FINOVA GROUP INC - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON D.C. 20549

FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2002
Commission file number 1-11011

THE FINOVA GROUP INC.
(Exact Name of Registrant as Specified in Its Charter)

Delaware 86-0695381
(State or other jurisdiction (I.R.S. employer
of incorporation) identification no.)

4800 North Scottsdale Road
Scottsdale, AZ 85251-7623
(Address of principal executive offices) (Zip code)

Registrant's Telephone Number, Including Area Code: 480-636-4800

Securities registered pursuant to Section 12(b) of the Act: None

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

TITLE OF CLASS:
Common Stock, $0.01 par value

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Registration 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 of this
Form 10-K. [X]

Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act).
Yes [ ] No [X]

On March 17, 2003, the registrant had 122,041,162 shares of Common Stock ($0.01
par value) outstanding.

Aggregate market value of Common Stock held by nonaffiliates of the registrant
as of June 30, 2002 (based on its closing price per share on that date of $0.10)
was approximately $6.1 million.

Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Section 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes [X] No [ ]

DOCUMENTS INCORPORATED BY REFERENCE:

Proxy Statement relating to 2003 Annual Meeting of Stockholders of The FINOVA
Group Inc. (but excluding information contained in that document furnished
pursuant to items 306 and 402(k) and (I) of SEC Regulation S-K) are incorporated
by reference into Part III of this report.

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TABLE OF CONTENTS
NAME OF ITEM

PART I

Item 1. Business 1
Item 2. Properties 11
Item 3. Legal Proceedings 11
Item 4. Submission of Matters to a Vote of Security Holders 12
Optional Item. Executive Officers of Registrant 13

PART II

Item 5. Market Price for Registrant's Common Equity &
Related Stockholder Matters 14
Item 6. Selected Financial Data 14
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations 15
Item 7a. Quantitative and Qualitative Disclosure About
Market Risk 16
Item 8. Financial Statements & Supplemental Data 16
Item 9. Changes in and Disagreements with Accountants
on Accounting & Financial Disclosure 16

PART III

Item 10. Directors & Executive Officers of the Registrant 16
Item 11. Executive Compensation 16
Item 12. Security Ownership of Certain Beneficial Owners
& Management 16
Item 13. Certain Relationships & Related Transactions 16
Item 14. Controls and Procedures 16

PART IV

Item 15. Exhibits, Financial Statement Schedules and Reports
on Form 8-K 17
Signatures 19

PART I

ITEM 1. BUSINESS.

GENERAL

The following discussion relates to The FINOVA Group Inc. and its subsidiaries
(collectively "FINOVA" or the "Company"), including FINOVA Capital Corporation
and its subsidiaries ("FINOVA Capital"). FINOVA is a financial services holding
company. Through its principal operating subsidiary, FINOVA Capital, the Company
has provided a broad range of financing and capital markets products, primarily
to mid-size businesses. FINOVA Capital has been in operation since 1954.

As described below, the Company emerged from chapter 11 reorganization
proceedings on August 21, 2001. Since that time, the Company's business
activities have been limited to the orderly collection and liquidation of its
assets. The Company has not engaged in any new lending activities, except to
honor existing customer commitments and in certain instances, to restructure
financing relationships with existing customers in an effort to maximize the
liquidation value of its assets. Any cash flows generated from these activities
in excess of cash reserves permitted in the Company's debt agreements is used to
reduce the Company's obligations to its creditors.

FINOVA is a Delaware corporation incorporated in 1991. FINOVA's principal
executive offices are located at 4800 North Scottsdale Road, Scottsdale, Arizona
85251-7623, telephone (480) 636-4800.

CHAPTER 11 REORGANIZATION

On March 7, 2001, FINOVA, FINOVA Capital and seven of their subsidiaries (the
"Debtors") filed for protection pursuant to chapter 11, title 11, of the United
States Code in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") to enable them to restructure their debt. On August 10,
2001, the Bankruptcy Court entered an order confirming FINOVA's Third Amended
and Restated Joint Plan of Reorganization (the "Plan"), pursuant to which the
Debtors restructured their debt, effective August 21, 2001 (the "Effective
Date").

The Plan is incorporated by reference from FINOVA's Current Reports on Form 8-K,
filed on June 22, 2001 and August 27, 2001, Exhibits 2.A and 2.B, respectively.

Pursuant to the Plan, Berkadia LLC ("Berkadia"), an entity jointly owned by
Berkshire Hathaway Inc. ("Berkshire") and Leucadia National Corporation
("Leucadia"), loaned $5.6 billion to FINOVA Capital on a senior secured basis
(the "Berkadia Loan"). The proceeds of the Berkadia Loan, together with cash on
hand and the issuance by FINOVA of approximately $3.25 billion aggregate
principal amount of 7.5% Senior Secured Notes maturing in 2009 (the "New Senior
Notes") were used to restructure the Company's debt. In addition, FINOVA issued
Berkadia 61,020,581 shares of common stock, representing 50% of FINOVA shares
outstanding after giving effect to implementation of the Plan.

Under the Plan, holders of allowed unsecured claims against FINOVA Capital
generally received (a) a cash payment equal to 70% of their general unsecured
claims (not including pre-petition or post-petition interest), (b) a cash
payment equal to the amount of accrued and unpaid pre-petition and post-petition
interest on those general unsecured claims and (c) New Senior Notes having an
aggregate principal amount equal to 30% of those general unsecured claims (not
including pre-petition and post-petition interest). Claims from holders of the 5
1/2% Convertible Trust Originated Preferred Securities (the "TOPrS") issued by
FINOVA Finance Trust were treated as allowed unsecured claims of FINOVA Capital
in an amount equal to 75% of the liquidation preference attributable to the
TOPrS and FINOVA's subordinated debentures related to the TOPrS were cancelled.
Upon implementation of the Plan, FINOVA Capital's debt was no longer publicly
held and following the Effective Date, it ceased to be a public company.

The Berkadia Loan bears interest payable monthly, at the Eurodollar Rate (as
defined in the Credit Agreement dated August 21, 2001 between FINOVA Capital and
Berkadia (the "Credit Agreement")), plus 2.25%. Principal is payable out of
available cash (as defined in the Credit Agreement). All unpaid principal and
accrued interest is due at maturity on August 20, 2006. FINOVA and substantially
all of its direct and indirect subsidiaries (except those that are contractually
prohibited from acting as a guarantor, the "Guarantors") have guaranteed FINOVA
Capital's repayment of the Berkadia Loan. The guarantees are secured by
substantially all of the Guarantors' assets.

The New Senior Notes mature in November 2009 and bear interest, payable
semi-annually, to the extent that cash is available for that purpose in
accordance with the Indenture governing the New Senior Notes (the "Indenture"),
at a fixed interest rate of 7.5% per annum. FINOVA's obligations with respect to

1

the payment of interest and principal under the New Senior Notes are secured by
a second-priority security interest in (a) all capital stock of FINOVA Capital,
(b) promissory notes of FINOVA Capital issued to FINOVA in the aggregate
principal amount of the New Senior Notes (the "Intercompany Notes") and (c)
certain other property of FINOVA that may be acquired from its subsidiaries in
the future. The Intercompany Notes are secured by a second-priority lien on the
assets of FINOVA Capital pledged to secure the Berkadia Loan. Substantially all
of FINOVA Capital's direct and indirect subsidiaries (except those that are
contractually prohibited from acting as a guarantor) have guaranteed FINOVA
Capital's repayment of the Intercompany Notes. The holders of the New Senior
Notes have no right to enforce their security interests until the Berkadia Loan
is fully repaid.

Because virtually all of the Company's assets are pledged to secure the
obligations under the Berkadia Loan and the Intercompany Notes, FINOVA's ability
to obtain additional or alternate financing is severely restricted. Berkadia has
no obligation to lend additional sums to or to further invest in the Company.
Accordingly, FINOVA intends to rely on internally generated cash flows to meet
its liquidity needs.

Permitted uses of cash are specified in the Credit Agreement and the Indenture.
Generally, the Company is permitted to use its cash in the following order:
first to fund its operating expenses, including payment of taxes, funding
customer commitments and payment of interest on the Berkadia Loan; then to pay
interest on the New Senior Notes; then to make optional purchases of the New
Senior Notes with the consent of Berkadia and otherwise in accordance with the
terms of the Indenture in an aggregate amount not to exceed $1.5 billion of cash
while the Berkadia Loan is outstanding, and thereafter in an amount not to
exceed $150 million per year. After repayment of the Berkadia Loan and the other
items noted above, ninety-five percent (95%) of the remaining available cash
will be used to make semi-annual prepayments of principal on the New Senior
Notes and five percent (5%) will be used for distributions to and/or repurchases
of stock from common stockholders. It should be noted that under governing law,
these distributions may not be made to stockholders as long as FINOVA has a
negative net worth (total liabilities in excess of total assets). Instead, these
payments will be retained by the Company for that purpose until legally
permitted by law or used to satisfy the Company's obligations, if necessary.

BASED ON THE COMPANY'S CURRENT FINANCIAL CONDITION, IT IS HIGHLY UNLIKELY THAT
THERE WILL BE FUNDS AVAILABLE TO FULLY REPAY THE OUTSTANDING PRINCIPAL ON THE
NEW SENIOR NOTES AT MATURITY OR TO PAY THE 5% DISTRIBUTION TO COMMON
STOCKHOLDERS. The Company has a negative net worth of $970.7 million as of
December 31, 2002 ($1.7 billion when the New Senior Notes are considered at
their principal amount due), the financial condition of many of its customers is
weakened, impairing their ability to meet obligations to the Company, much of
the Company's portfolio of owned assets is not income producing and the Company
is restricted from entering into new business activities or issuing new
securities to generate cash flow. For these reasons, THE COMPANY BELIEVES THAT
INVESTING IN FINOVA'S DEBT AND EQUITY SECURITIES INVOLVES A HIGH LEVEL OF RISK
TO THE INVESTOR.

In connection with its reorganization, FINOVA's Board of Directors was
reconstituted and is currently comprised of four directors designated by
Berkadia, two prior directors of FINOVA and one director designated by the
creditor's committee. The Berkadia designated directors are Ian M. Cumming,
Joseph S. Steinberg, R. Gregory Morgan and Thomas E. Mara; the continuing FINOVA
directors are G. Robert Durham and Kenneth R. Smith; and Thomas F. Boland was
designated by the creditor's committee. All directors are subject to reelection
annually by the stockholders, without regard to their original designation,
except that the Board of Directors is required to renominate Mr. Boland or
another director designated by holders of the New Senior Notes as long as the
outstanding balance of the New Senior Notes is greater than $500 million.

FINOVA's business is being operated under a Management Services Agreement with
Leucadia, which expires in 2011. Leucadia has designated its employees to act as
Chairman of the Board (Ian M. Cumming), President (Joseph S. Steinberg) and
Chief Executive Officer (Thomas E. Mara).

Upon emergence from bankruptcy, FINOVA adopted Fresh-Start Reporting in
accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). With the adoption of
Fresh-Start Reporting, the Company's assets and liabilities were recorded at
their fair value, which resulted in material adjustments to carrying amounts. As
a result of Fresh-Start Reporting and changes in the Company's operations, the
consolidated financial statements for periods subsequent to August 31, 2001 (the
"Reorganized Company") will not be comparable to those of the Company for
periods prior to August 31, 2001 (the "Predecessor Company"). For financial
reporting purposes, the effective date of the Plan is considered to be the close
of business on August 31, 2001. For further details, see Annex A, Notes to
Consolidated Financial Statements, Note F "Fresh-Start Reporting."

2

CURRENT BUSINESS ACTIVITIES

Since emergence from chapter 11 in August 2001, the Company's business
activities have been limited to maximizing the value of its portfolio through
the orderly liquidation of its assets. These activities include collection
efforts pursuant to underlying contractual terms and may include efforts to
retain certain customer relationships and restructure or terminate other
relationships. The Company has not and does not expect to engage in any new
lending activities, except to honor existing customer commitments and in certain
instances, to restructure financing relationships with existing customers to
maximize value. FINOVA has sold portions of asset portfolios and will consider
future sales if buyers can be found at acceptable prices; however, there can be
no assurance that the Company will be successful in efforts to sell additional
assets. Any funds generated from these activities in excess of cash reserves
permitted in the Company's debt agreements are used to reduce FINOVA's
obligations to its creditors.

FINOVA has combined its former operating segments into one operating unit. As a
result of this combination, elimination of new business activities and
reductions in its asset portfolios, FINOVA has significantly reduced its work
force.

DEVELOPMENTS

On January 30, 2002, FINOVA and the New York Stock Exchange mutually agreed that
the exchange would suspend trading FINOVA's common stock, which had been traded
under the symbol "FNV," after the close of market on February 6, 2002. This
action was due to FINOVA's common stock trading below $1.00 per share for more
than 30 consecutive trading days. FINOVA's stock began trading over-the-counter
on February 7, 2002, under the symbol "FNVG."

In a series of transactions during 2002, the Company sold substantially all of
its investment alliance assets for $67.4 million, which resulted in a $6.7
million gain.

In March 2002, Congress enacted the Job Creation and Worker Assistance Act of
2002 ("Act"). The Act includes provisions allowing corporations to carryback
certain tax net operating losses ("NOLs") for longer periods and with fewer
limitations than had previously existed. The Company filed its 2001 corporate
tax return in June 2002 and made a special election available under Section 108
of the Internal Revenue Code of 1986 that resulted in the Company reducing its
tax basis in depreciable property. As a result of this election and related
filings, NOLs became available for carryback, thereby entitling the Company to a
refund of approximately $67 million. During the third quarter of 2002, the
Company received $36.0 million of this refund, which was recorded in accordance
with the provisions of SOP 90-7 as a direct addition to paid-in-capital.
Although there can be no assurance regarding the timing of the payment, the
Company anticipates receiving the remainder of the refund during 2003, which
also will be recorded as a direct addition to paid-in-capital. As a result of
the special election and carryback of NOLs, the Company did not utilize any of
its federal NOL carryforwards and credits to offset the cancellation of debt
income as contemplated in the Company's Form 10-K for December 31, 2001.

In April 2002, the Company completed the sale of approximately $485 million of
its franchise portfolio for approximately $490 million. This sale included
substantially all of FINOVA's performing franchise assets. In August 2002, the
Company completed the sale of an additional $67 million of the franchise
portfolio (primarily impaired assets) at their carrying value (net of reserves).
The Company will continue the orderly liquidation of its remaining franchise
assets.

On July 26, 2002, the U.S. District Court granted final approval for a
settlement in the consolidated class action securities suits filed against
FINOVA and several other defendants. FINOVA had funded its portion of the
settlement amount in 2001 and is released from further liability.

In August 2002, in accordance with the Credit Agreement and the Indenture, the
Company's Board of Directors, with Berkadia's consent, approved the use of up to
$300 million of cash to repurchase New Senior Notes rather than make mandatory
prepayments of the Berkadia Loan. In consideration for Berkadia's consent,
FINOVA and Berkadia agreed that they would share equally in the "Net Interest
Savings" resulting from any repurchase. Net Interest Savings is calculated as
the difference between (a) the reduction in interest expense on the New Senior
Notes (resulting from the repurchase of such New Senior Notes) and (b) the
increase in interest expense on the Berkadia Loan (resulting from the use of
cash to repurchase New Senior Notes and to pay 50% of the Net Interest Savings
to Berkadia rather than make mandatory prepayments of the Berkadia Loan). On
each date that interest is paid on the outstanding New Senior Notes (a "Note
Interest Payment Date"), 50% of the Net Interest Savings accrued since the last
Note Interest Payment Date will be paid to Berkadia. The other 50% of the Net
Interest Savings will be retained by FINOVA. Upon repayment in full of the
Berkadia Loan, Berkadia will not have the right to receive any Net Interest
Savings accruing after such repayment. Because it is highly unlikely there will
be sufficient funds to fully repay the New Senior Notes at maturity, the
Company, if it elects to repurchase additional New Senior Notes, intends to do

3

so only at substantial discounts to par. The agreement between FINOVA and
Berkadia was approved by the "Special Committee" of FINOVA's Board of Directors,
which is comprised solely of directors unaffiliated with Berkadia, Berkshire or
Leucadia.

During the third quarter of 2002, the Company repurchased $98.9 million (face
amount) of New Senior Notes at a price of 29.875% or $29.6 million, plus accrued
interest. The repurchase generated a net gain of $46.9 million ($69.4 million
repurchase discount, partially offset by $22.5 million of unamortized
fresh-start discount). During the fourth quarter of 2002, the Company
repurchased an additional $86.1 million (face amount) of New Senior Notes at a
price of 30.0% or $25.8 million, plus accrued interest. The repurchase generated
a net gain of $41.3 million ($60.2 million repurchase discount, partially offset
by $18.9 million of unamortized fresh-start discount). There can be no assurance
that the Company will repurchase any additional New Senior Notes or that
additional New Senior Notes will become available at an acceptable price.

On September 10, 2002, FINOVA announced the election of Thomas E. Mara as a
Director and Chief Executive Officer, effective September 9, 2002. Mr. Mara
replaced Lawrence S. Hershfield, who resigned from those positions to pursue
other opportunities.

Pursuant to the terms of the Credit Agreement, FINOVA Capital is required to
make mandatory quarterly prepayments of principal in an amount equal to the
excess cash flow (as defined in the Credit Agreement). In addition to mandatory
prepayments, the Company is permitted, with Berkadia's consent, to make
voluntary prepayments. During 2002, mandatory and voluntary prepayments totaled
$2.725 billion. Principal payments made to Berkadia since emergence from chapter
11 have reduced the Berkadia Loan to $2.175 billion as of December 31, 2002 and
$1.525 billion as of the filing of this report (including $650 million of
payments during the first quarter of 2003). The pace of loan repayments depends
on numerous factors, including the rate of collections from borrowers and asset
sales. There can be no assurance that the Berkadia Loan will continue to be
repaid at this pace.

In March 2003, the Company completed the sale of a portion of its rediscount
assets for $175.4 million of net cash proceeds and received a $17.8 million
participation in a performing loan, which resulted in a $4.4 million gain. These
assets were classified as held for sale as of December 31, 2002.

PORTFOLIO DESCRIPTIONS

To facilitate the orderly collection of its remaining asset portfolios, FINOVA
has combined its former operating segments into one operating unit; however, its
assets continue to be concentrated in a number of specific market niches. The
following niche descriptions include information regarding typical transaction
size. In some cases, FINOVA provided multiple financing transactions to a
borrower or to affiliates of a borrower, which significantly increased the
Company's total exposure to that borrower beyond the typical transaction size.

* COMMERCIAL EQUIPMENT - equipment leases and loans to a broad range of
mid-size companies. Specialty markets include emerging growth technology
industries (primarily biotechnology), electronics, telecommunications,
corporate aircraft, supermarket/specialty retailers and most heavy
industries. Typical transaction sizes ranged from $1 million to $20
million. In November 2002, the remaining corporate aircraft portfolio
($107.7 million carrying amount) was removed from this portfolio and
included in the transportation portfolio.
* COMMUNICATIONS - term financing to advertising and subscriber-supported
businesses, including radio and television broadcasting, cable television,
paging, outdoor advertising, publishing and emerging technologies such as
internet service providers and competitive local exchange carriers. Typical
transaction sizes ranged from $3 million to $40 million.
* CORPORATE FINANCE - cash flow-oriented and asset-based term and revolving
loan products for manufacturers, wholesalers, distributors, specialty
retailers and commercial and consumer service businesses. Typical
transaction sizes ranged from $2 million to $35 million. Corporate finance
was previously classified as a discontinued operation; however, upon
emergence from chapter 11, the remaining net assets were reclassified as
held for sale at their estimated net realizable value.
* FRANCHISE - equipment, real estate and acquisition financing for operators
of established franchise concepts. Typical transaction sizes generally
ranged from $500 thousand to $40 million. During 2002, approximately $552
million of these assets were sold in multiple transactions.
* HEALTHCARE - real estate, working capital and equipment financing products
for the U.S. healthcare industry. Transaction sizes typically ranged from
$500 thousand to $35 million.
* INVESTMENT ALLIANCE - equity and debt financing for businesses in
partnership with institutional investors and selected fund sponsors.
Typical transaction sizes ranged from $2 million to $15 million. During the
fourth quarter of 2001, FINOVA classified these assets as held for sale,
and in February 2002, completed the sale of substantially all remaining
assets.
* MEZZANINE CAPITAL - secured subordinated debt with warrants to mid-size
North American companies for expansion capital, buyouts or
recapitalization. Typical transaction sizes ranged from $2 million to $15
million.

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* PUBLIC - tax-exempt term financing to non-profit corporations,
manufacturers and state and local governments. Typical transaction sizes
ranged from $2 million to $15 million. In January 2002, the remaining
assets of the public portfolio were combined with the specialty real estate
portfolio.
* REDISCOUNT - revolving credit facilities to the independent consumer
finance industry, including direct loan, automobile, mortgage and premium
finance companies. Typical transaction sizes ranged from $1 million to $35
million or more, and in some instances exceeded $100 million. In March
2003, rediscount assets with a carrying amount of $188.8 million were sold
for $175.4 million of net cash proceeds and received a $17.8 million
participation in a performing loan, resulting in a net gain of $4.4
million.
* RESORT - acquisition, construction and receivables financing for timeshare
resorts, second home communities and fractional interest resorts. Typical
transaction sizes ranged from $5 million to $35 million or more, and in
some instances exceeded $100 million.
* SPECIALTY REAL ESTATE - senior term acquisition and bridge/interim loans
from $5 million to $30 million or more on hotel and resort properties.
Through this division, FINOVA also provided equity investments in
credit-oriented real estate sale-leasebacks.
* TRANSPORTATION - structured equipment loans, direct financing, operating
and leveraged leases and acquisition financing for domestic and
international commercial and cargo airlines, railroads and operators of
other transportation-related equipment. Typical transaction sizes ranged
from $5 million to $30 million or more, and in some instances exceeded $100
million.

PORTFOLIO COMPOSITION

The following table details the composition and carrying amounts of the
Company's total financial assets at December 31, 2002:

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REVENUE REVENUE NONACCRUING NONACCRUING OWNED TOTAL
ACCRUING ACCRUING IMPAIRED LEASES ASSETS & FINANCIAL
ASSETS IMPAIRED LOANS & OTHER INVESTMENTS ASSETS %
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Resort $ 895,577 $ 113,000 $ 115,450 $ 31,680 $ 3,500 $ 1,159,207 31.4
Transportation 308,998 175,064 69,703 162,345 716,110 19.4
Specialty Real Estate 409,557 22,358 104,535 3,487 14,826 554,763 15.0
Rediscount 109,467 5,017 302,838 8,169 425,491 11.5
Healthcare 53,563 208,524 4,474 488 267,049 7.2
Communications 32,587 3,383 190,783 3,770 389 230,912 6.2
Commercial Equipment 70,952 18,651 15,177 6,155 110,935 3.0
Franchise 4,626 16,944 76,818 51 5,145 103,584 2.8
Corporate Finance 16,993 36,207 1,844 55,044 1.5
Mezzanine Capital 20,245 1,375 20,488 1,487 3,532 47,127 1.3
Other Portfolios 17,211 4,032 4,954 26,197 0.7
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS $ 1,630,778 $ 471,075 $ 1,249,358 $ 143,874 $ 201,334 $ 3,696,419 100.0
Reserve for credit losses (540,268)
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TOTAL (1) $ 3,156,151
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NOTES:

(1) Excludes $147.6 million of assets sold that the Company manages, including
$55.9 million in commercial equipment and $91.7 million in franchise.

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

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The following table details the composition and carrying amounts of the
Company's total financial assets at December 31, 2001:

- -----------------------------------------------------------------------------------------------------------------------------
REVENUE REVENUE NONACCRUING NONACCRUING OWNED TOTAL
ACCRUING ACCRUING IMPAIRED LEASES ASSETS & FINANCIAL
ASSETS IMPAIRED LOANS & OTHER INVESTMENTS ASSETS %
- -----------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Resort $ 1,120,198 $ 42,403 $ 290,709 $ 2,222 $ 3,500 $ 1,459,032 22.6
Transportation 450,736 288,181 302,723 1,041,640 16.1
Franchise 547,610 8,012 183,411 1,517 5,046 745,596 11.6
Rediscount 426,433 33,647 245,643 37,052 742,775 11.5
Specialty Real Estate 502,982 27,893 74,061 15,686 26,413 647,035 10.0
Healthcare 294,383 254,171 1,978 19,083 569,615 8.8
Communications 145,207 4,899 208,939 8 359,053 5.6
Commercial Equipment 246,006 7,822 50,263 5,900 20,386 330,377 5.1
Corporate Finance 48,023 133,645 2,596 184,264 2.9
Mezzanine Capital 73,700 1,296 27,995 18,363 121,354 1.9
Public 77,127 12,614 89,741 1.4
Investment Alliance 2,977 1,919 66,917 71,813 1.1
Other Portfolios 21,346 4,103 64,020 89,469 1.4
- -----------------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS $ 3,505,992 $ 576,708 $ 1,771,551 $ 71,054 $ 526,459 $ 6,451,764 100.0
Reserve for Credit Losses (1,019,878)
- -------------------------------------------------------------------------------------------------------------------
TOTAL (1) $ 5,431,886
===================================================================================================================

- ----------
NOTES:

(1) Excludes $233.6 million of assets sold that the Company manages, consisting
of $130.9 million in commercial equipment and $102.7 million in franchise.

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

The following table presents balances and changes to the reserve for credit
losses:

- ---------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
---------------------------------------- -------------------
YEAR ENDED FOUR MONTHS ENDED EIGHT MONTHS ENDED
DECEMBER 31, 2002 DECEMBER 31, 2001 AUGUST 31, 2001
- ---------------------------------------------------------------------------------------------------
(Dollars in thousands)

Balance, beginning of period $ 1,019,878 $ 256,324 $ 578,750
Provision for credit losses (339,986) 777,500 230,772
Write-offs (190,021) (35,877) (558,052)
Recoveries 50,033 21,729 4,964
Other 364 202 (110)
- ---------------------------------------------------------------------------------------------------
Balance, end of period $ 540,268 $ 1,019,878 $ 256,324
===================================================================================================

For the year ended December 31, 2002, the Company recorded a $340.0 million
negative provision for credit losses to reduce its reserve for credit losses.
The negative provision was primarily related to proceeds received from
collections, prepayments and asset sales in excess of recorded carrying amounts
(net of reserves); reversal of reserves established after September 11 on
certain portfolios (primarily resort and specialty real estate) due to the less
than anticipated negative impact on these portfolios; and recoveries of amounts
previously written off. Partially offsetting these reversals were new impairment
reserves established on specific accounts.

For the year ended December 31, 2001, the Company recorded a $777.5 million
provision for credit losses to increase its reserve for credit losses primarily
due to the weakened economy, the events of September 11 and management's
concerns regarding the full collection of certain transactions within its
portfolio.

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A summary of the reserve for credit losses by impaired and other assets is as
follows:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
(Dollars in thousands)
Reserves on impaired assets $438,172 $ 636,661
Other reserves 102,096 383,217
- --------------------------------------------------------------------------------
Reserve for credit losses $540,268 $1,019,878
================================================================================

Several of the Company's accounting policies pertain to the ongoing
determination of impairment reserves on financing assets and the carrying amount
valuation of other financial assets. For a detailed discussion of the Company's
accounting policies and reserve for credit losses, see Annex A, Notes to
Consolidated Financial Statements, Note B "Significant Accounting Policies" and
Note D "Reserve for Credit Losses."

Determination of impairment reserves and carrying amounts rely, to a great
extent, on the estimation and timing of future cash flows. FINOVA's cash flow
estimates assume that its asset portfolios are collected in an orderly fashion
over time. These cash flows do not represent estimated recoverable amounts if
FINOVA were to liquidate its asset portfolios over a short period of time.
Management believes that a short-term asset liquidation could have a material
negative impact on the Company's ability to recover recorded asset amounts.

FINOVA's process of determining impairment reserves and carrying amounts
includes a periodic assessment of its portfolios on a transaction by transaction
basis. Cash flow estimates are based on current information and numerous
assumptions concerning future general economic conditions, specific market
segments, the financial condition of the Company's customers and FINOVA's
collateral. In addition, assumptions are sometimes necessary concerning the
customer's ability to obtain full refinancing of balloon obligations or
residuals at maturity. Commercial lenders have become more conservative
regarding advance rates and interest margin requirements have increased. As a
result, the Company's cash flow estimates assume FINOVA incurs refinancing
discounts for certain transactions.

Changes in facts and assumptions have resulted in, and may in the future result
in, significant positive or negative changes to estimated cash flows and
therefore, impairment reserves and carrying amounts.

The carrying amounts and reserve for credit losses recorded on FINOVA's
financial statements reflect the Company's expectation of collecting less than
the full contractual amounts owed by some of its customers and recovering less
than its original investment in certain owned assets. The Company continues to
pursue collection of full contractual amounts and original investments, where
appropriate, in an effort to maximize the value of its asset portfolios.

During 2002, the Company's detailed quarterly portfolio assessments identified
significant additional impairment within its transportation portfolio, resulting
in additional markdowns. The current state of the aircraft industry includes
significant excess capacity for both new and used aircraft and lack of demand
for certain classes and configurations of aircraft in the portfolio.
Accordingly, the Company reduced the useful lives and anticipated scrap values
of various aircraft and reduced its estimates regarding its ability to lease or
sell certain returned aircraft.

FINOVA has a significant number of aircraft that are off lease and anticipates
that additional aircraft will be returned as leases expire or operators are
unable or unwilling to continue making payments. For many of these aircraft,
scrap value was assumed, but for certain aircraft, the Company elected (or
anticipates electing upon return of the aircraft) to park and maintain the
aircraft under the assumption that they will be re-leased or sold in the future
despite the lack of demand for those aircraft today. While the current inactive
market makes it difficult to quantify, the Company believes that the recorded
values determined under this methodology significantly exceed the values that
the Company would realize if it were to liquidate those aircraft today.

The process of determining appropriate carrying amounts for these aircraft is
particularly difficult and subjective, as it requires the Company to estimate
future demand, lease rates and scrap values for assets for which there is
currently little or no demand. The Company re-assesses its estimates and
assumptions each quarter. In particular, the Company assesses market activity
and the likelihood that certain aircraft types, which are forecast to go back on
lease in the future, will in fact be re-leased, and may further reduce carrying
amounts if it is determined that such re-leasing is unlikely to occur or that
lower market values have been established.

7

At December 31, 2002, the Company's transportation portfolio consisted of the
following aircraft:

- -------------------------------------------------------------------------------------------------
APPROXIMATE
NUMBER OF AVERAGE AGE
AIRCRAFT TYPE AIRCRAFT PASSENGER CARGO (YEARS)
- -------------------------------------------------------------------------------------------------

Airbus 300 8 4 4 13
Boeing 727 34 9 25 25
Boeing 737 33 33 18
Boeing 747 15 8 7 21
Boeing 757 9 9 10
Boeing 767 1 1 16
McDonnell Douglas DC 8 and DC 9 34 25 9 29
McDonnell Douglas DC 10 20 8 12 24
McDonnell Douglas MD series 30 30 17
Regional jets, corporate aircraft and turbo props 47 44 3 12
- -------------------------------------------------------------------------------------------------
Total 231 171 60 20
=================================================================================================

At December 31, 2002, 82 aircraft with a carrying value of $409.2 million were
operated by U.S. domiciled carriers and 80 aircraft with a carrying value of
$233.8 million were operated by foreign carriers. Additionally, 69 aircraft with
a carrying value of $48.8 million were off-lease, classified as held for the
production of income and were parked at various storage facilities in the United
States and Europe. Some of these aircraft are periodically placed in rental
agreements with payments based on aircraft usage, commonly known as
power-by-the-hour agreements. Often there is no minimum rental due and future
cash flows are difficult to project. FINOVA's railroad portfolio (all domestic)
and other transportation equipment had a carrying value of $24.3 million at
December 31, 2002.

At December 31, 2001, 117 aircraft with a carrying value of $550.4 million were
operated by U.S. domiciled carriers and 82 aircraft with a carrying value of
$355.7 million were operated by foreign carriers. Additionally, 63 aircraft with
a carrying value of $107.9 million were off-lease, classified as held for the
production of income and were parked at various storage facilities in the United
States and Europe. FINOVA's railroad portfolio (all domestic) and other
transportation equipment had a carrying value of $27.6 million at December 31,
2001.

In addition to the concentrated exposures within the transportation portfolio,
the Company has certain geographic concentrations within its resort portfolio.
At December 31, 2002 and 2001, the carrying amount of the resort portfolio by
state was as follows:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
(Dollars in thousands)
Florida $ 299,458 25.8% $ 289,143 19.8%
California 162,245 14.0% 114,278 7.8%
Nevada 138,455 12.0% 243,165 16.7%
Hawaii 138,418 11.9% 168,696 11.6%
Arizona 117,780 10.2% 213,421 14.6%
Other (less than 10%) 302,851 26.1% 430,329 29.5%
- --------------------------------------------------------------------------------
Total $ 1,159,207 100.0% $ 1,459,032 100.0%
================================================================================

Changes in geographic concentrations during 2002 were due to the amount of
fundings (under existing customer commitments) and portfolio runoff within
individual states as compared to the net runoff for the total portfolio.

CUSTOMER REQUIREMENTS

FINOVA Capital's financing contracts and leases generally require the customer
to pay taxes, license fees and insurance premiums and to perform maintenance and
repairs at the customer's expense. Contract payment rates for existing customers
are based on several factors, including the cost of borrowed funds, term of
contract, creditworthiness of the prospective customer, type and nature of
collateral and other security and, in leasing transactions, the timing of tax
effects and estimated residual values. In true lease transactions, lessees are
granted an option to purchase the equipment at the end of the lease term at its
then fair market value and, in some cases, are granted an option to renew the

8

lease at its then fair rental value. The extent to which lessees exercise their
options to purchase leased equipment varies from year to year, depending on,
among other factors, the state of the economy, the financial condition of the
lessee, interest rates and technological developments.

PORTFOLIO MANAGEMENT

FINOVA Capital's portfolio management personnel generally perform detailed
reviews and assessments of customer financial statements to analyze financial
performance and trends, conduct periodic assessments, appraisals and/or
verification of the underlying collateral, seek to identify issues concerning
strengths, weaknesses and vulnerabilities of the customer, seek to resolve
outstanding issues with the customer, and periodically review and address
covenant compliance issues.

Intensive quarterly evaluations of borrower performance are an important aspect
of the portfolio management review process. In conjunction with this process,
portfolio managers update anticipated portfolio cash flows. These evaluations
and cash flows serve as a significant component in the determination of
portfolio impairment.

DELINQUENCIES AND WORKOUTS

FINOVA Capital monitors the timing of payments on its accounts and has
established detailed policies and procedures for collection of delinquencies.
These policies and procedures are generally employed, unless in the opinion of
management, an alternate course is warranted. Generally, for term loans and
leases, when an invoice is ten days past due, the customer is contacted and a
determination is made as to the extent of the problem, if any. A commitment for
immediate payment is pursued and the account is observed closely. If
satisfactory results are not obtained as a result of communication with the
customer, guarantors, if any, are usually contacted to advise them of the
situation and the potential obligation under the guarantee agreement. If an
invoice for principal or interest becomes 31 days past due, it is reported as
delinquent. A notice of default is generally sent prior to an invoice becoming
45 days past due if satisfactory discussions are not in progress. Between 60 and
90 days past the due date, if satisfactory negotiations are not underway,
outside counsel may be retained to help protect FINOVA Capital's rights and to
pursue its remedies.

Accounts are generally classified as "nonaccruing" when the earlier of the
following events occur: (a) the borrower becomes 90 days past due on the payment
of principal or interest or (b) when, in the opinion of management, a full
recovery of income and principal becomes doubtful. Impairment reserves may be
required even when payments are current, if it is probable that the borrower
will not be able to make all payments pursuant to the terms of its contract.
When an account is classified as nonaccruing, all accrued and unpaid interest is
reversed and future income recognition is indefinitely suspended. Foreclosed or
repossessed assets are generally considered to be nonaccruing and are reported
as such unless they generate sufficient cash to result in a market rate of
return. Those accounts are periodically reviewed and write-downs are taken as
deemed necessary. While pursuing collateral and obligors, FINOVA Capital
generally continues to negotiate the restructuring or other settlement of the
debt, as it believes appropriate.

GOVERNMENTAL REGULATION

FINOVA Capital's domestic activities, including the financing of its operations,
are subject to a variety of federal and state regulations, such as those imposed
by the Federal Trade Commission, the Securities and Exchange Commission, the
Internal Revenue Service, the Consumer Credit Protection Act, the Equal Credit
Opportunity Act and the Interstate Land Sales Full Disclosure Act. Additionally,
a majority of states have ceilings on interest rates that are charged to
customers in financing transactions. Some of FINOVA Capital's financing
transactions and servicing activities are subject to additional government
regulation. For example, aircraft financing is regulated by the Federal Aviation
Administration and communications financing is regulated by the Federal
Communication Commission. FINOVA Capital's international activities are also
subject to a variety of laws and regulations of the countries in which business
is conducted. FINOVA's operations during the reorganization proceedings were
also subject to oversight by the bankruptcy court, which has retained
jurisdiction to resolve claims resulting from that restructuring.

EMPLOYEES

At December 31, 2002, the Company had 319 employees compared to 497 and 1,098 at
December 31, 2001 and 2000, respectively. The decrease is attributable to the
substantial liquidation of certain portfolios, sales of certain businesses,
combination of certain business units, the Company's efforts to trim operating
expenses, reorganization of the Company and attrition caused by the events of
the past three years. FINOVA believes it continues to retain sufficient
personnel to operate in the ordinary course. None of these employees are covered
by collective bargaining agreements. FINOVA believes its employee relations
remain satisfactory.

9

FINOVA recognizes that a substantial unanticipated reduction in employees could
increase internal control risk; however, the Company believes it has
significantly mitigated this concern through reallocation of responsibilities
throughout the organization. The Company believes that qualified individuals
have been appointed to manage the Company's operations.

All employees are covered by a severance program, which has been approved by the
Board of Directors and continues with no fixed expiration date. The Company has
also developed an annual performance-based incentive program for all employees.

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

Certain statements in this report are "forward-looking," in that they do not
discuss historical fact, but instead note future expectations, projections,
intentions or other items. Forward-looking statements are made pursuant to the
safe-harbor provisions of the Private Securities Litigation Reform Act of 1995.
These forward-looking statements include assumptions, estimates and valuations
implicit in the financial statements and related notes as well as matters
discussed in the sections of this report captioned "Item 7. Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Item 7a. Quantitative and Qualitative Disclosure About Market Risk." They are
also made in documents incorporated in this report by reference, or in which
this report may be incorporated.

Forward-looking statements are inherently subject to risks and uncertainties,
many of which cannot be predicted or quantified. When used in this report, the
words "estimate," "expects," "anticipates," "believes," "plans," "intends" and
similar expressions are intended to identify forward-looking statements that
involve known and unknown risks and uncertainties. Risks, uncertainties and
other factors may cause FINOVA's actual results or performance to differ
materially from those contemplated by the forward-looking statements. Many of
these factors are discussed in this report and include, but are not limited to:

* The extent to which FINOVA is successful in implementing its business
strategy, including the efforts to maximize the value of its portfolio
through orderly collection or sales of assets. Portfolio decisions are
based on estimates of asset value and actual results may differ from the
estimated amounts. Failure to fully implement its business strategy might
result in adverse effects, impair the Company's ability to repay
outstanding secured debt and other obligations and have a materially
adverse impact on its financial position and results of operations. The
current focus on maximizing portfolio values and the absence of new
business generation will cause future financial results to differ
materially from prior periods. Similarly, adoption of Fresh-Start Reporting
upon emergence from bankruptcy has resulted in revaluation of certain
assets and liabilities and other adjustments to the financial statements,
so that prior results are not indicative of future expectations.

* Several of the Company's accounting policies pertain to the ongoing
determination of portfolio impairment. These amounts rely, to a great
extent, on the estimation and timing of future cash flows. Actual results
may differ from the estimates.

* The effect of economic conditions and the performance of FINOVA's
borrowers. Economic conditions in general or in particular market segments
could impair the ability of FINOVA's borrowers to operate or expand their
businesses, which might result in decreased performance, adversely
affecting their ability to repay their obligations. The rate of borrower
defaults or bankruptcies may increase. Changing economic conditions could
adversely affect FINOVA's ability to realize estimated cash flows.

* The cost of FINOVA's capital has increased significantly since the first
quarter of 2000 and will continue to negatively impact results. Failure to
comply with its credit obligations could result in additional increases in
interest charges. In addition, changes in interest rate indices may
negatively impact interest margin due to lack of matched funding of the
Company's assets and liabilities.

* Loss of employees. FINOVA must retain a sufficient number of employees with
relevant knowledge and skills to continue to monitor, collect and sell its
portfolio. Failure to do so could result in additional losses. Retention
incentives intended to retain that employee base may not be successful in
the future.

* Conditions affecting the Company's aircraft portfolio, including changes in
Federal Aviation Administration directives and conditions affecting the
demand for used aircraft and the demand for aircraft spare parts. FINOVA's
aircraft are often of older vintage and contain configurations of engines,
avionics, fuel tanks and other components that may not be as high in demand
as other available aircraft in that class. Future demand for those aircraft
may decrease further as newer or more desirable aircraft and components
become available.

* Changes in government regulations, tax rates and similar matters. For
example, government regulations could significantly increase the cost of
doing business or could eliminate certain tax advantages of some FINOVA
financing transactions. The Company has not recorded a benefit in its

10

financial statements for its existing tax attributes and estimated future
tax deductions since it does not expect to generate the future taxable
income needed to use those tax benefits. The Company may never be able to
use those tax attributes.

* Necessary technological changes, such as implementation of information
management systems, may be more difficult, expensive or time consuming to
implement than anticipated.

* Potential liabilities associated with dispositions of assets.

* The accuracy of information relied upon by FINOVA, which includes
information supplied by its borrowers or prepared by third parties, such as
appraisers. Inaccuracies in that information could lead to inaccuracies in
the estimates.

* As the portfolio declines, increasing concentrations of financial assets in
certain industries such as resort and transportation could make the overall
portfolio more subject to changes in performance in those industries.

* Other risks detailed in this and FINOVA's other SEC reports or filings.

FINOVA does not intend to update forward-looking information to reflect actual
results or changes in assumptions or other factors that could affect those
statements. FINOVA cannot predict the risk from reliance on forward-looking
statements in light of the many factors that could affect their accuracy.

INVESTOR INFORMATION

FINOVA is subject to the informational requirements of the Securities Exchange
Act of 1934 (the "Exchange Act"). Accordingly, FINOVA files periodic reports,
proxy statements and other information with the Securities and Exchange
Commission (the "SEC"). Those reports, proxy statements and other information
may be obtained by visiting the Public Reference Room of the SEC at 450 Fifth
Street, NW, Washington, D.C. 20549 or by calling the SEC at 1-800-SEC-0330. In
addition, the SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxy and information statements and other information regarding
issuers that file electronically.

You can access financial and other information on FINOVA's website. The address
is www.finova.com. FINOVA makes available, free of charge, copies of its 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 Exchange Act within two business days after filing that material
with the SEC.

ITEM 2. PROPERTIES.

FINOVA's principal executive offices are located at 4800 North Scottsdale Road,
Scottsdale, Arizona 85251-7623, telephone (480) 636-4800. FINOVA Capital
operates various additional offices in the United States and one in Europe. All
of these properties are leased. As part of the reorganization proceedings, the
Company rejected a number of its leases for office properties (including its
primary operating headquarters in Scottsdale). During 2002, the Company
finalized negotiations on its Scottsdale headquarters and all other rejected
leases.

As a result of the continued liquidation and sale of assets, FINOVA has
consolidated operations and reduced staffing, resulting in the need for less
office space. FINOVA has terminated all or a portion of multiple operating lease
contracts and ceased using significant portions of several office locations.
While the Company pursues subleasing opportunities, it continues to incur costs
under these operating lease contracts without receiving economic benefit. As of
December 31, 2002, a liability was recorded for the estimated fair value of
future rental payments, net of anticipated subrentals and lease termination
damages on office space the Company is no longer using. See Annex A, Notes to
Consolidated Financial Statements, Note S "Costs Associated with Exit or
Disposal Activities" for more information.

ITEM 3. LEGAL PROCEEDINGS.

LEGAL PROCEEDINGS

FINOVA is a party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts.

11

Litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties. It is possible that some of the legal actions,
proceedings or claims could be decided against FINOVA. Other than the claims
noted below, FINOVA believes that any resulting liability from its legal
proceedings should not materially affect FINOVA's financial position, results of
operations or cash flows. The following claims could have a material adverse
impact on FINOVA's financial position, results of operations or cash flow.

If any legal proceedings result in a significant adverse judgment against the
Company, which is not anticipated, it is unlikely that FINOVA would be able to
satisfy that liability due to its financial condition. As previously noted, due
to the Company's financial condition, it does not expect that it can satisfy all
its secured debt obligations at maturity. Attempts to collect on those judgments
could lead to future reorganization proceedings of either a voluntary or
involuntary nature.

BANKRUPTCY

On March 7, 2001, FINOVA, FINOVA Capital and seven of their subsidiaries filed
voluntary petitions for protection from creditors pursuant to chapter 11, title
11, United States Code, in the Bankruptcy Court. The other subsidiaries were
FINOVA (Canada) Capital Corporation, FINOVA Capital plc, FINOVA Loan
Administration Inc., FINOVA Mezzanine Capital Inc., FINOVA Portfolio Services,
Inc., FINOVA Technology Finance Inc. and FINOVA Finance Trust.

The Debtors' Third Amended and Restated Joint Plan of Reorganization was
confirmed by the Bankruptcy Court and became effective on August 21, 2001, upon
consummation of the Berkadia Loan. See Annex A, Notes to Consolidated Financial
Statements, Note A "Nature of Operations and Chapter 11 Reorganization" for more
information regarding the reorganization proceedings.

Certain post-confirmation proceedings continue in the Bankruptcy Court relating
to proofs of claims filed by creditors or alleged creditors, as well as
administrative claims and claims for damages for rejected executory contracts.
Many of these claims relate to pre-petition litigation claims and it is possible
that some of the claims could be decided against FINOVA. Many of those claims
are for amounts substantially in excess of amounts, if any, that FINOVA believes
it owes the creditor. FINOVA intends to vigorously defend against these claims.

SECURITIES LITIGATION

All of the stockholder and derivative lawsuits discussed in the Company's Annual
Report on FINOVA's Form 10-K for the year ended December 31, 2001 and in other
SEC filings have now been settled or dismissed and are no longer pending against
the Company, including the dismissal on September 13, 2002 of the BENKLER VS.
MILLER and SIRROM PARTNERS VS. FINOVA cases noted in FINOVA's prior SEC filings.
FINOVA funded its portion of the settlement amount in 2001 and is released from
further liability.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

No matters were submitted to a vote of security holders during the fourth
quarter of 2002.

12

OPTIONAL ITEM. EXECUTIVE OFFICERS OF REGISTRANT.

Set forth below is information with respect to those individuals who serve as
executive officers of FINOVA. Messrs. Cumming, Steinberg and Mara serve pursuant
to the Management Services Agreement with Leucadia, which is discussed more
fully in Item 1. Business. "Chapter 11 Reorganization." Messrs. Gray, Lieberman
and Tashlik are "at will" employees and may be terminated at any time.

NAME AGE POSITION AND BACKGROUND
- ------------------- --- ----------------------------------------------
Ian M. Cumming 62 Chairman of the Board of FINOVA since 2001.
Director and Chairman of the Board of Leucadia
since 1978.

Joseph S. Steinberg 59 Director and President of FINOVA since 2001.
Director of Leucadia since 1978 and President
of Leucadia since 1979.

Thomas E. Mara 57 Director and Chief Executive Officer of FINOVA
since 2002. Executive Vice President of
Leucadia since 1980 and Treasurer of Leucadia
since 1993.

Glenn E. Gray 49 Chief Operating Officer of FINOVA since 2002.
Previously, Senior Vice President - Division
Manager or similar positions of FINOVA and
FINOVA Capital for more than five years.

Richard Lieberman 43 Senior Vice President, General Counsel &
Secretary of FINOVA since 2001. Previously,
Vice President - Deputy General Counsel or
similar positions of FINOVA and FINOVA Capital
for more than five years.

Stuart A. Tashlik 46 Senior Vice President and Chief Financial
Officer of FINOVA since 2001. Previously,
Senior Vice President or similar positions of
FINOVA and FINOVA Capital for more than five
years.

13

PART II

ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY & RELATED STOCKHOLDER MATTERS.

FINOVA's common stock previously traded on the New York Stock Exchange under the
symbol "FNV." On January 30, 2002, FINOVA and the New York Stock Exchange
mutually agreed that the exchange would suspend trading FINOVA's common stock
after the close of market on February 6, 2002. This action was due to FINOVA's
common stock trading below $1.00 per share for more than 30 consecutive trading
days. FINOVA's stock began trading over-the-counter on February 7, 2002 under
the symbol "FNVG."

Upon emergence from chapter 11 in 2001, FINOVA's existing shares of common stock
continued to remain outstanding. In accordance with the Plan, FINOVA issued
3,000 shares of common stock to a creditor under the Plan and 61,020,581 shares
of common stock to Berkadia. The shares issued to Berkadia represented 50% of
FINOVA's shares outstanding after giving effect to implementation of the Plan.
At December 31, 2002 and 2001, FINOVA had approximately 122,041,000 shares of
common stock outstanding.

The shares issued to Berkadia were additional consideration for its $5.6 billion
loan to FINOVA Capital. The issuance to Berkadia relied on the private offering
exemption contained within Section 4(2) of the Securities Act of 1933, as
amended, and was a condition to Berkadia making the privately negotiated loan.
The additional shares issued pursuant to the Plan were issued in reliance on
Section 1145 of chapter 11, title 11 of the United States Code.

The following table summarizes the high and low market prices as reported on the
New York Stock Exchange Composite Tape (January 1, 2001 to February 6, 2002) and
the OTC Stock Exchange as reported by Commodity Systems Inc. (February 7, 2002
to December 31, 2002). The over-the-counter market quotations reflect
inter-dealer prices, without retail markup, markdown or commission, and may not
represent actual transactions.

SALES PRICE RANGE OF COMMON STOCK
-------------------------------------------
2002 2001
------------------ ------------------
Quarters: HIGH LOW HIGH LOW
------- ------- ------- -------
First $0.9400 $0.1800 $3.0000 $0.8125
Second 0.3400 0.0600 5.5300 1.2000
Third 0.1600 0.0600 4.3800 0.9700
Fourth 0.3700 0.0600 1.5000 0.5000

In November 2000, the Company suspended the payment of cash dividends. FINOVA
anticipates it will not pay dividends in the foreseeable future, except as
provided in the Plan. In accordance with the Plan, distributions to stockholders
will not occur until the Berkadia Loan is fully repaid. Furthermore,
distributions may not be made to stockholders as long as FINOVA has a negative
net worth (total liabilities in excess of total assets). Instead, these payments
will be retained by the Company for that purpose until legally permitted by law
or used to satisfy the Company's obligations, if necessary.

FINOVA's Certificate of Incorporation prohibits persons (except Berkadia and its
affiliates) from acquiring 5% or more of Corporation Securities (as defined)
unless the purchase is approved by the Board of Directors. Those restrictions
did not apply to the acquisition of shares in connection with the reorganization
proceedings. The restrictions will remain in effect until the earlier of (a) the
repeal of Section 382 of the Internal Revenue Code (or any comparable successor
provision) and (b) the beginning of the taxable year of the Company to which
certain tax benefits may no longer be carried forward.

As of March 17, 2003, there were approximately 16,600 holders of record of The
FINOVA Group Inc.'s common stock. The closing price of the common stock on that
date was $0.16.

ITEM 6. SELECTED FINANCIAL DATA.

The following table summarizes selected financial data obtained or derived from
the audited consolidated financial statements of FINOVA for the year ended
December 31, 2002, the four months ended December 31, 2001, the eight months
ended August 31, 2001 and each of the years ended December 31, 2000, 1999 and
1998. The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the consolidated financial statements of FINOVA and the Notes to
Consolidated Financial Statements included in Annex A, as well as the rest of
this report. Prior year amounts have been reclassified to conform to 2002
presentation.

14

As a result of Fresh-Start Reporting and changes in the Company's operations,
the consolidated financial statements of the Company for the periods subsequent
to August 31, 2001 (the "Reorganized Company") will not be comparable to those
of the Company for periods prior to August 31, 2001 (the "Predecessor Company").

- -----------------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------------ ------------------------------------------------------------
FOUR MONTHS EIGHT MONTHS YEARS ENDED DECEMBER 31,
YEAR ENDED ENDED ENDED -------------------------------------------
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 2000 1999 1998
- -----------------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands, except per share data)

OPERATIONS:
Interest margin $ (69,950) $ (10,605) $ 78,033 $ 454,901 $ 483,540 $ 404,515
Provision for credit losses 339,986 (777,500) (230,772) (643,000) (22,390) (48,470)
Net (loss) gain on financial assets (81,479) (281,608) (320,934) (168,589) 67,886 27,912
Portfolio expenses (46,859) (8,523) (12,521) (13,777) (10,887) (8,549)
General and administrative expenses (108,407) (63,272) (121,553) (385,635) (157,810) (138,579)
Gain from extinguishment of debt,
net of fresh-start discount 88,237
Income (loss) from continuing
operations 121,472 (1,142,300) (654,583) (546,709) 218,241 142,661
Net income (loss) 121,472 (1,142,300) (640,850) (939,817) 215,244 160,341
Diluted earnings (loss) from
continuing operations per share $ 1.00 $ (9.36) $ (10.28) $ (8.96) $ 3.45 $ 2.41
Diluted adjusted weighted average
shares outstanding 122,041,000 122,041,000 63,677,000 60,994,000 64,300,000 60,705,000
Dividends per common share $ $ $ $ 0.54 $ 0.68 $ 0.60

FINANCIAL POSITION:
Total financial assets (before
reserves) $ 3,696,419 $ 6,451,764 $ 7,587,606 $11,863,731 $13,602,614 $10,021,344
Nonaccruing assets 1,393,232 1,842,605 1,329,654 1,407,539 295,123 205,233
Reserve for credit losses (540,268) (1,019,878) (256,324) (578,750) (178,266) (141,579)
Total assets 3,759,008 6,504,025 8,302,956 12,089,086 13,889,889 10,228,374
Berkadia Loan 2,175,000 4,900,000 5,600,000
Senior debt - Reorganized
Company (1) 2,381,643 2,489,082 2,479,139
Senior debt - Predecessor Company 10,997,687 11,407,767 8,394,578
Convertible preferred securities 111,550 111,550 111,550
Stockholders' equity (970,749) (1,120,569) 17,623 672,934 1,663,381 1,167,231

RATIOS:
Nonaccruing assets as a % of total
financial assets (before reserves) 37.7% 28.6% 17.5% 11.9% 2.2% 2.0%
Reserve for credit losses as a % of:
Total financing assets 17.4% 18.3% 4.1% 6.3% 1.9% 2.0%
Nonaccruing assets 38.8% 55.3% 19.3% 41.1% 60.4% 69.0%
- -----------------------------------------------------------------------------------------------------------------------------------

(1) Senior debt - Reorganized Company is net of a fresh-start discount of
$686,306, $761,396 and $771,339 at December 31, 2002, December 31, 2001 and
August 31, 2001, respectively. The Company remains obligated for the full
principal amount, which was $3,067,949 at December 31, 2002 and $3,250,478
at December 31, 2001 and August 31, 2001.

ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.

See pages 1 - 14 of Annex A.

15

ITEM 7a. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

See page 14 of Annex A.

ITEM 8. FINANCIAL STATEMENTS & SUPPLEMENTAL DATA.

1. Financial Statements - See Item 15 hereof and Annex A.

2. Supplementary Data - See Condensed Quarterly Results included in Annex A,
Supplemental Selected Financial Data.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING & FINANCIAL
DISCLOSURE.

Not applicable.

PART III

ITEM 10. DIRECTORS & EXECUTIVE OFFICERS OF THE REGISTRANT.

The information concerning FINOVA's directors will be incorporated by reference
from FINOVA's Proxy Statement issued in connection with its 2003 Annual Meeting
of Shareholders (the "Proxy Statement").

For information regarding FINOVA's executive officers, see the Optional Item in
Part I, following Item 4.

ITEM 11. EXECUTIVE COMPENSATION.

The information required by this item will be incorporated by reference from the
Proxy Statement.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS & MANAGEMENT.

The information required by this item will be incorporated by reference from the
Proxy Statement.

ITEM 13. CERTAIN RELATIONSHIPS & RELATED TRANSACTIONS.

The information required by this item will be incorporated by reference from the
Proxy Statement.

ITEM 14. CONTROLS AND PROCEDURES.

(a) Based on their evaluation as of a date within 90 days of the filing date of
this Annual Report on Form 10-K, the Company's Chief Executive Officer and
Chief Financial Officer have concluded that the Company's disclosure
controls and procedures (as defined in Rules 13a-14(c) and 15d-14(c) under
the Exchange Act) are effective to ensure that information required to be
disclosed by the Company in reports that it files or submits under the
Exchange Act are recorded, processed, summarized and reported within the
time periods specified in Securities and Exchange Commission rules and
forms.

(b) There were no significant changes in the Company's internal controls or in
other factors that could significantly affect these controls subsequent to
the date of their evaluation, including any corrective actions with regard
to significant deficiencies and material weaknesses.

16

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K.

a) Documents filed.

1) Financial Statements.

The following financial information of FINOVA is included
in Annex A: PAGE
----
Management's Discussion and Analysis of Financial Condition
and Results of Operations A-1
Quantitative and Qualitative Disclosure about Market Risk A-14
Report of Independent Auditors A-15
Consolidated Balance Sheets A-16
Statements of Consolidated Operations A-17
Statements of Consolidated Cash Flows A-18
Statements of Consolidated Stockholders' Equity A-20
Notes to Consolidated Financial Statements A-21
Supplemental Selected Financial Data (unaudited) A-56

2) All schedules have been omitted because they are not applicable or the
required information is shown in the financial statements or related
notes.

3) Exhibits.

INCORPORATED BY REFERENCE FROM:
-------------------------------
REPORT ON DATE
EXHIBIT FORM FILED EXHIBIT
- ------- ---- ----- -------

(2.A) Third Amended and Restated Joint Plan of Reorganization of Debtors
Under Chapter 11 of the Bankruptcy Code. 8-K 6/22/01 10.A

(2.B) Revised Technical Amendments to Third Amended and Restated Joint
Plan of Reorganization. 8-K 8/27/01 2.B

(3.A) Amended and Restated Certificate of Incorporation of FINOVA. 8-K 8/27/01 3.A

(3.B) Amended and Restated Bylaws of FINOVA. 8-K 8/27/01 3.B

(4.A) Form of Common Stock Certificate. 10-K 3/15/02 4.A

(4.B) Relevant provisions of FINOVA's Certificate of Incorporation and
Bylaws included in Exhibits 3.A and 3.B above are incorporated by 3.A and
reference. 3.B

(4.C) Long-term debt instruments with principal amounts not exceeding 10%
of FINOVA's total consolidated assets are not filed as exhibits to
this report. FINOVA will furnish a copy of these agreements to the SEC
on request.

(10.A) Credit Agreement, dated as of August 21, 2001, by and between FINOVA
Capital and Berkadia. 8-K 8/27/01 10.A

(10.B) Indenture, dated as of August 22, 2001, between FINOVA and The Bank of
New York, as trustee (the "Indenture Trustee"), with respect to
FINOVA's 7.5% Senior Secured Notes Maturing 2009 with Contingent
Interest Due 2016, including the form of Senior Secured Note. 8-K 8/27/01 10.B

(10.C) Form of Intercompany Notes by FINOVA Capital payable to FINOVA. 8-K 8/27/01 10.C

(10.D) Collateral Trust Agreement, dated as of August 21, 2001, among FINOVA,
FINOVA Capital, Berkadia, Wilmington Trust Company, as collateral
trustee (the "Collateral Trustee"), the Indenture Trustee and each
grantor from time to time party thereto. 8-K 8/27/01 10.D

(10.E) Guaranty, dated as of August 21, 2001, by FINOVA in favor of Berkadia. 8-K 8/27/01 10.E

17

INCORPORATED BY REFERENCE FROM:
-------------------------------
REPORT ON DATE
EXHIBIT FORM FILED EXHIBIT
- ------- ---- ----- -------

(10.F) Guaranty, dated as of August 21, 2001, by certain subsidiaries of
FINOVA Capital (the "Subsidiary Guarantors"), in favor of Berkadia. 8-K 8/27/01 10.F

(10.G) Pledge Agreement, dated as of August 21, 2001, by FINOVA, in favor of
the Collateral Trustee. 8-K 8/27/01 10.G

(10.H) Pledge and Security Agreement, dated as of August 21, 2001, by FINOVA
Capital and the Subsidiary Guarantors, in favor of the Collateral
Trustee. 8-K 8/27/01 10.H

(10.I.1) Novation Agreement and Amendment to Registration Rights Agreement,
dated as of August 23, 2002, among FINOVA, Berkadia and Berkadia
Equity Holdings LLC. *

(10.J) Voting Agreement, dated as of August 21, 2001, among FINOVA, Berkadia,
Berkshire and Leucadia. 8-K 8/27/01 10.J

(10.K) Amended and Restated Management Agreement among FINOVA, FINOVA Capital
and Leucadia, dated April 3, 2001.+ 10-K 4/26/01 10.T.1

(10.L) Form of Letter for 2002 Bonus Program.+ 10-K 3/15/02 10.L

(10.M.1) Severance Plan.+ 10-K 3/15/02 10.M.1

(10.M.2) Enhanced Severance Plan.+ 10-K 3/15/02 10.M.2

(10.N) FINOVA's policies regarding compensation of directors are incorporated
by reference from the 2003 Proxy Statement.+

(10.O) Compensation Agreement and Release for Stuart A. Tashlik dated March
15, 2001.+ 10-K/A 4/26/01 10.E.6

(10.P) Letter Agreement between FINOVA and Richard Lieberman dated July 9,
2001.+ 10-K 3/15/02 10.W

(10.Q) Executive Severance Plan, Tier III.+ 10-K 3/15/02 10.X

(10.R) Corporate Finance Long-term Retention and Incentive Plan *

(12) Computation of Ratio of Income (Loss) to Fixed Charges and Preferred
Stock Dividends. *

(21) Subsidiaries. *

(23) Consent of Independent Auditors from Ernst & Young LLP. *

(99.A) Order entered August 10, 2001 confirming the Third Amended and
Restated Joint Plan of Reorganization, as amended and supplemented. 8-K 8/27/01 99.B

- ----------
* Filed with this report
+ Relating to management compensation

b) Reports on Form 8-K.

None.

18

THE FINOVA GROUP INC.

SIGNATURES

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

NAME AND TITLE DATE SIGNATURE
-------------- ---- ---------

PRINCIPAL EXECUTIVE OFFICER:

Thomas E. Mara March 17, 2003 /s/ Thomas E. Mara
Chief Executive Officer and a Director ---------------------------

PRINCIPAL FINANCIAL AND ACCOUNTING OFFICER:

Stuart A. Tashlik March 19, 2003 /s/ Stuart A. Tashlik
Senior Vice President and Chief Financial Officer ---------------------------

DIRECTORS:

Thomas F. Boland March 18, 2003 /s/ Thomas F. Boland
---------------------------

Ian M. Cumming March 19, 2003 /s/ Ian M. Cumming
---------------------------

G. Robert Durham March 18, 2003 /s/ G. Robert Durham
---------------------------

R. Gregory Morgan March 20, 2003 /s/ R. Gregory Morgan
---------------------------

Kenneth R. Smith March 19, 2003 /s/ Kenneth R. Smith
---------------------------

Joseph S. Steinberg March 18, 2003 /s/ Joseph S. Steinberg
---------------------------

19

CERTIFICATIONS

I, Thomas E. Mara, Chief Executive Officer of The FINOVA Group Inc., certify
that:

1. I have reviewed this annual report on Form 10-K of The FINOVA Group Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 19, 2003

/s/ Thomas E. Mara
----------------------------------------
Thomas E. Mara
Chief Executive Officer

20

CERTIFICATIONS

I, Stuart A. Tashlik, Chief Financial Officer of The FINOVA Group Inc., certify
that:

1. I have reviewed this annual report on Form 10-K of The FINOVA Group Inc.;

2. Based on my knowledge, this annual 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 annual report;

3. Based on my knowledge, the financial statements, and other financial
information included in this annual 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 annual report;

4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-14 and 15d-14) for the registrant and have:

a) designed such disclosure controls and procedures 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 annual report
is being prepared;

b) evaluated the effectiveness of the registrant's disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the "Evaluation Date"); and

c) presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;

5. The registrant's other certifying officers and I have disclosed, based on
our most recent evaluation, to the registrant's auditors and the audit
committee of registrant's board of directors (or persons performing the
equivalent function):

a) all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to
record, process, summarize and report financial data and have
identified for the registrant's auditors any material weaknesses in
internal controls; and

b) any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and

6. The registrant's other certifying officers and I have indicated in this
annual report whether there were significant changes in internal controls
or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.

Date: March 19, 2003

/s/ Stuart A. Tashlik
----------------------------------------
Stuart A. Tashlik
Chief Financial Officer

21

ANNEX A

THE FINOVA GROUP INC.
INDEX TO CONSOLIDATED FINANCIAL INFORMATION

PAGE
----
Management's Discussion and Analysis of Financial Condition
and Results of Operations A-1

Quantitative and Qualitative Disclosure about Market Risk A-14

Consolidated Financial Statements:

Report of Independent Auditors A-15

Consolidated Balance Sheets A-16

Statements of Consolidated Operations A-17

Statements of Consolidated Cash Flows A-18

Statements of Consolidated Stockholders' Equity A-20

Notes to Consolidated Financial Statements A-21

Supplemental Selected Financial Data (unaudited) A-56

A-i

THE FINOVA GROUP INC.

MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS

The following discussion relates to The FINOVA Group Inc. and its subsidiaries
(collectively "FINOVA" or the "Company"), including FINOVA Capital Corporation
and its subsidiaries ("FINOVA Capital"). FINOVA, a financial services holding
company, is a Delaware corporation, incorporated in 1991. Through its principal
operating subsidiary, FINOVA Capital, the Company has provided a broad range of
financing and capital markets products, primarily to mid-size businesses.
FINOVA's business is being operated under a Management Services Agreement with
Leucadia National Corporation ("Leucadia"), which expires in 2011. Leucadia has
designated its employees to act as Chairman of the Board (Ian M. Cumming),
President (Joseph S. Steinberg) and Chief Executive Officer (Thomas E. Mara).
FINOVA Capital has been in operation since 1954.

On March 7, 2001, FINOVA, FINOVA Capital and seven of their subsidiaries (the
"Debtors") filed for protection pursuant to chapter 11, title 11, of the United
States Code in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") to enable them to restructure their debt. On August 10,
2001, the Bankruptcy Court entered an order confirming FINOVA's Third Amended
and Restated Joint Plan of Reorganization (the "Plan"), pursuant to which the
Debtors restructured their debt, effective August 21, 2001 (the "Effective
Date").

The Plan is incorporated by reference from FINOVA's Current Reports on Form 8-K,
filed on June 22, 2001 and August 27, 2001, Exhibits 2.A and 2.B, respectively.

CURRENT BUSINESS ACTIVITIES

Since emergence from chapter 11 in August 2001, the Company's business
activities have been limited to maximizing the value of its portfolio through
the orderly liquidation of its assets. These activities include collection
efforts pursuant to underlying contractual terms and may include efforts to
retain certain customer relationships and restructure or terminate other
relationships. The Company has not and does not expect to engage in any new
lending activities, except to honor existing customer commitments and in certain
instances, to restructure financing relationships with existing customers to
maximize value. FINOVA has sold portions of asset portfolios and will consider
future sales if buyers can be found at acceptable prices; however, there can be
no assurance that the Company will be successful in efforts to sell additional
assets. Any funds generated from these activities in excess of cash reserves
permitted in the Company's debt agreements are used to reduce FINOVA's
obligations to its creditors.

FINOVA has combined its former operating segments into one operating unit;
accordingly, no segment information by unit is maintained. As a result of this
combination, elimination of new business activities and reductions in its asset
portfolios, FINOVA has significantly reduced its work force.

DEVELOPMENTS

On January 30, 2002, FINOVA and the New York Stock Exchange mutually agreed that
the exchange would suspend trading FINOVA's common stock, which had been traded
under the symbol "FNV," after the close of market on February 6, 2002. This
action was due to FINOVA's common stock trading below $1.00 per share for more
than 30 consecutive trading days. FINOVA's stock began trading over-the-counter
on February 7, 2002, under the symbol "FNVG."

In a series of transactions during 2002, the Company sold substantially all of
its investment alliance assets for $67.4 million, which resulted in a $6.7
million gain.

In March 2002, Congress enacted the Job Creation and Worker Assistance Act of
2002 ("Act"). The Act includes provisions allowing corporations to carryback
certain tax net operating losses ("NOLs") for longer periods and with fewer
limitations than had previously existed. The Company filed its 2001 corporate
tax return in June 2002 and made a special election available under Section 108
of the Internal Revenue Code of 1986 that resulted in the Company reducing its
tax basis in depreciable property. As a result of this election and related
filings, NOLs became available for carryback, thereby entitling the Company to a
refund of approximately $67 million. During the third quarter of 2002, the
Company received $36.0 million of this refund, which was recorded in accordance
with the provisions of SOP 90-7 as a direct addition to paid-in-capital.
Although there can be no assurance regarding the timing of the payment, the
Company anticipates receiving the remainder of the refund during 2003, which
also will be recorded as a direct addition to paid-in-capital. As a result of
the special election and carryback of NOLs, the Company did not utilize any of
its federal NOL carryforwards and credits to offset the cancellation of debt
income as contemplated in the Company's Form 10-K for December 31, 2001.

A-1

THE FINOVA GROUP INC.

In April 2002, the Company completed the sale of approximately $485 million of
its franchise portfolio for approximately $490 million. This sale included
substantially all of FINOVA's performing franchise assets. In August 2002, the
Company completed the sale of an additional $67 million of the franchise
portfolio (primarily impaired assets) at their carrying value (net of reserves).
The Company will continue the orderly liquidation of its remaining franchise
assets.

On July 26, 2002, the U.S. District Court granted final approval for a
settlement in the consolidated class action securities suits filed against
FINOVA and several other defendants. FINOVA had funded its portion of the
settlement amount in 2001 and is released from further liability.

In August 2002, in accordance with the Credit Agreement and the Indenture, the
Company's Board of Directors, with Berkadia's consent, approved the use of up to
$300 million of cash to repurchase New Senior Notes rather than make mandatory
prepayments of the Berkadia Loan. In consideration for Berkadia's consent,
FINOVA and Berkadia agreed that they would share equally in the "Net Interest
Savings" resulting from any repurchase. Net Interest Savings is calculated as
the difference between (a) the reduction in interest expense on the New Senior
Notes (resulting from the repurchase of such New Senior Notes) and (b) the
increase in interest expense on the Berkadia Loan (resulting from the use of
cash to repurchase New Senior Notes and to pay 50% of the Net Interest Savings
to Berkadia rather than make mandatory prepayments of the Berkadia Loan). On
each date that interest is paid on the outstanding New Senior Notes (a "Note
Interest Payment Date"), 50% of the Net Interest Savings accrued since the last
Note Interest Payment Date will be paid to Berkadia. The other 50% of the Net
Interest Savings will be retained by FINOVA. Upon repayment in full of the
Berkadia Loan, Berkadia will not have the right to receive any Net Interest
Savings accruing after such repayment. Because it is highly unlikely there will
be sufficient funds to fully repay the New Senior Notes at maturity, the
Company, if it elects to repurchase additional New Senior Notes, intends to do
so only at substantial discounts to par. The agreement between FINOVA and
Berkadia was approved by the "Special Committee" of FINOVA's Board of Directors,
which is comprised solely of directors unaffiliated with Berkadia, Berkshire or
Leucadia.

During the third quarter of 2002, the Company repurchased $98.9 million (face
amount) of New Senior Notes at a price of 29.875% or $29.6 million, plus accrued
interest. The repurchase generated a net gain of $46.9 million ($69.4 million
repurchase discount, partially offset by $22.5 million of unamortized
fresh-start discount). During the fourth quarter of 2002, the Company
repurchased an additional $86.1 million (face amount) of New Senior Notes at a
price of 30.0% or $25.8 million, plus accrued interest. The repurchase generated
a net gain of $41.3 million ($60.2 million repurchase discount, partially offset
by $18.9 million of unamortized fresh-start discount). There can be no assurance
that the Company will repurchase any additional New Senior Notes or that
additional New Senior Notes will become available at an acceptable price.

On September 10, 2002, FINOVA announced the election of Thomas E. Mara as a
Director and Chief Executive Officer, effective September 9, 2002. Mr. Mara
replaced Lawrence S. Hershfield, who resigned from those positions to pursue
other opportunities.

Pursuant to the terms of the Credit Agreement, FINOVA Capital is required to
make mandatory quarterly prepayments of principal in an amount equal to the
excess cash flow (as defined in the Credit Agreement). In addition to mandatory
prepayments, the Company is permitted, with Berkadia's consent, to make
voluntary prepayments. During 2002, mandatory and voluntary prepayments totaled
$2.725 billion. Principal payments made to Berkadia since emergence from chapter
11 have reduced the Berkadia Loan to $2.175 billion as of December 31, 2002 and
$1.525 billion as of the filing of this report (including $650 million of
payments during the first quarter of 2003). The pace of loan repayments depends
on numerous factors, including the rate of collections from borrowers and asset
sales. There can be no assurance that the Berkadia Loan will continue to be
repaid at this pace.

In March 2003, the Company completed the sale of a portion of its rediscount
assets for $175.4 million of net cash proceeds and received a $17.8 million
participation in a performing loan, which resulted in a $4.4 million gain. These
assets were classified as held for sale as of December 31, 2002.

APPLICATION OF CRITICAL ACCOUNTING POLICIES AND USE OF ESTIMATES

The Company's consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of these financial statements requires FINOVA to use estimates and assumptions
that affect reported amounts of assets and liabilities, revenues and expenses
and disclosure of contingent assets and liabilities. These estimates are subject
to known and unknown risks, uncertainties and other factors that could
materially impact the amounts reported and disclosed in the financial
statements. The Company believes the following to be among the most critical
judgment areas in the application of its accounting policies. Additional
accounting polices are discussed in Notes to Consolidated Financial Statements,
Note B "Significant Accounting Polices."

A-2

THE FINOVA GROUP INC.

CARRYING AMOUNTS, IMPAIRMENT AND USE OF ESTIMATES

Several of the Company's accounting policies pertain to the ongoing
determination of impairment reserves on financing assets and the carrying amount
valuation of other financial assets. Determination of impairment reserves and
carrying amounts rely, to a great extent, on the estimation and timing of future
cash flows. FINOVA's cash flow estimates assume that its asset portfolios are
collected in an orderly fashion over time. These cash flows do not represent
estimated recoverable amounts if FINOVA were to liquidate its asset portfolios
over a short period of time. Management believes that a short-term asset
liquidation could have a material negative impact on the Company's ability to
recover recorded asset amounts.

FINOVA's process of determining impairment reserves and carrying amounts
includes a periodic assessment of its portfolios on a transaction by transaction
basis. Cash flow estimates are based on current information and numerous
assumptions concerning future general economic conditions, specific market
segments, the financial condition of the Company's customers and FINOVA's
collateral. In addition, assumptions are sometimes necessary concerning the
customer's ability to obtain full refinancing of balloon obligations or
residuals at maturity. Commercial lenders have become more conservative
regarding advance rates and interest margin requirements have increased. As a
result, the Company's cash flow estimates assume FINOVA incurs refinancing
discounts for certain transactions.

Changes in facts and assumptions have resulted in, and may in the future result
in, significant positive or negative changes to estimated cash flows and
therefore, impairment reserves and carrying amounts.

Impairment of financing assets is recorded through the Company's reserve for
credit losses, and accounting rules permit the reserve for credit losses to be
increased or decreased as facts and assumptions change. Impairment of other
financial assets is marked down directly against the asset's carrying amount.
Accounting rules permit further markdown if changes in facts and assumptions
result in additional impairment; however, most of these assets (except certain
investments and assets held for sale, which may be marked up for subsequent
events) may not be marked up if subsequent facts and assumptions result in a
projected increase in value. Recoveries of previous markdowns are recorded
through operations when realized.

The carrying amounts and reserve for credit losses recorded on FINOVA's
financial statements reflect the Company's expectation of collecting less than
the full contractual amounts owed by some of its customers and recovering less
than its original investment in certain owned assets. The Company continues to
pursue collection of full contractual amounts and original investments, where
appropriate, in an effort to maximize the value of its asset portfolios.

During 2002, the Company's detailed quarterly portfolio assessments identified
significant additional impairment within its transportation portfolio, resulting
in additional markdowns. The current state of the aircraft industry includes
significant excess capacity for both new and used aircraft and lack of demand
for certain classes and configurations of aircraft in the portfolio.
Accordingly, the Company reduced the useful lives and anticipated scrap values
of various aircraft and reduced its estimates regarding its ability to lease or
sell certain returned aircraft.

FINOVA has a significant number of aircraft that are off lease and anticipates
that additional aircraft will be returned as leases expire or operators are
unable or unwilling to continue making payments. In accordance with the
provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets," FINOVA has recorded impairment losses on owned aircraft by
calculating the present value of estimated cash flows. For many of these
aircraft, scrap value was assumed, but for certain aircraft, the Company elected
(or anticipates electing upon return of the aircraft) to park and maintain the
aircraft under the assumption that they will be re-leased or sold in the future
despite the lack of demand for those aircraft today. While the current inactive
market makes it difficult to quantify, the Company believes that the recorded
values determined under this methodology significantly exceed the values that
the Company would realize if it were to liquidate those aircraft today.

The process of determining appropriate carrying amounts for these aircraft is
particularly difficult and subjective, as it requires the Company to estimate
future demand, lease rates and scrap values for assets for which there is
currently little or no demand. The Company re-assesses its estimates and
assumptions each quarter. In particular, the Company assesses market activity
and the likelihood that certain aircraft types, which are forecast to go back on
lease in the future, will in fact be re-leased, and may further reduce carrying
amounts if it is determined that such re-leasing is unlikely to occur or that
lower market values have been established.

RESERVE FOR CREDIT LOSSES. The reserve for credit losses represents FINOVA's
estimate of losses inherent in the portfolio and includes reserves on impaired
assets and on assets that are not impaired. Impairment reserves are created if
the carrying amount of an asset exceeds its estimated recovery, which is
measured by estimating the present value of expected future cash flows
(discounted at contractual rates), market value, or the fair value of
collateral. These methodologies include the use of significant estimates and

A-3

THE FINOVA GROUP INC.

assumptions regarding future customer performance, amount and timing of future
cash flows and collateral value. Reserves on assets that are not impaired are
based upon assumptions including general economic conditions, overall portfolio
performance including loss experience, delinquencies and other inherent
portfolio characteristics. Actual results could differ from these estimates and
there can be no assurance that existing reserves will approximate actual future
losses. As of December 31, 2002 and 2001, the reserve for credit losses totaled
$540.3 million and $1.0 billion, respectively.

OWNED ASSETS. Assets held for the production of income and operating leases are
carried at amortized cost with impairment adjustments, if any, recorded as
permanent markdowns through operations. An owned asset is considered impaired if
anticipated undiscounted cash flows are less than the carrying amount of the
asset. Once the asset has been deemed impaired, accounting rules allow for
several acceptable methods for measuring the amount of impairment. FINOVA's
typical method of measuring impairment is based on the comparison of the
carrying amount of those assets to the present value of estimated future cash
flows, using risk adjusted discount rates. These estimates include assumptions
regarding lessee performance, the amount and timing of future cash flows,
selection of risk adjusted discount rates for net present value calculations and
residual value assumptions for leases. If actual results differ from the
estimates used to determine impairment, additional markdowns may be necessary,
impacting financial condition and results from operations. As of December 31,
2002 and 2001, owned assets totaled $179.7 million and $342.8 million, or 4.9%
and 5.3% of total financial assets (before reserves), respectively.

ASSETS HELD FOR SALE. Assets held for sale are comprised of assets previously
classified as financing transactions and other financial assets that management
does not have the intent and/or the ability to hold to maturity. These assets
are carried at the lower of cost or market less anticipated selling expenses,
with adjustment to estimated market value, if any, recorded as a loss on
financial assets. Market value is often determined by the estimation of
anticipated future cash flows discounted at risk adjusted market rates to
determine net present value. Valuation of assets held for sale includes
estimates regarding market conditions and ultimate sales prices. Actual sales
prices could differ from estimates, impacting results from operations. As of
December 31, 2002 and 2001, assets held for sale totaled $393.1 million and
$420.0 million, or 10.6% and 6.5% of total financial assets (before reserves),
respectively.

NONACCRUING ASSETS. Accounts are generally classified as nonaccruing and
recognition of income is suspended when a customer becomes 90 days past due on
the payment of principal or interest, or earlier, if in the opinion of
management, full recovery of contractual income and principal becomes doubtful.
The decision to classify accounts as nonaccruing on the basis of criteria other
than delinquency, is based on certain assumptions and estimates including
current and future general economic conditions, industry specific economic
conditions, customer financial performance, the ability of customers to obtain
full refinancing of balloons or residuals at maturity and FINOVA's ability or
willingness to provide such refinancing. Changes in assumptions or estimates
could result in a material change in nonaccruing account classification and
income recognition. As of December 31, 2002 and 2001, $1.4 billion and $1.8
billion, or 37.7% and 28.6% of total financial assets (before reserves), were
classified as nonaccruing, respectively.

FRESH-START REPORTING. Upon emergence from chapter 11, the Company adopted
Fresh-Start Reporting, which resulted in material adjustments to the carrying
amounts of the Company's assets and liabilities. The $863.7 million adjustment
to assets was based on the present value of estimated future cash flows
discounted at appropriate risk adjusted interest rates. Of this amount, $365.4
million was scheduled to amortize into income over the life of the underlying
transactions. If the underlying transactions are classified as nonaccruing,
amortization ceases. The New Senior Notes were initially recorded at $2.48
billion, reflecting their estimated fair value. The $771.3 million discount is
amortized as additional interest expense over the term of the notes and the
liability recorded on the Reorganized Company's balance sheet increases in an
amount equal to such amortization. In the event that any New Senior Notes are
repurchased and extinguished, as occurred in 2002, the unamortized fresh-start
adjustment related to those notes is recorded as an offset to any gain
recognized from extinguishment of the debt. Although the recorded balance is net
of the unamortized discount, the Company's repayment obligation is the principal
amount, which was $3.07 billion at December 31, 2002. Based on the Company's
current financial condition, it is highly unlikely that there will be funds
available to fully repay the principal amount of the New Senior Notes at
maturity.

The adjustments relating to the adoption of Fresh-Start Reporting were based on
estimates of anticipated future cash flows, risk adjusted discount rates and the
market value of the Company's debt securities shortly after emergence, which
were determined prior to September 11, 2001. Changes to estimated cash flows
could impact the reserve for credit losses or cause additional write downs of
assets. Generally accepted accounting principles in the U.S. do not permit
additional fair value adjustments to the New Senior Notes after the initial
Fresh-Start Reporting date, including those that would have resulted from the
impact of September 11.

A-4

THE FINOVA GROUP INC.

RESULTS OF OPERATIONS

As a result of the application of Fresh-Start Reporting guidelines and changes
in the Company's operations, the consolidated financial statements for the year
ended December 31, 2002 are not comparable to those of the Company for prior
years; however, the following discussion of results for the years ended December
31, 2002, 2001 and 2000, may provide useful information regarding the current
status of the Company.

- -------------------------------------------------------------------------------------------------------------------------
YEARS ENDED DECEMBER 31, YEARS ENDED DECEMBER 31,
----------------------------------------- -----------------------------------------
2002 2001 CHANGE 2001 2000 CHANGE
- -------------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Interest margin $ (69,950) $ 67,428 $ (137,378) $ 67,428 $ 454,901 $ (387,473)
Provision for credit losses 339,986 (1,008,272) 1,348,258 (1,008,272) (643,000) (365,272)
Net loss on financial assets (81,479) (602,542) 521,063 (602,542) (168,589) (433,953)
Portfolio expenses (46,859) (21,044) (25,815) (21,044) (13,777) (7,267)
General and administrative
expenses (108,407) (184,825) 76,418 (184,825) (385,635) 200,810
Gain from extinguishment of debt 88,237 88,237
Net reorganization expense (46,527) 46,527 (46,527) (46,527)
Income tax (expense) benefit (56) 1,973 (2,029) 1,973 213,173 (211,200)
Preferred dividends (3,074) 3,074 (3,074) (3,782) 708
Discontinued operations (15,017) 15,017 (15,017) (393,108) 378,091
Extraordinary item 28,750 (28,750) 28,750 28,750
- -------------------------------------------------------------------------------------------------------------------------
Net income (loss) $ 121,472 $(1,783,150) $ 1,904,622 $(1,783,150) $ (939,817) $ (843,333)
=========================================================================================================================

YEARS ENDED DECEMBER 31, 2002 AND 2001

NET INCOME (LOSS). For the year ended December 31, 2002, the Company reported
net income of $121.5 million compared to a net loss of $1.8 billion for the year
ended December 31, 2001. The results for 2002 included a $340.0 million negative
provision for credit losses and an $88.2 million gain from extinguishment of
debt, partially offset by a negative interest margin of $70.0 million, a net
loss on financial assets of $81.5 million, portfolio expenses of $46.9 million
and general administrative expenses of $108.4 million. In general, the net
income in 2002 was attributable to somewhat better than anticipated realization
on FINOVA's asset portfolios, with the exception of its transportation assets,
which have continued to deteriorate consistent with the aircraft industry as a
whole, and gains recognized from extinguishment of debt. The $1.8 billion loss
for 2001 was primarily the result of $1.0 billion of provision for credit losses
and a net loss on financial assets of $602.5 million, reflecting significant
portfolio deterioration both before and after the events of September 11.

INTEREST MARGIN. For the year ended December 31, 2002, interest margin declined
$137.4 million to a negative $70.0 million, primarily due to lower revenues
resulting from a significantly lower level of earning assets ($2.1 billion at
December 31, 2002 compared to $4.1 billion at December 31, 2001) and higher
borrowing costs relative to historic rates paid by the Company. The reduction in
earning assets was due to the continued collection or disposition of the
existing portfolio, valuation adjustments, the elimination of new business
development activities, reduced funding requirements on existing customer
commitments and continued reclassification of earning assets to nonaccruing
status. Absent significant asset sales, this declining asset trend is expected
to continue, albeit at a slower pace, as the level of problem accounts increase
as a percentage of total remaining assets. Nonaccruing assets as a percent of
total financial assets (before reserves) increased to 37.7% at December 31, 2002
from 28.6% at December 31, 2001. The proportionate increase in nonaccruing
assets is primarily the result of the weakened economy and slower collection of
nonaccruing assets relative to performing assets. Accounts may be classified as
nonaccruing even when payments are current, if there is a likelihood that the
borrower will not be able to make all payments, including balloon payments at
termination. Also contributing to the decline in interest margin is the fact
that FINOVA is no longer match funded, and due to the significant level of
nonaccruing assets, it has a lower level of accruing fixed-rate assets than its
$3.07 billion of fixed-rate debt obligations as of December 31, 2002. That
situation, coupled with historically low variable interest rates, has resulted
in a negative interest margin. FINOVA expects this negative interest margin will
continue and may worsen in the foreseeable future.

PROVISION FOR CREDIT LOSSES. For the year ended December 31, 2002, the Company
recorded a $340.0 million negative provision for credit losses to reduce its
reserve for credit losses. The negative provision was primarily related to
proceeds received from collections, prepayments and asset sales in excess of
recorded carrying amounts (net of reserves); reversal of reserves established
after September 11 on certain portfolios (primarily resort and specialty real

A-5

THE FINOVA GROUP INC.

estate) due to the less than anticipated negative impact on these portfolios;
and recoveries of amounts previously written off. Partially offsetting these
reversals were new impairment reserves established on specific accounts. In
addition, the Company's income recognition policy for nonaccruing accounts can
result in periodic reserve reductions. In accordance with SFAS No. 114,
impairment reserves are recorded if the carrying amount of a loan exceeds the
net present value of expected cash flows, discounted at the risk-adjusted rates
used for Fresh-Start Reporting. For nonaccruing accounts, all cash received is
applied against the carrying amount of the transaction. As a result, carrying
amounts decline at a faster pace than net present value, thus reducing the
impairment reserve.

The pace of collections and account payoffs during 2002 were somewhat faster
than expected. In most portfolios, with the exception of transportation,
customer repayments exceeded anticipated cash flows, resulting in a partial
reversal of previously established reserves. As described throughout this
report, the transportation portfolio experienced continued deterioration
consistent with the prolonged difficulties within the airline industry.

The $1.0 billion provision for credit losses in 2001 resulted from the
deterioration of the Company's asset portfolios, which had been negatively
impacted by the weakening economy and the events of September 11.

The measurement of credit impairment and asset valuation is dependent upon the
significant use of estimates and management discretion when predicting expected
cash flows. These estimates are subject to known and unknown risks,
uncertainties and other factors that could materially impact the amounts
reported and disclosed herein. See the "Special Note Regarding Forward-Looking
Statements" for a discussion of these and additional factors impacting the use
of estimates.

NET LOSS ON FINANCIAL ASSETS. The Company realized a net loss on financial
assets of $81.5 million for the year ended December 31, 2002 compared to a net
loss of $602.5 million for the year ended December 31, 2001. Significant
components of the net loss for 2002 consisted of a $135.1 million net markdown
of owned assets within the transportation portfolio, a $17.0 million net
markdown of owned assets and retained interests within the commercial equipment
portfolio and valuation adjustments in several other portfolios. Partially
offsetting the losses were net gains of $56.6 million within the corporate
finance portfolio, resulting from actual cash received on payoffs and asset
sales exceeding the carrying amounts of those assets. The net loss on the
commercial equipment portfolio resulted from an increased level of defaults
within its securitized portfolio and impairment of owned assets. The net loss on
the transportation portfolio resulted from the Company's revised estimate of
future cash flows expected to be realized through the operation or sale of its
aircraft portfolio. Due to the current state of the aircraft industry, which
includes significant excess capacity for both new and used aircraft and lack of
demand for certain classes and configurations of aircraft in the Company's
portfolio, the Company reduced the useful lives and anticipated scrap values of
various aircraft and reduced its estimate regarding its ability to lease or sell
certain returned aircraft. Most of the Company's aircraft are of older vintage
with limited demand in the aircraft market. As a result, the Company lowered its
previous estimates of future cash flows expected from its aircraft portfolio,
resulting in an increased level of impairment losses. The remainder of the gain
and loss activity was spread among multiple portfolios and was primarily
associated with individual asset sales and valuation adjustments.

The $602.5 million loss for the year ended December 31, 2001 was due to the mark
down of owned assets, primarily in the transportation portfolio. This portfolio
was adversely impacted by problems in the airline industry, which deteriorated
further as a result of the terrorist attacks of September 11.

The measurement of owned asset impairment is dependent upon the significant use
of estimates and management discretion when predicting expected future cash
flows and asset values. An asset is considered impaired if anticipated
undiscounted cash flows are less than the carrying amount of the asset. Once the
asset has been deemed impaired, the accounting rules provide for several
acceptable methods for measuring the amount of the impairment. FINOVA's typical
practice is to compare the carrying amount of the asset to the present value of
the estimated future cash flows, using an appropriate risk adjusted discount
rate. The process of measuring impairment requires judgment and estimation, and
the actual results may differ from the estimates. See the "Special Note
Regarding Forward-Looking Statements" for a discussion of many factors that
could impact these estimates.

PORTFOLIO EXPENSES. Portfolio expenses include all costs relating to the
maintenance and collection of both performing and non-performing financial
transactions. The Company has experienced increased portfolio costs, primarily
due to a higher number of problem accounts and off-lease and repossessed assets.

For the year ended December 31, 2002, portfolio expenses totaled $46.9 million
compared to $21.0 million for 2001. The increase was primarily attributable to
FINOVA's transportation portfolio, which had expenses of $25.8 million for the
year ended December 31, 2002 compared to $6.3 million in 2001. This increase is
directly related to the large number of off-lease aircraft and includes the cost
of storing, maintaining and preparing certain of these aircraft for eventual

A-6

THE FINOVA GROUP INC.

return to service. The remainder of the increase was spread among several
portfolios and was primarily associated with an increased number of problem
accounts, foreclosures and repossessed assets.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
decreased $76.4 million to $108.4 million for the year ended December 31, 2002.
The decrease was primarily due to $43.0 million of cost savings resulting from
staffing and office occupancy reductions (319 employees at December 31, 2002
compared to 497 at December 31, 2001 and 1,098 at December 31, 2000). A
significant amount of the severance costs related to current year staffing
reductions had been accrued in 2001, when the Company notified many employees of
their pending termination. Also contributing to the decrease was $25.4 million
of lower professional fees, which in the prior year, included substantial
investment banking, legal and accounting fees, principally related to the
bankruptcy process. Partially offsetting the decline in general and
administrative expenses during 2002 was an increased level of settlements
primarily related to the resolution of the Company's bankruptcy claims. The
Company expects the dollar level of general and administrative expenses to
continue to decrease as portfolio and staffing levels decrease; however, general
and administrative expenses as a percentage of assets or revenues will likely
increase over time as a result of shrinking assets and revenues.

GAIN FROM EXTINGUISHMENT OF DEBT. During 2002, the Company repurchased $185.0
million (face amount) of New Senior Notes at an average price of 29.93% or $55.4
million, plus accrued interest. The repurchases generated net gains of $88.2
million ($129.6 million repurchase discounts, partially offset by $41.4 million
of unamortized fresh-start discounts).

NET REORGANIZATION EXPENSE. Net reorganization expense for the year ended
December 31, 2001 included expenses and income directly associated with the
bankruptcy process. No reorganization expense or income was incurred during
2002. In 2001, net reorganization expense was $46.5 million and included fair
value adjustments of assets and liabilities related to Fresh-Start Reporting
($62.9 million) and professional service and other fees ($26.0 million),
partially offset by interest income earned on cash retained for interest and
debt payments deferred during the bankruptcy period ($42.4 million).

INCOME TAX EXPENSE. For the year ended December 31, 2002, the Company recorded
$56 thousand of income tax expense. Income tax expense related to pre-tax book
income was almost entirely offset by a decrease in valuation allowances, which
were previously established due to the Company's concern regarding its ability
to utilize income tax benefits generated from losses in prior periods. As of
December 31, 2002, the Company had federal NOLs of $859.4 million available for
carryforward, which expire between 2009 and 2023. In 2001, the Company recorded
an income tax benefit of $2.0 million related to losses generated from foreign
operations (primarily the United Kingdom and Canada).

DISCONTINUED OPERATIONS. Businesses that were previously classified as
discontinued operations were reclassified to assets held for sale upon emergence
from chapter 11. For the eight months ended August 31, 2001, losses from
discontinued operations consisted of additional net realizable markdowns of
$18.0 million, partially offset by operating income of $3.0 million.

EXTRAORDINARY ITEMS. The gain of $28.8 million reported in 2001 was due to the
forgiveness of debt in connection with the restructuring of FINOVA Finance
Trust's 5 1/2% Convertible Trust Originated Preferred Securities as discussed in
Notes to Consolidated Financial Statements, Note A "Nature of Operations and
Chapter 11 Reorganization" and Note K "Convertible Preferred Securities."

YEARS ENDED DECEMBER 31, 2001 AND 2000

The results for the twelve months of 2001 include four months of the Reorganized
Company and eight months of the Predecessor Company, as reported in the
Statements of Consolidated Operations.

NET LOSS. Net loss for the twelve months of 2001 was $1.8 billion compared to a
net loss of $939.8 million for the twelve months of 2000. The net loss for 2001
was attributable to the weakened U.S. and world economies, the estimated
economic impact of the events of September 11, and the costs of the
reorganization proceedings (from March 7, 2001 through August 21, 2001). The
decline in operating results was primarily due to $387.5 million of lower
interest margin, $365.3 million of increased loss provisions, $433.9 million of
higher net losses on financial assets, $7.3 million of higher portfolio
expenses, net reorganization expenses of $46.5 million and $211.2 million less
income tax benefits recorded in 2001. These negative variances were partially
offset by $200.8 million of lower general and administrative expenses, $378.1
million of lower losses from discontinued operations and $28.8 million of
extraordinary gains in 2001.

INTEREST MARGIN. Interest margin declined to $67.4 million in 2001 from $454.9
million in the prior year. The decline was primarily due to lower revenues
resulting from a higher level of nonaccruing assets (which increased to $1.8
billion at December 31, 2001 from $1.4 billion at December 31, 2000), higher
cost of funds and a lower level of financial assets. The higher level of
nonaccruing assets was primarily the result of the weakened economy and the

A-7

THE FINOVA GROUP INC.

events of September 11. The Company is no longer match funded and due to
increased levels of nonaccruing assets, it has a lower level of accruing
fixed-rate assets than its fixed-rate debt obligations. Also contributing to the
decreased margin was a lower level of financial assets, which declined to $6.5
billion (before reserves) at year-end 2001 from $11.9 billion at December 31,
2000.

PROVISION FOR CREDIT LOSSES. Loss provisions grew by $365.3 million, primarily
due to the weakened economy, the terrorist attacks of September 11 and
management's concerns regarding the full collection of certain transactions
within its portfolio. The charge for 2001 included loss provisions of $634.1
million to establish reserves for estimated losses expected to be realized as a
result of the September 11 attacks.

NET LOSS ON FINANCIAL ASSETS. The net loss on financial assets of $602.5 million
for 2001 exceeded the 2000 losses by $433.9 million. These increased losses were
due to write-downs or write-offs of assets held for sale and the production of
income, operating leases and residual values of finance leases, primarily
related to FINOVA's transportation portfolio. That portfolio was adversely
affected by the weakened airline industry and reduced aircraft values. The
terrorist attacks also had a significant effect on that portfolio. During 2001,
FINOVA recorded $611.5 million of net losses related to its transportation
portfolio, of which $217.0 million were recorded in the third quarter of 2001 as
an estimate of the impact of the events on September 11. Additional losses of
$62.3 million were recognized in the fourth quarter following a detailed review
of the portfolio and remeasurement of asset impairment. Also included in the
loss for the year was $339.7 million of charges to write down the transportation
leveraged lease portfolio to its estimated net sales price. A portion of this
portfolio was sold in the fourth quarter for its approximate carrying amount.

PORTFOLIO EXPENSES. Portfolio expenses increased $7.3 million to $21.0 million
for the year ended December 31, 2001. The increase was primarily attributable to
FINOVA's transportation portfolio, which had expenses of $6.3 million for the
year ended December 31, 2001 compared to $2.4 million in 2000. The remainder of
the increase was spread among several portfolios and was primarily associated
with an increased number of problem accounts.

GENERAL AND ADMINISTRATIVE EXPENSES. General and administrative expenses
declined $200.8 million to $184.8 million for the year ended December 31, 2001
from $385.6 million in 2000. Prior year expenses included a $193.3 million
charge-off of impaired goodwill. Excluding this one-time charge, general and
administrative expenses for 2001 were comparable to 2000, in spite of the
Company reducing headcount to 497 employees at December 31, 2001 from 1,098 at
December 31, 2000. Offsetting the impact of employee reductions in 2001 were
severance costs, litigation accruals, accrual of lease damages, a higher level
of professional services (consisting of investment banking, legal and accounting
fees, principally related to the reorganization proceedings) and higher problem
account costs.

NET REORGANIZATION EXPENSE. Net reorganization expense included expenses and
income directly associated with the bankruptcy process. For the period March 7,
2001 through August 31, 2001, net reorganization expense was $46.5 million and
included fair value adjustments of assets and liabilities related to Fresh-Start
Reporting of $62.9 million, professional service and other fees of $26.0
million, partially offset by $42.4 million of interest income earned on cash
retained for interest and debt payments that were deferred during the bankruptcy
period.

INCOME TAXES. Income tax benefits for the twelve months of 2001 were limited to
$2.0 million even though the Company had substantial pre-tax book losses. Income
tax benefits were almost fully offset by an increase in valuation allowances due
to the uncertainty regarding the ability to utilize such benefits in the future.
The Company had a substantial net loss for the year, which was largely
attributable to the provision for credit losses and net losses on financial
assets recorded for book purposes. Those charges represent the Company's
assessment of impairment or the portion of value it does not expect to collect;
however, the recording of the charges does not mean the Company has exhausted
all efforts to collect the contractual amounts. For tax purposes, a deduction is
created during the tax year that the Company has abandoned all collection
efforts. Due to the uncertainty regarding the Company's ability to generate
future taxable income to utilize these tax deductions, a valuation allowance was
established to fully reserve for the future benefits.

DISCONTINUED OPERATIONS. Businesses that were previously classified as
discontinued operations were reclassified to assets held for sale upon emergence
from chapter 11. The results for the eight months of 2001 reflected an
improvement of $378.1 million over the twelve months of 2000. The 2000 period
reflects the initial adjustment to net realizable value of assets that was
included in discontinued operations.

EXTRAORDINARY ITEMS. The gain of $28.8 million reported in 2001 was due to the
forgiveness of debt in connection with the restructuring of FINOVA Finance
Trust's 5 1/2% Convertible Trust Originated Preferred Securities as discussed in
Notes to the Consolidated Financial Statements, Note A "Nature of Operations and
Chapter 11 Reorganization" and Note K "Convertible Preferred Securities."

A-8

THE FINOVA GROUP INC.

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Because virtually all of the Company's assets are pledged to secure the
obligations under the Berkadia Loan and the Intercompany Notes, FINOVA's ability
to obtain additional or alternate financing is severely restricted. Berkadia has
no obligation to lend additional sums to or to further invest in the Company.
Accordingly, FINOVA intends to rely on internally generated cash flows to meet
its liquidity needs.

The $5.6 billion Berkadia Loan, together with cash on hand and the issuance of
$3.25 billion New Senior Notes, financed the restructuring of the Company's
pre-emergence indebtedness (including TOPrS) and repaid all allowed accrued and
unpaid pre-petition and post-petition interest claims. The New Senior Notes are
reflected in the Company's balance sheet net of an unamortized discount, which
resulted from the adoption of Fresh-Start Reporting. Currently, the book value
of the New Senior Notes, which is net of an unamortized discount of $686.3
million, is scheduled to increase to $3.07 billion over time through
amortization of the discount as interest expense. As described below, the
principal balance has declined from the original $3.25 billion as a result of
repurchases during 2002. The Company is obligated to repay the full remaining
$3.07 billion principal amount of the New Senior Notes.

The terms of the Credit Agreement and the Indenture substantially prohibit the
Company from using available funds (after certain permitted uses) for any
purpose other than to satisfy its obligations to creditors. Under the terms of
the Credit Agreement, the Company is permitted to establish a cash reserve in an
amount not to exceed certain defined criteria. Any amount in excess of the cash
reserve is required to be paid ("mandatory prepayments") to reduce the principal
amount of the Berkadia Loan on a quarterly basis. In addition to mandatory
prepayments, the Company is permitted, with Berkadia's consent, to make
voluntary prepayments. During 2002, mandatory and voluntary prepayments totaled
$2.725 billion. Principal payments made to Berkadia since emergence have reduced
the Berkadia Loan to $2.175 billion as of December 31, 2002 and $1.525 billion
as of the filing of this report (including $650 million of payments during the
first quarter of 2003). The pace of loan repayments depends on numerous factors,
including the rate of collections from borrowers and asset sales. There can be
no assurance that the Berkadia Loan will continue to be repaid at this pace.

As a result of FINOVA's current financial condition and restrictions contained
in its debt agreements that do not allow FINOVA to incur any meaningful amount
of new debt, the estimation of cash reserves is critical to the overall
liquidity of the Company. Cash reserve estimations are subject to known and
unknown risks, uncertainties and other factors that could materially impact the
amounts determined. Failure to adequately estimate a cash reserve in one period
could result in insufficient liquidity to meet obligations in that period, or in
a subsequent period, if actual cash requirements exceed the cash reserve
estimates.

BASED ON THE COMPANY'S CURRENT FINANCIAL CONDITION, IT IS HIGHLY UNLIKELY THAT
THERE WILL BE FUNDS AVAILABLE TO FULLY REPAY THE OUTSTANDING PRINCIPAL ON THE
NEW SENIOR NOTES AT MATURITY, PAY THE 5% DISTRIBUTION TO COMMON STOCKHOLDERS, OR
TO MAKE ANY CONTINGENT INTEREST PAYMENTS, as discussed in "Obligations and
Commitments" below. The Company has a negative net worth of $970.7 million as of
December 31, 2002 ($1.7 billion if the New Senior Notes are considered at their
principal amount due), the financial condition of many of its customers is
weakened, impairing their ability to meet obligations to the Company, much of
the Company's portfolio of owned assets is not income producing and the Company
is restricted from entering into new business activities or issuing new
securities to generate substantial cash flow. For these reasons, THE COMPANY
BELIEVES THAT INVESTING IN FINOVA'S DEBT AND EQUITY SECURITIES INVOLVES A HIGH
LEVEL OF RISK TO THE INVESTOR.

In accordance with the terms of FINOVA's debt agreements, the Company may from
time to time, with Berkadia's consent, use cash (up to $1.5 billion in the
aggregate while the Berkadia Loan is outstanding) to purchase its 7.5% New
Senior Notes through tender offers, open market purchases and/or privately
negotiated transactions. In August 2002, in accordance with the Credit Agreement
and the Indenture, the Company's Board of Directors, with Berkadia's consent,
approved the use of up to $300 million of cash to repurchase New Senior Notes
rather than make mandatory prepayments of the Berkadia Loan. In consideration
for Berkadia's consent, FINOVA and Berkadia agreed that they would share equally
in the "Net Interest Savings" resulting from any repurchase. Net Interest
Savings will be calculated as the difference between (a) the reduction in
interest expense on the New Senior Notes (resulting from the repurchase of such
New Senior Notes) and (b) the increase in interest expense on the Berkadia Loan
(resulting from the use of cash to repurchase New Senior Notes and to pay 50% of
the Net Interest Savings to Berkadia rather than make mandatory prepayments on
the Berkadia Loan). On each date that interest is paid on the outstanding New
Senior Notes (a "Note Interest Payment Date"), 50% of the Net Interest Savings
accrued since the last Note Interest Payment Date will be paid to Berkadia. The
other 50% of the Net Interest Savings will be retained by FINOVA. Upon repayment
in full of the Berkadia Loan, Berkadia will not have the right to receive any
Net Interest Savings accruing after that repayment. Because it is highly
unlikely there will be sufficient funds to fully repay the New Senior Notes at
maturity, the Company, if it elects to repurchase additional New Senior Notes,
intends to do so only at substantial discounts to par. The agreement between
FINOVA and Berkadia was approved by the "Special Committee" of FINOVA's Board of
Directors, which is comprised solely of directors unaffiliated with Berkadia,
Berkshire or Leucadia.

A-9

THE FINOVA GROUP INC.

During 2002, the Company repurchased $185.0 million (face amount) of New Senior
Notes at an average price of 29.93% or $55.4 million, plus accrued interest. The
repurchases generated net gains of $88.2 million ($129.6 million repurchase
discounts, partially offset by $41.4 million of unamortized fresh-start
discounts). There can be no assurance that the Company will repurchase any
additional New Senior Notes or that additional New Senior Notes will become
available at an acceptable price.

During the third quarter of 2002, the Company received a $36.0 million income
tax refund, which was recorded in accordance with the provisions of SOP 90-7 as
a direct addition to paid-in-capital. Although there can be no assurance
regarding the timing of the payment, the Company anticipates receiving an
additional $31 million refund during 2003, which also will be recorded as a
direct addition to paid-in-capital. These refunds are the result of the Company
making certain elections and filings that have enabled it to carryback NOLs to
prior periods.

OBLIGATIONS AND COMMITMENTS. The following is a listing of FINOVA's significant
contractual obligations and contingent commitments at December 31, 2002 and
2001. A detailed repayment schedule has not been provided because the Company's
most significant obligations are contractual as to amount but contingent
regarding the timing of repayment. The listing is not intended to be all
encompassing and excludes normal recurring trade and other accounts payable
obligations.

- -----------------------------------------------------------------------------------------------------------------------
2002 2001
------------------------ ------------------------
OBLIGATIONS AND COMMITMENTS CONTRACTUAL CONTINGENT CONTRACTUAL CONTINGENT
- -----------------------------------------------------------------------------------------------------------------------
(Dollars in thousands)

Berkadia Loan $2,175,000 $ $4,900,000 $
Management Services Agreement 64,000 72,000
New Senior Notes 3,067,949 3,250,478
Contingent interest on New Senior Notes 94,313 100,000
Unfunded customer commitments 568,267 1,142,850
Nonrecourse debt associated with the leveraged lease portfolio 990,908 1,073,877
Operating leases 19,295 21,606
- -----------------------------------------------------------------------------------------------------------------------
$6,317,152 $ 662,580 $9,317,961 $1,242,850
=======================================================================================================================

The Berkadia Loan bears interest payable monthly, at the Eurodollar Rate (as
defined in the Credit Agreement), plus 2.25%. Principal repayment of the
Berkadia Loan is contingent on available cash in excess of cash reserves. All
unpaid principal and accrued interest are due at maturity on August 20, 2006.
FINOVA and substantially all of its direct and indirect subsidiaries (except
those that are contractually prohibited from acting as guarantor, the
"Guarantors") have guaranteed FINOVA Capital's repayment of the Berkadia Loan.
The guarantees are secured by substantially all of the Guarantors' assets. In
addition to amounts included in the table, FINOVA is obligated to pay Berkadia
50% of the Net Interest Savings, resulting from the New Senior Note repurchases
noted above. Based on interest rates in effect as of December 31, 2002, 50% of
the Net Interest Savings for repurchases to date is estimated to be
approximately $6.0 million per year. The Net Interest Savings will fluctuate
with changes in interest rates and would change if additional New Senior Notes
are repurchased.

FINOVA's business is being operated under a Management Services Agreement with
Leucadia, which expires in 2011. FINOVA pays Leucadia an annual management fee
of $8.0 million.

The New Senior Notes mature in November 2009 and bear interest, payable
semi-annually, to the extent that cash is available, at a fixed interest rate of
7.5% per annum. Principal repayments of the New Senior Notes, other than
repurchases approved by Berkadia and the Company's Board of Directors, cannot
commence until the Berkadia Loan is paid in full and is contingent on the
availability of excess cash. FINOVA's obligations with respect to the payment of
interest and principal under the New Senior Notes are secured by a
second-priority security interest in (a) all capital stock of FINOVA Capital,
(b) promissory notes of FINOVA Capital issued to FINOVA in the aggregate
principal amount of the New Senior Notes (the "Intercompany Notes") and (c)
certain other property of FINOVA that may be acquired from its subsidiaries in
the future.

Permitted uses of cash are specified in the Credit Agreement and the Indenture.
Generally, the Company is permitted to use its cash in the following order:
first to fund its operating expenses, including payment of taxes, funding
customer commitments and payment of interest on the Berkadia Loan; then to pay
interest on the New Senior Notes; then to make optional purchases of the New
Senior Notes with the consent of Berkadia and otherwise in accordance with the
terms of the Indenture in an aggregate amount not to exceed $1.5 billion of cash
while the Berkadia Loan is outstanding, and thereafter in an amount not to
exceed $150 million per year. After repayment of the Berkadia Loan and the other
items noted above, ninety-five percent (95%) of the remaining available cash

A-10

THE FINOVA GROUP INC.

will be used to make semi-annual prepayments of principal on the New Senior
Notes and five percent (5%) will be used for distributions to and/or repurchases
of stock from common stockholders. It should be noted that under governing law,
these distributions may not be made to stockholders as long as FINOVA has a
negative net worth (total liabilities in excess of total assets). Instead, these
payments will be retained by the Company for that purpose until legally
permitted by law or used to satisfy the Company's obligations, if necessary.
These restrictions also apply to the stockholder payments noted below.

If payment in full is made of the outstanding principal of the New Senior Notes
and payments are made to FINOVA common stockholders in an aggregate amount equal
to 5.263% (5%/95% as noted above) of the aggregate principal amount of the New
Senior Notes, ninety-five percent (95%) of any available cash will be used to
pay contingent interest to holders of New Senior Notes in an aggregate amount of
up to $94.3 million (or a reduced amount to reflect a further decrease in the
principal amount of New Senior Notes outstanding as a result of additional
repurchases, if any, by FINOVA) and five percent (5%) of remaining available
cash will be used for distributions to and/or repurchases of stock from common
stockholders, if those payments can be made to stockholders, as noted above.
FINOVA's obligation for the contingent interest payments is not secured. Based
on the Company's current financial condition, it is highly unlikely that there
will be funds available to fully repay the outstanding principal on the New
Senior Notes at maturity, to make any distributions to common stockholders or to
pay any contingent interest through its expiration in 2016.

Unfunded customer commitments are primarily unused contractual lines of credit
and to a lesser extent, contractual term financing commitments. Funding is
typically dependent upon certain conditions precedent and the availability of
eligible collateral. Typically, in the event of a contractual customer default,
FINOVA has the legal right to cease funding. In these circumstances, decisions
to continue or cease funding are made on a case-by-case basis following an
evaluation as to what management believes is in the Company's best interest.
Commitments generally have a fixed expiration and at the Company's discretion,
may be extended.

Unfunded customer commitments have declined from $1.1 billion at December 31,
2001 to $568.3 million at December 31, 2002, primarily due to the termination
and/or expiration of outstanding committed lines of credit within the corporate
finance, rediscount and resort portfolios. Because of the primarily revolving
nature of its commitments, the Company is unable to estimate with accuracy what
portion of the commitments will be funded. Historically, in the aggregate,
actual fundings have been significantly below the commitment amounts.

The nonrecourse debt associated with leveraged leases represents principal
amounts due to third party lenders under lease arrangements. Accounting rules
require that leases financed by nonrecourse borrowings and meeting certain other
criteria be classified as leveraged leases. For balance sheet classification
purposes, aggregate leveraged lease rental receivables are reduced by the
related nonrecourse debt service obligations to determine the Company's
investment in the leveraged leases. Typically, the debt has a first priority
lien against the leased equipment or property with no additional recourse to
FINOVA. FINOVA's exposure is limited to its investment in the transaction.
Nonrecourse debt declined to $990.9 million during 2002 primarily due to
scheduled principal payments ($71.2 million) and the Company's decision to
prepay $11.6 million of high cost debt associated with one leasing transaction
following expiration of prepayment penalties. Nonrecourse debt maturities are
$362.5 million, $332.6 million, $256.5 million and $39.3 million, for the five
year periods ended 2007, 2012, 2017 and 2022, respectively.

Contractual operating lease obligations represent the total future minimum
rental payments due under operating leases (primarily leased office space).
During the reorganization proceedings, the Company rejected certain of its
operating leases (including its primary operating headquarters in Scottsdale).
During 2002, the Company finalized negotiations on its Scottsdale headquarters
and all other locations that had been rejected, which resulted in a contractual
obligation of $19.3 million at December 31, 2002 as compared to $21.6 million at
December 31, 2001. See Notes to the Consolidated Financial Statements, Note R
"Operating Leases" for a further discussion.

COLLECTION OF THE PORTFOLIO. As noted previously, the Company's current business
activities are limited to maximizing the value of its portfolio through the
orderly collection of its receivables. These activities include continued
collection of its portfolio pursuant to contractual terms and may include
efforts to retain certain customer relationships and restructure or terminate
other relationships. The Company will consider the sale of certain portfolios if
buyers can be found at acceptable prices. Due to restrictions contained in
FINOVA's debt agreements as well as its general inability to access capital in
the public and private markets, the Company's only viable source of cash flow is
from the collection of its portfolio. Historically, FINOVA financed a small
portion of its investing activities through off-balance sheet financings in the
form of securitizations. At December 31, 2002, the Company manages $147.6
million of securitized assets, consisting of $55.9 million in commercial
equipment and $91.7 million in franchise transactions. The December 31, 2002
combined retained interest in the receivables was valued at $0.4 million.

A-11

THE FINOVA GROUP INC.

The following table presents the activity in total financial assets, net of the
reserve for credit losses for the year ended December 31, 2002:

- --------------------------------------------------------------------------------
(Dollars in
thousands)
- --------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS AT DECEMBER 31, 2001 $ 5,431,886

CASH ACTIVITY:
Fundings under outstanding customer commitments 1,068,802
Collections and proceeds from financial assets (3,450,485)
- --------------------------------------------------------------------------------
Net cash flows (2,381,683)
- --------------------------------------------------------------------------------

NON-CASH ACTIVITY:
Reversal of provision for credit losses 339,986
Net charge-offs of financial assets (215,290)
Other non-cash activity (18,748)
- --------------------------------------------------------------------------------
Net non-cash activity 105,948
- --------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS AT DECEMBER 31, 2002 $ 3,156,151
================================================================================

Total financial assets, net of the reserve for credit losses, declined to $3.2
billion at December 31, 2002, down from $5.4 billion at December 31, 2001.
During 2002, net cash flow from the portfolio totaled $2.4 billion, while
non-cash activity resulted in a $106.0 million increase in financial assets, net
of reserves. Components of net cash flow included $2.7 billion from collections
on financial assets, $755.1 million from the sale of assets (excluding cash
gains), offset by $1.1 billion of fundings under outstanding customer
commitments. Collections on financial assets included a significant level of
prepayments (customer payments in advance of scheduled due dates). Prepayments
are not predictable and given the decline in the size of FINOVA's asset
portfolio and the higher level of nonaccruing assets in the remaining portfolio,
prepayment levels as well as scheduled amortization are expected to decline over
time. While the decline in total financial assets is expected to continue, it is
not expected to continue at the same pace. Non-cash activity included the
reversal of $340.0 million of provision for credit losses, offset by a $215.3
million reduction related to markdowns of owned assets and $18.7 million of
other non-cash activity, primarily operating lease depreciation offset by
fresh-start accretion.

FINOVA's reserve for credit losses decreased to $540.3 million at December 31,
2002 from $1.0 billion at December 31, 2001. At December 31, 2002, the total
carrying amount of impaired loans was $1.7 billion, of which $471.1 million were
revenue accruing. The Company has established impairment reserves of $438.2
million related to $1.2 billion of nonaccruing and impaired loans. At December
31, 2001, the total amount of impaired loans was $2.3 billion, of which $576.7
million were revenue accruing. The impairment reserves at December 31, 2001
totaled $636.7 million related to $1.7 billion of nonaccruing and impaired
loans.

Reserves on impaired assets decreased due to write-offs, improvement in pay-off
and collection experience on certain assets previously reserved and the
Company's application of cash received on nonaccruing assets, reducing the
carrying amount and impairment reserves required on those assets. Partially
offsetting these reductions were new impairment reserves established for assets
reclassified to impaired status during 2002 and additional reserves recorded on
existing impaired assets.

Other reserves related to estimated inherent losses on unimpaired assets,
decreased primarily as a result of asset sales, significant portfolio runoff,
changes in historical loss experience, reclassification of previously unimpaired
assets to impaired status and the less than anticipated negative impact of
September 11 on certain of the Company's portfolios, including resort and
specialty real estate.

Accounts classified as nonaccruing were $1.4 billion or 37.7% of total financial
assets (before reserves) at December 31, 2002 as compared to $1.8 billion or
28.6% at December 31, 2001. The portfolios with the largest decline in
nonaccruing assets during 2002 included resort ($145.8 million), franchise
($108.1 million), corporate finance ($98.2 million), transportation ($43.4
million) and healthcare ($43.2 million), partially offset by increases within
rediscount ($28.3 million). The large decline within the resort portfolio was
primarily attributed to the Company negotiating a slightly discounted prepayment
of a nonaccruing account (approximately $100 million carrying amount), while the
decline in the transportation portfolio was almost entirely due to the writedown
of aircraft values in conjunction with their repossession. The reductions within
the franchise, corporate finance and healthcare portfolios were due to their
continued liquidation (including asset sales) and runoff.

A-12

THE FINOVA GROUP INC.

During 2002, the level of nonaccruing assets declined, but did so at a much
slower pace than performing transactions. As a result, nonaccruing assets as a
percentage of total financial assets have increased. The level of nonaccruing
assets continues to be affected by a weakened economy and the Company's concerns
regarding its ability to fully collect principal and interest on certain
transactions that have significant balloon payments or residual values due at
maturity. The current economic climate has resulted in a general reduction of
operating cash flow for the typical FINOVA borrower and in more conservative
industry wide lending practices. As a result, FINOVA is concerned that certain
of its customers will not have the ability to obtain refinancing at maturity for
the full amount of these residual/balloon payments. FINOVA's ability or
willingness to continue to extend credit to these borrowers may be affected by
its restricted access to the capital markets and its assessment of the costs and
benefits of doing so. In certain of these cases, FINOVA has classified
transactions as nonaccruing even though principal and interest payments are
current. If necessary, impairment reserves on these transactions are established
in accordance with SFAS No. 114 "Accounting by Creditors for Impairment of a
Loan."

Accruing impaired assets decreased to $471.1 million at December 31, 2002 from
$576.7 million at December 31, 2001. The decrease was attributable to
transportation ($141.7 million), resulting primarily from migration of these
accounts to off-lease status. There were also decreases within rediscount ($28.6
million), specialty real estate ($5.5 million) and commercial equipment ($7.8
million). Partially offsetting these decreases were increases within franchise
of $8.9 million and resort of $70.6 million, caused primarily by the migration
of one large exposure to accruing impaired status following the extension and
modification of payment terms.

The Company expects that over time, its impaired assets will comprise an
increasing percentage of its total portfolio, as the obligors under those
contracts tend to be in poor financial condition, and will repay their
obligations more slowly than performing obligors.

DERIVATIVE FINANCIAL INSTRUMENTS

At December 31, 2002, FINOVA had an outstanding liability of $6.5 million
related to a guarantee of an interest rate conversion agreement issued in
conjunction with the Company's commercial equipment securitization. The
conversion agreement has a notional principal amount of $83.8 million that
effectively converts a floating interest rate obligation into a fixed interest
rate obligation. The agreement requires 7.42% fixed interest payments on the
notional principal amount in return for receipts calculated on the same notional
amount at a floating interest rate. Payments under this transaction are funded
with collections from the Company's securitization.

FINOVA entered into two short-term foreign exchange swap transactions to
minimize currency risk. Currency risk results from changes in the value of
underlying foreign-denominated assets or liabilities versus U.S. Dollar ("USD")
values. Without these currency swap transactions, FINOVA could be adversely
impacted by exchange rate volatility. The USD equivalent of the exchanged
currencies totaled $31 million at December 31, 2002. The foreign exchange swap
transactions are renewable on a monthly basis.

During 2001, substantially all of FINOVA's outstanding interest rate swaps were
terminated as a result of the Company's chapter 11 filing. In accordance with
the Company's various swap agreements, the swap counterparties exercised their
right to offset the amounts due to the Company upon the termination of the swaps
against the amounts due from the Company on the debt outstanding. At the time
FINOVA emerged from chapter 11 and the debt was restructured, approximately
$45.6 million was offset against amounts due to the Company.

Two interest rate conversion agreements with notional principal amounts totaling
$204.0 million to effectively convert certain floating interest rate obligations
into fixed interest rate obligations were outstanding at December 31, 2001.

Upon termination of substantially all FINOVA interest rate swaps, the Company's
assets and liabilities were no longer match funded. Changes in interest rates
will thus affect the Company's financial results. See "Quantitative and
Qualitative Disclosure About Market Risk."

NEW ACCOUNTING STANDARDS

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," which the Company is required to
implement in its fiscal year beginning January 1, 2003. SFAS No. 145 addresses
income statement classification of gains or losses from extinguishment of debt,

A-13

THE FINOVA GROUP INC.

differentiating between types of debt extinguishment and whether they meet the
requirement for classification as extraordinary items in APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." During 2002, the Company recorded net gains of $88.2
million on the repurchase of New Senior Notes and early adopted the provisions
of SFAS No. 145. In accordance with SFAS No. 145, the transactions were recorded
as ordinary income as they were not considered unusual in nature and infrequent
in occurrence.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which the Company is required to implement in
its fiscal year beginning January 1, 2003. SFAS No. 146 addresses the accounting
and reporting for restructuring and similar costs, and replaces previous
accounting guidance, principally Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
Under Issue No. 94-3, a liability for exit costs such as employee termination
benefits and office lease termination costs was recognized at the date of the
company's commitment to an exit plan. SFAS No. 146 requires that the liability
for these costs be recognized when the liability is incurred. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. The Company adopted the provisions of SFAS No. 146 on December 31, 2002
and the impact was not material to the Company's financial position or results
of operations.

QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK

FINOVA uses various sensitivity analysis models to measure the exposure of net
income or loss to increases or decreases in interest rates. These models measure
the change in annual net income or loss if interest rates on floating-rate
assets, liabilities and derivative instruments increase or decrease, assuming no
prepayments. Based on models used, a 100 basis point or 1% shift in interest
rates would affect net income or loss by less than $5 million. An increase in
rates would have a positive impact, while a decrease in rates would have a
negative impact. As the floating rate debt balance declines, the sensitivity to
interest rate fluctuations will increase.

Certain limitations are inherent in the models used for interest rate risk
measurements. Modeling changes require certain assumptions that may oversimplify
the manner in which actual yields and costs respond to changes in market
interest rates. For example, the models assume a more static composition of
FINOVA's interest sensitive assets, liabilities and derivative instruments than
would actually exist over the period being measured. The models also assume that
a particular change in interest rates is reflected uniformly across the yield
curve regardless of the maturity or repricing of specific assets and
liabilities. Although the sensitivity analysis models provide an indication of
FINOVA's interest rate risk exposure at a particular point in time, the models
are not intended to and do not provide a precise forecast of the effects of
changes in market interest rates on FINOVA's net income or loss and will likely
differ from actual results.

A-14

REPORT OF INDEPENDENT AUDITORS

The Board of Directors and Stockholders of The FINOVA Group Inc.

We have audited the accompanying consolidated balance sheets of The FINOVA Group
Inc. and subsidiaries (the "Company") as of December 31, 2002 and 2001, and the
related statements of consolidated operations, stockholders' equity and cash
flows for the year ended December 31, 2002, the four month period ended December
31, 2001, the eight month period ended August 31, 2001, and the year ended
December 31, 2000. These financial statements are the responsibility of The
FINOVA Group Inc.'s management. Our responsibility is to express an opinion on
these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the 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 financial statements referred to above present fairly, in
all material respects, the consolidated financial position of The FINOVA Group
Inc. and subsidiaries at December 31, 2002 and 2001, and the results of their
consolidated operations and their cash flows for the year ended December 31,
2002, the four month period ended December 31, 2001, the eight month period
ended August 31, 2001, and the year ended December 31, 2000, in conformity with
accounting principles generally accepted in the United States.

The accompanying consolidated financial statements have been prepared assuming
that The FINOVA Group Inc. will continue as a going concern. As more fully
described in Notes to the Consolidated Financial Statements, Note A "Nature of
Operations and Chapter 11 Reorganization," since emerging from bankruptcy on
August 21, 2001, the Company has incurred substantial operating losses and has a
negative net worth as of December 31, 2002. These conditions raise substantial
doubt about the Company's ability to continue as a going concern. The
consolidated financial statements do not include any adjustment to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.

/s/ Ernst & Young LLP

Phoenix, Arizona
March 11, 2003

A-15

THE FINOVA GROUP INC.
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(Dollars in thousands)

- -------------------------------------------------------------------------------
REORGANIZED COMPANY
2002 2001
- -------------------------------------------------------------------------------
ASSETS
Cash and cash equivalents $ 575,215 $ 1,027,241
FINANCING ASSETS:
Loans and other financing contracts, net 2,655,724 5,020,426
Direct financing leases 263,826 354,958
Leveraged leases 182,410 196,813
- -------------------------------------------------------------------------------
Total financing assets 3,101,960 5,572,197
Reserve for credit losses (540,268) (1,019,878)
- -------------------------------------------------------------------------------
Net financing assets 2,561,692 4,552,319
OTHER FINANCIAL ASSETS:
Assets held for sale 393,125 420,025
Operating leases 111,826 190,925
Assets held for the production of income 67,867 151,872
Investments 21,641 116,745
- -------------------------------------------------------------------------------
Total other financial assets 594,459 879,567
- -------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS 3,156,151 5,431,886
Other assets 27,642 44,898
- -------------------------------------------------------------------------------
$ 3,759,008 $ 6,504,025
===============================================================================

LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Berkadia Loan $ 2,175,000 $ 4,900,000
Senior debt - (principal amount due of
$3.07 billion and $3.25 billion, respectively) 2,381,643 2,489,082
- -------------------------------------------------------------------------------
Total debt 4,556,643 7,389,082
Accounts payable and accrued expenses 156,338 223,155
Deferred income taxes, net 16,776 12,357
- -------------------------------------------------------------------------------
TOTAL LIABILITIES 4,729,757 7,624,594
- -------------------------------------------------------------------------------

STOCKHOLDERS' EQUITY:
Common stock, $0.01 par value, 400,000,000 shares
authorized and 125,873,000 shares issued 1,259 1,259
Additional capital 53,233 16,928
Accumulated deficit (1,020,828) (1,142,300)
Accumulated other comprehensive (loss) income (3,877) 4,080
Common stock in treasury, 3,832,000 shares (536) (536)
- -------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY (970,749) (1,120,569)
===============================================================================
$ 3,759,008 $ 6,504,025
===============================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

A-16

THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED OPERATIONS
(Dollars in thousands, except per share data)

- -----------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------------ ------------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -----------------------------------------------------------------------------------------------------------------------

REVENUES:
Interest income $ 236,329 $ 131,710 $ 400,764 $ 831,594
Rental income 40,504 18,791 52,067 95,018
Operating lease income 53,644 18,098 51,068 105,457
Fees and other income 46,522 23,180 70,461 117,590
- -----------------------------------------------------------------------------------------------------------------------
TOTAL REVENUES 376,999 191,779 574,360 1,149,659
Interest expense (403,818) (178,374) (436,445) (628,839)
Operating lease and other depreciation (43,131) (24,010) (59,882) (65,919)
- -----------------------------------------------------------------------------------------------------------------------
INTEREST MARGIN (69,950) (10,605) 78,033 454,901
- -----------------------------------------------------------------------------------------------------------------------

OTHER REVENUES AND (EXPENSES):
Provision for credit losses 339,986 (777,500) (230,772) (643,000)
Net loss on financial assets (81,479) (281,608) (320,934) (168,589)
Portfolio expenses (46,859) (8,523) (12,521) (13,777)
General and administrative expenses (108,407) (63,272) (121,553) (385,635)
Gain from extinguishment of debt, net of
fresh-start discount 88,237
Net reorganization expense (46,527)
- -----------------------------------------------------------------------------------------------------------------------
TOTAL OTHER REVENUES AND (EXPENSES) 191,478 (1,130,903) (732,307) (1,211,001)
- -----------------------------------------------------------------------------------------------------------------------

Income (loss) from continuing operations before
income taxes and preferred dividends 121,528 (1,141,508) (654,274) (756,100)
Income tax (expense) benefit (56) (792) 2,765 213,173
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations before
preferred dividends 121,472 (1,142,300) (651,509) (542,927)
Preferred dividends, net of tax (3,074) (3,782)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 121,472 (1,142,300) (654,583) (546,709)
Discontinued operations, net of tax (expense)
benefit of ($1,359) and $18,198, respectively 2,980 (55,397)
Net loss on disposal of operations, net of tax
benefit of $0 and $150,664, respectively (17,997) (337,711)
- -----------------------------------------------------------------------------------------------------------------------
Income (loss) before extraordinary item 121,472 (1,142,300) (669,600) (939,817)
Extraordinary item - gain on debt discharge 28,750
- -----------------------------------------------------------------------------------------------------------------------
NET INCOME (LOSS) $ 121,472 $ (1,142,300) $ (640,850) $ (939,817)
=======================================================================================================================

BASIC/DILUTED EARNINGS (LOSS) PER SHARE:
Income (loss) from continuing operations $ 1.00 $ (9.36) $ (10.28) $ (8.96)
Loss from discontinued operations (0.23) (6.45)
Extraordinary item 0.45
- -----------------------------------------------------------------------------------------------------------------------
Earnings (loss) per share $ 1.00 $ (9.36) $ (10.06) $ (15.41)
- -----------------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares outstanding 122,041,000 122,041,000 63,677,000 60,994,000
=======================================================================================================================
Dividends per common share $ $ $ $ 0.54
=======================================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

A-17

THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS
(Dollars in thousands)

- -----------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
---------------------------- ----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -----------------------------------------------------------------------------------------------------------------------------

OPERATING ACTIVITIES:
Net income (loss) $ 121,472 $(1,142,300) $ (640,850) $ (939,817)
Extraordinary item-gain on debt discharge (28,750)
Discontinued operations, net of tax (2,980) 55,397
Net loss on disposal of operations, net of tax 17,997 337,711
- ----------------------------------------------------------------------------------------------------------------------------
Income (loss) from continuing operations 121,472 (1,142,300) (654,583) (546,709)
Adjustments to reconcile income (loss) from continuing
operations to net cash (used) provided by continuing
operations:
Net adjustment to assets & liabilities related to Fresh-Start
Reporting 62,851
Provision for credit losses (339,986) 777,500 230,772 643,000
Net cash gain on disposal of financial assets (110,104) (35,906) (48,679) (62,592)
Net non-cash charge-offs on financial assets 191,583 317,514 369,613 231,181
Gain from extinguishment of debt, net of fresh-start
discount (88,237)
Depreciation and amortization 46,752 25,625 66,104 89,607
Non-cash reorganization items 44,386
Impairment charge-off of goodwill 193,337
Deferred income taxes, net 4,419 2,401 (7,195) (374,800)
Other amortization 1,356 7,666 16,427 43,790
Change in assets and liabilities:
Decrease (increase) in other assets 13,911 17,337 (139,822) 29,473
(Decrease) increase in accounts payable and accrued
expenses (40,628) 26,945 (102,535) (9,960)
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH (USED) PROVIDED BY CONTINUING OPERATING
ACTIVITIES (199,462) (3,218) (162,661) 236,327
- ----------------------------------------------------------------------------------------------------------------------------

INVESTING ACTIVITIES:
Proceeds from disposals of leases and other owned assets 133,675 169,896 59,857 112,556
Proceeds from sales of investments 158,706 40,698 60,781 147,672
Proceeds from sales of financial assets 572,820 15,473 329,085 110,676
Proceeds from securitizations 302,751
Collections from financial assets 2,645,355 901,385 1,911,044 1,963,831
Fundings under existing customer commitments (1,068,802) (326,547) (591,723) (2,982,158)
Recoveries of loans previously written off 50,033 21,729 4,964 1,018
- ----------------------------------------------------------------------------------------------------------------------------
NET CASH PROVIDED (USED) BY INVESTING ACTIVITIES 2,491,787 822,634 1,774,008 (343,654)
- ----------------------------------------------------------------------------------------------------------------------------

A-18

THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED CASH FLOWS - CONTINUED
(Dollars in thousands)

- --------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- --------------------------------------------------------------------------------------------------------------------------

FINANCING ACTIVITIES:
Proceeds from draw down on backup facilities 4,690,990
Net change in commercial paper and short-term borrowings (3,876,971)
Proceeds from issuance of term notes 225,000
Repayments of term notes (1,446,800)
Proceeds from Berkadia Loan 5,600,000
Repayments of Berkadia Loan (2,725,000) (700,000)
Repayments of indebtedness subject to chapter 11
proceedings (7,827,398)
Benefits realized from pre-confirmation NOLs 36,029
Repurchase of New Senior Notes (55,380)
Proceeds from exercise of stock options 171
Dividends (33,084)
- -------------------------------------------------------------------------------------------------------------------------
NET CASH USED BY FINANCING ACTIVITIES (2,744,351) (700,000) (2,227,398) (440,694)
- -------------------------------------------------------------------------------------------------------------------------

NET CASH PROVIDED BY DISCONTINUED OPERATIONS 824,648 1,146,905
- -------------------------------------------------------------------------------------------------------------------------

(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (452,026) 119,416 208,597 598,884

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 1,027,241 907,825 699,228 100,344

- -------------------------------------------------------------------------------------------------------------------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 575,215 $ 1,027,241 $ 907,825 $ 699,228
=========================================================================================================================

SUPPLEMENTAL DISCLOSURE

In 2002, the Company repurchased $185.0 million (face amount) of New Senior
Notes at an average price of 29.93% or $55.4 million, plus accrued interest. The
repurchases generated net gains of $88.2 million ($129.6 million repurchase
discounts, partially offset by $41.4 million of unamortized fresh-start
discounts).

During 2002, FINOVA received net income tax refunds of $39.5 million, including
$36.0 million from the carryback of certain tax net operating losses. For the
four months ended December 31, 2001, the Company received an income tax refund
of approximately $1.6 million and for the eight months ended August 31, 2001,
the Company paid approximately $5.7 million. No income taxes were paid in 2000.

FINOVA paid interest of $376.9 million, $138.0 million, $535.4 million and
$767.2 million for the year ended December 31, 2002, the four months ended
December 31, 2001, the eight months ended August 31, 2001 and the year ended
December 31, 2000, respectively.

As part of the consideration for the $5.6 billion senior secured loan received
from Berkadia in 2001, FINOVA issued Berkadia 61,020,581 shares of common stock,
representing 50% of FINOVA's shares outstanding after giving effect to the
implementation of the Plan.

Upon emergence from bankruptcy in 2001 and in accordance with the Plan, holders
of FINOVA's unsecured indebtedness received a cash payment equal to 70% of their
unsecured claim and New Senior Notes having an aggregate principal amount equal
to the remaining 30% of the unsecured claim. This resulted in a non-cash
exchange of $3.22 billion of Predecessor Company debt for $3.22 billion in New
Senior Notes. Holders of FINOVA Finance Trust's 5 1/2%. Convertible Trust
Originated Preferred Securities (the "TOPrS") received a cash payment equal to
52.5% of the liquidation preference attributable to the TOPrS and New Senior
Notes having an aggregate principal amount equal to 22.5% of the liquidation
preference attributable to the TOPrS. This resulted in a non-cash exchange of
the TOPrS for New Senior Notes in the amount of $25.9 million and a non-cash
extraordinary gain on debt discharge in the amount of $28.8 million.

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

A-19

THE FINOVA GROUP INC.
STATEMENTS OF CONSOLIDATED STOCKHOLDERS' EQUITY
(Dollars in thousands)

- ------------------------------------------------------------------------------------------------------------------------------------
ACCUMULATED
ACCUMULATED OTHER COMMON TOTAL
COMMON ADDITIONAL EARNINGS/ COMPREHENSIVE STOCK IN STOCKHOLDERS'
STOCK CAPITAL (DEFICIT) INCOME (LOSS) TREASURY EQUITY
- ------------------------------------------------------------------------------------------------------------------------------------

BALANCE, JANUARY 1, 2000 (PREDECESSOR) $ 648 $ 1,109,521 $ 689,466 $ 33,812 $ (170,066) $ 1,663,381
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net loss (939,817) (939,817)
Net change in unrealized holding
gains (losses) (22,709) (22,709)
Net change in foreign currency
translation 4,051 4,051
------------
Comprehensive loss (958,475)
------------
Net change in unamortized amount of
restricted stock and other 941 941
Dividends (33,084) (33,084)
Shares used in connection with employee
benefit plans (2,887) 3,058 171
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2000 (PREDECESSOR) 648 1,107,575 (283,435) 15,154 (167,008) 672,934
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net loss before reorganization and
Fresh-Start Reporting (597,085) (597,085)
Net change in unrealized holding gains
(losses) (19,000) (19,000)
Net change in foreign currency
translation (540) (540)
------------
Comprehensive loss (616,625)
------------
Net change in unamortized amount of
restricted stock and other 11,956 11,956
Shares cancelled from employee benefit
plans (11,263) (11,263)
Effect of reorganization and Fresh-Start
Reporting 611 (1,102,631) 880,520 4,386 177,735 (39,379)
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, AUGUST 31, 2001 (REORGANIZED) 1,259 16,900 (536) 17,623
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive loss:
Net loss (1,142,300) (1,142,300)
Net change in unrealized holding gains
(losses) 6,999 6,999
Net change in foreign currency
translation (2,919) (2,919)
------------
Comprehensive loss (1,138,220)
------------
Other 28 28
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2001 (REORGANIZED) 1,259 16,928 (1,142,300) 4,080 (536) (1,120,569)
- ------------------------------------------------------------------------------------------------------------------------------------
Comprehensive income:
Net income 121,472 121,472
Net change in unrealized holding gains
(losses) (10,743) (10,743)
Net change in foreign currency
translation 2,786 2,786
------------
Comprehensive income 113,515
------------
Benefits realized from pre-confirmation
NOLs 36,029 36,029
Other 276 276
- ------------------------------------------------------------------------------------------------------------------------------------
BALANCE, DECEMBER 31, 2002 (REORGANIZED) $ 1,259 $ 53,233 $(1,020,828) $ (3,877) $ (536) $ (970,749)
====================================================================================================================================

SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.

A-20

THE FINOVA GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEARS ENDED DECEMBER 31, 2002, 2001 AND 2000
(DOLLARS IN THOUSANDS IN TABLES, EXCEPT PER SHARE DATA)

A. NATURE OF OPERATIONS AND CHAPTER 11 REORGANIZATION

The following discussion relates to The FINOVA Group Inc. and its subsidiaries
(collectively "FINOVA" or the "Company"), including FINOVA Capital Corporation
and its subsidiaries ("FINOVA Capital"). FINOVA, a Delaware corporation
incorporated in 1991, is a financial services holding company. Through its
principal operating subsidiary, FINOVA Capital, the Company has provided a broad
range of financing and capital markets products, primarily to mid-size
businesses. FINOVA Capital has been in operation since 1954.

The Company's current business activities are limited to maximizing the value of
its portfolio through the orderly collection of its assets. These activities
include collection efforts pursuant to underlying contractual terms and may
include efforts to retain certain customer relationships and restructure or
terminate other relationships. Operations have been restructured to more
efficiently manage these collection efforts. The Company has sold portions of
asset portfolios and will consider future sales if buyers can be found at
acceptable prices; however, there can be no assurance that the Company will be
successful in efforts to sell additional assets. Any funds generated from these
activities in excess of cash reserves permitted in the Company's debt agreements
are used to reduce FINOVA's obligations to its creditors.

CHAPTER 11 REORGANIZATION

On March 7, 2001, FINOVA, FINOVA Capital and seven of their subsidiaries (the
"Debtors") filed for protection pursuant to chapter 11, title 11, of the United
States Code in the United States Bankruptcy Court for the District of Delaware
(the "Bankruptcy Court") to enable them to restructure their debt. On August 10,
2001, the Bankruptcy Court entered an order confirming FINOVA's Third Amended
and Restated Joint Plan of Reorganization (the "Plan"), pursuant to which the
Debtors restructured their debt, effective August 21, 2001 (the "Effective
Date").

The Plan is incorporated by reference from FINOVA's Current Reports on Form 8-K,
filed on June 22, 2001 and August 27, 2001, Exhibits 2.A and 2.B, respectively.

Pursuant to the Plan, Berkadia LLC ("Berkadia"), an entity jointly owned by
Berkshire Hathaway Inc. ("Berkshire") and Leucadia National Corporation
("Leucadia"), loaned $5.6 billion to FINOVA Capital on a senior secured basis
(the "Berkadia Loan"). The proceeds of the Berkadia Loan, together with cash on
hand and the issuance by FINOVA of approximately $3.25 billion aggregate
principal amount of 7.5% Senior Secured Notes maturing in 2009 (the "New Senior
Notes") were used to restructure the Company's debt. In addition, FINOVA issued
Berkadia 61,020,581 shares of common stock, representing 50% of FINOVA shares
outstanding after giving effect to implementation of the Plan.

Under the Plan, holders of allowed unsecured claims against FINOVA Capital
generally received (a) a cash payment equal to 70% of their general unsecured
claims (not including pre-petition or post-petition interest), (b) a cash
payment equal to the amount of accrued and unpaid pre-petition and post-petition
interest on those general unsecured claims and (c) New Senior Notes having an
aggregate principal amount equal to 30% of those general unsecured claims (not
including pre-petition and post-petition interest). Claims from holders of the 5
1/2% Convertible Trust Originated Preferred Securities (the "TOPrS") issued by
FINOVA Finance Trust were treated as allowed unsecured claims of FINOVA Capital
in an amount equal to 75% of the liquidation preference attributable to the
TOPrS and FINOVA's subordinated debentures related to the TOPrS were cancelled.
Upon implementation of the Plan, FINOVA Capital's debt was no longer publicly
held and following the Effective Date, it ceased to be a public company.

The Berkadia Loan bears interest payable monthly, at the Eurodollar Rate (as
defined in the Credit Agreement dated August 21, 2001 between FINOVA Capital and
Berkadia (the "Credit Agreement")), plus 2.25%. Principal is payable out of
available cash (as defined in the Credit Agreement). All unpaid principal and
accrued interest is due at maturity on August 20, 2006. FINOVA and substantially
all of its direct and indirect subsidiaries (except those that are contractually
prohibited from acting as a guarantor, the "Guarantors") have guaranteed FINOVA
Capital's repayment of the Berkadia Loan. The guarantees are secured by
substantially all of the Guarantors' assets.

The New Senior Notes mature in November 2009 and bear interest, payable
semi-annually, to the extent that cash is available for that purpose in
accordance with the Indenture governing the New Senior Notes (the "Indenture"),
at a fixed interest rate of 7.5% per annum. FINOVA's obligations with respect to

A-21

THE FINOVA GROUP INC.

the payment of interest and principal under the New Senior Notes are secured by
a second-priority security interest in (a) all capital stock of FINOVA Capital,
(b) promissory notes of FINOVA Capital issued to FINOVA in the aggregate
principal amount of the New Senior Notes (the "Intercompany Notes") and (c)
certain other property of FINOVA that may be acquired from its subsidiaries in
the future. The Intercompany Notes are secured by a second-priority lien on the
assets of FINOVA Capital pledged to secure the Berkadia Loan. Substantially all
of FINOVA Capital's direct and indirect subsidiaries (except those that are
contractually prohibited from acting as a guarantor) have guaranteed FINOVA
Capital's repayment of the Intercompany Notes. The holders of the New Senior
Notes have no right to enforce their security interests until the Berkadia Loan
is fully repaid.

Because virtually all of the Company's assets are pledged to secure the
obligations under the Berkadia Loan and the Intercompany Notes, FINOVA's ability
to obtain additional or alternate financing is severely restricted. Berkadia has
no obligation to lend additional sums to or to further invest in the Company.
Accordingly, FINOVA intends to rely on internally generated cash flows to meet
its liquidity needs.

Permitted uses of cash are specified in the Credit Agreement and the Indenture.
Generally, the Company is permitted to use its cash in the following order:
first to fund its operating expenses, including payment of taxes, funding
customer commitments and payment of interest on the Berkadia Loan; then to pay
interest on the New Senior Notes; then to make optional purchases of the New
Senior Notes with the consent of Berkadia and otherwise in accordance with the
terms of the Indenture in an aggregate amount not to exceed $1.5 billion of cash
while the Berkadia Loan is outstanding, and thereafter in an amount not to
exceed $150 million per year. After repayment of the Berkadia Loan and the other
items noted above, ninety-five percent (95%) of the remaining available cash
will be used to make semi-annual prepayments of principal on the New Senior
Notes and five percent (5%) will be used for distributions to and/or repurchases
of stock from common stockholders. It should be noted that under governing law,
these distributions may not be made to stockholders as long as FINOVA has a
negative net worth (total liabilities in excess of total assets). Instead, these
payments will be retained by the Company for that purpose until legally
permitted by law or used to satisfy the Company's obligations, if necessary.

BASED ON THE COMPANY'S CURRENT FINANCIAL CONDITION, IT IS HIGHLY UNLIKELY THAT
THERE WILL BE FUNDS AVAILABLE TO FULLY REPAY THE OUTSTANDING PRINCIPAL ON THE
NEW SENIOR NOTES AT MATURITY OR TO PAY THE 5% DISTRIBUTION TO COMMON
STOCKHOLDERS. The Company has a negative net worth of $970.7 million as of
December 31, 2002 ($1.7 billion when the New Senior Notes are considered at
their principal amount due), the financial condition of many of its customers is
weakened, impairing their ability to meet obligations to the Company, much of
the Company's portfolio of owned assets is not income producing and the Company
is restricted from entering into new business activities or issuing new
securities to generate cash flow.

In connection with its reorganization, FINOVA's Board of Directors was
reconstituted and is currently comprised of four directors designated by
Berkadia, two prior directors of FINOVA and one director designated by the
creditor's committee. The Berkadia designated directors are Ian M. Cumming,
Joseph S. Steinberg, R. Gregory Morgan and Thomas E. Mara; the continuing FINOVA
directors are G. Robert Durham and Kenneth R. Smith; and Thomas F. Boland was
designated by the creditor's committee. All directors are subject to reelection
annually by the stockholders, without regard to their original designation,
except that the Board of Directors is required to renominate Mr. Boland or
another director designated by holders of the New Senior Notes as long as the
outstanding balance of the New Senior Notes is greater than $500 million.

FINOVA's business is being operated under a Management Services Agreement with
Leucadia, which expires in 2011. Leucadia has designated its employees to act as
Chairman of the Board (Ian M. Cumming), President (Joseph S. Steinberg) and
Chief Executive Officer (Thomas E. Mara).

Upon emergence from bankruptcy, FINOVA adopted Fresh-Start Reporting in
accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 90-7, "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code" ("SOP 90-7"). With the adoption of
Fresh-Start Reporting, the Company's assets and liabilities were recorded at
their fair value, which resulted in material adjustments to carrying amounts. As
a result of Fresh-Start Reporting and changes in the Company's operations, the
consolidated financial statements for periods subsequent to August 31, 2001 (the
"Reorganized Company") will not be comparable to those of the Company for
periods prior to August 31, 2001 (the "Predecessor Company"). For financial
reporting purposes, the effective date of the Plan is considered to be the close
of business on August 31, 2001. For further details, see Note F "Fresh-Start
Reporting."

A-22

THE FINOVA GROUP INC.

GOING CONCERN

As of December 31, 2002, the Company has a substantial negative net worth. While
FINOVA continues to pay its obligations as they become due, the ability of the
Company to continue as a going concern is dependent upon many factors,
particularly the ability of its borrowers to repay their obligations to FINOVA
and the Company's ability to realize the value of its portfolio. Even if the
Company is able to recover the book value of its assets, and there can be no
assurance of the Company's ability to do so, it is unlikely the Company will be
able to repay the New Senior Notes in their entirety at maturity in November
2009. The accompanying consolidated financial statements do not include any
adjustments relating to the recoverability and classification of assets or the
amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern. The Company's independent
public accountants qualified their report on the Company's 2002, 2001 and 2000
financial statements due to concerns regarding the Company's ability to continue
as a going concern.

B. SIGNIFICANT ACCOUNTING POLICIES

The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires FINOVA to use estimates and
assumptions that affect reported amounts of assets and liabilities, revenues and
expenses and disclosure of contingent assets and liabilities. Those estimates
are subject to known and unknown risks, uncertainties and other factors that
could materially impact the amounts reported and disclosed in the financial
statements. Significant estimates include anticipated amounts and timing of
future cash flows used in the calculation of Fresh-Start Reporting adjustments,
the reserve for credit losses and measurement of impairment. Other estimates
include selection of appropriate risk adjusted discount rates used in net
present value calculations, determination of fair values of certain financial
assets for which there is not an active market, residual assumptions for leasing
transactions and the determination of appropriate valuation allowances against
deferred tax assets. Actual results could differ from those estimated.

CONSOLIDATION POLICY

The consolidated financial statements present the financial position, results of
operations and cash flows of FINOVA and its subsidiaries, including FINOVA
Capital. The consolidated financial statements have been prepared in accordance
with accounting principles generally accepted in the United States. All
intercompany balances have been eliminated in consolidation. Certain amounts for
prior periods have been reclassified to be consistent with the 2002
presentation.

PORTFOLIO POLICIES

The following policies include the most critical accounting policies and those
that could most significantly impact the consolidated financial statements. The
application of these policies rely upon management discretion and the use of
estimates.

CARRYING AMOUNTS, IMPAIRMENT AND USE OF ESTIMATES

Several of the Company's accounting policies pertain to the ongoing
determination of impairment reserves on financing assets and the carrying amount
valuation of other financial assets. Determination of impairment reserves and
carrying amounts rely, to a great extent, on the estimation and timing of future
cash flows. FINOVA's cash flow estimates assume that its asset portfolios are
collected in an orderly fashion over time. These cash flows do not represent
estimated recoverable amounts if FINOVA were to liquidate its asset portfolios
over a short period of time. Management believes that a short-term asset
liquidation could have a material negative impact on the Company's ability to
recover recorded asset amounts.

FINOVA's process of determining impairment reserves and carrying amounts
includes a periodic assessment of its portfolios on a transaction by transaction
basis. Cash flow estimates are based on current information and numerous
assumptions concerning future general economic conditions, specific market
segments, the financial condition of the Company's customers and FINOVA's
collateral. In addition, assumptions are sometimes necessary concerning the
customer's ability to obtain full refinancing of balloon obligations or
residuals at maturity. Commercial lenders have become more conservative
regarding advance rates and interest margin requirements have increased. As a
result, the Company's cash flow estimates assume FINOVA incurs refinancing
discounts for certain transactions.

Changes in facts and assumptions have resulted in, and may in the future result
in, significant positive or negative changes to estimated cash flows and
therefore, impairment reserves and carrying amounts.

A-23

THE FINOVA GROUP INC.

Impairment of financing assets is recorded through the Company's reserve for
credit losses, and accounting rules permit the reserve for credit losses to be
increased or decreased as facts and assumptions change. Impairment of other
financial assets is marked down directly against the asset's carrying amount.
Accounting rules permit further markdown if changes in facts and assumptions
result in additional impairment; however, most of these assets (except certain
investments and assets held for sale, which may be marked up for subsequent
events) may not be marked up if subsequent facts and assumptions result in a
projected increase in value. Recoveries of previous markdowns are recorded
through operations when realized.

The carrying amounts and reserves for credit losses recorded on FINOVA's
financial statements reflect the Company's expectation of collecting less than
the full contractual amounts owed by some of its customers and recovering less
than its original investment in certain owned assets. The Company continues to
pursue collection of full contractual amounts and original investments, where
appropriate, in an effort to maximize the value of its asset portfolios.

During 2002, the Company's detailed quarterly portfolio assessments identified
significant additional impairment within its transportation portfolio, resulting
in additional markdowns. The current state of the aircraft industry includes
significant excess capacity for both new and used aircraft and lack of demand
for certain classes and configurations of aircraft in the portfolio.
Accordingly, the Company reduced the useful lives and anticipated scrap values
of various aircraft and reduced its estimates regarding its ability to lease or
sell certain returned aircraft.

FINOVA has a significant number of aircraft that are off lease and anticipates
that additional aircraft will be returned as leases expire or operators are
unable or unwilling to continue making payments. In accordance with the
provisions of SFAS No. 144 "Accounting for the Impairment or Disposal of
Long-Lived Assets" ("SFAS No. 144"), FINOVA has recorded impairment losses on
owned aircraft by calculating the present value of estimated cash flows. For
many of these aircraft, scrap value was assumed, but for certain aircraft, the
Company elected (or anticipates electing upon return of the aircraft) to park
and maintain the aircraft under the assumption that the aircraft will be
re-leased or sold in the future despite the lack of demand for those aircraft
today. While the current inactive market makes it difficult to quantify, the
Company believes that the recorded values determined under this methodology
significantly exceed the values that the Company would realize if it were to
liquidate those aircraft today.

The process of determining appropriate carrying amounts for these aircraft is
particularly difficult and subjective, as it requires the Company to estimate
future demand, lease rates and scrap values for assets for which there is
currently little or no demand. The Company re-assesses its estimates and
assumptions each quarter. In particular, the Company assesses market activity
and the likelihood that certain aircraft types, which are forecast to go back on
lease in the future, will in fact be re-leased, and may further reduce carrying
amounts if it is determined that such re-leasing is unlikely to occur or that
lower market values have been established.

ASSETS HELD FOR THE PRODUCTION OF INCOME. Assets held for the production of
income include off-lease and returned assets previously the subject of financing
transactions that are currently being made available for new financing
transactions. Assets held for the production of income are carried at amortized
cost with adjustment for impairment, if any, recorded in operations. The
determination of impairment is often dependent upon the estimation of
anticipated future cash flows discounted at appropriate risk adjusted market
rates to determine net present value. Depreciation of these assets is charged to
operations over their estimated remaining useful lives.

ASSETS HELD FOR SALE. Assets held for sale are comprised of assets previously
classified as financing transactions and other financial assets that management
does not have the intent and/or ability to hold to maturity. Assets held for
sale are revalued at least quarterly at the lower of cost or market, less
anticipated selling expenses, with adjustment, if any, recorded in current
operations. The determination of market value is often dependent upon the
estimation of anticipated future cash flows discounted at appropriate risk
adjusted market rates to determine net present value.

FRESH-START REPORTING. In accordance with the provisions of the American
Institute of Certified Public Accountants' Statement of Position 90-7,
"Financial Reporting by Entities in Reorganization Under the Bankruptcy Code"
("SOP 90-7"), FINOVA implemented Fresh-Start Reporting upon emergence from
chapter 11. This resulted in a material net reduction to the carrying amounts of
the Company's assets and liabilities to record them at their then current fair
values. The new carrying amounts were dependent upon the use of estimates and
many other factors and valuation methods, including estimating the present value
of future cash flows discounted at appropriate risk adjusted market rates,
traded market prices and other applicable ratios and valuation techniques
believed by the Company to be appropriate.

The fresh-start adjustments to revenue accruing loans and financing leases
accrete into interest income utilizing the effective interest method over the
life of the transactions. If transactions are classified as nonaccruing, the
Company's policy is to suspend income accretion.

A-24

THE FINOVA GROUP INC.

The fresh-start adjustment to the New Senior Notes amortizes to interest expense
over the life of the debt utilizing the effective interest method, thereby
eventually increasing the recorded amount of the debt to the full principal
amount due. In the event that any New Senior Notes are repurchased and
extinguished, as occurred in 2002, the unamortized fresh-start adjustment
related to those notes is recorded as an offset to any gain recognized from
extinguishment of the debt.

IMPAIRED LOANS. In accordance with SFAS No. 114, "Accounting by Creditors for
Impairment of a Loan" ("SFAS No. 114"), a loan becomes impaired when it is
probable that the Company will be unable to collect all amounts due in
accordance with the original contractual terms. Impairment reserves are recorded
when the current carrying amount of a loan exceeds the greater of (a) its net
present value, determined by discounting expected cash flows from the borrower
at the effective interest rate of the transaction or (b) net fair value of
collateral. The risk adjusted interest rates utilized in Fresh-Start Reporting
are now considered to be the contractual rates for purposes of calculating net
present value of cash flows in the determination of fair values and impairment.
Accruing impaired loans are paying in accordance with a current modified loan
agreement or are believed to have adequate collateral protection. The process of
measuring impairment requires judgment and estimation, and actual outcomes may
differ from the estimated amounts.

IMPAIRMENT OF OWNED ASSETS. In accordance with SFAS No. 144, an owned asset is
considered impaired if undiscounted future cash flows expected to be generated
by the asset are less than the carrying amount of the asset. SFAS No. 144
provides several acceptable methods for measuring the amount of the impairment.
FINOVA's typical practice is to compare the carrying amount of the asset to the
present value of the estimated future cash flows, using risk adjusted discount
rates determined by the Company to be appropriate. The process of measuring
impairment requires judgment and estimation, and actual outcomes may differ from
the estimated amounts.

INVESTMENTS. The Company's investments include debt and equity securities and
partnership interests. At acquisition, marketable debt and equity securities are
designated as either (a) held to maturity, which are carried at amortized cost
adjusted for other than temporary impairment, if any, (b) trading, which are
carried at estimated fair value, with unrealized gains and losses reflected in
results of operations or (c) available for sale, which are carried at estimated
fair value using the specific identification method, with unrealized gains and
losses reflected as a separate component of stockholders' equity.

Partnerships are accounted for using either the cost or equity method depending
on the Company's level of ownership in the partnership. Under the equity method,
the Company recognizes its share of income or loss of the partnership in the
period in which it is earned or incurred. Under the cost method, the Company
recognizes income based on distributions received.

The carrying values of equity securities and partnership interests are
periodically reviewed for impairment, which if identified, is recorded as a
charge to operations. The impairment analysis for investments utilizes various
valuation techniques involving the use of estimates and management judgment, and
actual outcomes may differ from the estimates.

NET ASSETS OF DISCONTINUED OPERATIONS. Upon emergence from chapter 11, the
Company reclassified its net assets of discontinued operations to assets held
for sale. This decision reflected management's intention to manage all assets of
the Company as one operating unit. These assets were reclassified at their
estimated net realizable values.

During the third quarter of 2000, FINOVA's Board of Directors approved a plan to
discontinue and offer for sale its corporate finance, distribution & channel and
commercial services businesses. As a result, the Company reported these
divisions as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions." Accordingly, the revenues,
costs and expenses, assets and liabilities expected to be assumed by an
acquiring entity, and cash flows of these discontinued operations were excluded
from the respective captions in the consolidated balance sheet and statements of
consolidated operations and cash flows presented. The net assets of discontinued
operations represented reasonable estimates of the net realizable values of
those businesses. These estimates were based on market conditions, interest
rates and other factors that could differ significantly from actual results for
the remaining corporate finance assets.

NONACCRUING ASSETS. Accounts are generally classified as "nonaccruing" when the
earlier of the following events occur: (a) the borrower becomes 90 days past due
on the payment of principal or interest or (b) when, in the opinion of
management, a full recovery of income and principal becomes doubtful. Due to a
variety of factors, accounts may be classified as nonaccruing even though the
borrower is current on principal and interest payments.

RECEIVABLE SALES. In accordance with SFAS No. 140, "Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities," when the
Company sells receivables, it may retain subordinated interests in the
transferred receivables. These receivable transfers are accounted for as sales
when legal and effective control of the transferred receivables are surrendered.
Carrying amount of the financial assets involved is allocated between the

A-25

THE FINOVA GROUP INC.

receivables sold and the retained interests based on their relative fair value
at the date of transfer and is used to determine gain or loss on sale. Active
markets with quoted prices for retained interests generally do not exist,
therefore, the Company estimates fair value based on the present value of future
estimated cash flows and other key assumptions, such as net credit losses,
prepayments and discount rates commensurate with the risks involved. In general,
the servicing fees earned are approximately equal to the cost of servicing;
therefore, no material servicing assets or liabilities have been recognized in
those transactions.

FINOVA's retained interests in transferred receivables are generally treated as
investments available for sale, which are carried at estimated fair value using
the specific identification method with unrealized gains and losses being
recorded as a component of accumulated other comprehensive income within the
equity section of the balance sheet; however, in accordance with the Emerging
Issues Task Force ("EITF") Issues No. 99-20 "Reorganization of Interest Income
and Impairment on Purchase and Retained Beneficial Interests in Securitized
Financial Assets," if a decline in value is considered other than temporary, the
valuation adjustment is recorded through the statement of operations.

During the periods in which FINOVA had assets classified as discontinued
operations, the retained interest in the transferred receivables that related to
those operations were recorded within discontinued operations.

RESERVE FOR CREDIT LOSSES. The reserve for credit losses is established for
estimated credit impairment on individual assets and inherent credit losses in
the Company's loan and financing lease portfolios. This reserve is not
established for other financial assets, as those asset classes are subject to
other accounting rules. The provision for credit losses is the charge or credit
to operations resulting from an increase or decrease to the reserve for credit
losses to the level that management estimates to be adequate. Impairment
reserves are created if the carrying amount of an asset exceeds the present
value of its estimated recovery. Impairment reserves are measured by estimating
the present value of expected future cash flows (discounted at contractual
rates), market value or the fair value of collateral. Reserves on assets that
are not impaired are based on assumptions regarding general and industry
specific economic conditions, overall portfolio performance including loss
experience, delinquencies and other inherent portfolio characteristics.
Establishing reserves includes the use of significant estimates and assumptions
regarding future customer performance, amount and timing of future cash flows
and collateral value. Accounts are either written off or written down and
charged to the reserve when the actual loss is determinable, after giving
consideration to the customer's financial condition and the value of the
underlying collateral, including any guarantees. Recoveries of amounts
previously written off as uncollectable increase the reserve for credit losses.

RESIDUAL VALUES. FINOVA has a significant investment in residual values in its
leasing portfolio. These residual values represent estimates of the value of
leased assets at the end of contract terms and are initially recorded based upon
appraisals or estimates. Residual values are periodically reviewed for other
than temporary impairment.

REVENUE RECOGNITION. For loans and other financing contracts, earned income is
recognized over the life of the contract, using the effective interest method.

Leases that are financed by nonrecourse borrowings and meet certain other
criteria are classified as leveraged leases. For leveraged leases, aggregate
rental receivables are reduced by the related nonrecourse debt service
obligation including interest ("net rental receivables"). The difference between
(a) the net rental receivables and (b) the cost of the asset less estimated
residual value at the end of the lease term is recorded as unearned income.
Earned income is recognized over the life of the lease at a constant rate of
return on the positive net investment, which includes the effects of deferred
income taxes.

For operating leases, earned income is recognized on a straight-line basis over
the lease term and depreciation is taken on a straight-line basis over the
estimated useful lives of the leased assets.

Origination fees, net of direct origination costs, are deferred and amortized
over the life of the originated asset as an adjustment to yield. As a result of
FINOVA's elimination of new business activities, no significant new origination
fees are anticipated.

Original issue discounts are established when equity interests are received in
connection with a funded loan and are based on the fair value of the equity
interest. The assigned value is amortized to income over the term of the loan as
an adjustment to yield. As a result of FINOVA's elimination of new business
activities, no significant new original issue discounts are anticipated.

Fees received in connection with loan commitments, extensions, waivers and
restructurings are recognized as income over the term of the loan as an
adjustment to yield. Fees on commitments that expire unused are recognized at
expiration.

A-26

THE FINOVA GROUP INC.

Income recognition is generally suspended for leases, loans and other financing
contracts at the earlier of the date at which payments become 90 days past due,
or when, in the opinion of management, a full recovery of income and principal
becomes doubtful and the account is determined to be impaired. Income
recognition is resumed only when the lease, loan or other financing contract
becomes contractually current and performance resumption is demonstrated or when
in the opinion of management, recovery of interest and principal becomes
probable.

GENERAL ACCOUNTING POLICIES

CASH EQUIVALENTS. FINOVA classifies short-term investments with original
maturities of three months or less from the time of purchase as cash
equivalents. Cash and cash equivalents included short-term investments of $520.4
million and $947.8 million at December 31, 2002 and 2001, respectively.

DEFERRED INCOME TAXES. Deferred tax assets and liabilities are recorded for
estimated future tax effects attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax basis. Deferred tax assets and liabilities are measured using
enacted tax law. A valuation allowance is recorded if it is more likely than not
that a deferred tax asset will not be realized.

DERIVATIVE FINANCIAL INSTRUMENTS. The Company does not currently have material
derivative financial instruments. Historically, the Company used derivative
financial instruments as part of its interest rate risk management policy of
match funding its assets and liabilities. The derivative instruments used
included interest rate swaps and, to a lesser extent, treasury locks, options,
futures and swaptions, which were subject to hedge accounting determination.

EARNINGS (LOSS) PER SHARE. Basic earnings (loss) per share exclude the effects
of dilution and are computed by dividing income (loss) available to common
stockholders by the weighted average amount of common stock outstanding for the
period. Diluted earnings (loss) per share reflect the potential dilution that
could occur if options, convertible preferred securities or other contracts to
issue stock were exercised or converted into common stock. These calculations
are presented on the Statements of Consolidated Operations and are more fully
discussed in Note N "Earnings (Loss) Per Share."

As a result of the Plan, all stock incentive plans, outstanding stock options,
stock appreciation rights and restricted stock were cancelled. Additionally, the
convertible preferred securities were restructured in the reorganization and
ceased to exist. As a result, the differences between basic earnings (loss) per
share and diluted earnings (loss) per share were eliminated for the Reorganized
Company.

GOODWILL. FINOVA does not currently have any goodwill recorded in its financial
statements. Historically, FINOVA amortized the excess of cost over the fair
value of net assets acquired ("goodwill") on a straight-line basis primarily
over 20 to 25 years. Amortization totaled $1.6 million and $16.3 million for the
eight months ended August 31, 2001 and the year ended December 31, 2000,
respectively.

Upon emergence from chapter 11, the Company implemented Fresh-Start Reporting,
which resulted in the charge-off of the remaining goodwill balance of $43.4
million. At December 31, 2000, management evaluated the impairment of goodwill,
resulting in a charge-off of $193.3 million. Additionally, in connection with
adjusting the discontinued businesses to net realizable value in September 2000,
$107.3 million of goodwill was charged off and included in the loss on disposal
of operations.

FOREIGN CURRENCY. Foreign currency denominated financial statements are
translated into U.S. dollars in accordance with the guidelines established in
SFAS No. 52 "Foreign Currency Translation." The current exchange rate is used to
translate the assets and liabilities of the foreign companies. Revenues and
expenses are translated at the average exchange rates during each reporting
period. Any resulting translation adjustments are reported as a component of
stockholders' equity or through operations, if realized.

FURNITURE, EQUIPMENT AND LEASEHOLD IMPROVEMENTS. The Company's general policy is
to report furniture, equipment and office leasehold improvements at cost, less
accumulated depreciation and amortization, computed on a straight-line method
over the estimated useful lives of the assets. Assets are periodically reviewed
for impairment and adjustments, if any, are charged to current operations.
During 2001, the Company determined various leasehold and other fixed assets to
be permanently impaired as a result of rejecting a number of lease arrangements.

SEGMENT REPORTING. In connection with the Company's reorganization and emergence
from bankruptcy in 2001, formerly reported operating segments were combined into
one operating unit. FINOVA is no longer soliciting new business and its assets
are not managed by separate strategic business units. Many components of the
segments have been sold, dissolved or combined with other business units and as
a result, comparisons with prior periods are not meaningful. Management's plan
is to maximize the value of its assets through an orderly administration and

A-27

THE FINOVA GROUP INC.

collection of the portfolio. Accordingly, the performance of reportable business
segments presented in the Predecessor Company's financial statements is no
longer meaningful to the operation of the Reorganized Company.

COMPENSATION AND BENEFIT POLICIES

PENSION AND OTHER BENEFITS. Trusteed, noncontributory pension plans cover
substantially all FINOVA employees. Benefits are based primarily on final
average salary and years of service. Funding policies provide that payments to
pension trusts shall be at least equal to the minimum funding required by
applicable regulations.

Other post-retirement benefit costs are recorded during the period the employees
provide service to FINOVA. Post-retirement obligations are funded as benefits
are paid.

Post-employment benefits are any benefits other than retirement benefits.
Generally, FINOVA records post-employment benefit costs if payment of the
benefits is probable and the amount of the benefits can be reasonably estimated.

Employees are covered by severance arrangements with the Company. Prior to
December 31, 2002, severance accruals were recorded when management had approved
a formal plan of termination and communicated the plan to its employees. As of
December 31, 2002, the Company implemented the provisions of SFAS No. 146
"Accounting for Costs Associated with Exit or Disposal Activities" and must now
recognize any future severance liability ratably over the employee's remaining
service period.

SAVINGS PLAN. FINOVA maintains The FINOVA Group Inc. Savings Plan (the "Savings
Plan"), a qualified 401(k) program. The Savings Plan is available to
substantially all employees. The employee may elect voluntary wage deductions
ranging from 0% to 30% of taxable compensation. The Company's matching
contributions are based on employee pre-tax salary deductions, up to a maximum
of 100% of the first 6% of salary contributions.

RECENTLY ISSUED ACCOUNTING STANDARDS

In April 2002, the Financial Accounting Standards Board ("FASB") issued SFAS No.
145, "Rescission of FASB Statements No. 4, 44 and 64, Amendment of FASB
Statement No. 13, and Technical Corrections," which the Company is required to
implement in its fiscal year beginning January 1, 2003. SFAS No. 145 addresses
income statement classification of gains or losses from extinguishment of debt,
differentiating between types of debt extinguishment and whether they meet the
requirement for classification as extraordinary items in APB Opinion No. 30,
"Reporting the Results of Operations-Reporting the Effects of Disposal of a
Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring
Events and Transactions." During 2002, the Company recorded net gains of $88.2
million on the repurchase of New Senior Notes and early adopted the provisions
of SFAS No. 145. In accordance with SFAS No. 145, the transactions were recorded
as ordinary income as they were not considered unusual in nature and infrequent
in occurrence.

In June 2002, the FASB issued SFAS No. 146, "Accounting for Costs Associated
with Exit or Disposal Activities," which the Company is required to implement in
its fiscal year beginning January 1, 2003. SFAS No. 146 addresses the accounting
and reporting for restructuring and similar costs, and replaces previous
accounting guidance, principally Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other Costs
to Exit an Activity (including Certain Costs Incurred in a Restructuring)."
Under Issue No. 94-3, a liability for exit costs such as employee termination
benefits and office lease termination costs was recognized at the date of the
company's commitment to an exit plan. SFAS No. 146 requires that the liability
for these costs be recognized when the liability is incurred. SFAS No. 146 also
establishes that the liability should initially be measured and recorded at fair
value. The Company adopted the provisions of SFAS No. 146 on December 31, 2002
and the impact was not material to the Company's financial position or results
of operations.

C. TOTAL FINANCIAL ASSETS

Total financial assets represents the Company's portfolio of investment
activities, primarily consisting of secured financing to commercial and real
estate enterprises principally under financing contracts (such as loans and
other financing contracts, direct financing leases and leveraged leases). In
addition to its financing contracts, the Company has other financial assets
including assets held for sale, owned assets (such as operating leases and
assets held for the production of income) and investments (debt and equity
securities and partnership interests). The following discussion provides a
breakdown of the Company's investment activities. As of December 31, 2002 and
2001, the carrying amount of total financial assets (before reserve for credit
losses) was $3.7 billion and $6.5 billion, respectively.

A-28

THE FINOVA GROUP INC.

In April 2002, the Company completed the sale of approximately $485 million of
its franchise portfolio for approximately $490 million. This sale included
substantially all of FINOVA's performing franchise assets. In August 2002, the
Company completed the sale of an additional $67 million of the franchise
portfolio (primarily impaired assets) at their carrying value (net of reserves).
The Company will continue the orderly liquidation of its remaining franchise
assets.

During 2001, in conjunction with Fresh-Start Reporting, the Company recorded a
$709.7 million charge to the carrying amounts of its total financial assets to
record them at their reorganization value. Reorganization value was primarily
determined based upon the present value of estimated future cash flows,
discounted at appropriate risk adjusted market rates for similar loans and
leases and other assets. Allocation of the adjustment to individual assets was
determined in a manner similar to the accounting provisions applied for business
combinations under purchase accounting. The charge was comprised of a $365.4
million adjustment to financing assets that was to accrete into interest income
over the life of the transactions, assuming the accrual of income continued, and
a $344.3 million permanent write down to other financial assets (such as
operating leases, investments and assets held for sale and the production of
income). At December 31, 2002 and 2001, the unamortized amount of fresh-start
adjustments was $214.8 million and $315.5 million, respectively, of which the
Company suspended the accretion of $139.7 million and $151.3 million,
respectively, due to the underlying assets being classified as nonaccruing.

DIVERSIFICATION OF CREDIT RISK

The following table presents the composition of FINOVA's total financial assets
(before reserve for credit losses) at December 31:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Resort $ 1,159,207 31.4% $ 1,459,032 22.6%
Transportation 716,110 19.4% 1,041,640 16.1%
Specialty Real Estate 554,763 15.0% 647,035 10.0%
Rediscount 425,491 11.5% 742,775 11.5%
Healthcare 267,049 7.2% 569,615 8.8%
Communications 230,912 6.2% 359,053 5.6%
Commercial Equipment 110,935 3.0% 330,377 5.1%
Franchise 103,584 2.8% 745,596 11.6%
Corporate Finance 55,044 1.5% 184,264 2.9%
Mezzanine Capital 47,127 1.3% 121,354 1.9%
Public 89,741 1.4%
Investment Alliance 71,813 1.1%
Other Portfolios 26,197 0.7% 89,469 1.4%
- --------------------------------------------------------------------------------
$ 3,696,419 100.0% $ 6,451,764 100.0%
================================================================================

As indicated in the table above, since FINOVA's total financial assets are
concentrated in several specialized industries, the Company is subject to both
general economic risk and the additional risk of economic downturns within
individual sectors of the economy. Additionally, the Company has completed
multiple financial transactions with individual borrowers and their affiliates,
resulting in a greater total exposure to those borrowers beyond the typical
transaction size and increased concentration risk to economic events affecting
the industries (including resort and transportation) of such borrowers and their
affiliates. At December 31, 2002, the carrying value of the Company's top ten
aggregate exposures to borrowers and their affiliates totaled approximately
$911.3 million and represented 24.7% of total financial assets (before
reserves), as compared to the top ten exposures at December 31, 2001 of $1.1
billion, which represented 16.8% of total financial assets (before reserves).

A-29

THE FINOVA GROUP INC.

At December 31, 2002, the Company's transportation portfolio consisted of the
following aircraft:

- --------------------------------------------------------------------------------------------------------------------
APPROXIMATE
NUMBER OF AVERAGE AGE
AIRCRAFT TYPE AIRCRAFT PASSENGER CARGO (YEARS)
- --------------------------------------------------------------------------------------------------------------------

Airbus 300 8 4 4 13
Boeing 727 34 9 25 25
Boeing 737 33 33 18
Boeing 747 15 8 7 21
Boeing 757 9 9 10
Boeing 767 1 1 16
McDonnell Douglas DC 8 and DC 9 34 25 9 29
McDonnell Douglas DC 10 20 8 12 24
McDonnell Douglas MD series 30 30 17
Regional jets, corporate aircraft and turbo props 47 44 3 12
- --------------------------------------------------------------------------------------------------------------------
Total 231 171 60 20
====================================================================================================================

At December 31, 2002, 82 aircraft with a carrying value of $409.2 million were
operated by U.S. domiciled carriers and 80 aircraft with a carrying value of
$233.8 million were operated by foreign carriers. Additionally, 69 aircraft with
a carrying value of $48.8 million were off-lease, classified as held for the
production of income and were parked at various storage facilities in the United
States and Europe. Some of these aircraft are periodically placed in rental
agreements with payments based on aircraft usage, commonly known as
power-by-the-hour agreements. Often there is no minimum rental due and future
cash flows are difficult to project. FINOVA's railroad portfolio (all domestic)
and other transportation equipment had a carrying value of $24.3 million at
December 31, 2002.

At December 31, 2001, 117 aircraft with a carrying value of $550.4 million were
operated by U.S. domiciled carriers and 82 aircraft with a carrying value of
$355.7 million were operated by foreign carriers. Additionally, 63 aircraft with
a carrying value of $107.9 million were off-lease, classified as held for the
production of income and were parked at various storage facilities in the United
States and Europe. FINOVA's railroad portfolio (all domestic) and other
transportation equipment had a carrying value of $27.6 million at December 31,
2001.

In addition to the concentrated exposures within the transportation portfolio,
the Company has certain geographic concentrations within its resort portfolio.
At December 31, 2002 and 2001, the carrying amount of the resort portfolio by
state was as follows:

- ------------------------------------------------------------------------------
2002 2001
- ------------------------------------------------------------------------------
Florida $ 299,458 25.8% $ 289,143 19.8%
California 162,245 14.0% 114,278 7.8%
Nevada 138,455 12.0% 243,165 16.7%
Hawaii 138,418 11.9% 168,696 11.6%
Arizona 117,780 10.2% 213,421 14.6%
Other (less than 10%) 302,851 26.1% 430,329 29.5%
- ------------------------------------------------------------------------------
Total $ 1,159,207 100.0% $ 1,459,032 100.0%
==============================================================================

Changes in geographic concentrations during 2002 were due to the amount of
fundings (under existing customer commitments) and portfolio runoff within
individual states as compared to the net runoff for the total portfolio.

A-30

THE FINOVA GROUP INC.

FINANCING ASSETS

Loans and other financing contracts, excluding certain loans classified as held
for sale at December 31, consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Receivables $ 2,977,826 $ 5,481,574
Accrued interest 82,509 117,255
Unearned income (404,611) (578,403)
- --------------------------------------------------------------------------------
Total loans and other financing contracts, net $ 2,655,724 $ 5,020,426
================================================================================

FINOVA has a substantial number of loans with payments that fluctuate with
changes in interest rates, primarily prime interest rates and the London
interbank offer rates ("LIBOR"). The total carrying amount of loans (including
loans classified as held for sale) with floating interest rates was $2.0 billion
and $3.2 billion at December 31, 2002 and 2001, respectively.

Interest earned from financial transactions with floating interest rates was
approximately $134.1 million, $93.2 million, $293.3 million and $505 million for
the year ended December 31, 2002, the four months ended December 31, 2001, the
eight months ended August 31, 2001 and the year ended December 31, 2000,
respectively. Adjustments resulting from changes in interest rates can have a
significant effect on interest earned from financing assets (including loans
classified as held for sale).

At December 31, 2002, FINOVA had unfunded customer commitments of approximately
$568.3 million compared to $1.1 billion at December 31, 2001. Because of the
primarily revolving nature of its commitments, the Company is unable to estimate
with certainty how much of the commitments will be funded. Historically, in the
aggregate, actual fundings have been significantly below commitment amounts.
Funding is typically dependent upon certain conditions precedent and the
availability of eligible collateral. In the event of a contractual customer
default, FINOVA typically has the legal right to cease funding. In these
circumstances, decisions to continue or cease funding are made on a case-by-case
basis following an evaluation as to what management believes is in the Company's
best interest. Commitments generally have a fixed expiration and at the
Company's discretion, may be extended. The Company may seek appropriate fees,
equity and other consideration if circumstances warrant doing so in exchange for
extensions, modifications and waivers.

Direct financing leases at December 31, consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Rental receivables $ 345,795 $ 456,176
Estimated residual values 95,460 119,210
Unearned income (177,429) (220,428)
- --------------------------------------------------------------------------------
Total direct financing leases $ 263,826 $ 354,958
================================================================================

Future minimum lease payments for each of the next five years are $62.1 million,
$56.8 million, $48.9 million, $40.9 million and $28.7 million.

Leveraged leases at December 31, (excluding transportation leveraged leases
classified as assets held for sale since June 2001) consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Rental receivables $ 824,404 $ 941,644
Principal and interest payable on nonrecourse debt (754,205) (845,023)
- --------------------------------------------------------------------------------
Net rental receivables 70,199 96,621
Estimated residual values 338,432 349,718
Unearned income (226,221) (249,526)
- --------------------------------------------------------------------------------
Investment in leveraged leases 182,410 196,813
Deferred taxes from leveraged leases (136,901) (136,055)
- --------------------------------------------------------------------------------
Net investment in leveraged leases $ 45,509 $ 60,758
================================================================================

A-31

THE FINOVA GROUP INC.

The components of income from leveraged leases, after the effects of interest on
nonrecourse debt and other related expenses were as follows:

- ------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------------ -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- ------------------------------------------------------------------------------------------------

Lease and other income, net $9,159 $2,999 $6,587 $46,251
Income tax expense 3,658 1,223 2,733 16,832
- ------------------------------------------------------------------------------------------------

OTHER FINANCIAL ASSETS

Assets held for sale are carried at the lower of cost or market with adjustment,
if any, recorded in operations. The following table presents the balances and
changes in assets held for sale.

- --------------------------------------------------------------------------------
As of December 31, 2000 (Predecessor Company) $ 421,956
Assets reclassified to or from held for sale 912,225
Markdown to estimated sales price (277,213)
Runoff (amortization and prepayments), net of fundings (87,460)
Sale of assets (303,299)
- --------------------------------------------------------------------------------
As of August 31, 2001 (Reorganized Company) 666,209
Assets reclassified to or from held for sale 113,851
Markdown to estimated sales price (90,045)
Runoff (amortization and prepayments), net of fundings (137,320)
Sale of assets (132,670)
- --------------------------------------------------------------------------------
As of December 31, 2001 (Reorganized Company) 420,025
Assets reclassified to or from held for sale 279,571
Markdown to estimated sales price (57,715)
Runoff (amortization and prepayments), net of fundings (161,360)
Sale of assets (87,396)
- --------------------------------------------------------------------------------
As of December 31, 2002 (Reorganized Company) $ 393,125
================================================================================

At December 31, 2002, assets held for sale consisted of rediscount and corporate
finance loans, as well as transportation leveraged leases and repossessed and
other owned assets.

In the fourth quarter of 2002, the Company designated $223.9 million (carrying
amount) of rediscount loans as held for sale based on a proposed sale
transaction. In March 2003, the Company completed the sale of $188.8 million of
these loans for $175.4 million of net cash proceeds and received a $17.8 million
participation in a performing loan, resulting in a $4.4 million gain.

During 2002, assets with a carrying amount of $58.3 million were classified as
held for sale in conjunction with the Company's foreclosure and repossession of
collateral underlying various loan transactions. The Company's intent is to
stabilize and sell these assets. During 2002, repossessed assets with a carrying
amount of $24.4 million were sold for net gains of $3.5 million. At December 31,
2002 and 2001, assets held for sale included $54.6 million and $68.3 million,
respectively, of repossessed and other owned assets.

In late 2001, the Company designated its investment alliance portfolio as held
for sale. A loss of $51.4 million was recorded in conjunction with Fresh-Start
Reporting to write down the assets to their estimated fair value. In a series of
transactions during 2002 and 2001, the Company sold substantially all of its
investment alliance assets for $67.4 million and $22.3 million, respectively,
resulting in a net $6.7 million gain.

In connection with the reorganization of the Company in August 2001, the
remaining assets of the corporate finance portfolio were designated as held for
sale. These assets were previously recorded as discontinued operations and were
therefore recorded at estimated net realizable value. The corporate finance
portfolio, excluding repossessed assets, declined to a carrying amount of $53.2
million at December 31, 2002 from $181.7 million at December 31, 2001. The
decline was attributable to multiple individual loan sales and continued runoff
of the portfolio, net of fundings under existing customer commitments.

A-32

THE FINOVA GROUP INC.

During the second quarter of 2001, the Company designated its transportation
leveraged lease portfolio as held for sale and recorded a loss of $198.1 million
to write down the assets to their estimated net sales price. In August 2001,
prior to Fresh-Start Reporting, an additional charge of $74.0 million was
recorded due to continued weakening in the airline industry. The negative impact
of the events of September 11 resulted in an additional $67.6 million charge. In
December 2001, the Company completed a sale of certain of these leveraged leases
for approximately $125.2 million, which approximated the carrying amount at the
time of sale. The sale resulted in a tax gain of $319.0 million, which was fully
offset by tax losses for the year ended 2001. The sale was for substantially
fewer assets than originally proposed due to lower demand for certain aircraft
and uncertainty following the events of September 11. In September 2002, an
additional loss of $36.7 million was recorded to reflect the current state of
certain aircraft operators and the value of these aircraft. At December 31, 2002
and 2001, the carrying value of the remaining transportation leveraged leases
was $61.5 million and $98.7 million, respectively.

During 2000, the Company designated loans generated by the realty capital
portfolio as held for sale and recorded a loss of $43.2 million to write down
the assets to their net estimated sales price. An additional loss of $5.1
million was recorded during the first quarter of 2001. In July 2001,
substantially all of the realty capital assets were sold for their approximate
written down value.

Operating leases at December 31, consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Cost of assets $ 135,677 $ 319,480
Accumulated depreciation (23,851) (128,555)
- --------------------------------------------------------------------------------
Total operating leases $ 111,826 $ 190,925
================================================================================

Future minimum rentals on noncancellable operating leases are $200.9 million in
the aggregate and for each of the next five years are $51.8 million, $41.0
million, $34.3 million, $23.3 million and $14.2 million.

Assets held for the production of income at December 31, consisted of the
following types of assets:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Aircraft and rail $ 54,817 $ 124,336
Real estate 12,844 20,250
Equipment 206 7,286
- --------------------------------------------------------------------------------
Total assets held for the production of income $ 67,867 $ 151,872
================================================================================

Assets held for the production of income include off-lease and returned assets
previously the subject of financing transactions that are currently being made
available for new financing transactions. Assets held for the production of
income are carried at amortized cost, with adjustments for impairment, if any,
recorded in operations. These assets are generally depreciated over their
remaining useful lives.

Investments at December 31, consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Partnership interests $ 8,799 $ 12,931

Available for sale:
Equity securities 7,475 37,463
Debt securities 413 4,093
- --------------------------------------------------------------------------------
Total available for sale 7,888 41,556
- --------------------------------------------------------------------------------

Held to maturity debt securities 4,954 3,413
Trading debt securities 58,845
- --------------------------------------------------------------------------------
Total investments $ 21,641 $ 116,745
================================================================================

Debt and equity securities that are being held for an indefinite period of time,
including those securities which may be sold in response to needs for liquidity,
are classified as available for sale and are carried at fair value using the
specific identification method, with unrealized gains and losses reported as a

A-33

THE FINOVA GROUP INC.

component of accumulated other comprehensive (loss) income in the equity section
of the balance sheet. The amounts were not shown net of deferred taxes for 2002
and 2001 due to the Company's current tax position, which includes substantial
net operating loss carryforwards.

The Company had a net unrealized holding loss of $3.7 million at December 31,
2002, as compared to a $7.0 million net unrealized gain at December 31, 2001.
The change in unrealized holding gains (losses) was primarily due to a decline
in market values of many securities and by the realization of some gains through
the sale of certain investments.

Held to maturity investments are certificates of deposit with maturities of less
than one year.

Investments classified as trading in 2001 were assets held in trust for
nonqualified compensation plans. The Company's investments in trading securities
were marked to market on a quarterly basis through current operations. In the
first quarter of 2002, the Company liquidated substantially all assets of the
trust. See Note I "Pension and Other Benefits" for a further discussion.

Net gains of $19.6 million, $6.1 million, $43.3 million and $57.4 million were
recognized on sales of investments for the year ended December 31, 2002, the
four months ended December 31, 2001, the eight months ended August 31, 2001 and
the year ended December 31, 2000, respectively.

D. RESERVE FOR CREDIT LOSSES

The following table presents the balances and changes to the reserve for credit
losses:

- ----------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
------------------------------ ------------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- ----------------------------------------------------------------------------------------------------

Balance, beginning of period $ 1,019,878 $ 256,324 $ 578,750 $ 178,266
Provision for credit losses (339,986) 777,500 230,772 643,000
Write-offs (190,021) (35,877) (558,052) (240,655)
Recoveries 50,033 21,729 4,964 1,018
Other 364 202 (110) (2,879)
- ----------------------------------------------------------------------------------------------------
Balance, end of period $ 540,268 $ 1,019,878 $ 256,324 $ 578,750
====================================================================================================

For the year ended December 31, 2002, the Company recorded a $340.0 million
negative provision for credit losses to reduce its reserve for credit losses.
The negative provision was primarily related to proceeds received from
collections, prepayments and asset sales in excess of recorded carrying amounts
(net of reserves); reversal of reserves established after September 11 on
certain portfolios (primarily resort and specialty real estate) due to the less
than anticipated negative impact on these portfolios; and recoveries of amounts
previously written off. Partially offsetting these reversals were new impairment
reserves established on specific accounts.

For the four months ended December 31, 2001 and the eight months ended August
31, 2001, the Company recorded a provision for credit losses of $777.5 million
and $230.8 million, respectively, to increase its reserve for credit losses
primarily due to the weakened economy, the events of September 11 and
management's concerns regarding the full collection of certain transactions
within its portfolio.

A summary of the reserve for credit losses by impaired and other assets is as
follows:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Reserves on impaired assets $ 438,172 $ 636,661
Other reserves 102,096 383,217
- --------------------------------------------------------------------------------
Reserve for credit losses $ 540,268 $1,019,878
================================================================================

FINOVA's reserve for credit losses decreased to $540.3 million at December 31,
2002 from $1.0 billion at December 31, 2001. At December 31, 2002, the total
carrying amount of impaired loans was $1.7 billion, of which $471.1 million were
revenue accruing. The Company has established impairment reserves of $438.2
million related to $1.2 billion of nonaccruing and impaired loans. At December

A-34

THE FINOVA GROUP INC.

31, 2001, the total amount of impaired loans was $2.3 billion, of which $576.7
million were revenue accruing. The impairment reserve at December 31, 2001
totaled $636.7 million related to $1.7 billion of nonaccruing and impaired
loans.

Reserves on impaired assets decreased due to write-offs, improvement in pay-off
and collection experience on certain assets previously reserved and the
Company's application of cash received on nonaccruing assets, reducing the
carrying amount and impairment reserves required on those assets. Partially
offsetting these reductions were new impairment reserves established for assets
reclassified to impaired status during 2002 and additional reserves recorded on
existing impaired assets.

Other reserves related to estimated inherent losses on unimpaired assets
decreased primarily as a result of asset sales, significant portfolio runoff,
changes in historical loss experience, reclassification of previously unimpaired
assets to impaired status and the less than anticipated negative impact of
September 11 on certain of the Company's portfolios, including resort and
specialty real estate.

An analysis of nonaccruing assets included in total financial assets at December
31 is as follows:

- -----------------------------------------------------------------------------------------------------------------
2002 2001
- -----------------------------------------------------------------------------------------------------------------

Contracts $ 1,345,191 $ 1,817,369
Repossessed assets 48,041 25,236
- -----------------------------------------------------------------------------------------------------------------
Total nonaccruing assets $ 1,393,232 $ 1,842,605
- -----------------------------------------------------------------------------------------------------------------
Nonaccruing assets as a percentage of total financial assets (before reserves) 37.7% 28.6%
=================================================================================================================

Accounts classified as nonaccruing were $1.4 billion or 37.7% of total financial
assets (before reserves) at December 31, 2002 as compared to $1.8 billion or
28.6% at December 31, 2001. The portfolios with the largest decline in
nonaccruing assets during 2002 included resort ($145.8 million), franchise
($108.1 million), corporate finance ($98.2 million), transportation ($43.4
million) and healthcare ($43.2 million), partially offset by increases within
rediscount ($28.3 million). The large decline within the resort portfolio was
primarily attributed to the Company negotiating a slightly discounted prepayment
of a nonaccruing account (approximately $100 million carrying amount), while the
decline in the transportation portfolio was almost entirely due to the writedown
of aircraft values in conjunction with their repossession. The reductions within
the franchise, corporate finance and healthcare portfolios were due to their
continued liquidation (including asset sales) and runoff.

During 2002, the level of nonaccruing assets declined, but did so at a much
slower pace than performing transactions. As a result, nonaccruing assets as a
percentage of total financial assets have increased. The level of nonaccruing
assets continues to be affected by a weakened economy and the Company's concerns
regarding its ability to fully collect principal and interest on certain
transactions that have significant balloon payments or residual values due at
maturity. The current economic climate has resulted in a general reduction of
operating cash flow for the typical FINOVA borrower and in more conservative
industry wide lending practices. As a result, FINOVA is concerned that certain
of its customers will not have the ability to obtain refinancing at maturity for
the full amount of these residual/balloon payments. FINOVA's ability or
willingness to continue to extend credit to these borrowers may be affected by
its restricted access to the capital markets and its assessment of the costs and
benefits of doing so. In certain of these cases, FINOVA has classified
transactions as nonaccruing even though principal and interest payments are
current. If necessary, impairment reserves on these transactions are established
in accordance with SFAS No. 114.

Had all nonaccruing assets outstanding at December 31, 2002, 2001 and 2000
remained accruing at their contractual rates, interest and rental income would
have increased by approximately $158.3 million, $168.0 million and $59.9
million, respectively.

Accruing impaired assets decreased to $471.1 million at December 31, 2002 from
$576.7 million at December 31, 2001. The decrease was attributable to
transportation ($141.7 million), resulting primarily from migration of these
accounts to off-lease status. There were also decreases within rediscount ($28.6
million), specialty real estate ($5.5 million) and commercial equipment ($7.8
million). Partially offsetting these decreases were increases within franchise
of $8.9 million and resort of $70.6 million, caused primarily by the migration
of one large exposure to accruing impaired status following the extension and
modification of payment terms.

The Company expects that over time, its impaired assets will comprise an
increasing percentage of its total portfolio, as the obligors under those
contracts tend to be in poor financial condition, and will repay their
obligations more slowly than performing obligors.

E. RECEIVABLE SALES

COMMERCIAL EQUIPMENT SECURITIZATION. In 2000, the Company completed the sale of
$322.1 million of commercial equipment loans and direct financing lease
receivables for cash proceeds of $302.8 million. The Company was entitled to
receive annual servicing fees approximating 50 basis points on the outstanding

A-35

THE FINOVA GROUP INC.

balance of the receivables and the right to future cash flows after investors
received the return for which they contracted. There is no recourse to the
Company's other assets, except for the related interest rate conversion
agreement described below. The Company's retained interest is subordinate to
investors' interests and the value of the retained interest is subject to
credit, prepayment and interest rate risks on the transferred financial assets.

Investors are paid a floating interest rate, while the pool of sold receivables
contains fixed rate transactions. At December 31, 2002, FINOVA had an
outstanding liability of $6.5 million related to a guarantee of an interest rate
conversion agreement issued in conjunction with this securitization. The
conversion agreement has a notional principal amount of $83.8 million that
effectively converts the floating interest rate obligation to investors into a
fixed interest rate obligation. The conversion agreement requires 7.42% fixed
interest payments on the notional principal amount in return for receipts
calculated on the same notional amount at a floating interest rate. Payments
under this transaction are funded with collections from the securitization. At
December 31, 2002, the notional amount of the conversion agreement ($83.8
million) exceeded the outstanding balance of the sold receivables ($55.9
million) due to prepayments and liquidation of collateral related to defaulted
accounts.

At the sale dates, FINOVA recognized a total pre-tax gain of $0.2 million. In
the determination of the gain, the Company assumed an annual prepayment rate of
6.0%, weighted average life of approximately 3.5 years, an annual net credit
loss rate of 1.5%, delinquencies of 5.0% and a discount rate of 15%.

On February 27, 2001, FINOVA Capital announced a moratorium on repayment of
principal on its then-existing outstanding bank and bond debt, which constituted
an event of default and a cross default under substantially all of FINOVA
Capital's then-existing bank and bond indebtedness, including this sale and
servicing agreement. As a result, the revolving feature was terminated, the
structure went into rapid amortization and FINOVA was required to obtain a
backup servicer in the event that it would not be able to perform its servicing
duties. As a result of the rapid amortization, all cash received from the
collection of receivables is applied to investors' interests before any cash is
remitted to the Company to apply against its retained interests. During 2002 and
2001, retained interests in this structure were adjusted to their estimated fair
value, resulting in markdowns of $3.8 million and $16.9 million, respectively.

At December 31, 2002 and 2001, the outstanding balance of the sold receivables
totaled $55.9 million and $143.7 million, respectively. A revaluation of the
retained interest in 2002 resulted in a $3.8 million realized loss based on the
following revised assumptions: an annual prepayment rate of 7.6%, weighted
average life of approximately 2.0 years, an annual net credit loss rate of
33.0%, delinquencies of 33.0%, and a discount rate of 17.0%. The retained
interest had an estimated fair value, net of the valuation adjustment, totaling
$0.3 million and $4.1 million at December 31, 2002 and 2001, respectively, and
is included in investments.

In connection with the retained interest, a hypothetical analysis was performed
to determine the impact of a 10% and 20% adverse and beneficial change in any
individual assumption from the expected levels. Based on this analysis, a 10%
and 20% adverse change in the level of net credit losses would each decrease the
value of retained interests from $0.3 million to zero. A 10% and 20% beneficial
change in the level of net credit losses would result in a $0.9 million and $2.2
million increase in value, respectively. A 10% and 20% adverse change in the
level of prepayments would result in a $0.1 million and $0.2 million reduction
in its value, respectively. A 10% and 20% beneficial change in the level of
prepayments would result in a $0.1 million and $0.3 million increase in its
value, respectively. A 10% and 20% adverse and beneficial change in the level of
delinquencies and discount rate would result in an immaterial change in value.
These sensitivities are hypothetical and should be used with caution. As the
figures indicate, changes in fair value based on a percentage variation in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in fair value may not be linear. Also, 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, changes in one factor may result in changes to another (for example,
increases in market interest rates may result in lower prepayments and increased
credit losses), which might magnify or counteract the sensitivities.

CORPORATE FINANCE SECURITIZATION (INCLUDED IN DISCONTINUED OPERATIONS). In the
third quarter of 2000, FINOVA's corporate finance division sold $827 million of
loans, on a revolving basis. Cash proceeds to FINOVA aggregated approximately
$475 million. The Company also received annual servicing fees approximating 200
basis points on the outstanding balance of the receivables and the right to
future cash flows after investors had received the return for which they have
contracted. There was no recourse to the Company's other assets for failure of
debtors to pay when due. The Company's retained interests were subordinate to
the investors' interests. The value of the retained interests was subject to
credit, prepayment and interest rate risks on the transferred financial assets.

A-36

THE FINOVA GROUP INC.

During 2000, the Company recognized a pre-tax loss of $13.1 million, including
transaction fees. On February 1, 2001, FINOVA negotiated an agreement and
purchased the outstanding beneficial interests.

FRANCHISE SECURITIZATION. In 1998 and 1997, the Company sold receivables
totaling $140.0 million with limited recourse. Recourse is limited to a funded
cash reserve of 1% to 3% of the outstanding receivables balance, depending on
delinquency levels. As of December 31, 2002 and 2001, the outstanding balance of
the sold loans totaled $91.7 million and $104.8 million, respectively. In these
securitizations, the Company retained servicing responsibilities and
subordinated interests. As of December 31, 2002 and 2001, the Company continued
to service these assets and held subordinated interests totaling $0.14 million
and $0.04 million, respectively. During 2001, the retained interest was marked
down to its fair value, resulting in a charge of $7.5 million. The value of the
retained interest is subject to credit, prepayment, and interest rate risks on
the transferred financial assets.

F. FRESH-START REPORTING

In accordance with the provisions of the American Institute of Certified Public
Accountants' Statement of Position 90-7 "Financial Reporting by Entities in
Reorganization Under the Bankruptcy Code," the Company adopted Fresh-Start
Reporting upon emergence from chapter 11 in 2001. The Company adopted
Fresh-Start Reporting because, as a result of implementation of the Plan,
holders of the Company's existing common stock immediately before filing and
confirmation of the Plan retained less than 50% of the common stock of the
emerging entity and the Company's reorganization value at emergence was less
than its post-petition liabilities and allowed claims. Fresh-Start Reporting
resulted in material adjustments to the carrying amounts of the Company's assets
and liabilities. FINOVA's gross assets were recorded at their reorganization
value, which was primarily determined based upon the present value of estimated
future cash flows, discounted at appropriate risk adjusted market rates for
similar loans and leases. Allocation of the adjustment to individual assets was
determined in a manner similar to the accounting provisions applied for business
combinations under purchase accounting. The New Senior Notes were recorded based
upon their trading price shortly after they were issued. The resulting
stockholders' equity value of $17.6 million at August 31, 2001, was based on the
consideration of many factors and various valuation methods, including the fair
values of assets and liabilities, discounted cash flows, selected publicly
traded company market multiples and other applicable ratios and valuation
techniques believed by the Company and its financial advisors to be
representative of the Company's business and industry at that point in time.

The adjustment of assets and liabilities to fair values resulted in a net charge
to earnings of $62.9 million during the eight-month period ended August 31,
2001. This net charge to earnings was included in the net reorganization expense
line on the Statement of Consolidated Operations.

The effect of the Plan and the implementation of Fresh-Start Reporting on the
Company's balance sheet as of August 31, 2001 was as follows:

A-37

THE FINOVA GROUP INC.
FRESH-START BALANCE SHEET
(Dollars in thousands)
(Unaudited)

- -----------------------------------------------------------------------------------------------------------------------------------
PREDECESSOR REORGANIZED REORGANIZED
COMPANY COMPANY COMPANY
AUGUST 31, REORGANIZATION PLAN (BEFORE FRESH-START AUGUST 31,
2001 ADJUSTMENTS FRESH-START) ADJUSTMENTS 2001
- -----------------------------------------------------------------------------------------------------------------------------------

ASSETS
Cash and cash equivalents $ 3,623,751 $(2,715,926) (a)(b)(c) $ 907,825 $ $ 907,825
FINANCING ASSETS:
Loans and other financing contracts, net 6,371,233 6,371,233 (805,158) (f) 5,566,075
Direct financing leases 458,892 458,892 (47,029) (f) 411,863
Leveraged leases 221,122 221,122 (4,200) (f) 216,922
- -----------------------------------------------------------------------------------------------------------------------------------
Total financing assets 7,051,247 7,051,247 (856,387) (f) 6,194,860
Reserve for credit losses (707,521) (707,521) 451,197 (f) (256,324)
- -----------------------------------------------------------------------------------------------------------------------------------
Net financing assets 6,343,726 6,343,726 (405,190) 5,938,536
- -----------------------------------------------------------------------------------------------------------------------------------
OTHER FINANCIAL ASSETS:
Assets held for sale 330,185 342,554 (c) 672,739 (6,530) (f) 666,209
Operating leases 478,511 478,511 (132,398) (f) 346,113
Investments 286,017 (2,791) (a)(c) 283,226 (79,718) (f) 203,508
Assets held for the production of income 262,771 262,771 (85,855) (f) 176,916
Net assets of discontinued operations 322,558 (322,558) (c)
- -----------------------------------------------------------------------------------------------------------------------------------
Total other financial assets 1,680,042 17,205 1,697,247 (304,501) 1,392,746
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL FINANCIAL ASSETS 8,023,768 17,205 8,040,973 (709,691) 7,331,282
Other assets 156,923 17,475 (a)(c)(d) 174,398 (110,549) (f)(g) 63,849
Goodwill, net of accumulated amortization 43,410 43,410 (43,410) (g)
- -----------------------------------------------------------------------------------------------------------------------------------
$11,847,852 $(2,681,246) $ 9,166,606 $ (863,650) $ 8,302,956
===================================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES:
Berkadia Loan $ $ 5,600,000 (a) $ 5,600,000 $ $ 5,600,000
Senior debt 10,993,901 (7,743,423) (a)(b) 3,250,478 (771,339) (f) 2,479,139
- -----------------------------------------------------------------------------------------------------------------------------------
Total debt 10,993,901 (2,143,423) 8,850,478 (771,339) 8,079,139
Accounts payable and accrued expenses 651,344 (449,745) (a)(b)(c)(d) 201,599 (5,361) (f) 196,238
Deferred income taxes, net 34,055 34,055 (24,099) (f) 9,956
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL LIABILITIES 11,679,300 (2,593,168) 9,086,132 (800,799) 8,285,333
- -----------------------------------------------------------------------------------------------------------------------------------
Convertible Preferred Securities 111,550 (111,550) (b)
STOCKHOLDERS' EQUITY:
Common stock 648 611 (e) 1,259 1,259
Additional capital 1,119,531 (611) (e) 1,118,920 (1,102,020) (f) 16,900
Accumulated deficit (880,520) 26,327 (a)(b)(d) (854,193) 854,193 (f)
Accumulated other comprehensive loss (4,386) (2,855) (c) (7,241) 7,241 (g)
Common stock in treasury (178,271) (178,271) 177,735 (f) (536)
- -----------------------------------------------------------------------------------------------------------------------------------
TOTAL STOCKHOLDERS' EQUITY 57,002 23,472 80,474 (62,851) 17,623
- -----------------------------------------------------------------------------------------------------------------------------------
$11,847,852 $(2,681,246) $ 9,166,606 $ (863,650) $ 8,302,956
===================================================================================================================================

A-38

THE FINOVA GROUP INC.

NOTES TO FRESH-START BALANCE SHEET:

a) Reflects the receipt of proceeds from the $5.6 billion Berkadia Loan, which
was used together with cash on hand and the issuance of $3.25 billion of
New Senior Notes to restructure the Company's existing senior indebtedness
and repay all accrued and unpaid pre-petition and post-petition interest.
The restructuring of senior indebtedness included offsetting amounts owed
of $51.4 million, which represented FINOVA cash held by various
institutions exercising their right of offset.

b) Holders of the TOPrS issued by FINOVA Finance Trust received (i) a cash
payment equal to 52.5% of the liquidation preference attributable to TOPrS,
(ii) a cash payment equal to 75% of accrued and unpaid pre-petition and
post-petition dividends attributable to TOPrS and (iii) New Senior Notes
having an aggregate principal amount equal to 22.5% of the liquidation
preference attributable to TOPrS. As a result, FINOVA recorded a gain on
discharge of indebtedness of $28.8 million. FINOVA's subordinated
debentures related to TOPrS have been cancelled and FINOVA Finance Trust
has been dissolved pursuant to the Plan.

c) Upon emergence from chapter 11, the net assets of discontinued operations
were reclassified into continuing operations and all former segments of the
Company have been dissolved. This decision reflects management's intention
to manage all assets as one operating unit, with an emphasis on orderly
collection of its portfolio.

d) In connection with the Plan, the Company rejected a number of lease
agreements for its office space. Management explored alternative facilities
for its operations and negotiated acceptable concessions with some of its
landlords for continued use of all or portions of the space at those
facilities. FINOVA wrote off $15.1 million in fixed assets and leasehold
improvements related to offices closed as a result of rejecting certain
lease agreements. Additionally, FINOVA accrued for lease damages associated
with these rejected lease agreements.

e) FINOVA issued Berkadia 61,020,581 shares of common stock, representing 50%
of the shares of FINOVA common stock outstanding after giving effect to the
implementation of the Plan, including the issuance of a small number of
additional shares in settlement of a claim.

f) Reflects the adjustments made to carrying amounts of assets, liabilities
and stockholders' equity to record them at fair value. The adjustment to
assets totaled $863.7 million, of which $365.4 million will amortize into
income over the life of the transactions, assuming the accrual of income
continues. The borrower's obligation to make payments to the Company was
not affected by this adjustment.

The adjustment to reduce the carrying amount of the New Senior Notes by
$771.3 million represented a discount on the principal amount based upon
the fair value of that obligation. This discount is being amortized to
interest expense over the life of the New Senior Notes. Although the August
31, 2001 Reorganized Company balance sheet reflects the New Senior Notes at
$2.48 billion, the Company's repayment obligation was the principal amount
of $3.25 billion.

g) In accordance with Fresh-Start Reporting guidelines, certain assets,
including goodwill and deferred debt origination costs were reduced to
zero. Additionally, all unrealized equity items including foreign currency
translation and unrealized gains and losses were reduced to zero and
recognized through operations.

NET REORGANIZATION EXPENSE

Net reorganization expense for the eight months ended August 31, 2001 included
income and expenses recognized or incurred by FINOVA related to the
reorganization. The components of net reorganization expense included fair value
adjustments of assets and liabilities related to Fresh-Start Reporting ($62.9
million) and professional service and other fees ($26.0 million), partially
offset by interest income earned on cash retained for interest and debt payments
deferred during the bankruptcy period ($42.4 million).

A-39

THE FINOVA GROUP INC.

G. DEBT

As of December 31, the Company's total debt outstanding was as follows:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Berkadia Loan $ 2,175,000 $ 4,900,000
Senior debt:
Principal 3,067,949 3,250,478
Discount for Fresh-Start Reporting (686,306) (761,396)
- --------------------------------------------------------------------------------
Total senior debt 2,381,643 2,489,082
- --------------------------------------------------------------------------------
Total debt $ 4,556,643 $ 7,389,082
================================================================================

Upon emergence from bankruptcy in 2001, all of FINOVA's outstanding indebtedness
was restructured. Pursuant to the Plan, Berkadia loaned $5.6 billion to FINOVA
Capital on a senior secured basis, which was used together with cash on hand and
the issuance of $3.25 billion aggregate principal amount of New Senior Notes to
restructure the Company's pre-emergence indebtedness (including TOPrS), and
repay all allowed accrued and unpaid pre-petition and post-petition interest.
The Berkadia Loan has a first priority lien on substantially all of FINOVA's
assets, including all of its subsidiaries, and the holders of New Senior Notes
have a second priority lien on those assets.

The terms of the Credit Agreement and the Indenture prohibit the Company from
using available funds (after certain permitted uses) for any purpose other than
to satisfy its obligations to creditors. Under the terms of the Credit Agreement
and the Indenture, the Company is permitted to establish a cash reserve in an
amount not to exceed certain defined criteria. Any amount in excess of the cash
reserve is required to be paid ("mandatory prepayments") to Berkadia to reduce
the principal amount of the loan on a quarterly basis. In addition to mandatory
prepayments, the Company is permitted, with Berkadia's consent, to make
voluntary prepayments. During 2002, mandatory and voluntary prepayments totaled
$2.725 billion. Principal payments made to Berkadia since emergence have reduced
the Berkadia Loan to $2.175 billion as of December 31, 2002 and $1.525 billion
as of the filing of this report (including $650 million of payments during the
first quarter of 2003). The pace of loan repayments depends on numerous factors,
including the rate of collections from borrowers and asset sales. There can be
no assurance that the Berkadia Loan will continue to be repaid at this pace.

The Berkadia Loan matures on August 20, 2006 and bears interest, payable
monthly, at the Eurodollar Rate, as defined in the Credit Agreement, plus 2.25%.
All outstanding principal and accrued and unpaid interest is payable at
maturity. FINOVA and substantially all of its direct and indirect subsidiaries
(except those that are contractually prohibited from acting as a guarantor) have
guaranteed FINOVA Capital's repayment of the Berkadia Loan.

The terms of the Credit Agreement require the Company to maintain at all times,
a ratio of Collateral Value (as defined in the Credit Agreement) to the Berkadia
Loan of not less than 1.25 to 1. As of December 31, 2002, the Collateral Value
was $3.7 billion, resulting in a ratio of 1.70 to 1, while as of December 31,
2001, the Collateral Value totaled $6.5 billion, resulting in a ratio of 1.33 to
1.

The New Senior Notes mature in November 2009 and bear interest, payable
semi-annually to the extent that cash is available for that purpose in
accordance with the Indenture, at a fixed interest rate of 7.5% per annum.
Principal payments are due prior to maturity only after the Berkadia Loan has
been paid in full, and are to be paid with available cash after establishment of
cash reserves as defined in the Indenture. The Indenture has no financial
covenants, except for the requirement to use available cash as discussed below.

Because virtually all of the Company's assets are pledged to secure the
obligations under the Berkadia Loan and the Intercompany Notes (as described
below), FINOVA's ability to obtain additional or alternate financing is severely
restricted. Berkadia has no obligation to lend additional sums to or to further
invest in the Company. Accordingly, FINOVA intends to rely on internally
generated cash flows to meet its liquidity needs.

Permitted uses of cash are specified in the Credit Agreement and the Indenture.
Generally, the Company is permitted to use its cash in the following order:
first to fund its operating expenses, including payment of taxes, funding
customer commitments and payment of interest on the Berkadia Loan; then to pay
interest on the New Senior Notes; then to make optional purchases of the New
Senior Notes with the consent of Berkadia and otherwise in accordance with the
terms of the Indenture in an aggregate amount not to exceed $1.5 billion of cash
while the Berkadia Loan is outstanding, and thereafter in an amount not to
exceed $150 million per year. After repayment of the Berkadia Loan and the other
items noted above, ninety-five percent (95%) of the remaining available cash
will be used to make semi-annual prepayments of principal on the New Senior
Notes and five percent (5%) will be used for distributions to and/or repurchases
of stock from common stockholders. It should be noted that under governing law,

A-40

THE FINOVA GROUP INC.

these distributions may not be made to stockholders as long as FINOVA has a
negative net worth (total liabilities in excess of total assets). Instead, these
payments will be retained by the Company for that purpose until legally
permitted by law or used to satisfy the Company's obligations, if necessary.
These restrictions also apply to the stockholder payments noted below.

If payment in full is made of the outstanding principal of the New Senior Notes
and payments are made to FINOVA common stockholders in an aggregate amount equal
to 5.263% (5%/95% as noted above) of the aggregate principal amount of the New
Senior Notes, ninety-five percent (95%) of any available cash will be used to
pay contingent interest to holders of New Senior Notes in an aggregate amount of
up to $94.3 million (or a reduced amount to reflect a further decrease in the
principal amount of New Senior Notes outstanding as a result of additional
repurchases, if any, by FINOVA) and five percent (5%) of such remaining
available cash will be used for distributions to and/or repurchases of stock
from common stockholders, if those payments can be made to stockholders, as
noted above. Contingent interest payments will terminate in 2016. FINOVA's
obligation to make the contingent interest payments is not secured.

FINOVA's obligations with respect to the payment of interest and principal under
the New Senior Notes are secured by a second-priority security interest in (a)
all capital stock of FINOVA Capital, (b) promissory notes of FINOVA Capital
issued to FINOVA in the aggregate principal amount of the New Senior Notes (the
"Intercompany Notes") and (c) certain other property of FINOVA that may be
acquired from its subsidiaries in the future. The Intercompany Notes are secured
by a second-priority lien on the assets of FINOVA Capital pledged to secure the
Berkadia Loan. Substantially all of FINOVA Capital's direct and indirect
subsidiaries (except those that are contractually prohibited from acting as a
guarantor) have guaranteed FINOVA Capital's repayment of the Intercompany Note.

The New Senior Notes are reflected in the balance sheet at December 31, 2002 and
2001, net of an unamortized discount of $686.3 million and $761.4 million,
respectively. The book value of the New Senior Notes is scheduled to increase
over time to the principal amount due at maturity through the amortization of
the discount as interest expense. For the year ended December 31, 2002 and the
four months ended December 31, 2001, the Company recorded amortization of $33.7
million and $9.9 million, respectively (not including $41.4 million offset
against gains generated from the repurchases discussed below), which resulted in
an effective interest rate of 10.8% for all periods. The Company's obligation is
to pay the full remaining $3.07 billion principal amount of the New Senior Notes
at maturity in 2009.

In August 2002, in accordance with the Credit Agreement and the Indenture, the
Company's Board of Directors, with Berkadia's consent, approved the use of up to
$300 million of cash to repurchase New Senior Notes rather than make mandatory
prepayments of the Berkadia Loan. In consideration for Berkadia's consent,
FINOVA and Berkadia agreed that they would share equally in the "Net Interest
Savings" resulting from any repurchase. Net Interest Savings is calculated as
the difference between (a) the reduction in interest expense on the New Senior
Notes (resulting from the repurchase of such New Senior Notes) and (b) the
increase in interest expense on the Berkadia Loan (resulting from the use of
cash to repurchase New Senior Notes and to pay 50% of the Net Interest Savings
to Berkadia rather than make mandatory prepayments of the Berkadia Loan). On
each date that interest is paid on the outstanding New Senior Notes (a "Note
Interest Payment Date"), 50% of the Net Interest Savings accrued since the last
Note Interest Payment Date will be paid to Berkadia. The other 50% of the Net
Interest Savings will be retained by FINOVA. Upon repayment in full of the
Berkadia Loan, Berkadia will not have the right to receive any Net Interest
Savings accruing after such repayment. Because it is highly unlikely there will
be sufficient funds to fully repay the New Senior Notes at maturity, the
Company, if it elects to repurchase additional New Senior Notes, intends to do
so only at substantial discounts to par. The agreement between FINOVA and
Berkadia was approved by the "Special Committee" of FINOVA's Board of Directors,
which is comprised solely of directors unaffiliated with Berkadia, Berkshire or
Leucadia.

During the third quarter of 2002, the Company repurchased $98.9 million (face
amount) of New Senior Notes at a price of 29.875% or $29.6 million, plus accrued
interest. The repurchase generated a net gain of $46.9 million ($69.4 million
repurchase discount, partially offset by $22.5 million of unamortized
fresh-start discount). During the fourth quarter of 2002, the Company
repurchased an additional $86.1 million (face amount) of New Senior Notes at a
price of 30.0% or $25.8 million, plus accrued interest. The repurchase generated
a net gain of $41.3 million ($60.2 million repurchase discount, partially offset
by $18.9 million of unamortized fresh-start discount). There can be no assurance
that the Company will repurchase any additional New Senior Notes or that
additional New Senior Notes will become available at an acceptable price.

Based on interest rates in effect as of December 31, 2002, 50% of the Net
Interest Savings from the repurchases is estimated to be approximately $6.0
million per year. The Net Interest Savings will fluctuate with changes in
interest rates and would change if additional New Senior Notes are repurchased.

Based on the Company's current financial condition, it is highly unlikely that
there will be funds available to fully repay the outstanding principal on the
New Senior Notes at maturity or to pay the 5% distribution to common
stockholders or to make any contingent interest payments. The Company has a
negative net worth of $970.7 million as of December 31, 2002 ($1.7 billion if
the New Senior Notes are considered at their principal amount due), the

A-41

THE FINOVA GROUP INC.

financial condition of many of its customers is weakened, impairing their
ability to meet obligations to the Company, much of the Company's portfolio of
owned assets is not income producing and the Company is restricted from entering
into new business activities or issuing new securities to generate substantial
cash flow. For these reasons, the Company believes that investing in FINOVA's
debt or equity securities involves a high level of risk to the investor.

H. DERIVATIVE FINANCIAL INSTRUMENTS

At December 31, 2002, FINOVA had an outstanding liability of $6.5 million
related to a guarantee of an interest rate conversion agreement issued in
conjunction with the Company's commercial equipment securitization. The
conversion agreement has a notional principal amount of $83.8 million that
effectively converts a floating interest rate obligation into a fixed interest
rate obligation. The agreement requires 7.42% fixed interest payments on the
notional principal amount in return for receipts calculated on the same notional
amount at a floating interest rate. Payments under this transaction are funded
with collections from the Company's securitization.

FINOVA entered into two short-term foreign exchange swap transactions to
minimize currency risk. Currency risk results from changes in the value of
underlying foreign-denominated assets or liabilities versus U.S. Dollar ("USD")
values. Without these currency swap transactions, FINOVA could be adversely
impacted by exchange rate volatility. The USD equivalent of the exchanged
currencies totaled $31 million at December 31, 2002. The foreign exchange swap
transactions are renewable on a monthly basis.

During 2001, substantially all of FINOVA's outstanding interest rate swaps were
terminated as a result of the Company's chapter 11 filing. In accordance with
the Company's various swap agreements, the swap counterparties exercised their
right to offset the amounts due to the Company upon the termination of the swaps
against the amounts due from the Company on the debt outstanding. At the time
FINOVA emerged from chapter 11 and the debt was restructured, approximately
$45.6 million was offset against amounts due to the Company.

Historically, FINOVA used derivative instruments to minimize its exposure to
fluctuations in interest rates, reduce debt expense and lock funding costs over
predetermined periods of time. FINOVA attempted to minimize its overall debt
costs while limiting the short-term variability of interest expense and funds
required for debt service. To achieve this objective, FINOVA diversified its
borrowing sources (short- and long-term debt with a fixed or a variable rate)
and sought to maintain a portfolio that was match funded. FINOVA's matched
funding policy generally required that floating-rate assets be financed with
floating-rate liabilities and fixed-rate assets be financed with fixed-rate
liabilities. As a result of the termination of substantially all FINOVA interest
rate swaps, the Company's assets and liabilities are no longer match funded.
Changes in interest rates will affect the Company's financial results.

Two interest rate conversion agreements with notional principal amounts totaling
$204.0 million to effectively convert certain floating interest rate obligations
into fixed interest rate obligations were outstanding at December 31, 2001.

I. PENSION AND OTHER BENEFITS

The Company sponsors a trusteed, noncontributory pension plan that covers
substantially all of its employees. Benefits are based primarily on final
average salary and years of service. Post retirement health benefits are any
benefits other than retirement benefits and are recorded at the time employees
leave active service. The Company's funding policy for the pension plan is to
make at least the minimum annual contribution required by applicable
regulations. Post retirement benefits are funded as those benefits are paid.

A-42

THE FINOVA GROUP INC.

CHANGE IN PROJECTED BENEFIT OBLIGATIONS

- --------------------------------------------------------------------------------------------------
POST RETIREMENT
PENSION BENEFITS HEALTH BENEFITS
-------------------- ---------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------

Projected benefit obligation, beginning of year $ 37,440 $ 32,547 $ 2,610 $ 3,383
Service cost 1,520 2,346 133 293
Interest cost 2,286 2,421 165 218
Amendments (1) (1,404)
Actuarial (gain) loss (37) 1,483 209 (767)
Benefits paid (2,614) (1,357) (292) (517)
- --------------------------------------------------------------------------------------------------
Projected benefit obligation, end of year (2) $ 38,595 $ 37,440 $ 1,421 $ 2,610
==================================================================================================

(1) As of December 31, 2002, the Company amended its post retirement health
benefit plan to discontinue the plan for active employees, resulting in a
$1.4 million reduction in liability. The Company will terminate the entire
post retirement health benefit plan on December 31, 2003.

(2) The Company's projected benefit obligation of $38.6 million at December 31,
2002 represents the actuarial present value of benefits taking into account
assumptions regarding future salary increases. The accumulated benefit
obligation at December 31, 2002, which is based on current and past
compensation levels, totaled $36.0 million.

The Company's projected benefit obligation at December 31, 2001 excluded
$20.0 million, representing the Company's obligation related to an unfunded
nonqualified supplemental retirement plan (the "SERP") for certain highly
compensated employees. The Company terminated the SERP plan in December
2001 and paid a lump-sum distribution to participants during the first
quarter of 2002, upon their acceptance of an amendment and release. As of
December 31, 2001, the Company had accrued for all costs associated with
this termination.

Previously, the Company established a Rabbi Trust to hold investments for
nonqualified compensation plans, including the SERP. At December 31, 2001,
the trust assets totaled $58.8 million. In conjunction with the termination
of the SERP and all other nonqualified compensation plans, the trust was
liquidated and all net proceeds were returned to FINOVA for use in funding
operations.

CHANGE IN QUALIFIED PLAN ASSETS

- --------------------------------------------------------------------------------------------------
POST RETIREMENT
PENSION BENEFITS HEALTH BENEFITS
-------------------- ---------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------

Fair value of plan assets, beginning of year $ 25,548 $ 29,457 $ $
Actual return on plan assets (1) (3,356) (2,552)
Employer contributions (2) 16,700 292 517
Benefits paid (2,614) (1,357) (292) (517)
- --------------------------------------------------------------------------------------------------

Fair value of plan assets, end of year (3) $ 36,278 $ 25,548 $ $
==================================================================================================

(1) To reduce the volatility of invested plan assets, the Company transferred
all plan assets to lower yielding, lower risk investments during 2002.

(2) During 2002, FINOVA was required to make a minimum contribution of $1.7
million to plan assets. The Company funded an additional $15.0 million to
improve the plan's funded status.

(3) At December 31, 2001, plan assets included 90,348 shares of FINOVA stock,
which had a fair value of approximately $55 thousand. All shares of FINOVA
stock were sold during 2002.

A-43

THE FINOVA GROUP INC.

FUNDED STATUS OF PLAN

- --------------------------------------------------------------------------------------------------
POST RETIREMENT
PENSION BENEFITS HEALTH BENEFITS
-------------------- ---------------------
2002 2001 2002 2001
- --------------------------------------------------------------------------------------------------

Plan assets less than projected benefit obligation $ (2,317) $(11,892) $ (1,421) $ (2,610)
Unrecognized net loss 9,321 3,861 482 324
Unrecognized prior service cost (1,404)
- --------------------------------------------------------------------------------------------------
Net amount recognized $ 7,004 $ (8,031) $ (2,343) $ (2,286)
==================================================================================================

As a result of funding $16.7 million in 2002, the Company currently has a
prepaid pension asset of $7.0 million compared to a pension liability of $8.0
million at December 31, 2001.

In accordance with the implementation of Fresh-Start Reporting in 2001, FINOVA
recorded an additional $10.8 million liability to reflect its projected benefit
obligations, including the noncontributory pension plan, the SERP and the post
retirement health benefits, at fair value. This adjustment to the liability was
charged to reorganization expense in the Statement of Consolidated Operations.

WEIGHTED AVERAGE ASSUMPTIONS USED

- ------------------------------------------------------------------------------------------------------------------------
PENSION BENEFITS POST RETIREMENT HEALTH BENEFITS
---------------------------------- ----------------------------------
2002 2001 2000 2002 2001 2000
- ----------------------------------------------------------------------------------- ----------------------------------

Discount rate 6.25% 6.75% 7.25% 6.25% 6.75% 7.50%
Expected long term rate of return on plan assets 6.00% 9.00% 9.50% n/a n/a n/a
Rate of increase in future compensation levels 2.75% 3.25% 3.75% n/a n/a n/a
Current year's rate - pre-65 n/a n/a n/a 9.00% 10.00% 5.00%
Current year's rate - post-65 n/a n/a n/a 10.50% 12.00% 5.00%
Ultimate year's rate n/a n/a n/a 5.00% 5.00% 5.00%
Ultimate year n/a n/a n/a 2007 2007 2000
- ------------------------------------------------------------------------------------------------------------------------

COMPONENTS OF NET PERIODIC BENEFIT COST

- -------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
PENSION BENEFITS: DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------

Service cost $ 1,520 $ 580 $ 1,766 $ 3,145
Interest cost 2,286 800 1,621 2,110
Expected return on plan assets (2,278) (810) (1,876) (2,813)
Recognized net actuarial loss 13
Amortization of prior service cost (85) (128)
Amortization of transition asset (14) (62)
- -------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost 1,541 570 1,412 2,252
SFAS 88 credits (3,162)
- -------------------------------------------------------------------------------------------------------------------------
Total benefit cost (income) $ 1,541 $ 570 $ 1,412 $ (910)
=========================================================================================================================

A-44

THE FINOVA GROUP INC.

- -------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
POST RETIREMENT HEALTH BENEFITS: DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------

Service cost $ 133 $ 40 $ 253 $ 341
Interest cost 165 50 168 210
Recognized net actuarial gain (97) (152)
Amortization of prior service cost 46 66
Amortization of transition obligation 51 72
- -------------------------------------------------------------------------------------------------------------------------
Net periodic benefit cost 298 90 421 537
SFAS 88 charges 10
- -------------------------------------------------------------------------------------------------------------------------
Total benefit cost $ 298 $ 90 $ 421 $ 547
=========================================================================================================================

Assumed health care cost trend rates have a significant effect on the amounts
reported for the health care plans. A 1% change in assumed health care cost
trend rates would have the following effects:

- -------------------------------------------------------------------------------------------
ONE PERCENTAGE ONE PERCENTAGE
POINT INCREASE POINT DECREASE
- -------------------------------------------------------------------------------------------

Effect on total of service and interest cost components $ 5 $ (4)
Effect on post retirement benefit obligation 66 (58)
- -------------------------------------------------------------------------------------------

J. INCOME TAXES

The consolidated income tax (expense) benefit consisted of the following for the
periods ended:

- -------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------

Current:
United States:
Federal $ $ $ $ 19,696
State 506 1,580 815 (784)
Foreign 549 (11,043)
- -------------------------------------------------------------------------------------------------------------------------
1,055 1,580 815 7,869
- -------------------------------------------------------------------------------------------------------------------------
Deferred:
United States:
Federal 189,634
State (506) (1,580) (815) 14,237
Foreign (605) (792) 2,765 1,433
- -------------------------------------------------------------------------------------------------------------------------
(1,111) (2,372) 1,950 205,304
- -------------------------------------------------------------------------------------------------------------------------
Income tax (expense) benefit $ (56) $ (792) $ 2,765 $ 213,173
=========================================================================================================================

During 2002, FINOVA received net income tax refunds of $39.5 million. For the
four months ended December 31, 2001, the Company received an income tax refund
of approximately $1.6 million and for the eight months ended August 31, 2001,
the Company paid income taxes of approximately $5.7 million. No income taxes
were paid in 2000.

A-45

THE FINOVA GROUP INC.

The federal statutory income tax rate applied to income (loss) before taxes is
reconciled to the effective income tax rate as follows:

- -------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------

Federal statutory income tax rate (35.0)% 35.0% 35.0% 35.0%
State income taxes (3.9) 2.8 2.4 2.7
Foreign tax effects (1.0) (0.7) (1.3)
Valuation allowance 28.1 (37.2) (35.0) (7.5)
Municipal and ESOP income 0.6 0.1 0.3 0.6
Non-deductible goodwill (0.8) (2.3)
Original issue discount 11.2
Other (0.1) (0.1) (0.2) (0.3)
- -------------------------------------------------------------------------------------------------------------------------
(Expense) benefit for income taxes (0.1)% (0.1)% 0.4% 28.2%
=========================================================================================================================

The significant components of deferred tax liabilities and deferred tax assets
at December 31 consisted of the following:

- --------------------------------------------------------------------------------
2002 2001
- --------------------------------------------------------------------------------
Deferred tax liabilities:
Deferred income from leveraged leases $ 424,576 $ 309,090
Deferred income from lease financing 67,224 3,526
Other 1,630 15,384
- --------------------------------------------------------------------------------
Gross deferred tax liability 493,430 328,000
- --------------------------------------------------------------------------------
Deferred tax assets:
Reserve for credit losses 349,142 557,224
Goodwill 5,425 29,558
Alternative minimum tax 5,309
Net operating loss carryforward 349,439 21,781
Basis difference in loans and investments 173,993 283,478
Basis difference in debt 44,304 60,938
Basis difference in owned assets 119,381 81,997
Foreign taxes 11,057
Accrued expenses 8,664 16,375
Other 17,834 13,019
- --------------------------------------------------------------------------------
Gross deferred tax asset 1,073,491 1,075,427
Valuation allowance (596,837) (759,784)
- --------------------------------------------------------------------------------
Net deferred tax asset 476,654 315,643
- --------------------------------------------------------------------------------
Net deferred tax liability $ 16,776 $ 12,357
================================================================================

The effective income tax rates for continuing operations for the year ended
December 31, 2002, the four months ended December 31, 2001 and the eight months
ended August 31, 2001 were 0.1% expense, 0.1% expense and 0.4% benefit,
respectively, compared to 28.2% benefit in 2000. The effective income tax rate
for discontinued operations for the eight months ended August 31, 2001 was 9.95%
expense compared to 30% benefit in 2000. The lower rates in 2002 and 2001 were
due to the expectation that the Company would not be able to utilize all of the
deferred tax assets to reduce federal or state tax liabilities in future years.
During 2002, the valuation allowance decreased by $162.9 million, primarily
resulting from utilization of deferred tax assets. The reasons the Company may
not be able to utilize all the deferred tax assets include: a variety of loss or
other tax attribute carryover limitations in the various jurisdictions in which
the Company files tax returns; uncertainty about the amount of future earnings;
and uncertainty about the timing of the reversal of deferred tax liabilities.

A-46

THE FINOVA GROUP INC.

Based on available data, management has concluded that a change in ownership, as
defined in Internal Revenue Code Section 382, occurred on the effective date of
the Plan. Ordinarily, an ownership change under Section 382 would result in a
significant limitation on the Company's ability to utilize net operating loss
("NOL") carryforwards and built in losses following the ownership change.
However, pursuant to the "Section 382(I)(5) bankruptcy exception," provided the
Company's reorganization resulted in ownership of 50% or more of the Company's
stock by qualifying creditors and pre-change stockholders, the general
limitations imposed by Section 382 will not apply. With the election of the
Section 382(I)(5) bankruptcy exception, if the Company undergoes another
ownership change within two years after the ownership change resulting from its
chapter 11 reorganization, the Company would not be entitled to utilize any NOL
carryforward or built in losses that accrued prior to such subsequent ownership
change, to offset taxable income earned following such ownership change. As of
December 31, 2002 federal NOLs of $859.4 million are available for carryforward,
which expire between 2009 and 2023.

In March 2002, Congress enacted the Job Creation and Worker Assistance Act of
2002 ("Act"). The Act includes provisions allowing corporations to carryback
certain NOLs for longer periods and with fewer limitations than had previously
existed. The Company filed its 2001 corporate tax return in June 2002 and made a
special election available under Section 108 of the Internal Revenue Code of
1986 that resulted in the Company reducing its tax basis in depreciable
property. As a result of this election and related filings, NOLs became
available for carryback, thereby entitling the Company to a refund of
approximately $67 million. During the third quarter of 2002, the Company
received $36.0 million of this refund, which was recorded in accordance with the
provisions of SOP 90-7 as a direct addition to paid-in-capital. Although there
can be no assurance regarding the timing, the Company anticipates receiving the
remainder of the refund during 2003, which also will be recorded as a direct
addition to paid-in-capital. As a result of the special election and carryback
of NOLs, the Company did not utilize any of its federal NOL carryforwards and
credits to offset the cancellation of debt income as contemplated in the
Company's Form 10-K for December 31, 2001.

K. CONVERTIBLE PREFERRED SECURITIES

FINOVA Finance Trust, a subsidiary trust sponsored and wholly owned by FINOVA,
was one of the entities that filed a voluntary petition for protection from
creditors pursuant to chapter 11 on March 7, 2001. On August 10, 2001, the
Bankruptcy Court entered an order confirming FINOVA's Plan, pursuant to which
the Debtors restructured their debt, effective August 21, 2001. Holders of the 5
1/2% Convertible Trust Originated Preferred Securities (the "Preferred
Securities" or the "TOPrS") issued by FINOVA Finance Trust received (a) a cash
payment equal to 52.5% of the liquidation preference attributable to the TOPrS
(not including pre-petition and post-petition dividends), (b) a cash payment
equal to 75% of accrued and unpaid pre-petition and post-petition dividends
attributable to the TOPrS and (c) New Senior Notes having an aggregate principal
amount equal to 22.5% of the liquidation preference attributable to the TOPrS
(not including pre-petition and post-petition dividends). As a result, FINOVA
recorded an extraordinary gain of $28.8 million in 2001. The Convertible
Subordinated debentures (the "Debentures") related to the TOPrS were cancelled
and FINOVA Finance Trust was dissolved.

In December 1996, FINOVA Finance Trust issued (a) 2,300,000 shares of Preferred
Securities to the public for gross proceeds of $115 million (before transactions
costs of $3.5 million) and (b) 71,135 shares of common securities to FINOVA. The
gross proceeds for these transactions were invested by the trust in $118.6
million aggregate principal amount of 5 1/2% Debentures due 2016 newly issued by
FINOVA. The Debentures represented all of the assets of the trust.

The Preferred Securities accrued and paid cash distributions quarterly, when
declared by FINOVA, at a rate of 5 1/2% per annum of the stated liquidation
amount of $50 per preferred security. FINOVA had the option to defer making
distributions on the Debentures for up to 20 consecutive quarters, and did so
early in 2001, at which time dividends on the TOPrS were also suspended.

L. STOCKHOLDERS' EQUITY

Upon emergence from chapter 11, FINOVA's existing shares of common stock
continued to remain outstanding. Pursuant to the Plan, FINOVA issued 61,020,581
shares of common stock to Berkadia, representing 50% of FINOVA's shares
outstanding after giving effect to implementation of the Plan. Accordingly,
there were approximately 122,041,000 shares outstanding on the Effective Date.
At December 31, 2002, 2001 and 2000, FINOVA had approximately 125,873,000,
125,873,000 and 64,849,000 shares of common stock issued with approximately
122,041,000, 122,041,000 and 61,295,000 shares of common stock outstanding,
respectively. All rights under existing options, warrants and rights of
conversion were deemed cancelled on August 21, 2001, the effective date of the
Plan. As a result, 132,296 shares of FINOVA common stock were reacquired by
FINOVA. The Company has 400,000,000 shares of common stock authorized.

A-47

THE FINOVA GROUP INC.

FINOVA has 200,000,000 shares of one cent ($0.01) per share par value preferred
stock authorized, none of which was issued at December 31, 2002. The Board of
Directors is authorized to provide for the issuance of shares of preferred stock
in series, to establish the number of shares to be included in each series and
to fix the designation, powers, preferences and rights of the shares of each
series.

In conjunction with implementing Fresh-Start Reporting during 2001, the Company
adjusted its assets and liabilities to fair value, which resulted in a
stockholders' value of $17.6 million. This value was based on the consideration
of many factors and various valuation methods, including the fair values of
assets and liabilities, discounted cash flows, selected publicly traded company
market multiples and other applicable ratios and valuation techniques believed
by the Company and its financial advisors to be representative of the Company's
business and industry.

M. OTHER COMPREHENSIVE INCOME

Changes in accumulated other comprehensive income (loss) are as follows:

- -------------------------------------------------------------------------------------------------------------------------
FOREIGN NET UNREALIZED ACCUMULATED OTHER
CURRENCY HOLDING GAINS (LOSSES) COMPREHENSIVE INCOME
TRANSLATION ON SECURITIES (LOSS)
- -------------------------------------------------------------------------------------------------------------------------

Balance, January 1, 2000 $ (4,146) $ 37,958 $ 33,812
Change during 2000 4,051 (22,709) (18,658)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2000 (95) 15,249 15,154
Change during the eight months ended August 31, 2001 95 (15,249) (15,154)
- -------------------------------------------------------------------------------------------------------------------------
Balance August 31, 2001
Change during the four months ended December 31, 2001 (2,919) 6,999 4,080
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2001 (2,919) 6,999 4,080
Change during 2002 2,786 (10,743) (7,957)
- -------------------------------------------------------------------------------------------------------------------------
Balance, December 31, 2002 $ (133) $ (3,744) $ (3,877)
=========================================================================================================================

For 2000, the change in foreign currency translation was net of income tax
benefits of $0.1 million and net unrealized holding gains were net of income tax
expense of $8.1 million. No liability was established in 2002 and 2001 due to
the Company's current tax position, which includes substantial net operating
loss carryforwards (see Note J "Income Taxes").

N. EARNINGS (LOSS) PER SHARE

Basic earnings (loss) per share exclude the effects of dilution and are computed
by dividing income (loss) available to common stockholders by the weighted
average number of common shares outstanding for the period. Diluted earnings
(loss) per share reflect the potential dilution that could occur if options,
convertible preferred stock or other contracts to issue stock were exercised or
converted into common stock.

As a result of the Plan, all stock incentive plans, outstanding stock options,
stock appreciation rights and restricted stock were cancelled. Additionally,
TOPrS were restructured in the reorganization and ceased to exist. As a result,
basic and diluted earnings (loss) per share are equal for the Reorganized
Company. For the periods ended August 31, 2001 and December 31, 2000, basic loss
per share equaled diluted loss per share as a result of the options and
preferred stock being antidilutive.

A-48

THE FINOVA GROUP INC.

Basic and diluted earnings (loss) per share calculations are presented in the
Statements of Consolidated Operations and are detailed below:

- -------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
----------------------------- -----------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 DEC. 31, 2001 AUG. 31, 2001 DEC. 31, 2000
- -------------------------------------------------------------------------------------------------------------------------

BASIC/DILUTED EARNINGS (LOSS) PER SHARE COMPUTATION:
Income (loss) from continuing operations $ 121,472 $ (1,142,300) $ (654,583) $ (546,709)
=========================================================================================================================

Weighted average shares outstanding 122,041,000 122,041,000 63,677,000 61,272,000
Contingently issued shares (278,000)
- -------------------------------------------------------------------------------------------------------------------------
Adjusted weighted average shares 122,041,000 122,041,000 63,677,000 60,994,000
=========================================================================================================================

BASIC/DILUTED EARNINGS (LOSS) FROM CONTINUING
OPERATIONS PER SHARE $ 1.00 $ (9.36) $ (10.28) $ (8.96)
=========================================================================================================================

O. STOCK OPTIONS

Pursuant to the Plan, all rights under existing options, restricted stock,
warrants and rights of conversion were deemed cancelled on August 21, 2001. No
additional shares of FINOVA common stock may be issued after the Effective Date
of the Plan pursuant to any restricted stock plans, arrangements or awards.

Prior to the Effective Date, The FINOVA Group Inc. 1992 Stock Incentive Plan
allowed for the granting of options, restricted stock and stock appreciation
rights to officers, directors and employees. The Stock Incentive Plan provided
for the following types of awards: (a) stock options (both incentive and
nonqualified stock options), (b) stock appreciation rights and (c) restricted
stock. The 1992 Stock Incentive Plan generally authorized the issuance of awards
for up to 2 1/2% of the total number of shares of common stock outstanding as of
the first day of each year, with some modifications. In addition, 250,000 shares
of preferred stock were reserved for awards under the Stock Incentive Plan.

The stock options were granted for terms of 10 years and generally became
exercisable between one month to five years from the date of grant. Stock
options were issued at market value at the date of grant, unless a higher
exercise price was established. Since 1993, the Board issued multi-year,
multi-priced stock options to senior executives. The exercise price of those
option grants ranged in price from the fair market value on the grant date to
prices up to 58.7% in excess of the grant date value. Those option grants were
intended to cover anticipated grants during the years the grants were scheduled
to vest, although the Board had authority to issue additional grants at its
discretion. In 1999, premium-priced options were granted with exercise prices
ranging from $41.56 to $50.29; none of these options were granted in 2002, 2001
or 2000.

Information with respect to options granted and exercised under the Stock
Incentive Plan for the years ended December 31, 2000 and 2001 (the year in which
the plan was terminated) is as follows:

- --------------------------------------------------------------------------------
AVERAGE OPTION
SHARES PRICE PER SHARE
- --------------------------------------------------------------------------------
Options outstanding at January 1, 2000 4,576,746 $36.56
- --------------------------------------------------------------------------------
Granted 149,941 21.69
Exercised (117,098) 9.67
Cancelled (754,048) 43.32
- --------------------------------------------------------------------------------
Options outstanding at December 31, 2000 3,855,541 35.50
- --------------------------------------------------------------------------------
Granted
Exercised
Cancelled (3,855,541) 35.50
- --------------------------------------------------------------------------------
Options outstanding at December 31, 2001 0 N/A
================================================================================

A-49

THE FINOVA GROUP INC.

From April 1992, the Board of Directors granted performance-based restricted
stock to employees. Performance-based restricted stock awards (no shares awarded
in 2002, 2001 and 2000) vested generally over five years from the date of grant.
The holder of the performance-based restricted stock, like the holder of
restricted stock, had the right to receive dividends and vote the target number
of shares, but was not permitted to sell, assign, transfer, pledge or otherwise
encumber the performance-based restricted stock. All performance-based
restricted stock grants since 1992 were based on FINOVA share performance and
could have resulted in greater or lesser numbers of shares ultimately being
delivered to the holder, depending on that performance. The target number of
shares was deemed received on the grant date. Additional vesting over the target
was reported as new grants as of the vesting dates. Vestings below target were
reported as a forfeiture of amounts below the target number of shares.

The Company applied APB Opinion 25 and related interpretations in accounting for
its plans. No compensation cost was recognized for its fixed stock option plans
because FINOVA options were granted at or above market price on the date of
grant. Vesting criteria for restricted stock were not met in 2001 and 2000. The
Company had no unvested restricted stock at December 31, 2001.

With the acquisition of Sirrom Capital Corporation in March 1999, the Board of
Directors of FINOVA adopted Sirrom's three existing stock option plans (the
"Sirrom Plans"). Each option outstanding under the Sirrom Plans at the time of
the acquisition was converted into an option exercisable for 0.1634 shares of
FINOVA common stock. No new options were issued under these plans. Options from
the Sirrom Plans were not included in the table above. During the year ended
December 31, 2000, 13,253 and 85,502 options with a weighted average price of
$21.80 were exercised and cancelled, respectively. All the outstanding options
under the Sirrom Plans were cancelled on the Effective Date of the Plan.

P. RELATED PARTY

In conjunction with its emergence from bankruptcy, Berkadia LLC, an entity
jointly owned by Berkshire Hathaway Inc. ("Berkshire") and Leucadia National
Corporation ("Leucadia"), loaned $5.6 billion to FINOVA Capital on a senior
secured basis (the "Berkadia Loan"). Terms of the Berkadia Loan are described in
Note G "Debt." The proceeds of the Berkadia Loan, together with cash on hand and
the issuance by FINOVA of approximately $3.25 billion aggregate principal amount
of the New Senior Notes were used to restructure the Company's debt. In
addition, FINOVA issued Berkadia 61,020,581 shares of common stock, representing
50% of FINOVA's shares outstanding after giving effect to the implementation of
the Plan.

Upon entering into a commitment with Berkadia on February 26, 2001, FINOVA paid
Berkadia a nonrefundable commitment fee of $60.0 million. An additional $60.0
million funding fee was paid to Berkadia when the Berkadia Loan was made.

In August 2002, in accordance with the Credit Agreement and the Indenture, the
Company's Board of Directors, with Berkadia's consent, approved the use of up to
$300 million of cash to repurchase New Senior Notes rather than make mandatory
prepayments of the Berkadia Loan. In consideration for Berkadia's consent,
FINOVA and Berkadia agreed that they would share equally in the "Net Interest
Savings" resulting from any repurchase. Net Interest Savings is calculated as
the difference between (a) the reduction in interest expense on the New Senior
Notes (resulting from the repurchase of such New Senior Notes) and (b) the
increase in interest expense on the Berkadia Loan (resulting from the use of
cash to repurchase New Senior Notes and to pay 50% of the Net Interest Savings
to Berkadia rather than make mandatory prepayments on the Berkadia Loan). On
each date that interest is paid on the outstanding New Senior Notes (a "Note
Interest Payment Date"), 50% of the Net Interest Savings accrued since the last
Note Interest Payment Date will be paid to Berkadia. The other 50% of the Net
Interest Savings will be retained by FINOVA. Upon repayment in full of the
Berkadia Loan, Berkadia will not have the right to receive any Net Interest
Savings accruing after such repayment. Because it is highly unlikely there will
be sufficient funds to fully repay the New Senior Notes at maturity, the
Company, if it elects to repurchase additional New Senior Notes, intends to do
so only at substantial discounts to par. The agreement between FINOVA and
Berkadia was approved by the "Special Committee" of FINOVA's Board of Directors,
which is comprised solely of directors unaffiliated with Berkadia, Berkshire or
Leucadia.

In connection with its reorganization, FINOVA's Board of Directors was
reconstituted and is currently comprised of four directors designated by
Berkadia, two prior directors of FINOVA and one director designated by the
creditor's committee. The Berkadia designated directors are Ian M. Cumming,
Joseph S. Steinberg, R. Gregory Morgan and Thomas E. Mara; the continuing FINOVA
directors are G. Robert Durham and Kenneth R. Smith; and Thomas F. Boland was
designated by the creditor's committee. All directors are subject to reelection
annually by the stockholders, without regard to their original designation,
except that the Board of Directors is required to renominate Mr. Boland or
another director designated by holders of the New Senior Notes as long as the
outstanding balance of the New Senior Notes is greater than $500 million.

A-50

THE FINOVA GROUP INC.

FINOVA's business is being operated under a Management Services Agreement with
Leucadia, which expires in 2011. Leucadia has designated its employees to act as
Chairman of the Board (Ian M. Cumming), President (Joseph S. Steinberg) and
Chief Executive Officer (Thomas E. Mara). In accordance with the agreement,
FINOVA pays Leucadia an annual management fee of $8 million. Additionally,
FINOVA reimburses Leucadia personnel for all reasonable out-of-pocket expenses.

Certain members of the Board of Directors have a relationship with Leucadia,
Berkshire or the Company's creditors. The table below summarizes the background
of the directors that have some form of related party relationship:

Name Position and Background
- -------------------------- ---------------------------------------------------------------------------------------------

Ian M. Cumming Chairman of the Board of FINOVA. Director and Chairman of the Board of Leucadia National
Corporation since June 1978.

Joseph S. Steinberg Director and President of FINOVA. Director of Leucadia National Corporation since December
1978 and President of Leucadia National Corporation since 1979.

Thomas E. Mara Director and Chief Executive Officer of FINOVA. Executive Vice President of Leucadia since
1980 and Treasurer of Leucadia since 1993.

R. Gregory Morgan Director of FINOVA. Partner in the law firm of Munger, Tolles & Olson LLP, counsel to
Berkshire, where he has practiced since 1981.

Thomas F. Boland Director of FINOVA originally designated by the Official Committee of Creditors. Managing
Director of Seneca Financial Group, Inc. since 2001.

Q. GENERAL AND ADMINISTRATIVE EXPENSES

The following represents a summary of the major components of general and
administrative expenses for periods ended:

- -----------------------------------------------------------------------------------------------------------------------------
REORGANIZED COMPANY PREDECESSOR COMPANY
---------------------------------------------- -----------------------------------------------
FOUR MONTHS EIGHT MONTHS
YEAR ENDED ENDED ENDED YEAR ENDED
DEC. 31, 2002 % DEC. 31, 2001 % AUG. 31, 2001 % DEC. 31, 2000 %
- -----------------------------------------------------------------------------------------------------------------------------

Salaries and employee $ 60,912 56.2% $ 35,431 56.0% $ 60,603 49.9% $ 112,519 58.5%
benefits
Professional services 17,600 16.2% 14,281 22.6% 28,678 23.6% 30,136 15.7%
Other operating expenses 16,935 15.6% 5,157 8.1% 15,620 12.9% 22,159 11.5%
Occupancy expenses 6,728 6.2% 5,933 9.4% 8,645 7.1% 12,374 6.4%
Depreciation and
amortization 3,621 3.4% 1,615 2.6% 4,601 3.8% 7,425 3.9%
Travel and entertainment 2,611 2.4% 855 1.3% 1,785 1.5% 10,837 5.6%
Goodwill amortization (1) 1,621 1.2% 16,300 8.5%
Deferred acquisition cost (19,415) (10.1)%
- -----------------------------------------------------------------------------------------------------------------------------
Total general and
administrative expense $ 108,407 100.0% $ 63,272 100.0% $ 121,553 100.0% $ 192,335 100.0%
=============================================================================================================================

(1) Excludes the write down of impaired goodwill of $193.3 million in 2000.

R. OPERATING LEASES

The Company leases various office properties under leases expiring through 2011.
As discussed in Note S "Costs Associated with Exit or Disposal Activities,"
FINOVA has several office leases that it has ceased using or terminated. The
Company continues to incur costs under these operating lease contracts without
receiving economic benefit or has negotiated termination costs in conjunction
with the renegotiation of the lease. As of December 31, 2002, the Company had a
liability for terminated leases and office space it has ceased using totaling
$9.6 million, which is net of sublease rentals, where applicable.

A-51

THE FINOVA GROUP INC.

The table below details total minimum future rental payments under operating
leases still in place as of December 31, 2002.

-------------------------------------------------------
2003 $ 6,477
2004 3,966
2005 2,401
2006 1,122
2007 1,122
Thereafter 4,207
-------------------------------------------------------
Total minimum future rental payments $19,295
=======================================================

Total minimum future rental payments have not been reduced by $4.9 million of
sublease rentals to be received in the future under non-cancelable subleases.

Rent expense net of sublease rentals of $0.9 million, $0.4 million, $1.7 million
and $1.8 million was $6.7 million, $5.9 million, $8.6 million and $12.4 million
for the year ended December 31, 2002, the four months ended December 31, 2001,
the eight months ended August 31, 2001 and the year ended December 31, 2000,
respectively.

S. COSTS ASSOCIATED WITH EXIT OR DISPOSAL ACTIVITIES

On December 31, 2002, FINOVA implemented the provisions of SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities" ("SFAS No.
146"), which did not have a material impact on the Company's consolidated
results of operations and financial position. This statement addresses financial
accounting and reporting for costs such as one-time termination benefits,
including severance costs and contract termination costs. As a result of the
sale of assets, the reduction in workforce and the overall contraction of the
Company, FINOVA is currently incurring both types of expenses.

SEVERANCE

All employees are currently entitled to severance benefits under certain
circumstances. In accordance with EITF No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity
(including Certain Costs Incurred in a Restructuring)," the Company had
established a full liability for termination benefits when management approved
and committed the Company to a plan of termination and formally communicated
such plan to its employees ("Commitment Date"). In accordance with SFAS No. 146,
the Company must now recognize any additional future liability for termination
benefits ratably over the employee's remaining service period. The principal
difference between SFAS No. 146 and EITF No. 94-3 relates to the timing of
liability recognition. SFAS No. 146 spreads recognition of the liability from
the Commitment Date to the date of termination, while EITF No. 94-3 recognizes
the full liability at the Commitment Date. The provisions of SFAS No. 146
require the liability to be measured on the date the employee received notice
based on the fair value of the liability as of the termination date, using a
credit-adjusted risk-free rate.

As of December 31, 2002, FINOVA had a severance liability of $8.9 million
covering approximately 140 individuals at various levels throughout the Company,
including staff and management, which is recorded in the accounts payable and
accrued expenses line item of the balance sheet. Severance benefits totaling
$11.0 million were paid during 2002.

CONTRACT TERMINATION COSTS

In accordance with SFAS No. 146, a liability shall be recognized and measured at
fair value for costs to terminate an operating lease or other contract upon
termination and for costs that will continue to be incurred under a contract for
its remaining term without economic benefit to the Company, when the Company
ceases using the right conveyed by the contract ("cease-use date"). As a result
of the sale of assets and the reduction in the number of employees, FINOVA has
several office leases that it has ceased using or terminated (rejected in
bankruptcy). The Company continues to incur costs under these operating lease
contracts without receiving economic benefit or has negotiated termination costs
in conjunction with the renegotiation of certain leases, including its principal
executive office in Scottsdale, Arizona, which had been rejected during
bankruptcy.

As of December 31, 2002, the Company had a liability for terminated leases and
office space it has ceased using totaling $9.6 million, which is reflected in
the accounts payable and accrued expense line item of the balance sheet. The
fair value of the liability was determined by discounting, at a credit-adjusted
risk-free rate, the remaining lease payments offset by estimated sublease
rentals.

A-52

THE FINOVA GROUP INC.

T. DISCONTINUED OPERATIONS

Upon emergence from bankruptcy in 2001, net assets of discontinued operations of
$322.6 million were reclassified to assets held for sale. This decision
reflected management's intention to manage the net assets previously classified
as discontinued operations in the same manner as other assets of the Company.
Additionally, all former segments of the Company were dissolved and the Company
is now managed as one operating unit, with an emphasis on orderly collection of
its portfolio.

During the third quarter of 2000, FINOVA's Board of Directors approved a plan to
discontinue and offer for sale its corporate finance, distribution & channel and
commercial services portfolios. As a result, the Company reported these
divisions as discontinued operations in accordance with Accounting Principles
Board Opinion No. 30, "Reporting the Results of Operations - Reporting the
Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and
Infrequently Occurring Events and Transactions."

The consolidated financial statements of the Company were reclassified to
reflect these businesses as discontinued operations. Accordingly, the revenues,
costs and expenses, assets and liabilities expected to be assumed by an
acquiring entity and cash flows of these discontinued operations were excluded
from the respective captions in the Consolidated Balance Sheets and Statements
of Consolidated Operations and Statements of Consolidated Cash Flows. Management
believed that net assets of discontinued operations represented a reasonable
estimate of the net realizable values of those businesses.

At December 31, 2000, FINOVA had total net assets of discontinued operations of
$1.2 billion, which included the following:

- --------------------------------------------------------------------------------
2000
- --------------------------------------------------------------------------------
Financial assets $1,234,761
Accounts payable and accrued expenses (1) (39,776)
Due to clients (2) (32,762)
- --------------------------------------------------------------------------------
Net assets of discontinued operations $1,162,223
================================================================================

(1) FINOVA assumed that all liabilities directly related to the remaining
assets of the discontinued businesses would be assumed by an acquiring
entity. The amounts included accruals for future operating losses. A
substantial portion of the balance at December 31, 2000 related to the
various cash incentive, retention and severance plans developed for the
employees of the discontinued lines of business.

(2) Due to clients represented the amount due to the third party vendors on
behalf of FINOVA's customers.

Loss from discontinued operations in the Statements of Consolidated Operations
for the eight months ended August 31, 2001 and the year ended December 31, 2000
were as follows:

- --------------------------------------------------------------------------------
EIGHT MONTHS YEAR
ENDED ENDED
AUG. 31, 2001 DEC. 31, 2000
- --------------------------------------------------------------------------------
Total revenues $ 61,635 $ 267,819
Total expenses (57,296) (341,413)
Income tax (expense) benefit (1,359) 18,197
- --------------------------------------------------------------------------------
Discontinued operations, net of tax $ 2,980 $ (55,397)
================================================================================

The net loss on disposal of assets for the eight months ended August 31, 2001
and the year ended December 31, 2000 is comprised of the following:

- --------------------------------------------------------------------------------
2001 2000
- --------------------------------------------------------------------------------
Net realizable value markdowns $ (17,997) $(347,511)
Goodwill written off (107,338)
Proceeds in excess of assets sold 29,172
Accrued expenses (62,697)
Income tax benefit 150,663
- --------------------------------------------------------------------------------
Net loss on disposal of operations, net of tax $ (17,997) $(337,711)
================================================================================

A-53

THE FINOVA GROUP INC.

U. FAIR VALUE OF FINANCIAL INSTRUMENTS

The following disclosure of the fair value of financial instruments has been
developed by FINOVA using market information obtained by the Company and the
valuation methodologies described below. Fair value is estimated and defined as
the amount at which a financial instrument could be exchanged in a current
transaction between willing parties in other than a forced sale or liquidation.
These values do not represent the liquidation value of the Company and the fair
value of debt may be less than the principal amount due on the debt (as is the
case with the New Senior Notes). Considerable judgment is required in
interpreting market data to develop the estimates of fair value. Accordingly,
the estimates presented herein may not be indicative of the amounts that FINOVA
could realize in a current market exchange. The use of different market
assumptions or valuation methodologies may have a material effect on the
estimated fair value amounts.

The carrying values of cash and cash equivalents, investments, accounts payable
and accrued expenses approximate fair value. The Company also has two short-term
foreign exchange swap transactions, which are renewable on a monthly basis and
approximate their fair value.

The carrying amounts and estimated fair values of FINOVA's financial instruments
for the year ended December 31, 2002 are as follows:

- --------------------------------------------------------------------------------
CARRYING ESTIMATED
AMOUNT FAIR VALUE
- --------------------------------------------------------------------------------
Balance Sheet - Financial Instruments:
Loans and other financing contracts $2,930,961 (1) $2,754,507
Berkadia Loan 2,175,000 2,175,000
Senior Debt 2,381,643 1,043,103
- --------------------------------------------------------------------------------

(1) Carrying amount before reserves.

The methods and assumptions used to estimate the fair values of the financial
instruments presented in the table are summarized as follows:

LOANS AND OTHER FINANCING CONTRACTS (BEFORE RESERVES). The fair value of loans
and other financing contracts was based on their estimated net present value,
determined by discounting expected cash flows at risk adjusted market rates for
loans of similar credit quality. The carrying amount presented in the table is
before the reserve for credit losses, while the estimated fair value takes
credit losses into consideration. The process of determining fair value requires
the use of estimates regarding expected cash flows and risk adjusted market
rates, and actual outcomes may differ from the estimated fair value.

At December 31, 2001, the Company believed the carrying amount of loans and
other financing contracts, net of the reserve for credit losses, to approximate
its fair value. In conjunction with Fresh-Start Reporting, the entire portfolio
was revalued and adjusted to its estimated fair value, primarily determined
based upon the present value of expected future cash flows, discounted at risk
adjusted market rates for loans of similar credit quality. FINOVA reassessed the
carrying amount of assets affected by the events of September 11, and following
a detailed portfolio assessment in the fourth quarter of 2001, additional
reserves and asset markdowns were recorded. As a result, the Company believed
the carrying amount approximated its fair value.

BERKADIA LOAN. At December 31, 2002 and 2001, the Company believed the fair
value of the Berkadia Loan (private placement) was equal to its carrying value
of $2.175 billion and $4.9 billion, respectively. The Berkadia Loan has a first
priority lien on substantially all of FINOVA's assets, including substantially
all of its subsidiaries, and as a result, was secured by $1.5 billion and $1.6
billion of collateral in excess of its loan balance at December 31, 2002 and
2001, respectively.

SENIOR DEBT. The New Senior Notes are publicly traded securities and their fair
value was determined by quoted market prices obtained as of December 31, 2002
and 2001. At December 31, 2002, the fair value of the New Senior Notes was $1.0
billion compared to their carrying amount of $2.4 billion. At December 31, 2001,
the fair value of the New Senior Notes was $1.4 billion compared to their
carrying amount of $2.5 billion.

A-54

THE FINOVA GROUP INC.

The fair value estimates presented herein were based on information obtained by
FINOVA as of December 31, 2002 and 2001. Although management is not aware of any
factors that would significantly affect the estimated fair values, the values
presented have not been updated since December 31, 2002. Therefore, subsequent
estimates of fair value may differ from the amounts presented herein.

V. LITIGATION AND CLAIMS

LEGAL PROCEEDINGS

FINOVA is a party either as plaintiff or defendant to various actions,
proceedings and pending claims, including legal actions, some of which involve
claims for compensatory, punitive or other damages in significant amounts.
Litigation often results from FINOVA's attempts to enforce its lending
agreements against borrowers and other parties to those transactions. Litigation
is subject to many uncertainties. It is possible that some of the legal actions,
proceedings or claims could be decided against FINOVA. Other than the claims
noted below, FINOVA believes that any resulting liability from its legal
proceedings should not materially affect FINOVA's financial position, results of
operations or cash flows. The following claims could have a material adverse
impact on FINOVA's financial position, results of operations or cash flow.

If any legal proceedings result in a significant adverse judgment against the
Company, which is not anticipated, it is unlikely that FINOVA would be able to
satisfy that liability due to its financial condition. As previously noted, due
to the Company's financial condition, it does not expect that it can satisfy all
its secured debt obligations at maturity. Attempts to collect on those judgments
could lead to future reorganization proceedings of either a voluntary or
involuntary nature.

BANKRUPTCY

On March 7, 2001, FINOVA, FINOVA Capital and seven of their subsidiaries filed
voluntary petitions for protection from creditors pursuant to chapter 11, title
11, United States Code, in the Bankruptcy Court. The other subsidiaries were
FINOVA (Canada) Capital Corporation, FINOVA Capital plc, FINOVA Loan
Administration Inc., FINOVA Mezzanine Capital Inc., FINOVA Portfolio Services,
Inc., FINOVA Technology Finance Inc. and FINOVA Finance Trust.

The Debtors' Third Amended and Restated Joint Plan of Reorganization was
confirmed by the Bankruptcy Court and became effective on August 21, 2001, upon
consummation of the Berkadia Loan. See Note A "Nature of Operations and Chapter
11 Reorganization" for more information regarding the reorganization
proceedings.

Certain post-confirmation proceedings continue in the Bankruptcy Court relating
to proofs of claims filed by creditors or alleged creditors, as well as
administrative claims and claims for damages for rejected executory contracts.
Many of these claims relate to pre-petition litigation claims and it is possible
that some of the claims could be decided against FINOVA. Many of those claims
are for amounts substantially in excess of amounts, if any, that FINOVA believes
it owes the creditor. FINOVA intends to vigorously defend against these claims.

SECURITIES LITIGATION

All of the stockholder and derivative lawsuits discussed in the Company's Annual
Report on FINOVA's Form 10-K for the year ended December 31, 2001 and in other
SEC filings have now been settled or dismissed and are no longer pending against
the Company, including the dismissal on September 13, 2002 of the BENKLER VS.
MILLER and SIRROM PARTNERS VS. FINOVA cases noted in FINOVA's prior SEC filings.
FINOVA funded its portion of the settlement amount in 2001 and is released from
further liability.

A-55

THE FINOVA GROUP INC.
SUPPLEMENTAL SELECTED FINANCIAL DATA
CONDENSED QUARTERLY RESULTS (UNAUDITED)
(Dollars in thousands, except per share data)

The following represents the condensed quarterly results for the periods ended:

- ---------------------------------------------------------------------------------------------
FIRST SECOND THIRD FOURTH
2002: QUARTER QUARTER QUARTER QUARTER
- ---------------------------------------------------------------------------------------------

Total revenues $ 117,517 $ 95,522 $ 82,740 $ 81,220
Interest margin (4,838) (18,964) (22,465) (23,683)
Total other (expenses) and revenue (7,341) 23,095 46,686 129,038
Net (loss) income (12,181) 4,129 24,180 105,344
Basic/diluted (loss) income before
extraordinary item per share (0.10) 0.03 0.20 0.87
- ---------------------------------------------------------------------------------------------

- ----------------------------------------------------------------------------------------------------------
PREDECESSOR COMPANY REORGANIZED COMPANY
--------------------------------------- -------------------------
TWO MONTHS ONE MONTH
FIRST SECOND ENDED ENDED FOURTH
2001: QUARTER QUARTER AUG. 31 SEPT. 30 QUARTER
- ----------------------------------------------------------------------------------------------------------
Total revenues $ 259,376 $ 197,650 $ 117,334 $ 55,282 $ 136,497
Interest margin 65,995 12,586 (548) (887) (9,718)
Total other (expenses) and
revenue (119,706) (446,455) (166,146) (848,746) (282,157)
Loss before extraordinary
item (1) (75,746) (436,464) (157,390) (850,047) (292,253)
Net loss (1) (75,746) (436,464) (128,640) (850,047) (292,253)
Basic/diluted loss before
extraordinary item per share (1.24) (7.15) (2.22) (6.97) (2.39)
- ----------------------------------------------------------------------------------------------------------

(1) See Note K "Convertible Preferred Securities" and Note T "Discontinued
Operations" for the effect of discontinued operations and extraordinary
item, respectively.

A-56