GATX CORP - 10-Q Quarterly Report

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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

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FORM 10-Q

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

OR

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

For the Quarterly Period Ended Commission File Number
September 30, 2002 1-2328

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GATX CORPORATION

Incorporated in the IRS Employer Identification No.
State of New York 36-1124040

500 West Monroe Street
Chicago, IL 60661-3676
(312) 621-6200

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 48,969,958 shares of common stock outstanding as of
October 31, 2002.

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PART I -- FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(IN MILLIONS, EXCEPT PER SHARE DATA)

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

2

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN MILLIONS)

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

4

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(IN MILLIONS)

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

5

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (UNAUDITED)
(IN MILLIONS)

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

6

GATX CORPORATION AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

(1) The consolidated balance sheet at December 31, 2001 has been derived
from the audited financial statements at that date. All other
consolidated financial statements are unaudited but include all
adjustments, consisting only of normal recurring items, which
management considers necessary for a fair statement of the consolidated
statements of income, balance sheets and cash flows for the respective
periods. Operating results for the nine months ended September 30, 2002
should not be regarded as necessarily indicative of the results that
may be expected for the entire year. For further information, refer to
GATX Corporation's (GATX or the Company) annual report on Form 10-K for
the year ended December 31, 2001.

(2) Certain amounts in the 2001 financial statements have been reclassified
to conform to the current presentation.

(3) Discontinued operations -- Operating results for the former Integrated
Solutions Group (ISG) segment are shown net of taxes of zero and $2.1
million, respectively, for the three and nine month periods ended
September 30, 2001. The 2002 gain on sale of portion of segment
represents the sale of GATX's interest in a bulk-liquid storage
facility located in Mexico and is net of taxes of $3.0 million. The
2001 gain on sale of portion of segment primarily reflects the sale of
substantially all of the Company's interest in GATX Terminals
Corporation and its subsidiary companies and is net of taxes of $195.7
million.

(4) GATX and its subsidiaries are 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 GATX and its subsidiaries in the
discharge of such liabilities, are not likely to be material to GATX's
consolidated financial position or results of operations.

(5) Effective January 1, 2002, GATX adopted Statement of Financial
Accounting Standards (SFAS) No. 141, Business Combinations and SFAS No.
142, Goodwill and Other Intangible Assets. Under these new rules,
goodwill is no longer amortized, but rather subject to an annual
impairment test in accordance with the Statements. A fair value
approach is used to test goodwill for impairment. An impairment charge
is recognized for the amount, if any, by which the carrying amount of
goodwill exceeds its fair value. In accordance with FAS 142, the
company completed a review of all recorded goodwill. Fair values were
established using discounted cash flows. Based on this review, the
Company determined that all of the goodwill related to its Polish
railcar reporting unit, Dyrekcja Eksploatacji Cystern (DEC) was in
excess of its fair market value at January 1, 2002. As a result, the
Company recorded a one-time, non-cash impairment charge of $34.9
million. Such charge is non-operational in nature and is recognized as
a cumulative effect of an accounting change as of January 1, 2002 in
the consolidated statements of income. The impairment charge was due
primarily to more conservative expectations based on current market
conditions and a lower long-term growth rate projected for DEC.

7

Changes in the carrying amount of goodwill by segment during the first
nine months of 2002 are as follows (in millions):

Application of the non-amortization of goodwill provisions of the
Statement, including equity method goodwill, will result in an increase
in net income of approximately $6.8 million for the full year 2002,
compared to the full year 2001.

As required by SFAS No. 142, the results of operations for periods
prior to adoption have not been restated. Following is a reconciliation
of net income and earnings per share, as reported, to net income and
earnings per share, as adjusted, for the three and nine month periods
ended September 30, 2001, computed as if SFAS No. 142 had been adopted
effective January 1, 2001 (in millions, except for per share data):

(6) In the fourth quarter of 2001, GATX recorded a pre-tax charge of $13.4
million related to a reduction in workforce. This action was part of
GATX's initiative to reduce selling, general and administrative costs
in response to economic conditions and the divestiture of the ISG
operations. This charge included involuntary employee separation and
benefit costs for 147 employees company wide, as well as legal fees,
occupancy and other costs. The employees terminated included
professional and administrative staff, including corporate personnel.
At the end of 2001, the remaining accrual was $10.1 million.

As of September 30, 2002, all of the employee terminations were
substantially completed. The amount of termination benefits paid in the
first nine months of 2002 totaled $4.0 million. Occupancy and other
costs of $1.3 million were also paid in the first nine months of 2002.
Remaining cash payments of $4.8 million will be funded from ongoing
operations and are not expected to have a material impact on GATX's
liquidity position.

(7) Restricted cash of $123.2 million at September 30, 2002 is comprised of
cash and cash equivalents which are restricted as to withdrawal or
usage. GATX's restricted cash primarily includes an amount designated
to fund the construction of railcars for a customer and additional
amounts maintained as required by contract for three bankruptcy remote,
special-purpose corporations that are wholly owned by GATX's principal
subsidiary, GATX Financial Corporation (GFC).

(8) The Company's effective tax rate from continuing operations was 33% for
the nine months ended September 30, 2002 compared to 54% for the nine
months ended September 30, 2001. The 2002 rate is favorably impacted by
Extraterritorial Income (ETI) benefits related to cross-border leases.
The 2001 rate included a provision for the anticipated tax settlement
related to the Company's corporate-owned life insurance (COLI) program.

The Company anticipates showing a net operating loss on its 2002 U.S.
consolidated income tax return. This loss may be carried back to offset
taxable income in prior years, resulting in a tax refund. As of
September 30, 2002, the recoverable income tax was $98.5 million.

On July 1, 2002, the Company reached a $27 million settlement agreement
with the IRS resolving all disputes over the tax deductibility of
interest on loans taken out against its COLI programs. At September 30,
2002, this amount was fully accrued based on provisions made in prior
years.

8

(9) The following table sets forth the computation of basic and diluted net
income per common share (in millions, except per share amounts):

(a) Conversion of convertible securities (issued February 2002)
was excluded from the calculations of diluted earnings for the
three and nine-month periods ended September 30, 2002 because
of antidilutive effects.

(b) Quarterly earnings per share results may not be additive, as
per share amounts are computed independently for each quarter.

9

(10) The following financial data conforms to SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, and depicts
the profitability, identifiable assets and cash flow of each of GATX's
continuing business segments. Segment profitability is presented to
reflect operating results inclusive of estimated allocated support
expenses from the parent company and estimated applicable interest
costs. Discontinued operations and the cumulative effect of accounting
change are not included in the financial data presented below.

GATX provides its services and products through two operating segments:
Financial Services and GATX Rail. In prior years, the Financial
Services segment included a rail business unit that leases freight cars
and locomotives under operating and finance leases. During 2001, GATX
combined the rail business unit of Financial Services with GATX Rail, a
full service lessor of railcars, into one rail segment. The financial
data for Financial Services and GATX Rail has been restated for all
periods presented to reflect the change in the composition of each
operating segment.

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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

COMPARISON OF FIRST NINE MONTHS OF 2002
TO FIRST NINE MONTHS OF 2001

GATX Corporation's (GATX or the Company) net income for the first nine months of
2002 was $29.7 million, a $155.3 million decrease from the $185.0 million
reported for the same period in 2001. Earnings per share on a diluted basis
decreased to $.61 in 2002 from $3.75 in the 2001 period. Comparisons between
periods are affected by gains on the sale of discontinued operations and various
non-comparable items in both periods, primarily telecommunications (telecom)
related charges, costs associated with the closing of a railcar repair facility
in the first nine months of 2001 and charges related to goodwill impairment
under SFAS 142 in 2002.

RESULTS OF CONTINUING OPERATIONS

GATX's gross income for the first nine months of 2002 of $1,031.4 million was
$145.1 million lower than the prior year primarily as a result of a decrease in
lease income and lower gains with respect to asset remarketing and sales of
securities. Income from continuing operations before cumulative effect of
accounting change for the first nine months of 2002 was $58.4 million compared
to $19.6 million in the prior year period. The 2002 period was favorably
impacted by reduced selling, general and administrative (SG&A) expense as a
result of a reduction in workforce implemented last year and lower operating
costs, largely due to the costs associated with the closure of a GATX Rail
service facility in 2001. Also contributing to the increase in income from
continuing operations was a decrease in pre-tax asset impairment charges of
$54.3 million compared to the prior year period due to the absence of telecom
charges. Diluted earnings per share from continuing operations increased to
$1.20 from $.40 in the prior year period.

FINANCIAL SERVICES

Financial Services' gross income of $525.7 million included $15.8 million
attributable to gains on extinguishment of debt, as discussed below. Excluding
these gains, gross income decreased $159.9 million from the prior year period
principally due to decreases in lease and interest income and lower gains with
respect to asset remarketing and the sale of securities. Lease income of $307.4
million declined $91.9 million from the prior year period due to lower average
finance lease balances, lower technology operating lease assets and lower lease
rates. Interest income of $44.0 million decreased $11.4 million due to lower
average secured loan balances as well as a decrease in annualized yield compared
to the prior year period.

Asset remarketing income includes gains from the sale of assets from Financial
Services' own portfolio as well as residual sharing fees from the sale of
managed assets. Asset remarketing income of $36.1 million decreased $46.7
million from the prior year period primarily due to decreased residual sharing
fees from managed portfolios, partially offset by an increase in technology
asset remarketing activity. The prior year period also included a gain of $25.4
million on the sale of a steel manufacturing facility and $9.4 million from the
sale of marine investments. Gains on the sale of securities, which are derived
from warrants received as part of financing transactions with non-public
companies, were $3.4 million, down significantly from the $35.1 million recorded
in the prior year. Decreases in gains on the sale of securities are indicative
of limited initial public offering activity compared to 2001. Because the timing
of such sales is dependent on changing market conditions, gains on the sale of
securities and asset remarketing income do not occur evenly from period to
period. In addition, based on current valuations on early stage companies, it is
unlikely that gains on the sale of securities will approach 2001 levels in the
near future.

Share of affiliates' earnings of $49.0 million was $20.1 million higher than
2001. The increase is primarily due to higher income from certain specialty
finance affiliates and the absence of losses from telecom affiliates compared to
the prior year period.

12

Ownership costs of $309.1 million decreased $83.0 million compared to the prior
year. Depreciation expense of $188.9 million decreased $37.6 million from 2001,
reflecting lower average technology operating lease balances, partially offset
by higher average air operating leases. Operating lease expense of $10.5 million
decreased $11.8 million from the prior year period partly due to the reversal of
a previously recorded sublease liability resulting from the disposition of the
related transaction. Interest expense of $109.7 million decreased $33.6 million
from 2001 primarily due to lower borrowing rates. SG&A expense of $72.3 million
decreased $27.3 million compared to the prior year due to lower human resource
expenses as a result of the fourth quarter 2001 reduction in workforce and
reduced legal expenses attributable to litigation in 2001.

The provision for possible losses is Financial Services' estimate of possible
credit losses inherent in the investment portfolio based on a review of credit,
collateral and market risks. The provision for possible losses of $28.4 million
decreased $33.0 million from the prior year. Approximately $10.0 million of the
current year provision and $2.3 million of the asset impairment loss were
related to one technology leasing investment, which was largely offset by a gain
on extinguishment of nonrecourse debt of $13.0 million associated with this same
investment. Financial Services frequently utilizes nonrecourse debt to finance
its technology portfolio. The prior year provision for possible losses reflected
the deterioration of certain steel, venture and telecom investments. Asset
impairment charges of $15.6 million decreased $54.3 million from the prior year,
which included charges of $67.3 million related to the telecom portfolio. Future
provision for possible losses will depend on the size of the portfolio and
business and economic conditions.

The allowance for possible losses of $71.2 million decreased $15.3 million from
December 31, 2001 and was approximately 6.0% of reservable assets, consistent
with 6.0% at year end. Reservable assets are defined as operating lease rent
receivables, direct financing leases, leveraged leases and secured loans. Net
charge-offs of reservable assets totaled $43.7 million for the nine-month period
primarily related to venture and technology investments, including $12.0 million
related to the technology investment discussed above.

Financial Services previously provided financing to start-up telecom service
providers as an activity in its venture finance business unit. Venture finance
discontinued this financing activity in 2001 and its remaining telecom exposure
was $10.2 million, or approximately 0.3% of Financial Services' total assets at
September 30, 2002. Separately, Financial Services also leases various types of
equipment to established telecom service providers through its technology
business unit.

Non-performing assets of $93.3 million, excluding assets within joint ventures,
decreased by $3.1 million from year end.

Net income of $34.3 million, although $23.4 million higher than last year,
reflects a decline in lease income, asset remarketing income, and gains on the
sale of securities compared to the 2001 period, consistent with current economic
conditions. The favorable increase over the prior year is primarily due to lower
SG&A expense and the absence of losses related to telecom investments in 2002.

Financial Services continues to be negatively impacted by the weak economic
environment and challenging market conditions, which has resulted in lower lease
rates and lower investment volume in its core markets. In particular, the
aircraft leasing market has been negatively impacted as most lessors have
aggressively attempted to maintain high utilization. As a result, aircraft lease
rates remain under pressure. Currently, there are leases in place with respect
to all of the company's 16 new aircraft scheduled for delivery in 2002. Of the
six new aircraft scheduled for delivery in 2003, the Company has signed leases
for three aircraft. In addition, the Company has either signed leases or signed
letters of intent for all 2002 scheduled renewals for owned aircraft for which
the Company has direct remarketing responsibility. The Company also has eight
renewals of owned aircraft for which it has direct remarketing responsibility
scheduled for 2003, one of which has a signed letter of intent in place as of
September 30, 2002. The airline industry remains in a weakened condition and
GATX continues to monitor closely its air portfolio due to the greater potential
for credit losses and asset impairment.

13

In addition, over the last 18 months several aircraft operators have announced
their intention to phase out their Fokker-100 fleets. For example, on August 13,
2002, American Airlines announced it would phase out its fleet of 74 Fokker-100
aircraft from 2003 through 2005. American Airlines also took an unspecified
impairment charge on its Fokker-100 aircraft. The well-publicized difficulties
in the airline industry have also adversely affected the Fokker-50 market. This
environment has caused GATX to examine its exposure, through its 50% interest in
Pembroke Group Limited (Pembroke), an aircraft leasing and management company,
to Fokker-100 jet and Fokker-50 turboprop aircraft. As of September 30, 2002, an
indirect wholly-owned subsidiary of Pembroke, Aircraft Finance and Trading BV
(AFT) owned six Fokker-100 and 22 Fokker-50 aircraft and a second subsidiary of
Pembroke owned two Fokker-100's. AFT currently has four F-50's in storage.
Pembroke's book value of these Fokker aircraft is $190 million. In light of
these developments, Pembroke is currently examining these aircraft for
impairment. It intends to finalize this analysis in the fourth quarter of 2002.
The determination of any impairment charge will be dependent on a number of
factors, including expectations on future rental rates and the ultimate economic
life of the aircraft. However, after giving consideration to these variables,
GATX currently estimates that its proportionate share of impairment loss, if
any, will be in the range of $0 to $25 million. As of September 30, 2002, GATX
has not recognized any impairment loss with respect to its investment in
Pembroke.

GATX RAIL (RAIL)

Rail's gross income of $506.6 million for the first nine months of 2002
increased $2.7 million over the prior year period. Rental revenue of $458.5
million decreased $9.7 million from the prior year period. In March 2001, Rail
acquired Dyrekcja Eksploatacji Cystern (DEC), Poland's national tank car fleet.
Excluding DEC, North American rental revenue of $435.8 million was down $16.0
million compared to last year. Difficult economic conditions, combined with
aggressive competition, increased railroad efficiency and railcar surpluses have
resulted in continued softness in railcar demand and pressure on lease rates.
Asset remarketing income of $4.3 million increased $1.9 million from the prior
year period primarily due to the sale of a portfolio of residual sharing
investments in the first quarter of 2002. Share of affiliates' earnings of $8.7
million increased $3.6 million from the prior year period due to higher earnings
at European affiliates. The prior year period included a purchase accounting
correction for a European affiliate.

Rail's North American fleet, excluding railcars managed for others or owned by
affiliates, totaled 109,000 cars at the end of the third quarter compared to
110,000 at the end of the prior year period. In May 2002, Rail, acquired 2,700
railcars in Mexico through its Mexican subsidiary. Approximately 99,000 railcars
were on lease throughout North America at the end of the third quarter,
comparable with the active fleet in the prior year period. Rail's North American
utilization was 91% at September 30, 2002. The Railworthiness Directive
(Directive) issued by the Federal Railroad Administration (FRA), discussed
below, impacted utilization as existing idle cars were deployed to replace
affected cars and cars taken out of service were scrapped. Railcar demand
remains soft, negatively impacting utilization; this condition is expected to
continue at least through the remainder of 2002. In response to current rail
market conditions, Rail has retired excess cars and, generally, limited orders
of new railcars to specific customer lease commitments. However, consistent with
Rail's commitment to meeting the needs of its customers on a long-term basis and
to replace cars to be retired from the existing fleet, the Company has initiated
a railcar purchase program. Subsequent to September 30, 2002, the Company
entered into supply agreements to acquire 7,500 railcars over the next five
years with two manufacturers.

Ownership costs of $263.8 million increased $3.1 million from last year
primarily due to the purchase of DEC.

Operating costs were $122.2 million, down $16.2 million from the prior year.
Excluding DEC, operating costs were $109.8 million, a decrease of $21.1 million
from the prior year. In the prior year period, Rail's operating costs included
$24.5 million of non-comparable items. Of this amount, $19.7 million related to
the closing of its East Chicago repair facility. Excluding the non-comparable
items, operating costs were higher in 2002 compared to the prior year due to the
impact of the Directive and additional car repairs. SG&A expenses decreased
$11.8 million from the prior year period to $54.2 million primarily due to the
fourth quarter 2001 reduction in workforce.

14

Rail is continuing to address the Directive issued by the FRA in April 2002
relating to a certain class of tank cars that were built or modified with
reinforcing bars by GATX Rail prior to 1974. In its Directive, the FRA indicated
that cars within this class must be inspected, and repaired if necessary,
according to an FRA approved maintenance plan. Approximately 4,200 of Rail's
owned railcars with a net book value of approximately $4.0 million are affected
by this Directive. In accordance with the Directive, nearly all the subject tank
cars have been removed from service. The impact of this Directive on Rail's
operating results for the first nine months of 2002 was approximately $1.6
million after tax and includes lost revenue, inspection, cleaning and
replacement car costs, partially offset by gains on the accelerated scrapping of
affected cars that would otherwise have been retired and scrapped over the next
several years.

As discussed in footnote (5) to the financial statements, Rail completed its
transitional goodwill impairment testing in the third quarter and recorded a
$34.9 million impairment charge related to its 2001 acquisition of DEC.

Rail's net income of $10.0 million was $12.0 million lower than the prior year
primarily due to the cumulative effect of accounting change of $34.9 million
related to goodwill impairment in 2002, offset by the absence of 2001 closure
costs related to its East Chicago repair facility. Excluding these items, net
income increased $6.7 million primarily due to higher asset remarketing income,
lower SG&A expense and a lower effective tax rate driven by an exemption for
income related to certain railcars on lease outside the United States, offset by
lower rental revenue.

CORPORATE AND OTHER

Corporate and other net expense was $20.8 million for the first nine months of
2002 compared to $13.3 million for the prior year period, with the variance
primarily due to additional interest expense from the issuance of $175.0 million
of convertible notes. The 2001 period included interest income on the proceeds
received from the sale of ISG and a $4.0 million tax charge related to the
Company's COLI program.

RESULTS OF DISCONTINUED OPERATIONS

In the first quarter 2002, GATX completed the divestiture of the ISG segment.
The ISG segment was comprised of GATX Terminals Corporation (Terminals), GATX
Logistics, Inc. (Logistics), and minor business development efforts. Financial
data for the ISG segment has been segregated as discontinued operations for all
periods presented.

In the first quarter of 2002, GATX sold its interest in a bulk-liquid storage
facility located in Mexico and recognized a $6.2 million after-tax gain. In the
first quarter of 2001, GATX sold the majority of Terminals' operations and
recognized a net after-tax gain of $163.9 million.

Operating results for the first nine months of 2002 were zero, down $1.5 million
from the prior year period. Comparisons between periods were affected by the
timing of the sale of ISG assets.

CASH FLOW AND LIQUIDITY

Net cash provided by operating activities of continuing operations for the first
nine months of 2002 was $222.9 million, or $13.8 million less than the prior
year period. Excluding the $141.0 million payments related to the Airlog
settlement in the prior period, cash flow was lower due to contributions made to
the Company's pension plans and the deferral to 2003 of anticipated tax refunds
generated by the current year tax NOL.

Portfolio proceeds and asset sales were $734.9 million, down $247.8 million from
$982.7 million in the 2001 period. The decrease was due to lower proceeds from
disposals of leased equipment, security sales and cash distributions from joint
venture investments, partially offset by an increase in finance lease and loan
principal payments received. The prior year period also included $189.2 million
from the sale-leaseback of railcars at Rail.

15

Portfolio investments and capital additions for the first nine months of 2002
totaled $887.4 million, a decrease of $591.5 million from the first nine months
of 2001. Portfolio investments and capital additions at Financial Services of
$828.8 million were $317.9 million lower than the prior year period, primarily
due to lower volume in technology, specialty and venture, partially offset by
higher volume in air. In the first quarter of 2001, Financial Services acquired
a portfolio of technology leases from El Camino Resources for $129.8 million
(net of the assumption of $255.6 million of nonrecourse debt). Rail invested
$58.6 million in the first nine months of 2002, a decrease of $273.2 million
from the prior year. Current year investments include a fleet acquisition of
2,700 railcars in Mexico. The prior year period included $95.8 million for the
acquisition of DEC. Indicative of current market conditions, Rail's capital
spending for its railcar fleet was $158.0 million lower than the prior year
period. Railcar additions are not anticipated to exceed prior year activity.

In the current nine-month period, GATX issued $175.0 million of long-term
convertible debt. Including the financing activity of its wholly-owned
subsidiary, GATX Financial Corporation (GFC), GATX repaid $990.7 million and
issued $1,304.7 million of long-term debt. Significant financings in the first
nine months of 2002 included the issuance of $250.0 million of senior unsecured
term notes, $210.9 million of U.S. Export-Import Bank aircraft financing, a
$142.2 million aircraft warehouse facility, $206.6 million of European Credit
Agency aircraft financing, an $86.6 million secured railcar financing, a $75.0
million aircraft bridge loan which has been repaid, and $169.5 million of
technology non-recourse financing. Debt issuance costs related to 2002
financings were approximately $18.4 million.

GATX funds asset investment and meets debt and lease obligations through cash
flow from operations, portfolio proceeds and asset sales, uncommitted money
market lines, committed revolving credit facilities, the issuance of unsecured
debt, and a variety of secured borrowings. GATX utilizes both the domestic and
international bank and capital markets. The availability of these funding
options may be adversely impacted by certain factors, including the global
economic environment and outlook as well as GFC's financial performance and
outlook. Access to capital markets at competitive rates is partly dependent on
GFC's credit rating as determined by rating agencies such as Standard & Poor's
(S&P) and Moody's Investors Service (Moody's).

On March 13, 2002, Moody's downgraded GFC's long-term unsecured debt to Baa3
from Baa2 and GFC's commercial paper to Prime-3 from Prime-2. Moody's currently
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. In May 2002, S&P removed GATX from credit watch but
maintained the negative outlook. Due to these rating agency actions, GFC's
access to the commercial paper market has been seriously constrained and GFC is
experiencing more difficulty accessing the long-term capital markets on a cost
efficient basis.

As of September 30, 2002, GFC had revolving credit facilities totaling $778.3
million. GFC's credit facilities included three agreements for $350.0 million,
$283.3 million, and $145.0 million expiring in 2003, 2004 and 2005 respectively.
The $145.0 million facility is intended to be utilized by GFC for short-term
funding requirements. At September 30, 2002, all credit facilities were unused
and available. The revolving credit facilities contain various restrictive
covenants, including requirements to maintain a defined minimum net worth and
certain financial ratios. At September 30, 2002, GFC was in compliance with all
of the covenants and conditions of the credit agreements. GFC has a shelf
registration for $1.0 billion of debt securities of which $850.0 million had
been issued through September 30, 2002.

GATX has unconditional purchase obligations of $1,130.6 million, consisting
primarily of committed aircraft deliveries and railcar orders, including the
recently announced railcar supply agreement, scheduled as follows: $237.4
million in the remainder of 2002, $370.1 million in 2003, $252.0 million in
2004, $89.4 million in 2005, $90.3 million in 2006, and $91.4 million in 2007.

16

COMPARISON OF THIRD QUARTER 2002
TO THIRD QUARTER 2001

In the third quarter 2002, GATX reported net income of $19.1 million or $.39 per
diluted share compared to a loss of $7.3 million or $.15 per share on a diluted
basis in the prior year period.

FINANCIAL SERVICES

Financial Services' gross income of $178.7 million decreased $22.3 million from
the prior year period due to lower lease income, asset remarketing income, and
gains on the sale of securities. Lease income of $102.8 million was down $19.3
million primarily due to lower average finance lease balances and lower lease
rates. Asset remarketing income of $10.2 million was lower than the prior year
period by $9.6 million due to lower technology asset remarketing activity. The
prior year period also included a gain of $6.9 million from the sale of marine
investments. Gains on the sale of securities were $2.3 million, down $5.2
million from the prior year period.

Share of affiliates' earnings of $15.2 million increased $10.9 million from last
year primarily due to the absence of losses from telecom joint ventures. Prior
period earnings from telecom affiliates were negatively impacted by $14.7
million of provision for possible losses and asset impairment charges.

Ownership costs of $104.7 million decreased $18.5 million compared to the prior
year period due to lower depreciation and interest expense. Depreciation and
amortization expense of $62.4 million decreased $10.8 million from 2001
reflecting the lower level of investment in technology operating lease assets,
partially offset by higher air operating lease assets. Interest expense of $37.5
million decreased $5.9 million from 2001 due primarily to lower borrowing rates.
SG&A expense decreased $3.0 million compared to the prior year due to lower
human resource expenses as a result of the fourth quarter 2001 reduction in
workforce and reduced outside consulting fees.

The provision for possible losses of $2.1 million decreased $22.1 million from
2001. The prior year quarter included a significant provision for telecom
investments. Net charge-offs of reservable assets totaled $9.0 million for the
current three-month period and included write-offs of venture and specialty
finance investments. Asset impairment charges of $9.2 million were $30.1 million
lower than the prior year quarter primarily due to the absence of telecom
losses. The current year quarter included charges related to technology and
specialty finance investments.

Net income for the current three-month period was $12.2 million, compared to a
loss of $13.3 million in the prior year period. The increase from last year was
principally the result of a decrease to the loss provision and asset impairment
charges, partially offset by lower lease income, asset remarketing income, and
gains on the sale of securities.

RAIL

Rail's gross income of $164.3 million for the third quarter of 2002 was $1.3
million lower than the prior year. Rental revenue of $146.6 million was down
$9.5 million from the prior year period. The decrease in rental revenue is due
to ongoing unfavorable market conditions which resulted in lower average rental
rates. Share of affiliates' earnings of $2.7 million increased $2.1 million from
the prior year period due to higher earnings at European affiliates. The prior
year period included a purchase accounting correction for a European affiliate.

Ownership costs of $86.5 million were comparable to the prior year. Rail's
operating costs of $41.0 million increased by $5.5 million from the prior year
period mainly due to increased repair costs resulting from the impact of the
Directive and additional car repairs. SG&A expense of $17.3 million decreased
$3.9 million from the prior year period due to the fourth quarter 2001 reduction
in workforce.

17

Rail's net income of $14.7 million in the third quarter of 2002 was favorable to
the prior year period by $1.6 million. 2002 results included the $2.2 million
recognition of tax incentives and other favorable items, offset by lower rental
revenue and the impact of the FRA Directive of $1.1 million. The impact of the
Directive includes lost revenue, inspection, cleaning and replacement car costs,
partially offset by gains on the accelerated scrapping of affected cars that
would otherwise have been retired and scrapped over the next several years.

NEW ACCOUNTING PRONOUNCEMENTS

Effective January 1, 2002 GATX adopted Statement of Financial Accounting
Standards (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and
Other Intangible Assets. For further information refer to footnote (5) to the
financial statements.

Effective January 1, 2002, GATX adopted SFAS No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets. 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 also supersedes
certain provisions of APB Opinion 30 with regard to reporting the effects of a
disposal of a segment of a business and will require expected future operating
losses from discontinued operations to be separately reported in discontinued
operations during the period in which the losses are incurred (rather than as of
the measurement date as presently required by APB 30). GATX does not expect this
Statement to have a material impact on GATX's consolidated financial position or
results of operations.

In April 2002, the FASB issued SFAS No. 145, Rescission of FASB Statements No.
4, 44, and 64, Amendment of FASB Statement No. 13, and Technical Corrections,
effective for fiscal years beginning after May 15, 2002, with early application
encouraged. The provisions of this Statement update, clarify and simplify
certain existing accounting pronouncements. For the period ended September 30,
2002, GATX applied the provisions of SFAS No. 145. Specifically, SFAS No. 145
rescinds SFAS No. 4, which previously required all gains and losses from
extinguishment of debt to be aggregated and, if material, classified as an
extraordinary item, net of related income tax effects. In accordance with the
Statement, GATX's gain on extinguishment of debt of $15.9 million recognized in
the nine month period ended September 30, 2002, is not considered an
extraordinary item, and was therefore included in results of operations.

In July 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with
Exit or Disposal Activities. This statement requires companies to recognize
costs associated with exit or disposal activities when they are incurred rather
than at the commitment date of an exit or disposal plan. The statement covers
costs, including certain types of employee severance, associated with a
restructuring, discontinued operations, or other exit or disposal activities.
The statement is to be applied prospectively for such activities initiated after
December 31, 2002. The adoption of this statement will not have a material
effect on the Company's results of operations or consolidated financial
position.

FORWARD LOOKING STATEMENTS

Certain statements in Management's Discussion and Analysis 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. Risks
and uncertainties include, but are not limited to, general economic conditions;
aircraft and railcar lease rates and utilization levels; conditions in the
capital markets and the potential for a downgrade in our credit rating, either
of which could have an effect on our borrowing costs or our ability to access
the markets for commercial paper or secured and

18

unsecured debt; dynamics affecting customers within the chemical, petroleum and
food industries; unanticipated costs or issues arising from the Federal Railroad
Administration's Railworthiness Directive HM-04 or subsequent regulatory rulings
that impact the economic value of assets; competitors in the rail and air
markets who may have access to capital at lower costs than GATX; additional
potential write-downs and/or provisions within GATX's portfolio; impaired asset
charges; and general market conditions in the rail, air, technology, venture,
and other large-ticket leasing markets.

ITEM 4. CONTROLS AND PROCEDURES

GATX management, with the participation of the Chief Executive Officer (CEO) and
Chief Financial Officer (CFO), has conducted an evaluation of the effectiveness
of disclosure controls and procedures in accordance with Exchange Act Rule
13a-14. Based on that evaluation, the CEO and CFO have concluded that the
disclosure controls and procedures are effective in ensuring that all material
information required to be filed in this quarterly report has been made known to
them in a timely fashion. There have been no significant changes in internal
controls, or in factors that could significantly affect internal controls,
subsequent to the date the CEO and CFO completed their evaluation.

PART II -- OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

GATX and its subsidiaries are 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 GATX and its subsidiaries in the
discharge of such liabilities are not likely to be material to GATX's
consolidated financial position or results of operations.

ITEM 5. OTHER INFORMATION

On July 26, 2002, the Company amended its bylaws to change the advance notice
requirement for shareholders who intend to present an item of business at an
annual meeting of shareholders (other than a proposal submitted for inclusion in
the Company's proxy materials). Section 11 of the bylaws, as amended, now
requires shareholders to provide notice of an intention to present such an item
of business not less than 120 or more than 150 days in advance of the
anniversary of the date that proxy materials were mailed to shareholders in the
previous year. As a result, shareholders who intend to present such an item of
business at the 2003 Annual Meeting of Shareholders must provide notice of such
business to the Company no earlier than October 25, 2002 and no later than
November 26, 2002, and must furnish such specified information as set forth more
fully in the Company's bylaws.

19

ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K

(a) Exhibits:

Reference is made to the exhibit index which is included
herewith and is incorporated by reference hereto.

Employment Agreement effective as of October 11, 2002, between
GATX Corporation and Ronald H. Zech

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (CEO Certification)

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002 (CFO Certification)

(b) Reports on Form 8-K:

Form 8-K filed on October 24, 2002 reporting third quarter
2002 results.

Form 8-K filed on October 24, 2002 reporting the
initiation and completion of the first phase of a new
railcar order program.

Form 8-K filed on November 7, 2002, reporting the
completion of the second phase of a new railcar order
program.

SIGNATURE

Pursuant to the requirements 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 CORPORATION
(Registrant)

/s/ Brian A. Kenney
---------------------------
Brian A. Kenney
Senior Vice President and
Chief Financial Officer
(Duly Authorized Officer)

20

CERTIFICATIONS

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

I, Ronald H. Zech, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GATX Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within these entities, particularly during the
period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

November 12, 2002

/s/ Ronald H. Zech
-----------------------------------------------
Ronald H. Zech
Chairman, President and Chief Executive Officer

21

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

I, Brian A. Kenney, certify that:

1. I have reviewed this quarterly report on Form 10-Q of GATX Corporation;

2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;

3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;

4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:

a) Designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within these entities, particularly during the
period in which this quarterly report is being prepared;

b) Evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and

c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;

5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of the registrant's board of directors (or persons
performing the equivalent function):

a) All significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and

b) Any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and

6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.

November 12, 2002

/s/ Brian A. Kenney
----------------------------------------------------
Brian A. Kenney
Senior Vice President and Chief Financial Officer

22

EXHIBIT LISTING

The following exhibits are filed as part of this quarterly report: