GATX FINANCIAL CORP - 10-K Annual Report

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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2001

OR

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

COMMISSION FILE NUMBER 1-8319

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GATX FINANCIAL CORPORATION

INCORPORATED IN THE IRS EMPLOYER IDENTIFICATION NUMBER
STATE OF DELAWARE 94-1661392

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

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

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 [ ]

Registrant had 1,031,250 shares of $1 par value common stock outstanding
(all owned by GATX Corporation) as of March 22, 2002.

GATX Financial Corporation meets the conditions set forth in General
Instruction I(1)(a) and (b) of Form 10-K and, therefore, is filing this form
with the reduced disclosure format.

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INDEX TO GATX FINANCIAL CORPORATION

2001 FORM 10-K

1

PART I

ITEM 1. BUSINESS

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

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

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

GATX Terminals Corporation (Terminals), which specialized in the storage
and distribution of bulk petroleum and chemical products, and the value-added
technology equipment sales and services segment (VAR) are no longer considered
to be continuing operations and the financial data has been segregated as
discontinued operations for all periods presented.

At December 31, 2001, GFC had on balance sheet assets of $6.4 billion,
primarily operating assets such as railcars, commercial aircraft and information
technology equipment. In addition to the $6.4 billion of assets recorded on the
balance sheet, GFC utilizes approximately $1.6 billion of other assets, such as
railcars and aircraft, which were financed with operating leases and therefore
are not recorded on the balance sheet.

BUSINESS SEGMENTS

GATX CAPITAL

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

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

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

2

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

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

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

The Specialty Finance business unit acts as an investor, arranger and
manager of financing services involving a variety of asset types and industries.
Specialty Finance also manages $1.1 billion of assets for third-party clients.
The majority of these managed assets are in markets which GATX Capital has a
high level of expertise, such as air and rail.

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

GATX RAIL

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

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

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

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

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

DISCONTINUED OPERATIONS -- TERMINALS AND VAR

As of December 31, 2001, GFC had substantially completed the divestiture of
GATX Terminals (Terminals). Terminals provided bulk liquid storage and pipeline
distribution services.

In the first quarter of 2001, GFC 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, GFC sold substantially all of
Terminals' European operations. In the second and third quarters of 2001,
Terminals sold its Asian operations and its interest in a distillate and
blending distribution affiliate. GFC recognized an after-tax gain of $173.9
million from the sale in 2001.

On June 30, 1999, GFC completed the sale of its value-added technology
equipment sales and services segment (VAR) for $23.4 million. The consideration
included stock of the buyer valued at $18.4 million and an interest bearing note
receivable from the buyer for the remaining balance due. GFC recognized an
after-tax gain of $1.1 million from the sale

TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

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

CUSTOMER BASE

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

EMPLOYEES

GFC and its subsidiaries have approximately 1,400 employees, of whom 31%
are hourly employees covered by union contracts.

4

ENVIRONMENTAL MATTERS

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

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

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

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

The following information excludes the potential liabilities associated
with the sold Terminals' locations. GFC's environmental reserve at December 31,
2001 was $29.4 million and reflects GFC's best estimate of the cost to remediate
known environmental conditions. Additions to the reserve were $1.7 million and
$1.9 million for 2001 and 2000, respectively. Expenditures charged to the
reserve amounted to $13.7 million and $1.2 million in 2001 and 2000,
respectively. In 2001, GFC made capital expenditures of $0.2 million for
environmental and regulatory compliance compared to $0.3 million in 2000.

RISK FACTORS

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

- Air Industry: The effects of the terrorist attacks on September 11,
2001, or future events arising as a result of these terrorist attacks,
including military or police activities in the United States or abroad,
future terrorist activities or threats of such activities, political
unrest and instability, riots and protests, could have on the U.S.
economy, global financial markets and GFC's business cannot presently be
determined with any accuracy. The effects may include, among other
things, a permanent decrease in

5

demand for air travel, consolidation in the airline industry, lower
utilization of new and existing aircraft, lower aircraft rental rates,
impairment of air portfolio assets and fewer available partners for joint
ventures. Depending upon the severity, scope and duration of these
effects, the impact on GFC's financial position, results of operations,
and cash flows could be material.

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

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

- Lease versus Purchase Decision: GFC's core businesses are reliant upon
its customers continuing to lease rather than purchase assets. There are
a number of items that factor into a customer's decision to lease or
purchase assets, such as tax considerations, balance sheet
considerations, and operational flexibility. GFC 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 GFC's financial results. Positive effects of inflation are
unpredictable as to timing and duration depending on market conditions
and economic factors.

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

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

- Insurance: The ability to insure its rail and aircraft assets is an
important aspect of GFC'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: GFC is subject to federal and state requirements for
protection of the environment, including those for discharge of hazardous
materials and remediation of contaminated sites. GFC 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 the Company has estimated.

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

- Regulation: GFC'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
6

operations with respect to health and safety matters not otherwise
preempted by federal law. GFC's failure to comply with the requirements
and regulations of these agencies could negatively affect its operations
and consequently its profitability.

Additional risk and uncertainties not presently known, or that GFC currently
deem immaterial, may also negatively impact GFC's business operations.

ITEM 2. PROPERTIES

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

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

GATX CAPITAL

HEADQUARTERS
San Francisco, California

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

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

GATX RAIL

NORTH AMERICAN
HEADQUARTERS
Chicago, Illinois

EUROPEAN HEADQUARTERS
Zurich, Switzerland

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

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

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

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

AFFILIATES
Vienna, Austria
Hamburg, Germany
Zug, Switzerland

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ITEM 3. LEGAL PROCEEDINGS

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

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

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

8

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

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

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

Not required.

PART II

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

GATX Corporation owns all of the outstanding common stock of GFC.

ITEM 6. SELECTED FINANCIAL DATA

Not required.

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

COMPANY OVERVIEW

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

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

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

GATX CAPITAL

The recessionary economy and challenging market conditions of 2001 impacted
GATX Capital's businesses, particularly the telecommunications (telecom) and air
businesses. GATX Capital's financing of telecom equipment expanded over the last
few years as GATX Capital diversified its portfolio across many telecom
sub-sectors and co-invested with other financial institutions. A significant
portion of the losses experienced by GATX Capital in 2001 was attributable to
the poor performance of the telecom market.

9

GATX Capital has exited the telecom equipment financing business and has reduced
its exposure to $20.3 million, or approximately 1% of GATX Capital's total
assets at December 31, 2001, a decrease of $150.9 million from December 31,
2000.

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

Gross Income

GATX Capital's gross income of $764.8 million increased $144.8 million over
the prior year principally due to higher lease income generated from a larger
investment portfolio and higher asset remarketing income. This increase was
partially offset by a decrease in share of affiliates' earnings. Lease income of
$512.4 million increased $131.3 million from 2000, primarily from new leases
within the technology portfolio. In the first quarter of 2001, GATX Capital
acquired a portfolio of technology leases from El Camino Resources that
contributed significantly to the increase in lease income.

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

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

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

Ownership Costs

Ownership costs, including interest, depreciation and operating lease
expense, of $494.3 million increased $98.2 million compared with the prior year
due to higher depreciation and interest expense. Depreciation and amortization
expense of $289.5 million increased $80.4 million from 2000 reflecting the
higher level of investment in operating lease assets, specifically technology
and air assets. Interest expense increased $22.4 million in 2001 to $177.2
million reflecting higher average debt balances associated with funding new
investment activity. Operating lease expense was comparable year over year.

Selling, General and Administrative

Selling, general and administrative (SG&A) expenses of $121.8 million
increased $17.8 million over the prior year due to higher human resource and
administrative expenses associated with an overall increase in business activity
and increased legal expenses associated with the Airlog litigation (see
discussion of Airlog litigation below).

10

Provision for Possible Losses

The provision for possible losses is derived from GATX Capital's estimate
of losses based on a review of credit, collateral and market risks. The current
year provision at GATX Capital of $97.8 million increased $81.8 million from
2000. This increase reflects the weakness in the economy and the deterioration
of certain venture, steel and telecom investments. The allowance for possible
losses decreased $2.5 million from December 31, 2000 to $85.4 million and was
approximately 6.1% of reservable assets, down from 6.5% at the prior year end.
Reservable assets are defined as rent receivables, direct financing leases,
leveraged leases and secured loans. Net charge-offs of reservable assets totaled
$100.3 million for the year ended December 31, 2001, and were comprised
primarily of venture, telecom, steel and other specialty finance investments.

Asset Impairment Charges

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

Provision (Reversal) for Litigation Charges

GATX Capital Corporation (GCC), was party to litigation arising from the
issuance by the Federal Aviation Administration of Airworthiness Directive
96-01-03 in 1996, the effect of which significantly reduced the amount of
freight that ten 747 aircraft were authorized to carry. GATX/Airlog, a
California partnership in which a subsidiary of GCC was a partner, through a
series of contractors, modified these aircraft from passenger to freighter
configuration between 1988 and 1994. GCC reached settlements covering five of
the aircraft, and the remaining five were the subject of this litigation.

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

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

Reduction in Workforce Charges

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

Net Loss

GATX Capital's net loss for 2001 was $18.2 million and was principally the
result of increases to the loss provision and asset impairment charges. GATX
Capital's net loss for 2000 was $35.7 million and included an after-tax
litigation charge of $97.6 million.

GATX RAIL

In 2001, GFC combined the rail business unit of GATX Capital and GATX Rail
into one rail segment. All periods presented have been restated to reflect the
combination of the rail operations. The North American and European rail markets
continue to be negatively impacted by the economic downturn. Several
11

industries serviced by GATX Rail (Rail), most notably the chemical industry, are
experiencing adverse market conditions that have in turn reduced railcar and
locomotive demand and lease rate pricing. Aggressive competition and railroad
efficiency have also contributed to lower demand and lease rate pricing. These
factors negatively impacted Rail's 2001 results, and are expected to continue to
adversely affect railcar and locomotive demand and lease rates during 2002. In
response to current rail market conditions, Rail has retired excess railcars,
has limited orders of new railcars to specific customer requests and has taken
steps to reduce operating and SG&A expenses.

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

Gross Income

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

Asset remarketing income of $2.9 million was $9.4 million lower than the
prior year. Share of affiliates' earnings of $7.4 million decreased $13.2
million. The decrease in both asset remarketing income and share of affiliates'
earnings was partly attributable to the 2000 sale of six-axle locomotives. Rail
and its affiliate Locomotive Leasing Partners, LLC reconfigured the locomotive
fleet from six-axle locomotives to four-axle locomotives, which resulted in
sales of wholly owned equipment and of assets held by the joint venture.
Additionally, share of affiliates' earnings decreased $3.4 million in 2001 due
to nonrecurring adjustments.

Ownership Costs

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

Operating Costs

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

Selling, General and Administrative

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

12

Provision for Possible Losses

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

Reduction in Workforce Charges

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

Net Income

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

OTHER

Other net income of $18.2 million increased $5.1 million from the prior
year period. A decrease in net interest expense reflects the utilization of the
proceeds from the sale of the Terminals businesses.

INCOME TAXES

The 2001 consolidated effective tax rate for continuing operations was
24.4% compared to the 2000 rate of 36.9%. The 2001 tax provision was impacted by
a favorable deferred tax adjustment attributable to a reduction in foreign tax
rates.

DISCONTINUED OPERATIONS

Discontinued operations encompasses the former GATX Terminals Corporation
(Terminals).

In the first quarter of 2001, GFC sold substantially all of Terminals'
domestic operations. The sale included substantially all of Terminals' domestic
terminaling operations, the Central Florida Pipeline Company and Calnev Pipe
Line Company. In the first quarter of 2001, GFC also sold substantially all of
Terminals' European operations. In the second and third quarters of 2001,
Terminals sold its Asian operations and its interest in a distillate and
blending distribution affiliate. At December 31, 2001, substantially all of
Terminals operations were sold. A net after-tax gain of $173.9 million was
recognized on the sale of Terminals assets.

Operating results for 2001 were $2.7 million, down $34.4 million from the
prior year. Comparisons between periods were affected by the timing of the sale
of Terminals assets.

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

GATX CAPITAL

Gross Income

GATX Capital's gross income of $620.0 million increased $176.9 million over
the prior year. Lease income of $381.1 million increased $116.4 million from
1999, primarily from new leases within the air, technology and specialty finance
portfolios. Interest income of $60.1 million increased $19.3 million from the
prior year due to higher average loan balances. The average loan balance was
$196.3 million higher in 2000 compared to 1999 as a result of increased venture
financing. Gains on the sale of equity securities were $52.3 million, an
increase of $37.6 million from the prior year. Asset remarketing income was
$44.9 million, $16.5 million lower than 1999. Share of affiliates' earnings
increased $16.3 million to $57.4 million in 2000. Earnings growth in air and
technology joint ventures contributed to this increase.

13

Ownership Costs

GATX Capital's ownership costs of $396.1 million increased $139.2 million
from 1999. Depreciation and amortization expense of $209.1 million increased
$78.0 million from 1999 and reflected a higher level of investments in operating
lease assets. Interest expense increased $56.6 million to $154.8 million in
2000. Higher average debt outstanding combined with an increase in borrowing
rates drove interest expense higher in 2000. Operating lease expense was
comparable year over year.

Selling, General and Administrative

SG&A expenses of $104.0 million increased $15.7 million over the prior year
due to higher human resource and administrative expenses associated with
increased growth initiatives.

Provision for Litigation Charges

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

Provision for Possible Losses

The provision for possible losses was $16.0 million, $5.5 million higher
than 1999. The allowance for possible losses decreased $11.0 million from
December 31, 1999 to $87.9 million and was approximately 6.5% of reservable
assets, down from 10.3 % at December 31, 1999.

Net (Loss) Income

GATX Capital's net loss for 2000 was $35.7 million compared to net income
of $52.8 million in 1999. This decrease was primarily the result of an after-tax
litigation charge of $97.6 million.

GATX RAIL

Gross Income

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

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

Ownership Costs

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

Operating Costs

Rail's operating costs decreased $6.0 million from 1999. Higher repair and
maintenance expenses were offset by a number of nonrecurring items that affected
both years. Repair and maintenance expenses were

14

higher due in part to the increased use of third-party contract repair shops as
a result of a labor dispute at Rail's U.S. service centers. The labor dispute
was resolved in the first quarter of 2001.

Selling, General and Administrative

SG&A expenses were comparable year over year.

Net Income

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

OTHER

Other net income of $13.1 million was $0.2 million lower than 1999
primarily due to decreased SG&A and higher interest expense.

INCOME TAXES

The 2000 effective tax rate of 36.9% was lower than the 1999 rate of 39.0%
due to the relative impact of state and foreign taxes and certain nondeductible
expenses on pre-tax income.

DISCONTINUED OPERATIONS

Discontinued operations include Terminals and VAR. Operating results of
discontinued operations contributed $37.1 million and $21.0 million to net
income in 2000 and 1999, respectively.

BALANCE SHEET DISCUSSION

ASSETS

Assets for continuing operations increased to $6.4 billion in 2001 from
$6.0 billion in 2000. Portfolio investments and capital additions of $1.8
billion were partially offset by depreciation and amortization, the
sale-leaseback of railcars at Rail, and portfolio asset sales at GATX Capital.

In addition to the $6.4 billion of assets recorded on the balance sheet,
GFC utilizes approximately $1.6 billion of other assets, such as railcars and
aircraft, which were financed with operating leases and therefore are not
recorded on the balance sheet. The value of the off balance sheet assets was
derived from the present value of GFC's committed future operating lease
payments at various appropriate borrowing rates.

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

15

RECEIVABLES

Receivables, including finance leases and secured loans, were comparable to
last year. Investment volume was partially offset by portfolio asset sales and
asset write-offs.

ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide an estimate of possible credit
losses inherent in the investment portfolio. GFC sets the allowance by assessing
overall risk and probable losses in the portfolio and by reviewing the Company's
historical loss experience. GFC charges off amounts that management considers
unrecoverable from obligors or through the disposition of collateral. GFC
assesses the recoverability of investments by considering factors such as a
customer's payment history and financial position, and the value of collateral
based on internal and external appraisal sources.

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

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

The consolidated allowance for possible losses of $88.1 million decreased
$5.9 million compared to the prior year. The allowance for possible losses at
GATX Capital decreased $2.5 million from December 31, 2000 to $85.4 million and
was approximately 6.1% of reservable assets, down from 6.5% at the prior
year-end. Rail's allowance for possible losses decreased $3.4 million in 2001.
Consolidated net charge-offs of reservable assets totaled $104.3 million for the
year ended December 31, 2001, and were comprised primarily of venture,
telecommunications, and steel investments.

NON-PERFORMING INVESTMENTS

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

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

16

OPERATING LEASE ASSETS, FACILITIES AND OTHER

Operating lease assets and facilities increased $73.0 million from 2000
largely due to portfolio investments in aircraft, technology and railcar assets.
Offsetting these investments were increases in accumulated depreciation, the
sale-leaseback of railcars at Rail and portfolio asset sales at GATX Capital.

GFC classifies amounts deposited toward the construction of wholly owned
aircraft and other equipment, including capitalized interest, as progress
payments. Progress payments made for aircraft within joint ventures are
classified as investments in affiliated companies. In 2001, GFC terminated a
joint venture with Flightlease, a Swissair Group Company. The joint venture had
contracted with Boeing for the purchase of ten B737-800 aircraft and with Airbus
for the purchase of 38 Airbus aircraft. GFC purchased Flightlease's interest in
the Boeing order. GFC also reached an agreement with Airbus whereby in
consideration for its agreement to purchase 19 A320 family aircraft from Airbus
over the next four years, Airbus agreed to release GFC from any further
obligations with respect to the original joint venture order. The $248.5 million
increase in progress payments relates to these Airbus and Boeing orders.

INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies decreased $14.4 million in 2001 largely
due to $35.6 million in asset impairment and loss provision charges at the
telecom affiliates. GFC invested $249.4 million and $244.6 million in joint
ventures in 2001 and 2000, respectively. Share of affiliates' earnings were
$32.8 million, $78.0 million and $63.6 million in 2001, 2000 and 1999,
respectively. Distributions from affiliates were $225.6 million and $119.7
million in 2001 and 2000, respectively.

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

OTHER ASSETS

Other assets of $321.4 million at December 31, 2001 were $17.7 million
lower than the prior year. Increases in assets held for sale and goodwill were
partially offset by lower balances in stock warrants and securities held for
investment. Assets held for sale are comprised mostly of aircraft.

NET ASSETS OF DISCONTINUED OPERATIONS

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

ACCRUED EXPENSES

Accrued expenses decreased $77.7 million compared to the prior year due to
the settlement payments made in connection with the Airlog litigation.

17

DEFERRED INCOME TAXES

Deferred income taxes of $391.0 million decreased $71.8 million from the
end of 2000 reflecting the full utilization of the alternative minimum tax (AMT)
credit carryforward on a consolidated basis.

DEBT

Debt decreased $187.6 million since the end of 2000 as proceeds from the
sale of Terminals were used to pay down short-term debt and fund portfolio
investments. Nonrecourse debt increased $234.0 million primarily to fund
technology and rail investments. The current year acquisition by GATX Capital of
a portfolio of technology leases from El Camino Resources also contributed
significantly to the increase in nonrecourse debt. Additionally, GFC has
approximately $1.6 billion of off balance sheet debt related to assets that are
financed with operating leases. The $1.6 billion was derived from the present
value of GFC's committed future operating lease payments at various appropriate
borrowing rates.

TOTAL SHAREHOLDER'S EQUITY

Shareholder's equity increased $163.4 million reflecting net income of
$220.7 million partially offset by dividends paid to GATX Corporation of $72.6
million.

CASH FLOW DISCUSSION

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

NET CASH PROVIDED BY CONTINUING OPERATIONS

Net cash provided by continuing operations of $252.6 million decreased
$173.0 million from 2000. Payments related to the settlement of the Airlog
litigation decreased cash flow from operations by $141.0 million. All cash
received from asset dispositions (excluding the proceeds from the sale of the
Terminals segment), including gain and return of principal, was included in
investing activities as portfolio proceeds or other asset sales.

PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS

Portfolio investments and capital additions of $1.8 billion decreased
$121.4 million from 2000.

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

Significant investments in Air included $264.3 million in progress payments
for wholly owned aircraft and a $70.4 million investment in a new joint venture,
The Pembroke Group. In the first quarter, GATX Capital acquired a portfolio of
technology leases from El Camino Resources for $116.5 million (which is net of
the

18

assumption of $256.0 million of nonrecourse debt). Rail's capital additions in
2001 included $243.3 million to acquire approximately 4,000 railcars and
locomotives throughout North America and $95.8 million for the acquisition of
DEC. Future portfolio investments and capital additions (excluding contractual
commitments) will be dependent on market conditions and opportunities to acquire
desirable assets.

PORTFOLIO PROCEEDS

Portfolio proceeds of $1.0 billion increased $403.1 million from the 2000
period primarily due to an increase in the remarketing of manufacturing-related
equipment and air assets, loan principal received and cash distributions from
air and telecom joint venture investments. The timing of assets coming off
lease, opportunities to renew leases at attractive rates, and the composition of
the investment portfolio all contributed to the year-over-year increase in
remarketing proceeds.

PROCEEDS FROM OTHER ASSET SALES

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

PROCEEDS FROM SALE OF A PORTION OF SEGMENT

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

NET CASH OF FINANCING ACTIVITIES FOR CONTINUING OPERATIONS

Net cash provided by financing activities of continuing operations
decreased $1.0 billion compared to 2000. Portfolio investments and capital
additions were funded with proceeds from debt, cash from operations, and
proceeds from asset sales, including the sale of Terminals. A portion of the
proceeds from the sale of Terminals was utilized to repay short-term debt
obligations.

LIQUIDITY AND CAPITAL RESOURCES

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

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

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

19

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

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

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

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

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

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

20

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

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

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

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

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

GFC's commercial commitments were (in millions):

At December 31, 2001, $425.0 million of subsidiary net assets were
restricted, limiting the ability of GFC to transfer assets to the parent
company, GATX, in the form of loans, advances or dividends. The majority of net
asset restrictions relate to the revolving credit agreements and various loan
agreements of GFC.

21

OTHER INFORMATION

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

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

At December 31, 2001, the air portfolio consisted of assets with a net book
value of $1.4 billion. In total, the air portfolio accounted for 17.7% of GFC's
total assets (including both on and off balance sheet assets). For the year
ended December 31, 2001, 8.3% of GFC's gross income was derived from its air
portfolio investments. This included lease and interest income, income generated
by joint ventures, remarketing gains, and management fees. GFC's customer base
is diverse in carrier type and geographic location. GFC leases to over 50
airlines in 20 countries and is not highly dependent on any one airline; no
single customer exposure exceeds 10% of the net book value of the total air
portfolio. For aircraft currently on lease, the average remaining lease term is
approximately four years.

At December 31, 2001, 15 aircraft were not on lease, seven of which are
being remarketed by GFC. The seven GFC aircraft represented approximately 7% of
the net book value of GFC's total air portfolio. Subsequent to year end, GFC
successfully placed six of the seven aircraft; the remaining aircraft represents
less than 1% of the net book value of the total air portfolio. The remaining
eight aircraft are being remarketed by The Pembroke Group (Pembroke), a
Dublin-based aircraft lessor in which the Company owns a 50% equity interest.
These eight aircraft represent approximately 3% of the net book value of
Pembroke's aircraft portfolio.

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

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

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

The effects that these terrorist attacks, or future events arising as a
result of these terrorist attacks, including military or police activities in
the United States or abroad, future terrorist activities or threats of such
activities, political unrest and instability, riots and protests, could have on
the U.S. economy, global financial markets and our business cannot presently be
determined with any accuracy. The effects may include, among other things, a
permanent decrease in demand for air travel, consolidation in the airline
industry, lower utilization of new and existing aircraft, lower aircraft rental
rates, impairment of air portfolio
22

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

CRITICAL ACCOUNTING POLICIES

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

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

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

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

NEW ACCOUNTING PRONOUNCEMENTS

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

23

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

GFC frequently obtains stock and warrants from non-public, venture
capital-backed companies in connection with its financing activities. Under
previous accounting guidance, both the stock and warrants were generally
accounted for as available-for-sale securities in accordance with SFAS No. 115,
Accounting for Certain Investments in Debt and Equity Securities, with changes
in fair value recorded as unrealized gains or losses in other comprehensive
(loss) income in the equity section of the balance sheet. Upon adoption of SFAS
No. 133, as amended, these warrants will be accounted for as derivatives, with
changes in fair value recorded in current earnings. Stock will continue to be
accounted for in accordance with SFAS No. 115.

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

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

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

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

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GFC, like most other companies, is exposed to certain market risks,
including changes in interest rates and currency exchange rates. To manage these
risks, GFC, pursuant to established and authorized policies,

24

enters into certain derivative transactions, principally interest rate swaps,
Treasury derivatives and currency swaps. These instruments and other derivatives
are entered into for hedging purposes only. GFC does not hold or issue
derivative financial instruments for speculative purposes.

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

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

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

25

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT AUDITORS

To the Board of Directors of GATX Financial Corporation

We have audited the accompanying consolidated balance sheets of GATX
Financial Corporation and subsidiaries as of December 31, 2001 and 2000, and the
related consolidated statements of income, changes in shareholder's equity,
comprehensive income, and cash flows for each of the three years in the period
ended December 31, 2001. Our audits also included the financial statement
schedule listed in the index at Item 14(a)(2). These financial statements and
schedule are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedule based on our
audits.

We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GATX Financial
Corporation and subsidiaries as of December 31, 2001 and 2000, and the results
of their operations and cash flows for each of the three years in the period
ended December 31, 2001, in conformity with accounting principles generally
accepted in the United States. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic financial
statements taken as a whole, presents fairly in all material respects, the
information set forth therein.

ERNST & YOUNG LLP

Chicago, Illinois
January 22, 2002

26

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial
statements.
27

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
28

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
29

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
30

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. SIGNIFICANT ACCOUNTING POLICIES

Consolidation -- The consolidated financial statements include the accounts
of GFC and its majority-owned subsidiaries. Investments in 20 to 50
percent-owned companies and joint ventures are accounted for under the equity
method and are shown as investments in affiliated companies, with pre-tax
operating results shown as share of affiliates' earnings. Certain investments in
joint ventures that exceed 50% ownership are not consolidated and are also
accounted for using the equity method as GFC does not have effective or voting
control of these legal entities. The consolidated financial statements reflect
the Terminals segment and the VAR segment as discontinued operations for all
periods presented.

Cash Equivalents -- GFC considers all highly liquid investments with a
maturity of three months or less when purchased to be cash equivalents.

Operating Lease Assets and Facilities -- Operating lease assets and
facilities are stated principally at cost. Assets acquired under capital leases
are included in operating lease assets and the related obligations are recorded
as liabilities. Provisions for depreciation include the amortization of capital
leases. Operating lease assets and facilities are depreciated using the
straight-line method to an estimated residual value. Assets listed below are
depreciated over their estimated useful lives. Technology equipment, machinery
and related equipment are depreciated over the term of the lease contract. The
estimated useful lives of depreciable assets are as follows:

Railcars.................................................... 20 - 38 years
Locomotives................................................. 28 years
Aircraft.................................................... 25 years
Buildings and leasehold improvements........................ 5 - 40 years

Operating lease assets and facilities by segment and business unit are as
follows (in millions):

Progress Payments for Aircraft and Other Equipment -- GFC classifies
amounts paid toward the construction of wholly owned aircraft and other
equipment, including capitalized interest, as progress payments.

Goodwill -- GFC has classified the cost in excess of the fair value of net
assets acquired as goodwill. Goodwill, which is included in other assets, is
being amortized on a straight-line basis over 10 to 40 years. GFC continually
evaluates the existence of goodwill impairment on the basis of whether the
goodwill is recoverable from projected undiscounted net cash flows of the
related business. Goodwill, net of accumulated

31

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

amortization of $24.3 million and $17.1 million, was $63.3 million and $39.9
million as of December 31, 2001 and 2000, respectively. Amortization expense was
$4.6 million, $6.3 million and $2.5 million in 2001, 2000, and 1999,
respectively.

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

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

Income Taxes -- United States income taxes have not been provided on the
undistributed earnings of foreign subsidiaries and affiliates that GFC intends
to permanently reinvest in these foreign operations. The cumulative amount of
such earnings was $172.8 million at December 31, 2001.

Other Deferred Items -- Other deferred items include the accrual for
post-retirement benefits other than pensions; environmental, general liability,
litigation and workers' compensation reserves; and other deferred credits.

Derivatives -- Effective January 1, 2001, GFC adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133. SFAS No. 133, as amended,
establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts. The
statement requires that an entity recognize all derivatives as either assets or
liabilities in the statement of financial position and measure those instruments
at fair value. GFC records the fair value of all derivatives as either other
assets or long term recourse debt on the balance sheet. At December 31, 2001,
GFC had not discontinued any hedges because it was probable that the original
forecasted transaction would not occur.

Instruments that meet established accounting criteria are formally
designated as qualifying hedges at the inception of the contract. These criteria
demonstrate that the derivative is expected to be highly effective at offsetting
changes in fair value of underlying exposure both at inception of the hedging
relationship and on an ongoing basis. The change in fair value of the
ineffective portion of all hedges is immediately recognized in earnings. For the
year ended December 31, 2001, a loss of $0.9 million was recognized in earnings
for hedge ineffectiveness. Derivatives that are not designated as qualifying
hedges are adjusted to fair value through earnings immediately. For the year
ended December 31, 2001, a net gain of $0.4 million was recognized in earnings
for derivatives not qualifying as hedges.

GFC uses interest rate and currency swap agreements, Treasury derivatives,
and forward sale agreements as hedges to manage its exposure to interest rate
and currency exchange rate risk on existing and anticipated

32

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

transactions. GFC also enters into foreign exchange forward contracts to hedge
foreign currency exposure of a net investment in a foreign operation.

Fair Value Hedges
For derivatives designated as fair value hedges, changes in both the
derivative and the hedged item attributable to the risk being hedged are
recognized in earnings.

Cash Flow Hedges
For derivatives designated as cash flow hedges' the effective portion of
the derivative's gain or loss recorded as part of other comprehensive (loss)
income in shareholders' equity and subsequently recognized in the income
statement when the hedged forecasted transaction affects earnings. Gains or
losses resulting from early termination derivatives designated as cash flow
hedges are included in other comprehensive (loss) income and recognized in
income when the original hedged transaction affects earnings.

Hedge of Net Investment in Foreign Operations
Changes in fair value of derivatives designated as a hedge of the net
investment in foreign operations are included in other comprehensive (loss)
income as part of the cumulative translation adjustment.

The adoption of SFAS No. 133, as amended resulted in $1.1 million being
recognized as expense in the consolidated statement of income and $4.7 million
of unrealized gain in other comprehensive (loss) income in the first quarter
2001.

Prior to January 1, 2001 and the adoption of SFAS No. 133, as amended, GFC
used financial instruments such as interest rate and currency swaps, forwards
and similar contracts to set interest and exchange rates on existing or
anticipated transactions, which were not recorded on the balance sheet. The fair
values of GFC's off balance sheet financial instruments (futures, swaps,
forwards, options, guarantees, and lending and purchase commitments) were based
on current market prices, settlement values or fees currently charged to enter
into similar agreements. Fair values of hedge contracts were not recognized in
the financial statements. Net amounts paid or received on such contracts were
recognized over the term of the contract as an adjustment to interest expense or
the basis of the hedged financial instrument.

Environmental Liabilities -- Expenditures that relate to current or future
operations are expensed or capitalized as appropriate. Expenditures that relate
to an existing condition caused by past operations, and which do not contribute
to current or future revenue generation, are charged to environmental reserves.
Reserves are recorded in accordance with accounting guidelines to cover work at
identified sites when GFC's liability for environmental cleanup is both probable
and a reasonable estimate of associated costs can be made; adjustments to
initial estimates are recorded as necessary.

Revenue Recognition -- The majority of GFC's gross income is derived from
the rentals of railcars, commercial aircraft and technology equipment. In
addition, income is derived from finance leases, asset remarketing, sales of
equity securities, secured loans, technology equipment sales, and other
services.

Lease and Loan Origination Costs -- Initial direct costs of leases are
deferred and amortized over the lease term, either as an adjustment to the yield
for direct finance and leveraged leases (collectively, finance leases), or on a
straight-line basis for operating leases. Loan origination fees and related
direct loan origination costs for a given loan are offset, and the net amount is
deferred and amortized over the term of the loan as an adjustment to interest
income.

Residual Values -- GFC has investments in the residual values of its
leasing portfolio. The residual value represents the estimate of the values of
the assets at the end of the lease contracts. GFC initially records these based
on appraisals and estimates. Realization of the residual values is dependent on
GFC's future ability to market the assets under existing market conditions. GFC
reviews residual values periodically to determine that recorded amounts are
appropriate. For finance leases, GFC reviews the estimated residual values of
leased equipment at least annually, and any other-than-temporary declines in
value are immediately charged
33

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to income. For operating leases, GFC reviews the estimated salvage values of
leased equipment at least annually, and changes in values are recorded as
adjustments to depreciation expense over the remaining useful life of the asset.
In addition to a periodic review, if events or changes in circumstances trigger
a review of operating lease assets for impairment, any such impairment is
immediately charged to income as an impairment loss.

Investments in Equity Securities -- GFC's venture portfolio includes stock
warrants received from investee companies and common stock resulting from
exercising the warrants. Under the provisions of SFAS No. 133, as amended, the
warrants are accounted for as derivatives, with changes in fair value recorded
in current earnings. All other investments are classified as available-for-sale
in accordance with SFAS No. 115, Accounting for Certain Investments in Debt and
Equity Securities. The securities are carried at fair value. Unrealized gains
and losses arising from marking the portfolio to fair value are included on a
net-of-tax basis as a separate component of accumulated other comprehensive
(loss) income. The unrealized gains on these securities were $3.4 million and
$27.9 million at the end of 2001 and 2000, respectively.

Foreign Currency Translation -- The assets and liabilities of GFC's
operations located outside the United States are translated at exchange rates in
effect at year end, and income statements are translated at the average exchange
rates for the year. Adjustments resulting from the translation of foreign
currency financial statements are deferred and recorded as a separate component
of accumulated other comprehensive (loss) income in the shareholder's equity
section of the balance sheet. The cumulative foreign currency translation
adjustment was $(65.6) million and $(62.3) million at the end of 2001 and 2000,
respectively.

Use of Estimates -- The preparation of financial statements in conformity
with generally accepted accounting principles necessarily requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements as well as revenues and expenses during the reporting
period. Actual amounts when ultimately realized could differ from those
estimates.

Reclassification -- Certain amounts in the 2000 and 1999 financial
statements have been reclassified to conform to the 2001 presentation.

New Accounting Pronouncements -- In June 2001, the Financial Accounting
Standards Board issued SFAS No. 141, Business Combinations and SFAS No. 142,
Goodwill and Other Intangible Assets, effective for fiscal years beginning after
December 15, 2001. SFAS No. 141 requires business combinations initiated after
June 30, 2001 to be accounted for using the purchase method of accounting. Under
SFAS No. 142, goodwill and intangible assets deemed to have indefinite lives
will no longer be amortized but will be subject to annual impairment testing in
accordance with the statements. Other intangible assets will continue to be
amortized over their useful lives.

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

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

34

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

incurred (rather than as of the measurement date as presently required by APB
30). GFC is currently assessing the impact, if any, of this statement on the
Company.

NOTE 2. ACCOUNTING FOR LEASES

The following information pertains to GFC as a lessor:

Finance Leases -- GFC's finance leases are comprised of direct financing
leases and leveraged leases. Investment in direct finance leases consists of
lease receivables, plus the estimated residual value of the equipment at the
lease termination dates, less unearned income. Lease receivables represent the
total rent to be received over the term of the lease reduced by rent already
collected. Initial unearned income is the amount by which the original sum of
the lease receivable and the estimated residual value exceeds the original cost
of the leased equipment. Unearned income is amortized to lease income over the
lease term in a manner that produces a constant rate of return on the net
investment in the lease.

Finance leases that are financed principally with nonrecourse borrowings at
lease inception and that meet certain criteria are accounted for as leveraged
leases. Leveraged lease receivables are stated net of the related nonrecourse
debt. Initial unearned income represents the excess of anticipated cash flows
(including estimated residual values, and net of the related debt service) over
the original investment in the lease.

The components of the investment in finance leases were (in millions):

Operating Leases -- The majority of railcar assets and certain other
equipment leases included in operating lease assets are accounted for as
operating leases. Rental income from operating leases is usually reported on a
straight-line basis over the term of the lease.

Minimum Future Receipts -- Minimum future lease receipts from finance
leases and minimum future rental receipts from noncancelable operating leases by
year at December 31, 2001 were (in millions):

35

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information pertains to GFC as a lessee:

Capital Leases -- Assets classified as operating lease assets and finance
leases that have been financed under capital leases were (in millions):

Operating Leases -- GFC has financed railcars, aircraft, and other assets
through sale-leasebacks that are accounted for as operating leases. In addition,
GFC leases certain other assets and office facilities. For one of the operating
leases has provided a guarantee to the lessor that the residual value will be
the projected fair market value of the assets. Total operating lease expense for
the years ended December 31, 2001, 2000, and 1999 was $191.4 million, $175.3
million, and $150.0 million, respectively.

Future Minimum Rental Payments -- Future minimum rental payments due under
noncancelable leases at December 31, 2001 were (in millions):

The above capital lease amounts and certain operating leases do not include
the costs of licenses, taxes, insurance, and maintenance that GFC is required to
pay. Interest expense on the above capital leases was $9.0 million in 2001, $8.1
million in 2000, and $8.1 million in 1999.

The amounts shown as nonrecourse operating leases reflect rental payments
of three bankruptcy remote, special-purpose corporations that are wholly owned
by GFC. These rentals are consolidated for accounting purposes, but do not
represent legal obligations of GFC.

NOTE 3. SECURED LOANS

Secured loans are recorded at the principal amount outstanding plus accrued
interest. The loan portfolio is reviewed regularly, and a loan is classified as
impaired and written down when it is probable that GFC will be unable to collect
all amounts due under the loan agreement. Since most loans are collateralized,

36

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

impairment is generally measured as the amount the recorded investment in the
loan exceeds the fair value of the collateral, and any adjustment is considered
in determining the provision for possible losses. Generally, interest income is
not recognized on impaired loans until the outstanding principal is recovered.

The types of loans in GFC's portfolio are as follows (in millions):

Impaired loans with identified allowance for possible loss requirements
were $17.5 million and $42.1 million at December 31, 2001 and 2000,
respectively. The average balance of impaired loans was $53.0 million and $42.6
million in 2001 and 2000, respectively.

At December 31, 2001, secured loan principal due by year was as follows (in
millions):

NOTE 4. ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide for credit losses inherent in
the investment portfolio. GFC sets the allowance by assessing overall risk and
probable losses in the portfolio and by reviewing the Company's historical loss
experience. GFC charges off amounts that management considers unrecoverable from
obligors or through the disposition of collateral. GFC assesses the
recoverability of investments by considering factors such as a customer's
payment history and financial position, and the value of collateral based on
internal and external appraisal sources.

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

The charges to allowance in 2001 were primarily due to write-offs related
to venture and steel related investments.

37

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

There were no material changes in estimation methods or assumptions for the
allowances during 2001. GFC believes that the allowance is adequate to cover
losses inherent in the portfolio as of December 31, 2001. Because the allowance
is based on judgments and estimates, it is possible that those judgments and
estimates could change in the future, causing a corresponding change in the
recorded allowance.

NOTE 5. INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies represent investments in domestic and
foreign companies and joint ventures that are in businesses similar to those of
GFC, such as commercial aircraft leasing, rail equipment leasing, technology
equipment leasing and other business activities, including ventures that provide
asset residual value guarantees in both domestic and foreign markets.

The investments in affiliated companies are initially recorded at cost,
including goodwill at acquisition date, and are subsequently adjusted for GFC's
share of affiliates' undistributed earnings. Share of affiliates' earnings is
also adjusted for the amortization of goodwill. Distributions, which reflect
both dividends and the return of principal, reduce the carrying amount of the
investment. Distributions received from such affiliates were $225.6 million,
$119.7 million, and $68.3 million in 2001, 2000 and 1999, respectively.

GFC has two investments that are in excess of 10% of the total investment
in affiliated companies; a 12.1% investment in an Air affiliate and a 10.2%
investment in a Specialty Finance affiliate. The following table shows GFC's
investments in affiliated companies by segment and business unit (in millions):

Affiliated companies conduct their businesses throughout the world and
there is no geographical concentration of risk.

The following table shows GFC's pre-tax share of affiliates' earnings by
segment and business unit (in millions):

38

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

For purposes of preparing the following information, GATX makes certain
adjustments to the information provided by the joint ventures. Pre-tax income is
adjusted to reverse interest expense recognized by the joint ventures on loans
from the Company. In addition, the Company records its loans to the joint
ventures as equity contributions, therefore, loan balances are reclassified from
liabilities to equity.

For all affiliated companies held at the end of the year, operating
results, as if GATX held 100 percent interest, were (in millions):

For the year ended 2001, pre-tax income as if GFC held 100 percent
interest, was less than GFC's pre-tax share of affiliates' earnings due to
losses in the Venture Finance business unit of $131.9 million. GFC's share of
these losses was $35.6 million.

For all affiliated companies held at the end of a year, summarized balance
sheet data, as if GATX held 100 percent interest, were (in millions):

GFC has provided a total of $131.1 million in debt guarantees and $229.3
million in residual value guarantees for all affiliated companies.

NOTE 6. FOREIGN OPERATIONS

GFC has a number of investments in subsidiaries and affiliated companies
that are located in or derive revenues from foreign countries. Foreign entities
contribute significantly to share of affiliates' earnings. The foreign
identifiable assets represent investments in affiliated companies as well as
fully consolidated railcar operations in Canada, Mexico and Poland and foreign
lease, loan and other investments.

39

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Foreign cash flows generated are used to meet local operating needs and for
reinvestment. For foreign functional currency entities, the translation of the
financial statements into U.S. dollars results in an unrealized foreign currency
translation adjustment, a component of accumulated other comprehensive (loss)
income.

NOTE 7. SHORT-TERM DEBT AND LINES OF CREDIT

Short-term debt (in millions) and weighted average interest rates as of
year end were:

GFC has commitments under credit agreements with a group of financial
institutions for revolving credit loans totaling $775.0 million. While at year
end no borrowings were outstanding, availability under the credit line was
reduced by $168.5 million of commercial paper outstanding. GFC's other
short-term borrowings included $120.0 million under unsecured money market lines
at December 31, 2001.

GFC's revolving credit agreements include a 364-day agreement for $141.7
million expiring in 2002, which GFC intends to renew, and two other agreements
for $350.0 million and $283.3 million expiring in 2003 and 2004, respectively.
The annual commitment fees are based on a percentage of the commitment and
totaled approximately $0.7 million in 2001 and $0.8 million in 2000 and 1999.

GFC's revolving credit agreements contain various restrictive covenants and
requirements to maintain a defined minimum net worth and certain financial
ratios. GFC met all credit agreement requirements at December 31, 2001.

Interest expense on short-term debt was $7.2 million in 2001, $29.8 million
in 2000, and $24.4 million in 1999. The portion of interest expense allocated to
discontinued operations was $0.5 million, $3.9 million and $1.4 million for
2001, 2000 and 1999 respectively.

40

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 8. LONG-TERM DEBT

Long-term debt and the range of interest rates as of year end were (in
millions):

Maturities of GFC's long-term debt as of December 31, 2001, for the next
five years were (in millions):

At December 31, 2001, certain technology assets, aircraft, railcars, and
other equipment with a net carrying value of $1,021.7 million were pledged as
collateral for $882.8 million of notes and obligations.

Interest expense on long-term debt, net of capitalized interest, was $252.6
million in 2001, $253.5 million in 2000 and $191.9 million in 1999. Interest
expense capitalized as part of the cost of construction of major assets was
$14.4 million in 2001, $10.4 million in 2000 and $4.3 million in 1999. Interest
allocated to discontinued operations in 2001, 2000 and 1999 was $5.0 million,
$50.8 million and $50.1 million, respectively.

NOTE 9. FAIR VALUE OF FINANCIAL INSTRUMENTS

GFC may enter into authorized derivative transactions for the purpose of
reducing earnings volatility, hedging specific economic exposures, including
adverse movements in foreign currency exchange rates, and changing interest rate
characteristics of debt securities. These instruments are entered into for
hedging purposes only. GFC does not hold or issue derivative financial
instruments for purposes other than hedging, except for warrants, which are not
designated as accounting hedges under SFAS No. 133, as amended.

FAIR VALUE HEDGES

GFC uses interest rate swaps to convert fixed rate debt to floating rate
debt and to manage the fixed to floating rate mix of the debt portfolio. The
fair value of interest rate swap agreements is determined based on the
differences between the contractual rate of interest and the rates currently
quoted for agreements of similar terms and maturities. As of December 31, 2001,
maturities for interest rate swaps designated as fair value hedges range from
2002-2011.

41

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CASH FLOW HEDGES

GFC's interest expense is affected by changes in interest rates as a result
of its use of variable rate debt instruments, including commercial paper and
other floating rate debt. GFC uses interest rate swaps and forward starting
interest rate swaps to convert floating rate debt to fixed rate debt and to
manage the floating to fixed rate ratio of the debt portfolio. The fair value of
interest rate swap agreements is determined based on the differences between the
contractual rate of interest and the rates currently quoted for agreements of
similar terms and maturities. As of December 31, 2001, maturities for interest
rate swaps qualifying as cash flow hedges range from 2002-2011.

GFC enters into currency swaps, currency and interest rate forwards, and
Treasury derivatives as hedges to manage its exposure to interest rate and
currency exchange rate risk on existing and anticipated transactions. The fair
values of currency swaps, currency and interest rate forwards, and Treasury
derivatives are based on interest rate swap rates, LIBOR futures, currency
rates, and current forward foreign exchange rates. As of December 31, 2001,
maturities for the previously mentioned hedges range from 2002-2011.

As of December 31, 2001, GFC expects to reclassify $0.5 million of net
losses on derivative instruments from accumulated other comprehensive income to
earnings within the next twelve months due to hedging a secured rail car
financing.

HEDGE OF NET INVESTMENT IN FOREIGN OPERATIONS

GFC has also entered into a foreign exchange forward contract to hedge
foreign currency exposure of an investment with operations located in Germany.
The fair value of the foreign exchange forward is determined by the current
forward foreign exchange rate. As of December 31, 2001, the net gain, included
in unrealized loss on derivatives, that related to the foreign exchange forward
contract was $8.9 million. The foreign exchange forward contract matures in
2002.

OTHER DERIVATIVES

GFC frequently obtains warrants from non-public, venture-backed companies
in connection with its financing activities. Upon adoption of SFAS No. 133, as
amended, these warrants are accounted for as derivatives. Upon receipt, fair
value is generally not ascertainable due to the early-stage nature of the
investee companies. Accordingly, assigned values are nominal. Prior to an
initial public offering (IPO) of these companies, the fair value of pre-IPO
warrants is deemed to be zero. Accordingly, no amounts were recognized in
earnings for changes in fair value of pre-IPO warrants. The fair value of
warrants subsequent to the IPO is based on currently quoted prices of the
underlying stock.

OTHER FINANCIAL INSTRUMENTS

The fair value of other financial instruments represents the amount at
which the instrument could be exchanged in a current transaction between willing
parties. The following methods and assumptions were used to estimate the fair
value of other financial instruments:

The carrying amount of cash and cash equivalents, rent receivables,
accounts payable, and short-term debt approximates fair value because of the
short maturity of those instruments. Also, the carrying amount of variable rate
secured loans approximates fair value.

The fair value of fixed rate secured loans was estimated using discounted
cash flow analyses, at interest rates currently offered for loans with similar
terms to borrowers of similar credit quality.

The fair value of variable and fixed rate long-term debt was estimated by
performing a discounted cash flow calculation using the term and market interest
rate for each note based on GFC's current incremental borrowing rates for
similar borrowing arrangements. Portions of variable rate long-term debt have
effectively been converted to fixed rate debt by utilizing interest rate swaps
(GFC pays fixed rate interest, receives

42

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

floating rate interest). Portions of fixed rate long-term debt have effectively
been converted to floating rate debt by utilizing interest rate swaps (GFC pays
floating rate interest, receives fixed rate interest). In such instances, the
increase (decrease) in the fair value of the variable or fixed rate long-term
debt would be offset in part by the increase (decrease) in the fair value of the
interest rate swap.

The following table sets forth the carrying amounts and fair values of
GFC's financial instruments (in millions):

In the event that a counterparty fails to meet the terms of the interest
rate swap agreement or a foreign exchange contract, GFC's exposure is limited to
the interest rate or currency differential. GFC manages the credit risk of
counterparties by dealing only with institutions that the Company considers
financially sound and by avoiding concentrations of risk with a single
counterparty. GFC considers the risk of non-performance to be remote.

NOTE 10. FINANCIAL INSTRUMENTS WITH OFF BALANCE SHEET RISK

Prior to January 1, 2001 and the adoption of SFAS No. 133, as amended, GFC
utilized off balance sheet financial instruments in the normal course of
business to manage financial market risk, including interest rate and foreign
exchange risk.

At December 31, 2000, GFC had the following off balance sheet financial
instruments (in millions):

43

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Following is a summary of GFC's interest rate hedge activity as of December
31, 2000 (in millions):

GFC uses interest rate swaps and forward starting interest rate swaps to
convert floating rate debt to fixed rate debt and to manage the floating/fixed
rate mix of the debt portfolio. GFC also uses forward starting interest rate
swaps and treasury derivatives to manage interest rate risk associated with the
anticipated issuance of debt.

Historically, GFC had a program that utilized interest rate swaps to match
the cash flow characteristics of its debt portfolio and its railcar leases. The
interest rate swaps effectively converted GFC's long-term fixed rate debt to
debt with maturities of three months to five years, matching the terms of the
railcar leases. During 2000, GFC terminated this program and implemented a new
program that utilizes interest rate swaps to achieve a target level of floating
interest rate exposure in its debt portfolio to reduce income volatility over
the long term. GFC uses interest rate swaps in addition to commercial paper and
floating rate medium-term notes to match fund its floating rate lease and loan
portfolio with floating rate borrowings.

The net amount payable or receivable from the interest rate swap agreements
is accrued as an adjustment to interest expense. The fair value of interest rate
swap agreements is determined based on the differences between the contractual
rate of interest and the rates currently quoted for agreements of similar terms
and maturities. The fair value of the interest rate swaps was $1.0 million at
December 31, 2000.

As of December 31, 2000, GFC had entered into currency swaps and forwards
to hedge $137.8 million of debt obligations of its Canadian subsidiaries, $46.8
million in debt obligations associated with a German joint venture and $28.7
million in future euro receipts for a leveraged lease transaction. The fair
value of the aggregate of currency swap and forward agreements was $26.9 million
at December 31, 2000.

NOTE 11. PENSION AND OTHER POST-RETIREMENT BENEFITS

GFC contributed to several pension plans sponsored by GATX that cover
substantially all employees. Benefits payable under the plans are based on years
of service and/or final average salary. The funding policy for all plans is
based on an actuarially determined cost method allowable under Internal Revenue
Service regulations. Contributions to these plans were zero, zero, and $0.1
million, in 2001, 2000, and 1999, respectively.

Costs pertaining to the GATX plans are allocated to GFC on the basis of
payroll costs with respect to normal cost and on the basis of actuarial
determinations for prior service cost. Net periodic pension cost for continuing
operations for 2001, 2000, and 1999 was $0.7 million, $2.0 million and $1.7
million, respectively. Pension costs include a credit of $0.1 million and
expense of $1.2 million and $1.4 million related to discontinued operations for
the years ended December 31, 2001, 2000 and 1999, respectively. Plan benefit
obligations, plan assets, and the components of net periodic cost for individual
subsidiaries of GATX have not been determined.

44

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In addition to the pension plans, GFC's other postretirement plans provide
health care, life insurance and other benefits for certain retired employees who
meet established criteria. Most domestic employees are eligible for health care
and life insurance benefits if they retire from GFC with immediate pension
benefits under the GATX pension plan. The plans are either contributory or
non-contributory, depending on various factors.

The following tables set forth other post-retirement obligations as of
December 31 (in millions):

45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The components of other post-retirement benefit costs are as follows (in
millions):

A special termination benefit expense of $0.2 million was incurred in 2001
for certain extra benefits paid to terminated or retired employees. Offsetting
this expense was a $1.1 million curtailment credit resulting from the
elimination of future service cost for covered employee groups.

Of the total special termination benefits incurred in 2001, $8.9 million
related to discontinued operations. The portion of the curtailment credit
related to discontinued operations was $14.3 million in 2001.

GFC amortizes the prior service cost using a straight-line method over the
average remaining service period of employees expected to receive benefits under
the plan.

Assumptions as of December 31:

The health care cost trend rate has a significant effect on the other
post-retirement benefit cost and obligation. For 2001, the assumed health care
cost trend rate was 5.0% for participants over the age of 65 and 6.0% for
participants under the age of 65. Due to increasing health care and drug costs
GFC anticipates that the trend rate for 2002 will be 12.0% for participants over
the age of 65 and 10.0% for participants under the age of 65. The assumed health
care cost trend rates are projected to decline gradually over a seven-year
period to 6.0% and remain at that level thereafter. A 1% increase in the trend
rate would increase the cost by $0.3 million and the obligation by $3.4 million.
A 1% decrease in the trend rate would decrease the cost by $0.2 million and the
obligation by $3.1 million.

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 12. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. In prior years, GATX
Corporation assumed a portion of GFC's deferred tax liability in exchange for
cash payments received from GFC. GATX Corporation contributed an amount equal to
the aggregate of cash received to GFC in exchange for the shares of preferred
stock which are currently outstanding. Subsequently, GFC reacquired a portion of
these deferred taxes and at December 31, 2001 the remaining balance assumed by
GATX Corporation was $78.9 million, which is shown as a deferred tax adjustment
in the table below.

Significant components of GFC's deferred tax liabilities and assets for
continuing operations were (in millions):

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GFC and its United States subsidiaries are included in the consolidated
federal income tax return of GATX Corporation. Income taxes for continuing
operations consisted of (in millions):

The reasons for the difference between GFC's effective income tax rate and
the federal statutory income tax rate were (in millions):

NOTE 13. COMMITMENTS, CONTINGENCIES AND CONCENTRATIONS OF CREDIT RISK

GFC's revenues are derived from a wide range of industries and companies.
Approximately 16% of total revenues are generated from the transportation of
products for the chemical industry; for similar services, 11% of revenues are
derived from the petroleum industry. In addition, approximately 18% of GFC's (on
and off balance sheet) assets consist of commercial aircraft operated by various
domestic and international airlines.

Under its lease agreements, GFC retains legal ownership of the asset except
where such assets have been financed by sale-leasebacks. With most loan
financings, the loan is collateralized by the equipment. GFC performs credit
evaluations prior to approval of a lease or loan contract. Subsequently, the
creditworthiness of

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

the customer and the value of the collateral are monitored on an ongoing basis.
GFC maintains an allowance for possible losses and other reserves to provide for
potential losses that could arise should customers become unable to discharge
their obligations to GFC.

At December 31, 2001, GFC's unconditional purchase obligations consisted
primarily of scheduled aircraft acquisitions. GFC had commitments of $885.1
million for firm orders and options for 27 new aircraft to be delivered between
2002 and 2004. Additional unconditional purchase obligations include $239.3
million of specialty finance and venture finance commitments and $8.3 million of
railcar commitments. Additionally, under the terms of the DEC acquisition
agreement GFC is obligated to invest $71.9 million in DEC over the next five
years.

GFC has various commercial commitments, such as guarantees and standby
letters of credit, that could potentially require performance in the event of
demands by third parties. Similar to GATX's on-balance sheet investments, these
guarantees expose GATX to credit and market risk; accordingly, GATX evaluates
commitment and other contingent obligations using the same techniques used to
evaluate funded transactions. GFC had $581.8 million of residual value, rental
or loan guarantees outstanding at December 31, 2001.

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

Asset residual value guarantees represent GFC's commitment to third parties
that an asset or group of assets will be worth a specified amount at the end of
a lease term. Over 50% of the asset residual value guarantees are related to
rail equipment. Revenue is earned for providing these asset value guarantees in
the form of an initial fee (which is amortized into income over the guaranteed
period) and by sharing in any proceeds received upon disposition of the assets
in excess of the amount guaranteed (which is recorded when realized). Based on
known and expected market conditions, management does not believe that the asset
residual value guarantees will result in any adverse financial impact to GFC.

GFC is also party to letters of credit and bonds totaling $7.5 million and
$10.7 million at December 31, 2001 and 2000, respectively. In GFC's past
experience, virtually no claims have been made against these financial
instruments. Management does not expect any material losses to result from these
off balance sheet instruments because performance is not expected to be
required, and, therefore, is of the opinion that the fair value of these
instruments is zero.

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

NOTE 14. DISCONTINUED OPERATIONS

As of December 31, 2001, GFC has substantially completed the divestiture of
GATX Terminals Corporation (Terminals). In the first quarter of 2001, GFC 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, GFC
sold substantially all of Terminals' European operations. In the second and
third quarters of 2001, Terminals sold its Asian operations and its interest in
a distillate and blending distribution affiliate. Additionally, 1999 reflects
the results of the value-added technology equipment sales and services business
that was sold in June.

49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A net after-tax gain of $173.9 million was recognized on the sales of
Terminals assets in 2001. The 2001 gain on sale of portion of segment primarily
reflects the sale of substantially all of the GFC's interest in GATX Terminals
Corporation and its subsidiary companies and is net of taxes of $185.6 million.

GFC's financial statements have been restated to reflect discontinued
operations for all periods presented. Corporate allocations to discontinued
operations were for services provided. Operating results include interest
expense on debt that was assumed by the buyer and an allocation of the interest
expense on GFC's general credit facilities based on actual historical financing
requirements. In connection with the disposition of the Terminals, GFC retained
$46.9 million of on-going liabilities, consisting primarily of pension and other
post-retirement obligations.

Operating results of discontinued operations are presented below (in
millions):

Assets and liabilities of the discontinued operations are summarized below
(in millions):

NOTE 15. FINANCIAL DATA OF BUSINESS SEGMENTS

The financial data presented below conforms to SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, and depict the
profitability, financial position and cash flow of each of GFC's continuing
business segments. Segment profitability is presented to reflect operating
results inclusive of allocated support expenses from the parent company and
interest costs based upon the debt levels shown below.

GFC provides its services and products through two operating segments: GATX
Capital and GATX Rail. Through these businesses, GFC combines asset knowledge
and services, structuring expertise, partnering and risk capital to serve
customers and partners worldwide. GFC specializes in railcar and locomotive
leasing, aircraft operating leasing, information technology leasing and venture
finance.

The GATX Capital segment consists of the following four business units:

- Air, which is a leading aircraft lessor, focused on leasing newer,
narrow-body aircraft used by commercial airlines throughout the world.

- Technology, which provides lease financing and asset management services
related to information technology equipment, primarily to Fortune 1000
companies.

- Venture Finance, which provides secured loan and lease financing to
early-stage companies.

50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

- Specialty Finance, which acts as an investor, arranger and manager of
financing services involving a variety of asset types and industries,
with an established presence in the marine business.

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

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 16. OTHER ASSETS

The following table summarizes the components of other assets (in
millions):

NOTE 17. REVENUE COMPONENTS

The following table summarizes the components of revenue (in millions):

Other income includes railcar maintenance revenue. Additionally, other
income in 1999 includes revenue of $67.0 million from the value added technology
equipment sales and service business, which was sold in June 1999.

NOTE 18. PORTFOLIO PROCEEDS

The following table summarizes the components of portfolio proceeds (in
millions):

53

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. REDUCTION IN WORKFORCE

During 2001, GFC recorded a pre-tax charge of $10.9 million related to its
2001 reduction in workforce. This action was part of the parent company's
previously announced initiative to reduce selling, general and administrative
costs in response to current economic conditions and the divestiture of
Terminals' operations.

The reduction in workforce charge included involuntary employee separation
and benefit costs for 135 employees company wide, as well as legal fees,
occupancy and other costs. The employee groups terminated included professional
and administrative staff.

As of December 31, 2001, 134 of the employee terminations were completed.
The amount of termination benefits paid in 2001 totaled $2.2 million. Remaining
cash payments will be funded from ongoing operations and are not expected to
have a material impact on GFC's liquidity.

NOTE 20. ADVANCES TO PARENT

Interest income on advances to GATX, which is included in gross income on
the income statement, was $29.7 million in 2001, $30.2 million in 2000, and
$26.4 million in 1999. These advances have no fixed maturity date. Interest
income on advances to GATX was based on an interest rate that is adjusted
annually in accordance with an estimate of short-term rates.

54

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Not required.

ITEM 11. EXECUTIVE COMPENSATION

Not required.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Not required.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

55

PART IV

ITEM 14. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS.

(a) 1. Financial Statements

The Consolidated Financial Statements of GATX Financial Corporation and its
subsidiaries which are required in Item 8 are listed below:

Schedule II Valuation and Qualifying Accounts

All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not
required under the related instructions or are inapplicable, and
therefore, have been omitted.

(b) No reports were filed on Form 8-K during the reporting period.

(c) Exhibit Index

58

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.

GATX FINANCIAL CORPORATION
(Registrant)

/s/ RONALD H. ZECH
--------------------------------------
Ronald H. Zech
Chairman, President,
Chief Executive Officer
and Director
March 22, 2002

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.

/s/ RONALD H. ZECH Chairman, President, Chief
------------------------------------------------------ Executive Officer and
Ronald H. Zech Director
March 22, 2002

/s/ BRIAN A. KENNEY Vice President, Chief
------------------------------------------------------ Financial Officer, Director
Brian A. Kenney and Assistant Secretary
March 22, 2002

/s/ WILLIAM M. MUCKIAN Vice President, Controller
------------------------------------------------------ and Chief Accounting Officer
William M. Muckian
March 22, 2002

/s/ JESSE V. CREWS Director
------------------------------------------------------
Jesse V. Crews
March 22, 2002

/s/ DAVID M. EDWARDS Director
------------------------------------------------------
David M. Edwards
March 22, 2002

59

SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS

GATX FINANCIAL CORPORATION AND SUBSIDIARIES

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

(a) Deducted from asset accounts.

(b) Represents principally the recovery of amounts previously written off.

(c) Represents principally uncollectible amounts written off.

60