GATX CORP - 10-K Annual Report

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UNITED STATES
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, 2002

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
(Exact name of registrant as specified in its charter)

NEW YORK 36-1124040
(State of incorporation) (I.R.S. Employer Identification No.)

500 WEST MONROE STREET
CHICAGO, IL 60661-3676
(Address of principal executive offices, including zip code)

(312) 621-6200
(Registrant's telephone number, including area code)

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of 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. [X]

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

The aggregate market value of the voting stock held by non-affiliates of
the registrant was approximately $1,467.7 million on June 30, 2002.

Indicate the number of shares outstanding of each registrant's classes of
common stock, as of the latest practicable date: 49,068,457 common shares were
outstanding as of March 7, 2003.

DOCUMENTS INCORPORATED BY REFERENCE

GATX's definitive Proxy Statement to be filed on or about March 19,
2003 PART III
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INDEX TO GATX CORPORATION

2002 FORM 10-K

1

PART I

ITEM 1. BUSINESS

GATX Corporation (GATX or the Company) is headquartered in Chicago,
Illinois and provides its services through two operating segments: GATX Rail and
Financial Services. Through these businesses, GATX combines asset knowledge and
services, structuring expertise, partnering and risk capital to provide business
solutions to customers and partners worldwide. GATX specializes in railcar and
locomotive leasing, aircraft operating leasing, and information technology
leasing.

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.

Beginning in 2000, GATX 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 Solutions Group
(ISG) segment. In 2002, GATX completed the sale of the 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.

During 2002, GATX refined its strategic plan to focus resources on its core
air, rail, and technology leasing businesses. In December 2002, GATX announced
its intention to sell or otherwise run-off its venture finance business unit and
curtail investment in its specialty finance business unit.

At December 31, 2002, GATX had balance sheet assets of $6.4 billion,
comprised of operating assets such as railcars, commercial aircraft and
information technology equipment. In addition to the $6.4 billion of assets
recorded on the balance sheet, GATX utilizes approximately $1.4 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

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 a
full service lease, Rail maintains and services the railcars, pays ad valorem
taxes, and provides other ancillary services. As of December 31, 2002, Rail's
worldwide fleet, excluding railcars managed for others or owned by affiliates,
totaled 127,000 railcars. Rail also has interests in 22,000 railcars worldwide
through its investments in affiliated companies.

Rail's North American fleet consisted of approximately 107,000 railcars,
comprised of 63,000 tank cars and 44,000 freight cars as of December 31, 2002.
This fleet has a depreciable life of 30 to 38 years and an average age of
approximately 16 years. The utilization rate of Rail's North American railcar
fleet was 91% at December 31, 2002. Rail also has interests in 6,000 railcars
and 800 locomotives through its investments in affiliated companies in North
America.

In North America, Rail typically leases new tank cars and specialty freight
cars for terms of approximately five years. Renewals, or extension of existing
leases, are generally for periods ranging from less than a year to ten years,
with an average lease term of four years. Rail purchases most of its new
railcars from a limited number of manufacturers, including Trinity Industries,
Inc., American Railcar Industries, Union Tank Car Company, and Bombardier, Inc.
In October 2002, Rail entered into a series of agreements to acquire 7,500 newly
manufactured railcars over the next five years. Rail has signed a supply
agreement with Trinity Industries, Inc. for 5,000 cars and with Union Tank Car
Company for 2,500 cars in connection with this program. Rail operates a network
of major service centers across North America supplemented by a

2

number of smaller service centers and a fleet of service trucks. Additionally,
Rail utilizes independent third-party repair facilities.

Rail's primary competitors in North America are Union Tank Car Company,
General Electric Railcar Services Corporation, and various financial companies.
At the end of 2002, there were 274,000 tank cars and 1.4 million freight cars
owned and leased in North America. At December 31, 2002, Rail's fleet was
approximately 23% of the tank cars in North America and 35% of the leased
market; and approximately 3% of the freight cars in North America and 7% of the
leased market. Principal competitive factors include price, service,
availability and customer relationships.

In addition to its North American fleet, Rail owns or has interests in
three European fleets. In March 2001, Rail purchased Dyrekcja Eksploatacji
Cystern Sp. z.o.o. (DEC), Poland's national tank car fleet and fuel distribution
company. DEC's assets include 10,000 tank cars and a railcar maintenance
network. DEC maintains three business offices and operates three service centers
in Poland.

In December 2002, Rail acquired the remaining interest in KVG Kesselwagen
Vermietgesellschaft mbH, and KVG Kesselwagen Vermietgesellschaft m.b.h.
(collectively KVG), a leading European railcar lessor. Prior to the December
acquisition, Rail held a 49.5% interest in KVG. With the acquisition of KVG,
Rail has added approximately 9,000 railcars to its wholly owned worldwide fleet.
KVG has business offices in Germany and Austria and operates a service center in
Germany. Rail also owns a 37.5% interest in AAE Cargo AG, a freight car lessor
headquartered in Switzerland, with approximately 16,000 cars.

Rail's customers utilize more than 80 railcar types to ship over 650
different commodities, principally chemicals, petroleum, and food products. For
2002, approximately 35% of railcar leasing revenue was attributable to shipments
of chemical products, 28% related to shipments of petroleum products, 14%
related to shipments of food, 9% was derived from leasing cars to railroads and
14% related to other revenue sources. Rail leases railcars to over 1,000
customers, including major chemical, oil, food, agricultural and railroad
companies. No single customer accounts for more than 3% of total railcar leasing
revenue.

See discussion in the GATX RAIL section of Management's Discussion and
Analysis and in the RISK FACTORS section of Part I of this document for
additional details regarding Rail's business and operating results.

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 loans, and frequently include interests in an asset's
residual value. 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 primary business units: Air, Technology, Venture Finance (Venture) and
Specialty Finance (Specialty). As noted above, the Company has announced its
intention to sell or otherwise run off Venture and curtail investment in
Specialty.

Air primarily leases newer, narrow-body aircraft widely used by commercial
airlines throughout the world. Air has ownership interests in 193 aircraft. Of
these, 45 aircraft are wholly owned and the remainder are owned in combination
with other investors. All of the 193 aircraft are in compliance with generally
applicable noise standards (Stage III) and have a weighted average age of
approximately five 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. Air's customer base is diverse in
carrier type and geographic location. Air leases to over 60 airlines in 27
countries and no single customer exposure exceeds 10% of the net book value of
the total air portfolio. Air purchases its aircraft from two manufacturers,
Airbus Industrie (Airbus) and The Boeing Company (Boeing).

Technology provides lease financing and asset management services for
information technology (IT) equipment to customers in the publishing, data
processing and information services, retail, scientific, utilities,

3

manufacturing, finance, insurance, and other industries. The equipment leased to
customers includes personal computers, servers, mainframes, midrange and
communication equipment. Technology purchases equipment from a number of
manufacturers and is therefore not dependent on a single provider. IT equipment
is typically depreciated to an estimated residual value over the lease term,
which is approximately 3 to 5 years. The average size of an IT lease transaction
is approximately $400,000. Technology is not dependent on any single customer.

Venture provides loan and lease financing to early-stage, venture-capital
backed companies. The financing is typically secured by equipment and/or by a
lien on the customer's property, including intellectual property. Additionally,
the financings typically include warrants of non-public start-up companies.
Prior to 2002, Venture provided financing to telecommunication (telecom)
companies. Due to the poor performance of the telecom market, Venture exited the
telecom financing business in 2001; its telecom exposure is $9.2 million as of
December 31, 2002. Separately, Technology also leases various types of equipment
to established telecom service providers. Venture has a highly diversified
portfolio and provides financing to customers in a variety of industries,
including pharmaceutical and life sciences, software and network equipment, and
other business services. The average transaction size associated with Venture's
portfolio at December 31, 2002 is $1.8 million. Venture is not dependent on any
single customer. GATX announced in December 2002 its intention to sell or
otherwise run off Venture. If the Company is unable to sell Venture at an
appropriate price, the portfolio is expected to substantially run off over a
period of 24 months.

Specialty acts as an investor, arranger and manager of financing services
involving a variety of asset types and industries, and has an established
presence in the marine business. Specialty also manages $900 million of assets
for third-parties. The majority of these managed assets are in markets in which
the Company has a high level of expertise, such as air and rail. In addition,
Specialty, through American Steamship Company (ASC), operates a fleet of
self-unloading vessels on the Great Lakes. At the end of 2002, GATX announced
its intention to curtail investment in Specialty.

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
Great Lakes captive and commercial fleets. No single customer accounts for more
than 3% of Financial Services' revenues. In addition to its San Francisco home
office, Financial Services has 6 domestic and 4 foreign offices.

See discussion in the FINANCIAL SERVICES section of Management's Discussion
and Analysis and in the RISK FACTORS section of Part I of this document for
additional details regarding Financial Services' businesses and operating
results.

DISCONTINUED OPERATIONS -- INTEGRATED SOLUTIONS GROUP

GATX completed the divestiture of the Integrated Solutions Group (ISG)
segment in 2002. The ISG segment provided logistics and supply chain services to
the chemical, 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, GATX
sold Terminals' Asian operations and its interest in a U.S. distillate and
blending distribution affiliate. In the first quarter of 2002, GATX sold its
interest in a bulk-liquid storage facility located in Mexico.

TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

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

4

SEASONAL NATURE OF BUSINESS

Seasonality is not considered significant to the operations of GATX and its
subsidiaries taken as a whole.

CUSTOMER BASE

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

EMPLOYEES

As of December 31, 2002, GATX and its subsidiaries had approximately 2,800
employees, of whom 18% were hourly employees covered by union contracts.

ENVIRONMENTAL MATTERS

The transportation of various commodities or chemicals in GATX-owned
railcars, as well as certain GATX operations, may present potential
environmental risks. 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 buyers of
previously divested companies for which GATX believes it has adequate reserves.

GATX's environmental reserve at December 31, 2002 was $33.2 million and
reflects GATX's best estimate of the cost to remediate known environmental
conditions. There were no additions to the reserve in 2002 and $1.7 million of
additions in 2001. Expenditures charged to the reserve amounted to $3.0 million
and $15.8 million in 2002 and 2001, respectively. In 2002, GATX made capital
expenditures of $.1 million for environmental and regulatory compliance compared
to $.2 million in 2001.

5

RISK FACTORS

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

- Liquidity and Capital Resources. GATX is dependent in part upon the
issuance of unsecured and secured debt to fund its operations and
contractual commitments. A number of factors could cause GATX to incur
increased borrowing costs and to have greater difficulty accessing public
and private markets for both secured and unsecured debt. In addition,
based on GATX's current credit ratings, access to the commercial paper
market and uncommitted money market lines is inconsistent and can not be
relied upon. It is possible that in the long term, GATX's other sources
of funds, including available cash, bank facilities, cash flow from
operations and portfolio proceeds, may not provide adequate liquidity to
fund its operations and contractual commitments.

- Terrorism/International Conflict. The terrorist attacks on September 11,
2001 created many economic and political uncertainties and had a negative
impact on the global economy. The long-term effects of these attacks on
our future operating results and financial condition are unknown. The
national and international response to future terrorist attacks and the
possible war in Iraq could result in continued economic weakness and have
an adverse impact on GATX's business. The effects may include, among
other things, a permanent decrease in demand for air travel,
consolidation in the airline industry, increased customer bankruptcies,
inability of airlines to insure their aircraft, lower utilization of new
and existing aircraft, lower aircraft rental rates, impairment of air
portfolio assets and fewer available partners for joint ventures.
Depending on the severity, scope and duration of these effects, the
impact on our financial position, results of operations, and cash flows
could be material.

- Competition. GATX is subject to competition in its aircraft, rail and
technology leasing markets. In many cases, the competitors are larger
entities that have greater financial resources, higher credit ratings 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 the 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, especially in its technology leasing portfolio.
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 exceed the
expectation of management, or if discrete events adversely affect
specific customers, industries or markets. If the allowance for possible
losses is insufficient to cover losses related to reservable assets,
including gross receivables, finance leases, and loans, then GATX's
financial position or results of operations could be negatively impacted.

- Impaired Assets. An asset impairment charge may result from the
occurrence of unexpected adverse changes that impact GATX's estimates of
expected cash flows generated from our long-term assets. GATX regularly
reviews long-term assets for impairments, in particular when events or
changes in circumstances indicate the carrying value of an asset may not
be recoverable. An impairment loss is recognized when the carrying amount
of an asset is not recoverable and exceeds its fair value. GATX may be
required to recognize asset impairment charges in the future as a result
of the weak economic

6

environment, challenging market conditions in the air, rail or technology
markets or events related to particular customers.

- 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 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 GATX has estimated.

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

- Energy Prices. Energy prices, including the price of natural gas and
oil, are significant cost drivers for many of our customers, particularly
in the chemical and airline industries. Sustained high energy prices
could negatively impact these industries resulting in a corresponding
adverse effect on the demand for our products and services.

- 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. New regulatory rulings from federal or state agencies may
impact GATX's financial results and economic value of its assets. In
addition, GATX's failure to comply with the requirements and regulations
of these agencies could negatively affect its financial results.

Additional risks and uncertainties not presently known, or that GATX
currently deems immaterial, may also adversely affect GATX's business
operations.

AVAILABLE INFORMATION

GATX files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (SEC). You may
read and copy any document GATX files at the SEC's public reference room at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for information about the public reference room. The SEC
maintains a website that contains annual, quarterly and current reports, proxy
statements and other information that issuers (including GATX) file
electronically with the SEC. The SEC's website is www.sec.gov.

GATX makes available free of charge at its website, www.gatx.com, its most
recent annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to the Securities Exchange Act of 1934 as soon as reasonably
practicable after such material is electronically filed with, or furnished, to
the SEC. The information on GATX's website is not incorporated by reference into
this report.

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.

At December 31, 2002, locations of operations were as follows:

GATX RAIL

HEADQUARTERS
Chicago, Illinois

BUSINESS OFFICES
San Francisco, California
Alpharetta, Georgia
Chicago, Illinois
Marlton, New Jersey
Houston, Texas
Calgary, Alberta
Montreal, Quebec
Vienna, Austria
Sidney, Australia
Hamburg, Germany
Mexico City, Mexico
Krakow, Poland
Nowa Wilfs Wielka, Poland
Warsaw, Poland
Zurich, Switzerland

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

MINI SERVICE CENTERS
Macon, Georgia
Terre Haute, Indiana
Geismar, Louisiana
Cincinnati, Ohio
Catoosa, Oklahoma
Freeport, Texas
Plantersville, Texas
Czechowice, Poland
Jedlicze, Poland
Plock, Poland

MOBILE SERVICE UNITS
Mobile, Alabama
Colton, California
Lake City, Florida
East Chicago, Indiana
Norco, Louisiana
Sulphur, Louisiana
Albany, New York
Masury, Ohio
Cooper Hill, Tennessee
Galena Park, Texas
Olympia, Washington
Edmonton, Alberta
Red Deer, Alberta
Sarnia, Ontario
Montreal, Quebec
Quebec City, Quebec
Moose Jaw, Saskatchewan
Vancouver, British Columbia
Tierra Blanca, Mexico

AFFILIATES
San Francisco, California
La Grange, Illinois
Kansas City, Missouri
Zug, Switzerland

FINANCIAL SERVICES

HEADQUARTERS
San Francisco, California

BUSINESS OFFICES
Lafayette, California
Farmington, Connecticut
Tampa, Florida
Williamsville, New York
Toledo, Ohio
Seattle, Washington
Sydney, Australia
Toulouse, France
Tokyo, Japan
London, United Kingdom

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

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, 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, a GATX tank
car 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, while still
leaking, 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. The plaintiffs
have not actively prosecuted the case and have not yet moved to have the class
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 named approximately 112 plaintiffs and some asserted that a class
should be certified. Additionally, Burlington Northern filed suit against GATX
in the matter styled The Burlington Northern and Santa Fe Railway Company vs.
General American Transportation Company, et al., No 01-797 on the docket of the
United States District Court for the Western District of Louisiana, seeking: (i)
indemnity or contribution in the cases listed above; (ii) recovery of their
cleanup costs; and (iii) indemnity or contribution with respect to approximately
$1,000,000 in settlements paid to 4,961 claimants shortly after the accident.
The federal court and the parties pursued an aggressive settlement process that
included opening a claims office. Proofs of claim were filed by 2,723
individuals and businesses, few of which were amongst 4,961 Burlington Northern
had already settled with. That process culminated in a class action settlement
whereby the court certified a broadly defined class, including the

9

2,723 claimants who had filed proofs of claim and all individuals and businesses
within a substantial distance of the incident. An opt-out period was allowed,
resulting in 30 opt-outs, and a settlement in the amount of $5,000,000 was
approved by the court. The formal process of distributing the settlement funds
is presently under way. In return for a cash payment of $1,700,000, Burlington
Northern has entered into a settlement agreement with GATX providing (i) that
Burlington Northern indemnify and defend GATX against all claims of plaintiffs
that have opted out except for punitive damage claims; (ii) Burlington Northern
release its claim against GATX for its cleanup costs; and (iii) Burlington
Northern release its claim for indemnity or contribution with respect to its
approximately $1,000,000 in settlements with 4,961 claimants shortly after the
accident.

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 $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. The parties have
each confirmed their respective positions in the case at a hearing held in early
March of 2002, and a decision is expected to be rendered in this matter shortly.

GATX and its subsidiaries have been named as defendants in other
litigation, and have a number of unresolved pending claims, including
proceedings under governmental laws and regulations related to environmental
matters. Several of the Company's subsidiaries have also been named as
defendants or co-defendants in cases alleging injury relating to asbestos. In
these cases, the plaintiffs seek an unspecified amount of damages based on
common law, statutory or premises liability or, in the case of ASC, the Jones
Act, which makes limited remedies available to certain maritime employees. In
addition, demand has been made against the Company under a limited indemnity
given in connection with the sale of a subsidiary with respect to
asbestos-related claims filed against the former subsidiary. The amounts claimed
in some of these proceedings are substantial and the ultimate liability cannot
be determined at this time. However, 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. Adverse court rulings
or changes in applicable law could affect claims made against GATX and its
subsidiaries, and increase the number, and change the nature, of such claims.

10

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 definitive
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. Kenney has served as Senior Vice President and Chief Financial Officer
since 2002, and Vice President and Chief Financial Officer of GATX since 2000.
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.

- - 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 Recourses of
GATX.

- - 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 from 2000 to 2001 and Director of Taxes for GATX from 1994
to 2000.

- - In 2002, Mr. Hasek was elected Vice President, 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.

11

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER 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 7, 2003 was 3,663. 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:

On February 1, 2002, the Company issued and sold to Salomon Smith Barney
Inc., J.P. Morgan Securities Inc., U.S. Bancorp Piper Jaffray Inc., Banc One
Capital Markets, Inc. and Credit Lyonnais Securities (USA) Inc. (the "Initial
Purchasers") $175 million aggregate principal amount of 7.5% convertible senior
notes due February 1, 2007. The Initial Purchasers purchased the notes from the
Company at a discount of 3.125% from the aggregate offering price of $175
million. The notes were issued and sold without registration under the
Securities Act in reliance on Section 4(2) of the Securities Act. The Initial
Purchasers subsequently resold the notes in the United States to "qualified
institutional buyers" in reliance on Rule 144A under the Securities Act. The
notes are convertible at the holder's option into shares of the Company's common
stock at an initial conversion price of $34.09 per share.

12

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

(a) 2002 includes a gain on sale of portion of segment of $9.2 million on a
pre-tax basis, or $6.2 million on an after-tax basis. The cumulative effect
of an accounting change represents a one-time, non-cash impairment charge
for goodwill in excess of fair market value at January 1, 2002, in
accordance with the adoption of SFAS 142.

(b) 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, and also includes
a $13.1 million pre-tax benefit for litigation settlements.

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

Note: Certain prior period amounts have been reclassified to conform to the 2002
presentation.

13

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.

In mid-March 2003, the United States appeared to be on the verge of war
with Iraq. The Company's business could be adversely impacted by such a war,
primarily because of the potential impact on the Company's airline leasing
business. Since a substantial portion of airline travel is discretionary, the
start of the war may result in travelers canceling or deferring their plans for
air travel, the consequences of which could further deteriorate the financial
condition of the Company's airline customers. During 2002 several airline
companies filed for bankruptcy. Should a war start and airline conditions
continue to deteriorate, additional airlines may file for bankruptcy. Because
airlines threatening to file for bankruptcy or operating under bankruptcy
protection have the flexibility to reduce their costs by voiding contracts and
renegotiating existing business obligations, current and future threatened or
actual airline bankruptcies could have an adverse impact on the Company's
revenue and financial results. Following the September 11, 2001 terrorists
attacks, aviation insurers dramatically increased airline insurance premiums and
reduced the maximum amount of insurance coverage for liability to persons other
than passengers for claims resulting from acts or war or terrorism (war risk
coverage). The Government has offered, and many carriers have accepted war risk
insurance to replace commercial insurance for a limited period of time. A war
could cause premiums to increase even further or cause certain types of airline
insurance to become unavailable or the Government may refuse to extend the time
period for which it will provide war risk insurance, which could increase the
risks involved in the Company's airline leasing business. Lastly, rising fuel
prices caused by market conditions, including the threat of war or an actual war
could cause financial distress for the Company's customers, especially to those
customers in the airline, chemical, and petroleum industries, which in turn
could have an adverse impact on the Company's revenues and financial results.

YEAR ENDED DECEMBER 31, 2002 COMPARED TO YEAR ENDED DECEMBER 31, 2001

GATX RAIL

Rail markets continue to be negatively impacted by the economic downturn,
which has adversely affected railcar demand, lease rate pricing and new car
investments. Railroad efficiency, shipper consolidations and aggressive
competition have also contributed to lower demand and lease rate pricing. Lease
rates for renewals in 2002 were lower compared to the prior lease rates,
continuing a recent trend. These factors negatively impacted Rail's 2002 results
and are expected to pressure 2003 results as well, as Rail has over 20,000
railcars scheduled for renewal in 2003. Further, natural gas prices have been
increasing; if this trend continues, many of Rail's customers could be
negatively impacted, putting further pressure on Rail's business. In response to
current rail market conditions, Rail continues to focus on controlling operating
and SG&A expenses. Certain long-term market indicators have begun to show
positive signs: customer inquiries are up, new car order backlogs have increased
at the railcar manufacturers, chemical shipments are increasing, and many older
cars have been taken out of the system and scrapped over the past three years.

14

In December 2002, Rail acquired the remaining interest in KVG Kesselwagen
Vermietgesellschaft mbH, and KVG Kesselwagen Vermietgesellschaft m.b.h.
(collectively KVG), a leading European railcar lessor. Prior to the December
acquisition, Rail held a 49.5% interest in KVG. KVG results are now included in
Rail's consolidated financial statements with the acquisition of the remaining
interest. With the acquisition of KVG, Rail added approximately 9,000 tank and
specialized railcars to its wholly owned worldwide fleet.

In March 2001, Rail purchased Dyrekcja Eksploatacji Cystern Sp. z.o.o.
(DEC), Poland's national tank car fleet and fuel distribution company, for $95.8
million. Therefore, comparisons between periods are affected by the inclusion of
DEC for the full year of 2002.

In May 2002, the Federal Railroad Administration (FRA) issued a
Railworthiness Directive (Bar Car Directive) which required Rail to inspect and
repair, if necessary, a certain class of its cars that were built or modified
with reinforcing bars prior to 1974. Approximately 4,200 of Rail's owned
railcars with a net book value of approximately $4.0 million were affected by
the Bar Car Directive. The unfavorable impact on Rail's operating results for
2002 was approximately $2.7 million after-tax, including lost revenue,
inspection, cleaning and replacement car costs, which were partially offset by
gains on the accelerated scrapping of affected cars that would otherwise have
been retired and scrapped over the next several years. As of year end 2002,
substantially all of the subject tank cars were removed from Rail's fleet.

Gross Income

Rail's 2002 gross income of $666.9 million was $9.5 million lower than
2001. Excluding DEC, lease income was down $25.5 million from 2001. Difficult
economic conditions, combined with aggressive competition, increased railroad
efficiency and railcar surpluses have resulted in continued softness in railcar
demand and pressure on lease rates. Rail's North American fleet, excluding
railcars managed for others or owned by affiliates, totaled 107,000 cars at year
end compared to 110,000 at the end of the prior year. Approximately 97,000
railcars were on lease throughout North America at the end of the year compared
to 100,000 cars at the end of the prior year. Rail's North American utilization
rate was 91% at December 31, 2002, flat with the prior year. The Bar Car
Directive favorably affected utilization as existing idle cars were deployed to
replace affected cars and subject cars taken out of service were scrapped.

Asset remarketing income of $4.9 million was $2.0 million higher than the
prior year mainly due to the sale of several residual sharing investments. Share
of affiliates' earnings of $13.1 million increased $5.7 million over the prior
year. Excluding nonrecurring adjustments in 2001, share of affiliates' earnings
in 2002 increased $3.7 million, largely due to improvement in KVG and AAE Cargo
results.

Ownership Costs

Ownership costs of $332.5 million were $4.8 million lower compared to the
prior year. Excluding the impact of DEC in both periods, ownership costs
decreased $4.3 million from the prior year period primarily due to lower
interest costs resulting from favorable interest rates, partially offset by
higher operating lease expense in 2002. The increase in operating lease expense
in 2002 is due to the full year impact of ownership costs related to a railcar
financing entered into in mid-2001.

Maintenance Expense

Maintenance expense of $145.6 million in 2002 increased $8.7 million from
2001. Excluding DEC in both years, maintenance expense increased $2.1 million in
2002. The variance is due to a higher number of cars repaired in 2002 and the
impact of the Bar Car Directive.

Other Operating Expenses

Rail's other operating expenses were $31.7 million in 2002 and $49.6
million in 2001. In 2001, other operating expenses included $24.5 million of
non-comparable items, of which $19.7 million related to the closing of its East
Chicago repair facility. Excluding the non-comparable items, other operating
expenses

15

increased $6.6 million primarily due to the write-off of international business
development costs and software implementation expenses.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses decreased $9.4 million
in 2002 from the prior year to $74.7 million. The decrease in SG&A expenses in
2002 is attributable to lower headcount due to the 2001 reduction in workforce
and lower discretionary spending.

Provision for Possible Losses

Rail's provision for possible losses of $1.4 million increased $.8 million
from the prior year.

Reduction in Work Force Charges

During 2002 and 2001, Rail recorded pre-tax charges of $2.0 million and
$5.3 million, respectively, related to reductions in workforce. The charge in
2002 was predominantly related to an ongoing plan to streamline the workforce
and operations of DEC. The charge in 2001 was part of GATX's initiative to
reduce SG&A expenses in response to poor North American economic conditions. The
reduction in workforce charge in 2002 and 2001 included involuntary employee
separation and benefit costs for 85 and 47 employees, respectively, as well as
occupancy and other costs.

Cumulative Effect of Accounting Change

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, Rail
completed a review of all recorded goodwill in 2002. Fair values were
established using discounted cash flows. Based on this review, Rail recorded a
one-time, non-cash impairment charge of $34.9 million related to DEC. The charge
is non-operational in nature and was recognized as a cumulative effect of
accounting change as of January 1, 2002 in the consolidated statements of
income. The impairment charge was due primarily to conservative expectations of
projected cash flows based on current market conditions and a lower long-term
growth rate projected for DEC.

Net Income

Rail's net income of $16.3 million was $27.8 million lower than the prior
year primarily due to the cumulative effect of accounting change, the impact of
unfavorable market conditions on lease income, and the impact of the Bar Car
Directive, partially offset by reduced SG&A expenses and the absence of 2001
closure costs related to its East Chicago repair facility.

FINANCIAL SERVICES

Financial Services continues to be negatively impacted by the weak economic
environment and challenging market conditions, which has resulted in
progressively lower lease rates and lower investment volume in its core markets,
particularly its technology business. During the fourth quarter 2002, GATX
announced its intent to sell or otherwise run off Venture and curtail investment
in Specialty in order to focus on Financial Services' core business units: Air
and Technology. Venture represents $254.1 million, or approximately 3.3% of
GATX's total assets (including both on and off balance sheet assets) at December
31, 2002. Specialty represents $1,000.5 million, or approximately 12.8% of
GATX's total assets (including both on and off balance sheet assets) at December
31, 2002.

The airline industry remains in a weakened condition further evidenced by
United Airlines' bankruptcy filing in the fourth quarter of 2002. Financial
Services recorded a net impairment charge of $6.2 million at a specialty joint
venture related to aircraft on lease to United Airlines. Financial Services also
recorded an impairment charge of $21.3 million at its air joint venture,
Pembroke Group Limited, an aircraft leasing and management company, related to
its investment in Fokker aircraft. GATX will continue to closely monitor its air
portfolio due to the greater potential for credit losses and asset impairments.

16

At December 31, 2002, the air portfolio consisted of assets with a net book
value of $2.0 billion. In total, the air portfolio accounted for 25.0% of GATX's
total assets (including both on and off balance sheet assets). For the year
ended December 31, 2002, 6.8% of GATX's gross income was derived from its air
portfolio investments.

Financial Services has interests in 193 aircraft. At December 31, 2002,
four aircraft were not on lease, two of which had signed letters of intent in
place. The four idle aircraft represent approximately 3% of the net book value
of Financial Services' total owned air portfolio. In 2003, Financial Services
also has eight scheduled lease expirations of owned aircraft for which it has
direct remarketing responsibility. Of these eight aircraft, one existing lease
was extended and two signed letters of intent with new lessees were in place as
of March 19, 2003. Also in 2003, there are six scheduled aircraft deliveries. Of
these six aircraft, there were three leases in place and three signed letters of
intent as of March 19, 2003.

Gross Income

Financial Services' 2002 gross income of $672.6 million includes $16.8
million attributable to gains on extinguishment of debt, as discussed below.
Excluding these gains, gross income decreased $186.7 million compared to the
prior year principally due to decreases in lease and interest income and lower
gains with respect to asset remarketing and the sale of securities. Lease income
of $407.4 million decreased $105.0 million from 2001. Lower operating lease
assets at Technology and the impact of lower average yields across the portfolio
contributed to the decrease. In 2001, Technology acquired a portfolio of leases
from El Camino Resources that contributed to higher lease income in 2001. The
decrease in lease income is partially offset by an increase in lease income at
Air resulting from higher operating lease assets in 2002. Marine operating
revenue of $79.7 million was comparable with 2001.

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 $49.8 million, $46.3 million lower than 2001. The
decrease in asset remarketing income was primarily due to decreased residual
sharing fees from managed portfolios, partially offset by an increase in
technology asset remarketing activity. The prior year included large gains at
Specialty. Gains on the sale of securities, which are primarily derived from
warrants received as part of financing and leasing transactions with non-public
start-up companies, were $3.9 million, a decrease of $34.8 million from the
prior year. Decreases in gains on the sale of securities are reflective of
limited initial public offering activity compared to 2001. Because the timing of
such sales is dependent on changing market conditions, gains on the sale of
securities and asset remarketing income do not occur evenly from period to
period. In addition, based on the current valuations of early stage companies,
it is unlikely that gains on the sale of securities will approach 2001 levels in
the future.

Interest income of $55.1 million in 2002 decreased $16.2 million due to
lower average loan balances at Venture and lower interest rates. Other income
was $10.4 million in 2002, $6.6 million higher than 2001. The increase was
primarily due to foreign currency translation gains which were largely offset in
fair value adjustments for derivatives.

Financial Services' share of affiliates' earnings increased $9.9 million to
$35.3 million in 2002 due primarily to the absence of losses within
telecommunication joint ventures compared to the prior year partially offset by
higher air impairment losses in the current year. Excluding air asset impairment
charges in 2001 and 2002 and telecom losses in 2001, share of affiliates'
earnings decreased $7.5 million in 2002 compared to the prior year due to lower
results in air joint ventures.

Ownership Costs

Ownership costs of $402.4 million decreased $92.2 million compared to the
prior year largely due to lower depreciation and amortization and interest
expense. Depreciation and amortization expense of $246.6 million decreased $44.8
million from 2001 reflecting lower average technology operating lease assets,
partially offset by higher average air operating lease assets. Interest expense
decreased $35.8 million in 2002 to $147.0 million due to lower average borrowing
rates. Operating lease expense decreased $11.6 million to $8.8 million in 2002
partly due to the reversal of a previously recorded sublease liability.

17

Selling, General and Administrative

SG&A expenses of $110.8 million decreased $29.7 million over the prior year
due to lower human resource and administrative expenses as a result of the
fourth quarter 2001 reduction in workforce and reduced legal expenses compared
to 2001.

Provision for Possible Losses

The provision for possible losses is derived from Financial Services'
estimate of losses based on a review of credit and market risks. The current
year provision at Financial Services of $35.2 million decreased $62.6 million
from 2001. The prior year provision reflected the deterioration of certain
steel, venture and telecom investments. Approximately $10.0 million of the
current provision and $2.3 million of the asset impairment loss were related to
one technology leasing investment and was largely offset by a gain on the
extinguishment of nonrecourse debt of $13.0 million associated with the same
investment. Financial Services frequently utilizes nonrecourse debt to finance
its technology portfolio. The allowance for possible losses decreased $17.9
million from December 31, 2001 to $68.6 million and was approximately 6.3% of
reservable assets, an increase from the prior year of 6.1%. Reservable assets
are defined as gross receivables, finance leases, and loans. Net charge-offs of
reservable assets totaled $53.2 million for the year ended December 31, 2002,
and were comprised primarily of venture and technology investments. Net
charge-offs of reservable assets totaled $100.4 million in 2001 and were
comprised primarily of venture, telecom, and specialty finance investments.

Asset Impairment Charges

Asset impairment charges of $40.5 million decreased $44.7 million from 2001
primarily due to the absence of telecom related impairment charges. The asset
impairment charges in the current year included $14.4 million for the write-off
of venture goodwill due to the announced exit from this business along with $3.7
million for two Gulfstream aircraft. The asset impairment charges in 2001
included $67.8 million of charges in the telecom portfolio and $7.8 million of
charges in the air portfolio.

Reduction in Work Force Charges

During 2002 and 2001, Financial Services recorded pre-tax charges of $14.9
million and $5.6 million, respectively, related to reductions in workforce. In
2002, this action was part of GATX's announced intent to sell or otherwise run
off Venture and to curtail investment in Specialty. In 2001, this action was
part of GATX's previously announced initiative to reduce SG&A expenses in
response to current economic conditions. The reduction in workforce charges
included involuntary employee separation and benefit costs for 85 and 88
employees in 2002 and 2001, respectively, as well as occupancy and other costs.

Net Income (Loss)

Net income for 2002 was $3.2 million. Although $22.1 million higher than
last year's net loss of $18.9 million, 2002 results reflect a decline in lease
income, asset remarketing income and gains on the sale of securities compared to
2001. The favorable increase over the prior year is primarily due to lower
ownership costs and SG&A expenses and the absence of losses related to telecom
investments.

CORPORATE AND OTHER

Corporate and other net expense was $25.8 million for the year 2002
compared to $17.7 million for the prior year, with the variance primarily due to
the additional interest expense resulting from the issuance of $175.0 million of
convertible notes in February 2002. The 2001 period included interest income on
the proceeds received from the sale of ISG and a $4.0 million tax charge related
to the Company's Corporate Owned Life Insurance (COLI) program. In 2001,
Corporate also recorded a pre-tax charge of $2.5 million related to a reduction
in workforce.

18

INCOME TAXES

The 2002 consolidated effective tax rate for continuing operations was 26%
compared to the 2001 rate of (34)%. The 2002 tax provision was favorably
impacted by the benefit of the extraterritorial income exclusion (an exemption
for income from the lease of equipment to foreign lessees). The 2001 tax
provision included a favorable deferred tax adjustment attributable to a
reduction in foreign tax rates offset by the COLI tax charge.

DISCONTINUED OPERATIONS

Discontinued operations encompasses the former ISG segment and comprises
Terminals, Logistics, and minor business development efforts.

A net after-tax gain of $163.9 million was recognized on the sales of ISG
assets in 2001. In the first quarter of 2002, GATX sold its interest in a
bulk-liquid storage facility located in Mexico and recognized a $6.2 million
after-tax gain.

Operating results for 2002 were zero, compared to $1.5 million in the prior
year. Comparisons between periods were affected by the timing of the sale of ISG
assets.

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

GATX RAIL

Comparisons between periods are affected by the inclusion of DEC in the
2001 financial statements.

Gross Income

Rail's 2001 gross income of $676.4 million was essentially flat with 2000.
Excluding DEC's gross income of $25.6 million, Rail's gross income decreased
$25.2 million from the prior year.

Rental revenue was $602.9 million in 2001 excluding DEC, a decrease of $3.5
million from 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. Excluding railcars managed for others or owned by
affiliates, Rail had approximately 100,000 railcars on lease throughout North
America at December 31, 2001, compared to 101,000 railcars in the previous year.
North American utilization was 91% at December 31, 2001 on a total fleet of
110,000 railcars, compared to 92% at the end of 2000. 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 weakened rail market.

Asset remarketing income of $2.9 million in 2001 was $15.2 million lower
than the prior year. Share of affiliates' earnings of $7.4 million in 2001
decreased $13.2 million. The decrease in both asset remarketing income and share
of affiliates' earnings was partly attributable to the gain on sale of six-axle
locomotives in 2000. Rail and its affiliate Locomotive Leasing Partners, LLC
reconfigured the locomotive fleet from six-axle locomotive to four-axle
locomotives, which resulted in asset sales of wholly owned equipment and of
assets held within the joint venture. Additionally, share of affiliates'
earnings decreased $3.4 million in 2001 primarily due to nonrecurring accounting
adjustments.

Ownership Costs

Ownership costs of $337.3 million in 2001 increased $17.1 million from
2000, and include approximately $10.4 million related to DEC. Excluding the
impact of DEC, the $6.7 million increase in ownership costs from the prior year
period is primarily due to the full year impact of new car additions in 2000.

19

Maintenance Expense

Maintenance expense was $136.9 million in 2001 compared to $127.8 million
in 2000, an increase of $9.1 million. Excluding DEC's 2001 repair costs of $12.1
million, maintenance expense was $3.0 million lower than 2000. The decrease was
primarily due to aggressive cost reduction efforts.

Other Operating Expenses

Rail's other operating expenses of $49.6 million in 2001 included $24.5
million of non-comparable items, of which $19.7 million related to the closing
of its East Chicago repair facility. Excluding the non-comparable items, other
operating expenses increased $11.4 million as costs in 2001 included higher
storage expense due to a larger idle fleet. In addition, there was an increase
to the general liability insurance reserve.

Selling, General and Administrative

SG&A expenses increased $4.7 million in 2001 from the prior year period to
$84.1 million. Excluding $6.2 million attributable to DEC, SG&A expenses
decreased $1.5 million in 2001. Increased international business development
costs of $4.9 million were offset by a reduction in personnel costs and lower
discretionary spending.

Provision for Possible Losses

Rail's provision for possible losses of $.6 million in 2001 decreased $1.1
million from the prior year.

Reduction in Work Force 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 SG&A expenses in response to current economic conditions.
The reduction in workforce charges 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 in 2001 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.

FINANCIAL SERVICES

Gross Income

Financial Services' gross income of $842.5 million in 2001 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.
Marine operating revenue of $77.7 million decreased $10.5 million from the prior
year.

Asset remarketing income was $96.1 million, $51.2 million higher than 2000.
The increase in asset remarketing income was driven by larger gains within the
specialty and technology portfolios. Gains on the sale of securities, which are
primarily derived from warrants received as part of financing and leasing
transactions with start-up companies, were $38.7 million, a decrease of $13.6
million from the prior year.

Interest income increased $11.2 million to $71.3 million in 2001 primarily
due to an increase in average loan balances at Venture.

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Financial Services' share of affiliates' earnings decreased $32.0 million
to $25.4 million in 2001 due primarily to losses incurred by telecommunication
joint ventures. 2001 earnings from telecom affiliates included $35.6 million for
provision for possible losses and asset impairment charges.

Ownership Costs

Ownership costs, including interest, depreciation and amortization and
operating lease expense, of $494.6 million increased $93.9 million in 2001 due
to higher depreciation and amortization and interest expense. Depreciation and
amortization expense of $291.4 million increased $79.2 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

SG&A expenses of $140.5 million in 2001 increased $21.1 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 litigation charges
below). This increase was partially offset by a reduction in incentive
compensation.

Provision for Possible Losses

The provision for losses at Financial Services of $97.8 million in 2001
increased $81.8 million from 2000. This increase reflected the weakness in the
economy and the deterioration of certain venture, steel and telecom investments.
The allowance for possible losses decreased $2.6 million from December 31, 2000
to $86.5 million and was approximately 6.1% of reservable assets, down from 6.5%
at the prior year end. Net charge-offs of reservable assets totaled $100.4
million for the year ended December 31, 2001, and were comprised primarily of
venture, telecommunications, and specialty finance investments.

Asset Impairment Charges

Asset impairment charges of $85.2 million increased $80.2 million from
2000. Asset impairment in the telecom and air portfolios amounted to $67.8
million and $7.8 million respectively, for the year ended December 31, 2001.

Provision (Reversal) for Litigation Charges

GATX Financial Corporation, formerly known as GATX Capital Corporation
(GCC), was a 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 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 obligation under the various settlement agreements. Upon settlement of these
matters, $13.1 million of the previously recorded provision was reversed in
2001.

Reduction in Work Force 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 SG&A expenses in response to

21

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

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

CORPORATE AND OTHER

Corporate and other net expense of $17.7 million in 2001 was $3.5 million
favorable to 2000. Decreases in SG&A expenses and net interest expense were
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
investment 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 in
2001.

INCOME TAXES

The 2001 consolidated effective tax rate for continuing operations was
(34)% compared to the 2000 rate of 42%. 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.

DISCONTINUED OPERATIONS

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.

BALANCE SHEET DISCUSSION

ASSETS

Total assets increased to $6.4 billion in 2002 from $6.1 billion in 2001.
Operating lease investments, railcars and service facilities, and other assets
increased over the prior year due to increased aircraft investment and the
purchase of the remaining interest in KVG.

In addition to the $6.4 billion of assets recorded on the balance sheet,
GATX utilizes approximately $1.4 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 $1.4 billion of off balance sheet assets
represents the present value of GATX's committed future operating lease payments
at a 10% discount rate.

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

RECEIVABLES

Receivables, including finance leases and loans, decreased $307.0 million
compared to the prior year primarily due to lower finance lease investments at
Technology and lower loan balances at Venture.

ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide an estimate of credit losses
inherent in the investment portfolio. GATX sets the allowance by assessing
overall risk and potential 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 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 losses (in millions):

There were no material changes in estimation methods and assumptions for
the allowance that took place during 2002. The allowance for possible losses is
periodically reviewed for adequacy by considering changes in economic conditions
and credit quality indicators. GATX believes that the allowance is adequate to
cover losses inherent in the portfolio as of December 31, 2002. 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 allowance for possible losses of $82.2 million decreased $12.0 million
from the prior year. Financial Services' allowance for possible losses decreased
$17.9 million and represented 6.3% of reservable assets, an increase from the
prior year of 6.1%. Rail's allowance for possible losses increased $5.8 million
in 2002. Consolidated net charge-offs totaled $53.0 million for the year, a
decrease of $51.4 million from 2001. The

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2002 charge-offs were primarily in technology and venture investments while 2001
charge-offs were in largely telecom investments.

NON-PERFORMING INVESTMENTS

Leases and loans that are 90 days or more past due, or where reasonable
doubt exists as to timely collection of payments, are generally classified as
non-performing. Non-performing investments do not include operating lease assets
that are off lease or held for sale, or investments within joint ventures. Lease
or interest income accrued but not collected is reversed when a lease or loan is
classified as non-performing. Payments received on non-performing leases and
loans for which the ultimate collectibility of principal is uncertain are
applied as principal reductions. Otherwise, such collections are credited to
income when received.

Financial Services' non-performing investments at December 31, 2002 were
$94.9 million, $1.5 million lower than the prior year amount of $96.4 million.
Non-performing investments as a percentage of Financial Services investments
were 3.2% and 3.3% as of December 31, 2002 and 2001, respectively.

OPERATING LEASE ASSETS, FACILITIES AND OTHER

Net operating lease assets and facilities increased $600.1 million from
2001 mainly due to investments in aircraft and the KVG acquisition.

PROGRESS PAYMENTS

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 owned by joint ventures in which
GATX participates are classified as investments in affiliated companies. The
progress payments reported in 2002 and 2001 relate primarily to GATX's
commitment to purchase 10 Boeing 737-800 aircraft from 2002-2003, and 19 Airbus
A320 family aircraft from 2001-2004.

INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies decreased $62.0 million in 2002, of
which $53.0 million was due to the reclassification of KVG from investments in
affiliated companies to a wholly owned subsidiary resulting from the acquisition
of the remaining interest in KVG. GATX invested $93.3 million and $246.5 million
in joint ventures in 2002 and 2001, respectively. Share of affiliates' earnings
were $48.4 million and $32.8 million in 2002 and 2001, respectively.
Distributions from affiliates were $148.8 million and $225.6 million in 2002 and
2001, respectively.

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

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OTHER ASSETS

Other assets of $294.4 million at December 31, 2002 were $125.2 million
higher than the prior year primarily due to increases in prepaid pension, fair
value of derivatives and deferred financing costs.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses of $399.5 million increased $35.0
million compared to the prior year largely due to the acquisition of KVG.

DEBT

Total debt increased $163.0 million since the end of 2001, primarily due to
the consolidation of KVG. Nonrecourse debt decreased $114.8 million as
investments at Technology declined year over year.

GATX, including its principal subsidiary, GATX Financial Corporation (GFC),
issued $1.5 billion of debt in 2002. Significant borrowings included secured
financing supported by the European Credit Agencies (ECA) and the Export-Import
Bank of the United States (Ex-Im) for Airbus A320 and Boeing 737 aircraft
deliveries, other aircraft and railcar secured financings, senior unsecured term
notes, technology nonrecourse financing, and convertible debt.

The following table summarizes GATX's debt by major component, including
off balance sheet debt, as of December 31, 2002 (in millions):

DEFERRED INCOME TAXES

Deferred income taxes of $640.0 million increased $175.5 million from the
end of 2001 due to accelerated tax depreciation, including bonus depreciation
(30% accelerated depreciation on new equipment), 2002 pension plan contributions
and the consolidation of KVG balances.

TOTAL SHAREHOLDERS' EQUITY

Shareholders' equity decreased $80.2 million reflecting net income of $.3
million offset by common stock dividends of $62.5 million and changes in
accumulated other comprehensive loss of $26.4 million. The change in accumulated
other comprehensive loss was primarily driven by a higher minimum pension
liability and foreign currency translation loss.

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CASH FLOW DISCUSSION

GATX generates a significant amount of cash 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. A continued
weak environment could decrease demand for GATX's services, which in turn could
impact the Company's ability to generate cash flow from operations and portfolio
proceeds.

NET CASH PROVIDED BY CONTINUING OPERATIONS

Net cash provided by continuing operations of $439.7 million increased
$77.4 million from 2001. Excluding the $141.0 million settlement of the Airlog
litigation in 2001, cash flow from continuing operations was $63.6 million lower
in 2002 due to pension contributions and timing of tax refunds generated by the
current year tax net operating loss. All cash received from asset dispositions
(excluding the proceeds from the sale of the ISG segment), including gain and
return of principal, is reported in investing activities as portfolio proceeds
or proceeds from other asset sales.

PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS

Portfolio investments and capital additions of $1.3 billion decreased
$519.5 million from 2001.

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

Air investments included $518.0 million of progress payments and final
delivery payments for aircraft in 2002. The number of aircraft in which GATX has
an ownership interest increased 12% from 173 in 2001 to 193 in 2002. Included in
Air's 2001 investments was the acquisition of an interest in the Pembroke Group
for $70.4 million. Investments at Technology and Venture were significantly
lower in 2002. In 2001, Technology acquired a portfolio of leases from El Camino
Resources for $129.8 million, net of the assumption of $255.6 million of
nonrecourse debt. In December 2002, Rail purchased the remaining 50.5% interest
of KVG, a portion of which was funded in 2003. Rail's 2001 capital additions
included the DEC acquisition for $95.8 million and the acquisition of
approximately 4,000 railcars and locomotives for $243.3 million. Future
portfolio investments and capital additions (excluding contractual commitments)
will be dependent on market conditions and opportunities to acquire desirable
assets.

PORTFOLIO PROCEEDS

Portfolio proceeds of $882.8 million decreased $143.4 million from 2001
primarily due to lower cash distributions from joint venture investments,
particularly in Air, disposals of leased equipment and sales of securities,
offset by higher loan principal and finance lease payments received. 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 decrease
in portfolio proceeds.

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PROCEEDS FROM OTHER ASSET SALES

Proceeds from other asset sales of $17.4 million in 2002 primarily relate
to railcar scrappings. Proceeds from the sale-leaseback of railcars were $189.2
million in 2001.

PROCEEDS FROM SALE OF A PORTION OF SEGMENT

Proceeds from the sale of a portion of a segment of $3.2 million in 2002,
and $903.1 million net of taxes paid in 2001, were related to the sale of
various ISG assets.

NET CASH USED IN FINANCING ACTIVITIES FOR CONTINUING OPERATIONS

Net cash used in financing activities of continuing operations was $42.5
million in 2002 compared to $503.0 million in 2001. Net proceeds from issuance
of long-term debt were $1.5 billion in 2002. Significant financings in 2002
included $321.7 million of U.S. Export-Import Bank aircraft financing, $241.0
million of aircraft financing from the European Credit Agencies, $250.0 million
of senior unsecured term notes, $240.3 of technology nonrecourse financing, and
the issuance of convertible debt of $175.0 million. Short-term debt decreased
$274.4 million from the prior year.

LIQUIDITY AND CAPITAL RESOURCES

GATX funds investments and meets debt, lease, and dividend 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.

GFC has revolving credit facilities totaling $778.3 million. GFC's credit
facilities include three agreements for $350.0 million, $283.3 million, and
$145.0 million expiring in 2003, 2004, and 2005, respectively. The $145.0
million facility which closed in July 2002 is intended to be utilized to meet
short-term funding requirements. The $350.0 million and $283.3 million
facilities were established as back-up lines. 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, 2002, 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, 2002 was $1.5 billion, which was in excess
of the most restrictive minimum net worth requirement of $1.1 billion.
Additionally, the ratio of earnings to fixed charges as defined by the credit
facilities was 1.6x for the December 31, 2002 period, in excess of the most
restrictive agreement amount of 1.3x. At December 31, 2002, all credit
facilities were unused and available.

Secured financings are comprised of the sale-leaseback of railcars, loans
secured by railcars and aircraft, technology nonrecourse financing, and a
commercial paper (CP) conduit securitization facility. The railcar
sale-leasebacks qualify as operating leases and the assets or liabilities
associated with this equipment are not recorded on the balance sheet. In
December, 2002, GFC closed the $100 million CP conduit securitization facility
which can be renewed annually. At December 31, 2002, no amounts had been funded
through this facility.

GFC has a $1.0 billion shelf registration for debt securities, of which
$850.0 million has been issued.

The availability of these funding options may be adversely impacted by
certain factors including the global capital market environment and outlook as
well as GFC's financial performance and outlook. Access to capital markets at
competitive interest rates is partly dependent on GFC's credit rating as
determined primarily by rating agencies such as Standard & Poor's (S&P) and
Moody's Investor Service (Moody's). As of March 19, 2003, GFC's credit ratings
on its long-term unsecured debt were BBB and Baa3 at S&P and Moody's,
respectively. GFC's credit ratings on its commercial paper were A-3 and Prime-3
at S&P and Moody's, respectively. On February 3, 2003, S&P placed GFC's
long-term unsecured debt on credit watch with negative implications. GFC's
existing credit rating situation has increased the cost of borrowing from prior
years. Also, GFC's access to the commercial paper market has been seriously
constrained and GFC has experienced greater difficulty accessing the long-term
unsecured capital market on a cost efficient basis.

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In 2002, GFC arranged financing supported by the European Credit Agencies
to fund GFC's 2001-2004 Airbus A320 aircraft deliveries. Additionally, GFC
received approval from the Export-Import Bank of the United States to provide
credit support to finance GFC's 2002-2003 Boeing 737 aircraft deliveries. GFC
expects that it will be able to meet its contractual obligations for 2003 and
2004 through a combination of its current cash position, projected cash flow
from operations and portfolio proceeds, and its existing financing commitments
without the utilization of any back-up credit facilities.

At December 31, 2002, GATX's contractual commitments, including debt
maturities, lease payments, and unconditional purchase obligations were (in
millions):

GATX has total unconditional purchase obligations of $1,005.3 million,
consisting primarily of committed aircraft deliveries and railcar orders. Other
unconditional purchase obligations include $76.7 million of specialty finance
obligations primarily related to business jet aircraft and marine equipment
purchases, and $47.4 million related to new technology and venture investments.
Additionally, under the terms of the DEC acquisition agreement, GATX is
obligated to invest $65.9 million in DEC over the next three years.

At December 31, 2002, GATX's unconditional purchase obligations by segment
and business unit were (in millions):

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

Lease and loan payment guarantees generally involve guaranteeing repayment
of the financing utilized to acquire assets being leased by an affiliate to
customers, 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.

28

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
negative financial impact to GATX.

GATX and its subsidiaries are also parties to letters of credit and bonds.
No material claims have been made against these obligations. At December 31,
2002, GATX does not expect any material losses to result from these off-balance
sheet instruments because performance is not anticipated to be required.

GATX's commercial commitments at December 31, 2002 were (in millions):

At December 31, 2002, $516.8 million of subsidiary net assets were
restricted, limiting the ability of GATX Financial Corporation, its principal
subsidiary, to transfer assets to GATX in the form of loans, advances or
dividends. Restricted assets are defined as the subsidiary's equity, less
intercompany receivables from the parent company, less the amount that could be
transferred to the parent company. The net asset restrictions of GFC result from
covenants under its revolving credit agreements and indentures. Such
restrictions are not expected to have an adverse impact on the ability of GATX
to meet its cash obligations.

In 2002, GATX contributed $42.2 million to its qualified pension plans. The
Company may make additional contributions to the plans in 2003, but is not
required to do so. However, if investment returns underperform expectations,
additional contributions may be necessary and could be material in amount.

CRITICAL ACCOUNTING POLICIES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to use judgment in
making estimates and assumptions that affect reporte