GATX CORP - 10-Q Quarterly Report

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UNITED STATES
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

For the quarterly period ended March 31, 2003

or

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

Commission File Number: 1-2328

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GATX Corporation
(Exact name of registrant as specified in its charter)

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

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

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

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

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

Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practicable date: 49,070,844 shares of common
stock were outstanding as of April 30, 2003.

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INDEX TO GATX CORPORATION
FORM 10-Q - MARCH 31, 2003

PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS

GATX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (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.

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

(1) The consolidated balance sheet at December 31, 2002 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
results of operations, financial position and cash flow for the
respective periods. Operating results for the three months ended March
31, 2003 are not necessarily indicative of the results that may be
achieved for the entire year ending December 31, 2003. For further
information, refer to GATX Corporation's (GATX or the Company) annual
report on Form 10-K for the year ended December 31, 2002.

(2) Certain amounts in the 2002 financial statements have been reclassified
to conform to the current presentation. In addition, first quarter 2002
results are restated to reflect the adoption of Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible
Assets, as of January 1, 2002.

(3) Discontinued operations - The 2002 gain on sale of a portion of segment
represents the sale of GATX Corporation's interest in a bulk-storage
facility located in Mexico, and is net of taxes of $3.0 million. The
facility was included in the segment formerly known as Integrated
Solutions Group (ISG).

(4) The Company grants stock options to employees under stock-based
compensation plans. In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148, Accounting for Stock-Based
Compensation - Transition and Disclosure - an amendment of SFAS No.
123. This statement provides alternative methods of transition for
voluntary changes to the fair value based method of accounting for
stock-based employee compensation. This statement also amends the
disclosure requirements of SFAS No.123 and APB Opinion No. 28, Interim
Financial Reporting, and requires prominent disclosure in both annual
and interim financial statements of the method of accounting for
stock-based employee compensation and the effect on reported results.
As permitted under SFAS No. 148, the Company accounts for all
stock-based employee compensation plans under the recognition and
measurement provisions of APB Opinion No. 25, Accounting for Stock
Issued to Employees. Under these guidelines, no compensation expense is
recognized because the exercise price of GATX's employee stock options
equals the market value of the underlying stock on the date of grant.

Pro forma information regarding net income and earnings per share is
required by SFAS No. 123, Accounting for Stock-Based Compensation, and
has been determined as if GATX had accounted for its employee stock
options under the fair value method. The Black-Scholes model, one of
the most frequently referenced models to value options, was developed
for use in estimating the fair value of traded options that have no
vesting restrictions and are fully transferable. In addition, option
valuation models require the input of highly subjective assumptions,
including expected stock price volatility. Because GATX's employee
stock options have characteristics significantly different from those
of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in
management's opinion the existing models do not necessarily provide a
reliable single measure of the fair value of its employee stock
options.

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The following table illustrates the effect on net income and earnings
per share if the company had applied the fair value provisions of SFAS
No. 123, Accounting for Stock-Based Compensation, to stock-based
employee compensation (in millions, except for per share data):

(5) During the fourth quarter of 2002, GATX recorded a pre-tax charge of
$16.9 million related to a reduction in workforce in 2002. This action
was part of GATX's announced intention to exit the venture business and
curtail investment in the specialty finance sector. The charge also
included costs as well as a headcount reduction related to an
integration plan implemented to rationalize the workforce and
operations at Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), GATX's
Polish railcar subsidiary. This charge included involuntary employee
separation and benefit costs for 170 employees company-wide, as well as
legal fees, occupancy and other costs. The employee groups terminated
included professional and administrative staff. As of March 31, 2003,
101 of the employee terminations were completed. Employee terminations
are expected to be substantially completed by the end of 2003.

Following is the reserve activity for the quarter ending March 31,
2003:

Reserve balance at 12/31/02 $ 16.6
Benefits paid (2.6)
Occupancy and other costs paid (.1)
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Reserve balance at 3/31/03 $ 13.9
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During 2001, GATX recorded a pre-tax charge of $13.4 million related a
reduction in workforce in 2001. This action was part of GATX's
initiative to reduce selling, general and administrative costs in
response to economic conditions and the divestiture of 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 employee groups terminated included professional and
administrative staff, including corporate personnel. As of December 31,
2002, all of the employee terminations were completed.

Following is the reserve activity for the quarter ending March 31,
2003:

Reserve balance at 12/31/02 $ 3.9
Benefits paid --
Occupancy and other costs paid (.2)
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Reserve balance at 3/31/03 $ 3.7
============

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Management continues to believe that the Company's reserve balances
related to the reductions in workforce are adequate as of March 31,
2003.

(6) Investments in affiliated companies represent investments in and loans
to domestic and foreign companies and joint ventures that are in
businesses similar to those of GATX, 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.

For purposes of preparing the following information, GATX made certain
adjustments to the information provided by the joint ventures. Pre-tax
income was adjusted to reverse interest expense recognized by the joint
ventures on loans from GATX.

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

(7) Restricted cash of $191.3 million at March 31, 2003 is comprised of
cash and cash equivalents which are restricted as to withdrawal or use.
GATX's restricted cash primarily relates to amounts designated to fund
the construction of railcars for a customer, an amount designated as
collateral for a loan within a joint venture, 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) In January 2003, the FASB issued FASB Interpretation No. 46 (FIN 46),
Consolidation of Variable Interest Entities, which addresses
consolidation by a business of variable interest entities (VIE) in
which it is the primary beneficiary. FIN 46 applies immediately to
VIE's created or acquired after January 31, 2003. No VIE's were created
or obtained in the first quarter of 2003. For other VIE's, FIN 46
applies in the first quarter or interim period beginning after June 15,
2003. GATX is currently assessing the impact FIN 46 will have on its
financial statements.

(9) In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45),
Guarantor's Accounting and Disclosure Requirements for Guarantees,
Including Indirect Guarantees of Indebtedness to Others. FIN 45
clarifies that a guarantor is required to recognize, at the inception
of a guarantee, a liability for the fair value of the obligation
undertaken in issuing the guarantee, including its ongoing obligation
to stand ready to perform over the term of the guarantee in the event
that the specified triggering events or conditions occur.

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

Lease and loan payment guarantees generally involve guaranteeing
repayment of the financing utilized to acquire assets being leased by
an affiliate to customers, and are in lieu of making direct equity
investments in the affiliate. GATX is not aware of any event of default
which would require it to satisfy these guarantees, and expects the
affiliates to generate sufficient cash flow to satisfy their lease and
loan obligations.

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Asset residual value guarantees represent GATX's commitment to third
parties that an asset, or group of assets, will be worth a specified
amount at the end of the lease term. Revenue is earned for providing
these asset value guarantees in the form of an initial fee and by
sharing in any proceeds received upon distribution of assets in excess
of the amount guaranteed.

At March 31, 2003, the maximum potential amount of lease, loan or
residual value guarantees under which GATX or its subsidiaries could be
required to perform was $777.1 million. The related carrying value of
the guarantees on the balance sheet, including deferred revenue
primarily associated with residual value guarantees entered into prior
to the effective date of FIN 45, was $3.2 million. The expirations of
these guarantees range from 2003 to 2020. GATX's liability resulting
from the performance pursuant to the residual value guarantees may be
reduced by the value realized from the underlying asset or group of
assets. Based on known and expected market conditions, management does
not believe that the asset residual value guarantees will result in any
material adverse financial impact to GATX.

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(10) 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 because of
antidilutive effects. In 2003, stock options and convertible preferred
stock were also antidilutive.

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(11) The financial data presented below 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 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:
GATX Rail and Financial Services.

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

COMPARISON OF FIRST THREE MONTHS OF 2003
TO FIRST THREE MONTHS OF 2002

GATX Corporation's (GATX or the Company) net income for the first three months
of 2003 was $1.8 million, an $11.6 million increase from the $9.8 million loss
reported for the same period in 2002. Earnings per share on a diluted basis
increased to $.04 from $(.20) in the 2002 period. Comparisons between periods
are affected by various items including the gain on the sale of discontinued
operations and cumulative effect of accounting change in 2002 and an air-related
loss provision in 2003. Earnings for the 2002 first quarter included a $6.2
million after-tax gain related to the sale of a portion of the discontinued
Integrated Solutions Group (ISG) segment, and a $34.9 million charge related to
the write-off of goodwill at the Rail segment. In the first quarter of 2003,
GATX reported an $11.1 million after-tax loss provision related to the Air
Canada bankruptcy.

RESULTS OF CONTINUING OPERATIONS

GATX's gross income from continuing operations of $306.7 million was $26.9
million lower than the prior year period. Income from continuing operations
before cumulative effect of accounting change for the first three months of 2003
was $1.8 million compared to $18.9 million in the prior year period, with the
decrease largely due to a loss provision attributable to the bankruptcy of Air
Canada recorded in the 2003 period, and lower results in the Rail segment.
Diluted earnings per share from continuing operations before cumulative effect
of accounting change decreased to $.04 from $.39 in the prior year period.

GATX RAIL (RAIL)

Rail's gross income of $173.0 million for the first three months of 2003
decreased $2.4 million over the prior year period. In December 2002, Rail
acquired the remaining interests in KVG Kesselwagen Vermietgesellschaft mbH and
KVG Kesselwagen Vermietgesellschaft m.b.h. (collectively KVG), a leading
European railcar lessor. Prior to the December acquisition, Rail held a 49.5%
interest in KVG. As a result, KVG results are now included in Rail's
consolidated financial statements. Excluding KVG from both periods, gross income
of $161.7 million was $12.5 million lower than the prior year period.

Lease income of $158.0 million was $1.1 million higher than the prior year
period. Excluding KVG, lease income of $146.9 million was $10.0 million lower
than the prior year period. The North American rail market continues to be
negatively impacted by the economic downturn and aggressive competition
continues to negatively impact lease rates. However, Rail experienced some
improvement in renewals and assignments of railcars in the first quarter. Rail's
North American fleet totaled 106,000 cars at the end of the first quarter
compared to 109,000 at the end of the prior year period. Approximately 97,400
railcars were on lease throughout North America at the end of the first quarter,
compared to 98,100 a year ago and 97,200 at December 31, 2002. Rail's North
American utilization was 92% at March 31, 2003, compared to 90% at March 31,
2002 and 91% at December 31, 2002. The increase in utilization from year end was
due to a combination of additional railcars on lease and scrapping of railcars.

Asset remarketing income includes gains from the sale of assets from Rail's own
portfolio as well as residual sharing fees from the sale of managed assets.
Asset remarketing income of $.1 million was $3.6 million lower than the prior
year period due to the sale of a portfolio of residual sharing investments in
the first quarter of 2002. Share of affiliates' earnings of $2.1 million were
$1.6 million lower than the prior year period. Excluding KVG's earnings of $1.2
million in 2002, share of affiliates' earnings were $.4 million lower than the
prior year period.

Ownership costs of $89.9 million were $6.4 million higher than the prior year
period. Excluding KVG, ownership costs of $85.2 million increased $1.7 million,
driven primarily by higher interest expense due to lower capitalized interest
and higher average debt balances.

Maintenance expense increased $1.8 million from the prior year period to $39.4
million. Excluding KVG, maintenance expense of $37.7 million was comparable to
the prior year period. During the quarter, the American Association of Railroads
(AAR) issued an early warning letter that required all owners of railcars in the
U.S. to

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inspect or replace certain bolsters manufactured by National Castings Inc. from
the mid to late 1990s. The Company owns approximately 3,200 railcars that will
be required to have the bolsters inspected or replaced by April 2004.
Approximately 60% of the affected railcars are on full service leases under
which the Company is responsible for the associated costs of inspection or
replacement. The remainder are on net leases, under which the Company expects
the lessees to pay for all or a portion of such cost. Management does not expect
the bolster inspections and replacements to have a material impact on the
Company's 2003 or 2004 results of operations.

Selling, general and administrative (SG&A) expenses of $18.3 million were
comparable to the prior year period. Excluding KVG, SG&A expenses of $16.0
million decreased $2.8 million due to lower incentive compensation expense,
timing, and cost savings.

Provision for possible losses was $.7 million lower than the prior year quarter
due to recoveries on previously written-off accounts.

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

Rail's net income of $9.6 million was $26.5 million higher than the prior year
period. Income before cumulative effect of accounting change of $9.6 million was
$8.4 million lower than the prior year period primarily due to lower North
American lease income and asset remarketing income.

FINANCIAL SERVICES

Financial Services is comprised of four business units: Air, Technology, Venture
Finance (Venture) and Specialty Finance (Specialty). In December 2002, GATX
announced its intention to sell or otherwise run-off Venture and curtail
investment at Specialty. As of May 8, 2003, the likelihood of a sale is
uncertain, however, GATX is considering various offers for all or part of the
venture portfolio. Until a sale decision is finalized, GATX has ceased extending
new commitments and is proceeding with the run-off of the portfolio.

Financial Services continues to be negatively affected by the current economic
environment and challenging market conditions. The airline industry continues to
experience difficulty as the effects of the war with Iraq and severe acute
respiratory syndrome (SARS) have decreased air travel worldwide and caused
increased instability throughout the industry. Canada's largest airline, Air
Canada, filed for bankruptcy on April 1, resulting in an $18.1 million loss
provision at GATX related to an unsecured Air Canada note. Non-performing assets
of $163.5 million increased $68.6 million from year end as a result of higher
air investments on non-accrual.

With respect to Air's delivery and renewal schedule, there are currently four
leases in place and two signed letters of intent for the six new aircraft
scheduled for delivery in 2003. The Company has eight aircraft scheduled for
renewal in 2003, with respect to which four leases are in place and one letter
of intent has been signed. Due to the weak state of the air industry, GATX may
experience additional unscheduled returns of aircraft and restructured lease
terms.

Financial Services' gross income of $134.1 million decreased $24.7 million from
the prior year period. The prior year period included gains of $13.9 million
primarily attributable to the extinguishment of debt associated with one
technology investment, which was largely offset by a related loss provision and
asset impairment charge. Excluding gains on extinguishment of debt in both
years, gross income decreased $11.5 million principally due to lower lease and
interest income partially offset by increases in asset remarketing income and
share of affiliates' earnings.

Lease income of $81.7 million declined $17.0 million from the prior year period
due to lower average finance lease balances and operating lease assets at
Technology, slightly offset by an increase in operating lease income from

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new aircraft deliveries at Air. Interest income of $9.6 million decreased $5.8
million due to lower average loan balances at Venture and Specialty compared to
the prior year period, consistent with GATX's plan to exit these businesses.

Asset remarketing income of $10.2 million increased $2.6 million from the prior
year period primarily due to gains at Specialty offset by a decrease in
remarketing activity at Technology. Fee income of $5.7 million increased $1.1
million from the prior year period due to a guarantee fee received at Specialty.
Other income of $5.2 million increased $3.3 million from the prior year period
due to higher foreign currency translation gains which were largely offset in
fair value adjustments for derivatives.

Share of affiliates' earnings was $16.4 million, an increase of $2.1 million
over 2002. The increase is due primarily to higher income at certain specialty
and telecom affiliates, partially offset by lower income at air affiliates. The
favorable telecom variance relates to recoveries of previously written off
investments.

Ownership costs of $84.6 million decreased $11.6 million compared to the prior
year period. Depreciation expense of $49.9 million decreased $12.6 million from
2002, reflecting lower operating lease assets at Technology, partially offset by
higher depreciation expense at Air due to new aircraft deliveries. Operating
lease expense of $2.3 million increased $3.7 million from the prior year period
primarily due to the 2002 reversal of a previously recorded sublease liability.
Interest expense of $32.4 million decreased $2.7 million from the prior year
period primarily due to a decrease in interest rates, partially offset by
increased average debt balances.

Selling, general and administrative expenses of $21.4 million decreased $3.6
million compared to the prior year period as a result of the 2002 reduction in
workforce and lower incentive compensation expense.

The provision for possible losses is Financial Services' estimate of future
losses based on a review of credit, collateral and market risks. The provision
for possible losses of $19.1 million increased $1.7 million from the prior year
period. The current year's loss provision includes $18.1 million related to an
unsecured Air Canada note as a result of the bankruptcy filing. The prior year
period included $10.0 million related to one technology leasing investment which
was largely offset with a $13.1 million gain on the extinguishment of
nonrecourse debt related to the same investment. Asset impairment charges of
$3.6 million increased $1.0 million in the current quarter and relate to
specialty and venture assets.

The allowance for possible losses increased $14.4 million from December 31, 2002
to $83.0 million and was approximately 8.2% of reservable assets, up from 6.3%
at year end. Excluding the Air Canada provision, the allowance was 6.4% of
reservable assets, consistent with year end. Reservable assets are defined as
rent and other receivables, finance leases and loans. Net charge-offs of
reservable assets totaled $5.7 million for the three-month period in 2003 and
primarily relate to venture and technology investments. Net charge-offs of
reservable assets totaled $19.6 million for the three-month period in 2002 and
primarily related to venture and technology investments including a specific
technology investment of $12.0 million.

Non-performing assets of $163.5 million increased $68.6 million from year end
primarily due to higher air investments on non-accrual as a result of the weak
state of the airline industry.

Net loss of $1.2 million was $8.2 million lower than the prior year period
principally due to the $18.1 million loss provision related to an Air Canada
unsecured note as well as lower lease income at Technology.

CORPORATE AND OTHER

Corporate and other net expense was $6.6 million for the first three months of
2003 compared to $6.1 million for the prior year period. The increase in net
expense was primarily due to higher interest expense.

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TAXES

GATX's effective tax rate from continuing operations was 51% for the three
months ended March 31, 2003 compared to 39% for the three months ended March 31,
2002. The higher 2003 rate is primarily attributable to the relative impact of
foreign income and withholding taxes on lower pre-tax income. The Company
expects the full year effective tax rate to be approximately 37%.

In January, the Company concluded federal income tax audits of years 1992
through 1996 and paid tax deficiencies, including interest, of $21.4 million.
The tax deficiencies were primarily due to the previously reported IRS
settlement requirements related to disallowed interest expense on loans in the
Company's corporate owned life insurance (COLI) programs.

The Company reported a net operating loss on its 2002 U.S. consolidated income
tax return and anticipates a loss on its 2003 return. In accordance with IRS
rules, these losses may be carried back to offset taxable income in prior years,
resulting in tax refunds. Recoverable income taxes as of March 31, 2003 were
$150.1 million, of which $118.0 million is expected to be received in the second
quarter of 2003.

RESULTS OF DISCONTINUED OPERATIONS

As of March 31, 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.

CASH FLOW AND LIQUIDITY

GATX generates a significant amount of cash from its operating activities and
proceeds from its investment portfolio, which is used to service debt, pay
dividends, and fund portfolio investments and capital additions. A continued
weak economic environment could decrease demand for GATX's services, which could
impact the Company's ability to generate cash flow from operations and portfolio
proceeds.

Net cash provided by operating activities of continuing operations for the first
three months of 2003 was $56.3 million, a decrease of $6.2 million from the
prior year period. Cash from operations in 2003 included a tax payment of $21.4
million. In 2002, the Company received a tax refund of $13.9 million. Comparison
of cash from operations between periods is also affected by other changes in
working capital, including timing of lease payments.

Portfolio proceeds of $222.3 million were $16.9 million lower than 2002 proceeds
of $239.2 million, and include lower disposals of leased equipment, partially
offset by higher cash distributions from joint venture investments.

Portfolio investments and capital additions for the first three months of 2003
totaled $250.0 million, a decrease of $71.6 million from the first three months
of 2002. Portfolio investments and capital additions at Financial Services of
$201.1 million were $106.9 million lower than the prior year period, primarily
due to a decrease in Air and Specialty investments. Rail invested $48.9 million
in the first three months of 2003, an increase of $35.3 million from the prior
year. The increase was primarily attributable to Rail's December 2002
acquisition of the remaining interest in KVG, a portion of which was funded in
2003. Future portfolio investments and capital additions (excluding contractual
commitments) will depend on market conditions and opportunities to acquire
desirable assets.

In the current three-month period, GATX, primarily through its principal
subsidiary, GFC, issued $243.2 million and repaid $299.2 million of long-term
debt. Significant financings in the 2003 first quarter included $100.0

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million from a commercial paper conduit securitization facility, $69.0 million
of aircraft financing from the European Credit Agencies, $37.1 million of U.S.
Export-Import Bank aircraft financing, and $25.5 million of technology
nonrecourse financing.

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

GFC has revolving credit facilities totaling $778.3 million, consisting of an
agreement for $350.0 million expiring in May 2003, and two other agreements for
$283.3 million and $145.0 million expiring in 2004 and 2005, respectively. The
$145.0 million facility is intended to be utilized to meet short-term funding
requirements. The $350.0 million and $283.3 million facilities were established
as back-up lines. GFC intends to replace the $350.0 million facility expiring in
May 2003 with a new facility to be used for funding short-term commitments. GFC
expects that the facility will be sized between $100 million to $150 million. At
March 31, 2003, all credit facilities were unused and available. 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 March 31, 2003, GFC was in compliance
with the covenants and conditions of the credit facilities.

At March 31, 2003, GFC had a shelf registration for $1.0 billion of debt
securities of which $850.0 million had been issued.

The availability of these funding options may be adversely impacted by certain
factors. Access to capital markets at competitive 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 April 15, 2003, S&P downgraded GFC's
long-term unsecured debt from BBB to BBB- and removed its ratings from credit
watch. GFC's current outlook from S&P is stable. On March 27, 2003, Moody's
affirmed the credit rating on GFC's long-term unsecured debt at Baa3 but revised
the rating outlook to negative from stable. GFC's existing credit rating has
increased the cost of borrowing from prior years. Also, GFC's access to the
commercial paper market has been seriously constrained and GFC may have more
difficulty accessing the long-term capital market on a cost efficient basis.

Unconditional purchase obligations of GATX's subsidiaries consist primarily of
committed aircraft deliveries and railcar orders. Unconditional purchase
obligations at March 31, 2003 were $871.1 million, comprised as follows: $285.2
million in the remainder of 2003, $384.3 million in 2004-2005, $181.4 million in
2006-2007, and $20.1 million thereafter.

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 "may", "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 rate 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 unsecured
debt; dynamics affecting customers within the chemical, petroleum and food
industries; regulatory rulings that may 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 industries.

17

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

GATX is exposed to certain market risks, including changes in interest rates and
currency exchange rates. To manage these risks, GATX, pursuant to established
and authorized policies, 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.
GATX does not hold or issue derivative financial instruments for speculative
purposes.

Since December 31, 2002, there have been no material changes in GATX's interest
rate and foreign currency exposures or types of derivative instruments used to
hedge these exposures, and no significant changes in underlying market
conditions.

ITEM 4. CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, GATX management, with the
participation of the Chief Executive Officer (CEO) and Chief Financial Officer
(CFO), 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 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

(a) GATX's Annual Meeting of Stockholders was held on April 25, 2003.

(b) Matters voted upon at the meeting were:

There were no broker non-votes with respect to the election of the directors or
the ratification of the appointment of independent auditors.

18

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.

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 April 25, 2003 reporting first quarter 2003 results.

Form 8-K filed on May 8, 2003 for slide presentation prepared for the
American Financial Services Association's U.S. Finance Industry
Conference for Fixed Income Investors.

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)

Date: May 8, 2003

19

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.

May 8, 2003

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

20

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.

May 8, 2003

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

21

EXHIBIT INDEX

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