GATX CORP - 10-K Annual Report

Back to GetFilings.com

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------------

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, 2003

OR

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

COMMISSION FILE NUMBER 1-2328
---------------------

(GATX CORPORATION LOGO)

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. [ ]

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 $802.8 million on June 30, 2003.

Indicate the number of shares outstanding of each registrant's classes of
common stock, as of the latest practicable date: 49,258,969 common shares were
outstanding as of March 5, 2004.

DOCUMENTS INCORPORATED BY REFERENCE

GATX's definitive Proxy Statement to be filed on or about March 15,
2004 PART III

INDEX TO GATX CORPORATION

2003 FORM 10-K

1

PART I

ITEM 1. BUSINESS

GATX Corporation (GATX or the Company) is headquartered in Chicago,
Illinois and provides its services primarily through four operating segments:
GATX Rail (Rail), GATX Air (Air), GATX Technology Services (Technology) and GATX
Specialty Finance (Specialty). Through these businesses, GATX combines asset
knowledge and services, structuring expertise, partnering and capital to provide
business solutions to customers and partners worldwide. GATX specializes in
railcar and locomotive leasing, aircraft operating leasing, information
technology leasing, and financing other large ticket equipment.

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.

At the end of 2003, GATX completed a reorganization which resulted in
changes in management structure and reporting. As a result, GATX expanded its
operating segments from Rail and Financial Services, as previously reported, to
Rail, Air, Technology and Specialty. The results of American Steamship Company
(ASC) and corporate expenses not allocated to the segments are included in
Other.

At December 31, 2003, GATX had balance sheet assets of $6.1 billion,
comprised of operating assets such as railcars, commercial aircraft and
information technology equipment. In addition to the $6.1 billion of assets
recorded on the balance sheet, GATX utilizes approximately $1.3 billion of other
assets, such as railcars and aircraft, which were financed with operating leases
and therefore are not recorded on the balance sheet.

See discussion in Note 24 to the consolidated financial statements for
additional details regarding financial information about geographic areas.

BUSINESS SEGMENTS

See discussion in the RISK FACTORS section of Part I and MANAGEMENT'S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS section
of Part II, Item 7 of this document for additional details regarding each
segment's business and operating results.

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 full service lease,
Rail maintains and services the railcars, pays ad valorem taxes, and provides
other ancillary services. Under a net lease, the lessee is responsible for
maintenance, insurance and taxes. As of December 31, 2003, GATX's owned
worldwide fleet, including Rail and Specialty owned cars, totaled approximately
125,000 railcars. GATX also has an ownership interest in approximately 27,000
railcars worldwide through Rail and Specialty's investments in affiliated
companies.

As of December 31, 2003, Rail's North American fleet consisted of
approximately 105,000 railcars, comprised of 61,000 tank cars and 44,000 freight
cars. The cars in this fleet have depreciable lives of 30 to 38 years and an
average age of approximately 16 years. The utilization rate of Rail's North
American railcar fleet was 93% at December 31, 2003. Rail 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 railcars 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, and Union Tank Car Company. Rail signed agreements with
Trinity Industries, Inc. and with Union Tank Car Company for the purchase of
5,000 and 2,500 newly manufactured cars, respectively, for orders through 2007.

2

Rail's primary competitors in North America are Union Tank Car Company,
General Electric Railcar Services Corporation, and various financial
institutions. At the end of 2003, there were approximately 274,000 tank cars and
1.4 million freight cars owned and leased in North America. At December 31,
2003, Rail's owned fleet comprised approximately 22% of the tank cars in North
America and approximately 3% of the freight cars in North America. Principal
competitive factors include price, service, availability and customer
relationships.

Rail operates a network of major service centers across North America
supplemented by a number of smaller service centers and a fleet of service
trucks. Additionally, Rail utilizes independent third-party repair facilities.

In addition to its North American fleet, Rail has direct or indirect
ownership 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 approximately 10,000 tank
cars and a railcar maintenance network. DEC maintains two business offices and
operates three major 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 tank car lessor. Prior to the 2002
acquisition, Rail held a 49.5% interest in KVG. At December 31, 2003, KVG had
approximately 8,000 railcars, business offices in both Germany and Austria and a
service center in Germany. Rail also owns a 37.5% interest in AAE Cargo AG
(AAE), a freight car lessor headquartered in Switzerland that operates
approximately 18,000 cars.

Worldwide, Rail provides more than 120 railcar types used to ship over 650
different commodities, principally chemicals, petroleum, and food products.
During 2003, approximately 36% of railcar leasing revenue was attributable to
shipments of chemical products, 27% related to shipments of petroleum products,
14% related to shipments of food, 11% related to leasing cars to railroads and
12% related to other revenue sources. Rail leases railcars to over 900
customers, including major chemical, oil, food, agricultural and railroad
companies. In 2003, no single customer accounted for more than 3% of total
railcar leasing revenue.

GATX AIR

Air is headquartered in San Francisco, California and is primarily engaged
in leasing newer, narrow-body aircraft widely used by commercial airlines
throughout the world. Air typically enters into net leases under which the
lessee is responsible for maintenance, insurance and taxes. Air owns directly or
with others 163 aircraft, 48 of which are wholly-owned with the balance owned in
combination with other investors. All of the aircraft are in compliance with
Stage III noise standards and together have a weighted average age of
approximately five years based on net book value. Generally, new aircraft have
an estimated useful life of approximately 25 years. Aircraft currently on lease
have an average remaining lease term of approximately four years. Air typically
offers lease terms in the range of three to five years.

Air's customer base is diverse by carrier and geographic location. Air
leases to 59 airlines in 28 countries and in 2003, no single customer
contributed more than 8% of Air's total revenue or represented more than 9% of
Air's total net book value. At December 31, 2003, the countries with significant
concentrations of Air's commercial aircraft were Turkey, with approximately
$262.9 million or 13% of Air's total assets of $2,006.0 million, including off
balance sheet assets of $29.0 million, and Italy with approximately $238.8
million or 12% of Air's total assets, including off balance sheet assets. Air
purchases new aircraft from Airbus Industrie (Airbus) and The Boeing Company
(Boeing) and also acquires used aircraft in the secondary market. Air primarily
competes with independent leasing companies, leasing subsidiaries of commercial
banks, and financing arms of equipment manufacturers. The primary competitive
factors are pricing and availability of aircraft types.

Air also manages 74 aircraft for third parties. Air's management role
includes marketing the aircraft, monitoring aircraft maintenance and condition,
and administering the portfolio, including billing and

3

collecting rents, accounting and tax compliance, reporting and regulatory
filings, purchasing insurance, and lessee credit evaluation.

GATX TECHNOLOGY SERVICES

Technology, headquartered in Tampa, Florida, is a leading independent
lessor of information technology (IT) equipment in North America. In addition,
Technology has ownership interests in technology leasing companies in the United
Kingdom (U.K.) and Germany. Technology assists its customers in acquiring IT
equipment from leading manufacturers and resellers. This equipment includes
personal computers, servers, midrange computers, mainframe computers and
communications equipment. IT equipment is typically depreciated to an estimated
residual value over the lease term, which is approximately three to five years.
The average size of an IT transaction is approximately $.3 million.

In conjunction with leasing technology equipment, Technology provides life
cycle asset management services to help its customers acquire, manage, remarket
and dispose of IT assets. As an independent technology lessor, Technology is not
aligned with any particular manufacturer and it is able to provide these
services with an unbiased perspective. These services include assessing
alternative manufacturers, technologies, products and procurement plans.

Technology serves a diverse customer base, in a broad range of industries
including data processing and information services, retail, scientific,
utilities, manufacturing, finance and insurance. Technology is not dependent on
any single customer; no single customer accounts for more than 8% of
Technology's revenues.

Technology primarily competes with captive leasing companies of IT
equipment manufacturers, leasing subsidiaries of commercial banks and
independent leasing companies.

GATX SPECIALTY FINANCE

Specialty is headquartered in San Francisco, California and is comprised of
the former specialty finance and venture finance business units, which are now
managed as one operating segment. At the end of 2002, GATX announced its
intention to curtail investment in specialty finance and to sell or otherwise
run-off venture finance.

The Specialty portfolio consists primarily of leases and loans, frequently
including interests in an asset's residual value, and joint venture investments
involving a variety of underlying asset types, including marine, aircraft and
other diversified investments. The portfolio of the discontinued venture
business consists primarily of loans. Specialty also manages portfolios of
assets for third parties with a net book value of $864.0 million. The majority
of these managed assets are in markets in which GATX has a high level of
expertise such as aircraft, power generation, rail equipment, and marine
equipment. Specialty generates fee-based income through transaction structuring
and portfolio management services. Fees are earned at the time a transaction is
completed and/or on an ongoing basis in the case of portfolio management
activities. Specialty also derives remarketing income when assets are sold from
the owned portfolio and residual sharing fees from managed assets sold on behalf
of third parties.

Specialty sold its venture finance portfolios in the U.K. and Canada in
2003, and continues to run-off the remaining venture finance portfolio. GATX
anticipates that the venture finance portfolio will be substantially liquidated
by the end of 2005. Venture finance-related assets, including $1.6 million off
balance sheet assets, are $105.5 million at December 31, 2003, 15% of
Specialty's total assets of $721.3 million, including $13.7 million of off
balance sheet assets.

The principal competitors of Specialty are captive leasing companies of
equipment manufacturers, leasing subsidiaries of commercial banks, independent
leasing companies, lease brokers and investment banks.

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 and
4

was comprised of GATX Terminals Corporation (Terminals), GATX Logistics, Inc.
(Logistics) and minor business development efforts. As a result, the financial
data for the ISG segment is presented as discontinued operations for all
periods.

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 United States (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 GATX's businesses taken as a whole.

SEASONAL NATURE OF BUSINESS

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

CUSTOMER BASE

Neither GATX as a whole nor any of its business segments is dependent upon
a single customer or concentration among a few customers.

EMPLOYEES

As of December 31, 2003, GATX and its subsidiaries had approximately 2,250
employees, of whom 33% were hourly employees covered by union contracts.

ENVIRONMENTAL MATTERS

GATX's operations, as well as those of its competitors, are subject to
extensive federal, state and local environmental regulations. These laws cover
discharges to waters, air emissions, toxic substances, and the generation,
handling, storage, transportation and disposal of waste and hazardous materials.
This regulation has the effect of increasing the cost and liabilities associated
with leasing rail cars. Environmental risks are also inherent in rail
operations, which frequently involve transporting chemicals and other hazardous
materials.

Some of GATX's real estate holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a result, GATX is now subject to and will from time to time continue to be
subject to environmental cleanup and enforcement actions. In particular, the
federal Comprehensive Environmental Response, Compensation and Liability Act
(CERCLA), also known as the Superfund law, generally imposes joint and several
liability for cleanup and enforcement costs, without regard to fault or the
legality of the original conduct, on current and former owners and operators of
a site. Accordingly, GATX may be responsible under CERCLA and other federal and
state statutes for all or part of the costs to cleanup sites at which certain
substances may have been released by GATX, its current lessees, former owners or
lessees of properties, or other third parties. Environmental remediation and
other environmental costs are accrued when considered probable and amounts can
be reasonably estimated. As of December 31, 2003, environmental costs were not
material to GATX's results of operations, financial position or liquidity. For
further discussion, see Note 16 to the consolidated financial statements.

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. These factors
include the global capital market environment and outlook, financial
performance and outlook, and credit ratings as determined primarily by
rating agencies such as Standard & Poor's (S&P) and Moody's Investor
Service (Moody's). In addition, based on GATX's current credit ratings,
access to the commercial paper market and uncommitted money market lines
is uncertain and cannot be relied upon. It is possible that 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. National and international political
developments, instability and uncertainties, including continuing
political unrest and threats of terrorists' attacks, could result in
continued global economic weakness in general and in the United States in
particular, and could have an adverse impact on GATX's businesses. The
effects may include, among other things, a decrease in demand for air
travel and rail services, consolidation and/or additional bankruptcies in
the rail and airline industries, lower utilization of new and existing
aircraft and rail equipment, lower rail and aircraft rental rates or a
slower recovery of such rates, impairment of rail and air portfolio
assets and fewer partners for joint ventures. Depending upon the
severity, scope and duration of these effects, the impact on GATX's
financial position, results of operations and cash flows could be
material.

- Competition. GATX is subject to intense competition in its rail,
aircraft and technology leasing businesses. In many cases, these
competitors are larger entities that have greater financial resources,
higher credit ratings and access to lower cost capital than GATX. These
factors may enable competitors to offer leases and loans to customers at
lower rates than GATX is able to provide, thus impacting GATX's asset
utilization or GATX's ability to lease assets on a profitable basis.

- Lease versus Purchase Decision. GATX's core businesses rely 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, interest rates, 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. 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,
regulatory, or economic obsolescence. Although GATX believes it is adept
at managing obsolescence risk, there is no guarantee that changes in
various market fundamentals or the adoption of new regulatory
requirements 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
expectations 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, including 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. GATX may be required to

6

recognize asset impairment charges in the future as a result of the weak
economic environment, challenging market conditions in the air, rail or
technology markets or events related to particular customers or asset types.

- Insurance. The ability to insure its rail and aircraft assets and their
associated risks 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.

- Potential for Claims and Lawsuits. The nature of assets which GATX owns
and leases exposes the Company to the potential for various claims and
litigation related to, among other things, personal injury and property
damage, environmental claims and other matters. Some of the commodities
transported by GATX's railcars, particularly those classified as
hazardous materials, can pose risks that GATX and its subsidiaries work
with its customers to minimize. The potential liabilities could have a
significant effect on GATX's consolidated financial condition or results
of operations.

- Commodity/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. In addition,
commodity prices such as the price of steel are a large component of
railcar manufacturing. Sustained high energy or commodity prices could
negatively impact these industries resulting in a corresponding adverse
effect on the cost and 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 may negatively impact GATX's
financial results and economic value of its assets.

- Risk Concentrations. GATX's revenues are generally derived from a wide
range of asset types, customers and geographic locations. However, from
time to time, GATX could have a large investment in a particular asset
type, a large revenue stream associated with a particular customer, or a
large number of customers located in a particular geographic region.
Decreased demand from a discrete event impacting a particular asset type,
discrete events with a specific customer, or adverse regional economic
conditions, particularly for those assets, customers or regions in which
GATX has a concentrated exposure, could have a negative impact on GATX's
results of operations.

- Foreign Currency. GATX's results are exposed to foreign exchange rate
fluctuations as the financial results of certain subsidiaries are
translated from the local currency into U.S. dollars upon consolidation.
As exchange rates vary, revenue and other operating results, when
translated, may differ materially from expectations. GATX is also subject
to gains and losses on foreign currency transactions, which could vary
based on fluctuations in exchange rates and the timing of the
transactions and their settlement. In addition, fluctuations in foreign
exchange rates can have an effect on the demand and relative price for
services provided by GATX domestically and internationally, and could
have a negative impact on GATX's results of operations.

- Asset Utilization and Lease Rates. GATX's profitability is largely
dependent on its ability to maintain assets on lease (utilization) at
satisfactory lease rates. A number of factors can adversely affect
utilization and lease rates, including, but not limited to: an economic
downturn causing reduced demand or oversupply in the markets in which the
company operates, changes in customer behavior, or any other change in
supply or demand caused by factors discussed in this Risk section.

7

- Retirement Benefits. GATX's pension and other post-retirement costs are
dependent on various assumptions used to calculate such amounts,
including discount rates, long-term return on plan assets, salary
increases, health care cost trend rates and other factors. Changes to any
of these assumptions could adversely affect GATX's results of operations.

- Income Taxes. GATX is subject to taxes in both the U.S. and various
foreign jurisdictions. As a result, GATX's effective tax rate could be
adversely affected by changes in the mix of earnings in the U.S. and
foreign countries with differing statutory tax rates, legislative changes
impacting statutory tax rates, including the impact on recorded deferred
tax assets and liabilities, changes in tax laws or by material audit
assessments. In addition, deferred tax balances reflect the benefit of
net operating loss carryforwards, the realization of which will be
dependent upon generating future taxable income.

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.

8

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, 2003, locations of operations were as follows:

RAIL

HEADQUARTERS
Chicago, Illinois

BUSINESS OFFICES
San Francisco, California
Alpharetta, Georgia
Chicago, Illinois
Marlton, New Jersey
Philadelphia, Pennsylvania
Houston, Texas
Calgary, Alberta
Montreal, Quebec
Vienna, Austria
Sydney, Australia
Hamburg, Germany
Mexico City, Mexico
Nowa Wie-Wielka, Poland
Warsaw, Poland

MAJOR SERVICE CENTERS
Colton, California
Waycross, Georgia
Hearne, Texas
Red Deer, Alberta
Sarnia, Ontario
Coteau-du-Lac, Quebec
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
Kansas City, Missouri
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
Clarkson, Ontario
Sarnia, Ontario
Montreal, Quebec
Quebec City, Quebec
Vancouver, British Columbia
Tierra Blanca, Mexico

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

AIR

HEADQUARTERS
San Francisco, California

BUSINESS OFFICES
Seattle, Washington
Toulouse, France
Tokyo, Japan
London, United Kingdom

AFFILIATES
Dublin, Ireland
London, United Kingdom

TECHNOLOGY

HEADQUARTERS
Tampa, Florida

BUSINESS OFFICES
Oldsmar, Florida
Tampa, Florida

AFFILIATES
Bad Homburg, Germany
Hertfordshire, United Kingdom

SPECIALTY

HEADQUARTERS
San Francisco, California

BUSINESS OFFICES
Lafayette, California
Sydney, Australia

CORPORATE HEADQUARTERS

Chicago, Illinois

OTHER BUSINESS OFFICES

Williamsville, New York

9

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 tank car
owned by the GATX Rail division of GATX Financial Corporation, a wholly owned
subsidiary of GATX, 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, but plaintiffs have not yet moved to have the class certified.
Settlement negotiations are ongoing.

In March 2001, East European Kolia-System Financial Consultant S.A. (Kolia)
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, 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 served on DEC in December 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. DEC has filed a response denying the allegations set forth
in the compliant. The parties have each confirmed their respective positions in
the case at a hearing held in early March of 2002. At a hearing held on October
22, 2003, the court rendered a decision in favor of DEC, dismissing Kolia's
action. On December 9, 2003, the plaintiff filed an appeal of the decision.

On December 29, 2003, a suit was filed in the District Court of the State
of Minnesota, County of Hennepin, Fourth Judicial District, MeLea J. Grabinger,
individually, as Personal Representative of the Estate of John T. Grabinger, and
as Representative/Trustee of the beneficiaries in the wrongful death action, v.
Canadian Pacific Railway Company, et al. On January 20, 2004, Canadian Pacific
removed the case to the United States District Court for the District of
Minnesota Civil No. 04 CU-140-(DSD/SRN) but on February 19, 2004, consented to a
remand to the District Court of the State of Minnesota, County of Hennepin. The
lawsuit seeks damages for an incident that occurred on Friday, January 18, 2002
when a Canadian Pacific train containing anhydrous ammonia cars derailed near
Minot, North Dakota. As a result of the derailment, several tank cars fractured,
releasing anhydrous ammonia which formed a vapor cloud. One person died, as many
as 100 people received medical treatment, of which fifteen were admitted to the
hospital and a number of others were purportedly affected. The plaintiff alleges
among other things that the incident (i) caused the wrongful death of her
husband, and (ii) caused her to suffer permanent physical injuries and emotional
and physical pain. The complaint alleges that the incident was proximately
caused by the defendants who are liable under a number of legal theories, and
states that it is plaintiffs' information and belief that the Canadian Pacific
and its related entities are solely at fault for the incident. However, because
the NTSB had not yet released a report of its investigation into the incident at
the date of filing of the Complaint, plaintiffs were unsure if the tank car
suppliers had any responsibility and therefore named all of the tank car
manufacturers and owners with cars involved in the incident, including GATX
Financial Corporation (erroneously named as GATX Rail Corporation) to avoid
being barred by the statute of limitations. On March 9, 2004, the NTSB released
a synopsis of its anticipated report, which sets forth a number of conclusions
including that the failure of the track caused the derailment and that the
catastrophic fracture of tank cars increased the severity of the accident. GFC
intends to defend this suit vigorously. On January 9, 2004, the plaintiff filed
an action that is almost identical to this action in United States District
Court, District of North Dakota, Northwest Division, MeLea J. Grabinger,
individually, as Personal Representative of the Estate of John T. Grabinger, and
as Representative/Trustee of the beneficiaries in the wrongful death

10

action, v. Canadian Pacific Railway Company, et al. Case Number A4-04-02. GATX
has not yet been served in the North Dakota action.

GATX and its subsidiaries have been named as defendants in a number of
other legal actions and claims, various governmental proceedings and private
civil suits arising in the ordinary course of business, including those related
to environmental matters, workers' compensation claims by GATX employees and
other personal injury claims. Some of the legal proceedings include claims for
punitive as well as compensatory damages. 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
number of these claims and the corresponding demands for indemnity against the
Company increased in 2003. It is possible that the number of these claims could
continue to grow and that the cost of these claims could correspondingly
increase in the future.

The amounts claimed in some of the above described 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.

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
GATX's executive officers is included in Part I in lieu of inclusion in the
definitive GATX Proxy Statement:

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

(a) In addition to GATX's executive officers, certain officers of subsidiaries
are considered executive officers as defined in Rule 3b-7 for purposes of
the Company's Annual Report on Form 10-K; these officers were elected by
the Board of Directors in February 2004.

11

- - 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 1999.
Prior to that, Mr. Kenney served as Vice President, Finance from 1998 to 1999,
Vice President and Treasurer from 1997 to 1998, and Treasurer from 1995 to
1996.

- - 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 has served as Vice President, Human Resources since 1999. Prior to
that, Ms. Duddy served as Vice President, Compensation and Benefits and
Corporate Human Resources from 1997 to 1999. Ms. Duddy served as Director of
Compensation and Benefits from 1995 to 1997 and Director of Compensation from
1992 to 1995.

- - 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.

- - Mr. Edwards has served as President of GATX Rail since 2000. Prior to that,
Mr. Edwards served as President of Integrated Solutions Group from 1999 to
2000, Senior Vice President and Chief Financial Officer of GATX Corporation
from 1998 to 1999, and Vice President and Chief Financial Officer from 1994 to
1998.

- - Mr. Coe has served as President of GATX Air since 1997.

- - Mr. McGreal has served as President of GATX Technology Services since he
joined GATX in 2001.

- - In 2003, Mr. Glenn became Executive Vice President, GATX Specialty Finance.
Prior to that, Mr. Glenn served as Senior Vice President and Chief Financial
Officer of GATX Capital from 2000 to 2003.

12

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 5, 2004 was 3,609. 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:

In January 2004, GATX's first quarter dividend was reduced to $.20 per
common share from previous quarterly dividends of $.32 per common share. GATX's
Board of Directors reduced the dividend based upon its expectations of a gradual
earnings recovery as well as balancing GATX's expected investment level,
projected capital structure and other factors. The Board of Directors evaluates
payment of a dividend each quarter.

13

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 Statement of Financial Accounting Standards
No. 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 2003
presentation.

14

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,"
"expect," "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. In addition, certain factors, including Risk Factors identified in
Part I of this document may affect GATX's businesses. As a result, past
financial performance may not be a reliable indicator of future performance.

STATEMENT OF INCOME DISCUSSION

The following table presents income (loss) from continuing operations by
segment and net income for the years ended December 31, 2003, 2002 and 2001 (in
millions):

At the end of 2003, GATX completed a reorganization which resulted in
changes in management structure and reporting. As a result, GATX now provides
its services and products through four operating segments: Rail, Air, Technology
and Specialty. Previously, GATX reported its operating segments as GATX Rail and
Financial Services, which included the results of its business units, air,
technology, specialty finance (including American Steamship Company (ASC)), and
venture finance. All reported amounts have been restated to conform to the
revised segment presentation.

Along with the change to reporting segments, GATX revised its methodology
for allocating corporate SG&A expenses to the segments. Corporate SG&A expenses
relate to administration and support functions performed at the corporate
office. Such expenses include information technology, human resources, legal,
financial support and executive costs. Under the revised allocation methodology,
directly attributable expenses are generally allocated to the segments, and
shared costs are retained in Other. Amounts allocated to the segments are
approximated based on management's best estimate and judgment of direct support
services. Rail's previously reported segment net income for 2002 and 2001 has
been restated to incorporate the revised methodology for SG&A allocations.

Debt balances and interest expense were allocated based upon a fixed
leverage ratio for each individual operating segment across all reporting
periods, expressed as a ratio of debt to equity. Rail's leverage ratio was set
at 5:1, Air's leverage ratio was set at 4:1, Technology's leverage ratio was set
at 1:1 (excluding nonrecourse debt), and Specialty's leverage ratio was set at
4:1. Any GATX debt and related interest expense that

15

remained after this allocation methodology was assigned to Other in each period.
Management believes this leverage and interest expense allocation methodology
gives an accurate indication of each operating segment's risk-adjusted financial
return.

See Note 25 to the consolidated financial statements for further segment
information.

Following is management's discussion and analysis of GATX's comparative
results of its segments, in addition to results of Other and discontinued
operations.

YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002

GATX RAIL

Challenging market conditions in the North American rail industry continued
to affect Rail in 2003. An oversupply of certain car types in the railcar
market, short backlogs at new car manufacturers, and a weak economic environment
has resulted in lease rates that are still below peak lease rates of the late
1990's. Aggressive competition from other lessors pressured lease rates as well.
Despite an improving economy in North America, the earnings recovery from Rail's
existing fleet is likely to be gradual due to the average lease term of Rail's
portfolio and that approximately 36% of Rail's revenue comes from the chemical
sector, which has also lagged the general economy.

With an average lease term of five years, a significant portion of the
North American fleet comes up for renewal each year. During 2003, approximately
26,000 cars previously leased in a stronger market at more attractive rates were
renewed with the same customer or placed with a new customer ("assigned") at
market rates which were lower on average than the previous rate. Although the
downward trend in absolute lease rates has abated somewhat, Rail anticipates
that approximately 25,000 cars during 2004 will also be renewed or assigned at
rates generally lower than the previous contract rate, slowing the pace of
Rail's earnings recovery.

In 2003, utilization of the North American fleet improved from 91% to 93%.
The increase in utilization from the prior year end was the result of aggressive
efforts to improve the renewal success rate, to market specific car types and to
scrap older, uneconomic cars from the fleet. Active cars in North America
increased by approximately 1,100 cars after two consecutive years of decline.
The acquisition at the end of the fourth quarter in 2003 of a fleet of 1,200
covered hoppers on long-term lease drove the increase in active cars.

Investment in new cars for North America increased in 2003 over the prior
year. Rail entered into agreements in late 2002 with Trinity Industries, Inc.
and Union Tank Car Company to acquire new cars at pre-negotiated prices. Under
this program, Rail took delivery of approximately 1,000 new cars in 2003. Rail
continued to purchase new cars and actively pursue secondary market transactions
in order to capitalize on the slowly improving market. As the market improves,
increased railcar manufacturing backlogs may affect new car prices. The recent
sharp increase in steel prices may also affect new car prices.

The trend of increasing costs for maintaining the North American fleet
continued in 2003. Despite fewer cars in the total fleet, maintenance costs
rose, largely due to an increase in the number of car assignments. In addition,
maintenance costs were adversely affected in 2003 as a result of an American
Association of Railroads (AAR) requirement to replace bolsters on certain cars
(see discussion below). The trend in maintenance costs is expected to continue
in 2004 due to additional compliance work, anticipated high assignment levels,
and completing the remainder of the bolster replacement work.

In 2003, Rail's European operations generally experienced a more favorable
market environment compared to its North America operations. Rail's wholly-owned
European subsidiaries DEC and KVG primarily serve the tank car market, and AAE,
a European joint venture, primarily serves the general freight car market. Fleet
utilization at both KVG and AAE is in the high 90%'s. AAE has benefited from the
high growth rates of shipping activity at European seaports. DEC's performance
has been negatively affected by a weak Polish economy.

The long-term outlook for the European market is positive. The European
Union is encouraging the use of railways in place of the congested road system.
KVG and DEC are in the early stages of integrating their tank car operations and
DEC is moving from its high cost trip-lease business model to a low cost
operating
16

lease business model as it continues to improve its cost structure. This
transition may negatively affect short-term earnings, but is expected to result
in long-term operational efficiencies.

Rail acquired the remaining interest in KVG in December 2002. As a result,
Rail's year over year income comparability is affected by the inclusion of 100%
of KVG's results in 2003 compared to 49.5% in 2002. KVG's revenues converted to
U.S. dollars were approximately $66.0 million in 2003. KVG's operating results
were affected by a continued weak European economy, offset by strong new car
additions, as its primary markets of chemical, petroleum, mineral and liquid
petroleum gas remained stable. In addition, KVG was instrumental in placing DEC
tank cars in service outside of Poland, a key European strategy for Rail.

Gross Income

Components of Rail's gross income are summarized below (in millions):

Rail's 2003 gross income of $702.3 million was $30.1 million higher than
2002. Excluding the impact of KVG in both periods, gross income was down $20.5
million from 2002. The decrease was primarily driven by lower North American
lease income resulting from lower average lease rates and fewer railcars on
lease for most of the year. Although average renewal rates continue to be lower
than Rail's prior contractual rate, the percentage decline in renewal rates
improved during 2003.

Share of affiliates' 2003 earnings of $12.5 million were slightly lower
than the prior year. Excluding KVG's pretax earnings of $4.7 million in 2002,
share of affiliates' earnings in 2003 increased $4.1 million. The increase was
the result of favorable maintenance expense at domestic affiliates combined with
a larger fleet and favorable foreign exchange rates at a foreign affiliate.

Ownership Costs

Components of Rail's ownership costs are summarized below (in millions):

Ownership costs were $355.3 million in 2003 compared to $332.5 million in
2002. The increase was primarily due to the acquisition and consolidation of
KVG.

17

Other Costs and Expenses

Components of Rail's other costs and expenses are summarized below (in
millions):

Maintenance expense of $165.5 million in 2003 increased $14.6 million from
2002. Excluding KVG, maintenance expense increased $4.9 million in 2003. The
variance is due primarily to the increase in car assignments discussed above.
Both 2003 and 2002 results include comparable levels of maintenance costs for
certain railroad mandated repairs.

In 2003, the AAR issued a series of early warning letters that required all
owners of railcars in the U.S., Canada and Mexico to inspect or replace certain
bolsters manufactured from the mid 1990s to 2001 by a now bankrupt supplier.
Rail owned approximately 3,500 railcars equipped with bolsters that were
required to be inspected or replaced. Due dates for inspection or replacement of
the bolsters ranged from September 30, 2003 to December 31, 2004 depending on
car type and service. As of December 31, 2003, bolsters on approximately 1,300
cars have been replaced. 2003 maintenance expense included $3.9 million
attributable to the inspection and replacement of bolsters. Management expects
the remaining costs of bolster replacements to approximate $3.3 million in 2004.

In the second quarter of 2002, the Federal Railroad Administration 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 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. As
of year end 2002, substantially all of the subject tank cars were removed from
Rail's fleet.

Selling, general and administrative (SG&A) expenses of $69.0 million
increased $9.8 million in 2003. Excluding KVG, SG&A expenses decreased $1.2
million due to cost savings initiatives. In 2003, Rail recorded a reversal of
provision for possible losses of $2.6 million resulting from improvement in
portfolio quality, recoveries of bad debts, and more favorable aging of Rail's
receivables.

Taxes

Rail's income tax expense was $26.3 million in 2003, a decrease of $7.3
million from the 2002 amount of $33.6 million. Rail's 2003 taxes included a $2.3
million deferred tax benefit at DEC attributable to a reduction in Polish tax
rates.

Cumulative Effect of Accounting Change

In accordance with Statement of Financial Accounting Standards (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 in 2002. 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 lessened expectations of projected cash flows based on
market conditions at the time of the review and a lower long-term growth rate
projected for DEC.

18

Net Income

Rail's net income of $54.9 million in 2003 increased $29.1 million from the
prior year. Income before the cumulative effect of accounting change decreased
$5.8 million. The decrease was primarily due to lower North American lease
income driven by lower average lease rates.

GATX AIR

Challenging conditions in the aviation industry continued to negatively
affect Air in 2003. Although the industry appears to be recovering from its
severe downturn, aircraft lessors continued to experience lower lease rates,
credit defaults and asset impairments during 2003. Specifically, aircraft over
15 years in age are proving to be more difficult to lease and present the
greatest uncertainty in value. Rents on older aircraft continued to decline in
2003, while rents on newer aircraft stabilized.

Until the air market more fully recovers, low lease rates, defaults and
potential impairments will continue to pressure earnings. For example, GATX owns
a 50% interest in Pembroke, an aircraft lessor and manager based in Ireland.
Pembroke currently has six fully utilized Boeing 717 aircraft in its portfolio.
Boeing's 717 program is in jeopardy of being cancelled due to weak demand for
the aircraft. This in turn could adversely affect the future marketability of
these aircraft and may result in impairment.

Air's owned portfolio had an average age of eight years (five years on a
weighted average, net book value basis) at the end of 2003. With a relatively
new fleet, Air achieved almost full utilization in 2003. At December 31, 2003,
less than 1% of Air's portfolio was available for lease; over 96% were on lease
with customers, and the remaining 3% were subject to signed letters of intent to
lease with customers.

Air achieved this utilization level by successfully placing 19 owned
aircraft during 2003, including six new and 13 existing aircraft. Air has
entered into letters of intent or leases for 14 of 15 owned aircraft whose
leases are scheduled to expire in 2004. In addition, as of March 12, 2004, Air
has entered into letters of intent to lease three new aircraft scheduled for
delivery in 2004. Additionally, Air is committed for two new aircraft deliveries
in 2006, which are still available for lease.

Air generates income primarily from operating leases, many which have
"floating" rents that are periodically adjusted based on current interest rates.
Air usually match-funds floating rate leases with floating rate debt to offset
the risk of interest rate fluctuations. Air's other significant source of
revenue is fee income and results from remarketing and administering aircraft in
its joint ventures as well as managing aircraft for third parties. Air's level
of fee income can be unpredictable, varying with the performance of the managed
fleet and Air's success in remarketing and selling aircraft.

Despite the current market conditions, Air expects to grow both its owned
and managed portfolios. Besides its existing aircraft commitments, Air plans to
selectively invest in attractive aircraft opportunities if and when they arise.
Additionally, Air will continue to pursue new partnership and portfolio
management opportunities.

19

Gross Income

Components of Air's gross income are summarized below (in millions):

Air's 2003 gross income of $141.8 million was $38.0 million higher than
2002. The increase was primarily driven by higher lease income due to the full
year revenue recognition on 16 new aircraft which were delivered at various
times during 2002, and an additional six new aircraft deliveries which were
received and put on lease in 2003. Although gross income increased from the
prior year, lower lease rates due to weak market conditions resulted in lower
average yields. Other income also contributed $7.1 million to the increase,
primarily attributable to the recognition of previously collected maintenance
reserves. These maintenance reserves were entirely offset by related impairment
charges taken on the underlying aircraft.

Share of affiliates' earnings of $31.6 million was $16.8 million higher
than the prior year. The increase from the prior year is primarily due to
impairment losses that were recognized in 2002 on a fleet of 28 Fokker 50 and
Fokker 100 aircraft owned by Air's 50% owned Pembroke affiliate.

Ownership Costs

Components of Air's ownership costs are summarized below (in millions):

Ownership costs of $100.2 million in 2003 were $24.5 million higher than in
2002. The increase was primarily due to the $18.0 million increase in
depreciation resulting from higher operating lease balances due to full year
depreciation on 16 new aircraft deliveries in 2002 and six new deliveries
received and put on lease in 2003. Interest expense also contributed $6.1
million to the increase as a result of higher debt balances due to the new
aircraft deliveries in 2002 and 2003, slightly offset by lower interest rates.

Excluding an accrual reversal in 2002, operating lease expense in 2003 was
lower by $4.3 million due to fewer leased-in aircraft compared to the prior
year.

Operating lease expense of $3.5 million in 2002 was net of a credit of $4.7
million for the reversal of a loss accrual recorded in prior years. GATX was a
lessee of an aircraft under an operating lease running through 2004. GATX had
subleased the aircraft to an unrelated third party with an initial lease term
expiring in 2001. Prior to 2001, as a result of financial difficulties of the
sublessee as well as concerns about subleasing the aircraft for the period 2001
to 2004, the Company recorded a loss for the costs expected to be incurred on
the operating lease in excess of the anticipated revenues. In 2002, the Company
restructured the terms of the

20

lease, ultimately acquiring ownership of the aircraft, and leasing it to a new
customer. As a result, the $4.7 million accrual was reversed as a credit to
operating lease expense.

Other Costs and Expenses

Components of Air's other costs and expenses are summarized below (in
millions):

Total other costs and expenses increased by $18.1 million in 2003 primarily
due to the increase in SG&A costs, the provision for losses and asset impairment
charges. SG&A costs increased by $4.8 million due to lower capitalized expenses
as a result of fewer aircraft deliveries in 2003. The provision for losses
increased $7.9 million primarily due to a net $9.6 million loss provision on
disposal of an unsecured Air Canada note. Asset impairment charges of $10.2
million in 2003 include impairment charges of $8.2 million related to two
commercial aircraft that were offset by the recognition into income of
previously collected maintenance reserves, included in other income.

Taxes

Air's income tax expense was $.9 million in 2003, an increase of $1.4
million from the 2002 tax benefit of $.5 million. Income tax benefited from an
extraterritorial income exclusion (ETI) for the lease of U.S. manufactured
equipment to foreign lessees. The benefit was $.7 million in 2003 and $3.1
million in 2002. The benefit recorded in 2002 included amounts for both 2001 and
2002.

Net Income

Net income of $2.1 million decreased $6.0 million compared to the prior
year. Improvement in share of affiliates' earnings was offset by an increase in
the provision for possible losses due to the Air Canada bankruptcy and increases
in SG&A expenses.

GATX TECHNOLOGY SERVICES

Continued low demand for new IT equipment in 2003 resulted in lower than
expected new lease originations for Technology. The gradual pace of the economic
recovery during 2003 caused businesses to continue to rationalize their capital
spending. As a result, IT leasing customers elected to retain their existing IT
equipment, rather than acquire new IT equipment. Technology expects that the
economic recovery will continue in 2004 and IT customers will re-evaluate their
decision to retain older equipment, which in turn will result in increased new
lease originations and portfolio acquisitions.

Technology responded to the 2003 economic and industry conditions by
developing strategies and making organizational changes to maximize
profitability. Capitalizing on its customers' preference to retain existing IT
equipment, Technology successfully renewed and rewrote existing lease contracts.
In addition, many Technology customers retained their existing IT equipment at
the expiration of the initial lease term on a "month-to-month" basis. These
transactions generated additional lease income, which offset the reduced gains
from asset dispositions since less IT equipment was returned. On the expense
side, Technology reorganized its infrastructure to be more efficient and
responsive to the needs of its customers. The reorganization resulted in lower
SG&A costs in 2003 compared to prior years.

Sustainable growth in Technology's earnings will be difficult to achieve
without growth in its asset base. Technology earns lease income throughout the
contractual term of a lease as well as additional lease income

21

and/or gains from asset disposition after the contractual term, typically three
years. Recent profitability has been enhanced by income earned after the
contractual lease term from investments made between 1999 and 2001. However,
since 2001, Technology's asset base has been declining, as the level of new
investments in 2002 and 2003 has not offset the run-off of its portfolio.
Because of lower investment levels, the earnings impact from new investments is
not expected to be as significant as in the past. To enhance future earnings,
Technology plans to generate additional fee income by leveraging its asset
knowledge and infrastructure to provide advisory services to its customers.

Gross Income

Components of Technology's gross income are summarized below (in millions):

Gross income of $205.6 million decreased $117.1 million in 2003 from the
prior year. Lower lease income, asset remarketing income, and gain on
extinguishment of debt contributed to the decrease. Lease income of $187.5
million decreased $90.9 million due to declining average operating lease and
finance lease balances and the impact of lower average yields due principally to
the run-off of the higher yielding transactions from a 2001 portfolio
acquisition. Asset remarketing income of $10.8 million in 2003 decreased $10.2
million due to fewer returns of leased equipment, as Technology's customers had
more lease renewals and month-to-month lease activity. The 2001 portfolio
acquisition of leased equipment had an average lease term age of 15 months
resulting in unusually high asset remarketing income in 2002.

In 2002, Technology recorded gains on extinguishment of nonrecourse debt of
$15.8 million, $13.0 million of which was associated with one lease investment.
Approximately $10.0 million of the provision for losses and $2.3 million of
asset impairment charges in 2002 were attributable to the same investment and
largely offset the gain.

Ownership Costs

Components of Technology's ownership costs are summarized below (in
millions):

Ownership costs of $143.0 million decreased $86.1 million consistent with
lower average assets and debt balances in 2003 compared to the prior year.

22

Other Costs and Expenses

Components of Technology's other costs and expenses are summarized below
(in millions):

SG&A expense of $35.1 million decreased by $8.4 million in 2003 due to the
cost savings initiatives discussed above.

The combination of provision for possible losses and asset impairment
charges of $2.3 million decreased $40.5 million from 2002 due to improved
portfolio quality, the favorable resolution of two significant non-performing
accounts, and an overall decrease in the reservable asset level. Also
contributing to the decrease was $12.3 million associated with one investment in
2002, which was largely offset by a gain on extinguishment of debt, as discussed
above.

Taxes

Technology's income tax expense was $9.8 million in 2003, an increase of
$7.2 million from the 2002 amount of $2.6 million.

Net Income

Technology's net income of $15.2 million in 2003 increased $10.5 million
from 2002. The increase was driven by an overall improved portfolio quality and
reduced SG&A expense.

GATX SPECIALTY FINANCE

The assets of Specialty's portfolio declined during 2003 as a result of the
decision in late 2002 to curtail investment in the specialty finance portfolio
and to sell or otherwise run-off the venture finance portfolio. During 2003, the
Canadian and U.K. venture finance loan portfolios and a 90% interest in the
associated warrants were sold. The U.S. venture finance loan portfolio, which
had been retained along with associated warrants, continued to run-off.
Investment volume was primarily related to prior funding commitments. Because of
the reduced portfolio size, the specialty and venture finance businesses were
operationally consolidated under a single management team to realize cost
savings.

Management expects Specialty's assets to continue declining over the next
several years, as new investment is not expected to offset the continued run-off
of the portfolios. The loans related to the venture finance portfolio are
expected to run-off by the end of 2006, the majority of which are scheduled to
be repaid by the end of 2005. Additionally, the run-off of the specialty finance
portfolio may accelerate as it is periodically reviewed to determine if assets
should be sold based on market conditions. Prospectively, new investments are
expected to be generally limited to marine equipment and secondary market
transactions.

As the portfolios continue to decline, future earnings will be
unpredictable because of the uncertain timing of gains on the sale of assets
from the specialty finance portfolio and gains from the sale of securities
associated with the venture finance warrant portfolio. Management expects to
achieve additional SG&A reductions as efficiencies are realized on the declining
portfolio.

23

Gross Income

Components of Specialty's gross income are summarized below (in millions):

Specialty's 2003 gross income of $164.1 million was $7.1 million lower than
2002. The decrease was primarily driven by lower lease and interest income
offset by an increase in asset remarketing income. Lease income decreased by
$16.9 million in 2003 as a result of declining lease balances. Interest income
decreased $9.4 million from 2002 primarily because of declining loan balances
due to the run-off of the venture portfolio. Asset remarketing income is
comprised of both gains from the sale of assets from Specialty's own portfolio
as well as residual sharing fees from the sale of managed assets. Gains from the
sale of Specialty's owned assets increased by $13.6 million and residual sharing
fees from managed portfolios decreased by $7.9 million. Because the timing of
such sales is dependent on changing market conditions, asset remarketing income
does not occur evenly from period to period. Share of affiliates' earnings of
$22.7 million were $4.5 million higher than the prior year as a result of new
marine affiliate investments.

Ownership Costs

Components of Specialty's ownership costs are summarized below (in
millions):

Ownership costs of $58.2 million in 2003 were $14.7 million lower than in
2002, primarily due to a $4.3 million decrease in depreciation and a $10.4
million decrease in interest expense. Lower depreciation expense is due to lower
operating lease assets as a result of the announced decision to curtail
investments. Lower interest expense resulted from lower debt balances.

24

Other Costs and Expenses

Components of Specialty's other costs and expenses are summarized below (in
millions):

Total other costs and expenses decreased by $47.1 million in 2003 primarily
due to the decrease in the provision for losses and SG&A costs. The provision
for losses decreased $22.7 million primarily due to the improving credit quality
of the portfolio and the decrease in the reservable asset base. SG&A costs
decreased $10.1 million from 2002, reflecting lower personnel costs as a result
of the reduction in workforce in the fourth quarter of 2002. In 2003, Specialty
impairments were primarily related to an investment in a corporate aircraft and
various equity investments. In 2002, impairments were primarily related to
investments in telecommunication equipment and corporate aircraft.

Taxes

Specialty's income tax expense was $24.1 million in 2003, an increase of
$21.5 million from 2002 of $2.6 million.

Net Income

Net income of $38.1 million increased $33.2 million from 2002 primarily due
to lower overall costs as a result of declining assets and the improving credit
quality of the portfolio.

OTHER

Other is comprised of corporate results, including SG&A and interest
expense not allocated to the segments, and the results of ASC, a Great Lakes
shipping company.

Gross Income

Components of gross income are summarized below (in millions):

Gross income of $101.6 million in 2003 increased $16.6 million from 2002
due to higher marine operating revenue and other income. The increase in marine
operating revenue of $5.3 million was driven by a larger average fleet in
operation in 2003. Other income includes $16.5 million in 2003 from the receipt
of settlement

25

proceeds associated with litigation GATX had initiated against various insurers
related to coverage issues regarding the 2000-2001 Airlog litigation.

Ownership Costs

Components of ownership costs are summarized below (in millions):

Ownership costs of $33.3 million were $14.5 million lower compared to 2002,
primarily due to a decrease in interest expense. Lower average debt balances and
lower average interest rates contributed to the favorable variance compared to
2002. As discussed previously, the debt not otherwise allocated to the operating
segments (based on set leverage ratios) is assigned to Other, along with the
related interest expense.

Other Costs and Expenses

Components of other costs and expenses are summarized below (in millions):

Marine operating expenses of $68.9 million increased by $8.2 million
primarily as a result of a larger average fleet in operation during 2003.

The provision (reversal) for possible losses is derived from GATX's
estimate of possible losses inherent in its portfolio of reservable assets. In
addition to establishing loss estimates for known troubled investments, this
estimate involves consideration of historical loss experience, present economic
conditions, collateral values, and the state of the markets in which GATX
operates. GATX records a provision for possible losses in each operating segment
as well as in Other, targeting an overall allowance for possible losses in
accordance with established GATX policy. This overall allowance for possible
losses is measured and reported as a percentage of total reservable assets.
Reservable assets in accordance with generally accepted accounting principles
(GAAP) include loans, direct finance leases, leveraged leases and receivables.
Operating leases are not reservable assets in accordance with GAAP.

In 2003, GATX recorded a $1.0 million provision for possible losses in its
operating segments and a $2.0 million provision for possible losses in Other.
These provisions resulted in a consolidated allowance for possible losses at
December 31, 2003 of $51.6 million, or 6.1% of reservable assets. In 2002, GATX
recorded a $50.3 million provision for possible losses in its operating
segments, offset by a reversal of $13.7 million of provision for possible losses
in Other. These provisions resulted in a consolidated allowance for possible
losses at December 31, 2002 of $82.2 million, or 6.6% of reservable assets. The
decrease in the allowance for possible losses as a percentage of reservable
assets in 2003 was driven by the general improvement in the average quality of
GATX's portfolio as well as the large decrease in venture finance assets, which
were reserved at a relatively higher rate than the rest of the portfolio.

26

Asset impairment charges of $6.0 million in 2003 increased $4.9 million.
The 2003 charge primarily relates to ASC's off-lakes barge which ceased
operations during the year. The barge was written down to an estimate of future
disposition proceeds.

During 2002, GATX recorded a pre-tax charge of $5.7 million related to
reductions in workforce. The charge in 2002 was predominantly related to a
reduction in corporate overhead costs associated with management's intent to
exit the venture business and curtail investment in the specialty finance
sector. The reduction in workforce charge included involuntary employee
separation and benefit costs as well as occupancy and other costs.

Taxes

Other's income tax benefit was $35.2 million in 2003, an increase of $6.9
million from the 2002 amount of $28.3 million. The 2003 tax benefit included
$10.0 million related to the release of federal audit reserves applicable to the
favorable resolution of the Internal Revenue Service's audit for the years
1995-1997.

Net Loss

The net loss at Other of $33.6 million in 2003 improved from 2002 by $16.1
million as a result of the insurance settlement and favorable interest expense,
and the reversal of tax audit reserves, partially offset by increased provision
for possible losses.

CONSOLIDATED INCOME TAXES

GATX's consolidated income tax expense for continuing operations was $26.0
million in 2003, an increase of $16.0 million from the 2002 amount of $10.0
million. The 2003 consolidated effective tax rate was 25% compared to the 2002
rate of 26%. The 2003 tax provision was favorably impacted by a fourth quarter
$10.0 million reversal of tax audit reserves due to the final settlement of an
Internal Revenue Service (IRS) audit of 1995-1997. The 2003 tax provision also
benefited from a reduction in deferred taxes resulting from lower rates enacted
in certain foreign jurisdictions and also from the extraterritorial income
exclusion (ETI), an exemption for income from the lease of equipment to foreign
lessees. The 2002 tax provision was favorably impacted by the ETI benefit. See
Note 14 for additional information about income taxes.

DISCONTINUED OPERATIONS

As of March 31, 2002, GATX completed the divestiture of the ISG segment,
which was comprised of Terminals, Logistics, and minor business development
efforts. Financial data for the ISG segment has been segregated as discontinued
operations for all periods presented.

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.

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

GATX RAIL

Rail acquired DEC in March 2001. As a result, comparability is affected by
inclusion of DEC's results for twelve months in 2002 versus nine months in 2001.
DEC's revenue converted to U.S. dollars was approximately $35.0 million for the
2002 full year. DEC's 2001 revenue for the nine month period converted to U.S.
dollars was approximately $26.0 million. DEC's operating results suffered in
2001-2002 from a weak Polish economy and workforce reduction expenses related to
transitioning DEC from a state-owned company into a more efficient market
competitor.

27

Gross Income

Components of Rail's gross income are summarized below (in millions):

Rail's 2002 gross income of $672.2 million was $9.3 million lower than
2001. Excluding DEC in both years, lease income was down $25.5 million from
2001. Difficult economic conditions, combined with aggressive competition,
increased railroad efficiency and railcar surpluses resulted in continued
softness in railcar demand and pressure on lease rates. Rail's North American
fleet 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 2001
mainly due to the sale of several residual sharing investments. Share of
affiliates' earnings of $13.1 million increased $5.7 million over 2001.
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

Components of Rail's ownership costs are summarized below (in millions):

Ownership costs of $332.5 million were $4.8 million lower compared to 2001.
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.

28

Other Costs and Expenses

Components of Rail's other costs and expenses are summarized below (in
millions):

Maintenance expense of $150.9 million in 2002 increased $14.0 million from
2001. Excluding DEC in both years, maintenance expense increased $7.4 million in
2002. The variance is due to a higher number of cars repaired in 2002 and the
impact of the Bar Car Directive.

Rail's other operating expenses were $31.7 million in 2002 and $54.7
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 increased $1.5 million primarily due to the write-off of international
business development costs and software implementation expenses.

SG&A expenses decreased $3.2 million in 2002 from the prior year amount of
$62.4 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.

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 lessened expectations of
projected cash flows based on market conditions at the time of the review and a
lower long-term growth rate projected for DEC.

Taxes

Rail's income tax expense was $33.6 million in 2002, an increase of $7.2
million from the 2001 amount of $26.4 million. Rail's 2001 taxes included a $6.1
million deferred tax benefit attributable to a reduction in Canadian tax rates.

Net Income

Rail's net income of $25.8 million was $31.5 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

29

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.

GATX AIR

Gross Income

Components of Air's gross income are summarized below (in millions):