GATX CORP - 10-K Annual Report

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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2003

OR

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

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

(GATX CORPORATION LOGO)

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

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

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

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

SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]

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

The aggregate market value of the voting stock held by non-affiliates of the
registrant was approximately $802.8 million on June 30, 2003.

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

DOCUMENTS INCORPORATED BY REFERENCE

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

INDEX TO GATX CORPORATION

2003 FORM 10-K

1

PART I

ITEM 1. BUSINESS

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

GATX invests in companies and joint ventures that complement its existing
business activities. GATX partners with financial institutions and operating
companies to improve scale in certain markets, broaden diversification within an
asset class, and enter new markets.

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

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

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

BUSINESS SEGMENTS

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

GATX RAIL

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

As of December 31, 2003, Rail's North American fleet consisted of
approximately 105,000 railcars, comprised of 61,000 tank cars and 44,000 freight
cars. The cars in this fleet have depreciable lives of 30 to 38 years and an
average age of approximately 16 years. The utilization rate of Rail's North
American railcar fleet was 93% at December 31, 2003. Rail has interests in 6,000
railcars and 800 locomotives through its investments in affiliated companies in
North America.

In North America, Rail typically leases new railcars for terms of
approximately five years. Renewals, or extension of existing leases, are
generally for periods ranging from less than a year to ten years, with an
average lease term of four years. Rail purchases most of its new railcars from a
limited number of manufacturers, including Trinity Industries, Inc., American
Railcar Industries, and Union Tank Car Company. Rail signed agreements with
Trinity Industries, Inc. and with Union Tank Car Company for the purchase of
5,000 and 2,500 newly manufactured cars, respectively, for orders through 2007.

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

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

In addition to its North American fleet, Rail has direct or indirect
ownership interests in three European fleets. In March 2001, Rail purchased
Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), Poland's national tank car fleet
and fuel distribution company. DEC's assets include approximately 10,000 tank
cars and a railcar maintenance network. DEC maintains two business offices and
operates three major service centers in Poland.

In December 2002, Rail acquired the remaining interest in KVG Kesselwagen
Vermietgesellschaft mbH, and KVG Kesselwagen Vermietgesellschaft m.b.h.
(collectively KVG), a leading European tank car lessor. Prior to the 2002
acquisition, Rail held a 49.5% interest in KVG. At December 31, 2003, KVG had
approximately 8,000 railcars, business offices in both Germany and Austria and a
service center in Germany. Rail also owns a 37.5% interest in AAE Cargo AG
(AAE), a freight car lessor headquartered in Switzerland that operates
approximately 18,000 cars.

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

GATX AIR

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

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

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

3

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

GATX TECHNOLOGY SERVICES

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

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

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

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

GATX SPECIALTY FINANCE

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

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

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

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

DISCONTINUED OPERATIONS -- INTEGRATED SOLUTIONS GROUP

GATX completed the divestiture of the Integrated Solutions Group (ISG)
segment in 2002. The ISG segment provided logistics and supply chain services to
the chemical, petroleum, and dry goods industries and
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was comprised of GATX Terminals Corporation (Terminals), GATX Logistics, Inc.
(Logistics) and minor business development efforts. As a result, the financial
data for the ISG segment is presented as discontinued operations for all
periods.

In the first quarter of 2001, GATX sold the majority of Terminals' domestic
operations. The sale included substantially all of Terminals' domestic
terminaling operations, the Central Florida Pipeline Company and Calnev Pipe
Line Company. Also in the first quarter of 2001, GATX sold substantially all of
Terminals' European operations. In the second and third quarters of 2001, GATX
sold Terminals' Asian operations and its interest in a United States (U.S.)
distillate and blending distribution affiliate. In the first quarter of 2002,
GATX sold its interest in a bulk-liquid storage facility located in Mexico.

TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

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

SEASONAL NATURE OF BUSINESS

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

CUSTOMER BASE

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

EMPLOYEES

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

ENVIRONMENTAL MATTERS

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

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

5

RISK FACTORS

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

- Liquidity and Capital Resources. GATX is dependent in part upon the
issuance of unsecured and secured debt to fund its operations and
contractual commitments. A number of factors could cause GATX to incur
increased borrowing costs and to have greater difficulty accessing public
and private markets for both secured and unsecured debt. These factors
include the global capital market environment and outlook, financial
performance and outlook, and credit ratings as determined primarily by
rating agencies such as Standard & Poor's (S&P) and Moody's Investor
Service (Moody's). In addition, based on GATX's current credit ratings,
access to the commercial paper market and uncommitted money market lines
is uncertain and cannot be relied upon. It is possible that GATX's other
sources of funds, including available cash, bank facilities, cash flow
from operations and portfolio proceeds may not provide adequate liquidity
to fund its operations and contractual commitments.

- Terrorism/International Conflict. National and international political
developments, instability and uncertainties, including continuing
political unrest and threats of terrorists' attacks, could result in
continued global economic weakness in general and in the United States in
particular, and could have an adverse impact on GATX's businesses. The
effects may include, among other things, a decrease in demand for air
travel and rail services, consolidation and/or additional bankruptcies in
the rail and airline industries, lower utilization of new and existing
aircraft and rail equipment, lower rail and aircraft rental rates or a
slower recovery of such rates, impairment of rail and air portfolio
assets and fewer partners for joint ventures. Depending upon the
severity, scope and duration of these effects, the impact on GATX's
financial position, results of operations and cash flows could be
material.

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

- Lease versus Purchase Decision. GATX's core businesses rely upon its
customers continuing to lease rather than purchase assets. There are a
number of items that factor into the customer's decision to lease or
purchase assets, such as tax considerations, interest rates, balance
sheet considerations, and operational flexibility. GATX has no control
over these external considerations and changes in these factors could
negatively impact demand for its leasing products.

- Effects of Inflation. Inflation in railcar rental rates as well as
inflation in residual values for air and rail equipment have historically
benefited GATX's financial results. Effects of inflation are
unpredictable as to timing and duration, depending on market conditions
and economic factors.

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

- Allowance for Possible Losses. GATX's allowance for possible losses may
be inadequate if unexpected adverse changes in the economy exceed the
expectations of management, or if discrete events adversely affect
specific customers, industries or markets. If the allowance for possible
losses is insufficient to cover losses related to reservable assets,
including gross receivables, finance leases, and loans, then GATX's
financial position or results of operations could be negatively impacted.

- Impaired Assets. An asset impairment charge may result from the
occurrence of unexpected adverse changes that impact GATX's estimates of
expected cash flows generated from our long-term assets. GATX regularly
reviews long-term assets for impairments, including when events or
changes in circumstances indicate the carrying value of an asset may not
be recoverable. An impairment loss is recognized when the carrying amount
of an asset is not recoverable. GATX may be required to

6

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

- Insurance. The ability to insure its rail and aircraft assets and their
associated risks is an important aspect of GATX's ability to manage risk
in these core businesses. There is no guarantee that such insurance will
be available on a cost-effective basis consistently in the future.

- Environmental. GATX is subject to federal and state requirements for
protection of the environment, including those for discharge of hazardous
materials and remediation of contaminated sites. GATX routinely assesses
its environmental exposure, including obligations and commitments for
remediation of contaminated sites and assessments of ranges and
probabilities of recoveries from other responsible parties. Because of
the regulatory complexities and risk of unidentified contaminants on its
properties, the potential exists for remediation costs to be materially
different from the costs GATX has estimated.

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

- Commodity/Energy Prices. Energy prices, including the price of natural
gas and oil, are significant cost drivers for many of our customers,
particularly in the chemical and airline industries. In addition,
commodity prices such as the price of steel are a large component of
railcar manufacturing. Sustained high energy or commodity prices could
negatively impact these industries resulting in a corresponding adverse
effect on the cost and demand for our products and services.

- Regulation. GATX's air and rail operations are subject to the
jurisdiction of a number of federal agencies, including the Department of
Transportation. State agencies regulate some aspects of rail operations
with respect to health and safety matters not otherwise preempted by
federal law. New regulatory rulings may negatively impact GATX's
financial results and economic value of its assets.

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

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

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

7

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

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

Additional risks and uncertainties not presently known, or that GATX
currently deems immaterial, may also adversely affect GATX's business
operations.

AVAILABLE INFORMATION

GATX files annual, quarterly and current reports, proxy statements and
other information with the Securities and Exchange Commission (SEC). You may
read and copy any document GATX files at the SEC's public reference room at Room
1024, 450 Fifth Street, NW, Washington, D.C. 20549. Please call the SEC at
1-800-SEC-0330 for information about the public reference room. The SEC
maintains a website that contains annual, quarterly and current reports, proxy
statements and other information that issuers (including GATX) file
electronically with the SEC. The SEC's website is www.sec.gov.

GATX makes available free of charge at its website, www.gatx.com, its most
recent annual report on Form 10-K, quarterly reports on Form 10-Q, current
reports on Form 8-K, and any amendments to those reports filed or furnished
pursuant to the Securities Exchange Act of 1934 as soon as reasonably
practicable after such material is electronically filed with, or furnished, to
the SEC. The information on GATX's website is not incorporated by reference into
this report.

8

ITEM 2. PROPERTIES

Information regarding the location and general character of certain
properties of GATX is included in ITEM 1, BUSINESS, of this document.

At December 31, 2003, locations of operations were as follows:

RAIL

HEADQUARTERS
Chicago, Illinois

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

MAJOR SERVICE CENTERS
Colton, California
Waycross, Georgia
Hearne, Texas
Red Deer, Alberta
Sarnia, Ontario
Coteau-du-Lac, Quebec
Montreal, Quebec
Moose Jaw, Saskatchewan
Hanover, Germany
Tierra Blanca, Mexico
Gdansk, Poland
Ostroda, Poland
Slotwiny, Poland

MINI SERVICE CENTERS
Macon, Georgia
Terre Haute, Indiana
Geismar, Louisiana
Kansas City, Missouri
Cincinnati, Ohio
Catoosa, Oklahoma
Freeport, Texas
Plantersville, Texas
Czechowice, Poland
Jedlicze, Poland
Plock, Poland

MOBILE SERVICE UNITS
Mobile, Alabama
Colton, California
Lake City, Florida
East Chicago, Indiana
Norco, Louisiana
Sulphur, Louisiana
Albany, New York
Masury, Ohio
Cooper Hill, Tennessee
Galena Park, Texas
Olympia, Washington
Edmonton, Alberta
Red Deer, Alberta
Clarkson, Ontario
Sarnia, Ontario
Montreal, Quebec
Quebec City, Quebec
Vancouver, British Columbia
Tierra Blanca, Mexico

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

AIR

HEADQUARTERS
San Francisco, California

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

AFFILIATES
Dublin, Ireland
London, United Kingdom

TECHNOLOGY

HEADQUARTERS
Tampa, Florida

BUSINESS OFFICES
Oldsmar, Florida
Tampa, Florida

AFFILIATES
Bad Homburg, Germany
Hertfordshire, United Kingdom

SPECIALTY

HEADQUARTERS
San Francisco, California

BUSINESS OFFICES
Lafayette, California
Sydney, Australia

CORPORATE HEADQUARTERS

Chicago, Illinois

OTHER BUSINESS OFFICES

Williamsville, New York

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ITEM 3. LEGAL PROCEEDINGS

On May 25, 2001, a suit was filed in Civil District Court for the Parish of
Orleans, State of Louisiana, Schneider, et al. vs. CSX Transportation, Inc.,
Hercules, Inc., Rhodia, Inc., Oil Mop, L.L.C., The Public Belt Railroad
Commission for The City of New Orleans, GATX Corporation, GATX Capital
Corporation, The City of New Orleans, and The Alabama Great Southern Railroad
Company, Number 2001-8924. The suit asserts that on May 25, 2000, a tank car
owned by the GATX Rail division of GATX Financial Corporation, a wholly owned
subsidiary of GATX, leaked the fumes of its cargo, dimethyl sulfide, in a
residential area in the western part of the city of New Orleans and that the
tank car, while still leaking, was subsequently taken by defendant, New Orleans
Public Belt Railroad, to another location in the city of New Orleans, where it
was later repaired. The plaintiffs are seeking compensation for alleged personal
injuries and property damages. The petition alleges that a class should be
certified, but plaintiffs have not yet moved to have the class certified.
Settlement negotiations are ongoing.

In March 2001, East European Kolia-System Financial Consultant S.A. (Kolia)
filed a complaint in the Regional Court (Commercial Division) in Warsaw, Poland
against Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), an indirect wholly owned
subsidiary of GATX, alleging damages of approximately $52 million arising out of
the unlawful taking over by DEC in August of 1998, of a 51% interest in Kolsped
Spedytor Miedzynarodwy Sp. z.o.o. (Kolsped), and removal of valuable property
from Kolsped. The complaint was served on DEC in December 2001. The plaintiff
claims that DEC unlawfully obtained confirmation of satisfaction of a condition
precedent to its purchase of 51% interest in Kolsped, following which it
allegedly mismanaged Kolsped and put it into bankruptcy. The plaintiff claims to
have purchased the same 51% interest in Kolsped in April of 1999, subsequent to
DEC's alleged failure to satisfy the condition precedent. GATX purchased DEC in
March 2001 and believes this claim is without merit, and is vigorously pursuing
the defense thereof. DEC has filed a response denying the allegations set forth
in the compliant. The parties have each confirmed their respective positions in
the case at a hearing held in early March of 2002. At a hearing held on October
22, 2003, the court rendered a decision in favor of DEC, dismissing Kolia's
action. On December 9, 2003, the plaintiff filed an appeal of the decision.

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

10

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

GATX and its subsidiaries have been named as defendants in a number of
other legal actions and claims, various governmental proceedings and private
civil suits arising in the ordinary course of business, including those related
to environmental matters, workers' compensation claims by GATX employees and
other personal injury claims. Some of the legal proceedings include claims for
punitive as well as compensatory damages. Several of the Company's subsidiaries
have also been named as defendants or co-defendants in cases alleging injury
relating to asbestos. In these cases, the plaintiffs seek an unspecified amount
of damages based on common law, statutory or premises liability or, in the case
of ASC, the Jones Act, which makes limited remedies available to certain
maritime employees. In addition, demand has been made against the Company under
a limited indemnity given in connection with the sale of a subsidiary with
respect to asbestos-related claims filed against the former subsidiary. The
number of these claims and the corresponding demands for indemnity against the
Company increased in 2003. It is possible that the number of these claims could
continue to grow and that the cost of these claims could correspondingly
increase in the future.

The amounts claimed in some of the above described proceedings are
substantial and the ultimate liability cannot be determined at this time.
However, it is the opinion of management that amounts, if any, required to be
paid by GATX and its subsidiaries in the discharge of such liabilities are not
likely to be material to GATX's consolidated financial position or results of
operations. Adverse court rulings or changes in applicable law could affect
claims made against GATX and its subsidiaries, and increase the number, and
change the nature, of such claims.

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

None.

EXECUTIVE OFFICERS OF THE REGISTRANT

Pursuant to General Instruction G(3), the following information regarding
GATX's executive officers is included in Part I in lieu of inclusion in the
definitive GATX Proxy Statement:

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

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

11

- - Mr. Zech has served as Chairman, president and Chief Executive Officer of GATX
since 1996. Mr. Zech served as Chief Operating Officer of GATX from 1994 to
1996.

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

- - Mr. Ciancio has served as Vice President, General Counsel and Secretary of
GATX since 2000. Mr. Ciancio was Assistant General Counsel of GATX from 1984
to 2000.

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

- - In 2002, Mr. Muckian was elected Vice President, Controller and Chief
Accounting Officer. Prior to that, Mr. Muckian served as Controller and Chief
Accounting Officer from 2000 to 2001 and Director of Taxes for GATX from 1994
to 2000.

- - In 2002, Mr. Hasek was elected Vice President, Treasurer. Prior to that, Mr.
Hasek was Treasurer of GATX from 1999 to 2001, Director of Financial Analysis
and Budgeting from 1997 to 1999 and Manager of Corporate Finance from 1995 to
1997.

- - In 2002, Mr. Lyons was elected Vice President, Investor Relations of GATX. Mr.
Lyons joined GATX in 1996 and was Director of Investor Relations from 1998 to
2001 and prior to that was a Project Manager in Corporate Finance.

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

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

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

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

12

PART II

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

GATX common stock is listed on the New York and Chicago Stock Exchanges
under ticker symbol GMT. The approximate number of common stock holders of
record as of March 5, 2004 was 3,609. The following table shows the reported
high and low sales price of GATX common shares on the New York Stock Exchange,
which is the principal market for GATX shares, and the dividends declared per
share:

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

13

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

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

(a) 2002 includes a gain on sale of portion of segment of $9.2 million on a
pre-tax basis, or $6.2 million on an after-tax basis. The cumulative effect
of an accounting change represents a one-time, non-cash impairment charge
for goodwill in excess of fair market value at January 1, 2002, in
accordance with the adoption of Statement of Financial Accounting Standards
No. 142.

(b) 2001 includes a gain on sale of a portion of a segment of $343.0 million on
a pre-tax basis, or $163.9 million on an after-tax basis, and also includes
a $13.1 million pre-tax benefit for litigation settlements.

(c) 2000 includes a provision for litigation of $160.5 million on a pre-tax
basis, or $97.6 million on an after-tax basis.

Note: Certain prior period amounts have been reclassified to conform to the 2003
presentation.

14

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

COMPANY OVERVIEW

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

The following discussion and analysis should be read in conjunction with
the audited financial statements included herein. Certain statements within this
document may constitute forward-looking statements made pursuant to the safe
harbor provision of the Private Securities Litigation Reform Act of 1995. These
statements are identified by words such as "anticipate," "believe," "estimate,"
"expect," "intend," "predict," or "project" and similar expressions. This
information may involve risks and uncertainties that could cause actual results
to differ materially from the forward-looking statements. Although the Company
believes that the expectations reflected in such forward-looking statements are
based on reasonable assumptions, such statements are subject to risks and
uncertainties that could cause actual results to differ materially from those
projected. In addition, certain factors, including Risk Factors identified in
Part I of this document may affect GATX's businesses. As a result, past
financial performance may not be a reliable indicator of future performance.

STATEMENT OF INCOME DISCUSSION

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

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

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

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

15

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

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

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

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

GATX RAIL

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

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

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

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

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

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

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

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

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

Gross Income

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

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

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

Ownership Costs

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

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

17

Other Costs and Expenses

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

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

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

In the second quarter of 2002, the Federal Railroad Administration issued a
Railworthiness Directive (Bar Car Directive) which required Rail to inspect and
repair, if necessary, a certain class of its cars that were built or modified
with reinforcing bars prior to 1974. Approximately 4,200 of Rail's owned
railcars were affected by the Bar Car Directive. The unfavorable impact on
Rail's operating results for 2002 was approximately $2.7 million after-tax,
including lost revenue, inspection, cleaning and replacement car costs, which
were partially offset by gains on the accelerated scrapping of affected cars. As
of year end 2002, substantially all of the subject tank cars were removed from
Rail's fleet.

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

Taxes

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

Cumulative Effect of Accounting Change

In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, Rail completed a review of all
recorded goodwill in 2002. Fair values were established using discounted cash
flows. Based on this review, Rail recorded a one-time, non-cash impairment
charge of $34.9 million related to DEC in 2002. The charge is non-operational in
nature and was recognized as a cumulative effect of accounting change as of
January 1, 2002 in the consolidated statements of income. The impairment charge
was due primarily to lessened expectations of projected cash flows based on
market conditions at the time of the review and a lower long-term growth rate
projected for DEC.

18

Net Income

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

GATX AIR

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

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

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

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

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

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

19

Gross Income

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

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

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

Ownership Costs

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

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

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

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

20

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

Other Costs and Expenses

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

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

Taxes

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

Net Income

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

GATX TECHNOLOGY SERVICES

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

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

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

21

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

Gross Income

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

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

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

Ownership Costs

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

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

22

Other Costs and Expenses

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

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

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

Taxes

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

Net Income

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

GATX SPECIALTY FINANCE

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

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

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

23

Gross Income

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

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

Ownership Costs

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

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

24

Other Costs and Expenses

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

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

Taxes

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

Net Income

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

OTHER

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

Gross Income

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

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

25

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

Ownership Costs

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

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

Other Costs and Expenses

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

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

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

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

26

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

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

Taxes

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

Net Loss

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

CONSOLIDATED INCOME TAXES

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

DISCONTINUED OPERATIONS

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

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

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

GATX RAIL

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

27

Gross Income

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

Rail's 2002 gross income of $672.2 million was $9.3 million lower than
2001. Excluding DEC in both years, lease income was down $25.5 million from
2001. Difficult economic conditions, combined with aggressive competition,
increased railroad efficiency and railcar surpluses resulted in continued
softness in railcar demand and pressure on lease rates. Rail's North American
fleet totaled 107,000 cars at year end compared to 110,000 at the end of the
prior year. Approximately 97,000 railcars were on lease throughout North America
at the end of the year compared to 100,000 cars at the end of the prior year.
Rail's North American utilization rate was 91% at December 31, 2002, flat with
the prior year. The Bar Car Directive favorably affected utilization as existing
idle cars were deployed to replace affected cars and subject cars taken out of
service were scrapped.

Asset remarketing income of $4.9 million was $2.0 million higher than 2001
mainly due to the sale of several residual sharing investments. Share of
affiliates' earnings of $13.1 million increased $5.7 million over 2001.
Excluding nonrecurring adjustments in 2001, share of affiliates' earnings in
2002 increased $3.7 million, largely due to improvement in KVG and AAE Cargo
results.

Ownership Costs

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

Ownership costs of $332.5 million were $4.8 million lower compared to 2001.
Excluding the impact of DEC in both periods, ownership costs decreased $4.3
million from the prior year period primarily due to lower interest costs
resulting from favorable interest rates, partially offset by higher operating
lease expense in 2002. The increase in operating lease expense in 2002 is due to
the full year impact of ownership costs related to a railcar financing entered
into in mid-2001.

28

Other Costs and Expenses

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

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

Rail's other operating expenses were $31.7 million in 2002 and $54.7
million in 2001. In 2001, other operating expenses included $24.5 million of
non-comparable items, of which $19.7 million related to the closing of its East
Chicago repair facility. Excluding the non-comparable items, other operating
expenses increased $1.5 million primarily due to the write-off of international
business development costs and software implementation expenses.

SG&A expenses decreased $3.2 million in 2002 from the prior year amount of
$62.4 million. The decrease in SG&A expenses in 2002 is attributable to lower
headcount due to the 2001 reduction in workforce and lower discretionary
spending.

During 2002 and 2001, Rail recorded pre-tax charges of $2.0 million and
$5.3 million, respectively, related to reductions in workforce. The charge in
2002 was predominantly related to an ongoing plan to streamline the workforce
and operations of DEC. The charge in 2001 was part of GATX's initiative to
reduce SG&A expenses in response to poor North American economic conditions. The
reduction in workforce charge in 2002 and 2001 included involuntary employee
separation and benefit costs for 85 and 47 employees, respectively, as well as
occupancy and other costs.

Cumulative Effect of Accounting Change

In accordance with SFAS No. 142, Goodwill and Other Intangible Assets, Rail
completed a review of all recorded goodwill in 2002. Fair values were
established using discounted cash flows. Based on this review, Rail recorded a
one-time, non-cash impairment charge of $34.9 million related to DEC. The charge
is non-operational in nature and was recognized as a cumulative effect of
accounting change as of January 1, 2002 in the consolidated statements of
income. The impairment charge was due primarily to lessened expectations of
projected cash flows based on market conditions at the time of the review and a
lower long-term growth rate projected for DEC.

Taxes

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

Net Income

Rail's net income of $25.8 million was $31.5 million lower than the prior
year primarily due to the cumulative effect of accounting change, the impact of
unfavorable market conditions on lease income, and the

29

impact of the Bar Car Directive, partially offset by reduced SG&A expenses and
the absence of 2001 closure costs related to its East Chicago repair facility.

GATX AIR

Gross Income

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

Air's 2002 gross income of $103.8 million was $16.4 million lower than
2001. The decrease was primarily driven by lower asset remarketing income and
share of affiliates' earnings, offset by higher lease income. Asset remarketing
income decreased $6.7 million from 2001. Lease income increased $9.5 million as
a result of new aircraft deliveries placed on lease during 2002.

Share of affiliates' earnings of $14.8 million were $18.3 million lower
than 2001. The decrease from the prior year is primarily due to the impairment
losses that occurred in 2002 on a fleet of 28 Fokker 50 and 100 aircraft owned
by the 50% owned Pembroke affiliate.

Ownership Costs

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

Ownership costs of $75.7 million in 2002 were $9.5 million higher than in
2001. The increase was primarily due to the $16.7 million increase in
depreciation offset by the $9.4 million decrease in operating lease expense. The
increase in depreciation expense of $16.7 million resulted from higher operating
lease assets due to new aircraft deliveries which were received and put on lease
in 2002.

Excluding the $4.7 million accrual reversal in 2002 discussed previously,
operating lease expense was $4.7 million lower compared to 2001 due to fewer
leased-in aircraft.

30

Other Costs and Expenses

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

Total other costs and expenses decreased $5.4 million primarily due to the
decrease in other operating expenses, SG&A costs and asset impairment charges.
SG&A costs decreased $2.5 million due to higher capitalized expenses as a result
of more aircraft deliveries in 2002. Asset impairment charges in both years
resulted from the environment following the events of September 11th.

Taxes

Air's income tax benefit was $.5 million in 2002, a decrease of $11.8
million from the 2001 tax expense of $11.3 million. The 2002 amount was impacted
by a benefit of $3.1 million from the ETI. ETI is an exemption from U.S. federal
income tax for the lease of U.S. manufactured equipment to foreign lessees. The
benefit recorded in 2002 included both the 2001 and 2002 amounts.

Net Income

Net income of $8.1 million decreased $8.7 million from 2001 due to a
weakened portfolio as a result of the economic conditions in the Air industry
and impairment losses recorded at an affiliate.

GATX TECHNOLOGY SERVICES

Gross Income

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

Gross income of $322.7 million in 2002 decreased $88.7 million compared to
2001. Lease income of $278.4 million decreased by $104.9 million in 2002 due to
declining average operating lease and finance lease balances and the impact of
lower average yields. In the first quarter of 2001, Technology acquired a
portfolio of technology leases from El Camino Resources that contributed
significantly to the higher level of lease income in 2001. Lower lease income in
2002 was partially offset by gains on extinguishment of debt of $15.8 million.
$13.0 million of the total gain was associated with one lease investment, which
was largely offset by approximately $10.0 million of provision for losses and
$2.3 million of asset impairment charges in 2002.

31

Ownership Costs

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

Ownership costs of $229.1 million decreased by $67.4 million, consistent
with the decline in average assets in 2002 compared to 2001.

Other Costs and Expenses

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

SG&A expense of $43.5 million in 2002 decreased $5.0 million compared to
2001 due to higher costs in 2001 associated with the administration of the El
Camino portfolio acquisition.

Technology's provision for possible losses of $28.8 million increased $14.2
million from 2001 primarily due to the impact of the investment discussed above,
which was largely offset by the gain on extinguishment of nonrecourse debt.
Asset impairment charges of $14.0 million in 2002 increased $11.9 million and
were unusually high due to charges related to customers' bankruptcies of $6.8
million, a portion which was offset by gains on extinguishment of debt.
Additionally, losses of $3.8 million were recorded in 2002 as the result of
several mid-term lease rewrite transactions, which include a portion of the
customer's equipment being returned early. Under the terms of the transactions,
rent flows on the returned equipment are typically incorporated into the
rewritten lease and underlying equipment retained by the customer. An impairment
charge on the portion of the equipment returned by the customer may be
recognized, if applicable. Finally, Technology had a return of leased equipment
from a customer for which it recorded an asset impairment charge and an
offsetting early termination fee classified in lease income of $3.1 million.

Taxes

Technology's income tax expense was $2.6 million in 2002, a decrease of
$16.5 million from the 2001 amount of $19.1 million.

Net Income

Technology's net income of $4.7 million in 2002 decreased $25.4 million
from the previous year as a result of higher provision for possible losses and
asset impairment charges, net of gains on extinguishment of debt, and the impact
of a smaller lease portfolio with lower average yields.

32

GATX SPECIALTY FINANCE

Gross Income

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

Specialty's 2002 gross income of $171.2 million was $63.3 million lower
than 2001. The decrease was primarily driven by lower asset remarketing income
and net gains on sales of securities offset by an increase in share of
affiliates' income. Asset remarketing income decreased $37.6 million in 2002
primarily as a result of a 2001 gain of $25.0 million from the disposition of a
steel manufacturing facility. Because the timing of such sales is dependent on
changing market conditions, asset remarketing income does not occur evenly from
period to period. Gain on sales of securities, which are derived from warrants
received as part of financing and leasing transactions with non-public
companies, decreased $34.8 million in 2002. Decreases in gains on the sale of
securities in 2002 are reflective of limited initial public offering and merger
and acquisition activity compared to 2001.

Share of affiliates' earnings of $18.2 million were $28.2 million higher
than 2001. The increase from the prior year is primarily due to the absence of
losses that were incurred by telecommunication joint ventures in 2001.

Ownership Costs

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

Ownership costs of $72.9 million in 2002 were $35.2 million lower than in
2001. The decrease was primarily due to the $8.3 million decrease in
depreciation and the $24.8 million decrease in interest expense. Lower
depreciation expense is the result of lower operating lease assets at Specialty
due to 2001's high level of remarketing activity. Lower interest expense in 2002
resulted from lower debt balances.

33

Other Costs and Expenses

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

Total other costs and expenses decreased by $105.4 million in 2002
primarily due to the decrease in SG&A costs, and a reduction in the provision
for losses and asset impairment charges, offset by an increase in reduction in
workforce charges. SG&A costs decreased $13.5 million primarily due to a
reduction in workforce announced at the end of 2001. The provision for losses
decreased $52.4 million as a result of the absence of the provision for certain
venture and telecommunication investments. Asset impairment charges decreased
$52.4 million due to the absence of impairment charges related to
telecommunications equipment. In 2001, asset impairments at Specialty reached a
historically high level due primarily to valuation issues on telecommunication
leases and bonds originated by GATX in the late 1990's. The recessionary
economy, the sharp decline in the stock market, and a dramatic reduction in
funding available to newer stage telecommunication companies caused many
business failures in the telecom industry and losses in Specialty's portfolio.
Reduction in workforce charges increased $6.9 million due to the fourth quarter
2002 charge that resulted from GATX's announced intention to curtail investment
in specialty finance and to sell or otherwise run-off venture finance.

Taxes

Specialty's income tax expense was $2.6 million in 2002, an increase of
$31.1 million from the 2001 income tax benefit amount of $28.5 million.

Net Income

Net income of $4.9 million increased $46.2 million from the prior year loss
primarily due to the absence of the provision for losses and asset impairment
charges related to certain venture and telecommunication investments.

OTHER

Gross Income

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

Gross income of $85.0 million in 2002 was comparable to the prior year.

34

Ownership Costs

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

Ownership costs of $47.8 million in 2002 were $23.2 million higher than the
prior year due to an increase in interest expense. Higher average debt balances
contributed to the unfavorable variance compared to 2001. The 2001 period also
included interest income on the proceeds received from the sale of the former
ISG segment.

Other Costs and Expenses

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

SG&A expenses of $61.1 million decreased $19.2 million due to lower
headcount as a result of the 2001 reduction in workforce and lower discretionary
spending.

In 2002, GATX recorded a $50.3 million provision for possible losses in its
operating segments, offset by a reversal of $13.7 million of provision for
possible losses in Other. These provisions resulted in a consolidated allowance
for possible losses at December 31, 2002 of $82.2 million, or 6.6% of reservable
assets. In 2001, GATX recorded an $87.2 million provision for possible losses in
its operating segments and a $11.2 million provision for possible losses in
Other. These provision resulted in a consolidated allowance for possible losses
at December 31, 2001 of $94.2 million, or 6.1% of reservable assets.

GATX Financial Corporation (GFC), formerly known as GATX Capital
Corporation (GCC), was a party to litigation arising from the issuance by the
Federal Aviation Administration of Airworthiness Directive 96-01-03 in 1996, the
effect of which significantly reduced the amount of freight that ten 747
aircraft were authorized to carry. GATX/Airlog, a California partnership in
which a subsidiary of GCC was a partner, through a series of contractors,
modified these aircraft from passenger to freighter configuration between 1988
and 1994. GCC reached settlements covering five of the aircraft, and the
remaining five were the subject of this litigation. On February 16, 2001, a jury
found that GATX/Airlog breached certain warranties under the applicable aircraft
modification agreements, and fraudulently failed to disclose information to the
operators of the aircraft. In 2001, GCC reached settlement with each of the
plaintiffs in this litigation. GATX had recorded a pre-tax charge of $160.5
million in 2000 to accrue for its obligation under the various settlement
agreements. Upon settlement of these matters, $13.1 million of the previously
recorded provision was reversed in 2001.

During 2002, GATX recorded a pre-tax charge of $5.7 million related to
reductions in workforce. The charge in 2002 was predominantly related to a
reduction in corporate overhead costs associated with

35

management's intent to exit the venture business and curtail investment in the
specialty finance sector. In 2001, this action was part of GATX's previously
announced initiative to reduce SG&A expenses in response to economic conditions
at that time. The reduction in workforce charge for both years included
involuntary employee separation and benefit costs well as occupancy and other
costs.

Taxes

Other's income tax benefit was $28.3 million in 2002, a decrease of $1.9
million from the 2001 amount of $30.2 million. The 2001 tax benefit included a
$4.0 million tax charge related to the Company's Corporate Owned Life Insurance
(COLI) program.

Net Loss

The 2002 net loss of $49.7 million at Other improved from 2001 by $5.7
million. The variance was primarily due to the lower provision for possible loss
requirements and the absence of the COLI tax charge partially offset by
favorable interest in 2001 related to proceeds from the sale of the former ISG
segment.

CONSOLIDATED INCOME TAXES

GATX's consolidated income tax expense for continuing operations was $10.0
million in 2002, an increase of $11.9 million from the 2001 income tax benefit
of $1.9 million. The 2002 consolidated effective tax rate was 26% compared to
the 2001 rate of (34)%. The 2002 tax provision was favorably impacted by the
benefit of the extraterritorial income exclusion (an exemption for income from
the lease of U.S. manufactured equipment to foreign lessees). The 2001 tax
provision included a favorable deferred tax adjustment attributable to a
reduction in foreign tax rates offset by the COLI tax charge. See Note 14 for
additional information on income taxes.

DISCONTINUED OPERATIONS

Discontinued operations encompasses the former ISG segment which consisted
of Terminals, Logistics, and minor business development efforts.

A net after-tax gain of $163.9 million was recognized on the sales of ISG
assets in 2001. 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.

Operating results for 2002 were zero, compared to $1.5 million in the prior
year. Comparisons between periods were affected by the timing of the sale of ISG
assets.

BALANCE SHEET DISCUSSION

Assets

Total assets decreased to $6.1 billion in 2003 from $6.4 billion in 2002.
Decreases in finance leases and loans, progress payments and recoverable income
taxes were partially offset by increases in operating lease assets and
facilities during the year. In 2003, Rail disposed of a leveraged lease
commitment on passenger rail equipment, whereby $184.9 million of assets were
sold, including restricted cash and progress payments.

In addition to the $6.1 billion of assets recorded on the balance sheet,
GATX utilizes approximately $1.3 billion of other assets, such as railcars and
aircraft, which were financed with operating leases and therefore are not
recorded on the balance sheet. The $1.3 billion of off balance sheet assets
represents the present value of GATX's committed future operating lease payments
at a 10% discount rate.

36

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

RESTRICTED CASH

Restricted cash of $60.9 million decreased by $80.0 million from 2002. The
decrease is primarily due to Rail's disposal of a leveraged lease commitment on
passenger rail equipment, which included restricted cash of $108.4 million.

RECEIVABLES

Receivables of $845.2 million, including finance leases and loans,
decreased $399.8 million compared to the prior year. Technology and Specialty
receivables reflect lower finance lease balances as a result of portfolio
run-off exceeding new volume. Specialty also sold the U.K. and Canadian
venture-related loan portfolios in December 2003.

ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide an estimate of credit losses
inherent in the investment portfolio for which reserving is appropriate. In
addition to establishing loss estimates for known troubled investments, this
estimate involves consideration of historical loss experience, present economic
conditions, collateral values, and the state of the markets in which GATX
operates. GATX records a provision for possible losses in each operating segment
as well as in Other, targeting and overall allowance for possible losses in
accordance with established GATX policy. This overall allowance for possible
losses is measured and reported as a percentage of total reservable assets.
Reservable assets in accordance with generally accepted accounting principles
(GAAP) include loans, direct finance leases, leveraged leased and receivables.

The following summarizes changes in GATX's consolidated allowance for
possible losses (in millions):

37

The following table presents the allowance for possible losses by segment
(in millions):

There were no material changes in estimation methods and assumptions for
the allowance that took place during 2003. The allowance for possible losses is
periodically reviewed for adequacy by considering changes in economic conditions
and credit quality indicators. GATX believes that the allowance is adequate to
cover losses inherent in the reservable portfolio as of December 31, 2003. The
allowance is based on judgments and estimates, which could change in the future,
causing a corresponding change in the recorded allowance.

The allowance for possible losses of $51.6 million decreased $30.6 million
from 2002 and represented 6.1% of reservable assets, a decline from 6.6% in the
prior year. The decrease in the allowance for possible losses as a percentage of
reservable assets in 2003 was driven by the general improvement in the average
quality of GATX's portfolio as well as the large decrease in venture finance
assets, which were reserved at a relatively higher rate than the rest of the
portfolio. Net charge-offs, which is calculated as charge-offs less recoveries,
totaled $30.7 million for the year, a decrease of $23.2 million from 2002. The
2003 charge-offs were primarily Air, Specialty and Technology investments. 2002
charge-offs were primarily in Specialty's venture portfolio and Technology's
investments. Specialty's 2003 activity included a $7.3 million reduction in the
allowance due to the sale of the U.K. and Canadian venture-related loan
portfolios completed in December 2003.

NON-PERFORMING INVESTMENTS

Finance leases and loans that are 90 days or more past due, or where
reasonable doubt exists as to timely collection of payments related thereto, are
generally classified as non-performing. Non-performing assets also include
operating lease assets which are subject to the impairment rules of SFAS No.
144, Accounting for the Impairment or Disposal of Long-Lived Assets as they are
not considered reservable assets. The allowance for possible losses, discussed
above, relates only to rent and other receivables, finance leases and loans.
Non-performing investments do not include operating lease assets that are off
lease or held for sale, investments within joint ventures or off balance sheet
assets. Lease or interest income accrued but not collected is reversed when a
lease or loan is classified as non-performing. Payments received on
non-performing leases and loans for which the ultimate collectibility of
principal is uncertain are applied as principal reductions. Otherwise, such
collections are credited to income when received.

The following summarizes non-performing assets by segment (in millions):

Non-performing investments at December 31, 2003 were $85.7 million, $12.8
million lower than the prior year amount of $98.5 million. The decrease in
non-performing leases and loans was driven by improvement in the technology
portfolio.

38

OPERATING LEASE ASSETS, FACILITIES AND OTHER

Net operating lease assets and facilities increased $278.7 million from
2002 primarily due to railcar investments. Rail took delivery of approximately
1,000 new cars in 2003 under its committed purchase program and also acquired
1,200 cars in December 2003, which are on a long-term lease with a customer.

PROGRESS PAYMENTS

GATX classifies amounts deposited toward the construction of wholly-owned
aircraft and other equipment, including capitalized interest, as progress
payments. Progress payments made for aircraft owned by joint ventures in which
GATX participates are classified as investments in affiliated companies.

Progress payments decreased $87.3 million from $140.9 million in 2002 to
$53.6 million at December 31, 2003. The decrease is primarily due to the
reclassification of $52.2 million of progress payments to operating lease assets
for aircraft delivered during 2003. Also in 2003, Rail disposed of a leveraged
lease commitment on passenger rail equipment that included $48.0 million of
progress payments.

INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies increased $17.3 million in 2003. GATX
invested $100.8 million and $93.3 million in joint ventures in 2003 and 2002,
respectively. Share of affiliates' earnings were $69.7 million and $48.4 million
in 2003 and 2002, respectively. Distributions from affiliates were $148.1
million and $148.8 million in 2003 and 2002, respectively.

The following table shows GATX's investment in affiliated companies by
segment (in millions):

RECOVERABLE INCOME TAXES

Recoverable income taxes of $53.8 million at December 31, 2003 represent
estimated refunds from prior years as a result of carrying back the 2003 net tax
operating loss. Recoverable income taxes received during 2003 were approximately
$118.0 million.

GOODWILL, NET

Goodwill, net, was $94.8 million, an increase of $32.3 million as compared
to the prior year. The increase was due to a $16.4 million purchase accounting
adjustment related to Rail's 2002 purchase of the remaining 50.5% of KVG and a
foreign currency exchange effect of $15.9 million. The Company's changes in
carrying value of goodwill are further discussed in Note 8 to the Company's
consolidated financial statements.

OTHER INVESTMENTS

Other investments of $101.9 million were comparable to the prior year and
include $26.4 million of investments classified as available-for-sale. Refer to
Note 9 to the Company's consolidated financial statements for further
information regarding the Company's available-for-sale securities.

39

OTHER ASSETS

Other assets of $244.7 million were $49.7 million lower than the prior year
due to a decrease in capitalized costs from Rail's disposal of the leveraged
lease commitment discussed above and a decrease in the fair value of
derivatives.

LIABILITIES

Total liabilities decreased to $5.2 billion in 2003 from $5.6 billion in
2002. In addition to the $5.2 billion of liabilities recorded on the balance
sheet, GATX has approximately $1.3 billion of off balance sheet debt related to
assets that are financed with operating leases. The $1.3 billion of off balance
sheet debt represents the present value of GATX's committed future operating
lease payments at a 10% discount rate.

ACCOUNTS PAYABLE AND ACCRUED EXPENSES

Accounts payable and accrued expenses were $354.8 million, a decrease of
$41.4 million from the prior year end largely due to the January 2003 funding of
a portion of the KVG purchase price. KVG was acquired in December 2002.

DEBT

Total debt decreased $400.1 million from the 2002 year end primarily due to
decreases in recourse and nonrecourse long-term debt of $232.0 million and
$149.0 million, respectively.

Nonrecourse debt decreased as investments at Technology continued to
decline year over year. Rail's 2003 disposition of a leveraged lease commitment
on passenger rail equipment included $183.4 million of liabilities, consisting
primarily of nonrecourse debt, which were assumed by the buyer.

GATX, including its principal subsidiary GFC, issued $836.9 million in
long-term debt in 2003. Significant borrowings in 2003 included secured
financing supported by the European Credit Agencies (ECA) and the Export-Import
Bank of the United States (Ex-Im) for aircraft deliveries, railcar secured
financings, senior unsecured term notes, technology nonrecourse financing and
convertible debt. 2003 repayments of long-term debt totaled $1.1 billion.

The following table summarizes GATX's debt by major component, including
off balance sheet debt, as of December 31, 2003 (in millions):

40

DEFERRED INCOME TAXES

Deferred income taxes increased $34.3 million from 2002 due to accelerated
tax depreciation (including bonus depreciation on new equipment) offset by a net
operating loss carry forward asset of $21.7 million and alternative minimum tax
credit of $29.2 million.

SHAREHOLDERS' EQUITY

Shareholders' equity increased $88.3 million from 2002 reflecting net
income of $76.9 million, issuance of common stock of $3.8 million and changes in
accumulated other comprehensive loss of $70.4 million, partially offset by
dividends paid of $62.8 million. The change in accumulated other comprehensive
loss was driven by foreign currency translation gains due to the strengthening
of the Canadian dollar, Euro and Zloty and reduced minimum pension liability,
slightly offset by unrealized losses on derivative instruments.

CASH FLOW DISCUSSION

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 environment could decrease demand for GATX's services, which in turn could
impact the Company's ability to generate cash flow from operations and portfolio
proceeds.

NET CASH PROVIDED BY CONTINUING OPERATIONS

Net cash provided by continuing operations of $408.3 million decreased $7.8
million compared to 2002. The impact of reduced investment volume and portfolio
run-off in 2003 was largely offset by the receipt of recoverable income taxes
and lower pension plan contributions. Comparison between periods is also
affected by other changes in working capital.

PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS

Portfolio investments and capital additions of $875.0 million decreased
$396.8 million from 2002.

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

Rail invested $249.6 million in 2003, an increase of $132.1 million from
the prior year. The increase was primarily attributable to railcar investments
related to the committed railcar purchase program, railcar investments at KVG
and the fourth quarter 2003 acquisition of a fleet of covered hoppers. Portfolio
investments and capital additions at Air of $227.9 million were $343.6 million
lower than the prior year, primarily due to $319.9 million fewer aircraft
progress payments and deliveries. Air investments included $21.7 million of
progress payments and $176.4 million of final delivery payments for six aircraft
in 2003. Technology investments of $246.4 million approximate the prior year.
Investments at Specialty were significantly lower in 2003 as a result of the
run-off of the venture business and curtailment in specialty investments. Future
portfolio investments and capital additions (excluding contractual commitments)
will depend on market conditions and opportunities to acquire desirable assets.

41

PORTFOLIO PROCEEDS

Portfolio proceeds of $759.5 million decreased $123.3 million from 2002.
The decrease was primarily due to lower proceeds from disposals of leased
equipment and a decrease in finance lease payments received, partially offset by
increases in loan principal received and cash distributions from joint venture
investments.

PROCEEDS FROM OTHER ASSET SALES

Proceeds from other asset sales of $23.0 million in 2003 primarily relate
to railcar scrappings.

NET CASH USED IN FINANCING ACTIVITIES FOR CONTINUING OPERATIONS

Net cash used in financing activities of continuing operations was $326.1
million in 2003 compared to $42.5 million in 2002. Net proceeds from issuance of
long-term debt were $836.9 million in 2003. Significant financings in 2003
included the $100.0 million commercial paper (CP) conduit securitization
facility, $150.0 million of senior unsecured term notes, $171.5 million of ECA
aircraft financing, $37.1 million of aircraft financing from the Ex-Im, $214.9
million of technology nonrecourse financing, and the issuance of convertible
debt of $125.0 million.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

GATX has historically funded investments and met its obligations through
cash flow from operations, portfolio proceeds (including proceeds from 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.

In December 2002, GATX announced its decision to exit its venture finance
business and curtail investment in specialty finance. The former business units,
Specialty Finance and Venture Finance, are now managed as one business segment,
Specialty. In addition, GATX experienced a relatively weak investment
environment for its Technology segment over the last few years. As a result,
assets of $1,334.0 million (including $22.1 million of off balance sheet assets)
as of December 31, 2003 in these segments decreased by $898.3 million from the
end of 2001. This run-off has caused cash flow from operations and portfolio
proceeds to run at a level of over $1 billion during both 2002 and 2003. Looking
forward, Specialty's venture loan portfolio will substantially run-off by the
end of 2005 and the rate of decline in the remaining assets in the Specialty
segment could slow. Combined with the effect of the reduced investment in
Technology over the last few years, GATX expects that both cash flow from
operations and portfolio proceeds will decline in 2004. Despite this, GATX
believes its current liquidity remains strong due to its cash position,
available and committed credit lines, lower 2004-2005 scheduled debt maturities
relative to recent years, and more cost effective access to the capital markets
relative to recent years.

CREDIT FACILITIES

GFC, a wholly-owned subsidiary of GATX, has revolving credit facilities
totaling $539.3 million. GFC's credit facilities include three agreements for
$254.3 million, $145.0 million, and $140.0 million expiring in 2004, 2005, and
2006, respectively. At December 31, 2003, availability under all credit
facilities was $512.5 million, with $26.8 million of letters of credit
outstanding under the most recent facility. The $145.0 million and $140.0
million facilities, which closed in July 2002 and June 2003, respectively, are
intended to be utilized to meet short-term funding requirements. The $254.3
million facility, which expires in June 2004, was originally established as a
back-up line. The Company intends to replace this facility with one of similar
terms for the purpose of funding short-term requirements.

RESTRICTIVE COVENANTS

All revolving credit facilities contain various restrictive covenants,
including requirements to maintain a defined net worth and a fixed charge
coverage ratio. In addition, the credit facilities contain certain negative
42

pledge provisions, including an asset coverage test. Terms of the $140.0 million
credit facility also include a limitation on liens condition for borrowings on
this facility.

As defined in the credit facilities, the net worth of GFC at December 31,
2003 was $1.6 billion, which was in excess of the most restrictive minimum net
worth requirement of $1.1 billion. Additionally, the ratio of earnings to fixed
charges as defined by the credit facilities was 1.9x for the period ended
December 31, 2003, in excess of the most restrictive covenant of 1.3x.

The indentures for GFC's public debt also contain restrictive covenants,
including limitations on loans, advances or investments in related parties
(including GATX) and dividends it may distribute to GATX. Certain of the
indentures also contain limitation on liens provisions that limit the amount of
secured indebtedness that GFC may incur, subject to several exceptions,
including those permitting an unlimited amount of purchase money indebtedness
and non-recourse indebtedness. In addition to the other specified exceptions,
GFC would be able to incur liens securing a maximum of $781.4 million of
additional indebtedness as of December 31, 2003 based on the most restrictive
limitation on liens provision.

The covenants in the credit facilities and indentures effectively limit the
ability of GFC to transfer funds to GATX in the form of loans, advances or
dividends. At December 31, 2003, the maximum amount that GFC could transfer to
GATX without violating its financial covenants was $674.2 million, implying that
$594.0 million of subsidiary net assets were restricted. Restricted assets are
defined as the subsidiary's equity, less intercompany receivables from the
parent company, less the amount that could be transferred to the parent company.

In addition to the credit facilities and indentures, GFC and its
subsidiaries are subject to financial covenants related to certain bank
financings. GATX does not anticipate any covenant violation in GFC's credit
facilities, bank financings, or indentures, nor does GATX anticipate that any of
these covenants will restrict its operations or its ability to procure
additional financing.

As December 31, 2003, GFC was in compliance with the covenants and
conditions of all of its credit facilities.

LONG-TERM FINANCING

Secured financings are comprised of the sale-leaseback of railcars, loans
secured by railcars and aircraft, technology nonrecourse financing, and a CP
conduit securitization facility. The railcar sale-leasebacks qualify as
operating leases and the assets or liabilities associated with this equipment
are not recorded on the balance sheet. In March 2003, $100.0 million was funded
through the CP conduit securitization facility. In December 2003, the CP conduit
securitization facility was restructured as a $50.0 million facility.

In November 2003, GFC registered $1.0 billion of unsecured debt securities
and pass through certificates under a shelf registration statement filed with
the SEC. Pass through certificates are securities that evidence an ownership
interest in a pass through trust. The property held by each pass through trust
may include promissory notes secured by railcars or aircraft that are owned or
leased by GFC. As of December 31, 2003, $150.0 million of senior unsecured notes
had been issued against the shelf registration.

During 2003, GATX issued $125.0 million of long-term convertible debt.
Including the financing activity of GFC, GATX issued a total of $836.9 million
and repaid $1,082.0 million of long-term debt. Other significant financings in
2003 included $171.5 million of aircraft financing guaranteed by the European
Export Credit Agencies, $214.9 million of technology nonrecourse financing and
$37.1 million of aircraft financing guaranteed by the U.S. Export-Import Bank.

CREDIT RATINGS

The availability of the above funding options may be adversely impacted by
certain factors including the global capital market environment and outlook as
well as GFC's financial performance and outlook. Access to capital markets at
competitive interest rates is partly dependent on GFC's credit rating as
determined primarily by rating agencies such as S&P and Moody's. On April 15,
2003, S&P downgraded GFC's long-term

43

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 situation has
increased the cost of borrowing and constrained GFC's access to the commercial
paper market.

One of the factors that the rating agencies monitor in reviewing GFC's
credit rating is its use of secured debt. In particular, S&P monitors the ratio
of GFC's secured assets as a percentage of total assets. Over the last two
years, this ratio has increased substantially as GFC has financed 24 new
aircraft deliveries with secured debt supported by the ECA and the Ex-Im. GATX
currently believes that its secured asset ratio can be maintained at levels
acceptable to the rating agencies. However, if GFC became unable to access
unsecured financing in the future, it may have to rely on secured financing and
could suffer a credit rating downgrade if the resulting increase in its secured
asset ratio became unacceptable to one or both rating agencies.

2004 LIQUIDITY POSITION

GFC expects that it will be able to meet its contractual obligations for
2004 through a combination of its current cash position, projected cash flow
from operations, portfolio proceeds, ECA financing, and its revolving credit
facilities. GFC previously arranged financing supported by the ECA to fund GFC's
2001-2004 Airbus A320 aircraft deliveries. Approximately $110.0 million of ECA
financing is expected to be funded in 2004, secured by three deliveries.

CONTRACTUAL COMMITMENTS

At December 31, 2003, GATX's contractual commitments, including debt
maturities, lease payments, and unconditional purchase obligations were (in
millions):

The carrying value of long-term debt is adjusted for fair value hedges. As
of December 31, 2003, long-term debt of $3,658.7 million excludes a fair value
adjustment of $42.8 million. The adjustment for qualifying fair value hedges is
excluded from the above table as such amount does not represent a contractual
commitment with a fixed amount or maturity date. Other represents GATX's
obligation under the terms of the DEC acquisition agreement to cause DEC to make
qualified investments of $36.2 million by December 31, 2005. To the extent there
are not satisfactory investment opportunities during 2005, DEC may invest in
long term securities for purposes of future investment.

UNCONDITIONAL PURCHASE OBLIGATIONS

At December 31, 2003, GATX's unconditional purchase obligations of $673.5
million consisted primarily of commitments to purchase railcars and scheduled
aircraft acquisitions. GATX had commitments of $401.1 related to the committed
railcar purchase program, entered into in 2002. GATX also had commitments of
$169.8 million for orders and options for interests in five new aircraft to be
delivered in 2004 and 2006. Additional unconditional purchase obligations
include $73.1 million of other rail related commitments.

44

At December 31, 2003, GATX's unconditional purchase obligations by segment
were (in millions):

GUARANTEES

In connection with certain investments or transactions, GATX has entered
into various commercial commitments, such as guarantees and standby letters of
credit, 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.

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 a lease term. Approximately 66% of the asset residual value
guarantees are related to rail equipment. Based on known and expected market
conditions, management does not believe that the asset residual value guarantees
will result in any negative financial impact to GATX. GATX believes these asset
residual value guarantees will likely generate future income in the form of fees
and residual sharing proceeds.

GATX and its subsidiaries are also parties to letters of credit and bonds.
No material claims have been made against these obligations. At December 31,
2003, GATX does not expect any material losses to result from these off balance
sheet instruments because performance is not anticipated to be required.

GATX's commercial commitments at December 31, 2003 were (in millions):

PENSION CONTRIBUTIONS

In 2003, GATX contributed $11.6 million to its funded and unfunded pension
plans. In 2004, the Company expects to make payments of approximately $2.6
million with respect to its pension plans. Additional contributions will be
dependent on a number of factors including plans asset investment returns and
actuarial experience. Subject to the impact of these factors, the Company may
make additional material plan contributions.

45

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to use judgment in
making estimates and assumptions that affect reported amounts of assets,
liabilities, revenues and expenses and related disclosures. The Company
regularly evaluates its estimates and judgments based on historical experience
and other relevant factors and circumstances. Actual results may differ from
these estimates under different assumptions or conditions.

The Company considers the following as critical accounting policies:

Operating lease assets and facilities -- Operating lease assets and
facilities are stated principally at cost. Assets acquired under capital leases
are included in operating lease assets and the related obligations are recorded
as liabilities. Provisions for depreciation include the amortization of the cost
of capital leases. Operating lease assets and facilities are depreciated using
the straight-line method to an estimated residual value. Railcars, locomotives,
aircraft, marine vessels, buildings and leasehold improvements are depreciated
over the estimated useful lives of the assets. Technology equipment is generally
depreciated to an estimated residual value over the term of the lease contract.
The Company periodically reviews the appropriateness of depreciable lives and
residual values based on physical and economic factors, as well as existing
market conditions.

Impairment of long-lived assets -- A review for impairment of long-lived
assets, such as operating lease assets and facilities, is performed whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
estimated future net cash flows expected to be generated by the asset. Estimated
future cash flows are based on a number of assumptions including lease rates,
lease term, operating costs, life of the asset and disposition proceeds. If such
assets are considered to be impaired, the impairment loss to be recognized is
measured by the amount by which the carrying amount of the assets exceeds fair
value. Assets to be disposed of are reported at the lower of the carrying amount
or fair value less selling costs. In addition, the Company periodically reviews
the residual values used in the accounting for finance leases. When conditions
indicate the residual value has declined, the Company recognizes the accounting
impact in that period.

Allowance for possible losses -- The purpose of the allowance is to provide
an estimate of credit losses with respect to reservable assets inherent in the
investment portfolio. Reservable assets include gross receivables, loans and
finance leases. GATX's estimate of the amount of loss incurred in each period
requires consideration of historical loss experience, judgments about the impact
of present economic conditions, collateral values, and the state of the markets
in which GATX participates, in addition to specific losses for known troubled
accounts. GATX charges off amounts that management considers unrecoverable from
obligors or the disposition of collateral. GATX assesses the recoverability of
investments by considering several factors, including customer payment history
and financial position. The allowance for possible losses is periodically
reviewed for adequacy considering changes in economic conditions, collateral
values, credit quality indicators and customer-specific circumstances. GATX
believes that the allowance is adequate to cover losses inherent in the
portfolio as of December 31, 2003. Because the allowance is based on judgments
and estimates, it is possible that those judgments and estimates could change in
the future, causing a corresponding change in the recorded allowance.

Investments in affiliated companies -- Investments in affiliated companies
represent investments in domestic and foreign companies and joint ventures that
are in businesses similar to those of 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. Investments in 20 to 50 percent-owned
companies and joint ventures are accounted for under the equity method and are
shown as investments in affiliated companies. Certain investments in joint
ventures that exceed 50% ownership are not consolidated and are also accounted
for using the equity method when GATX does not have effective or voting control
of these legal entities and is not the primary beneficiary of the venture's
activities. The investments in affiliated companies are initially recorded at
cost and are subsequently

46

adjusted for GATX's share of the affiliate's undistributed earnings.
Distributions, which reflect both dividends and the return of principal, reduce
the carrying amount of the investment.

Pension and Post-retirement Benefits Assumptions -- GATX's pension and
post-retirement benefit obligations and related costs are calculated using
actuarial assumptions. Two critical assumptions, the discount rate and the
expected return on plan assets, are important elements of plan expense and
liability measurement. GATX evaluates these critical assumptions annually. Other
assumptions involve demographic factors such as retirement, mortality, turnover
and rate of compensation increases.

The discount rate is used to calculate the present value of expected future
pension and post-retirement cash flows as of the measurement date. The guideline
for establishing this rate is a high-quality long-term bond rate. A lower
discount rate increases the present value of benefit obligations and increases
pension expense. The expected long-term rate of return on plan assets is based
on current and expected asset allocations, as well as historical and expected
returns on various categories of plan assets. A lower expected rate of return on
pension plan assets will increase pension expense. See Note 15 to the
consolidated financial statements for additional information regarding these
assumptions.

Income Taxes -- GATX evaluates the need for a deferred tax asset valuation
allowance by assessing the likelihood of whether deferred tax assets, including
net operating loss carryforward benefits, will be realized in the future. The
assessment of whether a valuation allowance is required involves judgment
including the forecast of future taxable income and the evaluation of tax
planning initiatives, if applicable.

Taxes have not been provided on undistributed earnings of foreign
subsidiaries as the Company has invested or will invest the undistributed
earnings indefinitely. If in the future, these earnings are repatriated to the
U.S., or if the Company expects such earnings will be remitted in the
foreseeable future, provision for additional taxes would be required.

GATX's operations are subject to taxes in the U.S., various states and
foreign countries and as result, may be subject to audit in all of these
jurisdictions. Tax audits may involve complex issues and disagreements with
taxing authorities could require several years to resolve. Accruals for tax
contingencies require management to make estimates and assessments with the
respect to the ultimate outcome of tax audit issues.

NEW ACCOUNTING PRONOUNCEMENTS

See Note 2 to the consolidated financial statements for a summary of new
accounting pronouncements that may impact GATX's business.

47

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, GATX is exposed to interest rate and
foreign currency exchange rate risks that could impact results of operations. To
manage these risks, GATX, pursuant to established and authorized policies,
enters into certain derivative transactions, principally interest rate swaps,
Treasury note derivatives and currency swaps. These instruments and other
derivatives are entered into for hedging purposes only to manage existing
underlying exposures. GATX does not hold or issue derivative financial
instruments for speculative purposes.

GATX's interest expense is affected by changes in interest rates as a
result of its use of variable rate debt instruments. Based on GATX's variable
rate debt instruments at December 31, 2003 and giving affect to related
derivatives, if market rates were to increase hypothetically by 10% of GATX's
weighted average floating rate, after-tax interest expense would increase by
approximately $2.2 million in 2004.

GATX conducts operations in foreign countries, principally in Europe. As a
result, changes in the value of the U.S. dollar as compared to foreign
currencies would affect GATX's reported earnings. Based on 2003 reported
earnings from continuing operations, a uniform and hypothetical 10%
strengthening in the U.S. dollar versus applicable foreign currencies would
decrease after-tax income from continuing operations in 2004 by approximately
$3.0 million.

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

48

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF GATX MANAGEMENT

To Our Shareholders

The management of GATX Corporation is responsible for the preparation,
integrity and objectivity of the accompanying consolidated financial statements
and the related financial information included in the Annual Report on Form 10-K
to shareholders. The financial statements have been prepared in conformity with
generally accepted accounting principles and necessarily include certain amounts
which are based on estimates and informed judgments of management.

The financial statements have been audited by the Company's independent
auditors, whose report thereon appears on page 49. Their role is to form an
independent opinion as to the fairness with which such statements present the
financial position of the Company and the results of its operations.

GATX maintains a system of internal accounting controls which is designed
to provide reasonable assurance as to the reliability of its financial records
and the protection of its shareholders' assets. The concept of reasonable
assurance is based on the recognition that the cost of a system of internal
control should not exceed the related benefits. Management believes the
Company's system provides this appropriate balance in all material respects.

GATX's system of internal controls is further augmented by an audit
committee composed of independent directors, which meets several times during
the year with management, the independent auditors and the internal auditors; an
internal audit program that includes prompt, responsive action by management;
and the annual audit of the Company's financial statements by independent
auditors.

RONALD H. ZECH BRIAN A. KENNEY WILLIAM M. MUCKIAN
Chairman, President and Senior Vice President and Vice President, Controller and
Chief Executive Officer Chief Financial Officer Chief Accounting Officer

49

REPORT OF INDEPENDENT AUDITORS

To the Shareholders and Board of Directors of GATX Corporation

We have audited the accompanying consolidated balance sheets of GATX
Corporation and subsidiaries as of December 31, 2003 and 2002, and the related
consolidated statements of income, changes in shareholders' equity,
comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 2003. Our audits also included the financial statement
schedules listed in the index at Item 15(a). These financial statements and
schedules are the responsibility of the Company's management. Our responsibility
is to express an opinion on these financial statements and schedules based on
our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GATX
Corporation and subsidiaries as of December 31, 2003 and 2002, and the results
of their operations and their cash flows for each of the three years in the
period ended December 31, 2003, in conformity with accounting principles
generally accepted in the United States. Also, in our opinion, the related
financial statement schedules, when considered in relation to the basic
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.

As discussed in Note 2 to the financial statements, in 2002 the Company
changed its method of accounting for goodwill and other intangible assets, and
in 2001 the Company changed its method of accounting for derivatives.

ERNST & YOUNG LLP

Chicago, Illinois
January 29, 2004

50

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial
statements.
52

CONSOLIDATED BALANCE SHEETS

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

* Less than $.1 million.

The accompanying notes are an integral part of these consolidated financial
statements.
53

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
54

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY

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

* Less than $.1 million.

The accompanying notes are an integral part of these consolidated financial
statements.
55

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial
statements.
56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

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

GATX invests in companies and joint ventures that complement its existing
business activities. GATX partners with financial institutions and operating
companies to improve scale in certain markets, broaden diversification within an
asset class, and enter new markets.

See Note 25 for a full description of GATX's operating segments.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

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

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

Restricted Cash -- Restricted cash of $60.9 million as of December 31, 2003
is comprised of cash and cash equivalents which are restricted as to withdrawal
and usage. GATX's restricted cash primarily relates to 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).

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

Railcars.................................................... 30 - 38 years
Locomotives................................................. 28 - 30 years
Aircraft.................................................... 25 years
Buildings................................................... 40 - 50 years
Leasehold improvements...................................... 5 - 40 years
Marine vessels.............................................. 40 - 50 years

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Progress Payments for Aircraft and Other Equipment -- GATX classifies
amounts deposited toward the construction of wholly-owned aircraft and other
equipment, including capitalized interest, as progress payments. Once GATX takes
possession of the completed asset, amounts recorded as progress payments are
reclassified to operating lease assets. Progress payments made for aircraft
owned by joint ventures in which GATX participates are classified as investments
in affiliated companies.

Investments in Affiliated Companies -- GATX has investments in 20 to 50
percent-owned companies and joint ventures and other investments in which GATX
does not have effective or voting control. These investments are accounted for
using the equity method. The investments in affiliated companies are initially
recorded at cost, including goodwill at acquisition date, and are subsequently
adjusted for GATX's share of affiliates' undistributed earnings. Distributions,
which reflect both dividends and the return of principal, reduce the carrying
amount of the investment. Certain investments in joint ventures that exceed 50%
ownership are not consolidated and are also accounted for using the equity
method as GATX does not have effective or voting control of these legal entities
and is not the primary beneficiary of the venture's activities.

Inventory -- GATX has inventory that consists of railcar repair components,
vessel spare parts and fuel related to its marine operations. All inventory
balances are stated at lower of cost or market. Railcar repair components are
valued using the average cost method. Vessel spare parts inventory and vessel
fuel inventory are valued using the first in first out method. Inventory is
included in other assets on the balance sheet and was $25.6 million and $20.0
million at December 31, 2003 and 2002, respectively.

Goodwill -- Effective January 1, 2002, GATX adopted Statement of Financial
Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets,which
changed the accounting for goodwill. Under these new rules, goodwill is no
longer amortized, but rather subject to an annual impairment test in accordance
with SFAS 142. GATX completed its annual review of all recorded goodwill. Fair
values were estimated using discounted cash flows. Prior to January 1, 2002, the
Company amortized goodwill over an estimated useful life of 10 to 40 years using
the straight-line method.

Long-Lived Assets -- Effective January 1, 2002, GATX adopted SFAS No. 144,
Accounting for the Impairment or Disposal of Long-Lived Assets. This Statement
supersedes SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to be Disposed of. Although the new rules maintain 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. The adoption
of this statement did not have a material impact on the Company's consolidated
financial position or results of operations.

A review for impairment of long-lived assets, such as operating lease
assets and facilities, is performed whenever events or changes in circumstances
indicate that the carrying amount of long-lived assets may not be recoverable.
Recoverability of assets to be held and used is measured by a comparison of the
carrying amount

58

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

of an asset to future net cash flows expected to be generated by the asset. If
such assets are considered to be impaired, the impairment recognized is measured
by the amount by which the carrying amount of the assets exceeds the fair value
of the assets. Assets to be disposed of are reported at the lower of the
carrying amount or fair value less costs to sell. In 2003, asset impairment
charges of $36.4 million include $10.2 million of impairment charges at Air
related to two commercial aircraft, which were largely offset by the reversal of
related maintenance reserves. Additional impairment charges include $16.2
million at Specialty primarily related to the impairment of an equity investment
and a Gulfstream aircraft, $4.0 million at Technology, and other impairment
charges of $6.0 million that relate to marine operating assets.

Allowance for Possible Losses -- The purpose of the allowance is to provide
an estimate of credit losses with respect to reservable assets inherent in the
investment portfolio. Reservable assets include gross receivables, loans and
finance leases. GATX's estimate of the amount of loss incurred in each period
requires consideration of historical loss experience, judgments about the impact
of present economic conditions, collateral values, and the state of the markets
in which GATX participates, in addition to specific losses for known troubled
accounts. GATX charges off amounts that management considers unrecoverable from
obligors or the disposition of collateral. GATX assesses the recoverability of
investments by considering several factors, including customer payment history
and financial position. The allowance for possible losses is periodically
reviewed for adequacy considering changes in economic conditions, collateral
values, credit quality indicators and customer-specific circumstances. GATX
believes that the allowance is adequate to cover losses inherent in the
portfolio as of December 31, 2003. Because the allowance is based on judgments
and estimates, it is possible that those judgments and estimates could change in
the future, causing a corresponding change in the recorded allowance.

Income Taxes -- United States (U.S.) income taxes have not been provided on
the undistributed earnings of foreign subsidiaries and affiliates that GATX
intends to permanently reinvest in these foreign operations. The cumulative
amount of such earnings was $217.4 million at December 31, 2003.

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

Derivatives -- Effective January 1, 2001, GATX adopted SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities, as amended by SFAS
No. 137, Accounting for Derivative Instruments and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133, and SFAS
No. 138, Accounting for Certain Derivative Instruments and Certain Hedging
Activities -- an amendment of FASB Statement No. 133.

The adoption of SFAS No. 133, as amended, in the first quarter of 2001,
resulted in $1.1 million being recognized as expense in the consolidated
statement of income and $4.7 million of unrealized gain in other comprehensive
income (loss). SFAS No. 133, as amended, establishes accounting and reporting
standards for derivative instruments, including certain derivative instruments
embedded in other contracts. The statement requires that an entity recognize all
derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. GATX records the fair
value of all derivatives as either other assets, or other liabilities, with the
offset to other comprehensive loss, or long-term recourse debt in the balance
sheet. At December 31, 2003, GATX had not discontinued any hedges because it was
probable that the original forecasted transaction would not occur.

Instruments that meet established accounting criteria are formally
designated as qualifying hedges at the inception of the contract. These criteria
demonstrate that the derivative is expected to be highly effective at offsetting
changes in the fair value of underlying exposure both at inception of the
hedging relationship and on an ongoing basis. The change in fair value of the
ineffective portion of all hedges is immediately recognized in earnings. For the
years ended December 31, 2003, 2002 and 2001, losses of $3.1 million, $1.5
million and $.7 million, respectively, were recognized in earnings for hedge
ineffectiveness. Derivatives that are not designated as qualifying hedges are
adjusted to fair value through earnings immediately. For the years ended

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

December 31, 2003, 2002 and 2001, a loss of $3.8 million, a loss of $.6 million
and income of $.2 million, respectively, were recognized in earnings for
derivatives not qualifying as hedges.

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

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

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

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

Revenue Recognition -- Gross income includes rents on operating leases,
accretion of income on finance leases, interest on loans, marine operating
revenue, fees, asset remarketing gains (losses), gains (losses) on the sale of
the portfolio investments and equity securities and share of affiliates'
earnings. Operating lease income is recognized on a straight-line basis over the
term of the underlying leases. Finance lease income is recognized on the basis
of the interest method, which produces a constant yield over the term of the
lease. Marine operating revenue is recognized as shipping services are performed
and revenue is allocated among reporting periods based on the relative transit
time in each reporting period for shipments in process at any month end. Asset
remarketing income includes gains from the sale of assets from GATX's portfolio
as well as residual sharing fees from the sale of managed assets. Asset
remarketing income is recognized upon completion of the sale of assets. Fee
income, including management fees received from joint ventures, is recognized as
services are performed, which may be over the period of a management contract or
as contractual obligations are met.

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

Residual Values -- GATX has investments in the residual values of its
leasing portfolio. The residual values represent the estimate of the values of
the assets at the end of the lease contracts. GATX initially records these based
on appraisals and estimates. Realization of the residual values is dependent on
GATX's future ability to market the assets under existing market conditions.
GATX reviews residual values periodically to determine that recorded amounts are
appropriate. For finance lease investments, GATX reviews the estimated residual
values of leased equipment at least annually, and any other-than-temporary
declines in value are immediately charged to income. For operating lease assets,
GATX reviews the estimated salvage values of leased equipment at least annually,
and declines in estimated residual values are recorded as adjustments to
depreciation expense over the remaining useful life of the asset to the extent
the net book value

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

is not otherwise impaired. In addition to a periodic review, if events or
changes in circumstances trigger a review of operating lease assets for
impairment, any such impairment is immediately charged to income as an
impairment loss.

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

Foreign Currency Translation -- The assets and liabilities of GATX's
operations located outside the U.S. are translated at exchange rates in effect
at year end, and income statements and the statements of cash flows are
translated at the average exchange rates for the year. Adjustments resulting
from the translation of foreign currency financial statements are deferred and
recorded as a separate component of accumulated other comprehensive loss in the
shareholders' equity section of the balance sheet.

Incentive Compensation Plans -- The Company grants stock options to
employees under stock-based compensation plans. In December 2002, SFAS No. 148,
Accounting for Stock-Based Compensation -- Transition and Disclosure -- an
amendment of SFAS No. 123 was issued. This statement provides alternative
methods of transition for voluntary change to the fair value based method of
accounting for stock-based employee compensation. This statement also
establishes new disclosure requirements to require prominent disclosure in both
annual and interim financial statements about 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 those rules, 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 to be disclosed as if GATX had accounted for its employee stock options
using the fair value method under SFAS No. 123, Accounting for Stock-Based
Compensation. 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.

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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):

The fair value of each option grant was estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions:

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

Reclassification -- Certain amounts in the 2002 and 2001 financial
statements have been reclassified to conform to the 2003 presentation.

New Accounting Pronouncements -- In January 2003, the Financial Accounting
Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), Consolidation
of Variable Interest Entities, which addresses consolidation by business
enterprises of variable interest entities (VIEs) in which it is the primary
beneficiary. FIN 46 applied immediately to VIEs created or acquired after
January 31, 2003. No VIEs were created or obtained by GATX during 2003. For
other VIEs, FIN 46 initially applied in the first fiscal quarter or interim
period beginning after June 15, 2003. In October 2003, the FASB deferred the
effective date of FIN 46 to interim periods ending after December 15, 2003 in
order to address a number of interpretation and implementation issues. In
December 2003, the FASB reissued FIN 46 (Revised Interpretations) with certain
modifications and clarifications. Application of this guidance was effective for
interests in certain VIEs commonly referred to as special-purpose entities
(SPEs) as of December 31, 2003. Application for all other types of VIEs is
required for periods ending after March 15, 2004, unless previously applied.
GATX did not have an interest in any SPEs subject to the December 31, 2003
implementation date. The Company is in the process of completing an assessment
of the impact of FIN 46 for all other types of entities. Based on this review to
date, the Company believes certain of its investments will be considered VIEs
pursuant to the guidance provided in FIN 46. However, GATX is not a primary
beneficiary with respect to any of the VIEs

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

and does not expect to consolidate or otherwise adjust recorded amounts for
assets, liabilities, income or expense. GATX's maximum exposure to loss with
respect to these VIEs is approximately $311.4 million, of which $277.7 million
was the aggregate carrying value of these investments recorded on the balance
sheet at December 31, 2003.

In April 2003, the FASB issued SFAS No. 149, Amendment of Statement 133 on
Derivative Instruments and Hedging Activities. This statement amends and
clarifies financial accounting and reporting for derivative instruments and for
hedging activities under SFAS No. 133, Accounting for Derivative Instruments and
Hedging Activities. This statement is in effect for contracts entered into or
modified after June 30, 2003 and for hedging relationships designated after June
30, 2003. In addition, all provisions of this new statement should be applied
prospectively. The provisions of this statement that relate to SFAS 133
implementation issues that have been effective for fiscal periods beginning
prior to June 15, 2003 should continue to be applied in accordance with their
respective effective dates. The adoption of this statement does not have a
material impact on the Company's consolidated financial statements.

In December 2003, the FASB issued SFAS No. 132 (Revised 2003), Employers'
Disclosures about Pensions and Other Postretirement Benefits. The provisions of
FASB No. 132 (Revised 2003) does not change the measurement and recognition
provisions of SFAS No. 87, Employers' Accounting for Pensions, No. 88,
Employers' Accounting for Settlements and Curtailments of Defined Benefit
Pension Plans and for Termination Benefits, and No. 106, Employers' Accounting
for Postretirement Benefits Other Than Pensions. SFAS No. 132 (Revised 2003)
replaces SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. The requirements of SFAS 132 (Revised 2003) have been
incorporated into the notes to the financial statements included herein.

NOTE 3. ACQUISITIONS

The Company completed acquisitions of $56.8 million in 2002 and $95.8
million in 2001 for cash and other consideration. The results of operations of
these acquisitions have been included in the consolidated statements of income
since their respective dates of acquisition. Neither of these acquisitions were
material to the Company's consolidated financial statements.

In December 2002, Rail acquired the remaining 50.5% interest in KVG
Kesselwagen Vermietgesellschaft mbH and KVG Kesselwagen Vermietgesellschaft
m.b.h. (collectively KVG), a leading European railcar lessor for $56.8 million
and assumed $56.0 million of debt. $22.5 million of the purchase price was
funded in 2003. Prior to the transaction, which resulted in 100% ownership, Rail
held a 49.5% interest in KVG. At date of acquisition, KVG added approximately
9,000 tank and specialized railcars to Rail's wholly-owned worldwide fleet.

In March 2001, Rail purchased Dyrekcja Eksploatacji Cystern Sp. z.o.o
(DEC), Poland's national tank car fleet and fuel distribution company, for $95.8
million. DEC's assets included 11,000 tank cars at the acquisition date and a
railcar maintenance network.

NOTE 4. ACCOUNTING FOR LEASES

The following information pertains to GATX as a lessor:

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

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

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

Rental income on certain leases is based on equipment usage. Usage rents
for the years ended December 31, 2003, 2002 and 2001 were $33.4 million, $7.1
million, and $3.3 million, respectively.

Minimum Future Receipts -- Minimum future lease receipts from finance
leases, net of debt payments for leveraged leases, and minimum future rental
receipts from noncancelable operating leases by year at December 31, 2003 were
(in millions):

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information pertains to GATX as a lessee:

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

Depreciation of capital lease assets is classified as depreciation and
amortization in the statements of income.

Operating Leases -- GATX has financed railcars, aircraft, and other assets
through sale-leasebacks that are accounted for as operating leases. A subsidiary
of GATX has provided a guarantee for a portion of the residual value related to
two operating leases. Operating lease expense for the years ended December 31,
2003, 2002, and 2001 was $182.4 million, $179.5 million, and $184.2 million,
respectively. Certain operating leases provide options for GATX to renew the
leases or purchase the assets at the end of the lease term. The specific terms
of the renewal and purchase options vary.

Future Minimum Rental Payments -- Future minimum rental payments due under
noncancelable leases at December 31, 2003 were (in millions):

The payments for these leases and certain operating leases do not include
the costs of licenses, taxes, insurance, and maintenance that GATX is required
to pay. Interest expense on the above capital leases was $12.0 million in 2003,
$14.1 million in 2002, and $15.0 million in 2001.

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

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 5. LOANS

Loans are recorded at the principal amount outstanding plus accrued
interest. The loan portfolio is reviewed regularly, and a loan is classified as
impaired when it is probable that GATX will be unable to collect all amounts due
under the loan agreement. Since most loans are collateralized, impairment is
generally measured as the amount by which the recorded investment in the loan
exceeds expected payments plus the fair value of the collateral, and any
adjustment is considered in determining the provision for possible losses.
Generally, interest income is not recognized on impaired loans until the
outstanding principal is recovered. In 2003, GATX recognized $3.6 million in
interest income from loans classified as impaired.

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

The Company has recorded allowances for possible losses of $14.7 million
and $22.0 million on impaired loans at December 31, 2003 and 2002, respectively.
The average balance of impaired loans was $41.6 million, $48.6 million and $53.0
million during 2003, 2002 and 2001, respectively.

At December 31, 2003, scheduled loan principal due by year was as follows
(in millions):

NOTE 6. ALLOWANCE FOR POSSIBLE LOSSES

The purpose of the allowance is to provide an estimate of credit losses
with respect to reservable assets inherent in the investment portfolio.
Reservable assets include gross receivables, loans and finance leases. GATX's
estimate of the amount of loss incurred in each period requires consideration of
historical loss experience, judgments about the impact of present economic
conditions, collateral values, and the state of the markets in which GATX
participates, in addition to specific losses for known troubled accounts. GATX
charges off amounts that management considers unrecoverable from obligors or
through the disposition of collateral. GATX assesses the recoverability of
investments by considering factors such as a customer's payment history and
financial position.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The charges to the allowance in 2003 were primarily due to write-offs
related to Air, Technology and Specialty investments. The charges to the
allowance in 2002 were primarily due to write-offs related to Technology and
Specialty investments. 2001 charges to the allowance primarily related to
write-offs at Specialty, including telecom and steel investments. Other activity
in 2003 included a $7.3 million reduction in the allowance related to the sales
of Specialty's U.K. and Canadian venture-related loan portfolios completed in
December 2003.

There were no material changes in estimation methods or assumptions for the
allowances during 2003. GATX believes that the allowance is adequate to cover
losses inherent in the portfolio as of December 31, 2003. Because the allowance
is based on judgments and estimates, it is possible that those judgments and
estimates could change in the future, causing a corresponding change in the
recorded allowance.

NOTE 7. INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies represent investments in, and loans to
and from, 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.

The investments in affiliated companies are initially recorded at cost,
including goodwill at the acquisition date, and are subsequently adjusted for
GATX's share of affiliates' undistributed earnings (losses). These investments
include net loans to affiliated companies of $299.6 million and $301.2 million
at December 31, 2003 and 2002, respectively. Share of affiliates' earnings
includes GATX's share of interest income on these loans, which offsets the
proportional share of the affiliated companies' interest expense on the loans.
Share of affiliates' earnings in 2001 also includes the amortization of
goodwill. Distributions reflect both dividends and the return of principal and
reduce the carrying amount of the investment. Distributions received from such
affiliates were $148.1 million, $148.8 million, and $225.6 million in 2003, 2002
and 2001, respectively.

The following table shows GATX's investments in affiliated companies by
segment (in millions):

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows GATX's pre-tax share of affiliates' earnings
(loss) by segment (in millions):

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. In addition, GATX recorded its loans to the joint ventures as
equity contributions, therefore, those loan balances were reclassified from
liabilities to equity.

Operating results for all affiliated companies held at the end of the year,
assuming GATX held 100 percent interest, would be (in millions):

For 2001, pre-tax income as if GATX held a 100 percent interest was less
than GATX's pre-tax share of affiliates' earnings due to telecom losses recorded
at affiliates of Specialty of $131.9 million. GATX's share of these losses was
$35.6 million.

Summarized balance sheet data for all affiliated companies held at the end
of the year, assuming GATX held a 100% interest, would be (in millions):

At December 31, 2003 and 2002, GFC provided $73.6 million and $89.2
million, respectively, in debt guarantees and $125.0 million and $123.2 million,
respectively, in residual value guarantees related to affiliated companies.

NOTE 8. GOODWILL

Goodwill, net of accumulated amortization, was $94.8 million and $62.5
million as of December 31, 2003 and 2002, respectively. There was no
amortization expense recorded in 2003 and 2002. Amortization expense totaled
$4.6 million for the year ended December 31, 2001.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Following reflects the changes in the carrying value of goodwill for the
year ended December 31, 2003 (in millions):

Rail -- In 2002, GATX acquired the remaining interest in KVG. As a result
of this transaction, GATX recorded $8.2 million of goodwill. Additionally, the
net book value of the goodwill that related to GATX's previous acquisitions of
interest in KVG was $29.2 million. GATX reclassified the $29.2 million goodwill
balance related to the previous investments on the Company's balance sheet from
investment in affiliated companies to goodwill as of December 31, 2002.

In 2002, the purchase accounting adjustment of $10.5 million was related to
the finalization of the allocation of the 2001 purchase price of DEC among the
amounts assigned to assets and liabilities. GATX relied on the conclusions of an
independent appraisal for purposes of assigning value to DEC's tangible and
intangible assets (excluding goodwill). In addition, GATX finalized its plans to
integrate and restructure certain functions of DEC's operations, and in
accordance with EITF 95-3 recognized the associated costs of the plan as a
liability assumed in a purchase business combination and included the amount in
the allocation of acquisition cost.

In accordance with SFAS 142, the Company completed its review of the
goodwill recorded from the DEC acquisition by the third quarter of 2002. Based
on that review, the Company determined that all of the goodwill related to DEC
was in excess of its fair market value. As a result, the Company recorded a
one-time, non-cash impairment charge of $34.9 million in 2002. Such a charge is
non-operational in nature and recognized as a cumulative effect of accounting
change in the 2002 consolidated statement of income. The impairment charge was
due primarily to lessened expectations of projected cash flows based on the then
current market conditions and a lower long-term growth rate projected for DEC.

In 2003, the purchase accounting adjustment of $16.4 million was
attributable to the finalization of the allocation of the 2002 purchase price of
KVG among the amounts assigned to assets and liabilities. GATX relied on the
conclusions of an independent appraisal for purposes of assigning value to KVG's
tangible and intangible assets (excluding goodwill). The adjustment reflects a
lower allocation of purchase price to fixed assets as remaining lives were lower
than preliminary estimates.

In 2003, the carrying amount of goodwill at Rail increased $15.9 million as
a result of a foreign currency translation adjustment due to the strengthening
of the Canadian dollar and the Euro.

Specialty -- GATX recorded a $14.4 million impairment charge in 2002 for
the write-down of goodwill associated with the Company's plan to exit the former
venture finance business.

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following is the pro forma effect of the adoption of SFAS 142 (in
millions, except per share data):

NOTE 9. INVESTMENT SECURITIES

Investments classified as available-for-sale and recorded at fair value in
accordance with SFAS No. 115, are included with other investments in the
consolidated balance sheet. Unrealized gains representing the difference between
carrying amount and estimated current fair value, are recorded in the
accumulated other comprehensive loss component of shareholders' equity, net of
related tax effects, and totaled $1.7 million and $1.4 million as of December
31, 2003 and 2002, respectively. The Company did not have any unrealized losses
on available-for-sale securities as of December 31, 2003 and 2002. The Company
did not have any investments classified as held-to-maturity or trading as of
December 31, 2003 or 2002. Information regarding the Company's
available-for-sale securities is provided in the table below (in millions):

Debt securities at December 31, 2003 mature as follows (in millions):

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Proceeds and realized gains from sales of available-for-sale securities,
generally related to common stock received upon the exercise of warrants
received in connection with financing of non-public venture backed companies,
totaled $7.3 million in 2003, $3.9 million in 2002 and $35.2 million in 2001.

Upon the adoption of SFAS No. 133, as amended, warrants are accounted for
as derivatives, with prospective changes in fair value recorded in current
earnings. Accordingly, upon the conversion of warrants and subsequent sale of
stock, any amounts previously recorded in fair value adjustments for derivatives
related to the warrants are reclassified to gain on sale of securities in the
income statement. Refer to Note 13 to the Company's financial statements for
further information regarding the Company's warrants.

During the years ended December 31, 2003, 2002 and 2001, $4.4 million, $2.4
million, and $23.5 million, net of tax, respectively, were reclassified from
accumulated other comprehensive loss for gains realized and included in net
income. The Company used specific identification as the basis to determine the
amount reclassified from accumulated other comprehensive loss to earnings.

In 2001, the Company sold securities classified as held-to-maturity. The
debt securities were part of Specialty's telecom portfolio and initially had
maturity dates ranging from 2005 to 2010. Due to the poor performance of the
telecom market, the Company concluded that the decline in the value of the
telecom-related debt securities was other than temporary in accordance with SFAS
No. 115, and the carrying amount of the bonds was written down to fair value,
resulting in a loss on asset impairment charge of $47.4 million during 2001.
Subsequently, the securities were sold for proceeds of $12.2 million and a gain
of $3.5 million was recognized.

NOTE 10. OTHER ASSETS

The following table summarizes the components of other assets reported on
the consolidated balance sheets (in millions):

NOTE 11. SHORT-TERM DEBT AND LINES OF CREDIT

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

Short-term debt was principally foreign denominated loans.

GATX, through its wholly-owned subsidiary GFC, has commitments under credit
agreements with a group of financial institutions for revolving credit loans
totaling $539.3 million. GFC's revolving credit agreements are for $254.3
million, $145.0 million and $140.0 million expiring in 2004, 2005 and 2006,
respectively. At December 31, 2003, availability under all credit facilities was
$512.5 million with $26.8 mil-

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

lion of letters of credit issued and backed by the most recent facility. The
annual commitment fees for the revolving credit agreements are based on a
percentage of the commitment and totaled approximately $1.4 million, $1.2
million, and $.7 million for 2003, 2002, and 2001, respectively.

All revolving credit facilities contain various restrictive covenants,
including requirements to maintain a defined net worth and a fixed charge
coverage ratio. In addition, the credit facilities contain certain negative
pledge provisions, including an asset coverage test. Terms of the $140.0 million
credit facility also include a limitation on liens condition for borrowings on
this facility.

As defined in the credit facilities, the net worth of GFC at December 31,
2003 was $1.6 billion, which was in excess of the most restrictive minimum net
worth requirement of $1.1 billion. Additionally, the ratio of earnings to fixed
charges as defined by the credit facilities was 1.9x for the period ended
December 31, 2003, in excess of the most restrictive covenant of 1.3x.

The indentures for GFC's public debt also contain restrictive covenants,
including limitations on loans, advances, or investments in related parties
(including GATX) and dividends it may distribute to GATX. Certain of the
indentures also contain limitation on liens provisions that limit the amount of
secured indebtedness that GFC may incur, subject to several exceptions,
including those permitting an unlimited amount of purchase money indebtedness
and non-recourse indebtedness. In addition to the other specified exceptions,
GFC would be able to incur liens securing a maximum of $781.4 million of
additional indebtedness as of December 31, 2003 based on the most restrictive
limitation on liens provision.

The covenants in the credit facilities and indentures effectively limit the
ability of GFC to transfer funds to GATX in the form of loans, advances or
dividends. At December 31, 2003, the maximum amount that GFC could transfer to
GATX without violating its financial covenants was $674.2 million, implying that
$594.0 million of subsidiary net assets were restricted. Restricted assets are
defined as the subsidiary's equity, less intercompany receivables from the
parent company, less the amount that could be transferred to the parent company.

In addition to the credit facilities and indentures, GFC and its
subsidiaries are subject to financial covenants related to certain bank
financings. GATX does not anticipate any covenant in GFC's credit facilities,
bank financings, or indentures will be violated, nor does GATX anticipate that
any of these covenants will restrict its operations.

As December 31, 2003, GFC was in compliance with all covenants and
conditions of its credit facilities.

NOTE 12. LONG-TERM DEBT

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

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of GATX's long-term debt as of December 31, 2003, for the next
five years were (in millions):

At December 31, 2003, certain technology assets, aircraft, railcars, and
other equipment with a net carrying value of $1,647.6 million were pledged as
collateral for $1,370.0 million of notes and obligations.

Nonrecourse debt of $15.0 million and $28.1 million was borrowed by SPE's
which were wholly-owned and consolidated by GATX in 2003 and 2002, respectively.
The creditors of the SPE's have no recourse to the general credit of GATX.
Nonrecourse debt of $346.3 million and $371.9 million was in place to finance
information technology assets on lease to customers at December 31, 2003 and
2002, respectively.

In August 2003, GATX completed a private offering of $125.0 million
long-term, 5.0% senior unsecured convertible notes. The notes are convertible
into GATX Corporation common stock at with an initial conversion price of $23.69
per share. Holders of the notes have the right to require all or a portion of
the notes to be purchased at a price equal to 100% if the principal amount of
the notes plus accrued and unpaid interest in August 2008, August 2013, and
August 2018. Any purchases in August 2008 will be payable in cash, whereas any
purchases in August 2013 or August 2018 maybe paid in cash or shares of common
stock, at GATX's option.

In February 2002, GATX completed a private offering of $175.0 million of
long-term, 7.5% senior unsecured convertible notes. The notes are convertible
into GATX Corporation common stock at a price of $34.09 per share.

Interest expense capitalized as part of the cost of construction of major
assets was $4.2 million in 2003, $15.8 million in 2002 and $14.4 million in
2001. Interest allocated to discontinued operations was $5.0 million in 2001.

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

GATX may enter into derivative transactions in accordance with its policy
for the purposes of reducing earnings volatility and hedging specific financial
exposures, including movements in foreign currency exchange rates and changing
interest rates on debt securities. These instruments are entered into for
hedging purposes only to manage underlying exposures. GATX does not hold or
issue derivative financial instruments for purposes other than hedging, except
for warrants, which are not designated as accounting hedges under SFAS No. 133,
as amended.

FAIR VALUE HEDGES

GATX uses interest rate swaps to convert fixed rate debt to floating rate
debt and to manage the fixed to floating rate mix of the debt portfolio. The
fair value of interest rate swap agreements is determined based on the
differences between the contractual rate of interest and the rates currently
quoted for agreements of similar terms and maturities. As of December 31, 2003,
maturities for interest rate swaps designated as fair value hedges range from
2005-2009.

CASH FLOW HEDGES

GATX's interest expense is affected by changes in interest rates as a
result of its use of variable rate debt instruments, including commercial paper
and other floating rate debt. GATX uses interest rate swaps and

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

forward starting interest rate swaps to convert floating rate debt to fixed rate
debt and to manage the floating to fixed rate ratio of the debt portfolio. The
fair value of interest rate swap agreements is determined based on the
differences between the contractual rate of interest and the rates currently
quoted for agreements of similar terms and maturities. As of December 31, 2003,
maturities for interest rate swaps qualifying as cash flow hedges range from
2004-2012.

GATX enters into currency swaps, currency and interest rate forwards, and
Treasury note derivatives as hedges to manage its exposure to interest rate and
currency exchange rate risk on existing and anticipated transactions. The fair
values of currency swaps, currency and interest rate forwards, and Treasury note
derivatives are based on interest rate swap rates, LIBOR futures, currency
rates, and current forward foreign exchange rates. As of December 31, 2003,
maturities for these hedges range from 2004-2013.

As of December 31, 2003, GATX expects to reclassify $1.0 million of net
losses on derivative instruments from accumulated other comprehensive loss to
earnings within the next twelve months related to various hedging transactions.

OTHER DERIVATIVES

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

OTHER FINANCIAL INSTRUMENTS

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

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

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

The fair value of variable and fixed rate long-term debt was estimated by
performing a discounted cash flow calculation using the term and market interest
rate for each note based on GATX's current incremental borrowing rates for
similar borrowing arrangements. Portions of variable rate long-term debt have
effectively been converted to fixed rate debt by utilizing interest rate swaps
(GATX pays fixed rate interest, receives floating rate interest). Portions of
fixed rate long-term debt have effectively been converted to floating rate debt
by utilizing interest rate swaps (GATX pays floating rate interest, receives
fixed rate interest). In such instances, the increase (decrease) in the fair
value of the variable or fixed rate long-term debt would be offset in part by
the increase (decrease) in the fair value of the interest rate swap.

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

NOTE 14. INCOME TAXES

Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. U.S. income taxes have
not been provided on the undistributed earnings of foreign subsidiaries and
affiliates that GATX intends to permanently reinvest in these foreign
operations. The cumulative amount of such earnings was $217.4 million at
December 31, 2003.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Significant components of GATX's deferred tax liabilities and assets were
(in millions):

At December 31, 2003, GATX had a U.S. federal net operating loss
carryforward of approximately $62.0 million which expires in 2023. The
alternative minimum tax credit of $29.2 million has an unlimited carryforward
period. A valuation allowance for recorded deferred tax assets has not been
provided as management expects such benefits to be fully realized.

The domestic and foreign components of income before income tax provision
(benefit) from continuing operations consisted of (in millions):

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GATX and its U.S. subsidiaries file a consolidated federal income tax
return. Income taxes for continuing operations consisted of (in millions):

Taxes (recovered) paid include amounts allocable to discontinued operations
of $4.7 million, $(8.9) million and $285.9 million in 2003, 2002 and 2001
respectively. The tax amount recovered in 2003 is net of $21.4 million paid to
the Internal Revenue Service (IRS) to settle all disputed tax issues related to
the audits for the years 1992 to 1997.

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

The extraterritorial income exclusion (ETI) is an exemption from U.S.
federal income tax for the lease of U.S. manufactured equipment to foreign
lessees. The benefit recorded in 2002 included both the 2001 and

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

2002 amounts. Congress is currently evaluating the potential repeal of the ETI.
Accordingly, the availability of this exemption in future years is uncertain.

The tax rate decrease on deferred taxes recorded in 2003 and 2001 is the
result of changes in foreign income tax rates enacted in those years.

State income taxes are provided on domestic pre-tax income or loss. The
effect of state income tax on the overall income tax rate is impacted by the
amount of domestic income subject to state taxes relative to total income from
all sources.

The recovery of tax audit reserve in 2003 is the reversal of prior year tax
audit accruals as a result of the favorable resolution and settlement with the
IRS of issues in the 1995 to 1997 audit. The tax audit accruals provided in 2002
and 2001 were primarily attributable to audit adjustments made by the IRS
related to the disallowance of interest deduction associated with the Company's
Corporate Owned Life Insurance (COLI) program. During 2002, GATX reached
agreement with the IRS to settle the COLI issue. The settlement amount was
substantially equivalent to the tax audit accrual provided in 2001 and prior
years.

GATX's U.S. income tax returns have been audited through 1997 and all
issues have been settled with the IRS. Audits by the IRS of the years 1998 to
2002 are currently in progress. GATX believes that adequate accruals have been
provided for all years.

NOTE 15. PENSION AND OTHER POST-RETIREMENT BENEFITS

GATX maintains both funded and unfunded noncontributory defined benefit
pension plans covering its domestic employees and the employees of certain of
its subsidiaries. GATX also has a funded noncontributory defined benefit pension
plan related to a closed subsidiary in the U.K. The U.K. pension plan no longer
has any active members and is closed for new entrants. Benefits payable under
the pension plans are based on years of service and/or final average salary. The
funding policy for the pension plans is based on actuarially determined cost
methods allowable under IRS regulations and statutory regulations in the U.K.

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

GATX uses a December 31, 2003 measurement date for all of its plans.

78

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The accumulated benefit obligation for the defined benefit pension plans
was $353.8 million and $323.1 million at December 31, 2003 and 2002,
respectively.

79

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Information for funded and unfunded pension plans with a projected benefit
obligation in excess of plan assets is as follows (in millions):

Information for funded and unfunded pension plans with an accumulated
benefit obligation in excess of plan assets is as follows (in millions):

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

Special termination benefit expense of $.2 million was incurred in 2002 for
certain extra benefits paid to terminated or retired employees. Special
termination benefit expense of $12.6 million was incurred in 2001 for certain
extra benefits paid to terminated or retired employees of which $8.9 million
related to discontinued operations. Offsetting this expense in 2001 was a $15.1
million curtailment credit resulting from the elimination of future service cost
for covered employee groups; $14.5 million of the curtailment credit related to
discontinued operations.

There are no pension costs related to discontinued operations for the year
ended December 31, 2003 and 2002. Pension costs include a credit of $.1 million
related to discontinued operations for the year ended December 31, 2001.

GATX amortizes the unrecognized prior service cost and the unrecognized net
obligation using a straight-line method over the average remaining service
period of employees expected to receive benefits under the plan. The excess of
recognized net gains or losses (excluding asset gains and losses not yet
reflected in the market-related value of assets) above the greater of 10% of the
projected benefit obligation or 10% of the market-related value of the assets
are amortized by dividing this excess, if any, by the average remaining service
period of active employees.

80

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

GATX used the following assumptions to measure the benefit obligations,
compute the expected long-term return on assets and to measure the periodic cost
for GATX's defined benefit and post-retirement benefit plans for the years ended
December 31, 2003 and 2002:

GATX determines a long-term rate of return assumption on plan assets for
its funded pension plans based on current and expected asset allocations, as
well as historical and expected returns on various categories of plan assets.
The domestic expected return on plan assets of 8.75% is a blended rate based on
its expected return on plan assets of 9.00% for the plan covering salaried
employees and expected return on plan assets of 8.25% for the plan covering
hourly employees. GATX studies historical markets as well as peer group data to
determine its long-term rate of return for each of the plans. GATX routinely
reviews its historical returns along with current market conditions to ensure
its long-term rate of return assumption on plan assets is reasonable and
appropriate.

The health care cost trend rate has a significant effect on the other
post-retirement benefit cost and obligation. The assumed health care cost trend
rate for 2003 was 11.0% for participants over the age of 65 and 9.0% for
participants under the age of 65. The assumed health care cost trend rate
anticipated for 2004 will be 10.0% for participants over the age of 65 and 8.5%
for participants under the age of 65. Over a six-year period the trend rates
will decline gradually to 6.0% and remain at that level thereafter.

81

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

A one-percentage-point change in the trend rate would have the following
effects (in millions):

GATX's weighted-average asset allocations of its domestic plans at December
31, 2003 and 2002, by asset category, are as follows:

The primary objective of the domestic pension plans is to fully fund
benefit payments to plan participants. A secondary objective is to minimize
GATX's pension expense and plan contributions. To reach these goals, GATX's
philosophy is a diversified approach using a mix of equities, debt and real
estate investments to maximize the long-term return of plan assets. GATX uses a
set investment structure to maximize its long-term growth. Its equity
investments are diversified across U.S. and non-U.S. stocks as well as growth,
value, and small to large capitalizations. Its debt securities are also
diversified across U.S. investments and include the following: governments,
agencies, investment grade and high-yield corporates, mortgage-backed
securities, and other collateralized investments. GATX's real estate investments
include various property types throughout the U.S. On a timely basis, but not
less than twice a year, GATX will formally review actual results to ensure
adherence to investment guidelines and stated investment approach. This review
also evaluates reasonableness of investment decisions and risk positions. The
performance of investments is compared to indices and peers to determine if
performance has been acceptable.

GATX expects to contribute approximately $2.6 million to its domestic
unfunded pension plans and its foreign pension plan and $9.0 million to its
other postretirement benefit plans in 2004. Additional contributions to the
domestic funded pension plans will be dependent on several factors including
investment returns on plan assets and actuarial experience.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the ACT) was enacted. The Act expands Medicare,
primarily by adding a prescription drug benefit for Medicare-eligible
individuals starting in 2006. The Act provides employers currently sponsoring
prescription drug programs for Medicare-eligible individuals with a range of
options for coordinating with the new government-sponsored program that would
potentially reduce plan costs.

Pursuant to guidance from the FASB under the FASB Staff Position SFAS
106-1, GATX has chosen to defer recognition of the potential effects of the Act
in the 2003 financial statements. Therefore, the retiree health obligations and
costs reported in this financial statement do not yet reflect any potential
impact of the Act. Guidance on the accounting for the government subsidy is
pending and, when issued, could require GATX to modify previously reported
information.

GATX intends to review its retiree health care strategy in light of the Act
and may amend its retiree health program to coordinate with the new Medicare
prescription drug program or to receive the direct subsidy from the government.
As a result, GATX anticipates that its retiree health obligations and costs
could be reduced once those amendments are adopted and or the government
subsidies are considered.

82

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

'In addition to contributions to its defined benefit plans, GATX maintains two
401(k) retirement plans that are available to substantially all salaried and
certain other employee groups. GATX may contribute to the plans as specified by
their respective terms, and as determined by the Board of Directors.
Contributions to such plans for continuing operations were $1.7 million, $1.9
million, and $2.0 million for 2003, 2002, and 2001, respectively. Contributions
related to discontinued operations were zero in 2003 and 2002 and $0.2 million
for 2001.

NOTE 16. CONCENTRATIONS, OFF BALANCE SHEET ITEMS AND OTHER CONTINGENCIES

CONCENTRATIONS

Concentration of Revenues

GATX's revenues are derived from a wide range of industries and companies.
Approximately 20% of total revenues are generated from customers in the chemical
industry; for similar services, 15% of revenues are derived from the petroleum
industry. Air's assets of $2.0 billion, including off balance sheet assets of
$29.0 million, are approximately 27% of GATX's total assets and consist
primarily of commercial aircraft operated by various domestic and international
airlines. At December 31, 2003, the countries with the largest concentrations of
Air's commercial aircraft were Turkey with approximately $262.9 million or 13%
of Air's total assets, including off balance sheet assets, and Italy with
approximately $238.8 million or 12% of Air's total assets, including off balance
sheet assets.

Concentration of Credit Risk

Under its lease agreements with lessees, GATX retains legal ownership of
the asset except where such assets have been financed by sale-leasebacks. With
most loan financings to customers, the loan is collateralized by the equipment.
GATX performs credit evaluations prior to approval of a lease or loan contract.
Subsequently, the creditworthiness of the customer and the value of the
collateral are monitored on an ongoing basis. GATX maintains an allowance for
possible losses to provide for potential losses that could arise should
customers become unable to discharge their obligations to GATX.

OFF BALANCE SHEET ITEMS

Unconditional Purchase Obligations

At December 31, 2003, GATX's unconditional purchase obligations of $673.5
million consisted primarily of railcar commitments and scheduled aircraft
acquisitions. GATX had commitments of $401.1 related to the committed railcar
purchase program, entered into in 2002. GATX also had commitments of $169.8
million for orders and options for interests in five new aircraft to be
delivered in 2004 and 2006. Unconditional purchase obligations also include
$73.1 million of other rail related commitments. GATX has an obligation under
the terms of the DEC acquisition agreement to cause DEC to make qualified
investments of $36.2 million by December 31, 2005. To the extent there are not
satisfactory investment opportunities during 2005, DEC may invest in long term
securities for purposes of future investment.

Commercial Commitments

In connection with certain investments or transactions, GATX has entered
into various commercial commitments, such as guarantees and standby letters of
credit, 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.

83

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following table shows GATX's commercial commitments (in millions):

At December 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 $709.8 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 FASB Interpretation
No. 45 (FIN 45), Guarantor's Accounting and Disclosure Requirements for
Guarantees, Including Indirect Guarantees of Indebtedness to Others, was a
liability of $3.6 million. The expirations of these guarantees range from 2004
to 2017. Any liability resulting from GATX's performance pursuant to the
residual value guarantees will be reduced by the value realized from the
underlying asset or group of assets. Historically, gains associated with the
residual value guarantees have exceeded any losses incurred and are recorded in
asset remarketing income in the consolidated statements of income. Based on
known facts and current market conditions, management does not believe that the
asset residual value guarantees will result in any significant adverse financial
impact to the Company. Accordingly, the Company has not recorded any accrual for
contingent losses with respect to the residual value guarantees as of December
31, 2003. GATX believes these asset residual value guarantees will likely
generate future income in the form of fees and residual sharing proceeds.

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 a lease term. Revenue is earned for providing these asset value
guarantees in the form of an initial fee (which is amortized into income over
the guaranteed period) and by sharing in any proceeds received upon disposition
of the assets to the extent such proceeds are in excess of the amount guaranteed
(which is recorded when realized).

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.

GATX and its subsidiaries are also parties to letters of credit and bonds.
In GATX's past experience, virtually no claims have been made against these
financial instruments. At December 31, 2003, management does not expect any
material losses to result from these off balance sheet instruments because
performance is not expected to be required, and, therefore, is of the opinion
that the fair value of these instruments is zero.

OTHER CONTINGENCIES

Environmental

The Company's operations are subject to extensive federal, state and local
environmental regulation. GATX's operating procedures include practices to
protect the environment from the risks inherent in railcar leasing, which
frequently involve transporting chemicals and other hazardous materials.
Additionally, some of GATX's land holdings are and have been used for industrial
or transportation-related purposes or leased to commercial or industrial
companies whose activities may have resulted in discharges onto the property. As
a

84

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

result, GATX is subject to environmental cleanup and enforcement actions. In
particular, the Federal Comprehensive Environmental Response, Compensation and
Liability Act of 1980 (CERCLA), also known as the Superfund law, as well as
similar state laws generally impose joint and several liability for cleanup and
enforcement costs on current and former owners and operators of a site without
regard to fault or the legality of the original conduct. GATX has been notified
that it is a potentially responsible party (PRP) for study and cleanup costs at
one (1) Superfund site for which investigation and remediation payments are or
will be made or are yet to be determined (the Superfund sites) and, in many
instances, is one of several PRPs. In addition, GATX may be considered a PRP
under certain other laws. Accordingly, under CERCLA and other federal and state
statutes, GATX may be held jointly and severally liable for all environmental
costs associated with a particular site. If there are other PRPs, GATX generally
participates in the cleanup of these sites through cost-sharing agreements with
terms that vary from site to site. Costs are typically allocated based on
relative volumetric contribution of material, the amount of time the site was
owned or operated, and/or the portion of the total site owned or operated by
each PRP.

At the time a potential environmental issue is identified, initial reserves
for environmental liability are established when such liability is probable and
a reasonable estimate of associated costs can be made. Environmental costs are
based on the estimated costs associated with the type and level of investigation
and/or remediation activities that our internal environmental staff (and where
appropriate, independent consultants) have determined to be necessary to comply
with applicable laws and regulations and include initial site surveys and
environmental studies of potentially contaminated sites as well as costs for
remediation and restoration of sites determined to be contaminated. In addition,
GATX has provided indemnities for potential environmental liabilities to buyers
of divested companies. In these instances, reserves are based on the scope and
duration of the respective indemnities together with the extent of known
contamination. Estimates are periodically reviewed and adjusted as required to
reflect additional information about facility or site characteristics or changes
in regulatory requirements. GATX conducts an ongoing environmental contingency
analysis, which considers a combination of factors including independent
consulting reports, site visits, legal reviews, analysis of the likelihood of
participation in and the ability of other PRPs to pay for cleanup, and
historical trend analyses. GATX does not believe that a liability exists for
known environmental risks beyond what has been provided for in the environmental
reserve.

GATX is involved in a number of administrative and judicial proceedings and
other mandatory cleanup efforts at approximately four (4) sites, including the
Superfund site, at which it is participating in the study or cleanup, or both,
of alleged environmental contamination. The Company did not recognize an
environmental expense in 2003 or 2002. GATX did recognize an environmental
expense of $1.7 million in 2001. GATX paid $3.4 million, $3.0 million and $15.8
million during 2003, 2002 and 2001, respectively, for mandatory and unasserted
claims cleanup efforts, including amounts expended under federal and state
voluntary cleanup programs. GATX has recorded liabilities for remediation and
restoration of all known sites of $30.2 million at December 31, 2003, compared
with $33.2 million at December 31, 2002. These amounts are included in other
liabilities on GATX's balance sheet. GATX's environmental liabilities are not
discounted. GATX anticipates that the majority of the accrued costs at December
31, 2003, will be paid over the next five years and no individual site is
considered to be material.

Liabilities recorded for environmental costs represent GATX's best
estimates for remediation and restoration of these sites and include both
asserted and unasserted claims. Unasserted claims are not considered to be a
material component of the liability.

The Company did not materially change its methodology for identifying and
calculating environmental liabilities in the three years presented. There are
currently no known trends, demands, commitments, events or uncertainties that
are reasonably likely to occur and materially affect the methodology or
assumptions described above.

Recorded liabilities include GATX's best estimates of all costs, without
reduction for anticipated recoveries from third parties, and include both
asserted and unasserted claims. However, GATX's total

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cleanup costs at these sites cannot be predicted with certainty due to various
factors such as the extent of corrective actions that may be required, evolving
environmental laws and regulations, advances in environmental technology, the
extent of other parties' participation in cleanup efforts, developments in
ongoing environmental analyses related to sites determined to be contaminated,
and developments in environmental surveys and studies of potentially
contaminated sites. As a result, future charges to income for environmental
liabilities could have a significant effect on results of operations in a
particular quarter or fiscal year as individual site studies and remediation and
restoration efforts proceed or as new sites arise. However, management believes
it is unlikely any identified matters, either individually or in the aggregate,
will have a material adverse effect on GATX's results of operations, financial
position or liquidity.

Legal

GATX and its subsidiaries are parties to a number of legal actions and
claims, various governmental proceedings and private civil suits arising in the
ordinary course of business, including those related to environmental matters,
workers' compensation claims by GATX employees and other personal injury claims.
Some of the legal proceedings include claims for punitive as well as
compensatory damages. While the final outcome of these matters cannot be
predicted with certainty, considering among other things the meritorious legal
defenses available and liabilities that have been recorded, it is the opinion of
GATX's management that none of these items, when finally resolved, will have a
material adverse effect on the results of operations or the financial position
of GATX.

NOTE 17. SHAREHOLDERS' EQUITY

In accordance with GATX's amended certificate of incorporation, 120 million
shares of common stock are authorized, at a par value of $.625 per share. As of
December 31, 2003, 57,204,550 shares were issued and 49,246,388 shares were
outstanding.

As discuss in Note 12, on August 15, 2003, GATX completed a private
offering of $125.0 million 20-year, 5.0% senior unsecured convertible notes. The
notes are convertible into GATX Corporation common stock at a price of $23.69
per share. The conversion price is subject to adjustment based on various
factors, including changes in the dividend on GATX's common stock. Shares of
common stock have been reserved for the offering based on the maximum number of
shares that could be issued pursuant to the dividend adjustment provisions.

In February 2002, GATX completed a private offering of $175.0 million of
five-year, 7.5% senior unsecured convertible notes. The notes are convertible
into GATX Corporation common stock at a price of $34.09 per share.

A total of 19,678,469 shares of common stock were reserved at December 31,
2003, for the following:

GATX's certificate of incorporation also authorizes 5 million shares of
preferred stock at a par value of $1.00 per share. At December 31, 2003 and
2002, 21,824 shares and 21,911 shares, respectively, of preferred stock were
outstanding. Shares of preferred stock issued and outstanding consist of Series
A and B $2.50 cumulative convertible preferred stock, which entitled holders to
a cumulative annual cash dividend of

86

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

$2.50 per share. Each share is convertible at the option of the holder at any
time into five shares of common stock. Each share of such preferred stock may be
called for redemption by GATX at any time at $63 per share. In the event of
GATX's liquidation, dissolution or winding up, the holders of such preferred
stock will be entitled to receive $60 per share plus accrued and unpaid
dividends to the date of payment. At December 31, 2003 and 2002, the aggregated
liquidated preference of both series of preferred stock was $1.3 million.

Holders of both series of $2.50 convertible preferred stock and common
stock are entitled to one vote for each share held. Except in certain instances
all such classes vote together as a single class.

To ensure the fair value to all shareholders in the event of an unsolicited
takeover offer for the Company, GATX adopted a Shareholders' Rights Plan in
August 1998. Shareholders received a distribution of one right for each share of
the Company's common stock held. Initially the rights are represented by GATX's
common stock certificates and are not exercisable. The rights will be
exercisable only if a person acquires or announces a tender offer that would
result in beneficial ownership of 20 percent or more of the Company's common
stock. If a person acquires beneficial ownership of 20 percent or more of the
Company's common stock, all holders of rights other than the acquiring person
will be entitled to purchase the Company's common stock at half price. The
rights are scheduled to expire on August 14, 2008.

NOTE 18. ACCUMULATED OTHER COMPREHENSIVE LOSS

The change in components for accumulated other comprehensive loss are as
follows (in millions):

87

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION

The following table summarizes the components of portfolio proceeds
reported on the consolidated statement of cash flows (in millions):

Cash paid for interest and (recovered) paid for taxes were as follows (in
millions):

Significant items resulting from investing or financing activities of the
Company that did not impact cash flows were (in millions):

In 2003, GATX disposed of a leveraged lease commitment on passenger rail
equipment. $184.9 million of assets were sold, including $108.4 million of
restricted cash and $48.0 million of progress payments. In addition, $183.4
million of liabilities, primarily nonrecourse debt, were assumed by the
acquirer.

In 2002, the Company acquired KVG and assumed $56.0 million of debt. Also
during the year, Technology extinguished $14.0 million of nonrecourse debt and
recorded gain on extinguishment of debt of $15.8 million, $13.0 million of which
was associated with one lease investment.

In 2001, GATX 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.

NOTE 20. INCENTIVE COMPENSATION PLANS

The GATX Corporation 1995 Long-Term Incentive Compensation Plan (the 1995
Plan) provides for the granting of nonqualified stock options, incentive stock
options, stock appreciation rights (SARs), cash and common stock individual
performance units (IPUs), restricted stock rights, restricted common stock,
performance awards and exchange stock options. An aggregate of 5,000,000 shares
of common stock was authorized under the 1995 Plan. As of December 31, 2003,
493,349 shares were available for issuance under the 1995 Plan.

88

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

IPUs may be granted to key employees and, if predetermined performance
goals are met, will be redeemed in cash and common stock, as applicable, with
the redemption value determined in part by the fair market value of the common
stock as of the date of redemption and in part by the extent to which pre-
established performance goals have been achieved. Since the IPU Plan has been
replaced by the Executive Incentive Plan (EIP), no IPU grants have been issued
since 2001. See below for discussion of the EIP Plan. In 2003, 4,805 shares of
common stock with a value of $.1 million were issued and $.1 million in cash was
paid to participants in redemption of previously issued IPUs. As of December 31,
2003, 25,151 IPUs were outstanding; however, GATX does not expect to redeem any
IPUs in 2004 since performance goals were not met in 2003. Compensation expense
has been recognized for this plan in the period incurred.

In 2002, the Company adopted the EIP for key employees which replaced the
former IPU plan. Under the EIP, key employees were awarded a one-time grant
comprised of restricted stock and cash components covering plan years 2002 and
2003. At the end of the restricted periods and contingent on continued
employment, both awards were redeemed in cash, with the value of the phantom
restricted stock award based on the fair market value of the common stock as of
the date of redemption. The payouts were structured for one-third of the total
award to be paid in 2002 and the remaining two-thirds to be paid in 2003. The
total amount of cash awarded under the plan was $1.7 million and the total
amount of phantom restricted stock awarded was 54,500 shares. In 2002, one-third
of the cash award or $.6 million and one-third of the phantom restricted shares
with a value of $.4 million were paid for a total payment of $1.0 million. In
2003, two-thirds of the cash award or $1.1 million and two-thirds of the phantom
restricted shares with a value of $.9 million were paid for a total payment of
$2.0 million. No awards of cash or phantom restricted stock were granted in
2003. Compensation expense has been recognized for this plan in the period
incurred.

Restricted stock rights may be granted to key employees entitling them to
receive a specified number of shares of restricted common stock. The recipients
of restricted common stock are entitled to all dividends and voting rights, but
the shares are not transferable prior to the expiration of a "restriction
period" as determined at the discretion of the Compensation Committee of the
Board of Directors. Performance Awards are granted to employees who have been
granted restricted stock rights or restricted common stock, but these Awards may
not exceed the market value of the restricted common stock when restrictions
lapse. The Performance Awards provide cash payments if certain criteria and
earnings goals are met over a predetermined period. During 2003, no grants of
restricted stock were made. In 2003, 1,886 shares of restricted stock were
released and converted to GATX's common shares. As of December 31, 2003, 2,401
shares of restricted stock were outstanding. Compensation expense has been
recognized for this plan in the period incurred.

Nonqualified stock options and incentive stock options may be granted for
the purchase of common stock for periods not longer than ten years from the date
of grant. The exercise price will not be less than the higher of market value at
date of grant or par value of the common stock. Except for options issued under
the Exchange Stock Option Program (see below), options vest and become
exercisable commencing on a date no earlier than one year from the date of grant
and vesting is generally over a three year period.

The Exchange Stock Option Program became part of the 1995 Plan in 1999 and
allows key employees to make an irrevocable election to exchange up to 25% of
their pensionable incentive payments for stock options, with a minimum amount of
$5,000 in any calendar year. The purchase price of the options is based on a
percentage of the Black-Scholes value of stock options of GATX common stock as
specified by the Compensation Committee. Exchange Stock Options are granted in
January and are exercisable immediately following grant thereof. All Exchange
Stock Options will terminate on the tenth anniversary of the date of grant. The
exercise price of the options is the fair market value of the common stock on
the grant date. In 2003, 2002 and 2001, 14,972, zero and 68,656 options,
respectively, were granted. As of December 31, 2003, 161,099 options remain
outstanding.

Under the GATX Employee Stock Purchase Plan (ESPP), which became effective
July 1, 1999, GATX is authorized to issue up to 247,167 shares of common stock
to eligible employees during the calendar year. Such employees may have up to
$10,000 of earnings withheld to purchase GATX common stock. The

89

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

purchase price of the stock on the date of exercise is 85% of the lesser of its
market price at the beginning or end of the plan year. GATX employees purchased
47,591 shares and 61,340 shares in 2003 and 2002, respectively.

GATX has elected to follow Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees, in accounting for its employee stock
options, including the options issued under the Exchange Stock Option Program.
Under these guidelines, no compensation expense is recognized because the
exercise price of GATX's employee stock options equals the market price of the
underlying stock on the measurement date. See further disclosure information in
Note 2.

Stock options are outstanding under the GATX Corporation 1985 Long-Term
Incentive Compensation Plan (the 1985 Plan), as amended, but no additional
options, stock or awards may be issued thereunder. Data with respect to stock
options, including the Employee Stock Option Program issued both from the 1985
Plan and the 1995 Plan, including the range of exercise prices per share for
2003, 2002 and 2001, are set forth below:

NUMBER OF SHARES UNDER STOCK OPTION PLANS

NOTE 21. DISCONTINUED OPERATIONS

In 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.

90

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In the first quarter of 2001, GATX sold the majority of Terminals' domestic
operations and recognized a gain of $163.9 million, net of taxes of $179.1
million. The sale included substantially all of Terminals' domestic terminaling
operations, the Central Florida Pipeline Company and Calnev Pipe Line Company.
Also in the first quarter of 2001, GATX sold substantially all of Terminals'
European operations. In the second and third quarters of 2001, GATX sold
Terminals' Asian operations and its U.S. interest in a distillate and blending
distribution affiliate.

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 gain, net of
taxes of $3.0 million.

During 2003 and 2002, there was no operating activity at the ISG segment.
In 2001, gross income and net income were $35.0 million and $1.5 million (net of
tax of $3.8 million), respectively.

NOTE 22. REDUCTION IN WORKFORCE

During 2002, GATX recorded a pre-tax charge of $16.9 million related to its
2002 reduction in workforce. This action was part of GATX's announced intention
to exit the venture finance business and curtail investment at specialty
finance. The charge also included costs incurred as part of headcount reductions
related to an integration plan implemented to rationalize the workforce and
operations at DEC. The total charge included involuntary employee separation and
benefit costs of $14.7 million for 170 employees company-wide, as well as
occupancy costs of $2.2 million. The employee groups terminated included
professional and administrative staff. As of December 31, 2003, 162 of the
terminations were completed. The remainder of the originally anticipated
employee terminations are expected to be completed by the end of 2004.

The following is the reserve activity for the year ended December 31, 2003
(in millions):

Reserve balance at 12/31/02................................. $ 16.6
Benefits paid............................................... (10.9)
Occupancy costs paid........................................ (3.2)
Other adjustments........................................... .1
------
Reserve balance at 12/31/03................................. $ 2.6
======

During 2001, GATX recorded a pre-tax charge of $13.4 million related to its
2001 reduction in workforce. This reduction was part of GATX's initiative to
reduce selling, general and administrative costs in response to current economic
conditions and the divestiture of ISG operations. This charge included
involuntary employee separation costs of $6.8 million for 147 employees
company-wide, as well as legal fees of $.5 million, occupancy costs of $5.1
million and other costs of $1.0 million. The employee groups terminated included
professional and administrative staff, including corporate personnel. As of
December 31, 2002, all of the employee terminations were completed.

The following is the reserve activity for the year ended December 31, 2003
(in millions):

Reserve balance at 12/31/02................................. $ 3.9
Benefits paid............................................... --
Occupancy costs paid........................................ (1.0)
-----
Reserve balance at 12/31/03................................. $ 2.9
=====

Management expects the Company's reserve balance at December 31, 2003
related to the reductions in workforce to be adequate. Remaining cash payments
of $5.5 million will be funded from ongoing operations and are not expected to
have a material impact on GATX's liquidity.

91

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 23. EARNINGS PER SHARE

Basic earnings per share is computed by dividing net income by the weighted
average number of shares of common stock outstanding during each year. Shares
issued during the year and shares reacquired during the year, if applicable, are
weighted for the portion of the year that they were outstanding. Diluted
earnings per share is computed in a manner consistent with that of basic
earnings per share except that the weighted average shares outstanding are
increased to include additional shares from the assumed conversion of preferred
stock, convertible debt, and the assumed exercise of stock options, if dilutive.
The number of additional shares is calculated by assuming that outstanding
options were exercised and that the proceeds from such exercises were used to
acquire shares of common stock at the average market price during the reporting
period.

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

92

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

(a) The Company had approximately 3.8 million, 2.5 million, and 1.3 million
stock options outstanding at December 31, 2003, 2002, and 2001,
respectively, which have been excluded from the computation of diluted
earnings per share because of anti-dilutive effects.

(b) Conversion of convertible securities issued February 2002 were excluded
from the calculations of diluted earnings because of anti-dilutive effects.
Convertible securities issued August 2003 were excluded from the
calculations of diluted earnings because of contingencies related to the
market price of the stock.

NOTE 24. FOREIGN OPERATIONS

GATX has a number of investments in subsidiaries and affiliated companies
that are located in or derive revenues from foreign countries. GATX's foreign
identifiable assets include investments in affiliated companies as well as fully
consolidated railcar operations in Canada, Mexico, Poland, Austria and Germany,
and foreign leases, loans and other investments. Foreign entities contribute
significantly to GATX's share of affiliates' earnings. Revenues and identifiable
assets are determined to be foreign or U.S. based depending upon the location of
the customer; classification of affiliates' earnings as foreign or domestic is
made depending upon the office location of the affiliate. The Company did not
derive revenues in excess of 10% of consolidated revenues from any one foreign
country for any of the three years ended December 31, 2003. In addition, no
foreign country represents more than 10% to GATX's identifiable assets for
continuing operations.

The table below is a summary GATX's operations including subsidiaries and
affiliated companies (in millions):

93

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

NOTE 25. FINANCIAL DATA OF BUSINESS SEGMENTS

The financial data presented below conforms to SFAS No. 131, Disclosures
about Segments of an Enterprise and Related Information, and depicts the
profitability, financial position and capital expenditures 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.

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

Rail is principally engaged in leasing rail equipment, including tank cars,
freight cars and locomotives. Rail provides both full service leases and net
leases. Under a net lease, the lessee is responsible for maintenance, insurance
and taxes. Under a full service lease, Rail maintains and services the railcars,
pays ad valorem taxes, and provides other ancillary services.

Air is primarily engaged in leasing newer, narrow-body aircraft widely used
by commercial airlines throughout the world. Air typically provides net leases
under which the lessee is responsible for maintenance, insurance and taxes.

Technology is an information technology (IT) equipment lessor. In
conjunction with the leasing of technology equipment, Technology also provides
life cycle asset management services to help its customers acquire, manage,
remarket and dispose of IT assets.

Specialty is comprised of the former specialty finance and venture finance
business units, which are now managed as one operating segment. At the end of
2002, GATX announced its intention to curtail investment in specialty finance
and to sell or otherwise run-off venture finance. Specialty's portfolio consists
primarily of leases and loans, frequently including interests in an asset's
residual value, and joint venture investments involving a variety of underlying
asset types, including marine, aircraft and other diversified investments. The
venture-related portfolio consists primarily of loans, warrants and investments
in venture capital funds.

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

Management, including the CEO, evaluates the performance of each segment
based on several measures, including net income. These results are used to
assess performance and determine resource allocation among the segments.

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

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Rail's previously reported segment net income for 2002 and 2001 has been
restated to incorporate the revised methodology for SG&A allocations as follows:

As noted above, results of Air, Technology and Specialty were included as
part of the Financial Services segment in prior years. Accordingly, the
presentation of segment results incorporates the revised SG&A allocation
methodology.

Debt balances and interest expense were allocated based upon a fixed
leverage ratio for each individual operating segment across all reporting
periods, expressed as a ratio of debt to equity. Rail's leverage ratio was set
at 5:1, Air's leverage ratio was set at 4:1, Technology's leverage ratio was set
at 1:1 (excluding nonrecourse debt), and Specialty's leverage ratio was set at
4:1. Any GATX debt and related interest expense that remained after this
allocation methodology was assigned to Other in each period. Management believes
this leverage and interest expense allocation methodology gives an accurate
indication of each operating segment's risk-adjusted financial return.

The following tables present certain segment data for the years ended
December 31, 2003, 2002 and 2001 (in millions):

95

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

96

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

CONSOLIDATED QUARTERLY FINANCIAL DATA
(UNAUDITED)

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

(A) In the first quarter, gain on sale of portion of segment was $9.2 million
on a pre-tax basis, $6.2 million on an after-tax basis.

(B) In the third quarter, GATX completed its transition goodwill impairment
test in accordance with SFAS No. 142, and recorded a $34.9 million
impairment charge. The charge was recognized as a cumulative effect of
accounting change as of January 1, 2002.

(C) Operating expenses include maintenance expense, marine operating expenses,
and other operating expenses.

(D) Quarterly earnings per share results may not be additive, as per share
amounts are computed independently for each quarter and the full year is
based on the respective weighted average common shares and common stock
equivalents outstanding.

Note: Certain amounts have been reclassified to conform to the current
presentation.

97

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

GATX management, with the participation of the Chief Executive Officer (the
"CEO") and Chief Financial Officer (the "CFO"), have conducted an evaluation of
the effectiveness of disclosure controls and procedures in accordance with Rule
13a-14 of the Securities Exchange Act of 1934 (the "Exchange Act"). Based on
such evaluation, the Company's CEO and CFO have concluded as of the end of the
period covered by this report, that GATX's disclosure controls and procedures
(as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) are effective to
ensure that information required to be disclosed by GATX in this Annual Report
on Form 10-K has been recorded, processed, summarized, and reported to them in a
timely manner. There have been no significant changes in the company's internal
controls over financial reporting that occurred during the period covered by
this report that has materially affected or is reasonably likely to materially
affect these controls.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Information required by this item regarding directors, the Company's Code
of Ethics and the Audit Committee Financial Expert is contained in sections
entitled "Nominees For Directors," "Additional Information Concerning Nominees,"
"Board of Directors" and "Audit Committee Report" in the GATX Proxy Statement
dated March 15, 2004, which sections are incorporated herein by reference.

Information regarding executive officers is included in Part I of this
Report on Form 10-K.

ITEM 11. EXECUTIVE COMPENSATION

Information required by this item regarding compensation of directors and
executive officers of GATX is contained in sections entitled "Compensation of
Directors" and "Compensation of Executive Officers" in the GATX Proxy Statement
dated March 15, 2004, which sections are incorporated herein by reference.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS

Information required by this item regarding the Company's Common Stock is
contained in sections entitled "Nominees For Directors," "Security Ownership of
Management", "Beneficial Ownership of Common Stock" and "Approval of GATX
Corporation 2004 Equity Incentive Compensation Plan" in the GATX Proxy Statement
dated March 15, 2004, which sections are incorporated herein by reference.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

None.

ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES

Information required by this item regarding fees paid to Ernst & Young is
contained in sections entitles "Audit Fees," "Audit Related Fees," "Tax Fees,"
and "All Other Fees" in the GATX Proxy Statement dated March 15, 2004, which
sections are incorporated herein by reference.

98

PART IV

ITEM 15. FINANCIAL STATEMENT SCHEDULES, REPORTS ON FORM 8-K AND EXHIBITS.

(a) 1. Financial Statements

2. Financial Statement Schedules:

Schedule I Condensed Financial Information of Registrant... 101

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

3. Exhibits. See the Exhibit Index included herewith and incorporated by
reference hereto.

(b) Report on Form 8-K.

Form 8-K filed on February 4, 2004 reporting GATX Corporation's 2003 year
end and fourth quarter results, including a copy of the press release and
a transcript of the analysts' conference call conducted on January 30,
2003.

99

SIGNATURES

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

GATX CORPORATION
(Registrant)

/s/ RONALD H. ZECH
--------------------------------------
Ronald H. Zech
Chairman, President and
Chief Executive Officer
March 15, 2004

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

/s/ RONALD H. ZECH Chairman, President and
------------------------------------------------------ Chief Executive Officer
Ronald H. Zech
March 15, 2004

/s/ BRIAN A. KENNEY Senior Vice President and
------------------------------------------------------ Chief Financial Officer
Brian A. Kenney
March 15, 2004

/s/ WILLIAM M. MUCKIAN Vice President, Controller
------------------------------------------------------ and Chief Accounting Officer
William M. Muckian
March 15, 2004

Rod F. Dammeyer Director
James M. Denny Director
Richard Fairbanks Director
Deborah M. Fretz Director
Miles L. Marsh Director
Michael E. Murphy Director
John W. Rogers, Jr. Director

By /s/ RONALD J. CIANCIO
------------------------------------------------
Ronald J. Ciancio
(Attorney in Fact)
March 15, 2004

100

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT

GATX CORPORATION
(PARENT COMPANY)

STATEMENTS OF INCOME

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

NOTE: Certain amounts in the 2002 and 2001 financial statements have been
reclassified to conform to the 2003 presentation.

101

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)

GATX CORPORATION
(PARENT COMPANY)

BALANCE SHEETS

102

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)

GATX CORPORATION
(PARENT COMPANY)

STATEMENTS OF CASH FLOWS

103

SCHEDULE I -- CONDENSED FINANCIAL INFORMATION OF REGISTRANT (CONT'D)

GATX CORPORATION
(PARENT COMPANY)

STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

104

EXHIBIT INDEX

105

106

107