GATX CORP - 10-K Annual Report

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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, 2004

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 1,274.4 million on June 30, 2004.

Indicate the number of shares outstanding of each registrant's classes of
common stock, as of the latest practicable date: 49,654,494 common shares were
outstanding as of February 28, 2005.

DOCUMENTS INCORPORATED BY REFERENCE

GATX's definitive Proxy Statement to be filed on or about March 21,
2005 PART III

GATX CORPORATION

2004 FORM 10-K

INDEX

1

PART I

ITEM 1. BUSINESS

GENERAL

GATX Corporation (GATX or the Company) is headquartered in Chicago,
Illinois and provides services primarily through three operating segments: GATX
Rail (Rail), GATX Air (Air), and GATX Specialty Finance (Specialty). GATX
specializes in railcar, locomotive, commercial aircraft, marine vessel and other
targeted equipment leasing. In addition, GATX owns and operates a fleet of
self-loading vessels on the Great Lakes through its wholly owned subsidiary
American Steamship Company (ASC).

GATX also 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 December 31, 2004, GATX had balance sheet assets of $5.6 billion,
comprised largely of railcars and commercial aircraft. In addition to the $5.6
billion of assets recorded on the balance sheet, GATX utilizes approximately
$1.2 billion of assets, primarily railcars, which were financed with operating
leases and therefore are not recorded on the balance sheet.

On June 30, 2004, GATX completed the sale of substantially all the assets
and related nonrecourse debt of GATX Technology Services (Technology) and its
Canadian affiliate. Subsequently, the remaining assets consisting primarily of
interests in two joint ventures were sold prior to year end. Financial data for
the Technology segment has been segregated as discontinued operations for all
periods presented.

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
has total assets of $3.9 billion including $1.2 billion of off-balance sheet
assets. Rail's customers ("lessees") are comprised primarily of railroads and
chemical, petroleum, agricultural and food processing companies. Rail primarily
provides full-service leases, under which it maintains the railcars, pays ad
valorem taxes, and provides other ancillary services. Rail also provides net
leases under which the lessee is responsible for maintenance, insurance and
taxes. As of December 31, 2004, GATX's owned worldwide fleet totaled
approximately 128,500 railcars. GATX also had an ownership interest in
approximately 26,700 railcars worldwide through investments in affiliated
companies. In addition, GATX manages approximately 12,700 railcars for third
party owners.

As of December 31, 2004, Rail's owned North American fleet consisted of
approximately 107,000 railcars, comprised of 61,000 tank cars and 46,000 freight
cars. The cars in this fleet have depreciable lives of 30 to 38 years and an
average age of approximately 16 years. In December 2004, Rail purchased the
remaining 50% interest in Locomotive Leasing Partners, LLC (LLP) which owned 486
locomotives as of the acquisition date. In aggregate, Rail owned 531 locomotives
at December 31, 2004. Rail also has interests in 5,900 railcars and 259
locomotives through its investments in affiliated companies in North America.

In North America, Rail typically leases new railcars for a term of
approximately five years. Renewals or extensions of existing leases are
generally for periods ranging from less than a year to ten years, and the
overall average remaining lease term is four years. Rail purchases new railcars
from a number of manufacturers, including Trinity Industries, Inc., American
Railcar Industries and Union Tank Car Company. In November

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2002, Rail entered into agreements with Trinity Industries, Inc. and Union Tank
Car Company for the purchase of 5,000 and 2,500 newly manufactured cars,
respectively, pursuant to which it may order railcars at any time through 2007.
To date, a total of 4,934 cars have been ordered under these committed purchase
programs.

Rail's primary competitors in North America are Union Tank Car Company,
General Electric Railcar Services Corporation, and various other lessors. At the
end of 2004, there were approximately 275,000 tank cars and 1.4 million freight
cars owned and leased in North America. At December 31, 2004, 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 mini-service centers and a fleet of service trucks
(mobile service units). Additionally, Rail utilizes independent third-party
repair facilities.

In addition to its North American fleet, Rail owns or has an interest in
38,100 railcars in Europe. At December 31, 2004, Rail, through its wholly owned
subsidiaries in Austria, Germany and Poland, directly owned approximately 18,100
railcars. Rail also owns a 37.5% interest in AAE Cargo AG (AAE), a freight car
lessor headquartered in Switzerland that operates approximately 20,000 cars. In
Europe, approximately 12.5% of the wholly owned fleet has an average lease term
of less than one month, while the rest of the fleet has an average lease term
ranging from one to five years. Major competitors in Europe include VTG Group
and Ermeva.

Worldwide, Rail provides more than 130 railcar types used to ship over 650
different commodities, principally chemicals, petroleum, and food products.
During 2004, approximately 33% of Rail's leasing revenue was attributable to
shipments of chemical products, 28% related to shipments of petroleum products,
11% related to shipments of food products, 11% related to leasing cars to
railroads and 17% related to other revenue sources. Rail leases railcars to over
850 customers and in 2004, 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 narrowbody aircraft that are widely used by commercial airlines
throughout the world. Air has total assets of $2.1 billion which includes $29.1
million of off-balance sheet assets. Air typically enters into net leases under
which the lessee is responsible for maintenance, insurance and taxes. Air owns
directly or with other investors 163 aircraft, 50 of which are wholly owned with
the balance owned in combination with other investors in varying ownership
percentages. For example, Air holds a 50% interest in Pembroke Group, an
aircraft lessor and manager based in Ireland, which currently owns 28 aircraft.
Air also holds a 50% interest in a partnership with Rolls-Royce Plc that
primarily leases aircraft engines to airlines. New aircraft have an estimated
useful life of approximately 25 years. The weighted average age of Air's fleet
is approximately five years based on net book value. Aircraft on lease at
December 31, 2004 have an average remaining lease term of approximately three
years and lease terms typically range from three to seven years.

Air's customer base is diverse by carrier and geographic location. Air
leases to 61 airlines in 33 countries and in 2004, no single customer accounted
for more than 8% of Air's total revenue or represented more than 9% of Air's
total net book value. At December 31, 2004, Air had a significant concentration
of commercial aircraft in Turkey with approximately $286.8 million or 14% of
Air's total assets, and Brazil with approximately $206.9 million or 10% of Air's
total assets. Air has purchased new aircraft and also acquires aircraft in the
secondary market. Air primarily competes with GE Commercial Aviation Services,
International Lease Finance Corporation, and other leasing companies and
subsidiaries of commercial banks. Air carriers consider leasing alternatives
based on factors such as pricing and availability of aircraft types.

Air also manages 66 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 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. Specialty has total assets of $489.9 million
including $12.5 million of off-balance sheet assets. 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.

Although Specialty had limited investment volume in 2004, it is pursuing
investments in marine assets as well as select industrial equipment
opportunities. Marine-related assets, including $10.0 million of off-balance
sheet assets, are $178.7 million at December 31, 2004, which is 37% of
Specialty's total assets.

Specialty also manages portfolios of assets for third parties with a net
book value of $728.8 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 portfolio administration and remarketing services for third
parties.

Specialty sold its venture finance portfolios in the United Kingdom (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 are
$53.1 million at December 31, 2004 or 11% of Specialty's total 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.

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, 2004, GATX and subsidiaries had approximately 2,680
employees, of whom 43% were covered by union contracts, primarily hourly rail
service center employees.

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, as well as previously owned
properties, are or have been used for industrial or transportation-related
purposes or leased to commercial or industrial companies whose activities may
have resulted in discharge of contaminants. As a result, GATX is now subject to
and will from time to

4

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, 2004, 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.

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 terrorist attacks, could result in 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, legislation or regulatory action directed
toward improving the security of aircraft and railcars against acts of
terrorism which affects the construction or operation of aircraft and
railcars, 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 and impairment of rail
and air portfolio assets or capital market disruption which may raise
GATX's financing costs or limit its access to capital. 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 and
aircraft leasing businesses. In many cases, these competitors are larger
entities that have greater financial resources, higher credit ratings and
access to lower cost of 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, rail and other equipment has
historically benefited GATX's financial results. Effects of inflation are
unpredictable as to timing and duration, depending on market conditions
and economic factors.

5

- 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-lived assets. GATX regularly
reviews long-lived 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 recognize asset
impairment charges in the future as a result of a weak economic
environment, challenging market conditions in the air or rail 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. Sustained high
energy or commodity prices could negatively impact these industries
resulting in a corresponding adverse effect on the demand for our
products and services. In addition, sustained high steel prices could
result in higher new railcar acquisition costs.

- Regulation. GATX's air and rail operations are subject to the
jurisdiction of a number of federal agencies, including the Department of
Transportation. State agencies regulate some aspects of rail operations
with respect to health and safety matters not otherwise preempted by
federal law. GATX's operations are also subject to the jurisdiction of
regulatory agencies of foreign countries. New regulatory rulings may
negatively impact GATX's financial results through higher maintenance
costs or reduced 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

6

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.

- 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.

- Internal Controls and Requirements of Section 404 of the Sarbanes-Oxley
Act. Section 404 of the Sarbanes-Oxley Act requires annual management
assessments of the effectiveness of internal control over financial
reporting and a report by the Company's independent auditors addressing
these assessments. If GATX fails to maintain the adequacy of internal
control over financial accounting, the Company may not be able to ensure
that GATX can conclude on an ongoing basis that it has effective internal
control over financial reporting in accordance with Section 404 of the
Sarbanes-Oxley Act and related regulations. Although GATX's management
has concluded that adequate internal control procedures are in place, no
system of internal control can provide absolute assurance that the
financial statements are accurate and free of error. As a result, the
risk exists that GATX's internal control may not detect all errors or
omissions in the financial statements.

Circumstances and conditions may change. Accordingly, 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

7

after such material is electronically filed with, or furnished, to the SEC. Also
posted under Corporate Governance in the Investor Relations section of the GATX
website, and available in print upon request of any shareholder, are charters
for the Audit Committee, Compensation Committee and Governance Committee, the
Corporate Governance Guidelines, a Code of Ethics and a Code of Ethics for
Senior Officers. Within the time period required by the SEC and the New York
Stock Exchange, we will post on our website any amendment to the Code of Ethics
for Senior Officers and any waiver thereof. The information on GATX's website is
not incorporated by reference into this report.

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, 2004, locations of operations were as follows:

RAIL

HEADQUARTERS
Chicago, Illinois

BUSINESS OFFICES
San Francisco, California
Alpharetta, Georgia
Chicago, Illinois
Marlton, New Jersey
Raleigh, North Carolina
York, Pennsylvania
Houston, Texas
Calgary, Alberta
Cambridge, Ontario
Ennismore, Ontario
Montreal, Quebec
Vienna, Austria
Hamburg, Germany
Mexico City, Mexico
Nowa Wies 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
Sioux City, Iowa
Norco, Louisiana
Sulphur, Louisiana
Albany, New York
Masury, Ohio
Cooperhill, Tennessee
Galena Park, Texas
Olympia, Washington
Edmonton, Alberta
Red Deer, Alberta
Vancouver, British Columbia
Clarkson, Ontario
Sarnia, Ontario
Montreal, Quebec
Quebec City, Quebec
Moose Jaw, Saskatchewan
Tierra Blanca, Mexico

AFFILIATES
San Francisco, California
Kansas City, Missouri
Zug, Switzerland

AIR

HEADQUARTERS
San Francisco, California

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

AFFILIATES
Dublin, Ireland
London, United Kingdom

SPECIALTY

HEADQUARTERS
San Francisco, California

CORPORATE HEADQUARTERS

Chicago, Illinois

AMERICAN STEAMSHIP COMPANY

Williamsville, New York

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 tank car
owned by the GATX Rail division of GATX Financial Corporation (GFC), 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 complaint. The parties 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.
In December 2003, the plaintiff filed an appeal of the decision. In January of
2004, the Regional Court refused to exempt Kolia from its obligation to pay fees
in connection with the appeal. During 2004, Kolia filed various procedural
motions to reverse the decision of the Regional Court, all of which were
unsuccessful. Kolia then filed a complaint in the Regional Court against the
decision to dismiss the appeal which complaint was dismissed because Kolia had
failed to pay the fee associated with the complaint. On February 8, 2005, Kolia
filed a letter with the Regional Court demanding to have its appeal heard by the
Court of Appeals. The Regional Court responded by indicating that Polish law did
not provide for an appellate court examination under the circumstance cited in
the letter and asked Kolia whether its letter should be treated as a complaint
for restitution of the proceedings de novo, an extraordinary appeal, a remedy
available under very limited circumstances, with respect to the final judgment.
The judgment in favor of DEC appears to be final as the plaintiff has failed to
appeal. DEC is requesting that the court issue a written opinion stating that
the judgment is final.

On December 29, 2003, a wrongful death action 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. The lawsuit
seeks damages for a derailment on January 18, 2002 of a Canadian Pacific Railway
train containing anhydrous ammonia cars 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 whom fifteen were admitted to the hospital, and a number of others
were purportedly affected. The plaintiffs allege among other things that the
incident (i) caused the wrongful death of their husband/son, and (ii) caused
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. On March 9, 2004, the National
Transportation Safety Board (NTSB) released a synopsis of its anticipated report
and issued its final report shortly thereafter. The report 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. On

9

June 18, 2004, the plaintiff filed an amended complaint based on the NTSB
findings which added GFC and others as defendants. Specifically, the allegations
against GFC are that the steel shells of the tank cars were defective and that
GFC knew the cars were vulnerable and nonetheless failed to warn of the extreme
hazard and vulnerability. On July 12, 2004, GFC filed a motion to dismiss this
action on the basis that plaintiffs' claims are preempted by federal law and
that the plaintiffs have failed to state a claim with respect to certain causes
of action. On September 8, 2004, plaintiffs filed a third amended complaint (i)
dismissing counts that alleged liability of the tank car owners under the
theories of strict liability for an ultrahazardous activity, liability for
abnormally dangerous activity and liability for intentional infliction of
emotional distress (ii) clarifying claims that the tank cars were defective by
specifying that the cars were defective at the time of manufacture and (iii)
clarifying its claims against all defendants for damages for violation of North
Dakota environmental laws. GFC's motion to dismiss was deemed to apply to the
third amended complaint and the court heard argument on the motion and took the
matter under advisement on September 22, 2004. In December, the court dismissed
the motion without prejudice to refiling it as a motion for summary judgment
motion following completion of discovery. GFC intends to defend this suit
vigorously.

GFC has previously been named as a defendant and subsequently dismissed
without prejudice in nine other pending cases arising out of this derailment.
There are over 40 other cases arising out of this derailment pending in the
Fourth District Court of the State of Minnesota, Hennepin County. Thirty-one
additional cases were filed in the same court and then removed to federal court
by the Canadian Pacific Railway in July 2004. GFC has not been named in any of
these cases.

In October 2004, the liquidators of Flightlease Holdings (Guernsey) Limited
("FHG"), a member of the Swissair Group, commenced proceedings in the U.S.
Bankruptcy Court for the Northern District of California against (a) GATX Third
Aircraft Corporation ("Third Aircraft"), an indirect wholly owned subsidiary of
the Company, seeking recovery of approximately $1.9 million allegedly owed by
Third Aircraft, and (b) Third Aircraft and the Company seeking a court order
authorizing discovery in connection with a voluntary liquidation of FHG under
Guernsey law. The Guernsey liquidation is one of several liquidation or
insolvency proceedings, including proceedings in Switzerland, the Netherlands,
and the Cayman Islands, resulting from the bankruptcy of the Swissair Group in
2001. In September 1999, Third Aircraft and FHG formed an aircraft leasing joint
venture, which on the same day entered into a purchase agreement with Airbus
Industrie relating to the joint venture company's purchase of a substantial
number of Airbus aircraft. Prior to the Swissair Group's bankruptcy in October
2001, Third Aircraft and FHG had agreed to terminate the joint venture and
divide responsibility for the purchase of aircraft subject to the venture's
agreement with Airbus. By October 1, 2001 the joint venture company had ordered
a total of 41 aircraft from Airbus, and had made aggregate unutilized
pre-delivery payments to Airbus of approximately $228 million. Pursuant to
agreements by Third Aircraft and FHG to divide responsibility for the aircraft,
and to allocate the pre-delivery payments between them, Third Aircraft and
Airbus entered into a new purchase agreement and Airbus credited approximately
$78 million of the pre-delivery payments to Third Aircraft. By agreement of
Third Aircraft and FHG, the remaining portion of the pre-delivery payments
(approximately $150 million) was to be credited to FHG in a new contract with
Airbus. Following Swissair Group's bankruptcy, however, FHG and Airbus did not
enter into such a contract, and Airbus declared the joint venture in default and
retained the approximately $150 million in pre-delivery payments as damages. The
liquidators of FHG have stated that they believe that FHG may have suffered
damages, and may have potential claims arising out of these events against
various parties, including possibly Third Aircraft (including potential claims
for breach of fiduciary duty and for payment of the approximately $1.9 million
referred to above). The Company believes there is no valid basis for any
material claim by FHG or any of its affiliates against Third Aircraft or the
Company.

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

10

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 the aggregate in 2004. 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

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

- - Mr. Zech has served as Chairman and Chief Executive Officer of GATX since
1996. Mr. Zech served as President of GATX from 1994 to 2004.

- - In 2004, Mr. Kenney was elected President of GATX. Prior to that, Mr. Kenney
served as Senior Vice President and Chief Financial Officer of GATX from 2002
to 2004, Vice President and Chief Financial Officer of GATX from 1999 to 2002,
Vice President, Finance from 1998 to 1999, Vice President and Treasurer from
1997 to 1998, and Treasurer from 1995 to 1996.

- - In 2004, Mr. Lyons was elected Chief Financial Officer of GATX. Prior to that,
Mr. Lyons served as Vice President, Investor Relations of GATX from 2002 to
2004, Director of Investor Relations of GATX from 1998 to 2002, and Project
Manager, Corporate Finance from 1996 to 1998.

- - In 2004, Mr. Ciancio was elected Senior Vice President, General Counsel and
Secretary of GATX. Prior to that, Mr. Ciancio served as Vice President,
General Counsel and Secretary of GATX from 2000 to 2004, and Assistant General
Counsel of GATX from 1984 to 2000.

- - In 2004, Ms. Duddy was elected Senior Vice President -- Human Resources of
GATX. Prior to that, Ms. Duddy served as Vice President -- Human Resources
from 1999 to 2004, Vice President, Compensa-

11

tion and Benefits and Corporate Human Resources from 1997 to 1999, Director of
Compensation and Benefits from 1995 to 1997, and Director of Compensation from
1992 to 1995.

- - Mr. Muckian has served as Vice President, Controller and Chief Accounting
Officer of GATX since 2002. Prior to that, Mr. Muckian served as Controller
and Chief Accounting Officer of GATX from 2000 to 2002, and Director of Taxes
of GATX from 1994 to 2000.

- - Mr. Hasek has served as Vice President and Treasurer of GATX since 2002. Prior
to that, Mr. Hasek served as Treasurer from 1999 to 2001, Director of
Financial Analysis and Budgeting from 1997 to 1999, and Manager of Corporate
Finance from 1995 to 1997.

- - In 2004, Ms. Noack was elected Vice President and Chief Risk Officer. Prior to
that, Ms. Noack served as Managing Director and Chief Risk Officer, Capital
Division of GATX Financial Corporation from 2003 to 2004, Managing Director
and Chief Credit Officer, Capital Division of GATX Financial Corporation from
2001 to 2003 and Vice President of GATX Capital Corporation, predecessor to
GATX Financial Corporation from 2000 to 2001.

- - In 2004, Ms. Scott was elected Vice President and Chief Information Officer.
Ms. Scott joined GATX in 1990 as Manager, Information Systems Audit and has
held the positions of Manager of Business Systems and Planning, Assistant
Director of Corporate Information Systems, Director of Business Development
and Information Services, Director of Information Services and Administration,
Vice President, Integrated Solutions Group, Vice President, Strategic
Initiatives GATX Rail.

- - In 2004, Mr. Earl was elected Executive Vice President. Prior to that Mr. Earl
served as Executive Vice President -- Commercial at GATX Rail from 2001 to
2004 and a variety of increasingly responsible positions in the GATX Capital
Rail Group from 1988 to 2001. Mr. Earl is the senior executive of the Rail
segment.

- - Mr. Coe has served as a GATX Vice President since 2004 and President of GATX
Air since 1997. Mr. Coe joined the Company in 1977 as a Financial Analyst and
has held a variety of positions both domestically and internationally.

- - Mr. Glenn has served as a GATX Vice President since 2004 and Executive Vice
President, GATX Specialty Finance since 2003. Prior to that, Mr. Glenn served
as Senior Vice President and Chief Financial Officer of GATX Capital Division
of GATX Financial Corporation from 2000 to 2003. Mr. Glenn joined GATX Capital
in 1980 as an Assistant Tax Manager and rose to Vice President and Principal
Accounting Officer, a position he held from 1991 to 1997. Prior to becoming
the Chief Financial Officer, from 1997 to 2000, he was Vice President and
Managing Director-Portfolio Management, for Diversified Finance. Mr. Glenn is
the senior executive of the Specialty Finance segment.

12

PART II

ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES

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 February 25, 2005 was 3,485. 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 quarterly 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 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 regularly evaluates
the appropriate dividend level.

13

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

(a) 2004 includes a gain on the sale of the Company's Staten Island property of
$68.1 million on a pre-tax basis, or $37.8 million on an after-tax basis,
insurance recoveries of $48.4 million on a pre-tax basis, or $31.5 million
on an after-tax basis and a loss on sale of segment of $12.0 million on a
pre-tax basis, or $7.2 million on an after-tax basis.
(b) Diluted earnings per share for the year ended December 31, 2003 has been
restated to reflect the impact of EITF 04-8. See Note 2 to the consolidated
financial statements for more information.
(c) 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.
(d) 2001 includes a gain on sale of segment of $343.0 million on a pre-tax
basis, or $163.9 million on an after-tax basis, and also includes a benefit
for litigation settlements of $13.1 million on a pre-tax basis, and $8.5
million on an after tax basis.
(e) 2000 includes a provision for litigation charge 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 2004
presentation.

14

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

COMPANY OVERVIEW

Information regarding general information and characteristics of the
Company including reporting segments 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 Rick Factors identified in
Part I of this document may affect GATX's businesses. As a result, past
financial results may not be a reliable indicator of future performance.

This "Management's Discussion and Analysis of Financial Condition and
Results of Operations" contain certain non-GAAP financial measures. See
"Non-GAAP Financial Measures" for additional information including definitions
of terms and reconciliations to related GAAP amounts.

STATEMENT OF INCOME DISCUSSION

The following table presents income (loss) from continuing operations and
net income by segment for the years ended December 31, 2004, 2003 and 2002 (in
millions):

GATX provides services and products through three operating segments: Rail,
Air, and Specialty. Management evaluates the performance of each segment based
on several measures, including net income. These results are used to assess
performance and determine resource allocation among the segments.

GATX allocates corporate selling, general and administrative (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, corporate SG&A, human resources, legal, financial
support and executive costs. 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.

Interest expense was 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 and Specialty's leverage ratio was set at 4:1. Interest expense
not allocated was assigned to Other in each period. Reflective of overall lower
leverage at GATX, management expects that leverage ratios to be utilized in 2005
will be modified to 4.5:1 at Rail and 3:1 at Air. Specialty will be unchanged at
4:1. Management believes this leverage and interest expense allocation
methodology applies an appropriate cost of capital for purposes of evaluating
each operating segment's risk-adjusted financial return.

15

Taxes are allocated to each segment based on the segment's contribution to
GATX's overall tax position.

GATX'S FINANCIAL PERFORMANCE MEASURES

The following table presents financial measures and ratios derived from the
financial statements that the Company uses as one element to analyze the
company's underlying financial performance from period to period. All amounts
and ratios are based on continuing operations ($'s in millions):

The 2004 return measures were positively affected by non-operating events
including the gain from the sale of the Staten Island property, insurance
recoveries and other non-recurring tax benefits. The SG&A efficiency ratio
represents SG&A before capitalized initial direct costs as a percentage of
average total owned and managed assets.

GATX RAIL

Improving market conditions in the North American rail industry favorably
impacted Rail's results in 2004, as Rail experienced increasing lease rates and
utilization levels. Demand for railcars was boosted by increased car loadings
and ton-miles, and most car types realized a more balanced supply/demand
profile. The improving market conditions, higher lease rates and high levels of
utilization are expected to continue during 2005.

The full impact of higher lease rates will be felt gradually, as only
20%-25% of Rail's North American fleet comes up for renewal each year. During
2004, approximately 25,000 cars were either renewed or assigned to new
customers. Reversing a trend evident in recent years, Rail experienced an
improving pricing environment as 2004 progressed. Rail is optimistic that the
positive pricing momentum will carry over into 2005. As a result, Rail
anticipates that, on average, the approximately 27,000 cars up for renewal in
2005 will be renewed or assigned at rates higher than the previous contract
rate.

Utilization of Rail's North American fleet improved during 2004 from 93% to
98% by year end. The increase resulted from the successful placement of new and
acquired railcars with customers, the movement of railcars from idle to active
status, and the scrapping of railcars.

In North America, Rail acquired approximately 6,200 railcars in 2004,
including approximately 3,000 new railcars and 3,200 used railcars purchased in
the secondary market. The new cars were primarily purchased under pre-existing
contracts with railcar manufacturers that provided Rail with a cost advantage
versus a spot purchase in the current market. Rail also increased its presence
in the locomotive leasing market by acquiring the remaining 50% ownership
interest of the Locomotive Leasing Partners, LLC (LLP) joint venture in the
fourth quarter.

Costs for maintaining the North American fleet continued to increase in
2004, primarily due to increased maintenance activity related to preparing cars
in storage for active service. The trend of increasing maintenance costs is
expected to continue due to increasing costs associated with regulatory
compliance and required maintenance as a result of the fact that a large number
of cars purchased in the mid- to late-1990's are approaching their 10-year
regulatory inspections. There is also the possibility that additional security
and safety regulations may be enacted, increasing future maintenance costs.

Rail's European operations experienced stable market conditions during
2004. Rail Europe was successful in placing new cars in existing markets, as
well as placing cars in new Eastern European markets, such as Romania and
Bulgaria. Rail acquired the remaining interest in a leading European tank car
lessor KVG Kesselwagen Vermietgesellschaft mbH, and KVG Kesselwagen
Vermietgesellschaft m.b.h. (collectively

16

KVG) in 2002. Generally, utilization remained high during 2004, but KVG began to
see some weakness in the chemical market. Rail purchased Dyrekcja Eksploatacji
Cystern Sp. z.o.o. (DEC) in 2001. During 2004, major steps were taken in DEC's
transition from a trip lease to a term rental business model, culminating with
signing its two largest customers to term rental agreements. Other transition
efforts included the closing of redundant repair centers. This transition is
expected to stabilize revenues, reduce operating costs and make additional cars
available for lease. The AAE Cargo AG (AAE) joint venture (37.5% owned)
continued to experience strong demand for the majority of its fleet,
particularly inter-modal cars, due to high seaport volumes, growth in the
containerization of freight traffic, and increased demand from private
operators. The strengthening of the Euro and the Zloty during 2004 positively
impacted Rail's European results.

The long-term outlook for the European market remains positive, as the
European Union (EU) is encouraging the use of railways in place of the congested
road system. Poland and nine other countries joined the EU in 2004, which is
expected to eventually lead to more seamless borders, upgraded infrastructure
and improved rail efficiency in those countries. Operationally, KVG and DEC
continue to integrate their tank car operations.

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

17

FINANCIAL PERFORMANCE MEASURES FOR RAIL ($'S IN MILLIONS)

RAIL'S FLEET DATA

The following table summarizes fleet activity for GATX's wholly owned North
American rail cars for the years ended December 31:

COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003

SUMMARY

Net income of $60.4 million in 2004 increased $5.5 million from the prior
year. The increase in 2004 was driven primarily by higher lease income, higher
asset remarketing income for both Rail and its affiliates as the rail market
continues to improve and larger gains on scrapping of railcars as a result of
higher steel prices, partially offset by higher maintenance and ownership costs.

GROSS INCOME

Rail's 2004 gross income of $746.5 million was $52.7 million higher than
2003 due primarily to favorable North American market conditions and higher
scrapping gains resulting from higher scrap metal prices. North American renewal
and assignment activity was strong in 2004 and the active fleet increased by
approximately 5,900 railcars. Rail's secondary market acquisitions and new
railcar investments significantly contributed to the increase in active cars and
the corresponding increase in lease income. North American utilization improved
to 98% at December 31, 2004 representing approximately 104,200 railcars on lease
compared to 93% at December 31, 2003 with approximately 98,300 of railcars on
lease. In 2004, the average renewal rate on a basket of common railcar types
increased 2.7% versus the expiring rate, with this improvement largely
attributable to activity in the second half of the year. The impact of this
improvement on earnings will be reflected in Rail's financial results gradually
as rate changes move slowly through the fleet due to the term nature of the
business. We expect this improvement to continue in 2005. Also favorably
impacting Rail's gross income was the impact of foreign exchange rates and
higher gains associated with scrapping activity.

Rail's European rail operations have improved during the course of the
year. Utilization rates remain high and operations have been positively impacted
by success in new markets and the placement of new car deliveries.

18

Asset remarketing income in 2004 included residual sharing fees from a
managed portfolio, other residual sharing fees and a gain on the sale of
railcars. The largest component of remarketing income in 2004 was the gain on
the sale of 482 cars to Canadian National Railways. Asset remarketing income in
2003 included the gain on disposition of a leveraged lease commitment on
passenger rail equipment.

Other income of $58.3 million increased $13.8 million from 2003 due
primarily to higher scrapping gains as the price of steel increased
significantly from 2003.

Share of affiliates' 2004 earnings of $16.6 million were higher than the
prior year. The increase was the result of significant asset remarketing gains
at domestic and foreign affiliates.

OWNERSHIP COSTS

Ownership costs were $367.9 million in 2004 compared to $348.9 million in
2003. The increase was driven by significant investment volume in 2004. Through
new car and secondary market acquisitions, Rail purchased approximately 6,200
railcars and 1,000 railcars in North America and Europe, respectively.

OTHER COSTS AND EXPENSES

Maintenance expense of $186.8 million in 2004 increased $23.4 million from
2003. Maintenance costs increased sharply for a variety of reasons, including
costs associated with moving cars from one customer to another, moving cars from
idle to active service and continuing regulatory compliance. As railcars move
from idle to active service, repairs and improvements, such as replacement of
tank car linings and valves, are often required. Although fewer cars were
repaired, the cost per car increased due to the nature of the repairs.

During 2003, the American Association of Railroads (AAR) issued an early
warning letter that required all owners of railcars in the United States, 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.
Approximately 2,200 of Rail's affected railcars are on full-service leases in
which case Rail is responsible for the costs of inspection or replacement. As of
December 31, 2004, bolsters on 2,100 cars have been replaced. The cost
attributable to the inspection and replacement of bolsters was $3.0 million in
2004, a decrease of $.9 million from the prior year period. Management expects
the remaining costs of bolster replacements to be approximately $.2 million and
to be completed by the end of the first quarter of 2005.

Other operating expenses were comparable between periods.

POTENTIAL RAILCAR REGULATORY MANDATES

As noted previously, Rail's operations as well as the entire railroad
industry face the increasing possibility that additional security or safety
regulations may be mandated, increasing future maintenance costs. Following are
two such matters that the Company is closely monitoring.

Certain recent railroad derailments, some of which involved GATX railcars,
focused attention on safety issues associated with the transportation of
hazardous materials. These incidents have led to calls for increased legislation
and regulation to address safety and security issues associated with the
transportation of hazardous materials. Suggested remedial measures vary, but
include rerouting hazardous material railcar movements and increasing the
inspection authority of the Federal Railroad Administration ("FRA"). Other
suggested remedial measures address the physical condition of tank cars,
including revising manufacturing specifications for high pressure cars which
carry hazardous materials. Specific focus has been directed at pressurized
railcars built prior to 1989 that utilized non-normalized steel. The National
Transportation Safety Board ("NTSB") issued a report in 2004 recommending that
the FRA conduct a comprehensive analysis to determine the impact resistance of
pressurized tank cars built prior to 1989, and use the results of that analysis
to rank cars according to risk and to implement measures to eliminate or
mitigate such risks. The NTSB has not recommended that pressure cars built prior
to 1989 be removed from service, nor has the FRA issued any orders curtailing
use of these cars. The Company owns approximately 6,500 pre-1989 built
pressurized tank cars in North America (6% of its North American fleet). While
the Company is actively working with trade
19

associations and others to participate in the legislative and regulatory process
affecting rail transportation of hazardous materials, the outcome of proposed
remedial measures, the probability of adoption of such measures, and the
resulting impact on GATX should such measures be adopted cannot be determined at
this time.

Additionally, the Association of American Railroads ("AAR") has issued a
proposal which would require all tank cars to be equipped with long travel
constant contact side bearings ("LT-CCSBs"). The application of LT-CCSBs is
intended to reduce empty tank car derailments by the reduction of train/track
operational issues. Management believes it is highly likely that the AAR will
adopt the LT-CCSB rule essentially as written. If it does so, this will affect
certain tank cars throughout the industry and the Company will be required to
retrofit approximately 50,000 of its tank cars over the next 7 to 10 years at a
cost of $700 to $800 per car. The Company generally has the contractual right to
increase lease rates to recover a portion of the costs of this retrofit, and is
currently formulating its plans on how it will exercise this contractual right.

TAXES

See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.

COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

SUMMARY

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.

Challenging market conditions in the North American rail industry affected
Rail in 2003. The oversupply of certain car types in the railcar market, short
backlogs at railcar manufacturers, a weak economic environment and aggressive
competition from other lessors resulted in lease rates that were below peak
lease rates of the late 1990s. As a result, new market rates for expiring
leases, either with the same customer or contracting with a new customer, were
lower on average than the previous rate. In 2003, average lease rates on a
basket of common car types declined 5.2% versus the expiring rates. With
approximately 26,000 cars having expiring leases during 2003, lower rates
negatively impacted Rail's lease income.

In anticipation of an improving economy, Rail continued to purchase new
cars and actively pursue secondary market transactions. Investment in railcars
for North America increased in 2003 over the prior year, resulting in active
cars increasing by approximately 1,100 cars after two consecutive years of
decline. The acquisition at the end of the fourth quarter of a fleet of 1,200
covered hoppers on long-term lease drove the increase in active cars. In
addition, Rail took delivery of approximately 1,000 new cars in 2003, under pre-
existing purchase agreements with manufacturers. Utilization of the North
American fleet improved from 90% to 93% due to aggressive efforts to improve the
renewal success rate, to market specific car types and to scrap older,
uneconomic cars from the fleet.

Maintenance costs increased in 2003 from the 2002 level. An increase in the
number of car assignments and costs associated with an American Association of
Railroads (AAR) requirement to replace bolsters on certain cars (see discussion
below) adversely impacted 2003 maintenance costs.

In 2003, Rail's European operations generally experienced a more favorable
market environment than North America. Fleet utilization at both KVG and AAE,
Rail's European joint venture, was over 95%, as KVG's primary markets of
chemical, petroleum, mineral and liquid petroleum gas remained stable, and AAE
benefited from the high growth rates of shipping activity at European seaports.
Rail acquired the remaining interest in KVG in December 2002. DEC's performance
has been negatively affected by a weak Polish economy. However, KVG was
successful in placing DEC tank cars in service outside of Poland. This activity
between KVG and DEC marked the early stages of integrating their tank car
operations, a key European strategy for Rail.

20

GROSS INCOME

Rail's 2003 gross income of $693.8 million was $21.6 million higher than
2002. Excluding the impact from the timing of the KVG acquisition 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 continued to be lower than Rail's prior contractual rate,
the percentage decline in renewal rates improved during 2003.

Excluding KVG's pre-tax earnings of $4.7 million in 2002, share of
affiliates' earnings in 2003 increased $4.1 million. The increase was the result
of a favorable maintenance expense at domestic affiliates combined with a larger
fleet and favorable foreign exchange rates at a foreign affiliate.

OWNERSHIP COSTS

Ownership costs were $348.9 million in 2003 compared to $332.5 million in
2002. The increase was primarily due to the acquisition and consolidation of
KVG.

OTHER COSTS AND EXPENSES

Maintenance expense of $163.4 million in 2003 increased $12.5 million from
2002. Excluding KVG, maintenance expense increased $2.8 million in 2003. The
variance was due primarily to the increase in car assignments discussed above.
Both 2003 and 2002 results included 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 had been replaced. 2003 maintenance expense included $3.9 million
attributable to the inspection and replacement of bolsters.

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

See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.

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

21

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.

GATX AIR

Worldwide revenue passenger miles increased in 2004 and lease rates are
recovering from the low levels of recent years, in particular for newer
aircraft. However, the recovery is fragile, and is threatened by the high cost
of jet fuel, as well as the possibility that additional airline failures and
terrorist acts will disrupt global travel. These challenging conditions persist,
particularly in North America, where the combination of high fuel prices and
pricing pressure from low-cost carriers have increased operating losses and
highlighted the vulnerabilities of many major U.S. carriers. Some European
airlines are also showing signs of weakness.

Air's owned portfolio, which consists principally of narrowbody aircraft,
had a weighted average age of five years based on the net book value at the end
of 2004. Air achieved almost full utilization in 2004. At December 31, 2004,
less than 1% of Air's portfolio was available for lease with over 98% on lease
with customers, and the remaining 1% was subject to signed letters of intent to
lease with customers. Air successfully placed 31 owned aircraft during 2004,
including 3 new and 28 existing aircraft.

Lessee defaults and the potential impairment of aircraft values will
continue to create potential uncertainties and volatility for Air's earnings.
For example, Boeing announced the cancellation of its B717 program in January,
2005 because of weak demand. Air holds a 50% interest in Pembroke Group (net
book value of $63.3 million), an aircraft lessor and manager based in Ireland,
which has Boeing 717 aircraft in its portfolio, six of which GATX has an
interest in, all of which were on lease at December 31, 2004. Additionally, Air
has one B757-200 aircraft on lease to ATA, a bankrupt U.S. carrier. The future
marketability of these aircraft and/or potential valuation issues is uncertain
at this time.

Air's wholly owned and partnered aircraft are leased to customers under net
operating leases. Air's other recurring source of revenue is fee income, which
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. Air also has 50% investments in two
partnerships with Rolls-Royce Plc: Pembroke Group and Rolls-Royce & Partners
Finance Limited. Rolls-Royce & Partners Finance Limited, which leases aircraft
engines, was a major contributor to Air's financial performance in 2004.

During 2004, Air took delivery of and placed three new A320 aircraft with
non-U.S. airlines and also purchased four aircraft in the secondary market
subject to existing leases, with the intent of partnering these aircraft in
2005. Air has two additional aircraft purchase commitments in 2006, and expects
to retain the purchased aircraft as wholly owned aircraft.

22

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

FINANCIAL PERFORMANCE MEASURES FOR AIR ($'S IN MILLIONS)

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AIR'S FLEET DATA

The following table summarizes information on GATX owned and managed
aircraft for the years ended December 31 ($'s in millions):

COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003

SUMMARY

Net income of $9.8 million in 2004 increased $7.7 million from the prior
year. The increase in 2004 was driven by gains from the sale of four aircraft
and the absence of the Air Canada loss which occurred in 2003. 2004 profit was
also driven by strong joint venture performance, particularly at Air's engine
leasing joint venture.

GROSS INCOME

Air's 2004 gross income of $144.9 million was $3.1 million higher than
2003. The increase was primarily driven by higher lease and asset remarketing
income partially offset by lower other income.

Lease income increased primarily due to the full year revenue recognition
on six new aircraft which were delivered at various times during 2003, three new
aircraft deliveries during 2004, and the purchase of four aircraft subject to
existing leases in 2004. Lease income in 2004 on the new aircraft purchases in
2004 and 2003 was approximately $12 million. The impact of higher variable rents
due to the increase in interest rates was $2.9 million. The increase was offset
by early lease terminations and lower lease rates on certain renewed lease
contracts. Asset remarketing income increased as the result of gains from the
sale of four aircraft in 2004. The decrease in other income was primarily
attributable to the recognition in 2003 of previously collected maintenance
deposits on aircraft held for pending sale (subsequently sold in 2004). These
maintenance deposits were entirely offset by related impairment charges taken on
the underlying aircraft in 2003. Share of affiliates' earnings decreased from
the prior year primarily because of asset impairments at the Pembroke affiliate
in 2004, more than offsetting continued strong performance at the Rolls-Royce
engine leasing joint venture.

OWNERSHIP COSTS

Ownership costs of $105.3 million in 2004 were $5.1 million higher than in
2003. The increase was primarily due to the $4.4 million increase in
depreciation resulting from higher operating lease balances due to full-year
depreciation on six new aircraft deliveries in 2003, three new deliveries in
2004, and four aircraft purchased in 2004. Interest expense was relatively
unchanged from the prior year.

OTHER COSTS AND EXPENSES

Total other costs and expenses of $25.3 million in 2004 were $13.3 million
lower than in 2003 primarily due to decreases in the provision for possible
losses and asset impairment charges, partially offset by higher SG&A expenses.
The provision for possible losses decreased $8.8 million from 2003 primarily due
to a net $9.6 million loss provision on disposal of an unsecured Air Canada note
in 2003. Asset impairment charges decreased by $9.8 million from 2003 primarily
due to impairment charges of $8.2 million in 2003 related to two commercial
aircraft held for pending sale (subsequently sold in 2004) that were offset by
the recognition into other income of previously collected maintenance deposits.
SG&A expenses increased by $3.4 million primarily due to higher employee costs
in 2004.

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TAXES

See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.

COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

SUMMARY

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.

Challenging conditions in the aviation industry negatively affected Air in
2003. Although the industry appeared to be recovering from its severe downturn,
aircraft lessors experienced weak lease rates, credit defaults and asset
impairments during 2003. Specifically, aircraft over 15 years in age proved to
be more difficult to lease and presented the greatest uncertainty in value.
Rents on older aircraft declined in 2003, while rents on newer aircraft
stabilized.

Air's owned portfolio had a weighted average age of five years based on the
net book value 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% had been on lease with customers,
and the remaining 3% were subject to signed letters of intent to lease with
customers. Air placed 19 owned aircraft during 2003, including six new and 13
existing aircraft.

GROSS INCOME

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. 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 by the underlying aircraft.

Share of affiliates' earnings of $31.6 million were $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

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 balances for operating lease assets 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 an accrual for the future costs expected to
be incurred on the operating lease in excess of the anticipated revenues. In
2002, the Company restructured terms of the 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.

25

OTHER COSTS AND EXPENSES

Total other costs and expenses increased by $18.1 million in 2003 primarily
due to the increase in SG&A expenses, the provision for possible losses and
asset impairment charges. SG&A expenses increased by $4.8 million due to lower
capitalized expenses as a result of fewer aircraft deliveries in 2003 versus the
prior year. The provision for possible losses increased $7.9 million primarily
due to a net $9.6 million loss provision on the 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

See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.

GATX SPECIALTY FINANCE

The Specialty portfolio consists primarily of leases and loans, frequently
including an interest in an asset's residual value, and joint venture
investments involving a variety of underlying asset types, including marine,
aircraft and other investments. Specialty generates fee-based income through
transaction structuring and portfolio management services.

Prospectively, Specialty will continue to pursue investments in marine
assets and will also seek selective investments in long-lived industrial
equipment in targeted mature industries. As a result, future earnings may be
more spread oriented, with asset remarketing gains and income resulting from the
improved credit profile anticipated to decline from the 2004 levels. Earnings
may also be unpredictable due to the uncertain timing of asset remarketing and
gains from the sale of securities.

26

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

FINANCIAL PERFORMANCE MEASURES FOR SPECIALTY FINANCE ($'S IN MILLIONS)

27

SPECIALTY'S PORTFOLIO DATA

The following table summarizes information on the owned and managed
Specialty Finance portfolio for the years ended December 31 ($'s in millions):

COMPARISON OF YEAR ENDED DECEMBER 31, 2004 TO YEAR ENDED DECEMBER 31, 2003

SUMMARY

Net income of $40.6 million increased $2.5 million from the prior year
primarily due to improved credit quality of the portfolio and lower SG&A
expenses. The continued strong performance of marine joint ventures and
remarketing gains also contributed to the 2004 results. Specialty's new marine
investments were $13.9 million and $26.6 million in 2004 and 2003, respectively.
As expected, overall asset levels continued to decline as asset run-off exceeded
new investment volume.

GROSS INCOME

Specialty's 2004 gross income of $108.7 million was $55.4 million lower
than 2003. The decrease was primarily the result of lower lease, interest and
asset remarketing income. The decreases of $13.1 million in lease income and
$23.7 million in interest income were the result of lower lease and loan
balances due to the run-off of portfolio assets. Asset remarketing income
decreased $10.3 million from 2003 and was 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. 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 were relatively unchanged from
2003 to 2004. However, 2004 income from marine joint ventures increased by $8.9
million in 2004. This increase was offset by 2003 income from other joint
venture investments that have been dissolved.

OWNERSHIP COSTS

Ownership costs of $34.5 million in 2004 were $23.7 million lower than 2003
consistent with the decrease in the portfolio. The $17.3 million decrease in
interest expense was due to lower debt balances as a result of a smaller
portfolio, and the $6.1 million decrease in depreciation was due to lower
operating lease assets.

OTHER COSTS AND EXPENSES

Other costs and expenses of $8.8 million in 2004 were $34.9 million lower
than 2003 primarily as a result of decreased asset impairment charges, and an
increase in the reversal of provision for possible losses, and lower SG&A
expenses consistent with the decline in total assets. The 2003 asset impairment
charges were primarily related to an investment in a corporate aircraft and
various equity investments. SG&A expenses decreased $8.6 million from 2003
reflecting lower personnel and other costs related to the exit from the venture
business. Specialty reversed $6.5 million more in provision for possible losses
in 2004 versus 2003 due to a better-than-expected performance within the
portfolio.

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TAXES

See "Consolidated Income Taxes" for a discussion of GATX's consolidated
income tax expense.

COMPARISON OF YEAR ENDED DECEMBER 31, 2003 TO YEAR ENDED DECEMBER 31, 2002

SUMMARY

Net income of $38.1 million increased $33.2 million from 2002 primarily due
to lower asset impairments, provision reversals and lower SG&A expenses.

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 were sold, and the U.S. venture finan