GATX CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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

COMMISSION FILE NUMBER 1-2328

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GATX CORPORATION

INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NUMBER
STATE OF NEW YORK 36-1124040

500 WEST MONROE STREET
CHICAGO, IL 60661
(312) 621-6200

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
NONE

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

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 [ ]

As of March 8, 2002, 48,787,524 common shares were outstanding, and the
aggregate market value of the common shares (based upon the March 8, 2002,
closing price of these shares on the New York Stock Exchange) of GATX
Corporation held by non-affiliates was approximately $1,567.5 million.

DOCUMENTS INCORPORATED BY REFERENCE

Portions of GATX's proxy statement dated March 22, 2002 are incorporated by
reference into Part III.
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INDEX TO GATX CORPORATION

2001 FORM 10-K

1

PART I

ITEM 1. BUSINESS

During 2000 and 2001, GATX Corporation (GATX or the Company) redefined its
strategic focus and undertook certain initiatives to position itself as a
specialized finance and leasing company. To accomplish this goal, a decision was
made to exit the businesses of the former GATX Integrated Solution Group (ISG)
segment. As of December 31, 2001, GATX had substantially completed the sale of
these ISG businesses. The ISG segment was comprised of GATX Terminals
Corporation (Terminals), GATX Logistics, Inc. (Logistics) and minor business
development efforts. As a result of these actions, the financial data for the
ISG segment is presented as discontinued operations for all periods shown.

GATX is headquartered in Chicago, Illinois and provides its services and
products through two operating segments: Financial Services and GATX Rail.
Through these businesses, GATX combines asset knowledge and services,
structuring expertise, partnering and risk capital to serve customers and
partners worldwide. GATX specializes in railcar and locomotive leasing, aircraft
leasing, information technology leasing, venture leasing and finance, and the
leasing and portfolio management of other large ticket assets.

In prior years, the Financial Services segment included a rail business
unit, which leased freight cars and locomotives under operating and finance
leases. In 2001, GATX combined into one segment the rail business unit of
Financial Services with GATX Rail, a full service lessor of railcars, primarily
tank cars. The financial data for GATX Rail and Financial Services has been
restated for all periods presented to reflect the change in the composition of
each operating segment.

In August 2001, GATX completed a realignment of the legal structure of its
subsidiary companies. The new structure combined GATX's principal subsidiaries,
GATX Rail Corporation and GATX Capital Corporation, into a single legal entity
that was renamed GATX Financial Corporation (GFC).

At December 31, 2001, GATX had on balance sheet assets of $6.1 billion,
primarily operating assets such as railcars, commercial aircraft and information
technology equipment. In addition to the $6.1 billion of assets recorded on the
balance sheet, GATX utilizes approximately $1.6 billion of other assets, such as
railcars and aircraft, which were financed with operating leases and therefore
are not recorded on the balance sheet.

BUSINESS SEGMENTS

FINANCIAL SERVICES

Financial Services provides financing for equipment and other capital
assets on a worldwide basis. These financings, which are held within Financial
Services' own portfolio and through partnerships with co-investors, are
structured as leases and secured loans, and frequently include interests in an
asset's residual value and warrants of non-public companies. Financial Services
also generates fee-based income through transaction structuring and portfolio
management services. Fees are earned at the time a transaction is completed, an
asset is remarketed, and/or on an ongoing basis in the case of portfolio
management activities.

Headquartered in San Francisco, California, Financial Services consists of
four business units: Air, Technology, Venture Finance and Specialty Finance.

The Air business unit primarily leases newer, narrow-body aircraft used by
commercial airlines throughout the world. Financial Services has an interest in
173 aircraft. Of these, 24 aircraft are wholly owned by Financial Services and
the remainder are owned in combination with other investors. All of the 173
aircraft are in compliance with generally applicable noise standards (Stage III)
and have an average age of approximately nine years. These aircraft have an
estimated useful life of approximately 25 years. For aircraft currently on
lease, the average remaining lease term is approximately four years. Financial
Services' customer base is diverse in carrier type and geographic location.
Financial Services leases to over 50 airlines in 20 countries and is not highly
dependent on any one airline; no single customer exposure exceeds 10% of the net
book value of the total air portfolio (including off balance sheet assets).
Financial Services purchases its aircraft from two manufacturers, Airbus
Industrie (Airbus) and The Boeing Company (Boeing). See

2

discussion in the OTHER INFORMATION section of Management's Discussion and
Analysis and in the RISK FACTORS section of Part I of this document for
additional details regarding the air portfolio.

The Technology business unit provides lease financing and asset management
services related to information technology (IT) equipment, primarily to Fortune
1000 companies, including companies within the professional services,
healthcare, industrial and food industries. The equipment leased to customers
includes personal computers, servers, mainframes and mid-range equipment.
Financial Services purchases equipment from a number of manufacturers and
vendors and is therefore not dependent on a single provider. In 2001, Financial
Services acquired a portfolio of IT equipment leases from El Camino Resources
for approximately $372.5 million, including the assumption of $256.0 million of
nonrecourse debt. IT equipment is typically depreciated over the lease term,
which is approximately 2-5 years. The average size of an IT lease transaction is
approximately $200,000. Financial Services is not dependent on any single
customer.

The Venture Finance business unit provides secured loan and lease financing
to early-stage, venture-backed companies. The financing is typically secured by
specific equipment and/or by a lien on the customer's property, including
intellectual property. Additionally, the financings frequently include warrants
of non-public companies. In recent years, the Venture Finance portfolio included
leases and loans to a number of telecommunication (telecom) companies. However,
due to the poor performance of the telecom market, Venture Finance has exited
the telecom financing business and has reduced its exposure to $20.3 million.
Currently, Venture Finance has a highly diversified portfolio and provides
financings to customers in a variety of industries, including pharmaceutical and
life sciences, software and network equipment, and other business services.
Venture capital firms are a critical source of new financings and Financial
Services has long-standing relationships with leading venture capital firms.
Financial Services typically limits transaction size to an average of $2.0
million per customer, and is therefore not dependent on, nor has concentration
of risk with respect to, any single customer.

The Specialty Finance business unit acts as an investor, arranger and
manager of financing services involving a variety of asset types and industries,
with an established presence in the marine business. Specialty Finance also
manages $1.1 billion of assets for third-party clients. The majority of these
managed assets are in markets which Financial Services has a high level of
expertise, such as air and rail. In addition, Financial Services, through
American Steamship Company, operates a fleet of self-unloading vessels on the
Great Lakes.

Financial Services primarily competes with captive leasing companies,
leasing subsidiaries of commercial banks, independent leasing companies, lease
brokers, investment bankers, financing arms of equipment manufacturers, and
other Great Lakes captive and commercial fleets. No single customer accounts for
more than 5% of Financial Services' revenues. In addition to its San Francisco
home office, Financial Services has 7 domestic and 7 foreign offices.

GATX RAIL

GATX Rail (Rail) is headquartered in Chicago, Illinois and is principally
engaged in leasing rail equipment, including tank cars, freight cars and
locomotives. Rail provides both full service leases and net leases. Under a net
lease, the lessee is responsible for maintenance, insurance and taxes. Under its
full service leases, Rail maintains and services its railcars, pays ad valorem
taxes, and provides many ancillary services. Rail owns, or has an interest in,
approximately 164,000 railcars worldwide. As of December 31, 2001, Rail owned or
had an interest in approximately 129,000 railcars in North America, comprised of
71,000 tank cars and 58,000 specialized freight cars. Rail's fleet has a
depreciable life of 20 to 38 years and an average age of approximately 16 years.
The utilization rate of Rail's wholly owned North American railcar fleet at
December 31, 2001 was approximately 91%. Rail also owns or has an interest in
approximately 900 locomotives. The utilization rate for Rail's locomotives at
December 31, 2001 was 82%.

In March 2001, Rail purchased Dyrekcja Eksploatacji Cystern (DEC), Poland's
national tank car fleet. DEC assets include 11,000 tank cars and a railcar
maintenance network. Rail also has an interest in two other European railcar
fleets through its investments in affiliated companies. Rail owns a 49.5%
interest in KVG Kesselwagen Vermietgesellschaft mbH, a German- and
Austrian-based tank car leasing company with
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approximately 8,000 cars, and a 37.5% interest in AAE Cargo, a freight car
lessor headquartered in Switzerland, with approximately 15,000 cars.
Additionally, Rail has an interest in 1,300 other railcars.

In North America, Rail's customers use its railcars to ship over 900
different commodities, principally chemicals, petroleum, and food products. For
2001, approximately 36% of railcar leasing revenue was attributable to shipments
of chemical products, 24% related to shipments of petroleum products, 12%
related to shipments of food, and 28% was derived from the railroad industry and
the shipment of other products. Rail leases railcars to approximately 700
customers, including major chemical, oil, food, agricultural and railroad
companies. No single customer represents more than 3% of total railcar leasing
revenue.

Rail typically leases new tank cars and specialty freight cars to its
customers for terms of approximately four years. Renewals, or extensions of
existing leases, are typically for periods ranging from less than a year to
seven years with an average lease term of three years. In North America, Rail
purchases most of its new railcars from a limited number of manufacturers,
including Trinity Industries, Inc., a Texas-based manufacturer and American
Railcar Industries, a Missouri-based manufacturer. Rail operates a network of
major service centers in North America and Europe. Rail supplements these major
service centers with smaller service centers and a fleet of service trucks.
Additionally, Rail utilizes independent third-party repair facilities. Two
business offices and four service centers in Poland were added as part of the
DEC acquisition.

The North American full-service tank car and freight car leasing industry
is comprised of Rail, Union Tank Car Company, General Electric Railcar Services
Corporation, and various financial institutions. At the end of 2001, there were
275,000 tank cars and 1.4 million freight cars owned and leased in the United
States. At December 31, 2001, Rail's fleet was approximately 26% of the tank
cars in North America and 36% of the leased market; and approximately 3% of the
freight cars in North America and 7% of the leased market. As of year-end 2001,
Rail's entire fleet comprised 15% of the total North American leased fleet
market. Principal competitive factors include price, service and availability.

DISCONTINUED OPERATIONS -- INTEGRATED SOLUTIONS GROUP

As of December 31, 2001, GATX had substantially completed the divestiture
of its Integrated Solutions Group (ISG). The ISG segment provided logistics and
supply chain services to the chemicals, petroleum, and dry goods industries.

GATX sold 81% of Logistics in May 2000 and the remaining 19% in December
2000. In the first quarter of 2001, GATX sold the majority of Terminals'
domestic operations. The sale included substantially all of Terminals' domestic
terminaling operations, the Central Florida Pipeline Company and Calnev Pipe
Line Company. Also in the first quarter of 2001, GATX sold substantially all of
Terminals' European operations. In the second and third quarters of 2001,
Terminals sold its Asian operations and its interest in a distillate and
blending distribution affiliate. Additionally, in the first quarter GATX sold or
terminated various smaller supply chain businesses.

TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

Patents, trademarks, licenses, and research and development activities are
not material to these businesses taken as a whole.

SEASONAL NATURE OF BUSINESS

Marine shipping operations are seasonal due to the effects of winter
weather conditions on the Great Lakes. However, seasonality is not considered
significant to the operations of GATX and its subsidiaries taken as a whole.

4

CUSTOMER BASE

GATX, as a whole, is not dependent upon a single customer or concentration
among a few customers.

EMPLOYEES

GATX and its subsidiaries have approximately 1,900 employees, of whom 40%
are hourly employees covered by union contracts.

ENVIRONMENTAL MATTERS

Certain operations of GATX present potential environmental risks
principally through the transportation of various commodities. Recognizing that
potential risk to the environment is intrinsic to its operations, GATX is
committed to protecting the environment as well as complying with applicable
environmental protection laws and regulations. GATX, as well as its competitors,
is subject to extensive regulation under federal, state and local environmental
laws which have the effect of increasing the costs and liabilities associated
with the conduct of its operations. In addition, GATX's foreign operations are
subject to environmental laws in effect within each respective jurisdiction.

GATX's policy is to monitor and actively address environmental concerns in
a responsible manner. GATX has received notices from the U.S. Environmental
Protection Agency (EPA) that it is a potentially responsible party (PRP) for
study and cleanup costs at three sites in accordance with the requirements of
the Federal Comprehensive Environmental Response, Compensation and Liability Act
of 1980 (Superfund). Under these Acts and comparable state laws, GATX may be
required to share in the cost to clean up various contaminated sites identified
by the EPA and other agencies. GATX has also received notice that it is a PRP at
one site to undertake a Natural Resource Damage Assessment. In all instances,
GATX is one of a number of financially responsible PRPs and has been identified
as potentially contributing only a small percentage of the contamination at each
of the sites. Due to various factors such as the required level of remediation
or restoration and participation in cleanup or restoration efforts by others,
GATX's total cleanup costs at these sites cannot be predicted with certainty;
however, GATX's best estimates for remediation and restoration of these sites
have been determined and are included in its environmental reserves.

Future costs of environmental compliance are indeterminable due to unknowns
such as the magnitude of possible contamination, the timing and extent of the
corrective actions that may be required, the determination of the Company's
liability in proportion to other responsible parties, and the extent to which
such costs are recoverable from third parties including insurers. Also, GATX may
incur additional costs relating to facilities and sites where past operations
followed practices and procedures that were considered acceptable at the time
but in the future may require investigation and/or remedial work to ensure
adequate protection to the environment under current or future standards. If
future laws and regulations contain more stringent requirements than presently
anticipated, expenditures may be higher than the estimates, forecasts, and
assessments of potential environmental costs provided below. However, these
costs are expected to be at least equal to the current level of expenditures. In
addition, GATX has provided indemnities for environmental issues to the buyers
of three divested companies for which GATX believes it has adequate reserves.

In the first quarter of 2001, GATX sold substantially all of the U.S.
terminals and pipeline assets, representing the bulk of Terminals' operations.
The transaction was structured as a sale of the capital stock of Terminals.
Under the terms of the agreement, the buyer assumed various environmental
liabilities associated with the terminals and pipeline assets, and GATX provided
a limited indemnity to the buyer.

The following information excludes the potential liabilities associated
with the sold Terminals' locations. GATX's environmental reserve at December 31,
2001 was $37.6 million and reflects GATX's best estimate of the cost to
remediate known environmental conditions. Additions to the reserve were $1.7
million and $1.9 million for 2001 and 2000, respectively. Expenditures charged
to the reserve amounted to $15.8 million and $2.9 million in 2001 and 2000,
respectively. In 2001, GATX made capital expenditures of $0.2 million for
environmental and regulatory compliance compared to $0.3 million in 2000.

5

RISK FACTORS

GATX's businesses are subject to a number of risks which investors should
consider.

- Air Industry: The effects of the terrorist attacks on September 11,
2001, or future events arising as a result of these terrorist attacks,
including military or police activities in the United States or abroad,
future terrorist activities or threats of such activities, political
unrest and instability, riots and protests, could have on the U.S.
economy, global financial markets and GATX's business cannot presently be
determined with any accuracy. The effects may include, among other
things, a permanent decrease in demand for air travel, consolidation in
the airline industry, lower utilization of new and existing aircraft,
lower aircraft rental rates, impairment of air portfolio assets and fewer
available partners for joint ventures. Depending upon the severity, scope
and duration of these effects, the impact on GATX's financial position,
results of operations, and cash flows could be material.

- Liquidity and Capital Resources: GATX utilizes uncommitted money market
lines, commercial paper borrowings, unsecured debt and secured debt to
fund its operations and contractual commitments. Since September 11,
2001, the borrowing spreads over treasury securities of unsecured debt
for GATX have significantly increased. As a result of recent rating
agency downgrades, GATX could incur increased borrowing costs and have
greater difficulty accessing public and private markets for both secured
and unsecured debt. GATX will also likely experience much greater
difficulty in accessing the commercial paper market. If these events or
further deterioration in the capital markets prevent GATX from accessing
these funding sources, GATX's other sources of funds, including its bank
facilities and cash flow from operations and portfolio proceeds, may not
provide adequate liquidity to fund its operations and contractual
commitments.

- Competition: GATX is subject to competition in its aircraft, rail and
technology leasing markets. In many cases, the competitors are larger,
higher-rated entities that have greater financial resources and access to
lower cost capital than GATX. These factors permit many competitors to
provide financing at lower rates than GATX.

- Lease versus Purchase Decision: GATX's core businesses are reliant upon
its customers continuing to lease rather than purchase assets. There are
a number of items that factor into a customer's decision to lease or
purchase assets, such as tax considerations, balance sheet
considerations, and operational flexibility. GATX has no control over
these external considerations and changes in these factors could
negatively impact demand for its leasing products.

- Effects of Inflation: Inflation in railcar rental rates as well as
inflation in residual values for air and rail equipment have historically
benefited GATX's financial results. Positive effects of inflation are
unpredictable as to timing and duration depending on market conditions
and economic factors.

- Asset Obsolescence: GATX's core assets may be subject to functional or
economic obsolescence. Although GATX believes it is adept at managing
obsolescence risk, there is no guarantee that changes in various market
fundamentals will not cause unexpected asset obsolescence in the future.

- Allowance for Possible Losses: GATX's allowance for possible losses may
be inadequate if unexpected adverse changes in the economy occur or
discrete events adversely affect specific customers, industries or
markets. If the allowance for possible losses is insufficient to cover
losses in the receivables portfolio, then GATX's future financial
position or results of operations could be negatively impacted.

- Insurance: The ability to insure its rail and aircraft assets is an
important aspect of GATX's ability to manage risk in these core
businesses. There is no guarantee that such insurance will be available
on a cost-effective basis consistently in the future.

- Environmental: GATX is subject to federal and state requirements for
protection of the environment, including those for discharge of hazardous
materials and remediation of contaminated sites. GATX routinely assesses
its environmental exposure, including obligations and commitments for
remediation of contaminated sites and assessments of ranges and
probabilities of recoveries from other responsible
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parties. Because of the regulatory complexities and risk of unidentified
contaminants on its properties, the potential exists for remediation
costs to be materially different from the costs the Company has
estimated.

- Legal Matters: GATX has from time to time been, and may in the future
be, named as a defendant in litigation involving personal injury,
property damage and damage to the environment arising out of incidents in
which its railcars have been, and may be, involved.

- Regulation: GATX's air and rail operations are subject to the
jurisdiction of a number of federal agencies, including the Department of
Transportation. State agencies regulate some aspects of rail operations
with respect to health and safety matters not otherwise preempted by
federal law. GATX's failure to comply with the requirements and
regulations of these agencies could negatively affect its operations and
consequently its profitability.

Additional risks and uncertainties not presently known, or that GATX currently
deems immaterial, may also negatively impact business operations.

7

ITEM 2. PROPERTIES

Information regarding the location and general character of certain
properties of GATX is included in ITEM 1, BUSINESS, of this document. Properties
are suitable and adequate for the current level of the Company's operations.

At December 31, 2001, locations of operations were as follows:

FINANCIAL SERVICES

HEADQUARTERS
San Francisco, California

BUSINESS OFFICES
Lafayette, California
Farmington, Connecticut
Tampa, Florida
Chicago, Illinois
Williamsville, New York
Toledo, Ohio
Seattle, Washington
Sydney, Australia
Paris, France
Toulouse, France
Frankfurt, Germany
Tokyo, Japan
Zurich, Switzerland
London, United Kingdom

AFFILIATES
Homburg, Germany
Dublin, Ireland
Elstree, United Kingdom
London, United Kingdom
Woking, United Kingdom

GATX RAIL

NORTH AMERICAN
HEADQUARTERS
Chicago, Illinois

EUROPEAN HEADQUARTERS
Zurich, Switzerland

BUSINESS OFFICES
San Francisco, California
Valencia, California
Alpharetta, Georgia
Chicago, Illinois
Marlton, New Jersey
Houston, Texas
Mexico City, Mexico
Calgary, Alberta
Montreal, Quebec
Krakow, Poland
Warsaw, Poland

MAJOR SERVICE CENTERS
Colton, California
Waycross, Georgia
Hearne, Texas
Tierra Blanca, Mexico
Red Deer, Alberta
Sarnia, Ontario
Montreal, Quebec
Moose Jaw, Saskatchewan
Gdansk, Poland
Nowa Wies Wielka, Poland
Ostroda, Poland
Slotwiny, Poland

MINI SERVICE CENTERS
Macon, Georgia
Terre Haute, Indiana
Geismar, Louisiana
Plaquemine, Louisiana
Midland, Michigan
Cincinnati, Ohio
Catoosa, Oklahoma
Copper Hill, Tennessee
Freeport, Texas (2)
Monterrey, Mexico
Czechowice, Poland
Jedlicze, Poland
Nidzica, Poland
Plock, Poland

MOBILE SERVICE UNITS
Mobile, Alabama
Colton, California
Lake City, Florida
Norco, Louisiana
Las Cruces, New Mexico
Albany, New York
Masury, Ohio
Galena Park, Texas
Nederland, Texas
Olympia, Washington
Altamira, Mexico
Edmonton, Alberta
Red Deer, Alberta
Vancouver, British Columbia
Montreal, Quebec
Quebec, Quebec
Moose Jaw, Saskatchewan

AFFILIATES
Vienna, Austria
Hamburg, Germany
Zug, Switzerland

8

ITEM 3. LEGAL PROCEEDINGS

On May 25, 2001, a suit was filed in Civil District Court for the Parish of
Orleans, State of Louisiana, in the matter styled Joseph A. Schneider, et al.
vs. CSX Transportation, Inc., Hercules, Inc., Rhodia, Inc., Oil Mop, L.L.C., The
Public Belt Railroad Commission For The City Of New Orleans, GATX Corporation,
GATX Capital Corporation, The City of New Orleans, and The Alabama Great
Southern Railroad Company, Number 2001-8924. The suit asserts that on May 25,
2000 tank car GATX 16770 leaked the fumes of its cargo, Dimethyl Sulfide, in a
residential area in the western part of the city of New Orleans and that the
tank car was subsequently taken by defendant New Orleans Public Belt Railroad to
another location in the city of New Orleans, where it was later repaired. The
plaintiffs are seeking compensation for alleged personal injuries and property
damages. The petition alleges that a class should be certified.

During the period from May, 2000 through April, 2001, twenty-two (22) law
suits were filed seeking damages in connection with a May 3, 2000 incident in
which a Burlington Northern Santa Fe Railway Company (Burlington Northern)
train, proceeding through the Louisiana town of New Iberia, derailed several of
its cars. One of the derailed cars was a tank car owned by the GATX Rail
division (Rail) of GATX Financial Corporation, with a cargo of Xylene, which
overturned in the derailment and ruptured when it was struck by an adjacent car.
There was no fire or explosion. Some five hours later, after approximately 500
to 700 gallons of the Xylene had escaped, the rupture in the tank car was
plugged. Additionally, hopper cars, not owned by Rail, were overturned and the
material they contained, Polyvinyl Chloride powder and pellets, spilled out. The
following cases have been filed in the United States District Court for the
Western District of Louisiana: David Theriot, et al v. The Burlington Northern
and Santa Fe Railway Co., et al (No. CV00-1097), David Theriot, et al v. The
Burlington Northern and Santa Fe Railway Co., et al (No. CV01-0861), Janice
Olivier, et al v. The Burlington Northern and Santa Fe Railway Co., et al (No.
CV00-1561), Ethel Taylor, et al v. The Burlington Northern and Santa Fe Railway
Co., et al (No. CV00-1436), Arthur Gregoire, III, et al v. The Burlington
Northern and Santa Fe Railway Co., et al (No. CV00-1188), Peggy Jerac, et al v.
The Burlington Northern and Santa Fe Railway Co., et al (No. CV00-1155), Kenneth
Estilette, et al v. The Burlington Northern and Santa Fe Railway Co., et al (No.
CV00-1170), Gloria Berry, et al v. The Burlington Northern and Santa Fe Railway
Co., et al (No. CV00-1141), Mary Viltz, et al v. The Burlington Northern and
Santa Fe Railway Co., et al (No. CV00-1140), The Burlington Northern and Santa
Fe Railway Co. v. General American Transportation Co., et al (No. CV01-0797),
Nelson J. Badeaux, et al v. The Burlington Northern and Santa Fe Railway Co., et
al (No. CV01-0794), Joseph Rochelle, et al v. The Burlington Northern and Santa
Fe Railway Co., et al (No. CV01-0877), Walter Thompson, et al v. The Burlington
Northern and Santa Fe Railway Co., et al (No. CV01-0878), John H. Bell, et al v.
The Burlington Northern and Santa Fe Railway Co., et al (No. CV01-0876). The
remainder of the cases are filed in the 16th Judicial District Court for the
Parish of Iberia, State of Louisiana as follows: Rebecca Hammons v. The
Burlington Northern and Santa Fe Railway Co., et al, (No. 95710), Phillip Walker
v. The Burlington Northern and Santa Fe Railway Co., et al (No. 95712), Serella
M. Adams, et al v. The Burlington Northern and Santa Fe Railway Co., et al (No.
95711), Barry Bennett v. The Burlington Northern and Santa Fe Railway Co., et al
(No. 95718), Tiny Vallian, et al v. The Burlington Northern and Santa Fe Railway
Co., et al (No. 95861), Edward Martin v. The Burlington Northern and Santa Fe
Railway Co., et al (No. 95665), Janelle Allen, et al v. The Burlington Northern
and Santa Fe Railway Co., et al (No. 95723), Vernice Johnson, et al v. The
Burlington Northern and Santa Fe Railway Co., et al (No. 95617). The suits
collectively name approximately 112 plaintiffs and some assert that a class
should be certified. The Company and certain of the predecessor companies of
GATX Financial Corporation were not added as defendants until May of 2001;
however, discovery and motions with regard to both class certification and
remand have been stayed since August of 2000. The federal court has been
supervising a mediation process that is ongoing at present. If mediation is
unsuccessful, it is anticipated that litigation will actively proceed and that
discovery, the litigating of motions to remand and for class certification and
other such activities will commence.

In March 2001, East European Kolia-System Financial Consultant S.A. filed a
complaint in the Regional Court (Commercial Division) in Warsaw, Poland against
Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), an indirect wholly owned
subsidiary of GATX Financial Corporation, alleging damages of approximately

9

$52 million arising out of the unlawful taking over by DEC in August of 1998, of
a 51% interest in Kolsped Spedytor Miedzynarodwy Sp. z.o.o. (Kolsped), and
removal of valuable property from Kolsped. The complaint was not served on DEC
until December of 2001. The plaintiff claims that DEC unlawfully obtained
confirmation of satisfaction of a condition precedent to its purchase of 51%
interest in Kolsped, following which it allegedly mismanaged Kolsped and put it
into bankruptcy. The plaintiff claims to have purchased the same 51% interest in
Kolsped in April of 1999, subsequent to DEC's alleged failure to satisfy the
condition precedent. GATX purchased DEC in March 2001 and believes this claim is
without merit, and is vigorously pursuing the defense thereof.

GATX and its subsidiaries are engaged in various other matters of
litigation and have a number of unresolved claims pending, including proceedings
under governmental laws and regulations related to environmental matters. While
the amounts claimed are substantial and the ultimate liability with respect to
such litigation and claims cannot be determined at this time, it is the opinion
of management that amounts, if any, required to be paid by GATX and its
subsidiaries in the discharge of such liabilities are not likely to be material
to GATX's consolidated financial position or results of operations.

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3), the following information regarding
executive officers is included in Part I in lieu of inclusion in the GATX Proxy
Statement:

Officers are elected annually by the Board of Directors.

- - Mr. Zech has served as Chairman, President and Chief Executive Officer of GATX
since 1996. Mr. Zech served as Chief Operating Officer of GATX from 1994 to
1996.

- - Mr. Ciancio has served as Vice President, General Counsel and Secretary of
GATX since 2000. Mr. Ciancio was Assistant General Counsel of GATX from 1984
to 2000.

- - Ms. Duddy joined GATX in 1992 as Director of Compensation and in 1995 also
assumed responsibility for the employee benefits function. In 1997, Ms. Duddy
was elected Vice President, Compensation, Benefits and Corporate Human
Resources. In 1999, Ms. Duddy was elected Vice President, Human Resources of
GATX.

- - Mr. Kenney has served as Vice President and Chief Financial Officer of GATX
since 1999. Prior to that, Mr. Kenney served as Vice President, Finance from
1998 to 1999, Vice President and Treasurer from 1997 to 1998, and Treasurer
from 1995 to 1996.

- - In 2002, Mr. Muckian was elected Vice President, Controller and Chief
Accounting Officer. Prior to that, Mr. Muckian served as Controller and Chief
Accounting Officer of GATX from 2000 to 2001 and Director of Taxes for GATX
from 1994 to 2000.

10

- - In 1999, Mr. Porzenheim was elected Vice President, Corporate Strategy of
GATX. Mr. Porzenheim was the Director of Corporate Development for GATX from
1996 to 1998.

- - In 2002, Mr. Hasek was elected Vice President and Treasurer. Prior to that,
Mr. Hasek was Treasurer of GATX from 1999 to 2001, Director of Financial
Analysis and Budgeting from 1997 to 1999 and Manager of Corporate Finance from
1995 to 1997.

- - In 2002, Mr. Lyons was elected Vice President, Investor Relations of GATX. Mr.
Lyons joined GATX in 1996 and was Director of Investor Relations from 1998 to
2001 and prior to that was a Project Manager in Corporate Finance.

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED SHAREHOLDER
MATTERS

GATX common stock is listed on the New York and Chicago Stock Exchanges
under ticker symbol GMT. The approximate number of common stock holders of
record as of March 8, 2002 was 3,618. The following table shows the reported
high and low sales price of GATX common shares on the New York Stock Exchange,
which is the principal market for GATX shares, and the dividends declared per
share:

11

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA -- FIVE-YEAR SUMMARY

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

(a) 2001 includes a gain on sale of a portion of a segment of $343.0 million on
a pre-tax basis, or $163.9 million on an after-tax basis.

(b) 2000 includes a provision for litigation of $160.5 million on a pre-tax
basis, or $97.6 million on an after-tax basis.

(c) 1997 includes a restructuring charge of $224.8 million on a pre-tax basis,
or $162.8 million on an after-tax basis.

12

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

COMPANY OVERVIEW

Information regarding general information and characteristics of the
Company is included in ITEM 1, BUSINESS, of this document.

The following discussion and analysis should be read in conjunction with
the audited financial statements included herein. Certain statements within this
document may constitute forward-looking statements made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These
statements are identified by words such as "anticipate," "believe," "estimate,"
"expects," "intend," "predict," or "project" and similar expressions. This
information may involve risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. Refer to the RISK FACTORS section of Part I of this document for a
discussion of these risks and uncertainties.

YEAR ENDED DECEMBER 31, 2001 COMPARED TO YEAR ENDED DECEMBER 31, 2000

FINANCIAL SERVICES

The recessionary economy and challenging market conditions of 2001 impacted
Financial Services' businesses, particularly the telecommunications (telecom)
and air businesses. Financial Services' financing of telecom equipment expanded
over the last few years as Financial Services diversified its portfolio across
many telecom sub-sectors and co-invested with other financial institutions. A
significant portion of the losses experienced by Financial Services in 2001 was
attributable to the poor performance of the telecom market. Financial Services
has exited the telecom equipment financing business and has reduced its exposure
to $20.3 million, or approximately 1% of Financial Services' total assets at
December 31, 2001, a decrease of $150.9 million from December 31, 2000.

A weakening economy coupled with the events of September 11th have caused a
decrease in air travel which in turn has resulted in lower air asset utilization
and increased pressure on lease rates for new and existing aircraft. Financial
Services expects aircraft demand and lease rates to remain under pressure in
2002. See discussion in the OTHER INFORMATION section of Management's Discussion
and Analysis for additional details regarding the air portfolio.

Gross Income

Financial Services' gross income of $842.5 million increased $134.3 million
over the prior year principally due to higher lease income generated from a
larger investment portfolio and higher asset remarketing income. This increase
was partially offset by a decrease in share of affiliates' earnings. Lease
income of $512.4 million increased $131.3 million from 2000, primarily from new
leases within the technology portfolio. In the first quarter of 2001, Financial
Services acquired a portfolio of technology leases from El Camino Resources that
contributed significantly to the increase in lease income.

Asset remarketing income, which includes gains from the sale of assets from
Financial Services' own portfolio as well as residual sharing fees from the sale
of managed assets, was $96.1 million, $51.2 million higher than 2000. The
increase in asset remarketing income was driven by larger gains within the
specialty finance and technology portfolios. Gains on the sale of equity
securities, which are derived from warrants received as part of financing and
leasing transactions with non-public companies, were $38.7 million, a decrease
of $13.6 million from the prior year. Because the timing of such sales is
dependent on changing market conditions, gains from the sale of equity
securities and asset remarketing income do not occur evenly from period to
period. It is expected that asset remarketing income for 2002 will be lower than
the 2001 level. Additionally, it is anticipated that gains from the sale of
equity securities in 2002 will be well below 2001 levels absent a strong
recovery in the initial public offering market.

13

GATX invests in companies and joint ventures that complement its existing
business activities. GATX partners with financial institutions and operating
companies to improve scale in certain markets, broaden diversification within an
asset class, and enter new markets. GATX uses the equity method to account for
these investments. Share of affiliates' earnings represent GATX's pre-tax
earnings on undistributed earnings or losses of these investments.

Financial Services' share of affiliates' earnings decreased $32.0 million
to $25.4 million in 2001 due primarily to losses within telecom joint ventures.
Specifically, earnings from affiliates were net of a $35.6 million provision for
possible losses and asset impairment charges from telecom affiliates.

Ownership Costs

Ownership costs, including interest, depreciation and operating lease
expense, of $507.4 million increased $97.6 million compared with the prior year
due to higher depreciation and interest expense. Depreciation and amortization
expense of $295.8 million increased $80.3 million from 2000 reflecting the
higher level of investment in operating lease assets, specifically technology
and air assets. Interest expense increased $22.0 million in 2001 to $182.8
million reflecting higher average debt balances associated with funding new
investment activity. Operating lease expense was comparable year over year.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses of $127.7 million
increased $17.5 million over the prior year due to higher human resource and
administrative expenses associated with an overall increase in business activity
and increased legal expenses associated with the Airlog litigation (see
discussion of Airlog litigation below).

Provision for Possible Losses

The provision for possible losses is derived from Financial Services'
estimate of losses based on a review of credit, collateral and market risks. The
current year provision at Financial Services of $97.8 million increased $81.8
million from 2000. This increase reflects the weakness in the economy and the
deterioration of certain venture, steel and telecom investments. The allowance
for possible losses of $86.5 million at December 31, 2001 decreased $2.6 million
from the prior year and was approximately 6.0% of reservable assets, down from
6.5% at the prior year end. Reservable assets are defined as rent receivables,
direct financing leases, leveraged leases and secured loans. Net charge-offs of
reservable assets totaled $100.4 million for the year ended December 31, 2001,
and were comprised primarily of venture, telecom, steel and other specialty
finance investments.

Asset Impairment Charges

A review for impairment of long-lived assets is performed whenever events
or changes in circumstances indicate that the carrying amount of long-lived
assets may not be recoverable. Recoverability of assets to be held and used is
measured by a comparison of the carrying amount of an asset to future net cash
flows expected to be generated by the asset. If such assets are considered to be
impaired, the impairment charge to be recognized is measured by the amount by
which the carrying amount of the assets exceeds fair value. Asset impairment
charges of $85.2 million increased $80.2 million from 2000. Asset impairment in
the telecom and air portfolios were $67.8 million and $7.8 million,
respectively, for the year ended December 31, 2001.

Provision (Reversal) for Litigation Charges

GATX Capital Corporation (GCC), formerly a subsidiary of GATX Corporation,
and currently part of the Financial Services' operating segment, was party to
litigation arising from the issuance by the Federal Aviation Administration of
Airworthiness Directive 96-01-03 in 1996, the effect of which significantly
reduced the amount of freight that ten 747 aircraft were authorized to carry.
GATX/Airlog, a California partnership in which a subsidiary of GCC was a
partner, through a series of contractors, modified these aircraft from

14

passenger to freighter configuration between 1988 and 1994. GCC reached
settlements covering five of the aircraft, and the remaining five were the
subject of this litigation.

On February 16, 2001, a jury found that GATX/Airlog breached certain
warranties under the applicable aircraft modification agreements, and
fraudulently failed to disclose information to the operators of the aircraft. In
2001, GCC reached settlement with each of the plaintiffs in this litigation.

GATX had recorded a pre-tax charge of $160.5 million in 2000 to accrue for
its estimated liability under the various settlement agreements. Upon settlement
of these matters, $13.1 million of the previously recorded provision was
reversed in 2001.

Reduction in Workforce Charges

During 2001, Financial Services recorded a pre-tax charge of $5.6 million
related to a reduction in workforce. This action was part of GATX's previously
announced initiative to reduce SG&A costs in response to current economic
conditions. The reduction in workforce charge included involuntary employee
separation and benefit costs for 88 employees as well as occupancy and other
costs.

Net Loss

Financial Services' net loss for 2001 was $18.9 million and was principally
the result of increases to the loss provision and asset impairment charges.
Financial Services' net loss for 2000 was $30.4 million and included an
after-tax litigation charge of $97.6 million.

GATX RAIL

In 2001, GATX combined the rail business unit of Financial Services and
GATX Rail into one rail segment. All periods presented have been restated to
reflect the combination of the rail operations. The North American and European
rail markets continue to be negatively impacted by the economic downturn.
Several industries serviced by GATX Rail (Rail), most notably the chemical
industry, are experiencing adverse market conditions that have in turn reduced
railcar and locomotive demand and lease rate pricing. Aggressive competition and
railroad efficiency have also contributed to lower demand and lease rate
pricing. These factors negatively impacted Rail's 2001 results, and are expected
to continue to adversely affect railcar and locomotive demand and lease rates
during 2002. In response to current rail market conditions, Rail has retired
excess railcars, has limited orders of new railcars to specific customer
requests and has taken steps to reduce operating and SG&A expenses.

In March 2001, Rail purchased Dyrekcja Eksploatacji Cystern (DEC), Poland's
national tank car fleet, for $95.8 million. Under the terms of the acquisition
agreement, Rail is obligated to invest $71.9 million in DEC over the next five
years. DEC assets include 11,000 tank cars and a railcar maintenance network.
Comparisons between periods are affected by the inclusion of DEC in the 2001
financial statements.

Gross Income

Rail's gross income of $676.1 million was flat with 2000. Excluding DEC's
gross income of $25.6 million, Rail's gross income decreased $25.5 million from
the prior year. Rental revenue was $602.9 million in 2001 excluding DEC, $3.4
million lower than 2000, despite a slight increase in active railcars. Lease
rates were affected by excess capacity in the leasing market, which in turn
negatively impacted rental revenue. Rail had approximately 103,000 of wholly
owned railcars on lease throughout North America at year end, compared to
102,000 railcars a year ago. North American utilization ended the year at 91.2%
on a total fleet of 112,000 wholly owned railcars, compared to 92.4% at the end
of 2000. In North America, Rail added 4,000 cars in 2001, a sharp decrease from
the 8,000 cars added in 2000, as a result of limiting new railcar orders in
response to the current rail market.

Asset remarketing income of $2.9 million was $9.4 million lower than the
prior year. Share of affiliates' earnings of $7.4 million decreased $13.2
million. The decrease in both asset remarketing income and share of affiliates'
earnings was partly attributable to the 2000 sale of six-axle locomotives. Rail
and its affiliate
15

Locomotive Leasing Partners, LLC reconfigured the locomotive fleet from six-axle
locomotives to four-axle locomotives, which resulted in sales of wholly owned
equipment and of assets held by the joint venture. Additionally, share of
affiliates' earnings decreased $3.4 million in 2001 due to nonrecurring
adjustments.

Ownership Costs

Ownership costs of $348.0 million increased $14.7 million from last year
and include approximately $10.7 million of costs related to DEC. Excluding the
impact of DEC, the $4.0 million increase in ownership costs from the prior year
period is primarily due to the full year impact of last year's new car
additions.

Operating Costs

Rail's operating costs of $176.3 million included $24.5 million of
nonrecurring items, of which $19.7 million related to the closing of its East
Chicago repair facility. Excluding the nonrecurring charges, operating expenses
increased $22.1 million, of which $11.1 million was due to the acquisition of
DEC. Repair costs, excluding DEC, were essentially flat with the prior year,
however, storage costs increased due to a larger idle fleet. The current year
results also included an increase in the general liability insurance reserves.

Selling, General and Administrative

SG&A expense increased $5.2 million from the prior year period to $83.3
million and include $6.2 million attributable to DEC. International business
development costs of $4.9 million also contributed to this increase. Excluding
these costs, SG&A decreased $5.9 million in 2001 due to a reduction in personnel
costs and lower discretionary spending.

Provision for Possible Losses

Rail's provision for possible losses of $0.6 million decreased $1.1 million
from the prior year.

Reduction in Workforce Charges

During 2001, Rail recorded a pre-tax charge of $5.3 million related to a
reduction in workforce. This action was part of GATX's previously announced
initiative to reduce selling, general and administrative costs in response to
current economic conditions. The reduction in workforce charge included
involuntary employee separation and benefit costs for 47 employees, as well as
occupancy and other costs.

Net Income

Rail's net income of $44.1 million was $38.1 million lower than the prior
year primarily due to closure costs related to its East Chicago repair facility,
unfavorable market conditions and other nonrecurring charges.

CORPORATE AND OTHER

Corporate and other net expense of $17.7 million was $3.5 million favorable
to 2000. Decreases in SG&A expense and net interest expense were partially
offset by a $4.0 million tax charge related to the Company's corporate-owned
life insurance program (COLI). The decrease in net interest expense reflects the
utilization of the proceeds from the sale of the ISG businesses. Corporate also
recorded a pre-tax charge of $2.5 million related to a reduction in workforce.

INCOME TAXES

The 2001 consolidated effective tax rate for continuing operations was
(34.1)% compared to the 2000 rate of 42.4%. The 2001 tax provision was impacted
by a favorable deferred tax adjustment attributable to a reduction in foreign
tax rates offset by the COLI tax reserve.

16

DISCONTINUED OPERATIONS

Discontinued operations encompasses the former GATX Integrated Solutions
Group segment and comprises GATX Terminals Corporation (Terminals), GATX
Logistics, Inc. (Logistics), and minor business development efforts.

GATX sold 81% of Logistics in May 2000 and the remaining 19% in December
2000. In the first quarter of 2001, GATX sold substantially all of Terminals'
domestic operations. The sale included substantially all of Terminals' domestic
terminaling operations, the Central Florida Pipeline Company and Calnev Pipe
Line Company. In the first quarter of 2001, GATX also sold substantially all of
Terminals' European operations. In the second and third quarters of 2001,
Terminals sold its Asian operations and its interest in a distillate and
blending distribution affiliate. Additionally, in the first quarter GATX sold
various smaller supply chain businesses. At December 31, 2001, substantially all
discontinued operations were sold. A net after-tax gain of $163.9 million was
recognized on the sales of ISG assets in 2001.

Operating results for 2001 were $1.5 million, down $25.9 million from the
prior year. Comparisons between periods were affected by the timing of the sale
of ISG assets.

YEAR ENDED DECEMBER 31, 2000 COMPARED TO YEAR ENDED DECEMBER 31, 1999

FINANCIAL SERVICES

Gross Income

Financial Services' gross income of $708.2 million increased $116.2 million
over the prior year. Excluding VAR, the value added technology equipment sales
and service business that was sold in June 1999, gross income increased $183.2
million. Lease income of $381.1 million increased $116.4 million from 1999,
primarily from new leases within the air, technology and specialty finance
portfolios. Interest income of $60.1 million increased $19.3 million from the
prior year due to higher average loan balances. The average loan balance was
$196.3 million higher in 2000 compared to 1999 as a result of increased venture
financing. Gains on the sale of equity securities were $52.3 million, an
increase of $37.6 million from the prior year. Asset remarketing income was
$44.9 million, $16.5 million lower than 1999. Share of affiliates' earnings
increased $16.3 million to $57.4 million in 2000. Earnings growth in air and
technology joint ventures contributed to this increase.

Ownership Costs

Financial Services' ownership costs of $409.8 million increased $136.1
million from 1999. Depreciation and amortization expense of $215.5 million
increased $76.7 million from 1999 and reflected a higher level of investments in
operating lease assets. Interest expense increased $55.2 million to $160.8
million in 2000. Higher average debt outstanding combined with an increase in
borrowing rates drove interest expense higher in 2000. Operating lease expense
was comparable year over year.

Operating Expenses

Excluding VAR, operating expenses at Financial Services increased $3.5
million primarily due to higher marine operating costs.

Selling, General and Administrative

Excluding VAR, SG&A of $110.2 million increased $15.6 million over the
prior year due to higher human resource and administrative expenses associated
with increased growth initiatives.

Provision for Litigation Charges

GATX recorded a pre-tax charge of $160.5 million in 2000 to accrue for its
estimated liability under various settlement agreements related to GATX/Airlog
and management's best estimate of its potential liability under the judgment
entered in favor of Kalitta Air.
17

Provision for Possible Losses

The provision for possible losses was $16.0 million, $5.5 million higher
than 1999. The allowance for possible losses decreased $10.9 million from
December 31, 1999 to $89.1 million and was approximately 6.5% of reservable
assets, down from 10.1 % at December 31, 1999.

Net (Loss) Income

Financial Services' net loss for 2000 was $30.4 million compared to net
income of $52.2 million in 1999. This decrease was primarily the result of an
after-tax litigation charge of $97.6 million.

GATX RAIL

Gross Income

Rail's gross income of $676.0 million was $7.9 million higher than 1999.
Rental revenue increased $14.2 million over the prior year, reflecting the net
impact of a larger active North American fleet partially offset by lower lease
renewal rates. Asset remarketing income of $12.3 million was $1.8 million lower
than 1999 and share of affiliates' earnings of $20.6 million decreased $1.9
million from 1999. Rail's 1999 results include a gain from the sale of 1,700
grain cars that did not provide an acceptable level of long-term economic value.

At year end 2000, Rail had 102,000 wholly owned railcars on lease in North
America compared to 100,000 railcars on lease at the end of 1999. Utilization
was 92.4% and 94.1% at the end of 2000 and 1999, respectively. Rail added 8,000
cars in 2000, which was comparable to 1999 additions. The majority of Rail's car
additions occurred during the first half of 2000, as market conditions and
growing economic uncertainty led to a sharp curtailment of new car orders and
fleet acquisitions during the second half of the year.

Ownership Costs

Ownership costs of $333.3 million increased $28.2 million from 1999.
Although Rail's fleet increased in 2000, depreciation and interest expense was
comparable to 1999 as the incremental ownership costs were reflected as
operating lease expense due to the sale-leaseback financing of railcars.

Operating Costs

Rail's operating costs decreased $6.0 million from 1999. Higher repair and
maintenance expenses were offset by a number of nonrecurring items that affected
both years. Repair and maintenance expenses were higher due in part to the
increased use of third-party contract repair shops as a result of a labor
dispute at Rail's U.S. service centers. The labor dispute was resolved in the
first quarter of 2001.

Selling, General and Administrative

SG&A expenses were comparable year over year.

Net Income

Rail's net income of $82.2 million was $8.3 million lower than 1999
primarily due to decreased utilization and higher ownership costs.

CORPORATE AND OTHER

Corporate and other net expense of $21.2 million was $4.6 million higher
than 1999. The increase was the result of higher SG&A and interest expenses.
Additionally, 1999 net expense included a $1.0 million favorable insurance
benefit.

18

INCOME TAXES

The 2000 effective tax rate of 42.4% was higher than the 1999 rate of 39.6%
due to the relative impact of state and foreign taxes and certain nondeductible
expenses on pre-tax income.

DISCONTINUED OPERATIONS

Operating results of discontinued operations contributed $27.4 million and
$25.0 million to net income in 2000 and 1999, respectively. Strong results in
the terminal and pipeline business were partially offset by losses incurred in
the warehousing business and higher business development costs. GATX sold
Logistics in 2000, recognizing an $8.4 million after-tax gain.

BALANCE SHEET DISCUSSION

ASSETS

Assets for continuing operations increased to $6.1 billion in 2001 from
$5.6 billion in 2000. Portfolio investments and capital additions of $1.8
billion were partially offset by depreciation and amortization, the
sale-leaseback of railcars at Rail, and portfolio asset sales at Financial
Services.

In addition to the $6.1 billion of assets recorded on the balance sheet,
GATX utilizes approximately $1.6 billion of other assets, such as railcars and
aircraft, which were financed with operating leases and therefore are not
recorded on the balance sheet. The value of the off balance sheet assets was
derived from the present value of GATX's committed future operating lease
payments at various appropriate borrowing rates.

The following table presents assets for continuing operations (on and off
balance sheet) by segment and business unit (in millions):

RECEIVABLES

Receivables, including finance leases and secured loans, were comparable to
last year. Prior year amounts included a $17.0 million receivable related to the
sale of Logistics. Excluding this amount, receivables increased $45.7 million
from the prior year. Investment volume was partially offset by portfolio asset
sales and asset write-offs.

ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide an estimate of possible credit
losses inherent in the investment portfolio. GATX sets the allowance by
assessing overall risk and probable losses in the portfolio and by reviewing the
Company's historical loss experience. GATX charges off amounts that management
considers unrecoverable from obligors or through the disposition of collateral.
GATX assesses the recoverability of

19

investments by considering factors such as a customer's payment history and
financial position, and the value of collateral based on internal and external
appraisal sources.

The following summarizes changes in the allowance for possible losses (in
millions):

There were no material changes in estimation methods or assumptions for the
allowance during 2001. The allowance for possible losses is periodically
reviewed for adequacy by considering changes in economic conditions, collateral
values and credit quality indicators. GATX believes that the allowance is
adequate to cover losses inherent in the portfolio as of December 31, 2001.
Because the allowance is based on judgments and estimates, it is possible that
those judgments and estimates could change in the future, causing a
corresponding change in the recorded allowance.

The consolidated allowance for possible losses of $94.2 million decreased
$1.0 million compared to the prior year. The allowance for possible losses at
Financial Services decreased $2.6 million in 2001 to $86.5 million and was
approximately 6.0% of reservable assets, down from 6.5% in the prior year.
Rail's allowance for possible losses decreased $3.4 million in 2001.
Consolidated net charge-offs totaled $104.4 million for the year, an increase of
$68.3 million from 2000, and were related primarily to venture, telecom and
steel investments.

NON-PERFORMING INVESTMENTS

Investments, such as leases and loans that are 90 days or more past due, or
where reasonable doubt exists as to timely collection, including leases and
loans that are individually identified as being impaired, are generally
classified as non-performing unless adequately secured by collateral.
Non-performing investments do not include operating lease assets that are
temporarily off lease. Lease or interest income accrued but not collected is
reversed when a lease or loan is classified as non-performing. Interest payments
received on non-performing loans for which the ultimate collectibility of
principal is uncertain are applied as principal reductions. Otherwise, such
collections are credited to income when received.

At December 31, 2001, non-performing investments of $96.4 million increased
$18.0 million from the prior year end due to weakness in the venture and air
markets. Non-performing investments as of December 31, 2001 were 3.4% of
Financial Services investments, compared to 3.0% of Financial Services
investments at December 31, 2000.

OPERATING LEASE ASSETS, FACILITIES AND OTHER

Operating lease assets and facilities increased $64.7 million from 2000
largely due to portfolio investments in aircraft, technology and railcar assets.
Offsetting these investments were increases in accumulated depreciation, the
sale-leaseback of railcars at Rail and portfolio asset sales at Financial
Services.

GATX classifies amounts deposited toward the construction of wholly owned
aircraft and other equipment, including capitalized interest, as progress
payments. Progress payments made for aircraft within joint ventures are
classified as investments in affiliated companies. In 2001, GFC terminated a
joint venture with Flightlease, a Swissair Group Company. The joint venture had
contracted with Boeing for the purchase of ten B737-800 aircraft and with Airbus
for the purchase of 38 Airbus aircraft. GFC purchased Flightlease's interest in
the Boeing order. GFC also reached an agreement with Airbus whereby in
consideration for its agreement to purchase 19 A320 family aircraft from Airbus
over the next four years, Airbus agreed to release

20

GFC from any further obligations with respect to the original joint venture
order. The $248.5 million increase in progress payments relates to these Airbus
and Boeing orders.

INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies decreased $14.9 million in 2001 largely
due to $35.6 million in asset impairment and loss provision charges at the
telecom affiliates. GATX invested $249.4 million and $244.4 million in joint
ventures in 2001 and 2000, respectively. Share of affiliates' earnings were
$32.8 million, $78.1 million and $63.6 million in 2001, 2000 and 1999,
respectively. Distributions from affiliates were $225.6 million and $119.7
million in 2001 and 2000, respectively.

The following table shows GATX's investment in affiliated companies by
segment and business unit (in millions):

OTHER ASSETS

Other assets of $349.8 million at December 31, 2001 were $24.8 million
lower than the prior year. Increases in assets held for sale and goodwill were
partially offset by lower balances in stock warrants and securities held for
investment. Assets held for sale are comprised mostly of aircraft.

NET ASSETS OF DISCONTINUED OPERATIONS

Net assets of discontinued operations decreased from 2000 reflecting the
2001 sale of ISG assets. GATX received $1.2 billion in pre-tax proceeds from the
sale of ISG assets.

ACCRUED EXPENSES

Accrued expenses decreased $90.6 million compared to the prior year due to
the settlement payments made in connection with the Airlog litigation.

DEFERRED INCOME TAXES

Deferred income taxes of $464.5 million increased $53.7 million from the
end of 2000 reflecting the realization of deferred tax assets attributable to
the litigation reserve and the full utilization of the alternative minimum tax
(AMT) credit carryforward.

DEBT

Debt decreased $192.5 million since the end of 2000 as proceeds from the
sale of ISG were used to pay down short-term debt and fund portfolio
investments. Nonrecourse debt increased $234.0 million primarily to fund
technology and rail investments. The acquisition by Financial Services of a
portfolio of technology leases from El Camino Resources also contributed
significantly to the increase in nonrecourse debt in 2001.

21

Additionally, GATX has approximately $1.6 billion of off balance sheet debt
related to assets that are financed with operating leases. The $1.6 billion was
derived from the present value of GATX's committed future operating lease
payments at various appropriate borrowing rates.

TOTAL SHAREHOLDERS' EQUITY

Shareholders' equity increased $92.3 million reflecting net income of
$172.9 million offset by common stock dividends of $60.2 million.

CASH FLOW DISCUSSION

GATX generates significant cash flow from its operating activities and
proceeds from its investment portfolio, which is used to service debt, pay
dividends, and fund portfolio investments and capital additions.

NET CASH PROVIDED BY CONTINUING OPERATIONS

Net cash provided by continuing operations of $355.7 million decreased
$42.1 million from 2000. Payments related to the settlement of the Airlog
litigation decreased cash flow from operations by $141.0 million. All cash
received from asset dispositions (excluding the proceeds from the sale of the
ISG segment), including gain and return of principal, was included in investing
activities as portfolio proceeds or other asset sales.

PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS

Portfolio investments and capital additions of $1.8 billion decreased
$134.2 million from 2000.

The following table presents portfolio investments and capital additions by
segment and business lines (in millions):

Significant investments in Air included $264.3 million in progress payments
for wholly owned aircraft and a $70.4 million investment in a new joint venture,
The Pembroke Group. In the first quarter, Financial Services acquired a
portfolio of technology leases from El Camino Resources for $116.5 million
(which is net of the assumption of $256.0 million of nonrecourse debt). Rail's
capital additions in 2001 included $243.3 million to acquire approximately 4,000
railcars and locomotives throughout North America and $95.8 million for the
acquisition of DEC. Future portfolio investments and capital additions
(excluding contractual commitments) will be dependent on market conditions and
opportunities to acquire desirable assets.

22

PORTFOLIO PROCEEDS

Portfolio proceeds of $1.0 billion increased $403.6 million from the 2000
period primarily due to an increase in the remarketing of manufacturing-related
equipment and air assets, loan principal received and cash distributions from
air and telecom joint venture investments. The timing of assets coming off
lease, opportunities to renew leases at attractive rates, and the composition of
the investment portfolio all contributed to the year-over-year increase in
remarketing proceeds.

PROCEEDS FROM OTHER ASSET SALES

Proceeds from other asset sales included $189.2 million from the
sale-leaseback of railcars at Rail compared to $291.1 million in 2000.

PROCEEDS FROM SALE OF A PORTION OF SEGMENT

Proceeds of $1.2 billion from the sale of a portion of a segment and $281.9
million of taxes paid were related to the sale of various ISG assets.

NET CASH OF FINANCING ACTIVITIES FOR CONTINUING OPERATIONS

Net cash provided by financing activities of continuing operations
decreased $1.1 billion compared to 2000. Portfolio investments and capital
additions were funded with proceeds from debt, cash from operations, and
proceeds from asset sales, including the sale of ISG. A portion of the proceeds
from the sale of ISG was utilized to repay short-term debt obligations.

GATX repurchased 1.4 million of its common shares for $48.0 million in 2000
in addition to the 1.1 million its common shares purchased in 1999 for $34.6
million. Additionally, on January 26, 2001, the Board of Directors authorized
the purchase of up to an additional 3.5 million shares of GATX's outstanding
common shares.

LIQUIDITY AND CAPITAL RESOURCES

GATX funds asset growth and meets debt and lease obligations through cash
flow from operations, portfolio proceeds (including proceeds from asset sales),
commercial paper borrowings, uncommitted money market lines, committed revolving
credit facilities, the issuance of unsecured debt, and a variety of secured
borrowings. GATX utilizes both the domestic and international bank and capital
markets.

GATX Financial Corporation (GFC), a wholly owned subsidiary of GATX
Corporation, has revolving credit facilities totaling $775.0 million, consisting
of a 364-day agreement for $141.7 million expiring in June 2002, which GFC
intends to renew, and two other agreements for $350.0 million and $283.3 million
that will expire in 2003 and 2004, respectively. The revolving credit facilities
contain various restrictive covenants, including an asset coverage test,
requirements to maintain a defined minimum net worth and a certain fixed charges
coverage ratio. At December 31, 2001, GFC was in compliance with the covenants
and conditions of the credit facilities. As defined in the credit facilities,
the net worth of GFC at December 31, 2001 was $1.4 billion, which was in excess
of the minimum net worth requirement of $900.0 million. Additionally, the ratio
of earnings to fixed charges as defined by the credit facilities was 2.7x for
the December 31, 2001 period, which was in excess of the 1.2x requirement.
Pursuant to the terms of the commercial paper programs and rating agency
guidelines, GFC must maintain unused revolving credit capacity at least equal to
the amount of commercial paper outstanding. At December 31, 2001, GFC had
available unused committed lines of credit amounting to $606.5 million.

Secured financings are comprised primarily of the sale-leaseback of
railcars. Other secured borrowings include mortgages on railcars and aircraft.
The railcar sale-leasebacks qualify as operating leases and as such assets or
liabilities associated with this equipment are not recorded on the balance
sheet. Certain sale-leasebacks involve railcars that are operated by special
purpose entities (SPE) that are wholly owned by GFC. The railcars are owned by
various financial institutions and leased to the SPE. These financial
institutions also have a security interest in the underlying customer subleases
on these railcars. GFC manages the railcars for
23

the SPE, and the lease obligations are non-recourse to GFC. The SPE structure
was used in order to secure a higher credit rating and a lower cost of borrowing
for GFC.

GFC has a $1.0 billion shelf registration for debt securities, of which
$600.0 million has been issued.

The availability of these funding options may be adversely impacted by
certain factors. Access to capital markets at competitive borrowing rates is
dependent on GFC's credit rating as determined by rating agencies such as
Standard & Poor's (S&P) and Moody's Investors Service (Moody's). On March 13,
2002, Moody's downgraded GFC's long-term unsecured debt to Baa3 from Baa2 and
GFC's commercial paper to Prime-3 from Prime-2. Moody's now maintains a stable
outlook on GFC's ratings. On March 14, 2002, S&P downgraded GFC's long-term
unsecured debt from BBB+ to BBB and GFC's commercial paper from A-2 to A-3. S&P
also placed GFC's long-term unsecured debt on credit watch with negative
implications. Both rating agencies had maintained a negative outlook on the
credit ratings of GFC due to the uncertainty surrounding the performance of
GFC's aircraft portfolio resulting from the events of September 11, 2001. This
negative outlook had increased the cost of borrowing in the financial markets
for GFC. Due to these rating agency downgrades, GFC's access to the commercial
paper market is likely to be seriously constrained or eliminated and GFC could
have more difficulty accessing the long-term capital market on a cost efficient
basis. A continued weak economic environment could decrease demand for GATX's
services, which could impact the Company's ability to generate cash flow from
operations and portfolio proceeds.

Subsequent to December 31, 2001, GATX completed a convertible debt
transaction and a secured debt transaction that provided approximately $250.0
million in net proceeds to GFC's liquidity position. In addition, through
mid-March 2002, GFC has received approximately $295.0 million in secured
aircraft financing proceeds from two aircraft warehouse financing facilities and
GFC's European Credit Agency (ECA) financing program. The ECA program was
arranged to finance GFC's 2001-2004 Airbus A320 aircraft deliveries. On March
14, 2002, GFC received initial approval from the Export-Import Bank of the
United States (Ex-Im Bank) to provide credit support to finance GFC's 2002-2003
Boeing 737 aircraft deliveries. The Ex-Im Bank Board of Directors approved the
transaction for referral to Congress on March 14, 2002 and GFC expects final
approval to be received by late April. GFC believes that the combination of its
current cash position, the ongoing proceeds from the aircraft warehouse
facility, and the ECA and Ex-Im financings will enable it to meet its
contractual obligations for 2002 without the further issuance of debt or a
sustained drawdown of its committed bank lines.

At December 31, 2001, GATX's contractual commitments were (in millions):

GATX has commitments of $885.1 million for firm orders and options for 27
new aircraft to be delivered between 2002 and 2004. Other unconditional purchase
obligations include $194.3 million of specialty finance primarily related to
business jet aircraft and marine equipment purchases and $45.0 million related
to new venture transactions generated in the ordinary course of business.
Commitments to purchase railcars total $8.3 million. Additionally, under the
terms of the DEC acquisition agreement GATX is obligated to invest $71.9 million
in DEC over the next five years.

24

At December 31, 2001, GATX's unconditional purchase obligations by segment
and business unit were (in millions):

GATX has various commercial commitments, such as guarantees and standby
letters of credit, that could potentially require performance in the event of
demands by third parties. Similar to GATX's on balance sheet investments, these
guarantees expose GATX to credit and market risk; accordingly, GATX evaluates
commitments and other contingent obligations using the same techniques used to
evaluate funded transactions.

Guarantees are commitments issued to guarantee performance of an affiliate
to a third party, generally in the form of lease and loan payment guarantees, or
to guarantee the value of an asset at the end of a lease. Lease and loan payment
guarantees generally involve guaranteeing repayment of the financing utilized to
acquire assets being leased by an affiliate to third parties, and are in lieu of
making direct equity investments in the affiliate. GATX is not aware of any
event of default which would require it to satisfy these guarantees, and expects
the affiliates to generate sufficient cash flow to satisfy their lease and loan
obligations.

Asset residual value guarantees represent GATX's commitment to third
parties that an asset or group of assets will be worth a specified amount at the
end of a lease term. Over 50% of the asset residual value guarantees are related
to rail equipment. Based on known and expected market conditions, management
does not believe that the asset residual value guarantees will result in any
adverse financial impact to GATX.

GATX and its subsidiaries are also parties to letters of credit and bonds.
Historically, no material claims have been made against these obligations.
Management does not expect any material losses to result from these off-balance
sheet instruments because performance is not expected to be required, and
therefore, is of the opinion that the fair value of these instruments is zero.

GATX's commercial commitments were (in millions):

At December 31, 2001, $425.0 million of subsidiary net assets were
restricted, limiting the ability of the subsidiaries to transfer assets to GATX
in the form of loans, advances or dividends. The majority of net asset
restrictions relate to the revolving credit agreements and various loan
agreements of GFC. Such restrictions are not expected to have an adverse impact
on the ability of GATX to meet its cash obligations.

25

OTHER INFORMATION

On September 11, 2001, terrorists highjacked and crashed four commercial
aircraft resulting in a significant loss of life and a substantial loss of
property. These events have caused significant disruption to the United States'
economy as a whole, and in particular have significantly impacted the airline
industry. The terrorist attacks resulted in a precipitous decline in airline
travel, which in turn has significantly and adversely affected the financial
health of the airline industry.

One of GATX's primary lines of business is aircraft leasing. The Company
has an interest in 173 aircraft. Of these, 24 aircraft are wholly owned by GATX
and the remainder are owned in combination with other investors. All of the 173
aircraft are Stage III compliant, mostly narrow-body aircraft, with an average
age of approximately nine years. These planes have an estimated useful life of
approximately 25 years.

At December 31, 2001, the air portfolio consisted of assets with a net book
value of $1.4 billion. In total, the air portfolio accounted for 18.3% of GATX's
total assets (including both on and off balance sheet assets). For the year
ended December 31, 2001, 8.0% of GATX's gross income was derived from its air
portfolio investments. This included lease and interest income, income generated
by joint ventures, remarketing gains, and management fees. GATX's customer base
is diverse in carrier type and geographic location. GATX leases to over 50
airlines in 20 countries and is not highly dependent on any one airline; no
single customer exposure exceeds 10% of the net book value of the total air
portfolio. For aircraft currently on lease, the average remaining lease term is
approximately four years.

At December 31, 2001, 15 aircraft were not on lease, seven of which are
being remarketed by GATX. The seven GATX aircraft represented approximately 7%
of the net book value of GATX's total air portfolio. Subsequent to year end,
GATX successfully placed six of the seven aircraft; the remaining aircraft
represents less than 1.0% of the net book value of the total air portfolio. The
remaining eight aircraft are being remarketed by The Pembroke Group (Pembroke),
a Dublin-based aircraft lessor in which the Company owns a 50% equity interest.
These eight aircraft represent approximately 3% of the net book value of
Pembroke's aircraft portfolio.

In 2001, GFC terminated a joint venture with Flightlease, a Swissair Group
Company. The joint venture had contracted with Boeing for the purchase of ten
B737-800 aircraft and with Airbus for the purchase of 38 aircraft. GFC purchased
Flightlease's interest in the Boeing order. GFC also reached an agreement with
Airbus whereby in consideration for its agreement to purchase 19 A320 family
aircraft from Airbus over the next four years, Airbus agreed to release GFC from
any further obligations with respect to the original joint venture order. The
Swissair Group and several of its subsidiary companies are currently in
bankruptcy. GFC does not have any aircraft on lease to Swissair. GFC therefore
expects no material impact from the reorganization of Swissair.

GFC has 27 planes on order, including the aircraft on order from Airbus and
Boeing. The delivery schedule for these aircraft is as follows: 16 in 2002, six
in 2003 and five in 2004. Currently, there are signed letters of intent to place
these aircraft with lessees for 14 of the 16 aircraft to be delivered in 2002.
Additionally, the renewal schedule for existing aircraft leases is as follows:
seven in 2002, 15 in 2003, 11 in 2004 and 19 in 2005. Leases for the remaining
aircraft will expire subsequent to 2005.

At December 31, 2001, a subsidiary of Pembroke had an order for 21 Boeing
717 aircraft. During January 2002, an agreement in principle to restructure this
order was reached. Subject to documentation, this agreement will result in the
reduction of the order to fourteen aircraft with deliveries occurring in 2005
and 2006. If Boeing does not meet certain milestones with respect to new 717
program sales, the agreement permits cancellation of the commitment by either
party.

The effects that these terrorist attacks, or related future events,
including military or police activities in the United States or abroad, future
terrorist activities or threats of such activities, political unrest and
instability, riots and protests, could have on the U.S. economy, global
financial markets and our business cannot presently be determined with any
accuracy. The effects may include, among other things, a permanent decrease in
demand for air travel, consolidation in the airline industry, lower utilization
of new and existing aircraft, lower aircraft rental rates, impairment of air
portfolio assets and fewer available partners for joint
26

ventures. In the fourth quarter of 2001, GATX and its joint ventures reviewed
their air portfolio for impairment and recorded $17.1 million in asset
impairment charges. Depending upon the severity, scope and duration of these
effects, the impact on GATX's financial position, results of operations, and
cash flows could be material.

CRITICAL ACCOUNTING POLICIES

Operating lease assets and facilities: Operating lease assets and
facilities are stated principally at cost. Assets acquired under capital leases
are included in operating lease assets and the related obligations are recorded
as liabilities. Provisions for depreciation include the amortization of the cost
of capital leases. Operating lease assets and facilities are depreciated using
the straight-line method to an estimated residual value. Railcars, locomotives,
aircraft, marine vessels, buildings and leasehold improvements are depreciated
over the estimated useful lives of the assets. Technology equipment is
depreciated over the term of the lease contract.

Impairment of Long-Lived Assets: A review for impairment of long-lived
assets, such as operating lease assets and facilities, is performed whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment loss to be recognized is measured by
the amount by which the carrying amount of the assets exceeds fair value. Assets
to be disposed of are reported at the lower of the carrying amount or fair value
less selling costs.

Allowance for possible losses: The purpose of the allowance is to provide
an estimate of possible credit losses inherent in the investment portfolio. GATX
sets the allowance by assessing overall risk and total probable losses in the
portfolio and by reviewing GATX's historical loss experience. GATX charges off
amounts that management considers unrecoverable from obligors or through the
disposition of collateral. GATX assesses the recoverability of investments by
considering factors such as a customer's payment history and financial position,
and the value of collateral based on internal and external appraisal sources.
The allowance for possible losses is periodically reviewed for adequacy
considering changes in economic conditions, collateral values and credit quality
indicators. GATX believes that the allowance is adequate to cover losses
inherent in the portfolio as of December 31, 2001. Because the allowance is
based on judgments and estimates, it is possible that those judgments and
estimates could change in the future, causing a corresponding change in the
recorded allowance.

Investments in affiliated companies: Investments in affiliated companies
represent investments in domestic and foreign companies and joint ventures that
are in businesses similar to those of GATX, such as aircraft leasing, rail
equipment leasing, technology equipment leasing and other business activities,
including ventures that provide asset residual value guarantees. Investments in
20 to 50 percent-owned companies and joint ventures are accounted for under the
equity method and are shown as investments in affiliated companies. Certain
investments in joint ventures that exceed 50% ownership are not consolidated and
are also accounted for using the equity method as GATX does not have effective
or voting control of these legal entities. The investments in affiliated
companies are initially recorded at cost and are subsequently adjusted for
GATX's share of the affiliate's undistributed earnings. Distributions, which
include both dividends and the return of principal, reduce the carrying amount
of the investment.

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2001, GATX adopted Statement of Financial Accounting
Standards (SFAS) No. 133, Accounting for Derivative Instruments and Hedging
Activities, as amended by SFAS No. 137, Accounting for Derivative Instruments
and Hedging Activities -- Deferral of the Effective Date of FASB Statement No.
133, and SFAS No. 138, Accounting for Certain Derivative Instruments and Certain
Hedging Activities -- an amendment of FASB Statement No. 133. SFAS No. 133, as
amended, establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded in other
contracts. The statement requires that an entity recognize all derivatives as
either assets or liabilities in the

27

statement of financial position and measure those instruments at fair value.
Derivatives that are not hedges must be adjusted to fair value through income.
If the derivative is a hedge, depending on the qualified nature of the hedge,
changes in fair value of the derivative will either be offset against the change
in fair value of the hedged assets, liabilities, or firm commitments through
earnings or recognized in other comprehensive (loss) income. The change in fair
value of the ineffective portion of a hedge will be immediately recognized in
earnings.

GATX frequently obtains stock and warrants from non-public, venture
capital-backed companies in connection with its financing activities. Under
previous accounting guidance, both the stock and warrants were generally
accounted for as available-for-sale securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, with changes
in fair value recorded as unrealized gains or losses in other comprehensive
(loss) income in the equity section of the balance sheet.

Upon adoption of SFAS No. 133, as amended, these warrants will be accounted
for as derivatives, with prospective changes in fair value recorded in current
earnings. Stock will continue to be accounted for in accordance with SFAS No.
115.

Apart from warrants, GATX uses interest rate swap agreements, Treasury
derivatives, currency swap agreements, and forward currency sale agreements, as
hedges to manage its exposure to interest rate and currency exchange rate risk
on existing and anticipated transactions. To qualify for hedge accounting under
previous accounting guidance, the derivative instrument must be identified with
and reduce the risk arising from a specific transaction. Interest income or
expense on interest rate swaps and Treasury derivatives was accrued and recorded
as an adjustment to the interest income or expense related to the hedged item.
Realized and unrealized gains on currency swaps and forwards were deferred and
included in the measurement of the hedged investment over the term of the
contract. Fair value changes arising from forward sale agreements were deferred
in the investment section of the balance sheet and recognized as part of other
comprehensive (loss) income in shareholders' equity. The adoption of SFAS No.
133 resulted in $1.1 million being recognized as expense in the consolidated
statement of income and $4.7 million of unrealized gain in other comprehensive
(loss) income in the first quarter of 2001.

In June 2001, the Financial Accounting Standards Board issued SFAS No. 141,
Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets,
effective for fiscal years beginning after December 15, 2001. Under the new
rules, goodwill and intangible assets deemed to have indefinite lives will no
longer be amortized but will be subject to annual impairment testing in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives.

GATX will apply the new rules on accounting for goodwill and other
intangible assets beginning in the first quarter of 2002. Application of the
nonamortization provisions of the statement is expected to result in an increase
in pre-tax income from continuing operations of approximately $7.7 million in
2002. During 2002, GATX will perform the first of the required impairment tests
of goodwill and indefinite lived intangible assets as of January 1, 2002, and
has not yet determined what impact, if any, such review will have on the
earnings and financial position of the Company.

In October 2001, the Financial Accounting Standards Board issued SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets, effective
for fiscal years beginning after December 15, 2001. This statement supercedes
SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to be Disposed of. Although the new rules retain many of the
fundamental recognition and measurement provisions of SFAS No. 121, they modify
the criteria required to classify an asset as held-for-sale. SFAS No. 144 will
also supersede certain provisions of APB Opinion 30 with regard to reporting the
effects of a disposal of a segment of a business and will require expected
future operating losses from discontinued operations to be separately reported
in discontinued operations during the period in which the losses are incurred
(rather than as of the measurement date as presently required by APB 30). GATX
is currently assessing the impact, if any, of this statement on the Company.

28

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GATX, like most other companies, is exposed to certain market risks,
including changes in interest rates and currency exchange rates. To manage these
risks, GATX, pursuant to established and authorized policies, enters into
certain derivative transactions, principally interest rate swaps, Treasury
derivatives and currency swaps. These instruments and other derivatives are
entered into for hedging purposes only. GATX does not hold or issue derivative
financial instruments for speculative purposes.

GATX's interest expense is affected by changes in interest rates as a
result of its use of variable rate debt instruments, including commercial paper
and other floating rate debt. Based on GATX's variable rate debt at December 31,
2001, if market rates were to increase hypothetically by 10% of GATX's weighted
average floating rate, after-tax interest expense would increase by
approximately $2.0 million in 2002.

Changes in certain currency exchange rates would also affect GATX's
reported earnings. Based on 2001 reported earnings from continuing operations, a
uniform and hypothetical 10% strengthening in the U.S. dollar versus applicable
foreign currencies would decrease after-tax income from continuing operations in
2002 by approximately $1.5 million.

The interpretation and analysis of the results from the hypothetical
changes to interest rates and currency exchange rates should not be considered
in isolation; such changes would typically have corresponding offsetting
effects. For example, offsetting effects are present to the extent that floating
rate debt is associated with floating rate assets.

29

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF GATX MANAGEMENT

To Our Shareholders

The management of GATX Corporation is responsible for the preparation,
integrity and objectivity of the accompanying consolidated financial statements
and the related financial information included in the Annual Report on Form 10-K
to shareholders. The financial statements have been prepared in conformity with
generally accepted accounting principles and necessarily include certain amounts
which are based on estimates and informed judgments of management.

The financial statements have been audited by the Company's independent
auditors, whose report thereon appears on page 31. Their role is to form an
independent opinion as to the fairness with which such statements present the
financial position of the Company and the results of its operations.

GATX maintains a system of internal accounting controls which is designed
to provide reasonable assurance as to the reliability of its financial records
and the protection of its shareholders' assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
control should not exceed the related benefits. Management believes the
Company's system provides this appropriate balance in all material respects.

GATX's system of internal controls is further augmented by an audit
committee composed of independent directors, that meets se