10-K

UNITED STATES

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, 2005

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 of incorporation)	(I.R.S. employer 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 if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  ¨    No  x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.    Yes  ¨    No  x

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 a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer  ¨ Accelerated Filer  ¨ Non-Accelerated Filer  x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes  ¨    No  x

On March 13, 2006, the registrant had approximately 122,041,000 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, 2005 (based on its closing price per share on that date of $0.09) was approximately $5.5 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 2006 Annual Meeting of Shareholders of The FINOVA Group Inc. (but excluding information contained in that document furnished pursuant to items 306, 402(k) and (l) and item 601(b)(32) of SEC Regulation S-K) are incorporated by reference into Part III of this report.

TABLE OF CONTENTS

NAME OF ITEM

PART I
Item 1.	Business.	1
Item 1A.	Risk Factors.	6
Item 1B.	Unresolved Staff Comments.	7
Item 2.	Properties.	7
Item 3.	Legal Proceedings.	7
Item 4.	Submission of Matters to a Vote of Security Holders.	9
Optional Item.	Executive Officers of Registrant.	10
PART II
Item 5.	Market for Registrant’s Common Equity and Related Stockholder Matters.	10
Item 6.	Selected Financial Data.	11
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.	12
Item 7A.	Quantitative and Qualitative Disclosure About Market Risk.	12
Item 8.	Financial Statements and Supplemental Data.	12
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.	12
Item 9A.	Controls and Procedures.	12
Item 9B.	Other Information.	12
PART III
Item 10.	Directors and Executive Officers of the Registrant.	13
Item 11.	Executive Compensation.	13
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.	13
Item 13.	Certain Relationships and Related Transactions.	13
Item 14.	Principal Accountant Fees and Services.	13
PART IV
Item 15.	Exhibits and Financial Statement Schedules.	13
Signatures		17

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.

The Company’s 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, negotiation of prepayments, sales of assets or collateral and may include efforts to retain certain customer relationships and restructure or terminate other relationships. The Company has sold portions of asset portfolios and will consider future sales of any asset 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. The Company is offering to sell its remaining assets both by portfolio and individual asset. The Company is prohibited by the Indenture governing its Senior Notes (terms defined below) from engaging in any new lending activities, except to honor existing customer commitments and in certain instances, to restructure financing relationships to maximize value. Any funds generated in excess of cash reserves permitted by the Company’s debt agreement are used to reduce FINOVA’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.

2001 Restructuring

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, when the Company emerged from bankruptcy.

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 Berkadia Loan was scheduled to mature in 2006, but was repaid earlier than anticipated (first quarter of 2004) due to accelerated runoff and collection of the portfolio. An affiliate of Berkadia continues to hold 61,020,581 shares of common stock issued in conjunction with the Plan, representing 50% of FINOVA’s outstanding shares.

As of December 31, 2005, FINOVA remains obligated to repay $1.7 billion of principal on its 7.5% Senior Secured Notes (the “Senior Notes”) issued in conjunction with the Plan. In accordance with the terms of the Indenture governing the Senior Notes (the “Indenture”), the Company is required to use any excess cash, as defined in the Indenture, to make semi-annual interest and principal payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Company’s option. Although FINOVA has repaid approximately 45% of the Senior Notes as of the date of this report, the Company does not believe that it has sufficient assets to fully repay the Senior Notes.

FINOVA’s business continues to be operated under a Management Services Agreement with Leucadia that expires in 2011. Pursuant to that agreement, 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).

High Investment Risk

As previously stated, FINOVA believes that it will be unable to fully repay its Senior Notes and that it is unlikely that it will be able to make distributions to its stockholders, absent a court order. Consequently, investing in the Senior Notes and common stock involves a high level of risk. Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operation for a further discussion of the Senior Notes and restrictions on distributions to stockholders.

1

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Company’s assets are pledged to secure its obligations under the Intercompany Notes (as defined in Management’s Discussion and Analysis of Financial Condition and Results of Operations) securing the Senior 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 from the liquidation of its assets as its only meaningful source of liquidity.

Portfolio Descriptions

The asset liquidation process has resulted in significant reductions in the size of many of the Company’s niche portfolios. 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 certain specific market niches, which are described below.

• Transportation – is primarily comprised of older vintage aircraft, often of class and configuration with limited demand in the aircraft market. FINOVA has a number of aircraft that are off-lease and anticipates that additional aircraft will be returned to the Company as leases expire or operators are unable or unwilling to continue making payments. The Company’s portfolio of aircraft generally is not as desirable to domestic commercial airlines, and as a result, off-lease aircraft are primarily marketed in whole or part to carriers in developing countries.

• Real Estate – represents the combined remaining assets of the Company’s resort and specialty real estate portfolios. Transactions included senior term acquisition loans on hotel and resort properties, receivables financing for timeshare resorts and fractional interest resorts. FINOVA also provided equity investments in credit-oriented real estate sale-leasebacks. Due to continued prepayments and assets sales, this shrinking portfolio will be combined with all other portfolios in future filings. At December 31, 2005, the entire real estate portfolio consisted of resort and timeshare assets.

• All Other Portfolios – is comprised of the remnants of several former portfolios (commercial equipment, communications, corporate finance, franchise, healthcare, mezzanine, public and rediscount) that for various reasons have not been sold or collected. The portfolio generally contains assets that are more difficult and work intensive to liquidate. Approximately 77% of these assets were impaired or nonaccruing at December 31, 2005. Many of the borrowers have missed payments, including balloon obligations, or are otherwise in default.

Portfolio Composition

The following details the composition and carrying amounts of FINOVA’s total financial assets at December 31:

2005	Revenue Accruing Assets		Revenue Accruing Impaired		Nonaccruing Impaired Loans		Nonaccruing Leases & Other		Owned Assets & Investments		Total Financial Assets			%
	(Dollars in thousands)
Transportation	$		$	54,614	$	8,269	$	23,327	$	77,330	$	163,540		46.0
Real estate		266		21,063		7,878						29,207		8.2
All other portfolios		14,498		33,472		89,997		2,451		22,516		162,934		45.8
Total financial assets	$	14,764	$	109,149	$	106,144	$	25,778	$	99,846	$	355,681		100.0
Reserve for credit losses												(29,032	)
Total											$	326,649
2004	Revenue Accruing Assets		Revenue Accruing Impaired		Nonaccruing Impaired Loans		Nonaccruing Leases & Other		Owned Assets & Investments		Total Financial Assets			%
	(Dollars in thousands)
Transportation	$		$	144,797	$	31,853	$	33,264	$	84,136	$	294,050		41.7
Real estate		105,641		79		50,330		6				156,056		22.1
All other portfolios		24,733		57,573		135,041		8,871		29,611		255,829		36.2
Total financial assets	$	130,374	$	202,449	$	217,224	$	42,141	$	113,747	$	705,935		100.0
Reserve for credit losses												(101,270	)
Total											$	604,665

2

Refer to Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a detailed discussion of the changes to the Company’s portfolio.

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

2005

Aircraft Type	Number of Aircraft	Passenger	Cargo	Approximate Average Age (years)
Airbus 300	3		3	24
Boeing 727	9	4	5	26
Boeing 737	13	13		20
Boeing 747	1		1	17
Boeing 757	4	4		12
McDonnell Douglas DC 8 and DC 9	4	4		28
McDonnell Douglas DC 10	9	1	8	34
McDonnell Douglas MD series	17	17		20
Regional jets, corporate aircraft and turbo props	29	29		13
Total	89	72	17	19
2004
Aircraft Type	Number of Aircraft	Passenger	Cargo	Approximate Average Age (years)
Airbus 300	4		4	21
Boeing 727	11	4	7	25
Boeing 737	25	25		20
Boeing 747	5	3	2	23
Boeing 757	7	7		11
McDonnell Douglas DC 8 and DC 9	7	4	3	34
McDonnell Douglas DC 10	12	3	9	27
McDonnell Douglas MD series	27	27		19
Regional jets, corporate aircraft and turbo props	32	32		12
Total	130	105	25	19

The aircraft presented in the tables represent owned assets and collateral supporting financing arrangements. The Company continues to monitor all of these aircraft due to the level of prior defaults and returned aircraft.

At December 31, 2005, 33 aircraft with a carrying value of $105.5 million were operated by domestic carriers and 45 aircraft with a carrying value of $38.6 million were operated by foreign carriers. Additionally, 11 aircraft with a carrying value of $7.1 million were off-lease, classified as assets held for the production of income and parked at various storage facilities in the United States and Europe, including 2 aircraft which were identified for potential dismantling or sale at scrap values.

At December 31, 2004, 50 aircraft with a carrying value of $156.3 million were operated by domestic carriers and 61 aircraft with a carrying value of $108.9 million were operated by foreign carriers. Additionally, 19 aircraft with a carrying value of $14.2 million were off-lease, classified as assets held for the production of income and parked at various storage facilities in the United States and Europe, including 5 aircraft which were identified for potential dismantling or sale at scrap values.

Some of the off-lease aircraft are periodically placed in rental agreements with payments based on aircraft usage, commonly known as power-by-the-hour agreements. Often under these agreements there are no minimum rents due, and future cash flows are difficult to project. Additionally, FINOVA has been maximizing the value of the portfolio by using the remaining air-time of aircraft and engines, while minimizing the maintenance investment in those assets. As remaining air-time was exhausted, numerous aircraft and engines were identified for potential dismantling or sale at scrap values; however, the reemergence of the aircraft-financing market during late 2004 caused a change in the Company’s approach to maximize value. In certain instances, the Company believes it can achieve better returns in the current market of improved aircraft values by investing in the maintenance of certain types of aircraft and engines. As a result, the number of aircraft being identified for potential dismantling or sale at scrap values has declined. The Company will continue to invest in aircraft maintenance as long as it makes economic sense to do so.

3

The Company’s transportation portfolio also includes aircraft engines, domestic railroad and other transportation equipment. The carrying value of this equipment was $12.3 million and $14.7 million at December 31, 2005 and 2004, respectively.

In addition to the concentrated exposures within the transportation portfolio, the Company had certain concentrations within its real estate portfolio. At December 31, the carrying amount of the real estate portfolio by industry was as follows:

	2005				2004
	(Dollars in thousands)
Hospitality	$				$	115,663	74.1	%
Resort and timeshare		29,207	100.0	%		35,189	22.6	%
Office						5,204	3.3	%
Total	$	29,207	100.0	%	$	156,056	100.0	%

Refer to Management’s Discussion and Analysis of Financial Condition and Results of Operations for a further discussion of portfolio activity.

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 the contract, creditworthiness of the 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 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.

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 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 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 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. 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 their potential obligation under the guarantee agreement.

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 contractual income and

4

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 suspended. In certain instances, accounts may be returned to accruing status if sustained contractual performance is demonstrated. Changes in borrower performance, assumptions, or estimates could result in a material change in nonaccruing account classification and income recognition. 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 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, 2005, the Company had 60 employees compared to 101 and 213 at December 31, 2004 and 2003, respectively. The decrease is primarily attributable to the continued liquidation and sale of assets, the Company’s efforts to trim operating expenses and attrition caused by the events of the past several 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.

The Company continues to review its organizational structure and additional reductions in force are anticipated to occur as the portfolio declines, but sufficient employees will be retained to provide appropriate oversight of the smaller operation in a more efficient manner.

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 employees. In an effort to maintain the stability of its workforce through the remainder of the liquidation, FINOVA’s Board of Directors approved the establishment of two grantor trusts to secure the Company’s obligations under the severance and bonus programs. These trusts, which do not increase the Company’s obligations to its employees, were funded during 2003 with a combined total of approximately $24.0 million.

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 also makes available on its website, 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.

FINOVA has a Code of Conduct applicable to all FINOVA employees, including FINOVA’s Chairman, President, Chief Executive Officer and Chief Financial Officer. A copy of the Code of Conduct is available on FINOVA’s website. FINOVA intends to post any amendments to, or waivers from, the Code of Conduct applicable to the senior officers listed above.

5

Item 1A. Risk Factors

The risks, uncertainties and other factors that could cause our financial condition, results of operations and cash flows to differ materially from those suggested by this filing or which may materially and adversely affect our performance and the amount repaid to the Senior Note holders include, but are not limited to, those discussed below or identified elsewhere in this Report or from time to time in our public filings.

We may not be successful in implementing our business strategy. The carrying amounts and impairment of our portfolio are based on estimates of asset value and the estimation and timing of future cash flows. Actual results may differ from the estimated amounts. If we fail to fully implement our business strategy to maximize the value of our portfolio through orderly collection or sales of assets, our ability to repay our outstanding debt and other obligations could be impaired and could have a materially adverse impact on our financial position and results of operations.

Our results of operations and financial condition are greatly affected by economic conditions and the performance of our borrowers. Economic conditions in general or in particular market segments could impair the ability of our borrowers to operate or expand their businesses, which might result in decreased performance, adversely affecting their ability to repay their obligations to us. If this were to occur, the rate of borrower defaults or bankruptcies may increase. A worsening of economic conditions could adversely affect our ability to realize estimated cash flows.

We may not be able to retain our employees. We must retain a sufficient number of employees with relevant knowledge and skills to continue to monitor, collect and sell our portfolio. Our failure to do so could result in additional losses. Retention incentives intended to retain that employee base may not be successful in the future. In addition, as staff is reduced, internal controls and procedures must be readjusted to help assure proper handling and reporting of financial and other matters. Doing so becomes more difficult as our staff is reduced, and the loss of key personnel could have a significant impact on our ability to monitor, collect and manage our portfolio.

Continued instability and uncertainty in the airline industry could adversely affect the value of our aircraft portfolio, lease rates and demand. Conditions affecting our aircraft portfolio, including changes in Federal Aviation Administration directives and demand for used aircraft and spare parts. Our 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 as newer or more desirable aircraft and components become available. High fuel prices may adversely affect the demand for less fuel-efficient aircraft, including many of those in our portfolio.

It is unlikely we will be able to utilize our tax attributes. We have not recorded a benefit in our financial statements for existing tax attributes and estimated future tax deductions since we do not expect to generate the future taxable income needed to use those tax benefits. We may never be able to use those tax attributes, including most of our net operating loss carryforwards.

It is becoming more difficult to offset the costs of collecting the remaining portfolio. As we continue to liquidate assets and change our portfolio composition, it becomes increasingly more difficult to offset the costs associated with collecting the remaining portfolio and being a public company. Additionally, we incur the risks of potential liabilities that are associated with dispositions of assets, in the form of indemnifications, representations and warranties.

We rely on information from third parties, which may not be accurate. Third party information is supplied by our borrowers or prepared by appraisers. Inaccuracies in that information could lead to inaccuracies in our estimates, including asset valuations and cash flow projections.

We are increasingly subject to concentrations of credit risk. As our portfolio declines, increasing concentrations of financial assets in certain industries such as transportation could make our overall portfolio more sensitive to changes in performance in that industry. Additionally, we previously completed multiple financial transactions with individual borrowers and their affiliates. As a result, we are subject to greater total exposure to those borrowers beyond the typical transaction size and increased concentration risk to economic events affecting the industries (including transportation) of such borrowers and their affiliates.

Current and future legal and administrative claims and proceedings against us may result in increased costs and diversion of management’s attention. We are 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 our attempts to enforce our lending agreements against borrowers and other parties to those transactions.

6

Litigation is subject to many uncertainties. It is possible that some of the legal actions, proceedings or claims could be decided against us. Legal matters decided against us could have a material adverse impact on our financial position, results of operations or cash flows. See Item 3. “Legal Proceedings,” for a discussion of specific claims outstanding against us.

Item 1B. Unresolved Staff Comments.

Not applicable.

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 additional offices in the United States and one in Europe. All of these properties are leased.

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

Item 3. Legal Proceedings.

Legal Proceedings

FINOVA is 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 matters described 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 matters could have a material adverse impact on FINOVA’s financial position, results of operations or cash flows.

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 of 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.

Litigation Related to Loans to The Thaxton Group Inc. and Related Companies

Between October 17, 2003 and January 13, 2004, FINOVA Capital Corporation was served with and named as a defendant (with other parties) in five lawsuits that relate to its loan to The Thaxton Group Inc. and several related entities (collectively the “Thaxton Entities”). Under its loan agreement, FINOVA has a senior secured loan to the Thaxton Entities of approximately $108 million at December 31, 2005. The Thaxton Entities were declared in default under their loan agreement with FINOVA after they advised FINOVA that they would have to restate earnings for the first two fiscal quarters of 2003, and had suspended payments on their subordinated notes. As a result of the default, FINOVA exercised its rights under the loan agreement, and accelerated the indebtedness. The Thaxton Entities then filed a petition for bankruptcy protection under chapter 11 of the federal bankruptcy code in the United States Bankruptcy Court for the District of Delaware on October 17, 2003, listing assets of approximately $206 million and debts of $242 million. The Thaxton Group had approximately 6,800 holders of its subordinated notes that were issued in several states, with a total subordinated indebtedness of approximately $122 million.

The first lawsuit, a complaint captioned Earle B. Gregory, et al, v. FINOVA Capital Corporation, James T. Garrett, et al., (the “Gregory action”) was filed in the Court of Common Pleas of Lancaster County, South Carolina, case no. 2003-CP-29-967, and was served on FINOVA on October 17, 2003. An amended complaint was served on November 5, 2003, prior to the deadline for FINOVA to answer, plead, or otherwise respond to the original complaint. The Gregory action was properly removed to the United States District Court for the District of South Carolina on November 17, 2003, pursuant to 28 U.S.C. §§ 1334 and 1452. The plaintiffs filed a motion to remand the case to state court, but the United States District Court denied this motion in an order dated December 18, 2003.

7

The second Thaxton-related complaint, captioned Tom Moore, Anna Nunnery, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. 8:03-372413 (“Moore”), was filed in the United States District Court for the District of South Carolina on November 25, 2003, and was served on FINOVA on December 2, 2003. The third complaint, captioned Sam Jones Wood and Kathy Annette Wood, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, (“Wood”) was filed in the Superior Court for Gwinnett County, Georgia, case no. 03-A13343-B, and was served on FINOVA on December 9, 2003. FINOVA properly removed the Wood action to the United States District Court for the Northern District of Georgia (Atlanta Division) on January 5, 2004. The fourth complaint, captioned Grant Hall and Ruth Ann Hall, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. 03CVS20572, (“Hall”) was filed in the Mecklenberg County, North Carolina, Superior Court, and was also served on FINOVA on December 9, 2003. FINOVA properly removed the Hall action to the United States District Court for the Western District of North Carolina (Charlotte Division) on January 5, 2004. The fifth complaint, captioned Charles Shope, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. C204022 (“Shope”), was filed in the United States District Court for the Southern District of Ohio, Eastern Division, and was served on FINOVA on January 13, 2004.

Each of the five Thaxton-related lawsuits are styled as class actions, purportedly brought on behalf of certain defined classes of people who had purchased subordinated notes from the Thaxton Entities. The complaints by the subordinated note holders allege claims of fraud, securities fraud, and various other civil conspiracy and business torts in the sale of the subordinated notes. Each of the complaints seeks an unspecified amount of damages, among other remedies.

Upon motion by FINOVA to the United States Judicial Panel for MultiDistrict Litigation (Docket 1612), all five Thaxton-related actions were transferred on June 18, 2004 to the United States District Court for the District of South Carolina for coordinated pre-trial proceedings (the “MDL Litigation”). In June 2005, the South Carolina District Court certified the MDL Litigation as a class action (collectively, the “Class Action”).

On October 6, 2005, the United States Court of Appeals for the Fourth Circuit issued an order granting the Company’s petition for permission to appeal the order of the South Carolina District Court certifying the class action cases and staying further proceedings in the South Carolina District Court during the pendency of the appeal or until the further order of the Court of Appeals. Oral arguments on the petition were heard by the Fourth Circuit on February 2, 2006. On March 14, 2006, the Fourth Circuit issued its ruling, reversing the South Carolina District Court’s class certification, stating, that in light of the Adversary Proceeding addressed below, class certification is not the superior method for the fair and efficient adjudication of the controversy.

In addition to the MDL Litigation, Thaxton’s unsecured creditors committee (the “Thaxton Committee”) has an action against FINOVA in the bankruptcy proceedings of the Thaxton Entities (the “Adversary Proceeding”) seeking on various grounds, among other things to avoid and/or equitably subordinate the liens and claims of FINOVA against the Thaxton Entities and to recover payments previously collected due to alleged securities fraud, violations of banking regulations, preference payments and similar claims. The Adversary Proceeding was filed in the United States Bankruptcy Court for the District of Delaware and was consolidated with the MDL Litigation for pre-trial proceedings.

The Company was notified on September 21, 2005, that the South Carolina District Court had denied the Company’s motion to transfer the Adversary Proceeding back to the United States District Court for the District of Delaware at this time, denied the Company’s motion for partial summary judgment on certain claims in the Adversary Proceeding, and granted the Thaxton Committee’s motion for partial summary judgment on the Committee’s claim for equitable subordination. The court has not yet issued this opinion.

As Thaxton has liquidated assets, portions of the payments collected by Thaxton have been deposited into a reserve account (approximately $72 million at December 31, 2005) in the name of FINOVA and the Thaxton Entities bankruptcy estates rather than being paid to FINOVA in respect of FINOVA’s outstanding loan. During the third quarter of 2005, FINOVA and Thaxton also agreed to deposit future interest payments and legal expense reimbursement that FINOVA alleges are due from Thaxton to FINOVA into two additional reserve accounts (an aggregate of approximately $5.0 million at December 31, 2005), each in the name of FINOVA and the Thaxton Entities bankruptcy estates. These reserve accounts are expected to be maintained until the Adversary Proceeding is resolved. These amounts are not reflected in FINOVA’s balance sheet. As a result of these reserve accounts, the amount of cash flow being paid by the Thaxton Entities to FINOVA has decreased from prior periods.

If the South Carolina District Court’s equitable subordination finding is not overturned or otherwise modified, the Company’s ability to recover on its claims in the Thaxton Entities bankruptcy cases may be materially and negatively affected, depending upon the exact

8

nature of that ruling, as well as the results of other rulings in this litigation that may substantially limit the effect and importance of the equitable subordination ruling. Among the other rulings that could affect the Company’s ability to recover its claims, either positively or negatively, is the Delaware bankruptcy court’s ruling on a pending request seeking substantive consolidation of the Thaxton Entities. The Delaware bankruptcy court held a hearing on that issue, but has not yet ruled on the matter. A material and negative impact on the Company’s ability to recover on its claims in the Thaxton Entities bankruptcy cases would have a material adverse impact on the Company’s financial position, results of operations and/or cash flow.

If the Adversary Proceeding results in a significant adverse final determination against the Company, it is unlikely that the Company would be able to satisfy that liability due to its financial condition. As previously disclosed, due to the Company’s financial condition, it does not expect that it can satisfy all of 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.

The Company believes all the claims against FINOVA are without merit. FINOVA intends to vigorously defend the claims asserted against it in connection with the Thaxton Entities, whether in the MDL Litigation, or in the Adversary Proceeding, and to protect its senior secured position in the bankruptcy proceedings for the Thaxton Entities, including without limitation with respect to the pending substantive consolidation request.

Motion Regarding Distributions to Stockholders

As discussed more fully in the Notes to the Consolidated Financial Statements, Note F. “Debt”, the Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% of each principal prepayment. The Indenture prohibits distribution of those amounts due to FINOVA’s financial condition. Those amounts are held in a restricted account, and totaled $70.3 million as of February 15, 2006. Because FINOVA will not be able to repay the Senior Notes in full, on April 1, 2005, it filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order (1) to cease directing funds into a restricted account and (2) to allow FINOVA to use the funds in the restricted account to satisfy its obligations to creditors. In June 2005, the Bankruptcy Court ordered that the former Equity Committee (the “Equity Committee”) be reconstituted. As of July 14, 2005, the Equity Committee was reconstituted with three members.

A hearing was held on November 29, 2005, and on February 1, 2006, the Bankruptcy Court issued its Order approving FINOVA’s April 1, 2005 motion to the extent that FINOVA will be forever insolvent. The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will then be distributed to FINOVA’s creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware.

Litigation Related to FINOVA v. Richard Arledge; Arledge v. FINOVA

FINOVA filed a collection action against Richard Arledge and Arledge Motor Company (collectively “Arledge”) in June 2002 in the United States District Court, District of Arizona (the “Court”), case number CIV02-1277-PHX-RCB. On or about October 1, 2002, Arledge responded in the Arizona action with a counterclaim, alleging various lender liability claims against FINOVA.

Arledge filed an Application for Temporary Restraining Order (“TRO”) and Order to Show Cause, Alternatively Application for Prejudgment Writ of Attachment against FINOVA on August 24, 2005 in an attempt to prevent FINOVA from liquidating part or all of its assets pending trial. The Court denied the motion for TRO. The Court, however, granted Arledge’s request for a prejudgment attachment, but conditioned the issuance of any resulting writ of attachment on Arledge posting a $4.5 million bond (which has not occurred). An evidentiary hearing was held on October 24, 2005 on Arledge’s request for a preliminary injunction; and on January 6, 2006, the Court issued an order denying Arledge’s application for a preliminary injunction. The Court ruled, among other things, that a preliminary injunction would be futile because all of FINOVA’s assets are encumbered. The Company continues to believe that all of the claims against it in this matter are without merit. The Company intends to vigorously defend the claims asserted against it.

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 2005.

9

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 that expires in 2011. Messrs. Weiss, Ross, Donnelly and Wifler are “at will” employees and may be terminated at any time.

Name	Age	Position and Background
Ian M. Cumming	65	Chairman of the Board of FINOVA since 2001. Director and Chairman of the Board of Leucadia since 1978.
Joseph S. Steinberg	62	Director and President of FINOVA since 2001. Director of Leucadia since 1978 and President of Leucadia since 1979.
Thomas E. Mara	60	Director and Chief Executive Officer of FINOVA since 2002. Executive Vice President of Leucadia since 1980 and Treasurer of Leucadia since 1993.
Jeffrey D. Weiss	52	Senior Vice President - Group Manager of FINOVA since 2002. Previously, Vice President – Division Manager or similar positions of FINOVA and FINOVA Capital for more than five years.
Richard A. Ross	38	Senior Vice President, Chief Financial Officer and Treasurer of FINOVA since 2004. Previously, Vice President – Chief Accounting Officer or similar positions of FINOVA and FINOVA Capital for more than five years.
Philip A. Donnelly	43	Senior Vice President – General Counsel and Secretary of FINOVA since 2005. Previously, Vice President – Deputy General Counsel and Assistant Secretary or similar positions of FINOVA and FINOVA Capital for more than five years.
James M. Wifler	46	Senior Vice President – Transportation Group Manager of FINOVA since 2005. Previously, Vice President – Remarketing and Portfolio Management or similar positions of FINOVA and FINOVA Capital for more than five years.

PART II

Item 5. Market for Registrant’s Common Equity and Related Stockholder Matters.

FINOVA’s common stock trades over-the-counter (“OTC”) under the symbol “FNVG.” At December 31, 2005 and 2004, FINOVA had approximately 122,041,000 shares of common stock outstanding, 50% of which are held by an affiliate of Berkadia. The following table summarizes the high and low bid prices as reported on the OTC by Commodity Systems Inc. The OTC market quotations reflect inter-dealer prices, without retail markup, markdown or commission, and may not represent actual transactions.

	Sales Price Range of Common Stock
	2005				2004
Quarters:	High		Low		High		Low
First	$	0.18	$	0.09	$	0.80	$	0.22
Second		0.10		0.04		0.45		0.01
Third		0.14		0.06		0.17		0.07
Fourth		0.08		0.05		0.17		0.08

Stockholders should not expect any payments or distributions from FINOVA. Refer to Item 3. “Legal Proceedings” and Item 7. “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a further discussion of stockholder payments and the Company’s motion regarding distributions to stockholders.

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) or (b) the beginning of the taxable year of the Company to which certain tax benefits may no longer be carried forward.

10

As of March 13, 2006, there were approximately 14,660 holders of record of The FINOVA Group Inc.’s common stock. The closing price of the common stock on that date was $0.06.

Item 6. Selected Financial Data.

The following table summarizes selected financial data obtained or derived from the audited consolidated financial statements of FINOVA for each of the years ended December 31, 2005, 2004, 2003 and 2002, the four months ended December 31, 2001 and the eight months ended August 31, 2001. The information set forth below should be read in conjunction with Item 7. “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.

	Reorganized Company															Predecessor
	Year Ended Dec. 31,												Four Months Ended Dec. 31, 2001			Eight Months Ended Aug. 31, 2001
	2005			2004			2003			2002
	(Dollars in thousands, except per share data)
OPERATIONS:
Interest margin	$	(90,046	)	$	(51,964	)	$	25,794		$	(69,950	)	$	(10,605	)	$	78,033
Provision for credit losses		51,811			148,527			238,786			339,986			(777,500	)		(230,772	)
Net gain (loss) on financial assets		37,864			108,681			63,054			(81,479	)		(281,608	)		(320,934	)
Portfolio expenses		(23,994	)		(28,236	)		(29,341	)		(46,859	)		(8,523	)		(12,521	)
General and administrative expenses		(45,417	)		(44,995	)		(70,673	)		(108,407	)		(63,272	)		(121,553	)
Loss from settlement of pension plan		(24,665	)
Gain from extinguishment of debt, net of fresh-start discount								28,493			88,237
(Loss) income from continuing operations		(94,447	)		132,013			256,113			121,472			(1,142,300	)		(654,583	)
Net (loss) income		(94,447	)		132,013			256,113			121,472			(1,142,300	)		(640,850	)
Diluted (loss) earnings from continuing operations per share	$	(0.77	)	$	1.08		$	2.10		$	1.00		$	(9.36	)	$	(10.28	)
Diluted adjusted weighted average shares outstanding		122,041,000			122,041,000			122,041,000			122,041,000			122,041,000			63,677,000
Dividends per common share	$	—		$	—		$	—		$	—		$	—		$	—
FINANCIAL POSITION:
Total financial assets (before reserves)	$	355,681		$	705,935		$	1,805,984		$	3,696,419		$	6,451,764		$	7,587,606
Nonaccruing assets		131,922			259,365			593,301			1,393,232			1,842,605			1,329,654
Reserve for credit losses		(29,032	)		(101,270	)		(274,828	)		(540,268	)		(1,019,878	)		(256,324	)
Total assets		611,151			1,134,125			2,344,176			3,759,008			6,504,025			8,302,956
Berkadia Loan								525,000			2,175,000			4,900,000			5,600,000
Senior Notes, net (1)		1,151,491			1,586,957			2,338,791			2,381,643			2,489,082			2,479,139
Stockholders’ equity		(611,731	)		(534,677	)		(652,747	)		(970,749	)		(1,120,569	)		17,623
RATIOS:
Nonaccruing assets as a % of total financial assets (before reserves)		37.1	%		36.7	%		32.9	%		37.7	%		28.6	%		17.5	%
Reserve for credit losses as a % of:
Total financing assets		11.3	%		18.4	%		18.3	%		17.4	%		18.3	%		4.1	%
Nonaccruing assets		22.0	%		39.0	%		46.3	%		38.8	%		55.3	%		19.3	%

(1) Senior Notes are net of a fresh-start discount of $540,240, $579,646, $629,158, $686,306, $761,396 and $771,339 at December 31, 2005, 2004, 2003, 2002 and 2001 and August 31, 2001, respectively. The Company remains obligated for the full outstanding principal amount, which was $1,691,731, $2,166,603, $2,967,949, $3,067,949 at December 31, 2005, 2004, 2003 and 2002, respectively, and $3,250,478 at December 31, 2001 and August 31, 2001.

11

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

See pages 1–16 of Annex A.

Item 7A. Quantitative and Qualitative Disclosure About Market Risk.

See page 16 of Annex A.

Item 8. Financial Statements and 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 and Financial Disclosure.

Not applicable.

Item 9A. Controls and Procedures.

(a) The Company’s management evaluated, with the participation of the Company’s principal executive and principal financial officer, the effectiveness of the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)), as of December 31, 2005. Based on their evaluation, the Company’s principal executive and principal financial officer concluded that the Company’s disclosure controls and procedures were effective as of December 31, 2005.

(b) There has been no change in the Company’s internal controls over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the Company’s fiscal quarter ended December 31, 2005, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

As a result of Section 404 of the Sarbanes-Oxley Act of 2002 and the rules issued there under, the Company is scheduled to include in its Annual Report on Form 10-K for the year ending December 31, 2007 a report on management’s assessment of the effectiveness of the Company’s internal controls over financial reporting. The Company’s independent registered public accountants will also be required to attest to and report on management’s assessment.

The process of complying with these requirements includes a comprehensive evaluation and documentation of the Company’s internal controls over financial reporting. In this regard, management is prepared to dedicate internal resources and adopt a detailed plan to (i) document the Company’s internal controls over financial reporting, (ii) assess the adequacy of the Company’s internal controls over financial reporting, (iii) take steps to improve control processes where appropriate and (iv) validate through testing that controls are functioning as documented. There can be no assurance that deficiencies or weaknesses in the design or operation of internal controls over financial reporting will not be found and, if found, that the Company will have sufficient time to remediate any such deficiencies or weaknesses and perform testing procedures before the end of 2007.

The Company believes that any system of internal accounting controls, no matter how well designed and operated, can provide only reasonable (and not absolute) assurance that all of its objectives will be met, including the detection of fraud. Furthermore, no evaluation of internal accounting controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected.

The Company continues to reduce its workforce, consolidate its operations and outsource certain functions. Accordingly, responsibility for administration, management and review of many of the Company’s assets has transitioned among FINOVA’s remaining personnel. Management has supervised these transitions and has implemented procedures it believes provide effective disclosure and internal controls over financial reporting. The Company is assessing the efficacy of these procedures and will continue to do so in subsequent periods. FINOVA recognizes that a substantial unanticipated reduction in employees could increase internal control risk.

Item 9B. Other Information.

Not applicable.

12

PART III

Item 10. Directors and 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 2006 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 and Management and Related Stockholder Matters.

FINOVA does not have any equity compensation plans.

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

Item 13. Certain Relationships and Related Transactions.

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

Item 14. Principal Accountant Fees and Services.

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

PART IV

Item 15. Exhibits and Financial Statement Schedules.

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-16
Report of Independent Registered Public Accounting Firm	A-17
Consolidated Balance Sheets	A-18
Statements of Consolidated Operations	A-19
Statements of Consolidated Cash Flows	A-20
Statements of Consolidated Stockholders’ Equity	A-22
Notes to Consolidated Financial Statements	A-23
Supplemental Selected Financial Data (unaudited)	A-49

2) Financial Statement Schedules.

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.

13

		Incorporated by Reference From:
Exhibit		Report on Form	Date 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 reference.			3.A and 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
(10.F)	Guaranty, dated as of August 21, 2001, by FINOVA Capital and 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-K	3/21/03	10.I.1

14

		Incorporated by Reference From:
Exhibit		Report on Form	Date Filed	Exhibit
(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.1)	Form of Letter for the Bonus Program.+	10-K	3/15/02	10.L
(10.L.2)	2005 Annual Incentive Plan Rules.+	8-K	3/8/05	10.B
(10.L.3)	2006 Annual Incentive Plan Rules.+	*
(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.M.3)	Amended and Restated Severance Pay Plan and Summary Plan Description.+	10-Q	8/11/05	10.B
(10.N)	FINOVA’s policies regarding compensation of directors are incorporated by reference from the Proxy Statement.+
(10.O)	Seventh Amendment to The FINOVA Group Inc. Pension Plan and Trust.+	*
(10.P.1)	Letter from FINOVA to Glenn E. Gray dated March 15, 2005.+	10-K	3/22/05	10.P.6
(10.P.2)	Letter from FINOVA to Richard Lieberman dated March 15, 2005.+	10-K	3/22/05	10.P.7
(10.P.3)	Letter from FINOVA to Richard A. Ross dated March 15, 2005.+	10-K	3/22/05	10.P.8
(10.P.4)	Letter from FINOVA to Jeffrey D. Weiss dated March 15, 2005.+	10-Q	8/11/05	10.A.2
(10.P.5)	Letter from FINOVA to Philip A. Donnelly dated July 6, 2005.+	10-Q	8/11/05	10.A.1
(10.P.6)	Letter from FINOVA to Richard A. Ross dated July 6, 2005.+	10-Q	8/11/05	10.A.4
(10.P.7)	Letter from FINOVA to James M. Wifler dated July 6, 2005.+	10-Q	8/11/05	10.A.3
(10.P.8)	Letter from FINOVA to Jeffrey D. Weiss dated February 20, 2006.+	*
(10.P.9)	Letter from FINOVA to Philip A. Donnelly dated February 20, 2006.+	*
(10.P.10)	Letter from FINOVA to Richard A. Ross dated February 20, 2006.+	*
(10.P.11)	Letter from FINOVA to James M. Wifler dated February 20, 2006.+	*
(10.Q)	Executive Severance Plan, Tier III.+	10-K	3/15/02	10.X
(10.R)	Severance Trust Agreement between FINOVA and Atlantic Trust Company, dated as of November 1, 2003.+	10-K	3/30/04	10.R

15

		Incorporated by Reference From:
Exhibit		Report on Form	Date Filed	Exhibit
(10.S)	Bonus and United Kingdom Trust Agreement between FINOVA and Atlantic Trust Company, dated as of November 1, 2003.+	10-K	3/30/04	10.S
(12)	Computation of Ratio of Income to Fixed Charges.	*
(14)	Code of Conduct (Code of Ethics).	10-K	3/30/04	14
(21)	Subsidiaries.	*
(23)	Consent of Independent Auditors from Ernst & Young LLP.	*
(31.1)	Certification of Chief Executive Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.	*
(31.2)	Certification of Chief Financial Officer pursuant to Rule 13a-14(a) and Rule 15d-14(a) of the Securities Exchange Act, as amended.	*
(32.1)	Certification of Chief Executive Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	**
(32.2)	Certification of Chief Financial Officer pursuant to 18. U.S.C. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.	**
(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

** Furnished with this report pursuant to Item 601 (b) (32) of Regulation S-K

+ Relating to management compensation

16

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 Chief Executive Officer and a Director	March 16, 2006	/s/ Thomas E. Mara
Principal Financial and Accounting Officer:
Richard A. Ross Senior Vice President – Chief Financial Officer and Treasurer	March 16, 2006	/s/ Richard A. Ross
Directors:
Thomas F. Boland	March 16, 2006	/s/ Thomas F. Boland
Ian M. Cumming	March 16, 2006	/s/ Ian M. Cumming
G. Robert Durham	March 16, 2006	/s/ G. Robert Durham
R. Gregory Morgan	March 16, 2006	/s/ R. Gregory Morgan
Kenneth R. Smith	March 16, 2006	/s/ Kenneth R. Smith
Joseph S. Steinberg	March 16, 2006	/s/ Joseph S. Steinberg

17

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-16
Consolidated Financial Statements:
Report of Independent Registered Public Accounting Firm	A-17
Consolidated Balance Sheets	A-18
Statements of Consolidated Operations	A-19
Statements of Consolidated Cash Flows	A-20
Statements of Consolidated Stockholders’ Equity	A-22
Notes to Consolidated Financial Statements	A-23
Supplemental Selected Financial Data (unaudited)	A-49

A-i

THE FINOVA GROUP INC.

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

The following section should be read in conjunction with Item 1. “Business,” Item 6. “Selected Financial Data” and Item 8. “Financial Statements and Supplemental Data.” The discussion relates to The FINOVA Group Inc. and its subsidiaries (collectively “FINOVA” or the “Company”), including FINOVA Capital Corporation and its subsidiaries (“FINOVA Capital”).

OVERVIEW

Prior Bankruptcy 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, when the Company emerged from bankruptcy.

Restrictions on Business Activities. The Company’s 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, negotiation of prepayments, sales of assets or collateral and may include efforts to retain certain customer relationships and restructure or terminate other relationships. The Company has sold portions of asset portfolios and will consider future sales of any asset 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. The Company is offering to sell its remaining assets both by portfolio and individual asset. The Company is prohibited by the Indenture governing its Senior Notes (the “Indenture”) from engaging in any new lending activities, except to honor existing customer commitments and in certain instances, to restructure financing relationships to maximize value. Any funds generated in excess of cash reserves permitted by the Company’s debt agreements are used to reduce FINOVA’s obligations to its creditors.

To change the restrictions in the Indenture to permit new business would require the consent of 75% of the Senior Note holders. Absent a further restructuring of its debt through bankruptcy, which could lift those restrictions, the current controlled liquidation of its assets is the only business activity the Company is permitted to conduct. Any restructuring of its debt obligations through a bankruptcy proceeding could require an infusion of new capital and/or the approval of the holders of two-thirds of the amount of the Senior Notes and more than half of the number of holders. No assurance can be given that any bankruptcy restructuring effort will commence, or if begun, what the timing or outcome would be.

Collection / Liquidation of Assets. During the year ended December 31, 2005, net cash flows from the portfolio totaled $312.5 million. These net cash flows together with existing cash on hand at year-end were used to fund operations and service the Company’s debt obligations.

Total financial assets, net of the reserve for credit losses, declined to $326.6 million at December 31, 2005, down from $604.7 million at December 31, 2004. The asset decline was primarily attributable to customer prepayments, scheduled collections and individual asset sales. The Company’s transportation portfolio continued to experience a high level of activity and in certain instances had generated cash in excess of recorded carrying amounts (net of reserves); however, the Company continues to believe that any future gains will not be sufficient to fully offset the Company’s deficit. The Company is also concerned about the stability of the aircraft-financing market due to uncertainty in the airline industry. For a further discussion of industry trends, see Results of Operations below.

The decline in net financial assets was partially offset by $34.4 million of non-cash activity, primarily the reversal of reserve for credit losses. Reserve reversals are down from the prior year, but FINOVA’s overall portfolio realization continues to be better than expected. The majority of the reserve reversals resulted from prepayments and asset sales in excess of recorded carrying amounts (net of reserves) and improved collection experience.

During 2005, the non-cash reversal of reserve for credit losses and cash gains realized from asset sales were not sufficient to fully offset the Company’s negative interest margin, operating costs and the recognition of a loss on the final settlement of the Company’s pension plan. As a result, the Company posted a $94.4 million net loss for the year.

A-1

THE FINOVA GROUP INC.

Asset Shortfall. The following illustrates that the carrying value of the Company’s assets is less than the face amount of its Senior Debt Obligations as of December 31:

	2005			2004			2003
	(Dollars in thousands)
Cash and Other Assets	$	284,502		$	529,460		$	813,020
Total Financial Assets		326,649			604,665			1,531,156
Total Assets		611,151			1,134,125			2,344,176
Berkadia Loan								525,000
Senior Notes (principal amount due)		1,691,731			2,166,603			2,967,949
Accrued Interest on Senior Debt		16,215			20,763			30,765
Total Senior Debt Obligations		1,707,946			2,187,366			3,523,714
Asset Shortfall	$	(1,096,795	)	$	(1,053,241	)	$	(1,179,538	)
Required Recovery Rate on Remaining Total Financial Assets to Eliminate Shortfall		436	%		274	%		177	%

As reflected in the table, unless the actual cash flows from the collection of FINOVA’s asset portfolio are substantially greater than the amount assumed to determine the carrying amounts of its assets, FINOVA will not have sufficient assets to fully repay its Senior Debt Obligations. The Company has been successful in its efforts to maximize the value of the portfolio as evidenced by the decline in the asset shortfall; however, to eliminate the shortfall, FINOVA would have to liquidate all of its remaining financial assets for more than four times their book value. Despite the progress that has been made liquidating assets, the required recovery rate to eliminate the shortfall has continued to grow. While the net asset liquidation and collection efforts to date have been in excess of their recorded book values on average, those recoveries have been far below the rate of return necessary to fully repay the Senior Debt Obligations. The Company does not believe that the future asset realization will increase sufficiently to fully offset the shortfall since many of the more attractive assets within the portfolio have been liquidated and the Company continues to have significant exposure in its portfolio to non-performing assets and used aircraft.

Liquidity. Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Company’s assets are pledged to secure its obligations under the Intercompany Notes securing the Senior Notes (collectively “Senior Debt Obligations”), 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 from the liquidation of its assets as its only meaningful source of liquidity.

Partial Prepayment of Senior Notes. During 2005 and 2004, the Company made $474.9 million and $801.3 million, respectively, of partial principal prepayments on the Senior Notes, which reduced the outstanding principal to $1.7 billion as of December 31, 2005. FINOVA announced two additional partial prepayments totaling $59.4 million that were made in the first quarter of 2006. Following these prepayments, cumulative prepayments through the first quarter of 2006 totaled $1.3 billion or 45% of the face amount ($2.97 billion) of the Senior Notes. A summary of prepayment activity on the Senior Notes is as follows:

Prepayment Date	Record Date	Principal Amount		Percentage of Principal Prepaid
	(Dollars in thousands)
Prepayment Activity for the Year Ended December 31, 2004		$	801,346	27	%
Prepayment Activity for the Year Ended December 31, 2005			474,872	16	%
2006 Prepayment Activity:
January 17, 2006	January 9, 2006		29,679	1	%
February 15, 2006	February 8, 2006		29,679	1	%
			59,358	2	%
Cumulative Prepayments through February 15, 2006		$	1,335,576	45	%

A-2

THE FINOVA GROUP INC.

In accordance with the terms of the Indenture, the Company is required to use any excess cash, as defined in the Indenture, to make semi-annual interest and principal payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Company’s option. Refer to the Financial Condition, Liquidity and Capital Resources section for a further discussion of the Senior Notes.

No Stockholder Payments Anticipated. Stockholders should not expect any payments or distributions from FINOVA. The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA’s stockholders will receive a distribution equal to 5.263% of each principal prepayment. However, the Indenture prohibits FINOVA from making distributions to and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be permitted to be made under applicable law. Any such distribution and/or repurchase would be considered an impermissible restricted payment under the Indenture. Given the Company’s significant negative net worth and its belief that the Senior Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations.

During 2005, FINOVA filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order that (1) FINOVA no longer needs to direct funds into a restricted account, and (2) FINOVA may use the funds in the restricted account to satisfy its obligations to creditors. The Bankruptcy Court ordered that the former Equity Committee (the “Equity Committee”) be reconstituted and have the opportunity to independently review FINOVA’s state of solvency before the Bankruptcy Court would rule on FINOVA’s motion. A hearing was held on November 29, 2005, and on February 1, 2006, the Bankruptcy Court issued its Order approving FINOVA’s motion to the extent that FINOVA will be forever insolvent. The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will then be distributed to FINOVA’s creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware. Refer to Item 3. “Legal Proceedings” and the Financial Condition, Liquidity and Capital Resources section for a further discussion of the restricted payments and FINOVA’s motion.

Since FINOVA does not believe it has sufficient assets to fully repay the Senior Notes, the Company anticipates that the retained amounts will eventually be paid to the creditors, not the stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia, which own 50% of FINOVA’s common stock, would receive half of the retained amounts.

Company Direction. The Company expects to continue its present course by seeking to maximize the value of the remaining portfolio through the orderly collection or sale of financial assets. FINOVA continues to actively market individual assets for sale and periodically will consider bulk sales of all or substantially all of the remaining portfolio, if one or more buyers can be found at acceptable prices; however, there can be no assurance that FINOVA will be successful in efforts to sell additional assets. The Company anticipates that when all or substantially all of the assets have been liquidated that the Company’s affairs will need to be wound-up. The Company continues to analyze the potential methods of wind-up, which might involve a sale of the remaining assets, an assignment for the benefit of the creditors, or some other proceeding, any of which may or may not be in conjunction with bankruptcy or state law liquidation proceedings. The Company cannot predict with certainty the timing or nature of that final wind-up, but the Company continues working towards accomplishing that end in a prudent manner. The portfolio has declined considerably and the remaining portfolio has become more concentrated in a small number of accounts, while certain fixed costs and the cost of maintaining a public company have not declined at the same rate as the portfolio. Refer to Note Q “Subsequent Events” for a discussion of sales activity since year-end.

HIGH INVESTMENT RISK OF SECURITIES. As previously stated, FINOVA believes that it will be unable to fully repay its Senior Notes and that it is unlikely that it will be able to make distributions to its stockholders. Consequently, investing in the Senior Notes and common stock involves a high level of risk.

CRITICAL ACCOUNTING POLICIES

The Company’s consolidated financial statements are prepared in accordance with U.S. generally accepted accounting principles. 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 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. See Item 1A. “Risk Factors” and “Special Note Regarding Forward-Looking Statements” for more information on these risks and uncertainties. The Company believes the following to be among the most critical judgment areas in the application of its accounting policies.

A-3

THE FINOVA GROUP INC.

Significant Use of Estimates

Several of the Company’s most critical 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 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. 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 (subsequent to implementation of fresh-start reporting) 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. However, certain financing assets were previously marked down for impairments that existed at the time fresh-start reporting was implemented. These marked down values became the Company’s cost basis in those assets, and accounting rules do not permit the carrying value of these assets to be increased above that fresh-start cost basis if subsequent facts and assumptions result in a projected increase in value. Recoveries of amounts in excess of the fresh-start cost basis are recorded through operations when collected.

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 even if subsequent facts and assumptions result in a projected increase in value. Recoveries of previous markdowns are recorded through operations when collected.

Because of these accounting restrictions, FINOVA is not permitted to fully reflect some anticipated improvements in the portfolio until they are actually 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.

FINOVA has a number of aircraft that are off-lease and anticipates that additional aircraft will be returned to the Company 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 limited demand for certain of these aircraft today. While the current market makes it difficult to quantify, the Company believes that the recorded values determined under this methodology may significantly exceed the values that the Company would realize if it was required to liquidate those aircraft today; however, actual amounts recovered from these aircraft may differ from recorded amounts and will be significantly impacted by the used aircraft market in the future, which is difficult to predict.

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 limited 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.

Due to the numerous assumptions affecting the estimation of cash flows and the accounting restrictions noted above, a traditional sensitivity analysis is not considered to be practical and has not been completed.

A-4

THE FINOVA GROUP INC.

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 assumptions regarding future customer performance (which are inherently dependent upon assumptions about general economic conditions and those affecting the customer’s business), 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 have in the past and could in the future, differ from these estimates, resulting in an increase or reversal of reserves. As of December 31, 2005 and 2004, the reserve for credit losses totaled $29.0 million and $101.3 million, 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 future portfolio assessments indicate additional impairment, additional markdowns may be necessary. Recoveries of previous markdowns are recorded through operations when collected. As of December 31, 2005 and 2004, owned assets totaled $77.4 million and $84.2 million, or 21.7% and 11.9% 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 expected ability to hold to maturity. These assets are revalued quarterly and are carried at the lower of cost or market less anticipated selling expenses, with adjustment, if any, recorded as a gain or 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. During 2005, the Company sold the majority of these assets and the few assets remaining in held for sale have no value. Refer to Annex A—Notes to the Consolidated Financial Statements, Note C. “Total Financial Assets” for a detailed discussion of sales activity and valuation of the remaining assets. As of December 31, 2004, assets held for sale totaled $42.5 million or 6.0% of total financial assets (before reserves).

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 due to FINOVA at maturity and FINOVA’s ability or willingness to provide such refinancing. In certain instances, accounts may be returned to accruing status if sustained performance is demonstrated. Changes in borrower performance, assumptions, or estimates could result in a material change in nonaccruing account classification and income recognition. As of December 31, 2005 and 2004, $131.9 million and $259.4 million, or 37.1% and 36.7% of total financial assets (before reserves), were classified as nonaccruing, respectively.

New Accounting Standards. There were no new accounting standards issued during 2005 that impacted FINOVA.

A-5

THE FINOVA GROUP INC.

RESULTS OF OPERATIONS

As a result of the Company’s continued asset liquidation and shrinking operations, the consolidated financial statements are not necessarily comparable from year to year. Trends during any given year may not be indicative of future trends; however, the following discussion of results for the years ended December 31, may provide useful information regarding the current status of the Company.

	Year Ended December 31,									Year Ended December 31,
	2005			2004			Change			2004			2003			Change
	(Dollars in thousands)
Interest margin	$	(90,046	)	$	(51,964	)	$	(38,082	)	$	(51,964	)	$	25,794		$	(77,758	)
Reversal of provision for credit losses		51,811			148,527			(96,716	)		148,527			238,786			(90,259	)
Net gain on financial assets		37,864			108,681			(70,817	)		108,681			63,054			45,627
Portfolio expenses		(23,994	)		(28,236	)		4,242			(28,236	)		(29,341	)		1,105
General and administrative expenses		(45,417	)		(44,995	)		(422	)		(44,995	)		(70,673	)		25,678
Loss from settlement of pension plan		(24,665	)					(24,665	)
Gain from extinguishment of debt, net														28,493			(28,493	)
Net (loss) income	$	(94,447	)	$	132,013		$	(226,460	)	$	132,013		$	256,113		$	(124,100	)

Years Ended December 31, 2005 and 2004

Net (Loss) Income. In general, the net loss for the year ended December 31, 2005 was primarily attributable to a lower level of asset realization in excess of recorded carrying amounts and the Company recognizing a loss on the final settlement of its pension plan. Asset realization in excess of recorded carrying amounts is primarily reflected in the financial statements as reversals of excess reserve for credit losses, net gains from the sales of financial assets and the recognition of suspended income upon the payoff of assets.

Even though asset realization in 2005 was less than 2004, the Company still experienced substantially better than anticipated realization and performance of asset portfolios. The Company has been cautioning investors that asset realization trends were not expected to continue at the same level as prior years. Many of our more desirable and marketable assets have been liquidated and the remaining portfolio is becoming more concentrated in non-performing assets and used aircraft, both of which have been more work intensive and difficult to liquidate at acceptable prices. However, during 2005, the aircraft-financing market displayed a high level of activity and in certain instances improved aircraft values. As a result, the Company’s transportation portfolio continued to generate cash in excess of recorded carrying amounts, but the total level of realization was lower than 2004.

The Company has seen an increase in demand for certain types of aircraft; however, this demand may decline due to continued uncertainty in the airline industry and the bankruptcy filings of Delta Airlines and Northwest Airlines. FINOVA has direct exposure to Northwest Airlines, but both carriers are in the process of rejecting or restructuring the terms of numerous financing transactions. In addition, many major domestic carriers continue to post substantial losses due in part to high fuel costs coupled with a high cost structure. If the high fuel costs continue to exist for an extended period of time or airlines are not able to efficiently compete with low-cost carriers, additional airlines may experience financial difficulties. A number of prominent domestic airlines are in bankruptcy and others threatening to file if certain cost reductions cannot be realized. As a result of the current status of the industry and airline bankruptcies, FINOVA anticipates excess aircraft will be parked and forced into the market. FINOVA’s ability to realize the recorded values of its aircraft portfolio will depend upon future aircraft lease rates and values, both of which are greatly impacted by the instability of the airline industry.

Opportunities for recoveries in excess of recorded values continue to exist and are expected to occur, however, the Company remains concerned about the fragile nature of the airline industry.

Interest Margin. The decline in interest margin was primarily attributable to the recognition of a lower level of suspended and deferred income ($15.4 million and $82.9 million for the years ended December 31, 2005 and 2004, respectively), which was generated from payoffs of certain assets in excess of their carrying amounts and the return to earning status of certain assets following demonstration of sustained performance. Income recognition is suspended when an account is classified as a nonaccruing asset and any subsequent interest payments received are applied against its carrying amount to mitigate the Company’s exposure. In certain instances, suspended income is recognized upon payoff, if proceeds realized are in excess of the carrying amount, or if after sustained performance is demonstrated, the account is returned to accruing status.

The Company believes that further instances where it will recognize suspended income may occur; however, any income recognition in future periods will be more comparable to 2005 than 2004. The portfolio is considerably smaller and the Company is currently monitoring only a few accounts with suspended income for potential stabilization and demonstration of sustained performance.

A-6

THE FINOVA GROUP INC.

Additionally, the Company’s interest margin was significantly impacted by a lower level of earning assets ($123.9 million and $332.8 million at December 31, 2005 and 2004, respectively) than the face amount of outstanding debt ($1.7 billion and $2.2 billion at December 31, 2005 and 2004, respectively) and the Company’s high aggregate cost of funds (aggregate effective rate of 13.5% and 11.9% for the years ended December 31, 2005 and 2004, respectively). The increase in the aggregate effective rate was primarily due to the acceleration of fresh-start discount amortization following principal prepayment of the Senior Notes earlier than originally anticipated when fresh-start guidelines were applied upon emergence.

Reversal of Provision for Credit Losses. The Company recorded reversals of provision for credit losses to reduce its overall reserve for credit losses. The reserve reductions were primarily due to recoveries ($11.1 million and $37.2 million for the years ended December 31, 2005 and 2004, respectively) of amounts previously written off, proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), collections and the Company’s detailed assessment of estimated inherent losses in its portfolio.

In addition, the Company’s income recognition policy for nonaccruing accounts can result in periodic reserve reductions. In accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” impairment reserves are recorded if the carrying amount of a loan exceeds the net present value of expected cash flows. For nonaccruing accounts, any 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 reserves. This policy had a greater impact on the reversal of provision for credit losses in 2004 than in 2005 due to the reinstatement of a number of accounts to accruing status in 2004.

The pace of collections and account payoffs has continued to be faster than expected. Amounts collected have often exceeded anticipated cash flows, resulting in a partial reversal of previously established reserves. However, as expected, asset realization trends declined from the prior year. During 2004, the Company had experienced substantially better than anticipated realization and performance of asset portfolios. The Company believes it is unlikely that those asset realization trends will materialize again. While 2005 has shown continued accelerated collections, the volume and realization has not kept pace with 2004. The Company does not expect a significant reversal of provision for credit losses in future periods. The Company has already seen a significant decline in realized recoveries of amounts previously written off and expects that declining trend to continue.

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 Item 1A. “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Critical Accounting Policies” for a discussion of these and additional factors impacting the use of estimates.

Net Gain on Financial Assets. Gains are sporadic in nature and not necessarily comparable from one period to the next; however, the decrease over the prior year was primarily attributable to the prior year including a one-time gain from the sale of a substantial portion of the Company’s timeshare portfolio, a decrease in the overall realization during 2005 from the Company’s transportation portfolio and valuation markdowns taken in 2005 on the Company’s transportation leveraged lease portfolio.

The net gain during 2005 was primarily attributable to sales of owned assets and financing contracts in excess of carrying amounts, the most significant of which were comprised of $45.7 million of net gains realized from sales of aircraft, including the forfeiture by aircraft operators of security deposits and maintenance reserves ($10.5 million), $4.5 million of net gains realized from the sale and valuation of private and public investments and $5.3 million of net gains from the valuation and sale of the Company’s last two real estate leveraged leases.

Partially offsetting the gain activity for 2005 were $19.1 million of net valuation markdowns and losses on the Company’s transportation leveraged lease portfolio. In conjunction with the Northwest Airlines’ bankruptcy filing, the airline notified FINOVA of its intent to renegotiate the terms of eight leveraged leases or possibly reject the transactions. Two Boeing 757 aircraft and six regional jets secure the Northwest leveraged leases. The outstanding senior debt on these leveraged leases is significantly in excess of the underlying aircraft values. As a result, the assets, which have a contractual balance of $86.4 million, have virtually no remaining value to FINOVA and their remaining carrying value was fully written-off. During 2005, FINOVA recognized total valuation markdowns of $14.4 million on the Northwest leveraged leases, while the remainder of the net markdowns and losses on the transportation leveraged lease portfolio were primarily associated with the American Trans Air bankruptcy and a $0.7 million loss recognized on the sale of FINOVA’s last transportation leveraged lease (excluding the Northwest leases).

A-7

THE FINOVA GROUP INC.

The Company entered into a number of transactions to sell assets over the last couple of years and expects asset sales to continue. However, barring continued strong activity in the aircraft-financing market, the Company generally does not expect to maintain aggregate gain realization levels comparable to those years in future asset sales, due to the fact that many of its more attractive and marketable assets within the portfolio have already been liquidated. The Company’s remaining portfolio of assets is concentrated in owned aircraft and impaired loans and financing leases. As previously discussed, improvements within the aircraft-financing market have generated increased volume and realization from the Company’s transportation portfolio, but the Company is skeptical about whether this improved trend will be sustained and for how long.

FINOVA will continue to consider future sales of the remaining portfolio or individual assets, 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 or that realization will reach prior year levels. In evaluating offers, FINOVA will generally compare offers against FINOVA’s internal net present value of estimated future cash flows projected to be collected from those assets less the net present value of FINOVA’s operating costs to collect those assets.

Portfolio Expenses. Portfolio expenses include all costs relating to the maintenance and collection of both performing and non-performing financial transactions. In addition, within the transportation portfolio, portfolio costs include storage, maintenance and costs for potential return to service of aircraft. In most cases, the Company experienced a decline in the level of problem account and workout expenses as assets have declined.

The transportation portfolio continues to incur the majority of the Company’s portfolio costs ($14.8 million and $21.0 million for the years ended December 31, 2005 and 2004, respectively). In certain instances, the Company believes it can achieve better returns in the current market of improved aircraft values by investing in the maintenance of certain types of aircraft and engines. As a result, portfolio expenses within the transportation portfolio have not declined as fast as the decline in assets. Portfolio costs within the transportation portfolio will fluctuate with the timing and number of maintenance reinvestment projects. The Company will continue to invest in aircraft maintenance as long as it makes economic sense to do so.

Partially offsetting the decline in transportation expenses was an increase in legal costs associated with the Thaxton litigation ($4.8 million and $0.6 million for the years ended December 31, 2005 and 2004, respectively). The increase in Thaxton related expenses was primarily due to amounts previously reimbursed from the Thaxton bankruptcy being deposited into a reserve account beginning in the third quarter of 2005. Refer to Item 3. “Legal Proceedings” for a further discussion of the Thaxton litigation.

General and Administrative Expenses. The increase in general and administrative expenses was primarily the result of the prior year including a one-time $5.8 million reversal of excess accruals related to bankruptcy claims that were settled for amounts less than what had originally been accrued, higher severance accruals ($2.6 million) related to current year and future staffing reductions and $1.8 million of accruals related to anticipated office lease termination costs, partially offset by $8.5 million of cost savings resulting from staffing and office occupancy reductions (60 employees at December 31, 2005 compared to 101 and 213 employees at December 31, 2004 and 2003, respectively). 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 as a result of certain fixed costs, the costs of being a public company and the high level of work intensive assets in the portfolio.

During 2005, the Company had additional and accelerated staff reductions, which were designed to more closely align FINOVA’s operating costs with the size of the remaining portfolio. Total staff reductions included approximately 41% of the workforce (including seven members of senior management). The cost savings from these reductions began during the second half of 2005 and their full benefit will not be realized until 2006. A portion of the savings in 2005 was offset by increased severance costs.

Loss from Settlement of Pension Plan. During 2005, the Company finalized the termination of a trusteed, noncontributory pension plan that covered substantially all of its employees. The Company terminated the pension plan effective December 31, 2004 and received final regulatory approvals in late 2005. Upon final distribution of participant benefits, the Company recognized all remaining unrecognized net actuarial amounts under the plan, which totaled $24.7 million.

Income Tax Expense. No income tax expense or benefit was recorded during the years ended December 31, 2005 and 2004. Any pre-tax book income or loss has been entirely offset by a decrease or increase in valuation allowances against deferred tax assets, 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, 2005 and 2004, the Company had federal net operating loss carryforwards of $1.2 billion and $1.1 billion, respectively, none of which expire prior to 2009. For a further discussion of taxes see Note H. “Income Taxes.”

A-8

THE FINOVA GROUP INC.

Years Ended December 31, 2004 and 2003

Net Income. In general, the decrease in net income was primarily attributable to the year ended December 31, 2004 containing a lower level of asset realization in excess of recorded carrying amounts, and the Company not generating any gains from repurchases of debt in 2004. Asset realization in excess of recorded carrying amounts was primarily reflected in the financial statements as net gains from the sale of assets, reversals of excess reserve for credit losses and the recognition of suspended income upon the payoff of assets.

Interest Margin. The negative margin was primarily due to a significantly lower level of earning assets ($332.8 million and $1.0 billion at December 31, 2004 and 2003, respectively) than the face amount of outstanding debt ($2.2 billion and $3.5 billion at December 31, 2004 and 2003, respectively) and the Company’s high aggregate cost of funds (aggregate effective rate of 11.9% and 8.3% for the years ended December 31, 2004 and 2003, respectively), which continued to increase as the lower cost Berkadia Loan was repaid and higher cost Senior Notes became a higher percentage of the outstanding debt. Additionally, the aggregate effective rate increased, to a lesser extent, due to the acceleration of fresh-start discount amortization following principal prepayment of the Senior Notes earlier than originally anticipated when fresh-start guidelines were applied upon emergence.

Also contributing to the decline in interest margin was the recognition of a lower level of suspended and deferred income ($82.9 million and $134.1 million for the years ended December 31, 2004 and 2003, respectively), which was generated from payoffs of certain assets in excess of their carrying amounts and the return to earning status of certain assets following demonstration of sustained performance. In certain instances, suspended income was recognized upon payoff, when proceeds realized were in excess of the carrying amount or when after sustained performance was demonstrated, the account was returned to accruing status.

Reversals of Provision for Credit Losses. The Company recorded reversals of provision for credit losses to reduce its reserve for credit losses. The reserve reductions were primarily due to recoveries ($37.2 million and $109.6 million for the years ended December 31, 2004 and 2003, respectively) of amounts previously written off, proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), collections and the Company’s detailed assessment of estimated inherent losses in its portfolio.

In addition, the Company’s income recognition policy for nonaccruing accounts can result in periodic reserve reductions. In accordance with SFAS No. 114, “Accounting by Creditors for Impairment of a Loan,” impairment reserves are recorded if the carrying amount of a loan exceeds the net present value of expected cash flows. For nonaccruing accounts, any cash received was applied against the carrying amount of the transaction. As a result, carrying amounts declined at a faster pace than net present value, thus reducing the impairment reserve. This policy had a greater impact on the reversal of provision for credit losses in 2003 than in 2004 due to the continued reinstatement of accounts to accruing status over the last two years.

The pace of collections and account payoffs has continued to be faster than expected. In most portfolios, amounts collected have often exceeded anticipated cash flows, resulting in a partial reversal of previously established reserves. However, as expected, asset realization trends declined from the prior year. During 2003, the Company had experienced substantially better than anticipated realization and performance of asset portfolios.

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 Item 1A. “Risk Factors,” “Special Note Regarding Forward-Looking Statements” and “Critical Accounting Policies” for a discussion of these and additional factors impacting the use of estimates.

Net Gain on Financial Assets. Gains are sporadic in nature and not necessarily comparable from one period to the next; however, the increase over the prior year was primarily attributable to the sale of substantially all of the Company’s timeshare resort portfolio and increased activity and realization from the Company’s transportation portfolio.

The net gain during 2004 was attributable to sales of owned assets and financing contracts in excess of carrying amounts, the most significant of which included a $21.4 million gain realized on the sale of a portion of the Company’s timeshare resort portfolio, $7.8 million of net gains realized from the sale of private and public investments, $9.0 million of net gains realized from multiple transactions to sell a portion of the Company’s real estate leveraged lease portfolio and $62.8 million of net gains realized primarily from numerous aircraft sales, including the forfeiture by aircraft operators of security deposits and maintenance reserves ($10.6 million). The net gains from the sale of transportation assets included a $22.0 million gain realized on an aircraft that was destroyed in a crash by its operator and a $4.9 million gain realized on the sale of 17 off-lease engines.

A-9

THE FINOVA GROUP INC.

The net gain during 2003 primarily included $31.8 million of gains realized from the sale of two equity investments in timeshare resort development companies, $12.1 million of net gains from the sale of the Company’s position in seven real estate leveraged leases, a $6.9 million gain related to the settlement and restructure of an operating lease including the recognition of forfeited maintenance reserves and security deposits, a $5.8 million gain realized from the sale of nine healthcare related loans and a $4.4 million gain realized on the rediscount asset sale. Partially offsetting these net gains were $48.0 million of impairment markdowns within the transportation portfolio and an $11.1 million markdown to the Company’s remaining real estate leveraged leases in association with their classification as assets held for sale. The impairment losses 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 predominately older vintage owned aircraft portfolio. The remainder of the 2003 net gain activity was attributable to over 200 individual asset sales (including repossessed assets, loans, residual positions and investments) spread across the portfolio.

Portfolio Expenses. Portfolio expenses include all costs relating to the maintenance and collection of both performing and non-performing financial transactions. In addition, within the transportation portfolio, portfolio costs include storage, maintenance and costs for potential return to service of aircraft. The decrease over 2003 was primarily due to a decline in the level of problem account and workout expenses for most portfolios with the exception of transportation.

The transportation portfolio continued to incur the majority of the Company’s portfolio costs ($21.0 million and $16.4 million for the years ended December 31, 2004 and 2003, respectively). Even though the portfolio has shrunk, portfolio expenses have not declined. Portfolio expenses within the transportation portfolio were trending downward during 2003. FINOVA had been maximizing the value of the portfolio by using the remaining air-time of aircraft and engines, while minimizing the maintenance investment in those assets. As remaining air-time was exhausted, numerous aircraft and engines were identified for potential dismantling or sale at scrap values; however, the reemergence of the aircraft-financing market during late 2004 has altered the Company’s approach to maximize value. In certain instances, the Company believes it can achieve better returns in the current market of improved aircraft values by investing in the maintenance of certain types of aircraft and engines. As a result, portfolio expenses for the transportation portfolio increased during 2004, even though the portfolio is considerably smaller. The Company will continue to invest in aircraft maintenance as long as it makes economic sense to do so.

General and Administrative Expenses. The decrease was primarily due to 2003 including charges of $13.0 million to accrue for settlement of outstanding litigation, bankruptcy claims and other legal matters, a $5.8 million reversal in 2004 of excess accruals, which resulted from the settlement and payment of bankruptcy claims for amounts less than what had originally been accrued and $8.0 million of cost savings resulting from staffing and office occupancy reductions (101 employees at December 31, 2004 compared to 213 and 319 at December 31, 2003 and 2002, respectively), partially offset by higher severance costs ($4.5 million) related to those individuals notified of their pending termination. The remainder of the decrease was the result of an overall decline in general and administrative expenses caused by decreases in portfolio and staffing levels.

Gain from Extinguishment of Debt, Net. During 2003, the Company repurchased $100.0 million (face amount) of Senior Notes at a price of 49.875% or $49.9 million, plus accrued interest. The repurchase generated a net gain of $28.5 million ($50.1 million repurchase discount, partially offset by $21.6 million of unamortized fresh-start discount). The Company continues to evaluate opportunities to repurchase bonds rather than repay debt, but during 2004, bond prices exceeded internal analysis that would support the decision to repurchase bonds.

Income Tax Expense. For the years ended December 31, 2004 and 2003, income tax expense related to pre-tax book income was entirely offset by a decrease in valuation allowances against deferred tax assets, 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, 2004 and 2003, the Company had federal net operating loss carryforwards of $1.1 billion and $851.6 million, respectively, none of which expire prior to 2009. For a further discussion of taxes see Note H. “Income Taxes.”

FINANCIAL CONDITION, LIQUIDITY AND CAPITAL RESOURCES

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Company’s assets are pledged to secure its obligations under the Intercompany Notes securing the Senior 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 from the liquidation of its assets as its only meaningful source of liquidity.

A-10

THE FINOVA GROUP INC.

The terms of the Indenture prohibit the Company from using available funds (after certain permitted uses) for any purpose other than to satisfy its obligations to creditors and to make limited payments to stockholders in certain circumstances. Under the terms of the Indenture, the Company is permitted to establish a cash reserve in an amount not to exceed certain defined criteria. Due to the Company’s limited sources of liquidity, 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. Generally speaking, cash reserves typically equal anticipated cash flows to cover operating costs, tax payments, fundings under existing customer commitments, interest payments and any other necessary cash flows expected to occur during the next six month period. The Company has the discretion to and has from time to time adjusted its cash reserve methodology.

During 2005 and 2004, the Company made $474.9 million and $801.3 million, respectively, of partial principal prepayments on the Senior Notes, which reduced the outstanding principal to $1.7 billion as of December 31, 2005. FINOVA announced two additional partial prepayments totaling $59.4 million that were made in the first quarter of 2006. Following these prepayments, cumulative prepayments through the first quarter of 2006 totaled $1.3 billion or 45% of the face amount ($2.97 billion) of the Senior Notes.

In accordance with the terms of the Indenture, the Company is required to use any excess cash, as defined in the Indenture, to make semi-annual interest and principal payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Company’s option.

The Company does not believe that it has sufficient assets to fully repay the Senior Notes, and the Indenture prohibits the Company from engaging in new business. Therefore, FINOVA intends to rely on the liquidation of its remaining assets as its only meaningful source of liquidity. The Senior Notes have a first priority security interest in substantially all of FINOVA’s remaining assets.

Stockholders should not expect any payments or distributions from FINOVA. The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% of each principal prepayment. However, the Indenture prohibits FINOVA from making distributions to and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be permitted to be made under applicable law. Any such distribution and/or repurchase would be considered an impermissible restricted payment under the Indenture. Given the Company’s significant negative net worth and its belief that the Senior Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations. In conjunction with the prepayments of Senior Notes noted above, the Company has retained a total of $70.3 million as of February 15, 2006. Retained amounts are segregated and reflected as restricted cash on the balance sheet, pending their final disposition. The Company anticipates that the retained amounts will eventually be paid to the creditors, not the stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia (jointly owned by Berkshire Hathaway and Leucadia), which own 50% of FINOVA common stock, would receive half of the retained amounts. Berkadia had advised the Company that it does not believe that stockholders are entitled to the retained amounts since FINOVA cannot fully satisfy its creditor obligations.

In April 2005, FINOVA filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order that (1) FINOVA no longer needs to direct funds into a restricted account, and (2) FINOVA may use the funds in the restricted account to satisfy its obligations to creditors.

In June 2005, the Bankruptcy Court ordered that the former Equity Committee (the “Equity Committee”) be reconstituted. The Equity Committee was reconstituted with three members on July 14, 2005. As a precursor to the Bankruptcy Court ruling upon FINOVA’s motion, the Equity Committee shall have the opportunity to independently review FINOVA’s state of solvency.

A hearing was held on November 29, 2005, and on February 1, 2006, the Bankruptcy Court issued its Order approving FINOVA’s April 2005 motion to the extent that FINOVA will be forever insolvent. The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will then be distributed to FINOVA’s creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware.

A-11

THE FINOVA GROUP INC.

The Company has a negative net worth of $611.7 million as of December 31, 2005 ($1.2 billion if the Senior Notes are considered at their principal amount due). Based on the Company’s current financial condition (including having only $326.6 million of net financial assets), it is highly unlikely there will be funds available to fully repay the outstanding principal on the Senior Notes at maturity or make any 5% distribution to common stockholders, absent a court order. As a result, there would not be a return to the Company’s stockholders. Consequently, investing in the Senior Notes and common stock involves a high level of risk.

In accordance with the Plan, Berkshire Hathaway and its direct and indirect subsidiaries had agreed to retain ownership of all Senior Notes received by Berkshire Hathaway pursuant to the Plan for a period of four years from the effective date (August 21, 2001) of the Plan. As of August 21, 2005, this four-year period had expired and Berkshire Hathaway is no longer restricted from selling its Senior Notes.

Obligations and Commitments

The following is a listing of FINOVA’s significant contractual obligations and contingent commitments at December 31, 2005 and 2004. 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.

	December 31, 2005				December 31, 2004
Obligations and Commitments	Contractual		Contingent		Contractual		Contingent
	(Dollars in thousands)
Senior Notes	$	1,691,731	$		$	2,166,603	$
Management Services Agreement		40,000				48,000
Impermissible Restricted Payments				67,169				42,176
Contingent interest on Senior Notes				91,232				91,232
Unfunded customer commitments				9,233				11,508
Lease obligations		7,706				11,598
	$	1,739,437	$	167,634	$	2,226,201	$	144,916

The 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 prepayments of the Senior Notes are contingent on the availability of excess cash. FINOVA’s obligations with respect to the payment of interest and principal under the Senior Notes are secured by a first priority security interest in (a) all capital stock of FINOVA Capital, (b) secured promissory notes of FINOVA Capital issued to FINOVA in the aggregate principal amount of the Senior Notes (the “Intercompany Notes”) and (c) certain other property of FINOVA that may be acquired from its subsidiaries in the future. As noted above, the Company made $474.9 million and $801.3 million of partial principal prepayments on the Senior Notes in 2005 and 2004, respectively, and announced two additional partial prepayments totaling $59.4 million that were made in the first quarter of 2006.

FINOVA’s business continues to be operated under a Management Services Agreement with Leucadia that expires in 2011. FINOVA pays Leucadia an annual management fee of $8.0 million and reimburses it for expenses incurred.

Permitted uses of cash are specified in 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 and funding customer commitments; then to pay interest on the Senior Notes; then to make optional purchases of the Senior Notes in accordance with the terms of the Indenture in an amount not to exceed $150 million per year. Ninety-five percent (95%) of the remaining available cash after establishment of cash reserves as defined in the Indenture will be used to make prepayments of principal on the Senior Notes and five percent (5%) is identified for distributions to and/or repurchases of stock from common stockholders. However, the Indenture prohibits FINOVA from making distributions to and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be permitted under applicable law. Any such distribution and/or repurchase would be considered an impermissible restricted payment under the Indenture. Given the Company’s significant negative net worth (approximately $611.7 million at December 31, 2005 or $1.2 billion if the Senior Notes are considered at their principal amount due) and its belief that the Senior Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations. As of December 31, 2005, the Company retained a total of $67.2 million. The retained amount increased to $70.3 million during the first quarter of 2006, following the aforementioned additional Senior Note prepayments. Refer to Item 3. “Legal Proceedings” for a discussion of the Company’s motion to the Bankruptcy Court regarding the restricted payments.

A-12

THE FINOVA GROUP INC.

The Indenture provides that if payment in full is made of the outstanding principal of the Senior Notes and payments are made to FINOVA common stockholders in an aggregate amount equal to 5.263% (i.e., 5%/95% as noted above) of the aggregate principal amount of the Senior Notes, ninety-five percent (95%) of any available cash will be used to pay contingent interest to holders of Senior Notes in an aggregate amount of up to $91.2 million (reflecting Senior Notes that have been repurchased by the Company) and five percent (5%) of remaining available cash will be used for distributions to and/or repurchases of stock from common stockholders, if those distributions 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 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. As of December 31, 2005, the Company’s unfunded commitments included only a few existing accounts, with the majority of the commitment related to one real estate customer. Because of the primarily revolving nature of its commitments, the Company is unable to estimate with certainty what portion of the commitments will be funded.

Lease obligations represent total contractual obligations (rent and operating costs) due under operating leases (primarily leased office space), as well as commitments made for tenant improvements and lease damages related to the resolution of previously rejected lease space. Lease obligations declined to $7.7 million at December 31, 2005, primarily due to scheduled rent payments. See Notes to the Consolidated Financial Statements, Note L. “Operating Leases” for a schedule of future minimum rental payments by year.

Not included in the table above is nonrecourse debt associated leveraged leases. Nonrecourse debt associated with leveraged leases totaled $125.4 million and $313.1 million at December 31, 2005 and 2004, respectively. The balances represent principal amounts due to third party lenders under lease arrangements. The Company has no direct obligation for repayment of the nonrecourse debt. 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. At December 31, 2005 and 2004, all of the Company’s leveraged leases were classified and accounted for as assets held for sale. 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 and the Company is not contractually obligated or committed to make repayments of this debt. Nonrecourse debt declined to $125.4 million at December 31, 2005, primarily due to the elimination of $124.9 million of nonrecourse debt in conjunction with the sale of FINOVA’s position in three leases, the elimination of $44.7 million of nonrecourse debt as a result of the senior debt holders restructuring contractual obligations and proceeding against the underlying assets in two separate transactions, principal prepayment of $11.5 million of debt and scheduled principal payments of $6.6 million. The entire remaining amount of nonrecourse debt at December 31, 2005 relates to the Company’s leveraged leases with Northwest Airlines. As previously mentioned, in conjunction with the Northwest Airlines’ bankruptcy filing, the airline notified FINOVA of its intent to renegotiate the terms of eight leveraged leases or possibly reject the transactions. Two Boeing 757 aircraft and six regional jets secure the Northwest leveraged leases. The nonrecourse senior debt on these leveraged leases is significantly in excess of the underlying aircraft values. As noted above, FINOVA has no direct obligation for repayment of the nonrecourse debt.

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 assets. These activities include collection efforts pursuant to underlying contractual terms, negotiation of prepayments, sales of assets or collateral and may include efforts to retain certain customer relationships and restructure or terminate other relationships. The Company has sold portions of asset portfolios and will consider future sales of any asset if buyers can be found at acceptable prices. The Company is offering to sell its remaining assets both by portfolio and individual asset. Due to restrictions contained in the Indenture 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.

A-13

THE FINOVA GROUP INC.

The following table presents the activity in total financial assets, net of the reserve for credit losses:

	Year Ended December 31,
	2005			2004
	(Dollars in thousands)
Total financial assets, beginning of year	$	604,665		$	1,531,156
Cash activity:
Fundings under existing customer commitments		14,164			56,309
Collections and proceeds from financial assets		(326,623	)		(1,136,038	)
Net cash flows		(312,459	)		(1,079,729	)
Non-cash activity:
Reversal of provision for credit losses		51,811			148,527
Net charge-offs of financial assets		(12,463	)		(10,463	)
Other non-cash activity		(4,905	)		15,174
Net non-cash activity		34,443			153,238
Total financial assets, end of year	$	326,649		$	604,665

Total financial assets, net of the reserve for credit losses, declined to $326.6 million at December 31, 2005, down from $604.7 million at December 31, 2004. During 2005, net cash flows from the portfolio totaled $312.4 million, down from $1.1 billion in 2004, while non-cash activity resulted in a $34.4 million increase in net financial assets as compared to $153.2 million for 2004. Components of net cash flow for 2005 included $260.4 million of collections from financial assets (including recoveries) and $66.2 million from the sale of assets (excluding cash gains), offset by $14.2 million of fundings under existing customer commitments. Collections from financial assets included a significant level of prepayments (customer payments in advance of scheduled due dates). Non-cash activity included a $51.8 million reversal of reserves, partially offset by a $12.5 million net decrease related to the valuation of assets held for sale and owned assets and other non-cash activity of $4.9 million.

During 2004, net cash flows from the portfolio totaled $1.1 billion, while non-cash activity resulted in a $153.2 million increase in net financial assets. Components of net cash flow included $749.6 million of collections from financial assets (including reserves) and $386.4 million from the sale of assets (excluding cash gains), offset by $56.3 million of fundings under existing customer commitments. Non-cash activity included a $148.5 million reversal of reserves and other non-cash activity of $15.2 million, partially offset by a $10.5 million reduction related to markdowns of owned assets.

The real estate portfolio (combined remaining resort and specialty real estate portfolios) declined to a carrying amount of $29.2 million or 8.2% of the Company’s total financial assets (before reserves) at December 31, 2005 as compared to $156.1 million or 22.1% of total financial assets (before reserves) at December 31, 2004. The decline was primarily attributable to prepayments, asset sales and scheduled amortization. During 2005, the Company completed the sale of its last two real estate leveraged leases for net proceeds of $14.1 million, while prepayment activity was in excess of $105 million. The remainder of the real estate portfolio is expected to have a slower rate of runoff. The remaining portfolio is primarily comprised of impaired or nonperforming assets that have been marked down and/or reserved due to certain issues or uncertainties with the customers or the underlying collateral. These assets have the potential for recoveries in excess of their carrying amounts. Due to the size of the real estate portfolio at December 31, 2005, the remaining assets will be combined with all other portfolios in future filings.

The carrying amount of the Company’s transportation portfolio declined $130.5 million since December 31, 2004 to $163.5 million at December 31, 2005, which represents 46.0% of the Company’s total financial assets (before reserves). The decline was primarily attributable to asset sales, prepayments, scheduled amortization, write-offs ($21.8 million) and valuation adjustments ($19.1 million) to the transportation leveraged lease portfolio. The decline was partially offset by the prepayment of $12.5 million (including penalties) of nonrecourse debt associated with two leveraged leases to American Trans Air. FINOVA repossessed the underlying collateral (an aircraft and a spare engine) related to these leveraged leases in 2005. During 2005, the Company completed over 60 asset sales with a total carrying amount of $34.9 million, while prepayment activity represented $24.7 million of carrying amount. The transportation portfolio is primarily comprised of older vintage aircraft, often of class and configuration with limited demand in the aircraft market. FINOVA has a number of aircraft that are off-lease and anticipates that additional aircraft will be returned to the Company as leases expire or operators

A-14

THE FINOVA GROUP INC.

are unable or unwilling to continue making payments. The Company’s portfolio of older aircraft generally is not as desirable to domestic commercial airlines and as a result, owned and off-lease aircraft are primarily marketed in whole or part to carriers in developing countries. FINOVA continues to reassess the likelihood of certain off-lease assets being re-leased or sold. The potential for substantial recoveries on these accounts continues to be hampered by the uncertainty in the airline industry. A market for many of these aircraft may never fully return, but the Company believes the course of action to maximize their value is to patiently work these assets and wait for opportune moments to sell or lease the assets that have the potential to return to service, and scrap those assets that are not likely to return to service. As previously discussed, the aircraft-financing market continued to display a high level of activity and in certain instances improved aircraft values. As a result, the Company’s transportation portfolio continued to generate cash in excess of recorded carrying amounts during 2005. Additionally, the Company had a number of aircraft that were under letters of intent to sell as of December 31, 2005 or were sold in early 2006, including the majority of the Company’s off-lease assets and a direct financing lease on a Boeing 747 with Northwest Airlines. In the first quarter of 2006, Northwest exercised a purchase option on the Boeing 747 for $17.0 million, which approximated the fair value of the asset. The Company has seen an increase in demand for certain types of aircraft; however, this demand may decline due to continued uncertainty in the airline industry and the bankruptcy filings of Delta Airlines and Northwest Airlines.

All other portfolios (carrying amount of $162.9 million at December 31, 2005) is comprised of the remnants of former portfolios (commercial equipment, communications, corporate finance, franchise, healthcare, mezzanine, public and rediscount) that for various reasons have not been sold or collected. The decline in the portfolio was primarily attributable to numerous prepayments, asset sales and scheduled amortization. This portfolio represents 45.8% of the Company’s total financial assets (before reserves) and generally contains assets that are more difficult and work intensive to liquidate. Approximately 77% of these assets are impaired or nonaccruing. Many of the borrowers have missed payments, including balloon obligations, or are otherwise in default. The Company expects runoff within this portfolio to begin to slow from the pace in 2005; however, the pace of runoff will be largely dependent on the resolution of a few significant accounts within the portfolio, including the litigation related to loans to The Thaxton Group Inc. and related companies described in Item 3. “Legal Proceedings”. Because this portfolio has been significantly marked down and reserved, the potential exists for recoveries in excess of carrying amounts; however, there can be no assurance that the Company will be successful in recovering amounts in excess of its carrying amounts.

The Company anticipates that when all or substantially all of the assets have been liquidated that the Company’s affairs will need to be wound-up. The Company is analyzing the potential methods of wind-up, which might involve a sale of the remaining assets, an assignment for the benefit of the creditors, or some other proceeding, any of which may or may not be in conjunction with bankruptcy or state law liquidation proceedings. We cannot predict the timing or nature of that final wind-up, but the Company is working towards accomplishing that end in a prudent manner. The portfolio has declined considerably and the remaining value has become more concentrated in a small number of accounts, while certain fixed costs and the cost of maintaining a public company have not declined at the same rate as the portfolio.

FINOVA’s reserve for credit losses decreased to $29.0 million at December 31, 2005 from $101.3 million at December 31, 2004. At December 31, 2005, the total carrying amount of impaired loans and leases was $241.1 million, of which $109.1 million were revenue accruing. The Company has established impairment reserves of $28.3 million related to $85.4 million of impaired assets. At December 31, 2004, the total carrying amount of impaired loans and leases was $458.8 million, of which $202.4 million were revenue accruing. Impairment reserves at December 31, 2004 totaled $96.2 million related to $169.2 million of impaired assets.

Reserves on impaired assets decreased primarily due to write-offs ($31.6 million and $62.2 million for the years ended December 31, 2005 and 2004, respectively), an improvement in pay-off and collection experience on certain assets previously reserved and the Company’s application of cash received on nonaccruing assets, thus reducing impairment reserves required on those assets. Partially offsetting these reductions were new impairment reserves established for assets reclassified to nonaccruing or impaired status during 2005 and additional reserves recorded on certain existing impaired assets.

Other reserves related to estimated inherent losses on unimpaired assets decreased to $0.7 million at December 31, 2005 from $5.0 million at December 31, 2004, as a result of prepayments, collections and the migration of certain accounts to impaired assets.

Accounts classified as nonaccruing were $131.9 million or 37.1% of total financial assets (before reserves) at December 31, 2005 as compared to $259.4 million or 36.7% at December 31, 2004. The decline in nonaccruing assets was primarily attributed to collections and asset sales of $59.2 million and write-offs and net valuation markdowns of $49.2 million. Also contributing to the decline was the return of certain assets to accruing status following demonstration of sustained performance and the classification of newly repossessed aircraft as assets held for the production of income, which are excluded from nonaccruing assets. During 2005, the Company returned a small number of accounts to accruing status. Certain of these accounts were previously restructured and the Company was monitoring the accounts for demonstration of sustained performance under the restructured terms before they would be returned to accruing status.

A-15

THE FINOVA GROUP INC.

The Company continues to be concerned regarding its ability to fully collect principal and interest on certain nonaccruing assets that have significant balloon payments or residual values due to FINOVA at maturity, because those customers may 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 own capital resources 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.

Special Note Regarding Forward-Looking Statements

Certain statements in this report are “forward-looking,” in that they do not discuss historical fact, but instead reflect 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 throughout this report including sections captioned Item 1. “Business,” 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. The risks, uncertainties and other factors that could cause FINOVA’s actual results or performance to differ materially from those contemplated by the forward-looking statements include, but are not limited to, those set forth in Item 1A. “Risk Factors” and elsewhere in this Report and in our public filings.

Undue reliance should not be placed on these forward-looking statements, which are applicable only as of the date of this Report. 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.

Off-Balance Sheet Arrangements and Derivative Financial Instruments

At December 31, 2005 and 2004, the Company did not have any significant transactions, agreements or other contractual arrangements with unconsolidated entities, nor did the Company have any significant derivative financial instruments.

Quantitative and Qualitative Disclosure About Market Risk

FINOVA’s portfolio has limited sensitivity to increases or decreases in interest rates as of December 31, 2005. The Company has no floating-rate debt obligations and floating-rate assets declined to $50.6 million at December 31, 2005. As a result, a 100 basis point or 1% shift in interest rates would affect net income or loss by approximately $0.5 million. Floating-rate assets continue to decline, further reducing the Company’s exposure to changes in interest rates.

A-16

Report of Independent Registered Public Accounting Firm

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, 2005 and 2004, and the related statements of consolidated operations, stockholders’ equity and cash flows for each of the three years in the period ended December 31, 2005. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company’s internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designed audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and 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, 2005 and 2004, and the results of their consolidated operations and their cash flows for each of the three years in the period ended December 31, 2005, in conformity with U.S. generally accepted accounting principles.

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,” the Company has a negative net worth as of December 31, 2005 and has limited sources of liquidity to satisfy its obligations. 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 16, 2006

A-17

THE FINOVA GROUP INC.

CONSOLIDATED BALANCE SHEETS

DECEMBER 31,

(Dollars in thousands)

	2005			2004
ASSETS
Cash and cash equivalents	$	212,317		$	480,485
Restricted cash - impermissible restricted payments		67,169			42,176
Financing Assets:
Loans and other financing contracts, net		177,887			416,695
Direct financing leases		77,948			132,995
Total financing assets		255,835			549,690
Reserve for credit losses		(29,032	)		(101,270	)
Net financing assets		226,803			448,420
Other Financial Assets:
Operating leases		69,784			69,310
Investments		22,490			29,582
Assets held for the production of income		7,572			14,855
Assets held for sale					42,498
Total other financial assets		99,846			156,245
Total Financial Assets		326,649			604,665
Other assets		5,016			6,799
	$	611,151		$	1,134,125
LIABILITIES AND STOCKHOLDERS’ EQUITY
Liabilities:
Senior Notes, net (principal amount due of $1.7 billion and $2.2 billion, respectively)	$	1,151,491		$	1,586,957
Interest payable		16,215			20,742
Accounts payable and accrued expenses		52,655			58,361
Deferred income taxes, net		2,521			2,742
Total Liabilities		1,222,882			1,668,802
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		113,140			113,140
Accumulated deficit		(727,149	)		(632,702	)
Accumulated other comprehensive income (loss)		1,555			(15,838	)
Common stock in treasury, 3,832,000 shares		(536	)		(536	)
Total Stockholders’ Equity		(611,731	)		(534,677	)
	$	611,151		$	1,134,125

See notes to consolidated financial statements.

A-18

THE FINOVA GROUP INC.

STATEMENTS OF CONSOLIDATED OPERATIONS

(Dollars in thousands, except per share data)

	Year Ended December 31,
	2005			2004			2003
Revenues:
Interest income	$	27,025		$	119,369		$	229,502
Rental income		11,177			24,084			31,058
Operating lease income		41,826			51,871			67,303
Fees and other income		14,225			20,149			37,798
Total Revenues		94,253			215,473			365,661
Interest expense		(176,071	)		(250,334	)		(314,288	)
Operating lease depreciation		(8,228	)		(17,103	)		(25,579	)
Interest Margin		(90,046	)		(51,964	)		25,794
Other Revenues and (Expenses):
Reversal of provision for credit losses		51,811			148,527			238,786
Net gain on financial assets		37,864			108,681			63,054
Portfolio expenses		(23,994	)		(28,236	)		(29,341	)
General and administrative expenses		(45,417	)		(44,995	)		(70,673	)
Loss from settlement of pension plan		(24,665	)
Gain from extinguishment of debt, net of fresh-start discount								28,493
Total Other Revenues and (Expenses)		(4,401	)		183,977			230,319
(Loss) income before income taxes		(94,447	)		132,013			256,113
Income tax expense
Net (Loss) Income	$	(94,447	)	$	132,013		$	256,113
Basic/diluted (loss) earnings per share	$	(0.77	)	$	1.08		$	2.10
Weighted average shares outstanding		122,041,000			122,041,000			122,041,000

See notes to consolidated financial statements.

A-19

THE FINOVA GROUP INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS

(Dollars in thousands)

	Year Ended December 31,
	2005			2004			2003
Operating Activities:
Net (loss) income	$	(94,447	)	$	132,013		$	256,113
Adjustments to reconcile net (loss) income to net cash used by operations:
Reversal of provision for credit losses		(51,811	)		(148,527	)		(238,786	)
Net cash gain on disposal of financial assets		(43,311	)		(106,413	)		(113,559	)
Net non-cash loss (gain) on financial assets		5,447			(2,268	)		50,505
Loss from settlement of pension plan		24,665
Gain from extinguishment of debt, net of fresh-start discount								(28,493	)
Depreciation and amortization		9,033			18,401			28,363
Deferred income taxes, net		(221	)		975			7,861
Fresh-start accretion - assets		(2,424	)		(34,610	)		(47,868	)
Fresh-start discount amortization - Senior Notes		39,406			49,512			35,516
Change in assets and liabilities:
(Increase) decrease in other assets		(12,100	)		3,056			473
Decrease in interest payable		(4,527	)		(10,023	)
Increase (decrease) in accounts payable and accrued expenses		6,217			(28,389	)		(22,270	)
Net Cash Used by Operating Activities		(124,073	)		(126,273	)		(72,145	)
Investing Activities:
Proceeds from disposals of leases and other owned assets		77,762			114,110			198,699
Proceeds from sales of investments		4,725			12,069			50,140
Proceeds from sales of loans and financing leases		27,041			366,647			311,417
Collections and prepayments from financial assets		249,280			712,441			1,712,308
Fundings under existing customer commitments		(14,164	)		(56,309	)		(404,662	)
Funding of severance and bonus trusts								(24,017	)
Deposit of impermissible restricted payments into restricted cash account		(24,993	)		(42,176	)
Recoveries of loans previously written off		11,126			37,184			109,581
Net Cash Provided by Investing Activities		330,777			1,143,966			1,953,466
Financing Activities:
Principal repayments of Berkadia Loan					(525,000	)		(1,650,000	)
Principal prepayments of Senior Notes		(474,872	)		(801,346	)
Repurchase of Senior Notes								(49,875	)
Benefits realized from pre-confirmation NOLs								32,477
Net Cash Used by Financing Activities		(474,872	)		(1,326,346	)		(1,667,398	)
(Decrease) Increase in Cash and Cash Equivalents		(268,168	)		(308,653	)		213,923
Cash and Cash Equivalents, beginning of year		480,485			789,138			575,215
Cash and Cash Equivalents, end of year	$	212,317		$	480,485		$	789,138

See notes to consolidated financial statements.

A-20

THE FINOVA GROUP INC.

STATEMENTS OF CONSOLIDATED CASH FLOWS - continued

Supplemental Disclosure

In 2003, the Company repurchased $100.0 million (face amount) of Senior Notes at a price of 49.875% or $49.9 million, plus accrued interest. The repurchases generated a net gain of $28.5 million ($50.1 million repurchase discount, partially offset by $21.6 million of unamortized fresh-start discount).

During 2005, FINOVA paid income taxes of $0.2 million, while during 2004, FINOVA received net income tax refunds of $2.6 million. During 2003, FINOVA received net income tax refunds of $41.7 million, including $32.5 million from the carryback of certain tax net operating losses.

FINOVA paid interest of $141.3 million, $208.6 million and $275.2 million for the years ended December 31, 2005, 2004 and 2003, respectively.

See notes to consolidated financial statements.

A-21

THE FINOVA GROUP INC.

STATEMENTS OF CONSOLIDATED STOCKHOLDERS’ EQUITY

(Dollars in thousands)

	Common Stock		Additional Capital		Accumulated Deficit			Accumulated Other Comprehensive Income (Loss)			Common Stock in Treasury			Total Stockholders’ Equity
Balance, January 1, 2003	$	1,259	$	53,233	$	(1,020,828	)	$	(3,877	)	$	(536	)	$	(970,749	)
Comprehensive income:
Net income						256,113									256,113
Net change in unrealized holding gains (losses)									7,179						7,179
Net change in foreign currency translation									(313	)					(313	)
Comprehensive income															262,979
Benefits realized from pre-confirmation tax contingencies				22,546											22,546
Benefits realized from pre-confirmation NOLs				32,477											32,477
Balance, December 31, 2003		1,259		108,256		(764,715	)		2,989			(536	)		(652,747	)
Comprehensive income:
Net income						132,013									132,013
Minimum pension liability adjustment									(16,494	)					(16,494	)
Net change in unrealized holding gains (losses)									(2,220	)					(2,220	)
Net change in foreign currency translation									(113	)					(113	)
Comprehensive income															113,186
Benefits realized from pre-confirmation tax contingencies				4,884											4,884
Balance, December 31, 2004		1,259		113,140		(632,702	)		(15,838	)		(536	)		(534,677	)
Comprehensive loss:
Net loss						(94,447	)								(94,447	)
Minimum pension liability adjustment									16,494						16,494
Net change in unrealized holding gains (losses)									787						787
Net change in foreign currency translation									112						112
Comprehensive loss															(77,054	)
Balance, December 31, 2005	$	1,259	$	113,140	$	(727,149	)	$	1,555		$	(536	)	$	(611,731	)

See notes to consolidated financial statements.

A-22

THE FINOVA GROUP INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

YEARS ENDED DECEMBER 31, 2005, 2004 AND 2003

(Dollars in thousands in tables)

A. Nature of Operations

The notes to the financial statements relate 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 provided a broad range of financing and capital markets products, primarily to mid-size businesses.

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, when the Company emerged from bankruptcy.

The Company’s 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, negotiation of prepayments, sales of assets or collateral and may include efforts to retain certain customer relationships and restructure or terminate other relationships. The Company has sold portions of asset portfolios and will consider future sales of any asset 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. The Company is offering to sell its remaining assets both by portfolio and individual asset. The Company is prohibited by the Indenture governing its 7.5% Senior Secured Notes (the “Senior Notes”) from engaging in any new lending activities, except to honor existing customer commitments and in certain instances, to restructure financing relationships to maximize value. Any funds generated in excess of cash reserves permitted by the Company’s debt agreements are used to reduce FINOVA’s obligations to its creditors.

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Company’s assets are pledged to secure its obligations under the promissory notes of FINOVA Capital issued to FINOVA in the aggregate principal amount of the Senior Notes (the “Intercompany Notes”), FINOVA’s ability to obtain additional or alternate financing is severely restricted. Accordingly, FINOVA intends to rely on internally generated cash flows from the liquidation of its assets as its only meaningful source of liquidity.

FINOVA’s business continues to be operated under a Management Services Agreement with Leucadia National Corporation (“Leucadia”) that expires in 2011. Pursuant to that agreement, 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).

Going Concern

As of December 31, 2005, 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, the Company would not be able to repay the 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 financial statements since 2001 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 U.S. generally accepted accounting principles requires FINOVA to use estimates and assumptions that affect reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent 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. Significant estimates include anticipated amounts and timing of future cash

A-23

THE FINOVA GROUP INC.

flows used in the calculation of 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 U.S. generally accepted accounting principles. All intercompany balances have been eliminated in consolidation. Certain amounts for prior periods have been reclassified to be consistent with the 2005 presentation. The consolidation of variable interest entities is addressed below in the Company’s Impaired Loans policy.

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 significant use of estimates.

Significant Use of Estimates

Several of the Company’s most critical 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 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. 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 (subsequent to implementation of fresh-start reporting) 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. However, certain financing assets were previously marked down for impairments that existed at the time fresh-start reporting was implemented. These marked down values became the Company’s cost basis in those assets, and accounting rules do not permit the carrying value of these assets to be increased above that fresh-start cost basis if subsequent facts and assumptions result in a projected increase in value. Recoveries of amounts in excess of the fresh-start cost basis are recorded through operations when collected.

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 even if subsequent facts and assumptions result in a projected increase in value. Recoveries of previous markdowns are recorded through operations when collected.

Because of these accounting restrictions, FINOVA is not permitted to fully reflect some anticipated improvements in the portfolio until they are actually 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.

A-24

THE FINOVA GROUP INC.

FINOVA has a number of aircraft that are off-lease and anticipates that additional aircraft will be returned to the Company 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 they will be re-leased or sold in the future despite limited demand for certain of these aircraft today. While the current market makes it difficult to quantify, the Company believes that the recorded values determined under this methodology may significantly exceed the values that the Company would realize if it were to liquidate those aircraft today; however, actual amounts recovered from these aircraft may differ from recorded amounts and will be significantly impacted by the used aircraft market in the future, which is difficult to predict.

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 limited 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.

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 as a gain or loss on financial assets. 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 expected ability to hold to maturity. Assets held for sale are revalued quarterly at the lower of cost or market, less anticipated selling expenses, with adjustment, if any, recorded as a gain or loss on financial assets. 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.

The original fresh-start adjustment (“discount”) to the Senior Notes partially amortizes to interest expense over the term of the notes, utilizing the effective interest method. The effective rate represents the implicit rate derived from the estimated fair value and the Company’s estimate of anticipated future cash flows to the debt holders at the time of emergence. The amortization will continue to increase the recorded amount of the debt to the principal amount expected to be repaid at the time of emergence (approximately $2.8 billion). Discount amortization is adjusted as principal payments are made. In the event that any Senior Notes are repurchased and extinguished, the unamortized fresh-start adjustment related to those notes is written off and reflected as part of the gain or loss 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 original contractual interest rate of the transaction or (b) net fair value of collateral. The risk adjusted interest rates utilized in fresh-start reporting are 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.

A-25

THE FINOVA GROUP INC.

In 2003, the Financial Accounting Standards Board (“FASB”) revised Interpretation No. 46, “Consolidation of Variable Interest Entities” (“FIN 46”). FIN 46 addressed consolidation of variable interest entities, which are defined as entities whose equity investors do not have the characteristics of a controlling financial interest or do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties.

Virtually all of FINOVA’s impaired loans to entities with marginal or negative equity were the result of operating losses which were not envisioned at the time of the original design and structure of the loans (i.e., actual losses incurred subsequent to the origination of each of the loans have exceeded expected losses at the time of loan origination). FINOVA has restructured debt in accordance with the provisions of SFAS No. 15, “Accounting by Debtors and Creditors for Troubled Debt Restructurings” (“SFAS No. 15”), which is accounted for in accordance with that statement and is not subject to the provisions of FIN 46.

FINOVA has from time to time, for economic or legal reasons related to its borrowers’ financial difficulties, granted concessions to borrowers that it would not otherwise consider. Those concessions either stemmed from an agreement between FINOVA and its borrowers or were imposed by law or a court. For example, FINOVA has restructured the terms of debt to alleviate the burden of the borrowers’ near-term cash requirements and many troubled debt restructurings involved modifying terms to reduce or defer cash payments required of the borrowers in the near future to help the borrowers’ attempts to improve their financial condition and eventually be able to pay FINOVA. In other instances, FINOVA has accepted cash, other assets, or an equity interest in the borrowers in satisfaction of the debt though the value received was less than the amount of the debt, because FINOVA concluded that step would maximize recovery of its investment.

Additionally, FINOVA holds variable interests in qualifying special-purpose entities in accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities” (“SFAS No. 140”). In accordance with FIN 46, variable interests are excluded from consolidation as long as the Company continues to meet the qualifying special-purpose entity conditions of SFAS No. 140, which it currently does. See Note E. “Receivable Sales” for a further discussion of FINOVA’s retained subordinated interest in transferred receivables including FINOVA’s rights and obligations.

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 and nonmarketable equity securities are accounted for using either the cost or equity method depending on the Company’s level of ownership in the security. Under the equity method, the Company recognizes its share of income or loss of the security 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.

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. In certain instances, accounts may be returned to accruing status if sustained performance is demonstrated. Changes in borrower performance assumptions or estimates could result in a material change in nonaccruing account classification and income recognition.

Receivable Sales. In accordance with SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” when the Company sold receivables, it may have retained subordinated interests in the transferred receivables. These receivable transfers were accounted for as sales when legal and effective control of the transferred receivables were surrendered. The

A-26

THE FINOVA GROUP INC.

carrying amount of the financial assets involved was allocated between the receivables sold and the retained interests based on their relative fair value at the date of transfer and was 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 “Recognition 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.

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 uncollectible 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.

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.

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.

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 sustained performance is demonstrated or when in the opinion of management, recovery of interest and principal becomes probable.

Troubled Debt Restructuring. In accordance with SFAS No. 15, a restructuring of a debt constitutes a troubled debt restructuring if the creditor for economic or legal reasons related to the debtor’s financial difficulties grants a concession to the debtor that it would not otherwise consider. Virtually all of the Company’s restructurings of financing arrangements are considered to be troubled debt restructurings in accordance with SFAS No. 15.

General Accounting Policies

Cash Equivalents. FINOVA classifies short-term investments with original maturities of three months or less as cash equivalents. Cash and cash equivalents included short-term investments of $197.4 million and $467.0 million at December 31, 2005 and 2004, respectively.

A-27

THE FINOVA GROUP INC.

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 the Company expects that it is more likely than not that a deferred tax asset will not be realized.

Derivative Financial Instruments. The Company does not currently have any material derivative financial instruments.

Earnings Per Share. Basic and diluted earnings per share are the same since the Company has no dilutive contracts or agreements outstanding. Earnings per share are computed by dividing income available to common stockholders by the weighted average amount of common stock outstanding for the period.

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 year-end exchange rates are 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 operations.

Impermissible Restricted Payments. The Indenture defines impermissible restricted payments as dividends or distributions to and/or repurchases of stock from common stockholders that, if made, would render the Company insolvent, would be a fraudulent conveyance or would not be permitted to be made under applicable law. Impermissible restricted payments are required to be retained by the Company until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations.

The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% of each principal prepayment. However, FINOVA believes those distributions would be impermissible restricted payments due to the Company’s significant negative net worth and its belief that the Senior Notes will not be fully repaid. The Company has segregated amounts identified as impermissible restricted payments in a separate cash account, which is reflected as “restricted cash – impermissible restricted payments” on the balance sheet. Due to the Indenture restrictions regarding the use of this cash, these amounts are not considered to be cash equivalents.

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 collection of the portfolio.

Compensation and Benefit Policies

Pension and Other Benefits. Substantially all FINOVA employees were covered by a trusteed, noncontributory pension plan. Benefits were based on final average salary and years of service. The Company’s funding policy provided that payments to the pension trust were at least the minimum annual contribution required by applicable regulations. The Company terminated the pension plan effective December 31, 2004. No pension benefits accrued beyond December 31, 2004, and participant benefits under the plan fully vested and were non-forfeitable as of that date. The Company finalized the termination of the pension plan and all participant obligations were fully settled in December 2005.

Employees are covered by severance arrangements with the Company. The Company recognizes any 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. Additionally, beginning January 1, 2005, substantially all employees receive an Age & Service contribution to the Savings Plan based on each employee’s eligible earnings, age and years of service.

A-28

THE FINOVA GROUP INC.

New Accounting Standards. There were no new accounting standards issued during 2005 that impacted FINOVA.

C. Total Financial Assets

Total financial assets represents the Company’s portfolio of investment activities, which primarily consist of secured financing contracts (such as loans and direct financing 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. As of December 31, 2005 and 2004, the carrying amount of total financial assets (before reserves) was $355.7 million and $705.9 million, respectively.

Upon emergence from chapter 11, the Company adopted fresh-start reporting, which resulted in material adjustments to the carrying amount of the Company’s total financial assets to record them at their reorganization value. The asset adjustment was based on the present value of estimated future cash flows discounted at appropriate risk adjusted interest rates selected at that time. A portion of the adjustment was originally scheduled to accrete into income over the life of the underlying transactions, while the remaining portion of the adjustment was reflected as a permanent write down to other financial assets. As of December 31, 2005 and 2004, the unamortized amount totaled $52.3 million and $60.6 million, respectively, of which the Company suspended the accretion of $40.7 million and $32.4 million, respectively, due to the underlying assets being classified as nonaccruing.

Diversification of Credit Risk

The following table presents the carrying amounts and composition of FINOVA’s total financial assets (before reserves) at December 31:

	2005				2004
Transportation	$	163,540	46.0	%	$	294,050	41.7	%
Real estate		29,207	8.2	%		156,056	22.1	%
All other portfolios		162,934	45.8	%		255,829	36.2	%
	$	355,681	100.0	%	$	705,935	100.0	%

Since FINOVA’s total financial assets are concentrated in specialized industries, the Company is subject to both general economic risk and the additional risk of economic downturns within individual sectors of the economy. The Company has also 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 transportation) of those borrowers and their affiliates. At December 31, 2005, the carrying value of the Company’s top 10 aggregate exposures to borrowers and their affiliates totaled approximately $220.3 million and represented 61.9% of the Company’s total financial assets (before reserves), as compared to the top 10 exposures at December 31, 2004 of $321.7 million, which represented 45.6% of total financial assets (before reserves). The top 10 exposures at December 31, 2005, were concentrated in five transportation accounts, two real estate transactions and three accounts from the all other portfolios.

As of the date of this Report, three of the top 10 exposures were under letters of intent to sell or were sold. The top 10 exposures also include the Company’s carrying value of two well-publicized bankruptcies (The Thaxton Group Inc. and Northwest Airlines Inc.). Refer to Item 3. “Legal Proceedings” for a further discussion of the Thaxton proceedings. FINOVA’s exposure to Northwest Airlines includes eight leveraged leases on two Boeing 757 aircraft and six regional jets, a direct financing lease on a Boeing 747 and an operating lease on 33 aircraft engines, of which 22 are in the process of being returned to FINOVA in the ordinary course of the transaction. Northwest Airlines has notified the Company of their intent to renegotiate the terms of the leveraged leases or possibly reject the transactions. The outstanding senior debt on the leveraged leases is significantly in excess of the underlying aircraft values. As a result, the assets, which have a contractual balance of $86.4 million, have virtually no remaining value to FINOVA and their remaining carrying value was fully written-off. In the first quarter of 2006, Northwest Airlines exercised a purchase option on the Boeing 747 for $17.0 million, which approximated the fair value of the aircraft. The direct financing lease had a contractual balance of $42.6 million at December 31, 2005. Additionally, FINOVA will retain a Northwest bankruptcy claim, the amount of which has not yet been determined. FINOVA anticipates retaining the operating lease at its original terms.

A-29

THE FINOVA GROUP INC.

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

2005

Aircraft Type	Number of Aircraft	Passenger	Cargo	Approximate Average Age (years)
Airbus 300	3		3	24
Boeing 727	9	4	5	26
Boeing 737	13	13		20
Boeing 747	1		1	17
Boeing 757	4	4		12
McDonnell Douglas DC 8 and DC 9	4	4		34
McDonnell Douglas DC 10	9	1	8	28
McDonnell Douglas MD series	17	17		20
Regional jets, corporate aircraft and turbo props	29	29		13
Total	89	72	17	19
2004
Aircraft Type	Number of Aircraft	Passenger	Cargo	Approximate Average Age (years)
Airbus 300	4		4	21
Boeing 727	11	4	7	25
Boeing 737	25	25		20
Boeing 747	5	3	2	23
Boeing 757	7	7		11
McDonnell Douglas DC 8 and DC 9	7	4	3	34
McDonnell Douglas DC 10	12	3	9	27
McDonnell Douglas MD series	27	27		19
Regional jets, corporate aircraft and turbo props	32	32		12
Total	130	105	25	19

The aircraft presented in the tables represent owned assets and collateral supporting financing arrangements. The Company continues to monitor all of these aircraft due to the level of prior defaults and returned aircraft.

At December 31, 2005, 33 aircraft with a carrying value of $105.5 million were operated by domestic carriers and 45 aircraft with a carrying value of $38.6 million were operated by foreign carriers. Additionally, 11 aircraft with a carrying value of $7.1 million were off-lease, classified as assets held for the production of income and parked at various storage facilities in the United States and Europe, including 2 aircraft which were identified for potential dismantling or sale at scrap values.

At December 31, 2004, 50 aircraft with a carrying value of $156.3 million were operated by domestic carriers and 61 aircraft with a carrying value of $108.9 million were operated by foreign carriers. Additionally, 19 aircraft with a carrying value of $14.2 million were off-lease, classified as assets held for the production of income and parked at various storage facilities in the United States and Europe, including 5 aircraft which were identified for potential dismantling or sale at scrap values.

Some of the off-lease aircraft are periodically placed in rental agreements with payments based on aircraft usage, commonly known as power-by-the-hour agreements. Often under these agreements there are no minimum rents due, and future cash flows are difficult to project. Additionally, FINOVA has been maximizing the value of the portfolio by using the remaining air-time of aircraft and engines, while minimizing the maintenance investment in those assets. As remaining air-time was exhausted, numerous aircraft and engines were identified for potential dismantling or sale at scrap values; however, the reemergence of the aircraft-financing market during late 2004 caused a change in the Company’s approach to maximize value. In certain instances, the Company believes it can achieve better returns in the current market of improved aircraft values by investing in the maintenance of certain types of aircraft and engines. As a result, the number of aircraft being identified for potential dismantling or sale at scrap values has declined. The Company will continue to invest in aircraft maintenance as long as it makes economic sense to do so.

A-30

THE FINOVA GROUP INC.

The Company’s transportation portfolio also includes aircraft engines, domestic railroad and other transportation equipment. The carrying value of this equipment was $12.3 million and $14.7 million at December 31, 2005 and 2004, respectively.

In addition to the concentrated exposures within the transportation portfolio, the Company had certain concentrations within its real estate portfolio. At December 31, the carrying amount of the real estate portfolio by industry was as follows:

	2005				2004
Hospitality	$				$	115,663	74.1	%
Resort and timeshare		29,207	100.0	%		35,189	22.6	%
Office						5,204	3.3	%
Total	$	29,207	100.0	%	$	156,056	100.0	%

Financing Assets

Loans and other financing contracts at December 31, consisted of the following:

	2005			2004
Receivables	$	244,577		$	506,088
Accrued interest		49,275			50,050
Unearned and suspended income		(115,965	)		(139,443	)
Total loans and other financing contracts, net	$	177,887		$	416,695

FINOVA has a 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 with floating interest rates was $50.6 million and $207.6 million at December 31, 2005 and 2004, respectively.

Interest earned from financial transactions with floating interest rates, excluding the recognition of previously suspended income and fresh-start accretion, was approximately $3.5 million, $18.2 million and $64.8 million for the years ended December 31, 2005, 2004 and 2003, respectively.

During 2005, the decline in accrued interest did not keep pace with the decline in receivables. As the portfolio shrinks, nonaccruing accounts become a higher percentage of outstanding loans and many of these delinquent accounts have not been paying for some time, resulting in an increasing concentration of accrued interest within these accounts. The accrued interest is offset by a corresponding increase of suspended income, resulting in no net impact to the carrying amount of loans, but an increase in the delinquency aging of those accounts.

At December 31, 2005, FINOVA had unfunded customer commitments of approximately $9.2 million compared to $11.5 million at December 31, 2004. Because of the primarily revolving nature of its commitments, the Company is unable to estimate with certainty what portion of the commitments will be funded. 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. As of December 31, 2005 and 2004, the Company’s unfunded commitments included only a few existing accounts, with the majority of the commitment related to one real estate customer.

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

	2005			2004
Rental receivables	$	145,975		$	211,646
Estimated residual values		33,948			43,772
Unearned and suspended income		(101,975	)		(122,423	)
Total direct financing leases	$	77,948		$	132,995

A-31

THE FINOVA GROUP INC.

Future minimum lease payments for each of the next five years are $13.3 million, $9.4 million, $6.3 million, $6.1 million and $6.1 million, excluding future payments from Northwest Airlines due to their exercise of a purchase option in the first quarter of 2006.

Other Financial Assets

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

Balance, December 31, 2003	$	138,224
Prepayment of non-recourse debt associated with leveraged leases		57,951
Net assets reclassified to held for sale		1,000
Markdown to estimated sales price		(12,309	)
Runoff (amortization and prepayments)		(16,962	)
Sale of assets		(125,406	)
Balance, December 31, 2004		42,498
Prepayment of non-recourse debt associated with leveraged leases		12,461
Net assets reclassified from held for sale		(21,095	)
Markdown to estimated sales price		(13,442	)
Runoff (amortization and prepayments)		(4,582	)
Sale of assets		(15,840	)
Balance, December 31, 2005	$	—

At December 31, 2005, assets held for sale consisted of eight leveraged leases with Northwest Airlines and certain repossessed assets that have virtually no value to FINOVA, while the composition at December 31, 2004, consisted of $3.1 million of repossessed assets and the Company’s remaining leveraged lease portfolio ($39.4 million) of real estate and transportation transactions.

During 2005, repossessed and other owned assets declined $1.5 million due to normal runoff and $1.6 million of assets were reclassified from held for sale. During 2004, $6.6 million of repossessed assets were sold, resulting in net gains of $5.0 million and assets with a carrying amount of $1.0 million were classified as held for sale in conjunction with the Company’s foreclosure and repossession of collateral underlying various loan transactions. Additionally during 2004, repossessed assets were marked down $2.4 million to value the assets at their estimated net selling price.

As of December 31, 2005, the Company’s remaining leveraged lease portfolio is comprised of two Boeing 757 aircraft and six regional jets on lease to Northwest Airlines. In conjunction with the Northwest Airlines’ bankruptcy filing, the airline notified FINOVA of its intent to renegotiate the terms of the leases or possibly reject the transactions. The outstanding senior debt on these leveraged leases is significantly in excess of the underlying aircraft values. As a result, the assets, which have a contractual balance of $86.4 million, have virtually no remaining value to FINOVA and their remaining carrying value was fully written-off. During 2005, FINOVA recognized net valuation markdowns of $13.4 million on the total leveraged lease portfolio, which consisted of $14.4 million of markdowns on the Northwest leveraged leases, a $4.9 million markup of the Company’s real estate leveraged leases and $3.9 million of other net markdowns within the transportation leveraged lease portfolio, while during 2004, the Company recognized net markdowns on the total leveraged lease portfolio of $9.9 million. During 2005 and 2004, the Company completed the sale of numerous leveraged leases with carrying amounts of $15.8 million and $118.8 million, respectively. The 2005 activity included the Company’s last two remaining real estate leveraged leases. Additionally during 2005 and 2004, the Company prepaid $12.5 million (including penalties) and $58.0 million, respectively, of nonrecourse debt associated with the leveraged lease portfolio, which increased FINOVA’s basis in those assets. The 2005 debt prepayment was in conjunction with FINOVA repossessing the underlying collateral (an aircraft and a spare engine), which were reclassified from held to sale to off-lease assets.

Operating leases at December 31, consisted of the following:

	2005			2004
Cost of assets	$	101,663		$	97,757
Accumulated depreciation		(31,879	)		(28,447	)
Total operating leases	$	69,784		$	69,310

A-32

THE FINOVA GROUP INC.

Future minimum rentals on noncancelable operating leases are $89.9 million in the aggregate and for each of the next five years are $35.8 million, $23.8 million, $14.8 million, $7.9 million and $4.1 million.

Investments at December 31, consisted of the following:

	2005		2004
Partnerships and nonmarketable equity securities	$	1,674	$	742
Available for sale:
Marketable equity securities		2,719		2,091
Debt securities		484		1,476
Total available for sale		3,203		3,567
Held to maturity debt securities		3,050		3,327
Trading debt securities		14,563		21,946
Total investments	$	22,490	$	29,582

Debt and marketable equity securities that are being held for an indefinite period of time 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 component of accumulated other comprehensive income (loss) in the equity section of the balance sheet.

The Company had a net unrealized holding gain of $2.0 million at December 31, 2005, as compared to a $1.2 million net unrealized holding gain at December 31, 2004. The increase in unrealized holding gains was primarily due to an increase in market value for an equity investment, which was subsequently sold during the first quarter of 2006, partially offset by asset sales during 2005. The net unrealized holding gains at December 31, 2005 and 2004 included aggregate unrealized losses of $0.4 million for each year. The unrealized losses have substantially all been in a continuous loss position for more than 12 months. The amounts were not shown net of deferred taxes for 2005 and 2004 due to the Company’s current tax position, which includes substantial net operating loss carryforwards.

Held to maturity investments are domestic certificates of deposit with maturities of less than one year and approximate fair value.

Investments classified as trading in 2005 and 2004 were comprised exclusively of assets held in two grantor trusts to secure the Company’s severance and bonus obligations to remaining employees. The assets are held primarily for the benefit of the employees, but are recorded as investments due to the Company’s retained interest in any excess assets. The Company’s investments in trading securities were marked to market on a quarterly basis through current operations.

Net gains of $3.5 million, $7.8 million and $37.2 million were recognized on sales of investments for the years ended December 31, 2005, 2004 and 2003, respectively. As the portfolio of investments declines, gain recognition will become even more sporadic.

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

	2005		2004
Aircraft	$	7,111	$	14,207
Engines		461		611
Parts				37
Total assets held for the production of income	$	7,572	$	14,855

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.

A-33

THE FINOVA GROUP INC.

D. Reserve for Credit Losses

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

	Year Ended December 31,
	2005			2004
Balance, beginning of year	$	101,270		$	274,828
Reversal of provision for credit losses		(51,811	)		(148,527	)
Write-offs		(31,553	)		(62,215	)
Recoveries		11,126			37,184
Balance, end of year	$	29,032		$	101,270

For the years ended December 31, 2005 and 2004, the Company recorded a reversal of provision for credit losses of $51.8 million and $148.5 million, respectively, to reduce its reserve for credit losses. The reserve reductions were primarily due to proceeds received from prepayments and asset sales exceeding recorded carrying amounts (net of reserves), improvement in collection experience on certain assets, recoveries of amounts previously written off and the Company’s detailed assessment of estimated inherent losses in its portfolio. Partially offsetting the reserve reductions were new and additional impairment reserves established on certain accounts.

A summary of the reserve for credit losses by impaired and other assets at December 31, was as follows:

	2005		2004
Reserves on impaired assets	$	28,288	$	96,245
Other reserves		744		5,025
Reserve for credit losses	$	29,032	$	101,270

FINOVA’s reserve for credit losses decreased to $29.0 million at December 31, 2005 from $101.3 million at December 31, 2004. At December 31, 2005, the total carrying amount of impaired loans and leases was $241.1 million, of which $109.1 million were revenue accruing. The Company has established impairment reserves of $28.3 million related to $85.4 million of impaired assets. At December 31, 2004, the total carrying amount of impaired loans and leases was $458.8 million, of which $202.4 million were revenue accruing. Impairment reserves at December 31, 2004 totaled $96.2 million related to $169.2 million of impaired assets.

Reserves on impaired assets decreased primarily due to write-offs ($31.6 million and $62.2 million for the years ended December 31, 2005 and 2004, respectively), an improvement in pay-off and collection experience on certain assets previously reserved and the Company’s application of cash received on nonaccruing assets, thus reducing the impairment reserves required on those assets. Partially offsetting these reductions were new impairment reserves established for assets reclassified to impaired status during 2005 and additional reserves recorded on certain existing impaired assets.

Other reserves related to estimated inherent losses on unimpaired assets decreased to $0.7 million at December 31, 2005 from $5.0 million at December 31, 2004, as a result of prepayments, collections and the migration of certain accounts to impaired assets.

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

	2005			2004
Contracts	$	131,922		$	256,313
Repossessed assets					3,052
Total nonaccruing assets	$	131,922		$	259,365
Nonaccruing assets as a percentage of total financial assets (before reserves)		37.1	%		36.7	%

Accounts classified as nonaccruing were $131.9 million or 37.1% of total financial assets (before reserves) at December 31, 2005 as compared to $259.4 million or 36.7% at December 31, 2004. The decline in nonaccruing assets was primarily attributed to collections and asset sales of $59.2 million and write-offs and net valuation markdowns of $49.2 million. Also contributing to the decline was the return of certain assets to accruing status following demonstration of sustained performance and the classification of newly repossessed aircraft as

A-34

THE FINOVA GROUP INC.

assets held for the production of income, which are excluded from nonaccruing assets. During 2005, the Company returned a small number of accounts to accruing status. Certain of these accounts were previously restructured and the Company was monitoring the accounts for demonstration of sustained performance under the restructured terms before they would be returned to accruing status.

The Company continues to be concerned regarding its ability to fully collect principal and interest on certain nonaccruing assets that have significant balloon payments or residual values due to FINOVA at maturity, because those customers may 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 own capital resources 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, 2005, 2004 and 2003 remained accruing at their contractual rates, interest and rental income would have increased by approximately $23.2 million, $31.4 million and $84.4 million, respectively.

Accruing impaired assets decreased to $109.1 million at December 31, 2005 from $202.4 million at December 31, 2004. The decrease was primarily attributable to multiple prepayments and to a lesser extent due to certain accounts that migrated to nonaccruing status and the classification of newly repossessed aircraft as off-lease assets, which are not included in impaired assets. Partially offsetting the decrease was the return to impaired accruing status of certain accounts following demonstration of sustained performance.

E. Receivable Sales

Franchise Securitization. The Company has a subordinated retained interest in receivables previously sold 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, 2005 and 2004, the outstanding balance of the sold loans totaled $49.0 million and $56.3 million, respectively, while the Company’s subordinated retained interest was valued at $0.5 million and $1.5 million, respectively. The value of the retained interest is subject to credit, prepayment and interest rate risks on the transferred financial assets. Additionally, FINOVA retained servicing responsibilities for these assets

F. Debt

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

	2005			2004
Senior Notes:
Principal	$	1,691,731		$	2,166,603
Fresh-start discount		(540,240	)		(579,646	)
Senior Notes, net	$	1,151,491		$	1,586,957

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 (“Berkadia Loan”) on a senior secured basis, which was used together with cash on hand and the issuance of $3.25 billion aggregate principal amount of Senior Notes to restructure the Company’s pre-emergence indebtedness. The Berkadia Loan was scheduled to mature in 2006, but was fully repaid earlier than anticipated (first quarter of 2004) due to accelerated runoff and collection of the portfolio. During 2004, prepayments to Berkadia totaled $525 million.

Because substantially all (except for a few assets that could not be pledged because those assets already secured other obligations) of the Company’s assets are pledged to secure its obligations under the Intercompany Notes securing the Senior Notes, FINOVA’s ability to obtain additional or alternate financing is severely restricted. Berkadia has no obligation to lend additional sums to or to fully invest in the Company. Accordingly, FINOVA intends to rely on internally generated cash flows from the liquidation of its assets as its only meaningful source of liquidity.

The terms of the Indenture governing the Senior Notes prohibit the Company from using available funds (after certain permitted uses) for any purpose other than to satisfy its obligations to creditors and to make limited payments to stockholders in certain circumstances. Under the terms of the Indenture, the Company is permitted to establish a cash reserve in an amount not to exceed certain defined criteria. Generally speaking, cash reserves typically equal anticipated cash flows to cover operating costs, tax payments, fundings under existing customer commitments, interest payments and any other necessary cash flows expected to occur during the next six month period. The Company has the discretion to and has from time to time adjusted its cash reserve methodology.

A-35

THE FINOVA GROUP INC.

In accordance with the terms of the Indenture, the Company is required to use any excess cash, as defined in the Indenture, to make semi-annual interest and principal payments on the Senior Notes. Additionally, the Indenture permits voluntary prepayments at the Company’s option.

During 2005 and 2004, the Company made $474.9 million and $801.3 million, respectively, of partial principal prepayments on the Senior Notes, which reduced the outstanding principal to $1.7 billion as of December 31, 2005. FINOVA announced two additional partial prepayments totaling $59.4 million that were made in the first quarter of 2006. Following these prepayments, cumulative prepayments through the first quarter of 2006 totaled $1.3 billion or 45% of the face amount ($2.97 billion) of the Senior Notes.

The 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. The Indenture has no financial covenants, except for the requirement to use available cash as discussed above.

FINOVA’s obligations with respect to the payment of interest and principal under the Senior Notes are secured by a first priority security interest in (a) all capital stock of FINOVA Capital, (b) secured promissory notes of FINOVA Capital issued to FINOVA in the aggregate principal amount of the 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 first priority lien on the assets of FINOVA Capital. 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 Indenture permits FINOVA to use up to $150 million each year to repurchase Senior Notes. There can be no assurance that the Company will repurchase any additional Senior Notes or that additional Senior Notes will become available at acceptable prices.

In accordance with FINOVA’s Plan of Reorganization, Berkshire Hathaway and its direct and indirect subsidiaries had agreed to retain ownership of all Senior Notes received by Berkshire Hathaway pursuant to the Plan for a period of four years from the effective date (August 21, 2001) of the Plan. As of August 21, 2005, this four-year period had expired and Berkshire Hathaway is no longer restricted from selling its Senior Notes.

The Senior Notes are reflected in the balance sheet at December 31, 2005 and 2004, net of an unamortized discount of $540.2 million and $579.6 million, respectively. The book value of the Senior Notes is scheduled to increase over time through the partial amortization of the discount as interest expense. For the years ended December 31, 2005 and 2004, the Company recorded amortization of $39.4 million and $49.5 million, respectively. Discount amortization was accelerated following each of the principal prepayments, which occurred earlier than originally anticipated when fresh-start guidelines were applied upon emergence. Discount amortization is expected to be further adjusted as principal prepayments are made. The Company’s obligation is to pay the full remaining $1.7 billion principal amount of the Senior Notes due at maturity in 2009.

Stockholders should not expect any payments or distributions from FINOVA. The Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% (i.e., 5%/95%) of each principal prepayment. Ninety-five percent (95%) of the remaining available cash after establishment of cash reserves as defined in the Indenture will be used to make semi-annual prepayments of principal on the Senior Notes and five percent (5%) is identified for distributions to and/or repurchases of stock from common stockholders. However, the Indenture prohibits FINOVA from making distributions to and/or repurchases from stockholders if the payments would render the Company insolvent, would be a fraudulent conveyance or would not be permitted to be made under applicable law. Any such distribution and/or repurchase would be considered an impermissible restricted payment under the Indenture. Given the Company’s significant negative net worth and its belief that the Senior Notes will not be fully repaid, FINOVA is required to retain impermissible restricted payments until such time, if ever, that it is no longer restricted from making a distribution to its stockholders or until it is necessary to use the cash to satisfy its debt obligations. In conjunction with the prepayments of Senior Notes noted above, the Company has retained a total of $70.3 million as of February 15, 2006. Retained amounts are being segregated and reflected as restricted cash on the balance sheet, pending their final disposition. The Company anticipates that the retained amounts will eventually be paid to the creditors, not the stockholders. If the funds were to be paid to the stockholders, affiliates of Berkadia (jointly owned by Leucadia and Berkshire Hathaway), which owns 50% of FINOVA’s common stock, would receive half of the retained amounts. Berkadia has advised the Company that it does not believe that stockholders are entitled to the retained amounts since FINOVA cannot fully satisfy its creditor obligations.

A-36

THE FINOVA GROUP INC.

In April 2005, FINOVA filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order that (1) FINOVA no longer needs to direct funds into a restricted account, and (2) FINOVA may use the funds in the restricted account to satisfy its obligations to creditors.

In June 2005, the Bankruptcy Court ordered that the former Equity Committee (the “Equity Committee”) be reconstituted. The Equity Committee was reconstituted with three members on July 14, 2005. As a precursor to the Bankruptcy Court ruling upon FINOVA’s motion, the Equity Committee shall have the opportunity to independently review FINOVA’s state of solvency.

A hearing was held on November 29, 2005, and on February 1, 2006, the Bankruptcy Court issued its Order approving FINOVA’s April 2005 motion to the extent that FINOVA will be forever insolvent. The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will then be distributed to FINOVA’s creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware.

The Indenture provides that if payment in full is made of the outstanding principal of the Senior Notes and payments are made to FINOVA common stockholders in an aggregate amount equal to 5.263% of the aggregate principal amount of the Senior Notes, ninety-five percent (95%) of any available cash will then be used to pay contingent interest to holders of Senior Notes in an aggregate amount of up to $91.2 million (reflecting Senior Notes that have been repurchased by the Company), and five percent (5%) of any remaining available cash will be used for distributions to and/or repurchases of stock from common stockholders, if those distributions 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.

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 Senior Notes at maturity, pay the 5% distribution to common stockholders (absent a court order), or to make any contingent interest payments. The Company has a negative net worth of $611.7 million as of December 31, 2005 ($1.2 billion if the 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. Consequently, investing in the Senior Notes and common stock involves a high level of risk.

G. Pension and Other Benefits

The Company sponsored a trusteed, noncontributory pension plan that covered substantially all of FINOVA’s employees. Benefits were based primarily on final average salary and years of service. The Company’s funding policy for the pension plan was to make at least the minimum annual contribution required by applicable regulations. The Company terminated the pension plan effective December 31, 2004 and received final regulatory approvals in late 2005. No pension benefits accrued beyond December 31, 2004 and participant benefits under the plan fully vested and became non-forfeitable as of that date. The Company completed the termination of the pension plan and all participant obligations were fully settled in December 2005. Upon final distribution of participant benefits, the Company recognized all remaining unrecognized net actuarial amounts under the plan, resulting in a loss from settlement of the pension plan of $24.7 million.

A-37

THE FINOVA GROUP INC.

Obligations and Funded Status of the Pension Plan

At December 31,	2005			2004
Change in Projected Benefit Obligations:
Projected benefit obligation, beginning of year	$	46,515		$	42,050
Service cost					725
Interest cost		2,384			2,469
Actuarial loss					7,855
Benefits paid		(57,409	)		(1,578	)
Curtailment gain (1)					(5,006	)
Settlement loss (2)		8,510
Projected benefit obligation, end of year (1)		—			46,515
Change in Plan Assets:
Fair value of plan assets, beginning of year		41,902			39,943
Actual return on plan assets (3)		1,410			537
Employer contributions (4)		14,097			3,000
Benefits paid		(57,409	)		(1,578	)
Fair value of plan assets, end of year		—			41,902
Funded status					(4,613	)
Unrecognized net actuarial loss					16,494
Net amount recognized	$	—		$	11,881

(1) At December 31, 2004, the accumulated benefit obligation, which was based on current and past compensation levels, totaled $46.5 million. The unrecognized curtailment gain eliminates the effects of future salary increases from the projected benefit obligation due to the plan termination.

(2) The settlement loss represents the difference between the projected benefit obligation at the beginning of the year based on the assumed discount rate (see table below) and the actual obligation at termination, which was impacted by the current interest rate environment, plan amendments, premiums for annuities and other termination costs.

(3) To reduce the volatility of invested plan assets, the Company kept all plan assets in lower yielding, lower risk investments. See Pension Plan Assets below for a discussion of the Company’s investment strategy.

(4) During 2005, the Company made contributions to fully fund the plan once the final costs of terminating the plan were determined, while contributions in 2004 were made to improve the funded status of the plan.

Amounts Recognized in the Consolidated Balance Sheet at December 31:

	2005			2004
Prepaid benefit cost	$			$
Accrued benefit liability					(4,613	)
Accumulated other comprehensive loss					16,494
Net amount recognized	$	—		$	11,881
Additional information at December 31:
	2005			2004
(Decrease) increase in minimum liability in other comprehensive loss	($	16,494	)	$	16,494

A-38

THE FINOVA GROUP INC.

Weighted Average Assumptions Used to Determine Projected Benefit Obligations at December 31:

	2005	2004
Discount rate	N/A	5.125	%
Rate of increase in future compensation levels	N/A	2.50	%

Pension Plan Assets

Due to the pending plan termination, the Company’s pension plan assets at December 31, 2004 were held entirely in a low yielding, low risk short-term investment grade money market fund containing a diversified blend of investment grade commercial paper, certificates of deposit and other low risk short-term investments.

The Company’s pension investment committee, after consultation with the Board of Directors, selected a short-term investment grade money market fund due to the unknown duration of the plan at the time and a primary goal of principal preservation. Longer-term investments focusing on growth with a potential for principal exposure were not deemed appropriate upon evaluation of the duration of the plan, economic conditions and the Company’s financial circumstances.

Cash Flows

Estimated Future Benefit Payments

The Company paid benefits of $57.4 million during 2005, which fully discharged the Company’s obligations under the plan. No future payments will be made as a result of the plan termination.

Contributions

The Company had no minimum funding requirement for its pension plan in 2005 and 2004. During 2005, the Company made discretionary contributions of $14.1 million to fully fund the plan once the final costs of terminating the plan were determined, while during 2004, $3.0 million of discretionary contributions were made to improve the funded status of the plan. The final costs of terminating the plan were slightly higher than previously anticipated primarily due to the current interest rate environment and its impact on the cost to purchase annuities.

Components of Net Periodic Benefit Cost

	Year Ended December 31,
	2005			2004			2003
Pension benefits:
Service cost	$			$	725		$	1,099
Interest cost		2,384			2,469			2,378
Expected return on plan assets		(1,669	)		(1,331	)		(2,496	)
Amortization of unrecognized net actuarial loss		598			237			42
Net Periodic Pension Cost		1,313			2,100			1,023
Settlement or Curtailment Loss		24,665
Total benefit cost	$	25,978		$	2,100		$	1,023

Weighted Average Assumptions Used to Determine Net Periodic Benefit Cost at December 31:

	2005		2004		2003
Discount rate	5.125	%	6.00	%	6.25	%
Expected long term rate of return on plan assets	3.00	%	3.00	%	3.00	%
Rate of increase in future compensation levels	2.50	%	2.50	%	2.75	%

A-39

THE FINOVA GROUP INC.

In determining the expected long-term rate of return on plan assets, FINOVA studied historical markets and the historical returns of assets with similar investment risk as deployed by FINOVA’s investment strategy, which is consistent with the widely accepted capital market principle that assets with higher volatility generate a greater return over the long run. Current market factors such as the interest rate environment, inflation and other economic indicators were evaluated and adjustments, where deemed necessary, were made to the historical market information in determining the expected rate of return assumptions. Given the Company’s expectation of a shorter investment period than most plans benchmarked, shorter-term capital market assumptions were utilized.

H. Income Taxes

The consolidated income tax expense consisted of the following:

	Year Ended December 31,
	2005			2004			2003
Current:
United States – State	$	245		$	(144	)	$	(390	)
Foreign		4			28			226
		249			(116	)		(164	)
Deferred:
United States – State		(245	)		144			390
Foreign		(4	)		(28	)		(226	)
		(249	)		116			164
Income tax expense	$	—		$	—		$	—

During 2005 FINOVA paid income taxes of $0.2 million, while in 2004 and 2003, FINOVA received net income tax refunds of $2.6 million and $41.7 million, respectively.

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

	Year Ended December 31,
	2005		2004		2003
Federal statutory income tax rate	35.0	%	(35.0	)%	(35.0	)%
State income taxes	2.8		(1.1	)	(2.3	)
Foreign tax effects	0.5		4.7		0.4
Valuation allowance	(30.3	)	41.5		30.0
Original issue discount	(8.9	)	(10.2	)	7.0
Other	0.9		0.1		(0.1	)
Expense for income taxes	—	%	—	%	—	%

A-40

THE FINOVA GROUP INC.

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

	2005			2004
Deferred tax liabilities:
Deferred income from leveraged leases	$	47,152		$	119,373
Basis difference in debt		73,330			42,617
Gross deferred tax liability		120,482			161,990
Deferred tax assets:
Deferred expenses/losses from lease financing		80,959			44,058
Reserve for credit losses		47,226			88,692
Goodwill		4,741			5,620
Alternative minimum tax		5,283			5,283
Net operating loss carryforward		454,777			425,557
Basis difference in loans and investments		47,998			46,888
Basis difference in owned assets		19,082			59,058
Accrued expenses		2,945			3,184
Other		2,023			4,207
Gross deferred tax asset		665,034			682,547
Valuation allowance		(547,073	)		(523,299	)
Net deferred tax asset		117,961			159,248
Net deferred tax liability	$	2,521		$	2,742

The effective income tax rate for the years ended December 31, 2005, 2004 and 2003, was zero for each year. The zero rates 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 2005 and 2004, the valuation allowance increased by $23.7 million and decreased by $4.4 million, respectively, primarily due to the reversal of deferred tax liabilities. 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.

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. As of December 31, 2005 and 2004, the Company had federal NOL carryforwards of $1.2 billion and $1.1 billion, respectively, none of which expire prior to 2009. For a discussion of the impact of the Plan on the NOL carryforward, refer to previous SEC filings.

I. Stockholders’ Equity

In August 2001, FINOVA issued 61,020,581 shares of common stock to Berkadia, representing 50% of FINOVA’s outstanding shares after giving effect to implementation of the Plan. At December 31, 2005, 2004 and 2003, FINOVA had approximately 125,873,000 shares of common stock issued with approximately 122,041,000 shares of common stock outstanding. The Company has 400,000,000 shares of common stock authorized.

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, 2005. 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.

A-41

THE FINOVA GROUP INC.

J. Other Comprehensive Income (Loss)

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

	Minimum Pension Liability Adjustment			Foreign Currency Translation			Net Unrealized Holding Gains (Losses) on Securities			Accumulated Other Comprehensive Income (Loss)
Balance, January 1, 2003	$			$	(133	)	$	(3,744	)	$	(3,877	)
Change during 2003					(313	)		7,179			6,866
Balance, December 31, 2003					(446	)		3,435			2,989
Change during 2004		(16,494	)		(113	)		(2,220	)		(18,827	)
Balance, December 31, 2004		(16,494	)		(559	)		1,215			(15,838	)
Change during 2005		16,494			112			787			17,393
Balance, December 31, 2005	$	—		$	(447	)	$	2,002		$	1,555

The balances were not tax affected in 2005, 2004 and 2003 due to the Company’s current tax position, which includes substantial net operating loss carryforwards (see Note H. “Income Taxes”).

K. General and Administrative Expenses

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

	Year Ended December 31,
	2005		%		2004		%		2003		%
Salaries and employee benefits	$	25,469	56.1	%	$	30,948	68.8	%	$	31,914	45.2	%
Other operating expenses		4,717	10.4	%		5,279	11.7	%		5,413	7.6	%
Professional services (1)		10,043	22.1	%		4,184	9.3	%		24,597	34.8	%
Occupancy expenses		3,784	8.3	%		2,397	5.3	%		4,921	7.0	%
Depreciation and amortization		805	1.8	%		1,298	2.9	%		2,784	3.9	%
Travel costs		599	1.3	%		889	2.0	%		1,044	1.5	%
Total general and administrative expenses	$	45,417	100.0	%	$	44,995	100.0	%	$	70,673	100.0	%

(1) Professional services for the year ended December 31, 2004 included a $5.8 million reversal of excess litigation accruals, which resulted from the settlement and payment of bankruptcy claims for amounts less than what had originally been accrued.

L. Operating Leases

The Company leases various office properties under operating lease contracts expiring through 2011. As discussed in Note M. “Costs Associated with Exit or Disposal Activities,” FINOVA has multiple 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, 2005 and 2004, the Company had a liability for terminated leases and office space it has ceased using totaling $3.7 million and $2.6 million, respectively, which is net of sublease rentals, where applicable.

The table below details total minimum future rental payments under operating leases still in place as of December 31, 2005:

2006	$	2,373
2007		1,284
2008		1,114
2009		1,114
2010		1,114
Thereafter		707
Total minimum future rental payments	$	7,706

A-42

THE FINOVA GROUP INC.

Total minimum future rental payments have not been reduced by $2.6 million of sublease rentals to be received in the future under non-cancelable subleases.

Rent expense net of sublease rentals was $3.8 million, $2.4 million and $4.9 million for the years ended December 31, 2005, 2004 and 2003, respectively. Rent expense for the years ended December 31, 2005, 2004 and 2003 does not include rent payments and sublease rentals netted against a liability established in accordance with the provisions of SFAS No. 146, for future rentals (net of anticipated sublease rentals) on office space the Company is no longer using. Rent expense for the year ended December 31, 2005 includes an accrual of $1.8 million for lease termination costs associated with the anticipated termination of two long-term office lease agreements.

M. Costs Associated with Exit or Disposal Activities

As a result of the sale of assets, the reduction in workforce and the overall contraction of the Company, FINOVA is currently incurring one-time termination benefits, including severance costs and contract termination costs.

Severance Costs

Employees are entitled to severance benefits under certain circumstances. In accordance with SFAS No. 146, the Company recognizes the liability for termination benefits ratably over the employee’s remaining service period. The liability is 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.

	2005			2004
Balance, beginning of year	$	4,252		$	3,415
Payments		(7,810	)		(4,064	)
Net additions		7,819			4,901
Balance, end of year	$	4,261		$	4,252

As of December 31, 2005 and 2004, FINOVA’s severance liability covered approximately 61 and 40 individuals, respectively, at various levels throughout the Company, including staff and management. The liability is recorded in the accounts payable and accrued expenses line item of the balance sheet.

Contract Termination Costs

In accordance with SFAS No. 146, a liability is 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. As a result of the sale of assets and the reduction in the number of employees, FINOVA has multiple 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.

	2005			2004
Balance, beginning of year	$	2,573		$	4,926
Payments		(651	)		(2,353	)
Net additions		1,777
Balance, end of year	$	3,699		$	2,573

As of December 31, 2005 and 2004, the Company had a total liability for terminated leases and office space it has ceased using of $3.7 million and $2.6 million, respectively, which is reflected in the accounts payable and accrued expenses 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. The net increase during 2005 was the result of accruing an additional $1.8 million of lease termination costs, due to the anticipated termination of two long-term office lease agreements, partially offset by the payment of scheduled lease rentals (net of sublease income) and termination costs. The net decrease during 2004 was due to the payment of scheduled lease rentals (net of sublease income) and termination costs, partially offset by accruals related to additional idle office space.

A-43

THE FINOVA GROUP INC.

N. Litigation and Claims

Legal Proceedings

FINOVA is 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 matters described 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 matters could have a material adverse impact on FINOVA’s financial position, results of operations or cash flows.

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 of 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.

Litigation Related to Loans to The Thaxton Group Inc. and Related Companies

Between October 17, 2003 and January 13, 2004, FINOVA Capital Corporation was served with and named as a defendant (with other parties) in five lawsuits that relate to its loan to The Thaxton Group Inc. and several related entities (collectively the “Thaxton Entities”). Under its loan agreement, FINOVA has a senior secured loan to the Thaxton Entities of approximately $108 million at December 31, 2005. The Thaxton Entities were declared in default under their loan agreement with FINOVA after they advised FINOVA that they would have to restate earnings for the first two fiscal quarters of 2003, and had suspended payments on their subordinated notes. As a result of the default, FINOVA exercised its rights under the loan agreement, and accelerated the indebtedness. The Thaxton Entities then filed a petition for bankruptcy protection under chapter 11 of the federal bankruptcy code in the United States Bankruptcy Court for the District of Delaware on October 17, 2003, listing assets of approximately $206 million and debts of $242 million. The Thaxton Group had approximately 6,800 holders of its subordinated notes that were issued in several states, with a total subordinated indebtedness of approximately $122 million.

The first lawsuit, a complaint captioned Earle B. Gregory, et al, v. FINOVA Capital Corporation, James T. Garrett, et al., (the “Gregory action”) was filed in the Court of Common Pleas of Lancaster County, South Carolina, case no. 2003-CP-29-967, and was served on FINOVA on October 17, 2003. An amended complaint was served on November 5, 2003, prior to the deadline for FINOVA to answer, plead, or otherwise respond to the original complaint. The Gregory action was properly removed to the United States District Court for the District of South Carolina on November 17, 2003, pursuant to 28 U.S.C. §§ 1334 and 1452. The plaintiffs filed a motion to remand the case to state court, but the United States District Court denied this motion in an order dated December 18, 2003.

The second Thaxton-related complaint, captioned Tom Moore, Anna Nunnery, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. 8:03-372413 (“Moore”), was filed in the United States District Court for the District of South Carolina on November 25, 2003, and was served on FINOVA on December 2, 2003. The third complaint, captioned Sam Jones Wood and Kathy Annette Wood, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, (“Wood”) was filed in the Superior Court for Gwinnett County, Georgia, case no. 03-A13343-B, and was served on FINOVA on December 9, 2003. FINOVA properly removed the Wood action to the United States District Court for the Northern District of Georgia (Atlanta Division) on January 5, 2004. The fourth complaint, captioned Grant Hall and Ruth Ann Hall, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. 03CVS20572, (“Hall”) was filed in the Mecklenberg County, North Carolina, Superior Court, and was also served on FINOVA on December 9, 2003. FINOVA properly removed the Hall action to the United States District Court for the Western District of North Carolina (Charlotte Division) on January 5, 2004. The fifth complaint, captioned Charles Shope, et al., v. FINOVA Capital Corporation, Moore & Van Allen PLLC, and Cherry, Bekaert & Holland LLP, case no. C204022 (“Shope”), was filed in the United States District Court for the Southern District of Ohio, Eastern Division, and was served on FINOVA on January 13, 2004.

Each of the five Thaxton-related lawsuits are styled as class actions, purportedly brought on behalf of certain defined classes of people who had purchased subordinated notes from the Thaxton Entities. The complaints by the subordinated note holders allege claims of fraud, securities fraud, and various other civil conspiracy and business torts in the sale of the subordinated notes. Each of the complaints seeks an unspecified amount of damages, among other remedies.

A-44

THE FINOVA GROUP INC.

Upon motion by FINOVA to the United States Judicial Panel for MultiDistrict Litigation (Docket 1612), all five Thaxton-related actions were transferred on June 18, 2004 to the United States District Court for the District of South Carolina for coordinated pre-trial proceedings (the “MDL Litigation”). In June 2005, the South Carolina District Court certified the MDL Litigation as a class action (collectively, the “Class Action”).

On October 6, 2005, the United States Court of Appeals for the Fourth Circuit issued an order granting the Company’s petition for permission to appeal the order of the South Carolina District Court certifying the class action cases and staying further proceedings in the South Carolina District Court during the pendency of the appeal or until the further order of the Court of Appeals. Oral arguments on the petition were heard by the Fourth Circuit on February 2, 2006. On March 14, 2006, the Fourth Circuit issued its ruling, reversing the South Carolina District Court’s class certification, stating, that in light of the Adversary Proceeding addressed below, class certification is not the superior method for the fair and efficient adjudication of the controversy.

In addition to the MDL Litigation, Thaxton’s unsecured creditors committee (the “Thaxton Committee”) has an action against FINOVA in the bankruptcy proceedings of the Thaxton Entities (the “Adversary Proceeding”) seeking on various grounds, among other things to avoid and/or equitably subordinate the liens and claims of FINOVA against the Thaxton Entities and to recover payments previously collected due to alleged securities fraud, violations of banking regulations, preference payments and similar claims. The Adversary Proceeding was filed in the United States Bankruptcy Court for the District of Delaware and was consolidated with the MDL Litigation for pre-trial proceedings.

The Company was notified on September 21, 2005, that the South Carolina District Court had denied the Company’s motion to transfer the Adversary Proceeding back to the United States District Court for the District of Delaware at this time, denied the Company’s motion for partial summary judgment on certain claims in the Adversary Proceeding, and granted the Thaxton Committee’s motion for partial summary judgment on the Committee’s claim for equitable subordination. The court has not yet issued this opinion.

As Thaxton has liquidated assets, portions of the payments collected by Thaxton have been deposited into a reserve account (approximately $72 million at December 31, 2005) in the name of FINOVA and the Thaxton Entities bankruptcy estates rather than being paid to FINOVA in respect of FINOVA’s outstanding loan. During the third quarter of 2005, FINOVA and Thaxton also agreed to deposit future interest payments and legal expense reimbursement that FINOVA alleges are due from Thaxton to FINOVA into two additional reserve accounts (an aggregate of approximately $5.0 million at December 31, 2005), each in the name of FINOVA and the Thaxton Entities bankruptcy estates. These reserve accounts are expected to be maintained until the Adversary Proceeding is resolved. These amounts are not reflected in FINOVA’s balance sheet. As a result of these reserve accounts, the amount of cash flow being paid by the Thaxton Entities to FINOVA has decreased from prior periods.

If the South Carolina District Court’s equitable subordination finding is not overturned or otherwise modified, the Company’s ability to recover on its claims in the Thaxton Entities bankruptcy cases may be materially and negatively affected, depending upon the exact nature of that ruling, as well as the results of other rulings in this litigation that may substantially limit the effect and importance of the equitable subordination ruling. Among the other rulings that could affect the Company’s ability to recover its claims, either positively or negatively, is the Delaware bankruptcy court’s ruling on a pending request seeking substantive consolidation of the Thaxton Entities. The Delaware bankruptcy court held a hearing on that issue, but has not yet ruled on the matter. A material and negative impact on the Company’s ability to recover on its claims in the Thaxton Entities bankruptcy cases would have a material adverse impact on the Company’s financial position, results of operations and/or cash flow.

If the Adversary Proceeding results in a significant adverse final determination against the Company, it is unlikely that the Company would be able to satisfy that liability due to its financial condition. As previously disclosed, due to the Company’s financial condition, it does not expect that it can satisfy all of 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.

The Company believes all the claims against FINOVA are without merit. FINOVA intends to vigorously defend the claims asserted against it in connection with the Thaxton Entities, whether in the MDL Litigation, or in the Adversary Proceeding, and to protect its senior secured position in the bankruptcy proceedings for the Thaxton Entities, including without limitation with respect to the pending substantive consolidation request.

A-45

THE FINOVA GROUP INC.

Motion Regarding Distributions to Stockholders

As discussed more fully in the Notes to the Consolidated Financial Statements, Note F. “Debt”, the Indenture contemplates that as principal payments are made on the Senior Notes, FINOVA stockholders will receive a distribution equal to 5.263% of each principal prepayment. The Indenture prohibits distribution of those amounts due to FINOVA’s financial condition. Those amounts are held in a restricted account, and totaled $70.3 million as of February 15, 2006. Because FINOVA will not be able to repay the Senior Notes in full, on April 1, 2005, it filed a motion in the United States Bankruptcy Court for the District of Delaware seeking an order (1) to cease directing funds into a restricted account and (2) to allow FINOVA to use the funds in the restricted account to satisfy its obligations to creditors. In June 2005, the Bankruptcy Court ordered that the former Equity Committee (the “Equity Committee”) be reconstituted. As of July 14, 2005, the Equity Committee was reconstituted with three members.

A hearing was held on November 29, 2005, and on February 1, 2006, the Bankruptcy Court issued its Order approving FINOVA’s April 1, 2005 motion to the extent that FINOVA will be forever insolvent. The Bankruptcy Court did not find that FINOVA is presently or will be forever insolvent. As a result, FINOVA will continue to direct funds into a restricted account until such time that FINOVA is deemed to be forever insolvent and the funds will then be distributed to FINOVA’s creditors. On February 10, 2006, the Equity Committee filed a Notice of Appeal of the Bankruptcy Court Order to the United States District Court for the District of Delaware.

Litigation Related to FINOVA v. Richard Arledge; Arledge v. FINOVA

FINOVA filed a collection action against Richard Arledge and Arledge Motor Company (collectively “Arledge”) in June 2002 in the United States District Court, District of Arizona (the “Court”), case number CIV02-1277-PHX-RCB. On or about October 1, 2002, Arledge responded in the Arizona action with a counterclaim, alleging various lender liability claims against FINOVA.

Arledge filed an Application for Temporary Restraining Order (“TRO”) and Order to Show Cause, Alternatively Application for Prejudgment Writ of Attachment against FINOVA on August 24, 2005 in an attempt to prevent FINOVA from liquidating part or all of its assets pending trial. The Court denied the motion for TRO. The Court, however, granted Arledge’s request for a prejudgment attachment, but conditioned the issuance of any resulting writ of attachment on Arledge posting a $4.5 million bond (which has not occurred). An evidentiary hearing was held on October 24, 2005 on Arledge’s request for a preliminary injunction; and on January 6, 2006, the Court issued an order denying Arledge’s application for a preliminary injunction. The Court ruled, among other things, that a preliminary injunction would be futile because all of FINOVA’s assets are encumbered. The Company continues to believe that all of the claims against it in this matter are without merit. The Company intends to vigorously defend the claims asserted against it.

O. 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 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.

A-46

THE FINOVA GROUP INC.

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

	2005					2004
	Carrying Amount			Estimated Fair Value		Carrying Amount			Estimated Fair Value
Balance Sheet - Financial Instruments:
Loans and other financing contracts	$	177,887	(1)	$	188,458	$	416,695	(1)	$	375,320
Senior Notes		1,151,491			634,399		1,586,957			1,061,635

⁽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 amounts presented in the table are 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.

Senior Notes. The Senior Notes are publicly traded securities and their fair value was determined by quoted market prices obtained as of December 31, 2005 and 2004. At December 31, 2005, the fair value of the Senior Notes was $634.4 million compared to their carrying amount of $1.2 billion and outstanding principal of $1.7 billion. At December 31, 2004, the fair value of the Senior Notes was $1.1 billion compared to their carrying amount of $1.6 billion and an outstanding principal of $2.2 billion. The carrying amount of the Senior Notes was net of unamortized fresh-start discount of $540.2 million and $579.6 million at December 31, 2005 and 2004, respectively.

The fair value estimates presented herein were based on information obtained by FINOVA as of December 31, 2005 and 2004. 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, 2005. Therefore, subsequent estimates of fair value may differ from the amounts presented herein.

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 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 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. The Berkadia loan was scheduled to mature in 2006, but was fully repaid earlier than anticipated (first quarter of 2004) due to accelerated runoff and collection of the portfolio.

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 Senior Notes as long as the outstanding balance of the Senior Notes is greater than $500 million.

FINOVA’s business is being operated under a Management Services Agreement with Leucadia that expires in 2011. Pursuant to that agreement, 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.

A-47

THE FINOVA GROUP INC.

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. Former partner in the law firm of Munger, Tolles & Olson LLP, counsel to Berkshire, where he practiced from 1981 to December 2004.
G. Robert Durham	Director of FINOVA since 1992 and Chairman in 2001. Former Director of MK Resources Company, a then publicly traded majority-owned subsidiary of Leucadia.
Thomas F. Boland	Director of FINOVA originally designated by the Official Committee of Creditors. Managing Director of Seneca Financial Group, Inc. since 2001.

Q. Subsequent Events – (Unaudited)

As of the date of this Report, the Company has sold or has signed definitive agreements to sell assets with a total carrying amount of slightly over $60 million. Additionally, the Company has a number of assets that are under non-binding letters of intent to sell, which are still in the process of being finalized. The Company is offering to sell its remaining assets both by portfolio and individual asset, if buyers can be found at acceptable prices.

A-48

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 Quarter			Second Quarter			Third Quarter			Fourth Quarter
2005:
Total revenues	$	28,302		$	25,330		$	22,771		$	17,850
Interest margin		(22,074	)		(21,179	)		(21,668	)		(25,125	)
Total other revenues and (expenses)		21,558			9,669			(15,492	)		(20,136	)
Net loss		(516	)		(11,510	)		(37,160	)		(45,261	)
Basic/diluted loss per share		(0.00	)		(0.09	)		(0.30	)		(0.37	)
2004:
Total revenues	$	74,118		$	64,894		$	36,124		$	40,337
Interest margin		2,926			(6,983	)		(30,198	)		(17,709	)
Total other revenues and (expenses)		43,148			21,973			53,268			65,588
Net income		46,074			14,990			23,070			47,879
Basic/diluted earnings per share		0.38			0.12			0.19			0.39

A-49

EX-10.L.3

Exhibit 10.L.3

FINOVA 2006 Annual Incentive Plan Rules

February 2006

1. Participants:

All employees who are in good standing as at January 1^st 2006

New hires may be subject to a probation period (no longer than 90 days) before being eligible to participate in the plan. Upon satisfactory completion of the probation period new hire participation will be effective from the hire date and pro-rated for service during 2006. Past employees who are re-hired are eligible for immediate participation.

2. Performance Incentive Bonuses:

Incentive Amounts All participants may be paid a percentage of their earnings paid from January 1, 2006 to December 31, 2006. Earnings include pay for regular time, overtime, holiday and PTO it excludes payments received for short-term disability, sick pay, payment under any recognition program or other bonus plan. The bonus percentage will be based on participant’s pay grade and criticality. The amount of the bonus will be subject to the recommendation of the participant’s supervisor and the approval of the CEO.

Form and Timing of Incentive Payment. All Incentive Bonuses will be paid as lump sums, less applicable taxes, by the last working day of February 2007. Participants, whose employment involuntarily terminates during 2006, other than for cause or documented unsatisfactory performance, will receive any bonus award on the payroll covering the employee’s last date of employment. Payment of the bonus will be on the recommendation of the employee’s supervisor and the approval of the CEO after a review of performance and transition of duties before termination. The amount of the bonus will be pro-rated according to the length of service during 2006.

3. Other Key Provisions:

Incentive Plan Bonus Payments The Plan has been specifically designed to be discretionary in nature. Factors bearing on an employee’s individual bonus award will be the achievement of the business unit’s objectives and employee’s personal performance. This includes, but is not limited to, the employee’s attitude, commitment and support for others. If the employee’s performance meets expectations and the business unit has achieved its objectives, the employee may expect a bonus midway of the range of bonus opportunities. Falling short of expectations will likely result in a lower bonus. A bonus above the mid-point may be awarded if an employee’s performance is exceptional.

Resignations and Terminations for Cause or Performance. Employees who voluntarily resign or are terminated for cause or documented unsatisfactory performance are not eligible to receive any amounts under this plan including severance benefits.

Leaves of Absence. Performance Incentive Bonuses (if eligible) will be proportionately reduced for periods of time employees are on approved leaves of absence (e.g., medical, workers’ compensation or personal), except as required by law.

Discretion. Business Unit Managers in conjunction with the Human Resources have the authority to modify incentive bonus percentages if it is determined that individual performance warrants such actions. The Human Resources and the CEO must approve any increases in bonus percentage and any exceptions to this plan. The CEO has the discretion to increase or decrease bonus payments. Any modification in bonus opportunity will be communicated to the employee in writing.

Preservation of Rights. Nothing in this plan shall alter the “at will” nature of employment. This includes employees’ rights to resign at any time and for any reason and the company’s right to terminate employees at any time and for any reason.

The 2006 Incentive Plan and its application shall be governed by the laws of the State of Arizona, without regard to its conflict of laws principles, and to the extent applicable, by Federal law. References to an officer includes his or her successor. Decisions of officers may be superseded by decisions of Senior Management or the Board of Directors of FINOVA Group or FINOVA Capital or their committees.

EX-10.O

Exhibit 10.O

SEVENTH AMENDMENT TO

THE FINOVA GROUP INC. PENSION PLAN

WHEREAS, The FINOVA Group Inc. Pension Plan (hereinafter called the “Plan”) became effective as of March 18, 1992, as the GFC Financial Corporation Retirement Income Plan; and

WHEREAS, the Plan was amended and restated generally effective January 1, 1995, and was renamed The FINOVA Group Inc. Pension Plan as of February 1, 1995; and

WHEREAS, under Article X of the Plan, The FINOVA Group Inc. (formerly known as GFC Financial Corporation) (hereinafter called the “Employer”) has reserved the right to amend or terminate the Plan in whole or in part at any time and from time to time, subject to certain restrictions set forth in the Plan;

NOW THEREFORE, by resolution of the Board of Directors, the Employer has terminated the Plan as of December 31, 2004, and deems it advisable to amend the Plan to reflect its termination.

In order to add Section 3.3(f) to Article 3, to delete Section 6.4(e) and add a new 6.5(c) changing former 6.5(c)-(e) to 6.5(d)-(f) to Article VI, and to add 10.2(b) to Article X of the existing plan, pages 3.3-3.8 of Article III, pages 6.8-6.21 of Article VI, and Article X in its entirety are removed and replaced by the attached replacement pages, which are incorporated herein by this reference.

The terms used in this Seventh Amendment, which are defined in the Plan, shall have the same meaning given to such terms in the Plan.

Except as modified by this Seventh Amendment, the Plan and all amendments thereto shall be read, taken and construed as one and the same document.

DATED this 7th day of December, 2005.

THE FINOVA GROUP INC.

/s/ Philip A. Donnelly

By:    Philip A. Donnelly

Title: SVP General Counsel & Secretary

THE FINOVA GROUP INC. PENSION COMMITTEE

/s/ Richard A. Ross

By:    Richard A. Ross

Title: SVP Chief Financial Officer & Treasurer

-2-

EX-10.P.8

Exhibit 10.P.8

        FINANCIAL INNOVATORS

                    THE FINOVA GROUP INC.

                    4800 N. SCOTTSDALE ROAD

                    SCOTTSDALE, AZ 85251-7623

                    TEL 480-636-4800/ 800 7FINOVA

                    INTERNET www.finova.com

February 20, 2006

Dear Jeffrey Weiss,

This letter includes information about the 2006 cost of living increase and restates your severance benefits.

Salary

Effective March 1, 2006 your salary will be increased by a 4% cost of living adjustment.

Base Severance

1) Base severance - in the event you are involuntarily terminated for reasons other than cause or performance, you will be eligible to receive severance pay in a lump sum, less applicable taxes, equal to 4 weeks for each full year of service prorated for partial years with a minimum of 52 weeks and a maximum of 78 weeks of base salary. As of this writing your severance, your base severance is equal to 66.72 weeks.

Additional Severance

2) In recognition of your contribution during 2003, in addition to the base severance pay detailed in (1) above, you were given another 17.96 weeks of severance.

3) In recognition of your contribution during 2004, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) above, you have been awarded another 18.25 weeks of severance.

4) In recognition of your contribution during 2005, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) and (3) above, you have been awarded another 16.32 weeks of severance.

You may have the opportunity to be awarded additional severance weeks for future years. Those awards are discretionary and based upon the criticality of your position and your performance.

The total of your base and additional severance weeks may exceed the 78-week maximum stated in (1) above.

Funding for the payment of severance is secured in the FINOVA Severance Trust.

Since the task of liquidating the portfolio cannot be forecast precisely, it is difficult to predict our staffing needs, but every effort will be made to give you at least 30 days notice of your termination date.

COBRA

The Company will pay COBRA premiums for medical, dental and vision on your behalf for a period of time equal to the number of weeks of your base severance pay (item (1) above), rounded to the next whole month with a minimum of 12 months up to a maximum of 18 months. You must be a participant in the Plans at the time you are terminated and enroll in COBRA by sending the enrollment material to Aetna COBRA Administration to receive these benefits. The additional severance weeks granted to you for 2003, 2004 and 2005 in items (2), (3) and (4) above will not be eligible for Company paid COBRA premiums nor will any additional weeks granted in the future through that program. As of this writing, you are entitled to 16 months of company paid medical, dental and vision.

Career Continuation Counseling

You will also receive executive career-planning services to help you obtain future employment. Our outplacement vendor at this time is Lee Hecht Harrison. You are entitled to their 12-month program. Additional details about the program benefits will be communicated to you at the time of your severance.

Other Severance Benefits

Special Consideration

In the event that your employment has not been terminated by January 1, 2008, you will be paid the equivalent of the total number of weeks of accrued base severance and any additional severance on or before March 15, 2008. You will be eligible for the standard severance benefits, if any, after that date as if you were a new employee from the date of that payment.

Financial/Estate Planning

You are eligible for financial/estate planning services for up to 12 months from your termination date. The Company will reimburse you up to $8,000 for the costs incurred by you and/or your spouse in connection with financial counseling. The advice is to be provided by a licensed financial advisor of your choosing. This service includes, but is not restricted to tax preparation.

Exec-U-Care

You are eligible to continue your Exec-U-Care services for 12 months from your termination date. The Exec-U-Care program is used to pay for medical, dental or vision services not covered by the group health plans up to a total of $5,000 each calendar year. Co-payments, deductibles and any out of pocket costs associated with dental and doctor visits are covered benefits under this program. Exclusions and limitations of the program are in the enrollment information you already have.

Executive Physical Exam Benefit

You are eligible to be reimbursed up to $3,200 for one annual physical during the calendar year of your termination and one annual physical during the calendar year following your termination date. The physical can be arranged either through your primary care physician or at a medical facility of your choosing. The physical include a comprehensive physical exam, associated laboratory work, audiogram, glaucoma screening, resting electrocardiogram, chest x-ray, treadmill stress test and associated laboratory work, as applicable.

Resignations and Terminations for Cause or Performance

If you voluntarily resign or are terminated for cause or performance at any time, you are not eligible to receive severance benefits.

Nothing in this letter forms a contract of employment for any specific duration or on any specific terms, and FINOVA retains the right to terminate your employment at any time.

This letter is subject to the terms of applicable policies and the specific plans relating to the matters noted above, such as FINOVA’s Severance Pay Plan, Enhanced Severance Plans, the Annual Bonus Plans and the Employee Severance and Bonus Trusts, which are incorporated by reference. If those policies or plans conflict with this letter, the terms most beneficial to the employee shall control.

If you have any questions, please feel free to call me at 480-636-6544.

Sincerely,

/s/ Susan DeFelice

Susan DeFelice

Vice President – HR & Benefits

Employee Acceptance

In signing below you are agreeing to the terms of this letter. You are also acknowledging your understanding that you are not able to voluntarily terminate employment and still receive any severance payment.

/s/ Jeffrey Weiss

Jeffrey Weiss

Date: February 21, 2006

EX-10.P.9

Exhibit 10.P.9

        FINANCIAL INNOVATORS

                    THE FINOVA GROUP INC.

                    4800 N. SCOTTSDALE ROAD

                    SCOTTSDALE, AZ 85251-7623

                    TEL 480-636-4800/ 800 7FINOVA

                    INTERNET www.finova.com

February 20, 2006

Dear Philip Donnelly,

This letter restates your severance benefits.

Base Severance

1) Base severance - in the event you are involuntarily terminated for reasons other than cause or performance, you will be eligible to receive severance pay in a lump sum, less applicable taxes, equal to 4 weeks for each full year of service prorated for partial years with a minimum of 52 weeks and a maximum of 78 weeks of base salary. As of this writing, your base severance is equal to 52 weeks.

Additional Severance

2) In recognition of your contribution during 2003, in addition to the base severance pay detailed in (1) above, you were given another 12.57 weeks of severance.

3) In recognition of your contribution during 2004, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) above, you have been awarded another 10.40 weeks of severance.

4) In recognition of your contribution during 2005, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) and (3) above, you have been awarded another 14.63 weeks of severance

You may have the opportunity to be awarded additional severance weeks for future years. Those awards are discretionary and based upon the criticality of your position and your performance.

The total of your base and additional severance weeks may exceed the 78-week maximum stated in (1) above.

Funding for the payment of severance is secured in the FINOVA Severance Trust.

Since the task of liquidating the portfolio cannot be forecast precisely, it is difficult to predict our staffing needs, but every effort will be made to give you at least 30 days notice of your termination date.

COBRA

The Company will pay COBRA premiums medical, dental and vision on your behalf for a period of time equal to the number of weeks of your base severance pay (item (1) above), rounded to the next whole month with a minimum of 12 months up to a maximum of 18 months. You must be a participant in the Plans at the time you are terminated and enroll in COBRA by sending the enrollment material to Aetna COBRA Administration to receive this benefit. The additional severance weeks granted to you for 2003, 2004 and 2005 in items (2), (3) and (4) above will not be eligible for Company paid COBRA premiums nor will any additional weeks granted in the future through that program. As of this writing, you are entitled to 12.00 months of company paid medical, dental and vision.

Career Continuation Counseling

You will also receive executive career-planning services to help you obtain future employment. Our outplacement vendor at this time is Lee Hecht Harrison. You are entitled to their 12-month program. Additional details about the program benefits will be communicated to you at the time of your severance.

Other Severance Benefits

Financial/Estate Planning

You are eligible for financial/estate planning services for up to 12 months from your termination date. The Company will reimburse you up to $8,000 for the costs incurred by you and/or your spouse in connection with financial counseling. The advice is to be provided by a licensed financial advisor of your choosing. This service includes, but is not restricted to tax preparation.

Exec-U-Care

You are eligible to continue your Exec-U-Care services for 12 months from your termination date. The Exec-U-Care program is used to pay for medical, dental or vision services not covered by the group health plans up to a total of $5,000 each calendar year. Co-payments, deductibles and any out of pocket costs associated with dental and doctor visits are covered benefits under this program. Exclusions and limitations of the program are in the enrollment information you already have.

Executive Physical Exam Benefit

You are eligible to be reimbursed up to $3,200 for one annual physical during the calendar year of your termination and one annual physical during the calendar year following your termination date. The physical can be arranged either through your primary care physician or at a medical facility of your choosing. The physical include a comprehensive physical exam, associated laboratory work, audiogram, glaucoma screening, resting electrocardiogram, chest x-ray, treadmill stress test and associated laboratory work, as applicable.

Resignations and Terminations for Cause or Performance

If you voluntarily resign or are terminated for cause or performance at any time, you are not eligible to receive severance benefits.

Nothing in this letter forms a contract of employment for any specific duration or on any specific terms, and FINOVA retains the right to terminate your employment at any time.

This letter is subject to the terms of applicable policies and the specific plans relating to the matters noted above, such as FINOVA’s Severance Pay Plan, Enhanced Severance Plans, the Annual Bonus Plans and the Employee Severance and Bonus Trusts, which are incorporated by reference. If those policies or plans conflict with this letter, the terms most beneficial to the employee shall control.

If you have any questions, please feel free to call me at 480-636-6544.

Sincerely,

/s/ Susan DeFelice

Susan DeFelice

Vice President – HR & Benefits

Employee Acceptance

In signing below you are agreeing to the terms of this letter. You are also acknowledging your understanding that you are not able to voluntarily terminate employment and still receive any severance payment.

/s/ Philip A. Donnelly

Philip A. Donnelly

Date: February 22, 2006

EX-10.P.10

Exhibit 10.P.10

        FINANCIAL INNOVATORS

                    THE FINOVA GROUP INC.

                    4800 N. SCOTTSDALE ROAD

                    SCOTTSDALE, AZ 85251-7623

                    TEL 480-636-4800/ 800 7FINOVA

                    INTERNET www.finova.com

February 20, 2006

Dear Richard Ross,

This letter restates your severance benefits.

Base Severance

1) Base severance - in the event you are involuntarily terminated for reasons other than cause or performance, you will be eligible to receive severance pay in a lump sum, less applicable taxes, equal to 4 weeks for each full year of service prorated for partial years with a minimum of 52 weeks and a maximum of 78 weeks of base salary. As of this writing, your base severance is equal to 52.00 weeks.

Additional Severance

2) In recognition of your contribution during 2003, in addition to the base severance pay detailed in (1) above, you were given another 12.70 weeks of severance.

3) In recognition of your contribution during 2004, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) above, you have been awarded another 16.25 weeks of severance.

4) In recognition of your contribution during 2005, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) and (3) above, you have been awarded another 15.48 weeks of severance.

You may have the opportunity to be awarded additional severance weeks for future years. Those awards are discretionary and based upon the criticality of your position and your performance.

The total of your base and additional severance weeks may exceed the 78-week maximum stated in (1) above.

Funding for the payment of severance is secured in the FINOVA Severance Trust.

Since the task of liquidating the portfolio cannot be forecast precisely, it is difficult to predict our staffing needs, but every effort will be made to give you at least 30 days notice of your termination date.

COBRA

The Company will pay COBRA premiums for medical, dental and vision on your behalf for a period of time equal to the number of weeks of your base severance pay (item (1) above), rounded to the next whole month with a minimum of 12 months up to a maximum of 18 months. You must be a participant in the Plans at the time you are terminated and enroll in COBRA by sending the enrollment material to Aetna COBRA Administration to receive this benefit. The additional severance weeks granted to you for 2003, 2004 and 2005 in items (2), (3) and (4) above will not be eligible for Company paid COBRA premiums nor will any additional weeks granted in the future through that program. As of this writing, you are entitled to 12 months of company paid medical, dental and vision.

Career Continuation Counseling

You will also receive executive career-planning services to help you obtain future employment. Our outplacement vendor at this time is Lee Hecht Harrison. You are entitled to their 12-month program. Additional details about the program benefits will be communicated to you at the time of your severance.

Other Severance Benefits

Financial/Estate Planning

You are eligible for financial/estate planning services for up to 12 months from your termination date. The Company will reimburse you up to $8,000 for the costs incurred by you and/or your spouse in connection with financial counseling. The advice is to be provided by a licensed financial advisor of your choosing. This service includes, but is not restricted to tax preparation.

Exec-U-Care

You are eligible to continue your Exec-U-Care services for 12 months from your termination date. The Exec-U-Care program is used to pay for medical, dental or vision services not covered by the group health plans up to a total of $5,000 each calendar year. Co-payments, deductibles and any out of pocket costs associated with dental and doctor visits are covered benefits under this program. Exclusions and limitations of the program are in the enrollment information you already have.

Executive Physical Exam Benefit

You are eligible to be reimbursed up to $3,200 for one annual physical during the calendar year of your termination and one annual physical during the calendar year following your termination date. The physical can be arranged either through your primary care physician or at a medical facility of your choosing. The physical include a comprehensive physical exam, associated laboratory work, audiogram, glaucoma screening, resting electrocardiogram, chest x-ray, treadmill stress test and associated laboratory work, as applicable.

Resignations and Terminations for Cause or Performance

If you voluntarily resign or are terminated for cause or performance at any time, you are not eligible to receive severance benefits.

Nothing in this letter forms a contract of employment for any specific duration or on any specific terms, and FINOVA retains the right to terminate your employment at any time.

This letter is subject to the terms of applicable policies and the specific plans relating to the matters noted above, such as FINOVA’s Severance Pay Plan, Enhanced Severance Plans, the Annual Bonus Plans and the Employee Severance and Bonus Trusts, which are incorporated by reference. If those policies or plans conflict with this letter, the terms most beneficial to the employee shall control.

If you have any questions, please feel free to call me at 480-636-6544.

Sincerely,

/s/ Susan DeFelice

Susan DeFelice

Vice President – HR & Benefits

Employee Acceptance

In signing below you are agreeing to the terms of this letter. You are also acknowledging your understanding that you are not able to voluntarily terminate employment and still receive any severance payment.

/s/ Richard A. Ross

Richard A. Ross

Date: February 23, 2006

EX-10.P.11

Exhibit 10.P.11

        FINANCIAL INNOVATORS

                    THE FINOVA GROUP INC.

                    4800 N. SCOTTSDALE ROAD

                    SCOTTSDALE, AZ 85251-7623

                    TEL 480-636-4800/ 800 7FINOVA

                    INTERNET www.finova.com

February 20, 2006

Dear James Wifler,

This letter restates your severance benefits.

Base Severance

1) Base severance - in the event you are involuntarily terminated for reasons other than cause or performance, you will be eligible to receive severance pay in a lump sum, less applicable taxes, equal to 4 weeks for each full year of service prorated for partial years with a minimum of 52 weeks and a maximum of 78 weeks of base salary. As of this writing, your base severance is equal to 78.00 weeks.

Additional Severance

2) In recognition of your contribution during 2003, in addition to the base severance pay detailed in (1) above, you were given another 10.05 weeks of severance.

3) In recognition of your contribution during 2004, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) above, you have been awarded another 12.55 weeks of severance.

4) In recognition of your contribution during 2005, in addition to the base severance pay detailed in (1) and the additional severance detailed in (2) and (3) above, you have been awarded another 13.00 weeks of severance.

You may have the opportunity to be awarded additional severance weeks for future years. Those awards are discretionary and based upon the criticality of your position and your performance.

The total of your base and additional severance weeks may exceed the 78-week maximum stated in (1) above.

Funding for the payment of severance is secured in the FINOVA Severance Trust.

Since the task of liquidating the portfolio cannot be forecast precisely, it is difficult to predict our staffing needs, but every effort will be made to give you at least 30 days notice of your termination date.

COBRA

The Company will pay COBRA premiums for medical, dental and vision on your behalf for a period of time equal a maximum of 18 months. You must be a participant in the Plans at the time you are terminated and enroll in COBRA by sending the enrollment material to Aetna COBRA Administration to receive this benefit. The additional severance weeks granted to you for 2003, 2004 and 2005 in items (2), (3) and (4) above will not be eligible for Company paid COBRA premiums nor will any additional weeks granted in the future through that program. As of this writing, you are entitled to 18.00 months of company paid medical, dental and vision.

Career Continuation Counseling

You will also receive executive career-planning services to help you obtain future employment. Our outplacement vendor at this time is Lee Hecht Harrison. You are entitled to their 12-month program. Additional details about the program benefits will be communicated to you at the time of your severance.

Other Severance Benefits

Financial/Estate Planning

You are eligible for financial/estate planning services for up to 12 months from your termination date. The Company will reimburse you up to $8,000 for the costs incurred by you and/or your spouse in connection with financial counseling. The advice is to be provided by a licensed financial advisor of your choosing. This service includes, but is not restricted to tax preparation.

Exec-U-Care

You are eligible to continue your Exec-U-Care services for 12 months from your termination date. The Exec-U-Care program is used to pay for medical, dental or vision services not covered by the group health plans up to a total of $5,000 each calendar year. Co-payments, deductibles and any out of pocket costs associated with dental and doctor visits are covered benefits under this program. Exclusions and limitations of the program are in the enrollment information you already have.

Executive Physical Exam Benefit

You are eligible to be reimbursed up to $3,200 for one annual physical during the calendar year of your termination and one annual physical during the calendar year following your termination date. The physical can be arranged either through your primary care physician or at a medical facility of your choosing. The physical include a comprehensive physical exam, associated laboratory work, audiogram, glaucoma screening, resting electrocardiogram, chest x-ray, treadmill stress test and associated laboratory work, as applicable.

Resignations and Terminations for Cause or Performance

If you voluntarily resign or are terminated for cause or performance at any time, you are not eligible to receive severance benefits.

Nothing in this letter forms a contract of employment for any specific duration or on any specific terms, and FINOVA retains the right to terminate your employment at any time.

This letter is subject to the terms of applicable policies and the specific plans relating to the matters noted above, such as FINOVA’s Severance Pay Plan, Enhanced Severance Plans, the Annual Bonus Plans and the Employee Severance and Bonus Trusts, which are incorporated by reference. If those policies or plans conflict with this letter, the terms most beneficial to the employee shall control.

If you have any questions, please feel free to call me at 480-636-6544.

Sincerely,

/s/ Susan DeFelice

Susan DeFelice

Vice President – HR & Benefits

Employee Acceptance

In signing below you are agreeing to the terms of this letter. You are also acknowledging your understanding that you are not able to voluntarily terminate employment and still receive any severance payment.

/s/ James Wifler

James Wifler

Date: February 22, 2006

EX-12

EXHIBIT 12

COMPUTATION OF RATIO OF INCOME TO FIXED CHARGES

(Dollars in thousands)

	Year Ended December 31,
	2005			2004		2003
(Loss) income before income taxes	$	(94,447	)	$	132,013	$	256,113
Add fixed charges:
Interest expense		176,071			250,334		314,288
Allocation of rent expense (1)		886			1,583		2,615
Total fixed charges		176,957			251,917		316,903
Income as adjusted	$	82,510		$	383,930	$	573,016
Ratio of income to fixed charges		0.47			1.52		1.81

(1) The allocation of rent expense for the years ended December 31, 2005, 2004 and 2003 includes rent payments charged against a liability established in accordance with the provisions of SFAS No. 146 for future rentals (net of anticipated sublease rentals) on office space the Company is no longer using. See Note M. “Costs Associated with Exit or Disposal Activities” for a further discussion.

EX-21

Exhibit 21

Subsidiaries of The FINOVA Group Inc.

(March 2, 2006)

FINOVA Capital Corporation (Delaware)

Aircraft 48008/48009 L.L.C. (Delaware)

Aircraft Lease Finance V, Inc. (Illinois)

Cactus Resort Properties, Inc. (Delaware)

Cactus Resort Properties II, Inc. (Delaware)#

Cactus Resort Properties III, LLC (Delaware)

Desert Communications I, LLC (Delaware)

Aquis Communications Group, Inc. (Delaware)

FCC Resort LLC (Delaware)

FINOVA Hawaiian Holdings, LLC (Delaware)

FINOVA Waipahu Holdings, LLC (Delaware)

FINOVA PB Holdings, LLC (Delaware)#

Pacific Bag, Inc.

Commonwealth Avenue Warehouse, LLC (Delaware)

Desert Communications V, LLC (Delaware)

Desert Communications VII, Inc. (Delaware)

Desert Healthcare, LLC (Delaware)

Desert Healthcare New York, LLC (Delaware)

Furman Sound, Incorporated (California)

Desert Island Capital Corporation (Delaware)

FCS 525, Inc. (Delaware)

FFC Distribution Corporation (California)*#

FINOVA Capital Funding (II) Corporation (Delaware)

FINOVA Capital Limited (United Kingdom) fka FINOVA Capital plc (United Kingdom)

FINOVA Finance Limited (United Kingdom)*

FINOVA Capital Corporation Limited (United Kingdom)*

The FINOVA Group Limited (United Kingdom)*

Hunt Bros (Oldbury) Limited (United Kingdom)

Townmead Garages Limited (United Kingdom)*

FINOVA (Cayman) Capital Ltd. (Cayman Islands)

FINOVA International Finance LLC (Delaware)

Pacific AirCorp 307, Inc. (California) #

Pacific AirCorp 23168, Inc. (Delaware)

Pacific AirCorp 23169, Inc. (Delaware)

Pacific AirCorp 23171, Inc. (Delaware)

Pacific AirCorp 23172, Inc. (Delaware)

Pacific AirCorp 23225, Inc. (Delaware)

Pacific AirCorp 23226, Inc. (Delaware)

FINOVA Lease Receivables LLC (Delaware)

FINOVA Loan Administration Inc. (Utah)#

FINOVA Mezzanine Capital Inc. (Tennessee)

Recycling Technologies, Inc. (Tennessee)

Vision 2000, Inc. (Tennessee)#

Vision 2000 Technologies, Inc. (Tennessee)#

FINOVA Resort Investments Company (Delaware)

FINOVA Services Limited (United Kingdom)

FINOVA Technology Finance, Inc. (Delaware)*#

FINOVA Health Care Finance Limited (United Kingdom)

Greyhound Real Estate Investment Nine, LLC (Delaware)

Greyhound Real Estate Investment One, LLC (Delaware)

Hotel GP LLC (Delaware)

New Jersey Realty, LLC (Delaware)

Steiner Realty L.P. ll – NJ (New York)

NY Hotel Capital LLC (Delaware)

Hotel Leasing (NY) LLC (Delaware)

The Hotel Leasing (NY) Trust (Delaware)

Penn GP LLC (Delaware)

Penn Hotel Investors LP (Delaware)

Hotel Leasing (PA) LP (Delaware)

Pine Top Insurance Company Limited (United Kingdom)#

RJ Capital, LLC (California)*#

* INACTIVE

** SHELL CORPORATION

# IN LIQUIDATION

EX-23

Exhibit 23

Consent of Independent Registered Public Accounting Firm

We consent to the incorporation by reference in the Registration Statements on Forms S-3 Nos. 333-39383, 333-74473, 333-75719 and on Form S-4 No. 333-74809 of The FINOVA Group Inc. of our report dated March 16, 2006, with respect to the consolidated financial statements of The FINOVA Group Inc. included in this Annual Report on Form 10-K for the year ended December 31, 2005.

/s/ Ernst & Young LLP

Phoenix, Arizona

March 16, 2006

EX-31.1

EXHIBIT 31.1

CERTIFICATIONS

I, Thomas E. Mara, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006	By:	/s/ Thomas E. Mara
		Thomas E. Mara Chief Executive Officer

EX-31.2

EXHIBIT 31.2

CERTIFICATIONS

I, Richard A. Ross, certify that:

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

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

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

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s fourth fiscal quarter of 2005 that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: March 16, 2006	By:	/s/ Richard A. Ross
		Richard A. Ross Chief Financial Officer (principal financial officer)

EX-32.1

EXHIBIT 32.1

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Thomas E. Mara, as Chief Executive Officer of The FINOVA Group Inc. (the “Company”) certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the accompanying Form 10-K report for the period ending December 31, 2005 as filed with the U.S. Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006
	By:	/s/ Thomas E. Mara
		Thomas E. Mara
		Chief Executive Officer

EX-32.2

EXHIBIT 32.2

CERTIFICATION

PURSUANT TO 18 U.S.C. SECTION 1350,

AS ADOPTED BY SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

I, Richard A. Ross, as Chief Financial Officer of The FINOVA Group Inc. (the “Company”) certify, pursuant to 18 U.S.C. ss. 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to my knowledge:

(1) the accompanying Form 10-K report for the period ending December 31, 2005 as filed with the U.S. Securities and Exchange Commission (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: March 16, 2006
	By:	/s/ Richard A. Ross
		Richard A. Ross
		Chief Financial Officer
		(principal financial officer)