Returnable Material.

24.7.2transfer to Textron (or to the Successor Supplier) any Returnable Material that is contained on any non-removable media, by a means agreed between Textron and CSC and, if they cannot agree, by any reasonable means requested by Textron;

24.7.3promptly provide to Textron (or to the Successor Supplier) all details reasonably requested by Textron relating to the assets used by CSC to provide the Services, subject to customary obligations of confidentiality and limited use;

65

24.7.4cooperate as with Textron to assist Textron to identify the assets necessary for Textron or its Third Party service provider to provide the terminated Services with continuity preserved;

24.7.5use commercially reasonable efforts to transfer, assign or sublicense to Textron, or the Successor Supplier, as required by the Agreement, Third Party Software, and other Third Party agreements used to provide the Services as of the date of such expiration or termination, at Textron’s expense;

24.7.6use commercially reasonable efforts to transfer or assign to Textron, or the Successor Supplier, any contracts applicable to the Services being provided to Textron as of the date of such expiration or termination, including maintenance services and disaster recovery services, subject to Textron’s approval of the terms and conditions applicable to each such contract, at Textron’s expense;

24.7.7introduce Textron to any vendor whose contract cannot be transferred or assigned to Textron or the Successor Supplier in accordance with Section 24.7.6 and facilitate Textron’s efforts to enter into a contract with such vendor for applicable products and/or services;

24.7.8transfer to Textron, or the Successor Supplier, the title to or benefit of all other tangible assets used directly and exclusively by CSC to provide the Services, free and clear of all liens, security interests or other encumbrances, at net book value, except as to assets created or acquired at Textron’s expense, the transfer of which shall be at no cost to Textron; and

24.7.9take all actions reasonably requested by Textron to effectuate the assignments, sublicensing and transfers described in this Section.

Notwithstanding anything to the contrary in this Section 24.7, CSC’s obligation to transfer to Textron items other than Textron Data, derivative works based on Textron Software and derivative works based on Textron Material shall be subject to the provisions of Section 9.

24.8Termination Assistance

24.8.1Commencing on the earlier of:

(a)[***] prior to expiration of this Agreement;

(b)upon any notice of termination of this Agreement (or any part of this Agreement), (including a termination notice given by CSC pursuant to Section 24.4); or

(c)on such earlier date as Textron may request,

and for a period of up to [***] following the Termination Date (the “Termination Assistance Period”), CSC shall provide to Textron, or at Textron’s request to the Successor Supplier, the reasonable termination assistance requested by Textron to allow the Services to continue without interruption or adverse effect and to facilitate the orderly transfer of the Services to Textron or the Successor Supplier (“Termination Assistance”).

24.8.2The purposes of Termination Assistance shall include the following:

66

(a)to enable Textron to obtain from a Successor Supplier, or to provide for itself, services to substitute for or replace those provided by CSC;

(b)for CSC to assist Textron during the Termination Assistance Period, so that Textron or its Successor Supplier can from the end of the Termination Assistance Period perform in substitution for CSC:

(i)all of the Services in the event this Agreement is terminated in its entirety or the Term expires;

(ii)with respect to a partial termination of this Agreement, those Services terminated;

(iii)if Services are removed from scope, those Services; or

(iv)to eliminate or minimize any disruption or deterioration of the Services, or failure to achieve the Service Levels, during and as a result of the handover of any of the terminated or removed Services.

24.8.3Regardless of the reason for termination, Termination Assistance shall include the services and assistance set forth in Schedule H (Termination Assistance), and Textron shall pay CSC for Termination Assistance services in accordance with Schedule H.

24.8.4In the process of evaluating whether to undertake or allow Termination or renewal of this Agreement, Textron may obtain offers for performance of services similar to the Services following Termination of this Agreement from one or more Successor Suppliers.  As and when reasonably requested by Textron for use in this process, CSC shall provide to Textron such information and other cooperation regarding performance of the Services as would be reasonably necessary for a Third Party to prepare an informed, non-qualified offer for such services, and for a Third Party not to be disadvantaged compared to CSC if CSC were to be invited by Textron to submit a proposal.  CSC’s support in this respect shall include providing information regarding Infrastructure Systems, staffing, and other matters described in Schedule I.A (Transition Plan and Milestones) that is similar to the kinds of information provided to CSC by Textron prior to the Handover Date(s), as applicable to this Section 24.8.4, provided CSC shall not be required to provide proprietary information to CSC Competitor.

24.8.5To the extent that CSC is providing Termination Assistance services after the Termination Date, Textron shall pay for such Termination Assistance services at the rates for Projects set forth in Schedule D (Pricing).

24.9Equitable Remedies

CSC acknowledges that in the event it breaches (or attempts or threatens to breach) its obligation to provide Termination Assistance to Textron as provided in Section 24.8, provided customer is currently paying all charges due under this Agreement, Textron may be irreparably harmed.  In such a circumstance, Textron may proceed directly to court.  If a court of competent jurisdiction finds that CSC has breached (or attempted or threatened to breach) any such obligations, CSC agrees that without any additional findings of irreparable injury, or other conditions to injunctive relief, CSC shall not oppose the entry of an appropriate order compelling performance by CSC and restraining CSC from any further breaches (or attempted or threatened breaches).

24.10Accrued Rights

Termination or expiration of this Agreement shall not affect any accrued rights of either Party.

67

24.11Survival

The following Sections shall survive the Termination or expiration of this Agreement:  1, 6, 7.5, 9, 11.8, 15.6, 16, 18, 19, 22, 24.5, 24.11 and 25 and any other provision which by its nature should survive termination.

25.GENERAL

25.1Non-Solicitation of Employees

Subject to Paragraph 3 of Schedule E (Employees), during the Term and for a period of [***] after the Termination Date of the Agreement (except in the event of Termination by Textron in accordance with Section 24.1), neither Party shall directly or indirectly solicit or attempt to solicit, without the prior written consent of the other Party, (i) in the case of Textron, CSC employees employed or engaged in the provision of the Services at the date of such solicitation or attempted solicitation or who have been so employed or engaged during the preceding [***], and (ii) in the case of CSC, Textron employees employed or engaged in the provision of its information systems at the date of such solicitation or attempted solicitation or who have been so employed or engaged during the preceding [***].  For the purposes of this Section, ‘solicit’ means an approach by a Party or a Third Party on its behalf to an individual with a view to employ or engage or procure the employment or engagement of such person as an employee, director, officer or independent contractor or consultant, other than by way of general advertising.

25.2Public Statement

25.2.1Subject to Sections 25.2.2 and 25.2.3, CSC shall:

(a)submit to Textron any advertising, written sales promotions, press releases, public announcements and other promotional, marketing or publicity material relating to this Agreement in which Textron’s name, corporate logo or trademark is mentioned or which contains language from which the connection of said name, logo or trademark may be inferred or implied (“Publicity Material”);

(b)not publish or use (or authorize the publication or use of) any Publicity Material without Textron’s prior written consent, which may be granted or withheld in Textron’s sole discretion; and

(c)coordinate with Textron any press releases or public announcement that it makes in relation to this Agreement.

25.2.2Notwithstanding Section 25.2.1, CSC may use Textron’s name for the purposes of internal announcements within its organization, or in accordance with Section 16.5.2.

25.2.3Any Publicity Material used by CSC shall make clear that Textron does not endorse CSC or its provision of the Services and any description of the Services in such Publicity Material shall be in general terms only.

25.3Notices

25.3.1Notices given under this Agreement shall be:

(a)in writing in the English language;

(b)addressed to the attention of Textron Program Executive or CSC Program Executive, as the case may be at the address of the other Party specified in the

68

preamble of this Agreement as the same may be altered by notice given in accordance with this Section 25.3; and

(c)delivered or sent in the manner set forth in Section 25.3.2.

25.3.2A notice given in accordance with Section 25.3.1 shall deemed to be received:

(a)if delivered to the Recipient’s address during normal business hours, on the date of delivery;

(b)if sent by prepaid registered mail, return receipt requested, on the date of delivery indicated on the receipt; or

(c)if sent by an express courier with a reliable system for tracking delivery, on the date of delivery to the Recipient.

25.4Relationship of Parties

25.4.1CSC, in furnishing the Services, will be acting as an independent contractor.  Nothing in this Agreement shall create any relationship of agent and principal, partnership, or employer and employee between the Parties or between one of the Parties and the other Party’s employees.

25.4.2Nothing in this Agreement shall give either Party any authority to act or make representations or commitments on behalf of the other Party or to create any contractual liability to a Third Party on behalf of the other Party.

25.5No Security

CSC shall not give or purport to give any security interest in any of its rights to receive payment from Textron under this Agreement without Textron’s prior written consent.

25.6Waivers, Consents and Approval

25.6.1The failure of either Party to insist upon strict performance of any provision of this Agreement, or the delay or failure of either Party to exercise any right to which it is entitled hereunder, shall not constitute:

(a)a waiver or diminution of that right or any other right hereunder; or

(b)a waiver with respect to any subsequent breach by the other Party.

25.6.2A waiver by either Party of any of the terms of this Agreement shall not be effective unless and to the extent such waiver is expressly stated in writing and executed by the duly authorized representative of such Party.

25.6.3The waiver by either Party of a breach or default of any of the provisions of this Agreement by the other Party shall not be construed as a waiver with respect to any subsequent breach of the same or other provisions, unless expressly stated by the waiving Party in writing and then only to the extent of such writing.

25.6.4Any written consent given by a Party under this Agreement shall not relieve the other Party from responsibility for complying with the requirements of this Agreement, nor shall such consent be construed as a waiver of any rights under this Agreement, except as, and to the extent, expressly so provided in such written consent.

69

25.6.5Except where expressly provided in this Agreement, where agreement, approval, acceptance, consent, or similar action by either Party is required under this Agreement, such action shall not be unreasonably delayed, conditioned or withheld.

25.7Entire Agreement

25.7.1This Agreement, together with all Appendices, Schedules and Exhibits hereto, the Tower Services Agreements and the Local Enabling Agreements, together with all Appendices, Schedules and Exhibits thereto:

(a)constitutes the entire agreement between the Parties as to its subject matter; and

(b)in relation to that subject matter, and in the absence of fraud, supersedes any prior warranties, indemnities, undertakings, conditions, understandings, commitments or agreements between the Parties, whether oral, written or implied.

25.8Amendments

No amendment or variation to this Agreement shall be effective unless it is in writing and signed by a duly authorized representative of each Party.

25.9Counterparts

This Agreement may be executed in counterparts, each of which shall be deemed to be an original but all of which taken together shall constitute one single agreement between the Parties; provided that no one Party shall be bound hereby unless and until it has received a properly executed copy of this Agreement from the other Party.

25.10Cumulative Rights

Except as otherwise expressly provided herein, a right, power, remedy, entitlement or privilege given or granted to a Party under this Agreement is cumulative with, without prejudice to, and not exclusive of any other right, power, remedy, entitlement or privilege granted or given under this Agreement or by Law and may be exercised concurrently or separately.

25.11Severability, etc.

25.11.1If a provision of this Agreement is reasonably capable of an interpretation which would make that provision valid and enforceable and an alternative interpretation that would make such provision void, illegal, invalid or otherwise unenforceable, then that provision shall be interpreted, so far as is possible, to the extent necessary to make the provision valid and enforceable.

25.11.2Subject to Section 25.11.1, if any provision of this Agreement is prohibited by law or found by a court or authority of competent jurisdiction to be void, illegal, invalid or otherwise unenforceable, such provision shall be severed and the remainder of this Agreement shall continue in full force and effect to the fullest extent permitted by Law.  The Parties agree to negotiate in good faith in order to substitute for any invalid or unenforceable provision a valid or enforceable provision which achieves to the greatest extent possible the economic, legal and commercial objectives of the invalid or unenforceable provision.

70

25.12Costs

Each Party shall bear its own legal and other costs and expenses of, and incidental to, the preparation, negotiation, execution, completion and, if applicable, notification and/or registration of this Agreement and of any related documents or instruments.  CSC shall pay any stamp duty payable on execution of this Agreement or any related documents or instruments.

25.13Third Party Rights

Except as expressly provided in any provision that sets forth an express indemnification obligation, nothing in this Agreement shall be deemed to grant any rights or benefits to any person or entity other than the Parties and their respective permitted successors and assigns (a “Third Party”) to enforce any provision hereof.

25.14Further Assurances

The Parties shall, and shall ensure that their contractors, Subcontractors and Personnel shall do all things reasonably necessary, including executing any additional documents and instruments, to give full effect to the terms and conditions of this Agreement.

25.15Assignment

25.15.1This Agreement shall be binding on and inure to the benefit of the Parties and their respective permitted successors and assigns.

25.15.2This Agreement is personal to CSC.  CSC shall not assign, novate or otherwise transfer or dispose of any of CSC’s rights or obligations under this Agreement without prior written consent of Textron, and any attempt by CSC to assign, novate or otherwise transfer or dispose of CSC’s rights or obligations in violation hereof shall be null and void as between the Parties, provided that agreements for the provision of a portion of the Services by Subcontractors or Affiliates shall not be deemed to violate the foregoing constraints.

25.15.3Textron may not assign, novate, subcontract or otherwise dispose of and be released from any or all of Textron’s rights and/or obligations under this Agreement except to an Affiliate of Textron or any entity which acquires all or substantially all of the business of Textron to which the affected Services relate or all or substantially all of the assets of Textron or to any successor entity in a merger or acquisition of Textron, provided that Textron’s assignee or successor in title undertakes in writing to CSC to be bound by the obligations of Textron under this Agreement.

25.15.4Notwithstanding anything to the contrary contained in this Agreement, either Party may also provide a copy of this Agreement to a good-faith prospective assignee or successor in title, provided that such assignee or successor in title is subject to a suitable non-disclosure agreement containing obligations of confidentiality at least equivalent to those contained in Section 16.

25.16Interpretation

25.16.1In this Agreement, unless the contrary intention appears:

(a)words suggesting the singular include the plural, and vice versa;

(b)words suggesting any gender include all other genders;

71

(c)references to a person or entity include a company, corporation, firm, unincorporated or incorporated association, or statutory authority;

(d)headings are for ease of reference only and shall not affect the interpretation of this Agreement;

(e)references to any schedule, exhibit, annex, agreement or instrument are to that schedule, exhibit, annex, agreement or instrument as amended or replaced from time to time;

(f)use of the word “including” (and its derivatives such as “includes” or “include”) means “including, without limitation;”

(g)a reference to any body is:

(i)if that body is replaced by another organization, deemed to refer to that organization; and

(ii)if that body ceases to exist, deemed to refer to the organization which most nearly or substantially serves the same purposes as that body; and

(h)references to any statute, enactment, order, regulation or other similar instrument shall be construed as a reference to the statute, enactment, order, regulation or instrument as amended by any subsequent statute, enactment, order, regulation or instrument, or as contained in any subsequent enactment thereof.

25.16.2No rule of construction will apply in the interpretation of any provision of this Agreement to the disadvantage of one Party on the basis that such Party put forward or drafted such provision.

25.17Precedence

This Master Services Agreement, the Schedules and Annexes thereto, the Attachments and Appendices thereto, and the other appended documents are to be interpreted so that all of the provisions are given as full effect as possible.  In the event of a conflict between the terms of any documents that comprise the Agreement, the order of precedence shall be first, the Master Services Agreement, second, any Schedule to the Master Services Agreement or any Annex thereto; third, any Attachment or Appendix thereto.  All of the terms of the Master Services Agreement, the Schedules and the Annexes thereto shall apply to each Tower Services Agreement except to the extent that a Tower Services Agreement or any Appendix thereto expressly specifies that a particular term is intended to supersede, modify or negate a term in the Master Services Agreement or a Schedule or Appendix thereto. Notwithstanding the foregoing, in the event of a conflict between the terms of (a) any documents that comprise the Agreementand(b) anymutually agreed upon Resource Unit Change Request, Systems Change Request or Scope Change Request, the mutually agreed upon Resource Unit Change Request, Systems Change Request or Scope Change Request shall prevail.

25.18Conflicts of Interest

In providing the Services, CSC shall use CSC’s best efforts not to do anything or knowingly or negligently permit a situation to arise whereby a conflict may be created between the interests of Textron and CSC.  CSC shall not accept bribes, commissions or other improper financial inducements from any suppliers or CSC Subcontractors in relation to the Services.

72

IN WITNESS WHEREOF, the Parties hereto have entered into this Agreement as of the date first set forth above.

TEXTRON INC.

By:

Title:

By:

Title:

COMPUTER SCIENCES CORPORATION

By:

Title:

By:

Title:

73

SCHEDULE A

DEFINITIONS

SCHEDULE A

Definitions

Term	Definition
Actual CPI Increase	has the meaning set forth in Section 6(c) of Schedule D (Pricing).
Actual RU Volume	has the meaning set forth in Section 2.1 of Schedule D (Pricing).
Ad Hoc Project	has the meaning set forth in Section 17.2.1 of Schedule B (Cross-Functional Obligations).
Adjustment Date	has the meaning set forth in Section 6(c) of Schedule D (Pricing).
Adverse Impact	has the meaning set forth in Section 9.3 of Schedule K (Governance).
Affiliate	means, with respect to any entity, any other entity Controlling, Controlled by or under common Control with such entity.
Agreement	means the MSA and all Schedules, Annexes, Appendices, Attachments and Exhibits thereto.
Applicable Service Charges	mean those charges derived from multiplication of Resource Unit volumes used or consumed by Textron by the applicable Resource Unit prices, and excludes all other charges, including charges for transition and transformation, time and materials charges, and Pass-Through Expenses).
Application Server	means any Midrange computer whose primary purpose is to serve Tier 3 Software for which Textron has financial responsibility for the license, Tier 4 Software and Tier 5 Software.
Assigned Contracts	has the meaning set forth in Section 8.3.1 of the MSA, and any changes that may be agreed upon by the Parties in accordance with the Change Control Procedure.
Audit	has the meaning set forth in Section 15.1.1 of the MSA.
Baseline RU Volume or Baseline Usage Volume	means the usage volume for each Resource Unit, set forth in Attachments 1C, 2C, 3C, 4C or 5C, that is denominated as such.
Benchmarker	has the meaning set forth in Section 5.7.2 of the MSA.
Black Belt	means a person certified as a Six Sigma Black Belt.
Business Taxes	has the meaning set forth in Section 5.5.1(b) of the MSA.
Business Unit	means all or a portion of Textron or a Service Recipient or a group of Service Recipients, as designated by Textron from time-to-time.

Term	Definition
Campus	means any location within a twenty (20) mile radius of (a) a Textron or Service Recipient facility where full-time CSC managed Workstation support personnel are stationed or (b) a CSC Facility from which Workstation support Services are provided. Changes of designation of a location from Campus to Non-Campus must be coordinated with and approved by Textron.
Cascading	means any installation, de-installation, move or change to a single item of Equipment or a group of Equipment items that causes a requirement for change to another component of the Services, such as to another item of Equipment, Software, support documentation, a procedure in the applicable Policy and Procedures Manual or coordination with one or more Third Parties.
Cause	has the meaning set forth in Section 1.5 of Schedule E (Employees).
Change	has the meaning set forth in Section 5 of Schedule K (Governance).
Change Control Procedures	has the meaning set forth in Section 5 of Schedule K (Governance).
Change of Control	means with respect to either Party, Control of that Party is acquired by an entity that was not, prior to that acquisition, an Affiliate of the Party, by way of either a single transaction or series of related transactions.
Change Request	means any request for a Change.
Claim	has the meaning set forth in Section 18.1.1 of the MSA.
Completion Date	has the meaning set forth in Section 3.6.9(a)(iii) of the MSA.
Confidential Information	means all information of a confidential nature, whether commercial, financial, technical or otherwise, whether or not disclosed by one Party to the other Party, which information may be contained in or discernible from any form whatsoever (including oral, documentary, magnetic, electronic, graphic or digitized form or by demonstration or observation), whether or not that information is marked or designated as confidential, whether created or otherwise arising prior to or during the Term, and including information belonging to or in respect of Textron, any other Service Recipient or CSC, any of their Affiliates and/or any of their customers or suppliers, which contains or relates to, including without limitation, research, development, trade secrets, know-how, ideas, concepts, formulae, processes, designs, specifications, past, present and prospective business, current and future products and services, internal management, information technology and infrastructure and requirements, finances, marketing plans and techniques, price lists and lists of, and information about, customers and employees, and information belonging to Third Parties in respect of which Textron, any Service Recipient or CSC or any of their Affiliates or any of their customers or suppliers owe obligations of confidence.

Term	Definition
Contract Year	means the period commencing on, and including, the Signature Date and ending on the anniversary of the first Handover Date and each immediately successive [***] period.
Control or Controlled or Controlling	means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of any entity or person, whether through the ownership of voting securities, by contract, or otherwise.
Core Service Level	means each Service Level designated as a “Core Service Level” in Annex B-2 to Schedule B (Cross-Functional Obligations), Annex K-2 to Schedule K (Governance) and Appendix B of each Tower Services Agreement.
CSC	has the meaning set forth in the preamble of the MSA.
CSC Competitor	means any company listed in Schedule L (Competitors) as it may be changed unilaterally by CSC from time to time upon written notice to Textron.
CSC Facility	means any physical Facility used by CSC or any CSC Affiliate to provide any portion of the Services.
CSC Laws	means (a) Laws applicable to CSC as a provider of information technology and other outsourcing services, and (b) Laws with which CSC would be required to comply without regard to CSC’s having entered into the Agreement with Textron, excluding any Laws with which CSC would not be required to comply but for a contractual obligation between CSC and a Third Party.
CSC Material	means Material owned by the CSC or its Affiliates (including Material in which the Intellectual Property Rights are owned by the CSC) which is used to provide, or which forms part of, the Services.
CSC Personnel	means employees (including for the avoidance of doubt all Transitioned Employees) of CSC and CSC Subcontractors assigned to perform the Services, or any part of the Services, pursuant to this Agreement.
CSC Program Executive	means the individual designated by the CSC to whom Textron shall communicate issues related to the Agreement as set forth in Schedule K (Governance).
CSC Software	means any Software, the Intellectual Property Rights in which are owned by CSC or its Affiliates.
CSC Subcontractor	means any subcontractor or agent of CSC that provides any of the Services, as any part of the Services, to, or on behalf of, CSC, including the Material Subcontractors.

Term	Definition
CSC Wide Area Network or CSC WAN	means the Equipment, Software, telecommunications facilities, lines, interconnect devices, wiring, cabling and fiber that are used to create, connect and transmit data, voice and video signals between a Textron location and CSC’s Data Center, and between and among CSC locations, as required for CSC to provide the Services. A WAN commences with the WAN Network interconnect Equipment at one Textron location (e.g., router, dial-up modem, dial backup Equipment) and ends with and includes the WAN Network interconnect Equipment (e.g., router, dial-up modem, dial backup Equipment) at the applicable CSC location. For voice and data circuits, a CSC WAN includes local access and interexchange and other long-haul circuits, whether or not provided by a Third Party and used to transport voice traffic and interconnect with the PSTN.
Database Server	has the meaning set forth in Appendix 2C to Attachment 2.
Data Center	means (a) before any applicable Transformation Completion Date, any Textron Facility referenced in Section I.B (Transformation Plans and Milestones), and (b) after any applicable Transformation Completion Date, in context, one or more of the data centers of CSC located in Norwich, Conn. and Chesterfield, England and the data centers of Textron located in Wichita, Kan., Hurst, Tex., and Providence, R.I and any data center that may be substituted for any of the foregoing data centers in accordance with the Change Control Procedures.
Data Network	means the Infrastructure Systems and other resources used to transport data associated with data applications, including computer interconnectivity, email, internet access and client server.
Data Network Services	means the Network Services as they relate to the Data Network.
Data Protection Laws	means all relevant data protection Laws, as applicable in each country in which CSC provides Services to Textron.
Delaying Event	has the meaning set forth in Section 3.6.10 of the MSA.
Disclosing Party	has the meaning set forth in Section 16.1.1 of the MSA.
Equipment	means all of the computer and telecommunications equipment, and the associated peripherals and connecting equipment, either owned or leased (whether by CSC, Textron or a Third Party), and used by CSC in the provision of the Services or used by Textron or any other Service Recipient. Equipment includes the following: (i) computer equipment and associated attachments, features, accessories, front-end processors, step controllers, Servers, and peripheral devices; (ii) telecommunications equipment, including private branch exchanges and associated peripherals, multiplexors, modems, network hubs, network bridges, network routers, and network switches; and Supported Devices.
End-State Service Levels or SLA	has the meaning set forth in Section 11.3 of Schedule B.

Term	Definition
End User	means an employee of (a) Textron, (b) a Service Recipient; (c) a contractor of Textron or a Service Recipient; or (d) any other individual authorized or permitted by Textron or a Service Recipient to utilize the Services.
Europe or EU	means any member country of the European Union and Switzerland and Norway.
Event Survey	has the meaning set forth in Section 12.1.2 of Schedule K (Governance).
Executive Survey	has the meaning set forth in Section 12.1.1(a) of Schedule K (Governance).
Existing Equipment	means Equipment existing on the Signature Date and utilized by Textron or another Service Recipient, immediately prior to the Signature Date, in performing functions that form part of the Services. Existing Equipment includes Textron Owned Equipment, Textron Leased Equipment and the equipment located in facilities identified in Schedule C (Textron Facilities).
Existing Equipment Leases	means those lease agreements pursuant to which a Third Party is, immediately prior to the Signature Date, furnishing or providing the Existing Equipment to Textron or another Service Recipient. Existing Equipment Leases are identified as such in Schedule F (Existing Equipment and Software) as it may be changed in accordance with the applicable Change Control Procedure.
Existing Interim Service Levels	has the meaning set forth in Section 11.1.1 of Schedule B (Cross-Functional Obligations).
Extraordinary Event	has the meaning set forth in Section 3.7.2 of the MSA.
First Call Resolution	has the meaning set forth in Section 3.3 of Appendix 5B to Attachment 5.
Force Majeure Event	has the meaning set forth in Section 21.1.1 of the MSA.
Formal Survey	has the meaning set forth in Section 12.1.1 of Schedule K (Governance).
General Subsystem	means any software code that provides service to users or to other subsystems or application code. “General Subsystems” comprise all executing programs that are not the result of an individual user logging on to the computer.
General User Survey	has the meaning set forth in Section 12.1.1(b) of Schedule K (Governance).
Global Network	means interconnections between points spanning more than one continent.
Handover Date	means the date or dates on which the In-Scope Employees are transferred from Textron to CSC and the date(s) on which CSC commences performing the Services.
Hard IMAC	means an IMAC that requires physical presence on-site at the End-User office or Equipment location to complete the requested activity as further explained in connection with its use.

Term	Definition
Hours of Operation	means those hours of the day during which the facility is in normal operation as set forth in Schedule C (Service Recipients) for each location listed in Schedule C. Hours are expressed in the local time zone of each location listed.
IMAC	means install, move, add, and/or change.
IMS	means IBM’s transactional and hierarchical database management system for on-line operational and e-business applications and data and all IBM supported, un-supported, current, future and past releases of the product as well as all additional features and functions that are used by the IBM product as part of its operating environment.
Impact Analysis	means the analysis of the impact of any Change, as further described in Section 9 of Schedule K (Governance).
Income Taxes	has the meaning set forth in Section 5.5.1(c) of the MSA.
Increased Impact Service Level or Increased Impact Level	means the required quantitative level or degree of performance by CSC specified as the “Increased Impact Service Level” in the SLAs.
Indemnified Claim	has the meaning set forth in Section 18.5.1 of the MSA.
Indemnified Party	has the meaning set forth in Section 18.5.1 of the MSA.
Indemnifying Party	has the meaning set forth in Section 18.5.1 of the MSA.
Infrastructure Operations SubCommittee	means the management committee formed pursuant to Schedule K (Governance) and identified therein as the “Infrastructure Operations SubCommittee.”
Infrastructure Server	means any Midrange computer whose primary purpose is to serve Tiers 1-2 Software and/or Tier 3 Software for which CSC has financial responsibility for the license.
Infrastructure System(s) or Supported Infrastructure System(s)	means all or any part of the Supported Networks, the Supported Equipment and the Supported Software, exclusive of Software in Tier 3 (other than that which CSC is financially responsible for the license), Tier 4 Software, Tier 5 Software and any other Software for which CSC is not financially responsible.
In-Scope Employees	means the individuals to whom CSC will offer employment under Section 1.1 of Schedule E.

Term	Definition
Intellectual Property Rights	means patents (including patent applications; amendments, and continuations, whether in whole or in part), registered designs, trademarks and service marks (whether registered or otherwise), trade names, trade secrets, copyrights, database rights, design rights, moral rights, and all other intellectual property rights, including in other jurisdictions, that grant similar rights as the foregoing, including those subsisting in inventions, drawings, performances, software, semiconductor topographies, improvements, discussions, business names, goodwill and the style of presentation of goods or services, and in applications for the protection thereof, throughout the world.
Interim Service Levels	means Existing Interim Service Levels and New Interim Service Levels.
Key Textron Subcontracts	has the meaning set forth in Section 11.2.1 of the MSA.
Key Deliverable	means all or any of the specific items required to be provided by a Party under this Agreement and designated as key in any relevant project plan related to the deliverable, or otherwise material to the Services.
Key In-Scope Contractors	means the individuals identified in Annex E-3 to Schedule E (Employees);
Key Subcontracts	means the Key Textron Subcontracts and Key CSC Subcontracts listed at Schedule J (Key Subcontracts and Material Subcontractors);
Key CSC Positions	means the positions listed in Annex E-2 to Schedule E (Employees), as the same may be changed in accordance with Section 10.3 of the MSA.
Key CSC Subcontracts	has the meaning set forth in Section 11.2.2 of the MSA.
Law	means:
	(a)any statute, regulation, by-law, ordinance or subordinate legislation in force from time to time to which a Party or its employees, agents, Affiliates sub-contractors is subject;
	(b)the common law and the law of equity as applicable to the Parties from time to time;
	(c)any binding court order, judgment or decree;
	(d)any applicable industry code, policy or standard enforceable by law; or
	(e)any applicable direction, policy, rule or order that is binding on a Party and that is made or given by any regulatory body having jurisdiction over a Party or any of that Party’s assets, resources or business,
	in any jurisdiction that is applicable to this Agreement.
Lease	means a contract between Textron and a Third Party pursuant to which Textron has certain rights with respect to Equipment owned by a Third Party.

Term	Definition
Legacy Software	means all Software in use by Textron and/or any Service Recipient on the applicable Handover Date. Any Legacy Software, whether or not it is included in the Annexes to Schedule F, that meets the foregoing description shall nevertheless be treated as Legacy Software as provided for in Schedule B until, as part of Transformation and in accordance with the Change Control Procedure, such Legacy Software (i) is removed from use; or (ii) is added to one or more SOEs, or (c) becomes Non-SOE Software.
Level 0 Support	means any automated service that allows the End User to resolve Service Problems or submit Service Requests without contacting a live Service Desk agent
Level 1 Support	has the meaning given to it in Section 2, Appendix 5A to Attachment 5.
Level 2 Support	means assistance with the use or operation of a component of the Infrastructure System which cannot be answered by reference to the applicable user documentation and requires assistance from the applicable vendor or other Third Party.
Level 3 Support	means (a) correction of any Problem or other failure by one or more components of the Infrastructure System to operate in accordance with applicable specifications and (b) securing updates, upgrades, patches, releases and Problem resolutions that are generally provided to other similarly situated entities.
Local Area Network or LAN	means the Equipment, software, telecommunications facilities, lines, interconnect devices (e.g., bridges, routers, hubs, switches, gateways), wiring, cabling and fiber that are used to create, connect and transmit data, voice and video signals within and among Textron’s (or Service Recipient’s) local area Network segments. A LAN commences with the interface to a WAN Network interconnect device (e.g., router) and ends with and includes the Network interface points (e.g., Network interface cards that are in LAN-connected Equipment (e.g., desktop Equipment, Servers).
Local Enabling Agreement	has the meaning set forth in Recital D of the MSA.
Losses	means all losses, liabilities, damages, costs, claims, actions and expenses including reasonable legal fees and disbursements and costs of investigation, litigation, settlement, judgment, interest and penalties.
LPAR	means the logical partition or division of a Mainframe or Server’s processing resources into separate operating system instances where the Server is capable of such partitioning or division on a dynamic basis to meet processing demand. A Server without such capability is not capable of LPAR.

Term	Definition
Mainframe or Mainframe Technology	means any computing platform (inclusive of CPU) generally regarded by the computing industry as being mainframe technology, including any system based on the IBM System 390, architecture or any of its preceding or following technology platforms as of the Signature Date, and all related/supporting peripherals (e.g., channel extenders, front-end processors, DASD, tape storage) connected or linked thereto.
Mainframe Services	has the meaning set forth in Attachment 1 (Tower Services Agreement for Mainframe Services.)
Major Project	has the meaning set forth in Section 17.2.3 of Schedule B (Cross-Functional Obligations)
Managed Contracts	means those contracts retained by Textron or any other Service Recipient and managed by CSC, and set forth in Annex F-3 to Schedule F (Existing Equipment and Software).
Material	means any material in whatever form (including written, magnetic, electronic, graphic or digitized), including any methodologies, processes, know-how, reports, specifications, business rules or requirements, manuals, user guides, training materials and instructions and material relating to Software and/or its design, development, Modification, operation, support or maintenance, but excluding Software.
Material Subcontractor	has the meaning set forth in Section 11.1.1 of the MSA.
Measurement Period	means those hours of the day that performance against the Service Levels will be measured.
Midrange or Midrange Technology	means any computing platform (inclusive of CPU, disk array, tape robot and other devices) generally regarded by the computing industry as being midrange technology, including any system based on the Intel or RISC architecture and all related/supporting peripherals connected or linked thereto.
Midrange Services	has the meaning set forth in Attachment 2 (Tower Services Agreement for Midrange Services).
Milestone Date	means the date in the Transition Plan or Transformation Plan for the delivery by CSC to Textron of an item of Work Product or a Key Deliverable.
Minimum Service Level	means the required quantitative level or degree of performance by CSC specified as the “Minimum Service Level “ in the SLAs. The Minimum Service Levels are the minimally acceptable levels of service for the Services.
Modify	means to add to, enhance, reduce, change, replace, vary, prepare a derivative work based on, improve, recast, transform or adopt, and “Modification” and “Modified” have corresponding meanings.

Term	Definition
MSA	means the Master Services Agreement between Textron and CSC to which this Schedule A is attached.
Network	means the WANs and the LANs that, collectively constitute the in-scope network. Network shall include Textron’s Data Network and Voice landline and wireless Network.
Network Printer	means a printer that is connected to the Network and can be accessed by multiple End Users on the Network.
Network Services	has the meaning set forth in Attachment 3 (the Tower Services Agreement for Network Services), and shall include, collectively, Data Network Services and Voice Network Services.
Network Software	means all Software embedded in or installed on Network Equipment, including routers, switches, hubs and PBXs and that is necessary to their functionality.
Neutral Adviser	has the meaning set forth in Section 22.2.1 of the MSA.
New Interim Service Levels	has the meaning set forth in Section 11.1.2 of Schedule B.
Non-Campus	means any location that is not a Campus.
Non-SOE Software	means all Software, other than Legacy Software, that is installed on any Supported Equipment at any time during the Term of the Agreement but is not included in an SOE.
Notice of Claim	has the meaning set forth in Section 18.5.1 of the MSA.
Notice of Election	has the meaning set forth in Section 18.5.2 of the MSA.
Party or Parties	means either or both of Textron and CSC as the context requires.
Pass-Through Expense	means the pass-through expenses specified in Annex D-2 of Schedule D (Pricing).
Performance Standards	means, individually and collectively, the quantitative and qualitative performance standards and commitments for the Services contained in this Agreement, including those described in Section 4 of the MSA, the Service Levels and any key performance indicators in the Service Level Agreements.
Personal Textron Data	has the meaning set forth in Section 15 of Schedule B (Cross-Functional Obligations).
Personnel	means all employees of a Party, officers, consultants, contractors and agents employed or engaged by a Party who are individuals.
Physical Database Management	means the Services required to install and upgrade the supported database management software. Application of software fixes, management of the disk space and tuning of system parameters in support of the database management software is also included.

Term	Definition
Planned Special Event	means an unusual business activity either during or outside normal business hours or location.
Policy and Procedures Manual or Procedures Manual	mean the overall policy and procedures manual or the policy and procedures manual for a Tower of Services, Schedule B (Cross-Functional Obligations), or Schedule K (Governance), each of which describes the manner in which CSC shall perform and deliver the Services, as further described in Schedule B, Schedule K or in the applicable Tower Services Agreement.
Predictive Dialer	means alert systems/applications that dial out to pagers/cell phones and voicemail.
Problem	means any problem, issue, unscheduled downtime, unscheduled outage, or other interruption in or delay or failure of, any Supported component(s) of the Infrastructure Systems and/or the Services.
Problem Management and Escalation Procedures	means the problem management and escalation procedures developed pursuant to Schedule B (Cross Functional Obligations).
Production	means the set of computer programs and all forms of computer system output that are scheduled to run or requested to run on the computer system in order to perform daily business requirements.
Project	has the meaning set forth in Section 17.1.1 of Schedule B.
Project Estimate	has the meaning set forth in Section 17.1.4 of Schedule B.
Project Hour	has the meaning set forth in Section 17.1.2 of Schedule B.
Project Pool	has the meaning set forth in Section 17.1.3 of Schedule B.
Project-Related Costs	has the meaning set forth in Section 17.1.5 of Schedule B.
Project Survey	has the meaning set forth in Section 12.1.1(c) of Schedule K (Governance).
Project Working Group	has the meaning set forth in Section 17.3.2 of Schedule B.
Property Interest	has the meaning set forth in Section 7.2.2 of the MSA.
Property Taxes	has the meaning set forth in Section 5.5.1(a) of the MSA.
Publicity Material	has the meaning set forth in Section 25.2.1(a) of the MSA.

Term	Definition
Reasonable Currency	means, with respect to installation of updates and new versions of Software installed on Supported Equipment, (a) maintaining such Software within one (1) major release of the most current commercially released version available from the Software supplier that includes changes to the architecture and/or adds new features and functionality, usually but not necessarily identified by full integer changes in numbering, such as from “7.0” to “8.0” behind the most recent major release, and (b) promptly installing all other releases, usually but not necessarily identified by a change in the decimal numbering of a release, such as from “6.12” to “6.13.”
Recipient	has the meaning set forth in Section 16.1.1 of the MSA.
Refresh	means CSC’s scheduled technology change of Equipment with new Equipment or major upgrades of Equipment components that materially affect the operational capacity and/or life of the Equipment in accordance with this Agreement, including Schedule N.
Regular Project	has the meaning set forth in Section 17.2.2 of Schedule B (Cross-Functional Obligations)
Remote Access	means access to Textron or a Service Recipient’s Network or Infrastructure Systems from any Remote Office.
Remote Offices	means End Users connecting from their home or other non-Textron or non-Service Recipient locations.
Remote Server	means a Server (a) that is not located in a CSC Data Center in Norwich, Conn. or Chesterfield, England or in a Textron Data Center in Wichita, Kan., Hurst, Tex., and Providence, R.I.(without regards to whether before or after any Transformation Completion Date) or any data center that may be substituted for any of the foregoing data centers in accordance with the Change Control Procedures or (b) that is mutually agreed in writing to be managed by the CSC as a Remote Server.
Reporting Period	means the required frequency for reporting Service Level compliance.
Required Consents	means such consents, approvals or authorizations as may be required, or that Textron determines would be prudent to obtain, for the assignment to CSC, or the grant to CSC of rights of access and use, of resources otherwise provided for in this Agreement or in respect of a Termination as may be required for the assignment to Textron; or the grant to Textron of rights of access and use of resources used by CSC in the terminated Services and required for Textron to continue those Services in accordance with the Termination Assistance provided for under this Agreement.
Resolution Time	means the time defined as such in Section 3 of Schedule B.
Resource Unit or RU	means a unit of measurement specified as a “Resource Unit” in Schedule D (Pricing) or Appendix C to any Tower Services Agreement. A Resource Unit may be in the form of an item of Equipment, seat, port or other unit.

Term	Definition
Resource Unit Change	has the meaning set forth in Section 5.1 of Schedule K (Governance).
Resource Unit Change Procedure	means the procedure for implementing a Resource Unit Change as set forth in Section 6 of Schedule K (Governance).
Responsibility Matrix	means the listing of processes, activities, tasks and the accountable Party that is included in each of the Tower Services Agreements, Schedule B (Cross-Functional Obligations) and Schedule K (Governance).
Returnable Material	has the meaning set forth in Section 24.7.1 of the MSA.
Rights of Use	has the meaning set forth in Section 8.4.1 of the MSA.
Scope Change	has the meaning set forth in Section 5.3 of Schedule K (Governance).
Scope Change Procedure	means the procedure for implementing a Scope Change as set forth in Section 8 of Schedule K (Governance).
Server or Midrange Server	means an Application Server, Database Server, Infrastructure Server, Remote Server or Standalone Server, as well as related Equipment necessary to operate the Server. For clarification, the term “Server” shall include any replacements to Textron’s Servers (e.g., consolidation of Servers into new Servers).
Service Charges	means the charges payable by Textron to CSC pursuant to this Agreement, but excluding the Pass-Through Expenses.
Service Credit or Service Level Credit	means an amount calculated in accordance with Section 11.9 of Schedule B (Cross-Functional Obligations) as a reduction of the Service Charges payable to CSC as a result of CSC’s failure to meet a Service Level.
Service Description	means a service description set forth in Attachments 1A, 2A, 3A, 4A or 5A.
Service Desk	means a single point of contact for End Users to call to resolve Problems and Service Requests pertaining to the Infrastructure Systems.
Service Desk Services	has the meaning set forth in Attachment 5 (Tower Services Agreement for Service Desk Services).
Service Levels	means End-State Service Levels and/or the Interim Service Levels, as applicable.
Service Problem	has the meaning set forth in Section 4.4 of the MSA.
Service Recipient	means (a) Textron, (b) any entity that Controls, is Controlled by or is under common Control with Textron, and (c) any entity that has a business relationship with Textron or an entity that is under common Control with Textron and is designated from time to time to receive Services in connection with such business relationship. Service Recipients are listed in Schedule C (Service Recipients), as such list may change in accordance with Section 3.4 of the MSA.
Service Request	means a request for Problem resolution or other inquiry, request or issue.

Term	Definition
Services	means the services, functions and responsibilities identified in Section 3.1 of the MSA.
Service Taxes	means any and all sales, use, excise, value-added, services, consumption and other Taxes assessed on the provision of the Services as a whole or on any particular Services.
Service Ticket	means a report of a Problem or a Service Request by any End User by means of the applicable reporting process established by CSC and approved by Textron.
Severity Levels	has the meaning set forth Section 10.2 of Schedule B (Cross-Functional Obligations).
Severity Weight	has the meaning set forth in Section 11.2 of Schedule B (Cross-Functional Obligations)
Signature Date	has the meaning set forth in the preamble of this Agreement.
Site	means any Service Recipient location; provided that as used in Attachment 3, Site means a service location identified in Appendix 3D to Attachment 3 (Network Sites), as modified pursuant to Change Control Procedures, and with a connection to the Textron WAN.
SOE or Standard Operating Environment	means the Software in the Standard Operating Environments and listed as such in Annex F-7 to Schedule F (Existing Equipment and Software), as such Annex may thereafter be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
SOE Software	means Software that is included in any SOE.
Soft IMAC	means an IMAC that does not require physical presence on-site at the End-User office or Equipment location to complete the requested activity.
Software	means any computer program (including source code and object code), related documentation, tangible media, program interfaces and any Software Tools or object libraries embedded in that Software, which is used to provide, or which forms part of, the Services, or which is used in connection with the Services, or is otherwise used by Textron or any other Service Recipient. For the avoidance of doubt, Software includes any computer program embedded in or used in connection with a Supported Device.
Software Tools	means any Software that is used for Software development or testing, data capture, system maintenance, data search, analysis, project management, measurement and monitoring, including related methodologies, processes and know-how. Examples of Software Tools include compilers, interpreters, assemblers, 4GLs, editors, debuggers, and application generators.
Speed to Answer	has the meaning given to it in Section 3 of Appendix 5B.

Term	Definition
SPOC	means the Level 1 Support single point of contact for End Users.
Standalone Server	means a Server that is physically located in a CSC Data Center in Norwich, Conn. or Chesterfield, England or in a Textron Data Center in Wichita, Kan., Hurst, Tex., and Providence, R.I (without regards to whether before or after any Transformation Completion Date.) or in any data center that may be substituted for any of the foregoing data centers in accordance with the Change Control Procedures.
Steering Committee	means the management committee formed pursuant to Schedule K (Governance) and identified therein as the “Steering Committee.”
Successor Supplier	means a Third Party to whom, on the termination of this Agreement for any reason, Textron proposes or intends to contract the Services or any part of the Services or any other services as Textron may require in substitution for or in addition to the Services.
Supported Device	means any device identified as such in Annex F-6 to Schedule F (Existing Equipment and Software) and any similar device added to Annex F-6 in accordance with a Change Control Procedure. A Supported Device may be in the form of a bar code printer, plotter, scanner, projector, time clock, certain designated cameras, certain designated PDAs, Blackberry, certain limited thin clients or other electronic device designated by Textron.
Supported Equipment	means any Equipment for which Services are provided through a Resource Unit.
Supported Network	means the WANs, LANs and any other Network related Equipment for which Services are provided through a Resource Unit.
Supported Peripheral	means any non-asset-tagged, Workstation-related peripheral device and may be in the form of a PDA, local attached printer, zip drive, camera, or other similar electronic device, but shall not include a display monitor, keyboard, mouse, network printer, other pointing device or internal storage. Support for Supported Peripherals will be provided as such support exists (both as to nature and volume) as of the applicable Handover Date. Any new technology or increase in support requirements will be subject to a Change Control Procedure.
Supported Software	means one or more programs in Tier 1 Software, Tier 2 Software, Tier 3 Software, Tier 4 Software and Tier 5 Software; provided that no usage of this term in any context shall be construed to alter, enlarge, or change in any way CSC’s financial responsibility as set forth in Annex F-7 to Schedule F. In the event of any conflict, this construction shall prevail.
Supported Workstation	means any Workstation for which a Resource Unit is payable. For purposes of Appendix 4A, Appendix 4B and Schedule B (Cross-Functional Obligations), Network Printers for which Textron incurs a Resource Unit charge shall be treated as Supported Workstations, as applicable.

Term	Definition
Systems Change	means any change in the manner in which the Services are performed or provided, including changes in the Software, Equipment or systems used in the Service, as further described in Schedule K (Governance).
Systems Change Procedure	means the procedures for implementing a Systems Change as set forth in Section 7 of Schedule K (Governance).
Systems Change Request	means any request for a Systems Change.
Tax or Taxes	means all forms of taxation, whenever created or imposed, whether domestic or foreign (regardless of the identity of the taxing authority imposing such Tax), and without limiting the generality of the foregoing shall include net income, alternative or add-on minimum tax, gross income, sales, use, franchise, gross receipts, value added, service, consumption, ad valorem, profits, license, payroll, withholding, social security, unemployment insurance, employment, property, transfer, recording, excise, severance, stamp, occupation, premium, windfall profit, custom duty, capital stock or other tax, governmental fee or other like assessment, levy or charge of any kind whatsoever, together with any related interest, penalties or other additions to tax, or additional amounts imposed by any such taxing authority. When the term “Tax” is used with a specified form of taxation, e.g., “Business Tax,” it refers only to Taxes of the specified type.
Technology Plan	has the meaning set forth in Section 13.3 of the MSA.
Term	has the meaning set forth in Section 2.1 of the MSA.
Termination	means the expiration of the Master Services Agreement or a Tower Services Agreement at the end of its Term without renewal, or the expiration of its Term after extending the applicable Agreement in accordance with Section 2.2 of the MSA or the termination of the MSA in whole or in part in accordance with Sections 21 or 24 of the MSA or termination of any Tower Services Agreement in accordance with its terms.
Termination Assistance	has the meaning as set forth in Section 24.8.1 of the MSA and includes those Services provided by CSC in connection with Termination as described in Sections 24.7 and 24.8 of the MSA and Schedule H (Termination Assistance).
Termination Assistance Period	has the meaning set forth in Section 24.8.1 of the MSA.
Termination Date	means the date of the Termination of the MSA or a Tower Services Agreement, in whole or in part, howsoever occurring.
Termination Transfer Plan	has the meaning set forth in Section 3 of Schedule H (Termination Assistance).

Term	Definition
Textron	has the meaning set forth in the preamble of the MSA.
Textron Assets	has the meaning set forth in Section 17.4.1 of the MSA.
Textron Audit Representatives	means Textron and its appointed contractors (including internal audit staff), Textron’s external auditors and their appointed contractors and regulator(s) and/or any other auditors, regulators, inspectors or contractors whom Textron designates in writing from time to time to conduct Audits on Textron’s behalf.
Textron Competitor	means any company listed in Schedule L (Competitors) as it may be changed unilaterally by Textron from time to time upon written notice to CSC.
Textron Confidential Information	means all Confidential Information of Textron or another Service Recipient, in any form, furnished or made available directly or indirectly to CSC by Textron or another Service Recipient or otherwise obtained or created by CSC.
Textron Data	means all information, whether or not confidential, entered in Software or Equipment by or on behalf of Textron and information derived from such information, including as stored in or processed through the Equipment or Software.
Textron Facilities	has the meaning set forth in Section 7.1.1 of the MSA.
Textron Laws	means Laws with which Textron or a Service Recipient would be required to comply without regard to Textron’s having entered into the Agreement with CSC.
Textron Information	means all information, other than Textron Confidential Information and Textron Data, that relates to Textron, any Service Recipient, or any of its or their Affiliates, employees, contractors, agents, customers, partners, suppliers or joint venturers, including data or information about any of their operations, facilities, personnel, assets, products and programs, customer-specific data submitted to CSC by Textron or another Service Recipient, in whatever form that information may exist.
Textron Leased Equipment	means Equipment leased by Textron or another Service Recipient from any Third Party.
Textron Material	means Material owned by the Textron, a Service Recipient or any Affiliates of the foregoing (including Material in which the Intellectual Property Rights are owned by the Textron, a Service Recipient or an Affiliate) which is used to provide, or which forms part of, the Services.
Textron Owned Equipment	means Equipment owned by Textron or another Service Recipient.
Textron Personnel	means all employees of Textron, of any Service Recipient or of any contractor of Textron or any Service Recipient.

Term	Definition
Textron Program Executive	means the individual designated by the Textron to whom CSC shall communicate issues related to the Agreement, as set forth in Schedule K (Governance).
Textron Software	means any Software which is owned by or licensed (other than to the extent provided in Sections 9.3.4 or 9.4.1 of the MSA) to Textron, another Service Recipient or any of their respective Affiliates (including any Intellectual Property Rights).
Textron-Retained Leases	means the Leases to Textron Leased Equipment that will be retained by Textron and managed by CSC in accordance with Section 8.2 of the MSA, and as set forth in Annex F-1 of Schedule F (Existing Equipment and Software).
Textron Wide Area Network or Textron WAN	means the Equipment, Software, telecommunications facilities, lines, interconnect devices, wiring, cabling and fiber that are used to create, connect and transmit data, voice and video signals between and among: (i) Textron’s (or a Service Recipient’s) LANs; (ii) Textron’s (or a Service Recipient’s) field offices; (iii) other Textron (or Service Recipient) locations; (iv) non-Textron locations that do business with Textron (or Service Recipient), excluding the CSC WAN. A WAN commences with the WAN Network interconnect Equipment at one Textron (or Service Recipient) location (e.g., router, dial-up modem, dial backup Equipment) and ends with and includes the WAN Network interconnect Equipment (e.g., router, dial-up modem, dial backup Equipment) at another Textron (or such Service Recipient) location or non-Textron location that is interconnected with the first location via the WAN. For voice and data circuits, a Textron WAN includes local access and interexchange and other long-haul circuits, whether or not provided by a Third Party and used to transport voice traffic and interconnect with the public switch telephone network.
Third Party	has the meaning set forth in Section 25.13 of the MSA.
Third Party Contract	has the meaning set forth in Section 18.1.7 of the MSA.
Third Party Material	means Material used in connection with the Services which is not Textron Material or CSC Material.
Third Party Service Contracts	means those agreements pursuant to which a Third Party is, immediately prior to the Signature Date, furnishing or providing services to Textron similar to or which form part of the Services. Third Party Service Contracts are limited to those contracts included in Schedule F (Existing Equipment and Software) as it may be changed from time to time in accordance with a Change Control Procedure.
Third Party Software	means the Software which is not Textron Software or CSC Software.

Term	Definition
Third Party Software Contracts	means those agreements pursuant to which a Third Party is, immediately prior to the Signature Date, furnishing or providing Third Party Software to Textron; provided that Third Party Software Contracts are limited to those contracts included in Schedule F (Existing Equipment and Software).
Third Party Systems Software	means software owned by a Third Party that is Tiers 1 — 3 Software.
Tier 1 Software	means Tier 1 Software for Mainframe and Midrange Technology and Tier 1 Software for Workstations.
Tier 2 Software	means Tier 2 Software for Mainframe and Midrange Technology and Tier 2 Software for Workstations
Tier 3 Software	means Tier 3 Software for Mainframe and Midrange Technology and Tier 3 Software for Workstations
Tier 4 Software	means Tier 4 Software for Mainframe and Midrange Technology and Tier 4 Software for Workstations.
Tier 5 Software	means Tier 5 Software for Mainframe and Midrange Technology and Tier 5 Software for Workstations.
Tier 1 Software for Mainframe and Midrange Technology (collectively and Tier 1 Software for Mainframe Technology and Tier 1 Software for Midrange Technology individually)	means those Software programs and programming (including supporting documentation, media, on-line help facilities and tutorials) that perform operating system, disk and file system and security hardening tasks. These types of Software include Software that operates the hardware storage management to create/modify/delete disk and swap space, and basic system security. Notwithstanding the foregoing, Tier 1 Software for Mainframe and Midrange Technology is limited to that Software identified as Tier 1 Software for Mainframe and Midrange Technology in Annex F-7 to Schedule F (Existing Equipment and Software), as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 2 Software for Mainframe and Midrange Technology (collectively and Tier 2 Software for Mainframe Technology and Tier 2 Software for Midrange Technology individually)	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that consist of system management agents and products and tools and utilities, operational management tools (such as job schedulers and printing environments), storage administration and backup, network management, and session management tools. These types of Software programs consist of agents such as monitoring, asset management, and remote control. Software Tools include performance monitors and data collection. Notwithstanding the foregoing, Tier 2 Software for Mainframe and Midrange Technology is limited to that Software identified as Tier 2 Software for Mainframe and Midrange Technology in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).

Term	Definition
Tier 3 Software for Mainframe and Midrange Technology (collectively and Tier 3 Software for Mainframe Technology and Tier 3 Software for Midrange Technology individually)	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform transaction processing tasks (such as IMS and web-based environments), database environments, and comprise the transaction processing environment, language environments including development and execution, and middleware products (e.g., MQSeries, Citrix and WebSphere) and the middleware environment. Notwithstanding the foregoing, Tier 3 Software for Mainframe and Midrange Technology is limited to that Software identified as Tier 3 Software for Mainframe and Midrange Technology in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 4 Software for Mainframe and Midrange Technology (collectively and Tier 4 Software for Mainframe Technology and Tier 4 Software for Midrange Technology individually)	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform the execution of business logic and the processing of data specific to Textron’s business processes (including purchased and business applications developed by Textron or a Service Recipient) and application-specific standards. These types of Software programs are generally business unit or regional specific. Notwithstanding the foregoing, Tier 4 Software for Mainframe and Midrange Technology is limited to that Software identified as Tier 4 Software for Mainframe and Midrange Technology in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 5 Software for Mainframe and Midrange Technology (collectively and Tier 5 Software for Mainframe Technology and Tier 5 Software for Midrange Technology individually)	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform the execution of business logic and the processing of data specific to Textron’s business processes (including purchased and business applications developed by Textron or a Service Recipient) and application-specific standards (e.g., SAP, PeopleSoft). Notwithstanding the foregoing, Tier 5 Software for Mainframe and Midrange Technology is limited to that Software identified as Tier 5 Software for Mainframe and Midrange Technology in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure subject to Section 9.2 of Schedule B (Cross-Functional Obligations).

Term	Definition
Tier 1 Software for Workstations	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform operating system functions and includes systems utilities, bios and firmware. These types of Software programs consist of the software that operates the hardware, storage management to create/modify/delete disk and swap space, basic system security as well as internet browsers and Microsoft terminal services and agents to deploy/manage the Supported Software. Notwithstanding the foregoing, Tier 1 Software for Workstations is limited to that Software identified as Tier 1 Software for Workstations in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 2 Software for Workstations	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that consist of multi-account software and Software Tools that are common across business units. These types of Software programs consist of media player, electronic mail, instant messaging, virus protection, productivity applications (i.e., MS Office), zip tools, and readers. Software Tools include performance monitors and data collection tools. Notwithstanding the foregoing, Tier 2 Software for Workstations is limited to that Software identified as Tier 2 Software for Workstations in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 3 Software for Workstations	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform account specific functions. These types of Software programs consist of Dial-in/RAS capabilities, secure network access, and security software. Notwithstanding the foregoing, Tier 3 Software for Workstations is limited to that Software identified as Tier 3 Software for Workstations in Annex F-7 to Schedule F (Existing Equipment and Software) as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).

Term	Definition
Tier 4 Software for Workstations	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform Business Unit specific functions. These types of Software programs consist of middleware clients. These types of Software programs will consist of some of the 2000 applications designated by Textron in Annex F-7 to Schedule F (Existing Equipment and Software) to be included in one or more SOEs. Notwithstanding the foregoing, Tier 4 Software for Workstations is limited to that Workstation Software identified as Workstation Tier 4 in Annex F-7 to Schedule F as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Tier 5 Software for Workstations	means those Software programs and programming (including the supporting documentation, media, on-line help facilities and tutorials) that perform End-user specific functions. These are limited to the 2000 applications designated by Textron in Annex F-7 to Schedule F (Existing Equipment and Software) to be included in one or more SOEs. Notwithstanding the foregoing, Tier 5 Software for Workstations is limited to that Software identified as Tier 5 Software for Workstations in Annex F-7 to Schedule F as such Annex may be modified from time to time through the Change Control Procedure, subject to Section 9.2 of Schedule B (Cross-Functional Obligations).
Token Authentication	means authentication through the use of a challenge system where a user must enter a response to the challenge provided by the token device — usually a numerical sequence.
Tower of Services	has the meaning set forth in Recital A of the MSA.
Tower Services Agreement	has the meaning set forth in Recital D of the MSA.
Transfer Clauses	means the clauses set forth in Annex B-3 to Schedule B (Cross-Functional Obligations) for the transfer of personal data (as contained in the Textron Data or Textron Information) to data processors in third countries that do not ensure an adequate level of data protection pursuant to Articles 26.2 and 26.4 of Directive 95/46/EC.
Transferred Equipment	means the Equipment set forth in Annex F-4 of Schedule F (Existing Equipment and Software).
Transformation	means the performance of the activities described in Section I.B (Transformation Plans and Milestones).
Transformation Completion Date	means, for each Tower of Services, the date on which the activities described in the Transformation Plan for that Tower of Services have been completed.
Transformation Plan	has the meaning given in Section 3.6.2 of the MSA.

Term	Definition
Transformation Period	means the period between the first Handover Date and the last Transformation Completion Date
Transformation Survey	is described in Section 12.3 of Schedule K (Governance).
Transition	means the performance of the activities described in Schedule I.A(Transition Plan and Milestones).
Transition Period	means the period between the Signature Date and the date on which the activities described in the Transition Plan are substantially complete.
Transition Survey	is described in Section 12.3 of Schedule K (Governance).
Transition Plan	has the meaning set forth in Section 3.6.1(a) of the MSA.
Transitioned Employee	has the meaning set forth in Section 1.2 of Schedule E.
TSO	means the IBM product “Time Sharing Option” and all IBM supported, un-supported, current, future and past releases of the product as well as all additional features and functions that are used by the IBM product as part of its operating environment.
Turnover Rate	has the meaning set forth in Section 10.6 of the MSA.
Virus	means: (a) any program code or programming instructions constructed with the ability to damage, interfere with or otherwise adversely affect computer programs, data files, Software, Equipment or operations; or (b) any other code typically designated to be a virus, worm, time or logic bomb, disabling code or routine, backdoor or similar program.
Voice Network	means the infrastructure and other Network resources used to transport voice traffic associated with voice applications, including telephony, wireless, landline, voice over IP and voicemail.
Voice Network Services	means the Network Services as they relate to the Voice Network.
WAN	means a Textron WAN or a CSC WAN as applicable.
Web Hosting	means the provision of those web hosting services described in Attachment 2 (Tower Services Agreement for Midrange Services.)
Work Product	means any output (in whatever form), including any Software (including any source code), Material or Textron Data, which may be created, developed or Modified by or on behalf of CSC in the course of the performance of the Services, whether solely or jointly by CSC, CSC Subcontractors or any other Third Parties, including any Modifications to any Textron Software, Textron Material, CSC Software, CSC Material, Third Party Software or Third Party Material.
Workstation	means a device that consists of a system unit, a display monitor, a keyboard, a mouse, other pointing device and internal storage, including Supported Software, but excluding Supported Devices and Supported

Term	Definition
	Peripherals. For the avoidance of doubt, a Workstation may be in the form of a desktop computer, a laptop computer, a UNIX (RISC — reduced instruction set computer) computer, or a fully functioning thin client (a device used to access a backend server running applications to support the End User).
Workstation Services	has the meaning set forth in Attachment 4 (Tower Services Agreement for Workstation Services).

EX-12.1

EXHIBIT 12.1

TEXTRON MANUFACTURING

COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS

(Unaudited)

(In millions except ratios)

	Year
	2004			2003			2002			2001			2000
Fixed charges:
Interest expense	$	103		$	105		$	135		$	183		$	158
Distributions on preferred securities of subsidiary trusts, net of income taxes	—			13			26			26			26
Estimated interest portion of rents	31			32			25			30			29
Total fixed charges	$	134		$	150		$	186		$	239		$	213
Income:
Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trusts	$	528		$	417		$	576		$	800		$	589
Fixed charges*	134			137			160			213			187
Eliminate equity in undistributed pretax income of finance subsidiary	(69		)	(10		)	(65		)	(146		)	(112		)
Adjusted income	$	593		$	544		$	671		$	867		$	664
Ratio of income to fixed charges	4.43			3.63			3.61			3.63			3.12

*Adjusted to exclude distributions on preferred securities of subsidiary trusts, net of income taxes.

EX-12.2

EXHIBIT 12.2

TEXTRON INC. INCLUDING ALL MAJORITY-OWNED SUBSIDIARIES

COMPUTATION OF RATIO OF INCOME TO COMBINED FIXED
CHARGES AND PREFERRED STOCK DIVIDENDS

(Unaudited)

(In millions except ratios)

	Year
	2004		2003		2002		2001		2000
Fixed charges:
Interest expense	$	256	$	277	$	324	$	445	$	492
Distributions on preferred securities of subsidiary trusts, net of income taxes	—		13		26		26		26
Estimated interest portion of rents	34		35		28		32		31
Total fixed charges	$	290	$	325	$	378	$	503	$	549
Income:
Income from continuing operations before income taxes and distributions on preferred securities of subsidiary trusts	$	528	$	417	$	576	$	800	$	589
Fixed charges*	290		312		352		477		523
Adjusted income	$	818	$	729	$	928	$	1,277	$	1,112
Ratio of income to fixed charges	2.82		2.24		2.46		2.54		2.03

*Adjusted to exclude distributions on preferred securities of subsidiary trusts, net of income taxes.

EX-21

Exhibit 21

Certain subsidiaries of Textron (at 1 January 2005)
(Unless indicated otherwise, all entities listed are wholly-owned.)

Name	Jurisdiction
TEXTRON INC.	Delaware
Avco Corporation	Delaware
ARS Two Inc.	Delaware
Avco Rhode Island (2002) Inc.	Delaware
Christine Realty Co., Inc.	Pennsylvania
Textron Pacific Limited	Australia
Textron Systems Corporation	Delaware
Textron Systems Children’s Center, Inc.	Massachusetts
Textron Systems Rhode Island (2001) Inc.	Delaware
Bell Aircraft Services Company	Delaware
Edwards & Associates, Inc.	Tennessee
Aeronautical Accessories, Inc.	Tennessee
Aeronautical Accessories Rhode Island (2001) Inc.	Delaware
Aeronautical Rotor Blades, Inc.	Tennessee
Edwards & Associates Rhode Island (2002) Inc.	Delaware
Bell Helicopter Textron Inc.	Delaware
BHT Energy Company	Delaware
Bell Aerospace Services Inc.	Delaware
Bell Helicopter Overseas Inc.	Delaware
Bell Helicopter Rhode Island Inc.	Delaware
Bell Helicopter Services Inc.	Delaware
Bell Helicopter Asia (Pte) Ltd.	Singapore
Bell Helicopter do Brasil Ltda. (99.99%; 0.01% - Bell Helicopter Textron Inc.)	Brazil
Bell Helicopter India Inc.	Delaware
Bell Helicopter Korea Inc.	Delaware
Bell Technical Services Inc.	Delaware
Cadillac Gage Textron Inc.	Michigan
Cessna Aircraft Company	Kansas
Australian Aircraft Service Pty Limited	Australia
Cessna Aircraft Rhode Island Inc.	Delaware
CitationShares Holding, L.L.C. (75%; 25% - TAG Aviation USA, Inc.)	Delaware
CitationShares Sales, Inc.	Delaware
Cone Drive Operations Inc.	Delaware
Cone Drive Operations Rhode Island Inc.	Delaware
David Brown (Delaware) Holdings Corp.	Delaware
David Brown Union Pumps Company (95%; 5% — Textron Inc.)	Michigan
David Brown Union Pumps (Canada), Ltd.	New Brunswick
David Brown Union Pumps Rhode Island Inc.	Delaware
Greenlee Textron Inc.	Delaware
Greenlee Plumbing Inc.	Delaware
Greenlee Rhode Island Inc.	Delaware
HR Textron Inc.	Delaware
HR Textron Rhode Island (2002) Inc.	Delaware
Kautex Inc.	Delaware
Kautex Japan Inc.	Delaware
McCord Corporation	Michigan
Kautex of Georgia Inc.	Massachusetts
Kautex of Georgia (Rhode Island) Inc.	Delaware
Textron Holdco Inc.	Rhode Island
Micromatic Inc.	Delaware
Micromatic Operations Rhode Island Inc.	Delaware
MAAG Pump Systems Textron Inc.	North Carolina
MAAG Pump Systems Rhode Island (2002) Inc.	Delaware

1

Name	Jurisdiction
TEXTRON INC.
Opto Acquisition Inc.	Ontario
Opto-Electronics Inc.	Ontario
Tempo Research Corporation	Delaware
Tempo Rhode Island Inc.	Delaware
Textron Asia Inc.	Delaware
Textron Atlantic Inc.	Delaware
Camcar Textron de Mexico, S.A. de. C.V. (99.9%; 0.1% - Textron Inc.)	Mexico
David Brown (Thailand) Ltd.	Thailand
Elektrotechnische Spezialerzeugnisse Handels Vermietungs und Verpachtungs GmbH	Germany
E-Z-GO Canada Limited	Canadian Federal
Jacobsen E-Z-GO Textron B.V.	Netherlands
Kautex Textron India Pvt. Ltd. (99%; 1% - Kautex Textron Verwaltungs-GmbH)	India
Klauke Handelsgesellschaft m.b.H.	Austria
MAAG Textron Holding A.G.	Switzerland
MAAG Pump Systems Textron PTE Ltd.	Singapore
MAAG Pump Systems Textron A.G.	Switzerland
Textron Acquisition Limited	England
Avdel plc/Avdel plc Inc.	England/Delaware
Avdel International B.V.	Netherlands
AB Benzlers	Sweden
Benzler Antriebstechnik Ges.mbH	Austria
Benzler Antriebstechnik GmbH	Germany
Benzler Ferri S.p.A.	Italy
Benzler S.P.R.L./B.V.B.A. (50%; 50% - Benzler-TBA B.V.)	Belgium
Benzler-Sala (AUST) Pty Ltd.	Australia
Benzler-TBA B.V.	Netherlands
Benzler Transmission A.S.	Denmark
OY Benzler AB	Finland
Avdel K.K.	Japan
Industrial Machinery Company	Switzerland
Tempo Europe Limited (71%; 29% - Avdel International B.V.)	England
Textron Fastening Systems Korea Ltd.	Korea
Textron Sistemas de Fijación S.A.	Spain
Textron Sistemi di Fissaggio S.r.l.	Italy
Textron Fastening Systems Limited	England
Textron Fastening Systems Pty Ltd.	Australia
David Brown Group plc	England
David Brown Benzlers A/S (90.9%; 9.1% - AB Benzlers)	Norway
David Brown Engineering Ltd.	England
David Brown Defence Equipment Ltd.	England
David Brown Employee Trust Ltd.	England
David Brown France Engrenages S.A.S.	France
David Brown Group Australian Partners (95%; 5% - David Brown Group plc)	Australia
David Brown Corporation of Australia Pty. Ltd. (99.9%; 0.1% - David Brown Engineering Ltd.)	Australia
David Brown Engineering & Hydraulics Pty. Ltd.	Australia
David Brown Gear Industries Australia Pty. Ltd.	Australia
David Brown Gear Industries Limited	Australia
David Brown Hydraulics Ltd.	England
David Brown Radicon Inc.	Canada
David Brown Radicon Ltd.	England
David Brown Sadi S.A.	Belgium
David Brown Special Products Ltd.	England
David Brown Transaxles Ltd.	England
David Brown Transmissions France S.A.	France
David Brown Union Pumps Ltd.	England
David Brown Vehicle Products Ltd.	England

2

Name	Jurisdiction
TEXTRON INC.
Textron Atlantic Inc.
Textron Acquisition Limited
David Brown Group plc (continued from prior page)
David Brown Gear Industries (Pty) Ltd.	South Africa
David Brown Hydraulics Danmark A/s	Denmark
David Brown Hydraulics (Deutschland) GmbH	Germany
David Brown Hydraulics Finland Oy	Finland
David Brown Hydraulics Italia S.r.l.	Italy
David Brown Investments Ltd.	England
David Brown Pension Trustee Ltd.	England
David Brown Partnership Investments Ltd.	England
Hygate Transmissions Ltd.	England
Ransomes Investment Corporation	Delaware
Ransomes America Corporation	Delaware
Cushman Inc.	Delaware
Ransomes Inc.	Wisconsin
Ransomes Rhode Island Inc.	Delaware
Steiner Turf Equipment, Inc.	Wisconsin
Ransomes plc	England
Ransomes Jacobsen Limited	England
Ransomes Overseas Services Limited	England
Granja S.A.	France
Ransomes Jacobsen S.A.S.	France
Ransomes Park Limited	England
The Havens Management Limited	England
Ransomes Pensions Trustee Company Limited	England
Ransomes Property Developments Limited	England
Ransomes Sims & Jeffries Limited	England
Textron Golf & Turf plc (99.9%; 1 share - Textron Atlantic Inc.)	England
Textron Limited	England
Kautex Textron (UK) Limited	England
Textron Fastening Systems/Tri-Star Corp., Limited (80%; 20% - San Shing Hardware Works Co., Ltd.)	British Virgin Is.
Textron Fastening Systems (Malaysia) SDN. BHD.	Malaysia
Textron Global Technology Center Private Limited(99.9%; 1 share – Textron Inc.)	India
Textron Industrial S.r.l. (85%; 15% - Textron International Inc.)	Italy
Textron International Holding, S.L.	Spain
Bell Helicopter Supply Center N.V.	Netherlands
Bell Helicopter Textron Canada Limited	Canada
Bell Helicopter Canada International Inc.	Canada
Kautex Textron Iberica S.L.	Spain
Kautex Textron Argentina S.R.L. (99.9%; 1 share – Textron International Holding, S.L.)	Argentina
Kautex Textron do Brasil Ltda. (99.9%; 1 share - Textron International Holding, S.L.)	Brazil
Kautex Textron Portugal – Produtos Plasticos, Ldas.	Portugal
MAAG-Textron Italia S.r.l. (90%; 10% - Textron France S.A.R.L.)	Italy
Textron Capital B.V.	Netherlands
Textron Fastening Systems Canada Limited	Canada
Textron France Holding S.A.R.L. (99.9%; 1 share – Textron Fastening Systems site de Clichy S.N.C.)	France
Cessna Citation European Service Center S.A.S. (99.9%; 1 share – Textron France S.A.R.L.)	France
MAAG Pump Systems Textron S.A.R.L.	France
Textron France S.A.R.L. (99.9%; 1 share – Textron Fastening Systems site de Clichy S.N.C.)	France
David Brown Guinard Pumps S.A.S.	France
Jacobsen E-Z-GO Textron S.r.l. (99%; 1% - Textron International Holding, S.L.)	Italy
Textron Fastening Systems site de Paris S.A.	France

3

Name	Jurisdiction
TEXTRON INC.
Textron Atlantic Inc.
Textron International Holding, S.L.
Textron France Holding S.A.R.L.
Textron France S.A.R.L. (continued from prior page)
Textron Atlantic Holding GmbH	Germany
Textron Holding GmbH	Germany
Textron Deutschland Beteiligungs-GmbH
Avdel Verbindungselemente GmbH	Germany
Gustav Klauke GmbH (94.9%; 5.1% - Textron International Holding, S.L.)	Germany
Gustav Klauke France S.A.R.L.	France
Kautex Textron Verwaltungs-GmbH (94.8%; 5.2% - Textron International Holding, S.L.)	Germany
Kautex Textron CVS Limited	England
Kautex Textron GmbH & Co. K.G. (98.656778%; 0.671611% – Textron Holding GmbH; 0.671611% - Textron Deutschland Beteiligungs-GmbH)	Germany
Kautex Corporation	Nova Scotia
Kautex Textron Benelux B.V.B.A. (99.9%; 1 share – Kautex Textron Iberica S.L.)	Belgium
Kautex Textron Bohemia spol. s.r.o.	Czech Republic
Kautex Textron Italia S.r.l. (95%; 5% - Kautex Textron Iberica S.L.)	Italy
Kautex Lanbao (Changchun) Plastics Products Company, Limited (55%; 45% - Lanbao Technology Information Co., Ltd.)	PRC
Kautex Shanghai GmbH	Germany
Kautex (Shanghai) Plastic Products Co. Ltd.	PRC
Kautex (Shanghai) Plastic Technology Co., Ltd.	PRC
Kautex Textron de Mexico, S. de R.L. de C.V. (99.9%; 0.1% - Textron International Holding, S.L.)	Mexico
Kautex Textron Management Services Company de Puebla, S. de R.L de C.V. (98%; 2% - Kautex Textron GmbH & Co. K.G.)	Mexico
Kautex Textron Japan GmbH	Germany
Kautex Textron KeyLex Corporation KK (65%; 35% Kurata)	Japan
MAAG Pump Systems Textron GmbH	Germany
Peiner Umformtechnik GmbH	Germany
Textron China Holdings S.R.L. (99%; 1% Textron International Holding, S.L.)	Barbados
Textron Fastening Systems (Wuxi) Co., Ltd.	PRC
Textron Trading (Shanghai) Co., Ltd.	PRC
Textron Verbindungstechnik Beteiligungs-GmbH (94.9%; 5.1% - Textron International Holding, S.L.)	Germany
Textron Verbindungstechnik GmbH & Co. O.H.G. (99%; 1% - Textron Holding GmbH)	Germany
Textron Fastening Systems site de Créteil S.A.S.	France
Textron Fastening Systems site d’Amiens S.A.S.	France
Textron Fastening Systems site de Bonneuil sur Marne S.A.R.L. (99%; 600 shares - Edmond Cornudet)	France
Textron Fastening Systems site de la Bridoire S.A.R.L. (99%; 50 shares - Jean Riondet; 90 shares – Victor Rival de Rouvil)	France
Textron Fastening Systems site de Clichy S.N.C. (99.9%; 1 share - Textron France Holding S.A.R.L.)	France
Textron Fastening Systems site de Ferté Frenel S.A.S.	France
Textron Fastening Systems site de Fourmies S.A.S.	France
Textron Fastening Systems site de Vernouillet S.C.I. (80%; 20% - Textron Fastening Systems site de Vieux Condé S.A.S.)	France
Textron Fastening Systems site de Vieux Condé S.A.S.	France
Textron Poland Sp. z o.o.	Poland

4

Name	Jurisdiction
TEXTRON INC. (continued from prior page)
Textron China Inc.	Delaware
Textron Communications Inc.	Delaware
Textron FSC Inc.	Barbados
Textron Far East Pte. Ltd.	Singapore
Textron Fastening Systems Asia Pacific (Pte) Ltd.	Singapore
Textron Fastening Systems China Limited (90%; 10% - Textron Atlantic Inc.)	Hong Kong
Textron (Guangzhou) Fastening Systems Company Ltd.	PRC
Textron Fastening Systems do Brasil S.A. (99%; 1% Associação de Assistência Belgo Mineira)	Brazil
Metalurgica Norte de Minas S.A. (98.44%)	Brazil
Textron Fastening Systems Inc.	Delaware
Avdel Cherry Textron Inc.	New York
Avdel Cherry Rhode Island Inc.	Delaware
Burkland Textron Inc.	Michigan
Burkland Rhode Island Inc.	Delaware
Elco Textron Inc.	Delaware
Elco Rhode Island (2002) Inc.	Delaware
Flexalloy Inc.	Ohio
Flexalloy de Mexico, S. de R.L. de C.V. (99.9995%; 0.0005% - Textron Atlantic Inc.)	Mexico
InteSys Technologies, Inc.	Massachusetts
InteSys Ireland Limited	Ireland
Ring Screw Textron Inc.	Michigan
Detroit Heading Company, Inc.	Michigan
Ring Screw Rhode Island (2002) Inc.	Delaware
Textron Fastening Systems Mississippi Inc.	Delaware
Textron Fastening Systems Mississippi (Sales) Inc.	Delaware
Wolverine Metal Specialties Inc.	Michigan
Wolverine Metal Specialties Rhode Island Inc.	Delaware
Textron Financial Corporation	Delaware
Asset Control, L.L.C. (91.63%; 5.48% - Worldwide NetworX Corporation; 2.89% - Safeguard Scientifics, Inc.)	Delaware
Benefit Street Financial Services Corporation	Delaware
Cessna Finance Corporation	Kansas
CLD Georgia, LLC	Delaware
CP Offshore LLC	Delaware
Dorfinco Corporation	Delaware
Family Resorts & Travel, Inc.	Delaware
FBS Investments Inc.	Delaware
FFD Holdings I, Inc.	Delaware
FFD Holdings II, Inc.	Delaware
FFD Holdings III, Inc.	Delaware
Florida Fairways Inc.	Delaware
IAC Tax I, LLC	Delaware
IAC Tax II, LLC	Delaware
IAC Tax V, LLC	Delaware
Investment Control Inc.	Delaware
KW Investments, Inc.	Delaware
LA Facilities 2002, LLC	Delaware
Litchfield Financial Corporation	Massachusetts
Ironwood Acceptance Company	Delaware
Palo Verde Trading Company, LLC	Arizona
SPHC, Inc.	Delaware
Land Finance Company	Delaware
LFC Asset Recovery Corporation	Delaware
LFC Health Finance Corporation	Delaware
Priority Investment Trust	Delaware

5

Name	Jurisdiction
TEXTRON INC.
Textron Financial Corporation (continued from prior page)
North Sea Investments Inc.	Delaware
RFD-II Inc.	Delaware
Systran Financial Services Holding Corporation	Washington
Systran Financial Services Corporation	Oregon
Textron Business Services, Inc.	Delaware
TBS Insurance Agency Services, Inc.	Rhode Island
TBS Premium Finance Corporation	Delaware
Textron Acceptance Corp., Limited	Australia
Textron Business Credit, Inc.	Rhode Island
Textron Financial Canada Funding Corp.	Nova Scotia
Textron Financial Canada Limited	Ontario
Textron Financial Corporation Receivables Trust 2000-B	Delaware
Textron Financial Corporation Receivables Trust 2000-C	Delaware
Textron Financial Corporation Receivables Trust 2001-A	Delaware
Textron Financial Corporation Receivables Trust 2001-CP-1	Delaware
Textron Financial Corporation Receivables Trust 2001-CP-2	Delaware
Textron Financial Corporation Receivables Trust 2002-CP-2	Delaware
Textron Financial Investment Corporation	Rhode Island
Textron Financial Investment Services Corporation	Rhode Island
Textron Financial - New Jersey, Inc.	Delaware
Textron Funding Corporation	Delaware
Textron Louisiana Corp.	Delaware
Textron PA L.P.	Delaware
Textron Pennsylvania Inc.	Delaware
Textron Receivables Corporation III	Delaware
Textron Receivables Corporation IV	Delaware
Textron Receivables Corporation V	Delaware
Vacation Villas as the Summit, LLC	Delaware
Warbler Corporation	Delaware
Textron Fluid and Power Inc.	Delaware
Textron Global Services Inc.	Delaware
Textron International Inc.	Delaware
Textron IPMP Inc.	Delaware
Textron Innovations Inc.	Delaware
Textron Management Services Inc.	Delaware
Textron Marine Services Company	Delaware
Textron Providence Inc.	Rhode Island
Textron Realty Corporation	Delaware
Textron Rhode Island Inc.	Delaware
Textron Synergistic Assemblies de Mexico, S.A. de C.V. (98%; 2% — Textron Atlantic Inc.)	Mexico
TRAK International, Inc.	Delaware
Turbine Engine Components Textron (Newington Operations) Inc.	Connecticut
Westminster Insurance Company	Vermont

6

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the following Registration Statements:  Form S-8 No. 333-101183 pertaining to the Textron Savings Plan, Form S-8 No. 333-101180 pertaining to the 1999 Long-Term Incentive Plan, Form S-8 No. 333-105100 pertaining to the 1999 Long-Term Incentive Plan, Form S-3 No. 333-84599 pertaining to the $2 Billion Shelf Registration, Form S-8 No. 333-78145 pertaining to the 1999 Long Term Incentive Plan, Form S-8 No. 333-50931 pertaining to the Textron Canada Savings Plan, Form S-8 No. 333-07121 pertaining to the Elco Plans, Form S-8 No. 33-63741 pertaining to the Textron Savings Plan, Form S-8 No. 33-57025 pertaining to the 1994 Long Term Incentive Plan and Form S-3 No. 333-113313 pertaining to the $2 Billion Shelf Registration and in the related Prospectuses and Prospectuses’ Supplements of our reports dated February 16, 2005, with respect to the consolidated financial statements and schedule of Textron Inc., Textron Inc.’s management’s assessment of the effectiveness of internal control over financial reporting, and the effectiveness of internal control over financial reporting of Textron Inc., included in this Annual Report (Form 10-K) for the year ended January 1, 2005.

	/s/ ERNST & YOUNG LLP
Boston, Massachusetts
February 22, 2005

EX-24

Exhibit 24

POWER OF ATTORNEY

The undersigned, Textron Inc. (“Textron”) a Delaware corporation, and the undersigned directors and officers of Textron, do hereby constitute and appoint Terrence O’Donnell, Arnold M. Friedman, Michael D. Cahn and Ann T. Willaman, and each of them, with full powers of substitution, their true and lawful attorneys and agents to do or cause to be done any and all acts and things and to execute and deliver any and all instruments and documents which said attorneys and agents, or any of them, may deem necessary or advisable in order to enable Textron to comply with the Securities and Exchange Act of 1934, as amended, and any requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of Textron’s Annual Report on Form 10-K for the fiscal year ended January 1, 2005, including specifically, but without limitation, power and authority to sign the names of the undersigned directors and officers in the capacities indicated below and to sign the names of such officers on behalf of Textron to such Annual Report filed with the Securities and Exchange Commission, to any and all amendments to such Annual Report, to any instruments or documents or other writings in which the original or copies thereof are to be filed as a part of or in connection with such Annual Report or amendments thereto, and to file or cause to be filed the same with the Securities and Exchange Commission; and each of the undersigned hereby ratifies and confirms all that such attorneys and agents, and each of them, shall do or cause to be done hereunder and such attorneys and agents, and each of them, shall have, and may exercise, all of the powers hereby conferred.

IN WITNESS WHEREOF, Textron has caused this Power of Attorney to be executed and delivered in its name and on its behalf by the undersigned duly authorized officer and its corporate seal affixed, and each of the undersigned has signed his or her name thereto, on this 23rd day of February, 2005.

TEXTRON INC.
By:	/s/Lewis B. Campbell
Lewis B. Campbell Chairman, President and Chief Executive Officer

ATTEST:

/s/Frederick K. Butler

Frederick K. Butler

Vice President and Secretary

/s/Lewis B. Campbell	/s/Paul E. Gagné
Lewis B. Campbell Chairman, President and Chief Executive Officer, Director	Paul E. Gagné Director
/s/H. Jesse Arnelle	/s/Lord Powell of Bayswater KCMG
H. Jesse Arnelle Director	Lord Powell of Bayswater KCMG Director
/s/Kathleen M. Bader	/s/Brian H. Rowe
Kathleen M. Bader Director	Brian H. Rowe Director
/s/R. Kerry Clark	/s/Martin D. Walker
R. Kerry Clark Director	Martin D. Walker Director
/s/Ivor J. Evans	/s/Thomas B. Wheeler
Ivor J. Evans Director	Thomas B. Wheeler Director
/s/Lawrence K. Fish	/s/Ted R. French
Lawrence K. Fish Director	Ted R. French Executive Vice President and Chief Financial Officer (principal financial officer)
/s/Joe T. Ford	/s/Richard L. Yates
Joe T. Ford Director	Richard L. Yates Vice President and Controller (principal accounting officer)

EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer Pursuant to Rule 13a-14(a)

I, Lewis B. Campbell, Chairman, President and Chief Executive Officer of Textron Inc. (the “Company”) certify that:

1.I have reviewed this annual report on Form 10-K of Textron Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies  and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 24, 2005	/s/Lewis B. Campbell
	Lewis B. Campbell
	Chairman, President and Chief Executive Officer

EX-31.2

Exhibit 31.2

Certification of Chief Financial Officer Pursuant to Rule 13a-14(a)

I, Ted R. French, Executive Vice President and Chief Financial Officer of Textron Inc. (the “Company”) certify that:

1.I have reviewed this annual report on Form 10-K of Textron Inc.;

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

a)designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b)designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

c)evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

d)disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a)all significant deficiencies  and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b)any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: February 24, 2005	/s/Ted R. French
	Ted R. French
	Executive Vice President and Chief Financial Officer

EX-32.1

Exhibit 32.1

TEXTRON INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Textron Inc. (the “Company”) on Form 10-K for the period ended January 1, 2005 as filed with the Securities and Exchange Commission on the Date hereof (the “Report”), I, Lewis B. Campbell, Chairman, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	Textron Inc.
Date: February 24, 2005	/s/ Lewis B. Campbell
	Lewis B. Campbell
	Chairman, President and Chief Executive Officer

EX-32.2

Exhibit 32.2

TEXTRON INC.

CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Textron Inc. (the “Company”) on Form 10-K for the period ended January 1, 2005 as filed with the Securities and Exchange Commission on the Date hereof (the “Report”), I, Ted R. French, Executive Vice President and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1)The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)The information contained in the Report fairly presents, in all material respects, the financial condition and result of operations of the Company.

	Textron Inc.
Date: February 24, 2005	/s/Ted R. French
	Ted R. French
	Executive Vice President and Chief Financial Officer