GATX FINANCIAL CORP - 10-K Annual Report

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

FORM 10-K

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

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2004

OR

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

COMMISSION FILE NUMBER 1-8319

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

DELAWARE 94-1661392
(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:
NONE

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

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

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. [X]

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

The registrant had 1,041,250 shares of $1 par value common stock
outstanding (all owned by GATX Corporation) as of February 28, 2005.

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

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GATX FINANCIAL CORPORATION
2004 FORM 10-K

INDEX

1

PART I

ITEM 1. BUSINESS

GENERAL

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

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

At December 31, 2004, GFC had balance sheet assets of $5.8 billion,
comprised largely of railcars and commercial aircraft. In addition to the $5.8
billion of assets recorded on the balance sheet, GFC utilizes approximately $1.3
billion of assets, primarily railcars, which were financed with operating leases
and therefore are not recorded on the balance sheet.

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

See discussion in Note 22 to the consolidated financial statements for
additional details regarding financial information about geographic areas.

BUSINESS SEGMENTS

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

GATX RAIL

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

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

In North America, Rail typically leases new railcars for a term of
approximately five years. Renewals or extensions of existing leases are
generally for periods ranging from less than a year to ten years and the overall

2

average remaining lease term is four years. Rail purchases new railcars from a
number of manufacturers, including Trinity Industries, Inc., American Railcar
Industries and Union Tank Car Company. In November 2002, Rail entered into
agreements with Trinity Industries, Inc. and Union Tank Car Company for the
purchase of 5,000 and 2,500 newly manufactured cars, respectively, pursuant to
which it may order railcars at any time through 2007. To date, a total of 4,934
cars have been ordered under these committed purchase programs.

Rail's primary competitors in North America are Union Tank Car Company,
General Electric Railcar Services Corporation, and various other lessors. At the
end of 2004, there were approximately 275,000 tank cars and 1.4 million freight
cars owned and leased in North America. At December 31, 2004, Rail's owned fleet
comprised approximately 22% of the tank cars in North America and approximately
3% of the freight cars in North America. Principal competitive factors include
price, service, availability and customer relationships.

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

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

Worldwide, Rail provides more than 130 railcar types used to ship over 650
different commodities, principally chemicals, petroleum, and food products.
During 2004, approximately 33% of Rail's leasing revenue was attributable to
shipments of chemical products, 28% related to shipments of petroleum products,
11% related to shipments of food products, 11% related to leasing cars to
railroads and 17% related to other revenue sources. Rail leases railcars to over
850 customers and in 2004, no single customer accounted for more than 3% of
total railcar leasing revenue.

GATX AIR

Air is headquartered in San Francisco, California and is primarily engaged
in leasing narrowbody aircraft that are widely used by commercial airlines
throughout the world. Air has total assets of $2.1 billion which includes $29.1
million of off-balance sheet assets. Air typically enters into net leases under
which the lessee is responsible for maintenance, insurance and taxes. Air owns
directly or with other investors 163 aircraft, 50 of which are wholly owned with
the balance owned in combination with other investors in varying ownership
percentages. For example, Air holds a 50% interest in Pembroke Group, an
aircraft lessor and manager based in Ireland, which currently owns 28 aircraft.
Air also holds a 50% interest in a partnership with Rolls-Royce Plc that
primarily leases aircraft engines to airlines. New aircraft have an estimated
useful life of approximately 25 years. The weighted average age of Air's fleet
is approximately five years based on net book value. Aircraft on lease at
December 31, 2004 have an average remaining lease term of approximately three
years and lease terms typically range from three to seven years.

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

3

Air also manages 66 aircraft for third parties. Air's management role
includes marketing the aircraft, monitoring aircraft maintenance and condition,
and administering the portfolio, including billing and collecting rents,
accounting and tax compliance, reporting and regulatory filings, purchasing
insurance, and lessee credit evaluation.

GATX SPECIALTY FINANCE

Specialty is headquartered in San Francisco, California and is comprised of
the former specialty finance and venture finance business units, which are now
managed as one operating segment. Specialty has total assets of $489.9 million
including $12.5 million of off-balance sheet assets. The Specialty portfolio
consists primarily of leases and loans, frequently including interests in an
asset's residual value, and joint venture investments involving a variety of
underlying asset types, including marine.

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

Specialty also manages portfolios of assets for third parties with a net
book value of $728.8 million. The majority of these managed assets are in
markets in which GFC has a high level of expertise such as aircraft, power
generation, rail equipment, and marine equipment. Specialty generates fee-based
income through portfolio administration and remarketing services for third
parties.

Specialty sold its venture finance portfolios in the United Kingdom (U.K.)
and Canada in 2003, and continues to run-off the remaining venture finance
portfolio. GFC anticipates that the venture finance portfolio will be
substantially liquidated by the end of 2005. Venture finance-related assets are
$53.1 million at December 31, 2004 or 11% of Specialty's total assets.

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

TRADEMARKS, PATENTS AND RESEARCH ACTIVITIES

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

SEASONAL NATURE OF BUSINESS

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

CUSTOMER BASE

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

EMPLOYEES

As of December 31, 2004, GFC and subsidiaries had approximately 2,450
employees, of whom 47% were covered by union contracts, primarily hourly rail
service center employees.

ENVIRONMENTAL MATTERS

GFC'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.

4

Some of GFC's real estate holdings, as well as previously owned properties,
are or have been used for industrial or transportation-related purposes or
leased to commercial or industrial companies whose activities may have resulted
in discharge of contaminants. As a result, GFC 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, GFC 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 GFC, its
current lessees, former owners or lessees of properties, or other third parties.
Environmental remediation and other environmental costs are accrued when
considered probable and amounts can be reasonably estimated. As of December 31,
2004, environmental costs were not material to GFC's results of operations,
financial position or liquidity. For further discussion, see Note 16 to the
consolidated financial statements.

RISK FACTORS

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

- Liquidity and Capital Resources. GFC 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 GFC 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 GFC'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 GFC's other
sources of funds, including available cash, bank facilities, cash flow
from operations and portfolio proceeds may not provide adequate liquidity
to fund its operations and contractual commitments.

- Terrorism/International Conflict. National and international political
developments, instability and uncertainties, including continuing
political unrest and threats of terrorist attacks, could result in global
economic weakness in general and in the United States in particular, and
could have an adverse impact on GFC's businesses. The effects may
include, among other things, legislation or regulatory action directed
toward improving the security of aircraft and railcars against acts of
terrorism which affects the construction or operation of aircraft and
railcars, a decrease in demand for air travel and rail services,
consolidation and/or additional bankruptcies in the rail and airline
industries, lower utilization of new and existing aircraft and rail
equipment, lower rail and aircraft rental rates and impairment of rail
and air portfolio assets or capital market disruption which may raise
GFC's financing costs or limit its access to capital. Depending upon the
severity, scope and duration of these effects, the impact on GFC's
financial position, results of operations and cash flows could be
material.

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

- Lease versus Purchase Decision. GFC'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. GFC has no control
over these external considerations and changes in these factors could
negatively impact demand for its leasing products.

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

5

- Asset Obsolescence. GFC's core assets may be subject to functional,
regulatory, or economic obsolescence. Although GFC 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. GFC'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 GFC'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 GFC's estimates of
expected cash flows generated from our long-lived assets. GFC regularly
reviews long-lived assets for impairments, including when events or
changes in circumstances indicate the carrying value of an asset may not
be recoverable. An impairment loss is recognized when the carrying amount
of an asset is not recoverable. GFC may be required to recognize asset
impairment charges in the future as a result of a weak economic
environment, challenging market conditions in the air or rail markets or
events related to particular customers or asset types.

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

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

- Potential for Claims and Lawsuits. The nature of assets which GFC 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 GFC's railcars, particularly those classified as hazardous
materials, can pose risks that GFC and its subsidiaries work with its
customers to minimize. The potential liabilities could have a significant
effect on GFC's consolidated financial condition or results of
operations.

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

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

- Risk Concentrations. GFC's revenues are generally derived from a wide
range of asset types, customers and geographic locations. However, from
time to time, GFC 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
GFC has a concentrated exposure, could have a negative impact on GFC's
results of operations.
6

- Foreign Currency. GFC'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. GFC 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 GFC domestically and internationally, and could have
a negative impact on GFC's results of operations.

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

- Retirement Benefits. GFC'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 GFC's results of operations.

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

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

Circumstances and conditions may change. Accordingly, additional risks and
uncertainties not presently known, or that GFC currently deems immaterial,
may also adversely affect GFC's business operations.

AVAILABLE INFORMATION

GFC files annual, quarterly and current reports and other information with
the Securities and Exchange Commission (SEC). You may read and copy any document
GFC 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 GFC) file electronically with the SEC. The SEC's website
is www.sec.gov.

GFC makes available free of charge at the parent company's 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.

7

ITEM 2. PROPERTIES

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

At December 31, 2004, locations of operations were as follows:

RAIL
HEADQUARTERS Ostroda, Poland Sarnia, Ontario
Chicago, Illinois Slotwiny, Poland Montreal, Quebec
Quebec City, Quebec
BUSINESS OFFICES MINI SERVICE CENTERS Moose Jaw, Saskatchewan
San Francisco, California Macon, Georgia Tierra Blanca, Mexico
Alpharetta, Georgia Terre Haute, Indiana
Chicago, Illinois Geismar, Louisiana AFFILIATES
Marlton, New Jersey Kansas City, Missouri San Francisco, California
Raleigh, North Carolina Cincinnati, Ohio Kansas City, Missouri
York, Pennsylvania Catoosa, Oklahoma Zug, Switzerland
Houston, Texas Freeport, Texas
Calgary, Alberta Plantersville, Texas AIR
Cambridge, Ontario Czechowice, Poland
Ennismore, Ontario Jedlicze, Poland HEADQUARTERS
Montreal, Quebec Plock, Poland San Francisco, California
Vienna, Austria
Hamburg, Germany MOBILE SERVICE UNITS BUSINESS OFFICES
Mexico City, Mexico Mobile, Alabama Seattle, Washington
Nowa Wies Wielka, Poland Colton, California Toulouse, France
Warsaw, Poland Lake City, Florida Tokyo, Japan
East Chicago, Indiana Singapore
MAJOR SERVICE CENTERS Sioux City, Iowa London, United Kingdom
Colton, California Norco, Louisiana
Waycross, Georgia Sulphur, Louisiana AFFILIATES
Hearne, Texas Albany, New York Dublin, Ireland
Red Deer, Alberta Masury, Ohio London, United Kingdom
Sarnia, Ontario Cooperhill, Tennessee
Coteau-du-Lac, Quebec Galena Park, Texas SPECIALTY
Montreal, Quebec Olympia, Washington
Moose Jaw, Saskatchewan Edmonton, Alberta HEADQUARTERS
Hanover, Germany Red Deer, Alberta San Francisco, California
Tierra Blanca, Mexico Vancouver, British Columbia
Gdansk, Poland Clarkson, Ontario AMERICAN STEAMSHIP COMPANY
Williamsville, New York

8

ITEM 3. LEGAL PROCEEDINGS

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

In March 2001, East European Kolia-System Financial Consultant S.A. (Kolia)
filed a complaint in the Regional Court (Commercial Division) in Warsaw, Poland
against Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC), an indirect wholly owned
subsidiary of GATX, alleging damages of approximately $52 million arising out of
the unlawful taking over by DEC in August of 1998, of a 51% interest in Kolsped
Spedytor Miedzynarodwy Sp. z.o.o. (Kolsped), and removal of valuable property
from Kolsped. The complaint was served on DEC in December 2001. The plaintiff
claims that DEC unlawfully obtained confirmation of satisfaction of a condition
precedent to its purchase of 51% interest in Kolsped, following which it
allegedly mismanaged Kolsped and put it into bankruptcy. The plaintiff claims to
have purchased the same 51% interest in Kolsped in April of 1999, subsequent to
DEC's alleged failure to satisfy the condition precedent. GFC purchased DEC in
March 2001 and believes this claim is without merit, and is vigorously pursuing
the defense thereof. DEC has filed a response denying the allegations set forth
in the complaint. The parties each confirmed their respective positions in the
case at a hearing held in early March of 2002. At a hearing held on October 22,
2003, the court rendered a decision in favor of DEC, dismissing Kolia's action.
In December 2003, the plaintiff filed an appeal of the decision. In January of
2004, the Regional Court refused to exempt Kolia from its obligation to pay fees
in connection with the appeal. During 2004, Kolia filed various procedural
motions to reverse the decision of the Regional Court, all of which were
unsuccessful. Kolia then filed a complaint in the Regional Court against the
decision to dismiss the appeal which complaint was dismissed because Kolia had
failed to pay the fee associated with the complaint. On February 8, 2005, Kolia
filed a letter with the Regional Court demanding to have its appeal heard by the
Court of Appeals. The Regional Court responded by indicating that Polish law did
not provide for an appellate court examination under the circumstance cited in
the letter and asked Kolia whether its letter should be treated as a complaint
for restitution of the proceedings de novo, an extraordinary appeal, a remedy
available under very limited circumstances, with respect to the final judgment.
The judgment in favor of DEC appears to be final as the plaintiff has failed to
appeal. DEC is requesting that the court issue a written opinion stating that
the judgment is final.

On December 29, 2003, a wrongful death action was filed in the District
Court of the State of Minnesota, County of Hennepin, Fourth Judicial District,
MeLea J. Grabinger, individually, as Personal Representative of the Estate of
John T. Grabinger, and as Representative/Trustee of the beneficiaries in the
wrongful death action, v. Canadian Pacific Railway Company, et al. The lawsuit
seeks damages for a derailment on January 18, 2002 of a Canadian Pacific Railway
train containing anhydrous ammonia cars near Minot, North Dakota. As a result of
the derailment, several tank cars fractured, releasing anhydrous ammonia which
formed a vapor cloud. One person died, as many as 100 people received medical
treatment, of whom fifteen were admitted to the hospital, and a number of others
were purportedly affected. The plaintiffs allege among other things that the
incident (i) caused the wrongful death of their husband/son, and (ii) caused
permanent physical injuries and emotional and physical pain. The complaint
alleges that the incident was proximately caused by the defendants who are
liable under a number of legal theories. On March 9, 2004, the National
Transportation Safety Board (NTSB) released a synopsis of its anticipated report
and issued its final report shortly thereafter. The report sets forth a number
of conclusions including that the failure of the track caused the derailment and
that the catastrophic fracture of tank cars increased the severity of the
accident. On

9

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

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

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

GFC 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 GFC employees and other
personal injury claims. Some of the legal proceedings include claims for
punitive as well as compensatory damages. Several of the Company's subsidiaries
have also been named as defendants or co-defendants in cases alleging injury
relating to asbestos. In these cases, the plaintiffs seek an unspecified amount
of damages based on common law, statutory or premises liability or, in the case
of ASC, the Jones Act, which makes limited

10

remedies available to certain maritime employees. In addition, demand has been
made against the Company under a limited indemnity given in connection with the
sale of a subsidiary with respect to asbestos-related claims filed against the
former subsidiary. The number of these claims and the corresponding demands for
indemnity against the Company increased in the aggregate in 2004. It is possible
that the number of these claims could continue to grow and that the cost of
these claims could correspondingly increase in the future.

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

Not required.

PART II

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

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

ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA

Not Required.

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

COMPANY OVERVIEW

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

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

11

STATEMENT OF INCOME DISCUSSION

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

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

GFC allocates corporate selling, general and administrative (SG&A) expenses
to the segments. Corporate SG&A expenses relate to administration and support
functions performed at the corporate office. Such expenses include information
technology, corporate SG&A, human resources, legal, financial support and
executive costs. Directly attributable expenses are generally allocated to the
segments and shared costs are retained in Other. Amounts allocated to the
segments are approximated based on management's best estimate and judgment of
direct support services.

Interest expense was allocated based upon a fixed leverage ratio for each
individual operating segment across all reporting periods, expressed as a ratio
of debt to equity. Rail's leverage ratio was set at 5:1, Air's leverage ratio
was set at 4:1 and Specialty's leverage ratio was set at 4:1. Interest expense
not allocated was assigned to Other in each period. Reflective of overall lower
leverage at GFC, management expects that leverage ratios to be utilized in 2005
will be modified to 4.5:1 at Rail and 3:1 at Air. Specialty will be unchanged at
4:1. Management believes this leverage and interest expense allocation
methodology applies an appropriate cost of capital for purposes of evaluating
each operating segment's risk-adjusted financial return.

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

GATX RAIL

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

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

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

In North America, Rail acquired 6,200 railcars in 2004, including
approximately 3,000 new railcars and 3,200 used railcars purchased in the
secondary market. The new cars were primarily purchased under pre-
12

existing contracts with railcar manufacturers that provided Rail with a cost
advantage versus a spot purchase in the current market. Rail also increased its
presence in the locomotive leasing market by acquiring the remaining 50%
ownership interest of the Locomotive Leasing Partners, LLC (LLP) joint venture
in the fourth quarter.

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

Rail's European operations experienced stable market conditions during
2004. Rail Europe was successful in placing new cars in existing markets, as
well as placing cars in new Eastern European markets, such as Romania and
Bulgaria. Rail acquired the remaining interest in a leading European tank car
lessor KVG Kesselwagen Vermietgesellschaft mbH, and KVG Kesselwagen
Vermietgesellschaft m.b.h. (collectively KVG) in 2002. Generally, utilization
remained high during 2004, but KVG began to see some weakness in the chemical
market. Rail purchased Dyrekcja Eksploatacji Cystern Sp. z.o.o. (DEC) in 2001.
During 2004, major steps were taken in DEC's transition from a trip lease to a
term rental business model, culminating with signing its two largest customers
to term rental agreements. Other transition efforts included the closing of
redundant repair centers. This transition is expected to stabilize revenues,
reduce operating costs and make additional cars available for lease. The AAE
Cargo AG (AAE) joint venture (37.5% owned) continued to experience strong demand
for the majority of its fleet, particularly inter-modal cars, due to high
seaport volumes, growth in the containerization of freight traffic, and
increased demand from private operators. The strengthening of the Euro and the
Zloty during 2004 positively impacted Rail's European results.

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

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

Rail's Fleet Data

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

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

SUMMARY

Net income of $59.7 million in 2004 increased $5.5 million from the prior
year. The increase in 2004 was driven primarily by higher lease income, higher
asset remarketing income for both Rail and its affiliates as the rail market
continues to improve and larger gains on scrapping of railcars as a result of
higher steel prices, partially offset by higher maintenance and ownership costs.

Gross Income

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

14

expect this improvement to continue in 2005. Also favorably impacting Rail's
gross income was the impact of foreign exchange rates and higher gains
associated with scrapping activity.

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

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

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

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

Ownership Costs

Ownership costs were $369.1 million in 2004 compared to $350.1 million in
2003. The increase was driven by significant investment volume in 2004. Through
new car and secondary market acquisitions, Rail purchased approximately 6,200
railcars and 1,000 railcars in North America and Europe, respectively.

Other Costs and Expenses

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

During 2003, the American Association of Railroads (AAR) issued an early
warning letter that required all owners of railcars in the United States, Canada
and Mexico to inspect or replace certain bolsters manufactured from the
mid-1990s to 2001 by a now-bankrupt supplier. Rail owned approximately 3,500
railcars equipped with bolsters that were required to be inspected or replaced.
Approximately 2,200 of Rail's affected railcars are on full-service leases in
which case Rail is responsible for the costs of inspection or replacement. As of
December 31, 2004, bolsters on 2,100 cars have been replaced. The cost
attributable to the inspection and replacement of bolsters was $3.0 million in
2004, a decrease of $.9 million from the prior year period. Management expects
the remaining costs of bolster replacements to be approximately $.2 million and
to be completed by the end of the first quarter of 2005.

Other operating expenses were comparable between periods.

Potential Railcar Regulatory Mandates

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

Certain recent railroad derailments, some of which involved GFC railcars,
focused attention on safety issues associated with the transportation of
hazardous materials. These incidents have led to calls for increased legislation
and regulation to address safety and security issues associated with the
transportation of hazardous materials. Suggested remedial measures vary, but
include rerouting hazardous material railcar movements and increasing the
inspection authority of the Federal Railroad Administration ("FRA"). Other
suggested remedial measures address the physical condition of tank cars,
including revising manufacturing specifications for high pressure cars which
carry hazardous materials. Specific focus has been directed at pressurized
railcars built prior to 1989 that utilized non-normalized steel. The National
Transportation Safety Board ("NTSB")
15

issued a report in 2004 recommending that the FRA conduct a comprehensive
analysis to determine the impact resistance of pressurized tank cars built prior
to 1989, and use the results of that analysis to rank cars according to risk and
to implement measures to eliminate or mitigate such risks. The NTSB has not
recommended that pressure cars built prior to 1989 be removed from service, nor
has the FRA issued any orders curtailing use of these cars. The Company owns
approximately 6,500 pre-1989 built pressurized tank cars (6% of its North
American fleet). While the Company is actively working with trade associations
and others to participate in the legislative and regulatory process affecting
rail transportation of hazardous materials, the outcome of proposed remedial
measures, the probability of adoption of such measures, and the resulting impact
on GFC should such measures be adopted cannot be determined at this time.

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

Taxes

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

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

SUMMARY

Rail's net income of $54.2 million in 2003 increased $29.0 million from the
prior year. Income before the cumulative effect of accounting change decreased
$5.9 million. The decrease was primarily due to lower North American lease
income driven by lower average lease rates.

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

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

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

In 2003, Rail's European operations generally experienced a more favorable
market environment than North America. Fleet utilization at both KVG and AAE,
Rail's European joint venture, was over 95%, as KVG's primary markets of
chemical, petroleum, mineral and liquid petroleum gas remained stable, and AAE
benefited from the high growth rates of shipping activity at European seaports.
Rail acquired the remaining interest in KVG in December 2002. DEC's performance
has been negatively affected by a weak Polish
16

economy. However, KVG was successful in placing DEC tank cars in service outside
of Poland. This activity between KVG and DEC marked the early stages of
integrating their tank car operations, a key European strategy for Rail.

Gross Income

Rail's 2003 gross income of $693.8 million was $21.6 million higher than
2002. Excluding the impact from the timing of the KVG acquisition in both
periods, gross income was down $20.5 million from 2002. The decrease was
primarily driven by lower North American lease income resulting from lower
average lease rates and fewer railcars on lease for most of the year. Although
average renewal rates continued to be lower than Rail's prior contractual rate,
the percentage decline in renewal rates improved during 2003.

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

Ownership Costs

Ownership costs were $350.1 million in 2003 compared to $333.7 million in
2002. The increase was primarily due to the acquisition and consolidation of
KVG.

Other Costs and Expenses

Maintenance expense of $163.4 million in 2003 increased $12.5 million from
2002. Excluding KVG, maintenance expense increased $2.8 million in 2003. The
variance was due primarily to the increase in car assignments discussed above.
Both 2003 and 2002 results included comparable levels of maintenance costs for
certain railroad mandated repairs.

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

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

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

Taxes

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

Cumulative Effect of Accounting Change

In accordance with Statement of Financial Accounting Standards (SFAS) No.
142, Goodwill and Other Intangible Assets, Rail completed a review of all
recorded goodwill in 2002. Fair values were established using

17

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.

GATX AIR

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

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

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

Air's wholly owned and partnered aircraft are leased to customers under net
operating leases. Air's other recurring source of revenue is fee income, which
results from remarketing and administering aircraft in its joint ventures, as
well as managing aircraft for third parties. Air's level of fee income can be
unpredictable, varying with the performance of the managed fleet and Air's
success in remarketing and selling aircraft. Air also has 50% investments in two
partnerships with Rolls-Royce Plc: Pembroke Group and Rolls-Royce & Partners
Finance Limited. Rolls-Royce & Partners Finance Limited, which leases aircraft
engines, was a major contributor to Air's financial performance in 2004.

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

18

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

Air's Fleet Data

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

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

Summary

Net income of $9.8 million in 2004 increased $7.7 million from the prior
year. The increase in 2004 was driven by gains from the sale of four aircraft
and the absence of the Air Canada loss which occurred in 2003.

19

2004 profit was also driven by strong joint venture performance, particularly at
Air's engine leasing joint venture.

Gross Income

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

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

Ownership Costs

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

Other Costs and Expenses

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

Taxes

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

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

Summary

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

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

20

Air's owned portfolio had a weighted average age of five years based on the
net book value at the end of 2003. With a relatively new fleet, Air achieved
almost full utilization in 2003. At December 31, 2003, less than 1% of Air's
portfolio was available for lease; over 96% had been on lease with customers,
and the remaining 3% were subject to signed letters of intent to lease with
customers. Air placed 19 owned aircraft during 2003, including six new and 13
existing aircraft.

Gross Income

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

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

Ownership Costs

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

Excluding an accrual reversal in 2002, operating lease expense in 2003 was
lower by $4.3 million due to fewer leased-in aircraft compared to the prior
year. Operating lease expense of $3.5 million in 2002 was net of a credit of
$4.7 million for the reversal of a loss accrual recorded in prior years. GFC was
a lessee of an aircraft under an operating lease running through 2004. GFC had
subleased the aircraft to an unrelated third party with an initial lease term
expiring in 2001. Prior to 2001, as a result of financial difficulties of the
sublessee as well as concerns about subleasing the aircraft for the period 2001
to 2004, the Company recorded an accrual for the future costs expected to be
incurred on the operating lease in excess of the anticipated revenues. In 2002,
the Company restructured terms of the lease, ultimately acquiring ownership of
the aircraft, and leasing it to a new customer. As a result, the $4.7 million
accrual was reversed as a credit to operating lease expense.

Other Costs and Expenses

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

Taxes

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

GATX SPECIALTY FINANCE

The Specialty portfolio consists primarily of leases and loans, frequently
including an interest in an asset's residual value, and joint venture
investments involving a variety of underlying asset types, including marine,

21

aircraft and other investments. Specialty generates fee-based income through
transaction structuring and portfolio management services.

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

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

22

Specialty's Portfolio Data

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

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

Summary

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

Gross Income

Specialty's 2004 gross income of $108.7 million was $55.4 million lower
than 2003. The decrease was primarily the result of lower lease, interest and
asset remarketing income. The decreases of $13.1 million in lease income and
$23.7 million in interest income were the result of lower lease and loan
balances due to the run-off of portfolio assets. Asset remarketing income
decreased $10.3 million from 2003 and was comprised of both gains from the sale
of assets from Specialty's own portfolio as well as residual sharing fees from
the sale of managed assets. Because the timing of such sales is dependent on
changing market conditions, asset remarketing income does not occur evenly from
period to period. Share of affiliates' earnings were relatively unchanged from
2003 to 2004. However, 2004 income from marine joint ventures increased by $8.9
million in 2004. This increase was offset by 2003 income from other joint
venture investments that have been dissolved.

Ownership Costs

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

Other Costs and Expenses

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

23

Taxes

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

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

Summary

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

Specialty's portfolio declined during 2003 as a result of the decision in
late 2002 to curtail investment in the specialty finance portfolio and to sell
or otherwise run-off the venture finance portfolio. During 2003, the Canadian
and U.K. venture finance loan portfolios were sold, and the U.S. venture finance
loan portfolio, which had been retained along with associated warrants,
continued to run-off. Earnings were positively impacted by the 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. SG&A
expenses were lower as efficiencies were realized on the declining portfolio.
Investment volume was primarily related to prior funding commitments.

Gross Income

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,
consistent with a declining asset base, offset by an increase in asset
remarketing income. 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 contributions from new marine
affiliate investments.

Ownership Costs

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. The decrease in depreciation and interest
expense is consistent with the declining asset base.

Other Costs and Expenses

Total other costs and expenses decreased by $47.1 million in 2003 primarily
due to the decrease in the provision for possible losses and SG&A expenses. The
provision for possible 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 expenses decreased $10.1 million from 2002, reflecting lower
personnel costs as a result of the reduction in workforce in the fourth quarter
of 2002.

Taxes

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

OTHER

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

24

Components of the income statement are summarized below (in millions):

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

Summary

Other net income in 2004 included a $37.8 million after-tax gain from the
sale of the Company's Staten Island property and an after-tax insurance recovery
of $31.5 million. In addition, 2004 tax expense reflects $14.5 million of tax
benefits realized during the year.

Gross Income

Gross income of $252.2 million in 2004 increased $126.8 million from 2003
due to higher marine operating revenue and other income. The increase in marine
operating revenue of $26.8 million was driven by increased demand and more
favorable operating conditions on the Great Lakes. These factors also
contributed to higher marine operating expenses in 2004, and resulted in a net
$5.2 million increase in vessel operating contribution in 2004. Other income of
$140.2 million in 2004 includes a $68.1 million gain from the sale of a former
terminals facility in Staten Island and $48.4 million from the receipt of
insurance settlement proceeds associated with litigation GFC had initiated
against various insurers, related to coverage issues regarding the 2000-2001
Airlog litigation. Insurance settlement proceeds were $16.5 million in 2003.
Other income includes interest income on advances to GATX of $23.2 million in
2004 compared to $24.7 million in 2003.

25

Ownership Costs

Ownership costs of $1.9 million in 2004 were $13.3 million lower than the
prior year, primarily due to a decrease in interest expense resulting from lower
overall leverage at the Company. As noted 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

SG&A expenses of $11.1 million were $26.4 million lower than prior year.
The variance is largely due to reduced personnel costs, net of allocations to
the segments, resulting from the transfer of approximately 200 corporate
employees to the parent company; also contributing to the variance is the
reversal of prior year reserves related to exited operations due to settlement
of contract contingencies, offset by fees associated with a bond exchange
completed in 2004.

The (reversal) provision for possible losses is derived from GFC'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 GFC
operates. GFC records a provision for possible losses in each operating segments
as well as in Other, targeting an overall allowance for possible losses in
accordance with established GFC 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 2004, GFC recorded a reversal of $12.3 million of provision for possible
losses in its operating segments and a reversal of $1.4 million of provision for
possible losses in Other. These reversals resulted in a consolidated allowance
for possible losses at December 31, 2004 of $19.4 million, or 4.3% of reservable
assets. In 2003, GFC recorded a $2.7 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 $40.6 million, or 7.3% of reservable assets. The
decrease in the allowance for possible losses as a percentage of reservable
assets in 2004 was driven by the general improvement in the quality of GFC's
portfolio as well as the better-than-expected performance and run-off of venture
finance assets, which were reserved at a relatively higher rate than the rest of
the portfolio.

Asset impairment charges of $.2 million in 2004 decreased $5.8 million. The
2003 charge primarily related to ASC's sole off-lakes barge which ceased
operations during the year. The barge was written down to an estimate of future
disposition proceeds.

Taxes

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

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

Gross Income

Gross income of $125.4 million in 2003 increased $17.9 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, and was offset by higher marine operating expenses. Other
income includes $14.4 million in 2003 due primarily to the receipt of settlement
proceeds of $16.5 million associated with the Airlog litigation GFC had
initiated against various insurers.

26

Ownership Costs

Ownership costs of $15.2 million were $17.1 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.

Other Costs and Expenses

In 2003, GFC recorded a $2.7 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 $40.6 million, or 7.3% of reservable assets. In 2002, GFC
recorded a $21.5 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 $61.7 million, or 7.1% of reservable assets.

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

During 2002, GFC recorded a pre-tax charge of $5.7 million related to
reductions in workforce. The charge 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

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

Net Income (Loss)

Net income at Other of $2.1 million in 2003 improved from 2002 by $14.9
million as a result of insurance settlements, favorable interest expense, and
the reversal of tax audit reserves, partially offset by increased provision for
possible losses.

GATX CONSOLIDATED

CONSOLIDATED INCOME TAXES

GFC's consolidated income tax expense for continuing operations was $115.4
million in 2004, an increase of $72.0 million from the 2003 amount of $43.4
million. The 2004 consolidated effective tax rate was 36% compared to the 2003
rate of 31%. The 2004 tax provision was favorably impacted by deferred tax
reductions due to lower rates enacted in foreign jurisdictions, the tax effect
of foreign income, and extraterritorial income exclusion benefits (ETI). These
amounts were offset by the unfavorable impact of state income taxes. The 2003
tax provision was favorably impacted by tax audit reserves in connection with
the settlement of an Internal Revenue Service audit of 1995-1997, deferred tax
reductions due to lower rates enacted in foreign jurisdictions, and ETI
benefits.

See Note 14 for additional information about income taxes.

27

DISCONTINUED OPERATIONS

The following table summarizes the gross income, income before taxes and
the (loss) gain on sale of segment, net of tax, which has been reclassified to
discontinued operations for all periods presented (in millions):

On June 30, 2004, GFC completed the sale of substantially all the assets
and related nonrecourse debt of Technology and its Canadian affiliate to CIT
Group, Inc. for net proceeds of $234.1 million. Subsequently, the remaining
assets consisting primarily of interests in two joint ventures were sold by year
end. Financial data for the Technology segment has been segregated as
discontinued operations for all periods presented.

Technology's operating results for the twelve months ended December 31,
2004 were $18.3 million, net of tax, which was $3.1 million higher than the
prior year results of $15.2 million. Operating results were favorably impacted
by the suspension of depreciation on operating lease assets associated with
Technology's assets classified as held for sale during the second quarter of
2004. The effect of ceasing depreciation was approximately $14.3 million
after-tax. The after-tax loss on the sale of the Technology segment was $7.2
million as of December 31, 2004. The pre-tax loss of $12.0 million reflected a
write-off of $7.6 million of goodwill as well as sale-related expenses including
severance costs and losses on terminated leases. Technology's 2003 operating
results of $15.2 million, net of a $9.8 million tax provision, were $10.5
million higher than the prior year results. Technology's 2002 operating results
were $4.7 million, net of a $2.6 million tax provision.

In 2002, GFC completed the divestiture of GATX Terminals. Financial data
for the Terminals has been segregated as discontinued operations for all periods
presented. In the first quarter of 2002, GFC 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
Terminals during 2002-2004.

See Note 20 for additional information about discontinued operations.

BALANCE SHEET DISCUSSION

ASSETS

Total assets of continuing operations increased to $5.8 billion in 2004
from $5.7 billion in 2003. Increases in operating lease assets were partially
offset by decreases in loans, progress payments, investments in affiliated
companies and recoverable income taxes.

In addition to the $5.8 billion of assets recorded on the balance sheet,
GFC 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
represent the present value of GFC's committed future operating lease payments
using a 10% discount rate.

28

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

RECEIVABLES

Receivables of $452.0 million, including finance leases and loans,
decreased $107.1 million compared to the prior year primarily due to asset
run-off exceeding new investment at Specialty.

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, judgments about
the impact of present economic conditions, collateral values, and the state of
the markets in which GFC operates. 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.

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

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 2004. The allowance for possible losses is
reviewed regularly for adequacy by considering changes in economic conditions
and credit quality indicators. GFC believes that the allowance is adequate to
cover losses inherent in the reservable portfolio as of December 31, 2004. The
allowance is based on judgments and estimates, which could change in the future,
causing a corresponding change in the recorded allowance.

29

The allowance for possible losses of $19.4 million decreased $21.2 million
from 2003 and represented 4.3% of reservable assets, compared to 7.2% in the
prior year. The allowance for possible losses as a percentage of reservable
assets in 2004 reflects the general improvement in the credit quality of GFC's
portfolio as well as the better-than-expected performance and run-off of 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 (excluding other), totaled $6.2 million for the year, an improvement
of $16.8 million from 2003. The 2004 charge-offs were primarily related to Rail
and Specialty investments.

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 includes the
full net book value of operating lease assets deemed non-performing 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. Finance 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 finance 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, 2004 were $57.2 million, $18.9
million lower than the prior year amount of $76.1 million. The decrease in
non-performing leases and loans was driven by improvement in the Air and
Specialty portfolios. The Rail increase was primarily due to operating lease
assets with net book value of $15.1 million on lease to a bankrupt customer, for
which restructured lease terms are currently being negotiated.

OPERATING LEASE ASSETS, FACILITIES AND OTHER

Net operating lease assets and facilities increased $561.6 million from
2003 primarily due to Rail and Air investments. During 2004, Rail and Air net
operating lease assets and facilities increased $382.4 million and $179.5
million, respectively. In 2004, Rail acquired 6,200 railcars and 1,000 railcars
in North America and Europe, respectively which includes new car purchases and
secondary market acquisitions. Air made final delivery payments on three new
aircraft and acquired four used aircraft during 2004.

PROGRESS PAYMENTS

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

Progress payments were $20.0 million at year end compared to $53.6 million
in the prior year. The decrease is due to the reclassification of progress
payments to operating lease assets for three aircraft delivered in 2004.

30

INVESTMENTS IN AFFILIATED COMPANIES

Investments in affiliated companies decreased $129.0 million in 2004 due to
affiliate cash distributions exceeding affiliate income and the acquisition and
consolidation of a joint venture. GFC invested $7.8 million in joint ventures in
2004, compared to $99.6 million in 2003. Share of affiliates' earnings were
$65.2 million and $66.8 million in 2004 and 2003, respectively. Distributions
from affiliates increased $.4 million to $146.2 million in 2004 from $145.8
million in 2003. In December 2004, GATX Rail acquired the remaining 50% interest
in Locomotive Leasing Partners, LLC (LLP), resulting in 100% ownership of the
fleet of 486 locomotives. As a result, LLP's operations are consolidated with
GFC and it is no longer reported as an investment in affiliated companies.

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

See Note 7 for additional information about investments in affiliated
companies.

RECOVERABLE INCOME TAXES

Recoverable income taxes decreased by $47.3 million from the prior year due
to receipt of applicable income tax refunds.

GOODWILL

Goodwill was $93.9 million, an increase of $6.7 million from the prior
year. The increase was due to foreign currency exchange effects. 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 were $79.0 million, a decrease of $22.6 million from the
prior year. At the end of 2004, investments of $9.0 million and $24.0 million
were classified as available-for-sale and held-to-maturity, respectively. Refer
to Note 9 of the Company's consolidated financial statements for further
information regarding the Company's investments in securities.

OTHER ASSETS

Other assets are primarily comprised of the fair value of derivatives,
prepaid pension and other prepaid items and miscellaneous receivables. The
decrease of $58.6 million from the prior year includes a decrease in the fair
value of derivatives and a decrease in pension of $30.1 million and $40.6
million, respectively, partially offset by an increase in deferred financing
costs of $7.2 million.

LIABILITIES

Total liabilities of continuing operations decreased to $4.0 billion in
2004 from $4.3 billion in 2003. In addition to the $4.0 billion of liabilities
recorded on the balance sheet, GFC 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 GFC's
committed future operating lease payments at a 10% discount rate.

31

DEBT

Total debt decreased $356.8 million from 2003 primarily due to debt
repayments of unsecured notes and bank loans, as well as decreased capital lease
obligations. Debt repayments were offset by increases in commercial paper and
bank credit facilities as well as secured financing supported by the European
Export Credit Agencies (ECAs) for aircraft deliveries. 2004 repayments of debt
totaled $495.9 million.

The following table summarizes the debt of GFC and its subsidiaries by
major component, including off-balance sheet debt, as of December 31, 2004 (in
millions):

DEFERRED INCOME TAXES

Deferred income taxes increased $134.5 million primarily due to accelerated
tax depreciation (including bonus depreciation on new equipment) and investments
in affiliated companies which more than offset taxable income from operations
and the taxable income on the sale of Technology and the Staten Island property.

SHAREHOLDERS' EQUITY

Shareholder's equity increased $163.6 million from 2003 including net
income of $214.4 million and changes in accumulated other comprehensive income
of $56.1 million, offset by dividends paid to GATX of $106.9 million. The change
in accumulated other comprehensive income was driven by foreign currency
translation gains of $55.5 million due to the weakening of the U.S. dollar
against the Canadian dollar, Euro and Zloty.

CASH FLOW DISCUSSION

GFC 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.

NET CASH PROVIDED BY CONTINUING OPERATIONS

Net cash provided by continuing operations of $423.3 million increased
$123.6 million compared to 2003. Cash flow benefited from higher insurance
proceeds related to the Airlog matter, higher joint venture dividends, lower
SG&A costs resulting from the transfer of 200 corporate employees and related
expenses to the parent company and lower interest expense resulting from lower
overall leverage at the Company. Comparison between periods is also affected by
other changes in working capital. All cash received from asset dispositions
(excluding the proceeds from the sale of the Technology segment, which is
reported as discontinued operations), including gain and return of principal, is
included in investing activities as portfolio proceeds or other asset sales.

32

PORTFOLIO INVESTMENTS AND CAPITAL ADDITIONS

Portfolio investments and capital additions of $758.5 million increased
$129.9 million from 2003.

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

Rail invested $489.9 million in 2004, an increase of $240.3 million from
the prior year. The increase was primarily attributable to new railcar
purchases, fleet acquisition activity and the purchase of the remaining 50%
interest in Locomotive Leasing Partners, LLC (LLP). Portfolio investments and
capital additions at Air of $225.2 million were comparable to the prior year.
Investments at Specialty were significantly lower in 2004 as a result of
curtailment in specialty investments. Future portfolio investments and capital
additions (excluding contractual commitments) will depend on market conditions
and opportunities to acquire desirable assets.

PORTFOLIO PROCEEDS

Portfolio proceeds of $355.5 million decreased $185.1 million from 2003.
The decrease was primarily due to a decrease in loan payments received, lower
proceeds from disposal of lease equipment and capital distributions from joint
venture investments partially offset by an increase in finance lease payments
received and proceeds from sales of securities.

PROCEEDS FROM OTHER ASSET SALES

Proceeds from other asset sales of $129.6 million in 2004 primarily relate
to $98.8 million proceeds received from the sale of Staten Island property in
addition to proceeds from railcar scrappings.

NET CASH USED IN FINANCING ACTIVITIES FOR CONTINUING OPERATIONS

Net cash used in financing activities of continuing operations was $487.5
million in 2004 compared to $291.8 million in 2003. Net proceeds from issuance
of long-term debt were $127.8 million in 2004. Significant financings in 2004
included $107.8 million of aircraft financing guaranteed by the European Export
Credit Agencies. Repayments of debt included an $80.0 million prepayment of a
portion of a term loan which was originally due in 2006.

LIQUIDITY AND CAPITAL RESOURCES

GENERAL

GFC funds investments and meets its obligations through cash flow from
operations, portfolio proceeds (including proceeds from asset sales), commercial
paper issuance, uncommitted money market lines, committed revolving credit
facilities, the issuance of unsecured debt, and a variety of secured borrowings.
GFC utilizes both the domestic and international bank and capital markets. GFC
believes its current liquidity remains strong due to its cash position,
available and committed credit lines and more cost effective access to the
capital markets relative to recent years.

33

CREDIT FACILITIES

On May 18 2004, GFC, entered into a credit agreement for $545.0 million
comprised of a $445.0 three-year senior unsecured revolving credit facility
maturing in May 2007, and a $100.0 million five-year senior unsecured term loan,
with a delayed draw feature effective for one year, maturing in May 2009. The
new agreement replaces the three separate revolving credit facilities previously
in place at GFC. At December 31, 2004, availability under the credit facility
was $362.9 million with $27.1 million of letters of credit issued and backed by
the facility, $30.0 million drawn on the facility and $25.0 million of
commercial paper issued. All $100.0 million of the unsecured term loan was
available.

RESTRICTIVE COVENANTS

The revolving credit facility and unsecured term loan contain various
restrictive covenants, including requirements to maintain a defined net worth
and a fixed charge coverage ratio. In addition, both contain certain negative
pledge provisions, including an asset coverage test, and a limitation on liens
condition for borrowings on the facility and the term loan.

As defined in the credit facility and term loan, the net worth of GFC at
December 31, 2004 was $1.8 billion, which was in excess of the minimum net worth
requirement of $1.1 billion. Additionally, the ratio of earnings to fixed
charges as defined in the credit facility and term loan was 2.6x for the period
ended December 31, 2004, in excess of the minimum covenant ratio of 1.3x. At
December 31, 2004, GFC was in compliance with the covenants and conditions of
the credit facility.

The indentures for GFC's public debt also contain restrictive covenants,
including limitations on loans, advances or investments in related parties
(including the parent company) and dividends it may distribute to the parent
company. Some of the indentures also contain limitation on lien 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 nonrecourse indebtedness. In addition to the other specified
exceptions, GFC would be able to incur liens securing a maximum of $717.1
million of additional indebtedness as of December 31, 2004 based on the most
restrictive limitation on liens provision. At December 31, 2004, GFC was in
compliance with the covenants and conditions of the indentures.

The covenants in the credit facilities and indentures effectively limit the
ability of GFC to transfer funds to the Parent Company in the form of loans,
advances or dividends. At December 31, 2004, the maximum amount that GFC could
transfer to the parent company without violating its financial covenants was
$843.1 million, implying that $545.9 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 facility and indentures, GFC and its subsidiaries
are subject to financial covenants related to certain bank financings. Some bank
financings include coverage and net worth financial covenants as well as
negative pledges. One financing contains a leverage covenant, while another
financing contains leverage and cash flow covenants that are specific to a
subsidiary.

GFC does not anticipate any covenant violation in the credit facility, bank
financings, or indenture, nor does GFC anticipate that any of these covenants
will restrict its operations or its ability to procure additional financing.

DEBT FINANCING

Secured financings are comprised of the sale-leaseback of railcars, loans
secured by railcars and aircraft, and a commercial paper 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 December 2004, the commercial paper conduit securitization facility
was renewed as a $50.0 million facility.

In June 2004, GFC completed a debt exchange transaction for portions of
three series of notes due in 2006 ("Old Notes") for a new series of 6.273% Notes
due in 2011 ("New Notes"). The Old Notes are

34

comprised of the 6 3/4% Notes due March 1, 2006, the 7 3/4% Notes due December
1, 2006, and the 6 7/8% Notes due December 15, 2006. A total of $165.3 million
of Old Notes were tendered in the transaction. As part of the exchange, a
premium to par value of $13.5 million was paid to noteholders that participated
in the transaction. The premium included an amount reflecting the current market
value of the notes above par at the date of exchange plus an inducement fee for
entering into the exchange.

During 2004, GFC issued a total of $141.8 million and repaid $495.9 million
of long-term debt. Significant financings in 2004 included $107.8 million of
aircraft financing guaranteed by the European Export Credit Agencies. As of
December 31, 2004, $166.5 million of senior unsecured notes had been issued
against the shelf registration of $1.0 billion. GFC also has debt in the form of
commercial paper and bank revolver drawings. These sources of cash are typically
used to fund daily operations, and accumulate until they are paid down using
cash flow or proceeds of long-term debt issuance.

CREDIT RATINGS

The availability of the above funding options may be adversely affected 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 rates is dependent on GFC's credit rating as determined by rating
agencies such as Standard & Poor's (S&P) and Moody's Investor Service (Moody's).
On December 21, 2004, S&P affirmed the credit rating on GFC's long-term
unsecured debt at BBB-, and revised the rating outlook to positive from stable.
On May 10, 2004, Moody's affirmed the credit rating on GFC's long-term unsecured
debt at Baa3, and revised the rating outlook to stable from negative. GFC's
existing commercial paper credit ratings of A-3 (S&P) and P-3 (Moody's)
restricts GFC's access to the commercial paper market. However, subsequent to
December 31, 2004, GFC has had over $100 million of commercial paper outstanding
at times.

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 four
years, this ratio has increased substantially as GFC has financed 27 new
aircraft deliveries with secured debt supported by the European Export Credit
Agencies and the U.S. Export-Import Bank. GFC 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.

2005 LIQUIDITY POSITION

GFC expects that it will be able to meet its contractual obligations for
2005 through a combination of projected cash flow from operations, portfolio
proceeds, committed unsecured term loan, and its revolving credit facilities.

35

CONTRACTUAL COMMITMENTS

At December 31, 2004, GFC's contractual commitments, including debt
maturities, lease payments, and unconditional purchase obligations were (in
millions):

The carrying value of recourse and nonrecourse debt (debt) is adjusted for
fair value hedges. As of December 31, 2004, debt of $2,582.5 million excludes a
fair value adjustment of $24.4 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
GFC's obligation under the terms of the DEC acquisition agreement to cause DEC
to make qualified investments of $23.9 million by December 31, 2005. To the
extent there are no satisfactory investment opportunities during 2005, DEC may
invest in long-term securities for purposes of future investment.

UNCONDITIONAL PURCHASE OBLIGATIONS

At December 31, 2004, GFC's unconditional purchase obligations of $522.3
million consisted primarily of commitments to purchase railcars and scheduled
aircraft acquisitions. GFC had commitments of $327.8 million related to the
committed railcar purchase program entered into in 2002. GFC also had
commitments of $74.1 million on two new aircraft to be delivered in 2006.
Additional unconditional purchase obligations include $115.1 million of other
rail related commitments.

At December 31, 2004, GFC's unconditional purchase obligations by segment
were (in millions):

GUARANTEES

In connection with certain investments or transactions, GFC has entered
into various commercial commitments, such as guarantees and standby letters of
credit, which could require performance in the event of demands by third
parties. Similar to GFC's balance sheet investments, these guarantees expose GFC
to credit, market and equipment risk; accordingly, GFC evaluates its commitments
and other contingent obligations using techniques similar to those 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.
GFC is not aware of any event of default which would require it to satisfy these
guarantees, and expects the affiliates to generate sufficient cash flow to
satisfy their lease and loan obligations. GFC also provides a guarantee related
to $300.0 million of convertible debt issued by the parent company.

36

Asset residual value guarantees represent GFC's commitment to third parties
that an asset or group of assets will be worth a specified amount at the end of
a lease term. Approximately 55% of the Company's asset residual value guarantees
are related to rail equipment. Based on known facts and current market
conditions, management does not believe that the asset residual value guarantees
will result in any negative financial impact to GFC. GFC believes these asset
residual value guarantees will likely generate future income in the form of fees
and residual sharing proceeds.

GFC and its subsidiaries are also parties to standing letters of credit and
bonds primarily related to workers' compensation and general liability insurance
coverages. No material claims have been made against these obligations. At
December 31, 2004, GFC does not expect any material losses to result from these
off-balance sheet instruments because performance is not anticipated to be
required.

GFC's commercial commitments at December 31, 2004 were (in millions):

PENSION CONTRIBUTIONS

GFC contributes to pension plans sponsored by GATX that cover substantially
all employees. Contributions to the GATX plans are allocated to GFC on the basis
of payroll costs. GFC's allocated share of contributions to these plans was $2.3
million, $2.1 million and $26.6 million in 2004, 2003 and 2002, respectively.
Allocation from GATX of contributions in future periods will be dependent on a
number of factors including plan asset investment returns and actuarial
experience. Subject to the impact of these factors, GFC may make additional
material plan contributions.

CRITICAL ACCOUNTING POLICIES AND ESTIMATES

The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles (GAAP) 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. Certain 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. 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

37

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. GFC's estimate of the amount of
provision (reversal) for losses 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 GFC participates, in addition to specific losses for
known troubled accounts. GFC charges off amounts that management
considers unrecoverable from obligors or the disposition of collateral.
GFC assesses the recoverability of investments by considering several
factors, including customer payment history and financial position. The
allowance for possible losses is regularly reviewed for adequacy
considering changes in economic conditions, collateral values, credit
quality indicators and customer-specific circumstances. GFC believes that
the allowance is adequate to cover losses inherent in the portfolio as of
December 31, 2004. Because the allowance is based on judgments and
estimates, it is possible that those judgments and estimates could change
in the future, causing a corresponding change in the recorded allowance.

- Investments in affiliated companies -- Investments in affiliated
companies represent investments in domestic and foreign companies and
joint ventures that are in businesses similar to those of GFC, such as
commercial aircraft leasing, rail 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 GFC
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 adjusted for GFC'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 -- GFC'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. GFC 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 high-quality, long-term bond
rates. 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 -- GFC 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

38

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 historically maintained that undistributed
earnings of its foreign subsidiaries and affiliates were intended to be
permanently reinvested in those foreign operations. 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.

The American Jobs Creation Act of 2004 introduced a special one-time
dividends received deduction on the repatriation of certain foreign
earnings to a U.S. taxpayer (repatriation provision) provided certain
criteria are met. The repatriation provision is available to GFC for the
year ended December 31, 2005. GFC is currently evaluating the effect of
the repatriation provision on its plan for reinvestment or repatriation of
foreign earnings. The range of reasonably possible amounts of unremitted
earnings considered for repatriation, and the income tax effects of such
repatriation cannot be estimated with certainty at this time. It is
anticipated that the evaluation of the effect of the repatriation
provision will be completed during the third quarter of 2005.

GFC'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 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 GFC's business.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

In the normal course of business, GFC is exposed to interest rate, foreign
currency exchange rate, and equity price risks that could impact results of
operations. To manage these risks, GFC, pursuant to authorized policies, may
enter 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. GFC does not hold or issue derivative financial
instruments for speculative purposes.

Interest Rate Exposure -- GFC's interest expense is affected by changes in
interest rates as a result of its use of variable rate debt instruments. Based
on GFC's variable rate debt instruments at December 31, 2004 and giving affect
to related derivatives, if market rates were to increase hypothetically by 100
basis points, after-tax interest expense would increase by approximately $11.9
million in 2005.

Functional Currency/Reporting Currency Exchange Rate Exposure -- GFC
conducts operations in foreign countries, principally Europe and Canada. As a
result, changes in the value of the U.S. dollar as compared to foreign
currencies would affect GFC's reported earnings. Based on 2004 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 2005 by approximately $3.1 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.

Equity Price Exposure -- GFC also has equity price risk inherent in stock
and warrants of companies in which it has investments. At December 31, 2004, the
fair value of the stock and warrants was $4.7 million and $3.1 million,
respectively. The hypothetical change in value from a 10% sensitivity test would
not be material to GFC operations.

39

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors of GATX Financial Corporation

We have audited the accompanying consolidated balance sheets of GATX
Financial Corporation and subsidiaries as of December 31, 2004 and 2003, and the
related consolidated statements of income, changes in shareholder's equity, cash
flows, and comprehensive income for each of the three years in the period ended
December 31, 2004. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.

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

In our opinion, the financial statements referred to above present fairly,
in all material respects, the consolidated financial position of GATX Financial
Corporation and subsidiaries at December 31, 2004 and 2003, and the consolidated
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2004, in conformity with U.S. generally accepted
accounting principles.

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

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the effectiveness of GATX
Financial Corporation's internal control over financial reporting as of December
31, 2004, based on criteria established in Internal Control-Integrated Framework
issued by the Committee of Sponsoring Organizations of the Treadway Commission
and our report dated March 4, 2005 expressed an unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois
March 4, 2005

40

CONSOLIDATED STATEMENTS OF INCOME

The accompanying notes are an integral part of these consolidated financial
statements.
41

CONSOLIDATED BALANCE SHEETS

The accompanying notes are an integral part of these consolidated financial
statements.
42

CONSOLIDATED STATEMENTS OF CASH FLOWS

The accompanying notes are an integral part of these consolidated financial
statements.
43

CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY

The accompanying notes are an integral part of these consolidated financial
statements.
44

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

The accompanying notes are an integral part of these consolidated financial
statements.
45

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1. DESCRIPTION OF BUSINESS

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

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

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

In 2002, GFC completed the divestiture of GATX Terminals Corporation
(Terminals).

See Note 23 for a full description of GFC's operating segments.

NOTE 2. SIGNIFICANT ACCOUNTING POLICIES

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

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

Restricted cash -- Restricted cash of $60.0 million as of December 31, 2004
is comprised of cash and cash equivalents which are restricted as to withdrawal
and usage. GFC's restricted cash primarily relates to amounts maintained as
required by contract for three bankruptcy remote, special-purpose corporations
that are wholly owned by GFC.

Loans -- GFC records loans at the principal amount outstanding plus accrued
interest. A loan is placed on non-accrual status and interest income ceases to
be recognized when collection of contractual loan payments is doubtful. Payments
received for loans that have been placed on non-accrual status are recognized as
return of principal. GFC resumes interest recognition on loans on non-accrual
status after recovery of outstanding principal or an assessment by the Company
that future payments are reasonably assured, if earlier.

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
lease assets. Operating lease assets and facilities listed below are depreciated
over their respective estimated useful life to an

46

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

estimated residual value using the straight-line method. The estimated useful
lives of depreciable new assets are as follows:

Railcars.................................................... 30 - 38 years
Locomotives................................................. 27 - 28 years
Aircraft.................................................... 25 years
Buildings................................................... 40 - 50 years
Leasehold improvements...................................... 5 - 40 years
Marine vessels.............................................. 40 - 50 years

Progress Payments for Aircraft and Other Equipment -- GFC classifies
amounts deposited toward the construction of wholly owned aircraft and other
equipment, including capitalized interest, as progress payments. Once GFC 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 GFC participates are classified as investments
in affiliated companies.

Investments in Affiliated Companies -- GFC has investments in 20 to 50
percent-owned companies and joint ventures and other investments in which GFC
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 GFC'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 GFC does not have effective or voting control of these legal entities
and is not the primary beneficiary of the venture's activities.

Inventory -- GFC has inventory that consists of railcar and locomotive
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 $25.8
million and $25.6 million at December 31, 2004 and 2003, respectively.

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

Impairment of Long-Lived Assets -- A review for impairment of long-lived
assets, such as operating lease assets and facilities, is performed whenever
events or changes in circumstances indicate that the carrying amount of
long-lived assets may not be recoverable. Recoverability of assets to be held
and used is measured by a comparison of the carrying amount of an asset to
future net cash flows expected to be generated by the asset. If such assets are
considered to be impaired, the impairment 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 2004, asset impairment charges of $3.4 million
include $.4 million of impairment charges at Air related to a commercial
aircraft. Additional impairment charges include $1.6 million at Specialty,
primarily related to the impairment of equity investments, $1.2 million at Rail
due to container cars classified as held-for-sale, and other impairment charges
of $.2 million that relate to marine operating assets. Asset impairment charges
recognized by GFC joint ventures accounted for using the equity method of
accounting result in lower earnings from affiliates on GFC's income statement.

47

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maintenance and Repair Costs -- Maintenance and repair costs are expensed
as incurred. Costs incurred by GFC in connection with planned major maintenance
activities such as rubber linings and conversions that improve or extend the
useful life of an asset are capitalized and depreciated over their estimated
useful life.

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. GFC's estimate of the amount of provision (reversal) for losses
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 GFC participates, in addition to specific
losses for known troubled accounts. GFC charges off amounts that management
considers unrecoverable from obligors or the disposition of collateral. GFC
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. GFC believes that the allowance is adequate to
cover losses inherent in the portfolio as of December 31, 2004. 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 GFC
intends to permanently reinvest in these foreign operations. The cumulative
amount of such earnings was $246.4 million at December 31, 2004. The American
Jobs Creation Act of 2004 introduced a special one-time dividends received
deduction on the repatriation of certain foreign earnings to a U.S. taxpayer
(repatriation provision) provided certain criteria are met. The repatriation
provision is available to GFC for the year ended December 31, 2005. GFC has
historically maintained that undistributed earnings of its foreign subsidiaries
and affiliates were intended to be permanently reinvested in those foreign
operations. GFC is currently evaluating the effect of the repatriation provision
on its plan for reinvestment or repatriation of foreign earnings. The range of
reasonably possible amounts of unremitted earnings considered for repatriation,
and the income tax effects of such repatriation cannot be estimated with
certainty at this time. It is anticipated that the evaluation of the effect of
the repatriation provision will be completed during the third quarter of 2005.

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

SFAS No. 133, as amended, establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts. The statement requires that an entity recognize all derivatives
as either assets or liabilities in the statement of financial position and
measure those instruments at fair value. GFC records the fair value of all
derivatives as either other assets, or other liabilities in the statement of
financial position.

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, 2004, 2003 and 2002 no amounts 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 December 31, 2004, 2003 and 2002, a loss of $2.6 million,

48

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

a loss of $3.8 million and loss of $.8 million, respectively, were recognized in
earnings for derivatives not qualifying as hedges.

The 2004 carrying value of the ineffective derivatives (which equals the
fair value) was $.2 million recorded in other assets and $4.2 million recorded
in other liabilities. In 2003, the balances were $.5 million which was recorded
in other assets and $1.9 million which was in recorded other liabilities.

GFC uses interest rate and currency swap agreements, Treasury derivatives,
and forward sale agreements, as hedges to manage its exposure to interest rate
and currency exchange rate risk on existing and anticipated 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 income (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 income (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 GFC's liability for environmental cleanup is both probable
and a reasonable estimate of associated costs can be made; adjustments to
initial estimates are recorded as 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 GFC'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 -- GFC 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. GFC initially records these based
on appraisals and estimates. Realization of the residual values is dependent on
GFC's future ability to market the assets under existing market conditions. GFC
reviews residual values periodically to determine that recorded amounts are
appropriate. For finance lease investments, GFC 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,
GFC reviews the estimated salvage values of leased equipment at least annually,
and declines in estimated residual values are recorded as adjustments to
49

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

depreciation expense over the remaining useful life of the asset to the extent
the net book value 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 as an impairment loss
on the statement of income.

Investments in Equity Securities -- GFC's 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. Other equity securities 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 re-measuring securities to fair value are included
on a net-of-tax basis as a separate component of accumulated other comprehensive
income (loss).

Foreign Currency Translation -- The assets and liabilities of GFC's
operations having non-U.S functional currencies are translated at exchange rates
in effect at year end, and income statements and the statements of cash flows
are translated at weighted average exchange rates for the year. In accordance
with SFAS No. 52, Foreign Currency Translation, gains and losses resulting from
the translation of foreign currency financial statements are deferred and
recorded as a separate component of accumulated other comprehensive income or
loss in the shareholders' equity section of the balance sheet.

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.

Variable Interest Entities -- 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 GGFCATX during 2004 or
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. GFC
did not have an interest in any SPEs subject to the December 31, 2003
implementation date. The Company completed an assessment of the impact of FIN 46
for all other types of entities. Based on this review to date, certain
investments are considered VIEs pursuant to the guidance provided in FIN 46.
However, GFC is not a primary beneficiary with respect to any of the VIEs. As a
result, GATX does not consolidate these entities. GFC's maximum exposure to loss
with respect to these VIEs is approximately $272.4 million of which $242.1
million was the aggregate carrying value of these investments recorded on the
balance sheet at December 31, 2004.

Reclassification -- Certain amounts in the 2003 and 2002 financial
statements have been reclassified to conform to the 2004 presentation.

New Accounting Pronouncements -- In December 2004, FASB issued FASB Staff
Position (FSP) 109-2, Accounting and Disclosure Guidance for the Foreign
Earnings Repatriation Provision within the American Jobs Creation Act of 2004
which introduced a special one-time dividends received deduction on the
repatriation of certain foreign earnings to a U.S. taxpayer (repatriation
provision) provided certain criteria are met. The repatriation provision is
available to GFC for the year ended December 31, 2005. GFC has
50

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

historically maintained that undistributed earnings of its foreign subsidiaries
and affiliates were intended to be permanently reinvested in those foreign
operations. GFC is currently evaluating the effect of the repatriation provision
on its plan for reinvestment or repatriation of foreign earnings. The range of
reasonably possible amounts of unremitted earnings considered for repatriation,
and the income tax effects of such repatriation cannot be estimated with
certainty at this time. It is anticipated that the evaluation of the effect of
the repatriation provision will be completed during the third quarter of 2005.

Accounting for Certain Leveraged Leases -- Prior to 2004, GFC entered into
two structured leasing investments that are accounted for in the consolidated
financial statements as leveraged leases in accordance with guidance provided in
SFAS No. 13, Accounting for Leases. This accounting guidance requires total
income over the term of a lease to be recognized into income on a proportionate
basis in those years in which the net investment in a lease is positive. The net
investment is based on net cash flows from the lease, including the effect of
related income taxes. During 2004, the Internal Revenue Service (IRS) challenged
the timing of certain tax deductions claimed with respect to these transactions.
GFC believes that its tax position related to these transactions was proper,
based upon applicable statutes, regulations and case law in effect at the time
the transactions were entered into. GFC and the IRS are conducting settlement
discussions with respect to these transactions. However, resolution of this
matter has not concluded and may ultimately be litigated. See Note 14 for more
information on the tax impact.

Under existing accounting guidance in SFAS No. 13, any changes in estimates
or assumptions not affecting estimated total net income from a leveraged lease,
including the timing of income tax cash flows, do not change the timing of
leveraged lease income recognition. However, the FASB is currently reviewing
this guidance. If the FASB modifies this guidance in such a way as to require a
recalculation of the timing of leveraged lease income recognition to reflect a
settlement of this tax matter, this change in accounting could result in a
one-time, non-cash charge to earnings. An equivalent amount of any such
adjustment would then be recognized in income over the remaining term of the
applicable leases; over the full term of these leases, cumulative accounting
income would not change. The impact to GFC's financial results will be dependent
on the details of the FASB's new guidance and the timing and terms of any IRS
settlement.

NOTE 3. ACQUISITIONS

The Company completed acquisitions of $65.0 million in 2004 and $56.8
million in 2002 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 2004, Rail acquired the remaining 50% interest in Locomotive
Leasing Partners LLC (LLP). Rail has held a 50% interest in LLP since its
inception in 1995, and at the date of acquisition, this transaction resulted in
100% ownership of the fleet of 486 locomotives by Rail. The $65.0 million
purchase price was funded in 2004.

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 cars and specialized railcars to Rail's wholly owned worldwide fleet.

NOTE 4. LEASES

The following information pertains to GFC as a lessor:

Finance Leases -- GFC's finance leases are comprised of direct financing
leases and leveraged leases. Investment in direct finance leases consists of
lease receivables, plus the estimated residual value of the

51

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

equipment at the lease termination dates, less unearned income. Lease
receivables represent the total rent to be received over the term of the lease
reduced by rent already collected. Initial unearned income is the amount by
which the original sum of the lease receivable and the estimated residual value
exceeds the original cost of the leased equipment. Unearned income is amortized
to lease income over the lease term in a manner that produces a constant rate of
return on the net investment in the lease.

Finance leases that are financed principally with nonrecourse borrowings at
lease inception and that meet certain criteria are accounted for as leveraged
leases. Leveraged lease receivables are stated net of the related nonrecourse
debt. Initial unearned income represents the excess of anticipated cash flows
(including estimated residual values, net of the related debt service) over the
original investment in the lease. The Company recognized net income from
leveraged leases (net of taxes) of $6.1 million, $10.7 million and $14.6 million
in 2004, 2003 and 2002, respectively.

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, 2004, 2003 and 2002 were $31.7 million, $33.4
million, and $28.9 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 end December 31, 2004 were
(in millions):

52

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following information pertains to GFC as a lessee:

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

Depreciation of capital lease assets is classified as depreciation in the
statements of income. Interest expense on the above capital leases was $8.4
million in 2004, $12.0 million in 2003, and $14.1 million in 2002.

Operating Leases -- GFC has financed railcars, aircraft, and other assets
through sale-leasebacks that are accounted for as operating leases. GFC 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, 2004,
2003, and 2002 was $183.1 million, $185.2 million, and $185.8 million,
respectively. Certain operating leases provide options for GFC 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, 2004 were (in millions):

The payments for these leases and certain operating leases do not include
the costs of licenses, taxes, insurance, and maintenance that GFC is required to
pay.

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

53

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 GFC 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 2004, GFC recognized $3.1 million in
interest income from loans classified as impaired.

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

The Company has recorded an allowance for possible losses of $5.7 million
and $14.7 million on impaired loans at December 31, 2004 and 2003, respectively.
The average balance of impaired loans was $21.4 million, $38.9 million and $45.9
million during 2004, 2003 and 2002, respectively.

At December 31, 2004, 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. GFC'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 GFC
participates, in addition to specific losses for known troubled accounts. GFC
charges off amounts that management considers unrecoverable from obligors or
through the disposition of collateral. GFC assesses the recoverability of
investments by considering factors such as a customer's payment history and
financial position.

54

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

The reversal of provision for losses in 2004 was primarily due to favorable
credit experience during the run-off of the venture portfolio and improvements
in overall portfolio quality. The charges to the allowance in 2004 were
primarily due to charge-offs related to Rail and Specialty investments. The
charges to the allowance in 2003 were primarily due to write-offs related to Air
and Specialty investments. 2002 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 sale
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 2004. GFC believes that the allowance is adequate to cover
losses inherent in the reservable portfolio as of December 31, 2004. 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 GFC, such as commercial aircraft leasing, rail
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
GFC's share of affiliates' undistributed earnings (losses). These investments
include net loans to affiliated companies of $279.1 million and $293.7 million
at December 31, 2004 and 2003, respectively. Share of affiliates' earnings
includes GFC's share of interest income on these loans, which offsets the
proportional share of the affiliated companies' interest expense on the loans.
Distributions reflect both dividends and the return of principal and reduce the
carrying amount of the investment. Distributions received from such affiliates
were $146.2 million, $145.8 million, and $148.3 million in 2004, 2003 and 2002,
respectively.

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

55

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

For purposes of preparing the following information, GFC 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 GFC. In addition, GFC 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 GFC held a 100% interest, would be (in millions):

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

At December 31, 2004 and 2003, GFC provided $12.4 million and $17.3
million, respectively, in debt guarantees and $122.0 million and $125.0 million,
respectively, in residual value guarantees related to affiliated companies.

NOTE 8. GOODWILL

Goodwill was $93.9 million and $87.2 million as of December 31, 2004 and
2003, respectively. In accordance with SFAS 142, a review for impairment of
long-lived assets is performed at least annually and whenever events or changes
in circumstances indicate that the carrying amount of long-lived assets may not
be recoverable.

56

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The following reflects the changes in the carrying value of goodwill
related to continuing operations for the period of December 31, 2001 to December
31, 2004 (in millions):

Rail -- In 2002, GFC acquired the remaining interest in KVG. As a result of
this transaction, GFC recorded $8.2 million of goodwill. Additionally, the net
book value of the goodwill that related to GFC's previous investments in KVG was
$29.2 million. GFC 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. GFC relied on the conclusions of an
independent appraisal for purposes of assigning value to DEC's tangible and
intangible assets (excluding goodwill). In addition, GFC 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 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. GFC 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.

The carrying amount of goodwill at Rail increased $6.7 million and $15.9 in
2004 and 2003, respectively as a result of foreign currency translation
adjustments.

Specialty -- GFC 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.

57

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 9. INVESTMENT SECURITIES

Equity securities, generally related to common stock received upon the
exercise of warrants received in connection with financing of non-public
venture-backed companies, are classified as available-for-sale, carried at fair
value and are included in 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 income (loss) component of shareholders' equity, net of related
tax effects, and totaled $1.6 million and $1.7 million as of December 31, 2004
and 2003, respectively. The Company did not have any unrealized losses on
available-for-sale securities as of December 31, 2004 and 2003

Debt securities which management has the intent and ability to hold to
maturity are classified as held-to-maturity and reported at amortized cost. The
Company had $24.0 million of investments classified as held-to-maturity as of
December 31, 2004 and none at December 31, 2003. All other debt securities are
classified as available-for-sale and carried at fair value with net unrealized
gains and losses included in shareholders' equity on an after-tax basis.
Interest on debt securities, including amortization of premiums and accretion of
discounts, are included in interest income.

Debt and equity securities are written down to fair value when declines in
fair value below the security's amortized cost basis is determined to be other
than temporary.

Information regarding the Company's available-for-sale securities is
provided in the table below (in millions):

Information regarding the Company's held-to-maturity securities is provided
in the table below (in millions):

Debt securities at December 31, 2004 mature as follows (in millions):

58

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 $31.1 million in 2004, $7.3 million in 2003 and $3.9 million in 2002.

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, 2004, 2003 and 2002, $.5 million, $4.4
million, and $2.4 million, net of tax, respectively, were reclassified from
accumulated other comprehensive income (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 income (loss) to
earnings.

NOTE 10. OTHER ASSETS

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

NOTE 11. COMMERCIAL PAPER AND BANK CREDIT FACILITIES

Commercial paper and bank credit facilities (in millions) and weighted
average interest rates as of year end were:

In 2004, GFC has entered into a credit agreement with a group of financial
institutions for $545.0 million comprised of a $445.0 million three-year senior
unsecured revolving credit facility maturing in May 2007, and a $100.0 million
five-year senior unsecured term loan, with a delayed draw feature effective for
one year (through May 2005) maturing in May 2009. The new agreement replaced
three separate revolving credit facilities previously in place at GFC. At
December 31, 2004, availability under the revolving credit facility was $362.9
million with $27.1 million of letters of credit issued and backed by the
facility, $30.0 million drawn on the facility and $25.0 million of commercial
paper issued. The full amount of the $100.0 million unsecured term loan was
available. Annual commitment fees for the revolving credit agreements are based
on a percentage of the commitment and totaled approximately $1.2 million, $1.4
million and $1.3 million for 2004, 2003 and 2002, respectively.

The revolving credit facility and unsecured term loan contain various
restrictive covenants, including requirements to maintain a defined net worth
and a fixed charge coverage ratio. In addition, both contain

59

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

certain negative pledge provisions, including an asset coverage test, and a
limitation on liens condition for borrowings on the facility and the term loan.

As defined in the credit facility and term loan, the net worth of GFC at
December 31, 2004 was $1.8 billion, which was in excess of the minimum net worth
requirement of $1.1 billion. Additionally, the ratio of earnings to fixed
charges as defined in the credit facility and term loan was 2.6x for the period
ended December 31, 2004, in excess of the minimum covenant ratio of 1.3x. At
December 31, 2004, GFC was in compliance with the covenants and conditions of
the credit facility.

The indentures for GFC's public debt also contain restrictive covenants,
including limitations on loans, advances or investments in related parties
(including the parent company) and dividends it may distribute to GATX. Some of
the indentures also contain limitation on lien 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 nonrecourse indebtedness. In addition to the other specified exceptions, GFC
would be able to incur liens securing a maximum of $717.1 million of additional
indebtedness as of December 31, 2004 based on the most restrictive limitation on
liens provision. At December 31, 2004, GFC was in compliance with the covenants
and conditions of the indentures.

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, 2004, the maximum amount that GFC could transfer to
GATX without violating its financial covenants was $843.1 million, implying that
$545.9 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 facility and indentures, GFC and its subsidiaries
are subject to financial covenants related to certain bank financings. Some bank
financings include coverage and net worth financial covenants as well as
negative pledges. One financing contains a leverage covenant, while another
financing contains leverage and cash flow covenants that are specific to a
subsidiary.

GFC does not anticipate any covenant violation in the credit facility, bank
financings, or indenture, nor does GFC anticipate that any of these covenants
will restrict its operations or its ability to procure additional financing.

NOTE 12. DEBT OBLIGATIONS

Debt obligations (in millions) and the range of interest rates as of year
end were:

60

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Maturities of GFC's debt as of December 31, 2004, for the next five years
were (in millions):

At December 31, 2004, certain aircraft, railcars, and other equipment with
a net carrying value of $1,179.9 million were pledged as collateral for $942.8
million of notes and obligations.

Nonrecourse debt of $10.9 million and $15.0 million was borrowed by SPEs
which were wholly owned and consolidated by GFC in 2004 and 2003, respectively.
The creditors of the SPEs have no recourse to the general credit of GFC.

In June 2004, GFC completed a debt exchange transaction for portions of
three series of notes due in 2006 ("Old Notes") for a new series of 6.273% Notes
due in 2011 ("New Notes"). The Old Notes are comprised of the 6 3/4% Notes due
March 1, 2006, the 7 3/4% Notes due December 1, 2006, and the 6 7/8% Notes due
December 15, 2006. A total of $165.3 million of Old Notes were tendered in the
transaction. As part of the exchange, a premium to par value of $13.5 million
was paid to noteholders that participated in the transaction. The premium
included an amount reflecting the current market value of the notes above par at
the date of exchange plus an inducement fee for entering into the exchange.

Interest expense capitalized as part of the cost of construction of major
assets was $1.9 million, $4.2 million and $15.8 million in 2004, 2003 and 2002,
respectively.

NOTE 13. FAIR VALUE OF FINANCIAL INSTRUMENTS

GFC 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. GFC does not hold or issue
derivative financial instruments for purposes other than hedging, except for
warrants, which are not designated as accounting hedges under SFAS No. 133, as
amended.

Fair Value Hedges -- GFC uses interest rate swaps to convert fixed rate
debt to floating rate debt and to manage the fixed to floating rate mix of the
debt portfolio. The fair value of interest rate swap agreements is determined
based on the differences between the contractual rate of interest and the rates
currently quoted for agreements of similar terms and maturities. As of December
31, 2004, maturities for interest rate swaps designated as fair value hedges
range from 2005-2009.

Cash Flow Hedges -- GFCs interest expense is affected by changes in
interest rates as a result of its use of variable rate debt instruments,
including commercial paper and other floating rate debt. GFC uses interest rate
swaps and forward starting interest rate swaps to convert floating rate debt to
fixed rate debt and to manage the floating to fixed rate ratio of the debt
portfolio. The fair value of interest rate swap agreements is determined based
on the differences between the contractual rate of interest and the rates
currently quoted for agreements of similar terms and maturities. As of December
31, 2004, maturities for interest rate swaps qualifying as cash flow hedges
range from 2005-2012.

GFC 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

61

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

derivatives are based on interest rate swap rates, LIBOR futures, currency
rates, and current forward foreign exchange rates. As of December 31, 2004,
maturities for these hedges range from 2005-2013.

As of December 31, 2004, GFC expects to reclassify $1.0 million of net
losses on derivative instruments from accumulated other comprehensive income
(loss) to earnings within the next twelve months related to various hedging
transactions.

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

62

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

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

NOTE 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 GFC intends to permanently reinvest in these foreign operations.
The cumulative amount of such earnings was $246.4 million at December 31, 2004.

In prior years, GATX assumed a portion of GFC's deferred tax liability in
exchange for cash payments received from GFC. GATX contributed an amount equal
to the aggregate of cash received to GFC in exchange for shares of preferred
stock which are currently outstanding. Subsequently, GFC reacquired a portion of
these deferred taxes and at December 31, 2004 the remaining balance assumed by
GATX was $78.9 million, which is shown as a deferred tax adjustment in the table
below.

The American Jobs Creation Act of 2004 introduced a special one-time
dividends received deduction on the repatriation of certain foreign earnings to
a U.S. taxpayer (repatriation provision) provided certain criteria are met. The
repatriation provision is available to GFC for the year ended December 31, 2005.
GFC has historically maintained that undistributed earnings of its foreign
subsidiaries and affiliates were intended to be permanently reinvested in those
foreign operations. GFC is currently evaluating the effect of the repatriation
provision on its plan for reinvestment or repatriation of foreign earnings. The
range of reasonably possible amounts of unremitted earnings considered for
repatriation, and the income tax effects of such repatriation

63

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

cannot be estimated with certainty at this time. It is anticipated that the
evaluation of the effect of the repatriation provision will be completed during
the third quarter of 2005.

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

GFC and its U.S. subsidiaries are included in the consolidated federal
income tax return of GATX. Income taxes are allocated based on GFC's
contribution to the consolidated tax position. At December 31, 2004, GATX had a
consolidated U.S. federal net operating loss carryforward of approximately
$131.3 million. A valuation allowance for recorded deferred tax assets has not
been provided as management expects such benefits to be fully utilized.

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

64

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Income taxes for continuing operations consisted of (in millions):

The tax amount recovered in 2003 is net of $28.7 million paid to the
Internal Revenue Service (IRS) and allocable to GFC to settle all disputed tax
issues related to the audits for the years 1992 to 1997.

The reasons for the difference between GFC'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 2002 amounts.
ETI was repealed for years after 2004 with a reduced benefit allowable in 2005
and 2006 under transition rules.

65

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The tax rate decrease on deferred taxes recorded in 2004 and 2003 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 final settlement with
the IRS of all issues in the 1995 to 1997 audit.

The effective income tax rate is impacted by foreign taxes on the earnings
of foreign subsidiaries and affiliates which are imposed at rates that are
higher or lower than the U.S. federal statutory rate. Foreign taxes are also
withheld on certain payments received by the Company from foreign sources. The
net amount of foreign tax that exceeds or is less than the U.S. statutory rate
of tax on foreign earnings is shown above. The foreign income tax rate effects
exclude the impact on deferred taxes of enacted changes in foreign rates, which
are identified separately.

The Company's U.S. income tax returns have been audited through 1997 and
all issues for that period have been settled with the IRS. An audit by the IRS
of the Company's U.S. tax returns for the period 1998 through 2002 is currently
in process. During 2004, the IRS challenged certain deductions claimed by the
Company with respect to two structured leasing investments. GFC believes that
its tax position related to these transactions was proper based upon applicable
statutes, regulations and case law in effect at the time the transactions were
entered into. GFC and the IRS are conducting settlement discussions with respect
to these transactions. However, resolution of this matter has not concluded and
may ultimately be litigated. Excluding the leasing investments matter, the
Company expects the IRS to complete its 1998-2002 audit in 2005. Certain of the
Company's subsidiaries are under audits for various periods in various state and
foreign jurisdictions. The Company believes its reserves established for
potential assessments, including interest and penalties with respect to the
leasing transactions, and other open tax issues are reasonable. Once
established, reserves are adjusted only when circumstances, including final
resolution of an issue, require.

NOTE 15. PENSION AND OTHER POST-RETIREMENT BENEFITS

GFC contributed to pension plans sponsored by GATX that cover substantially
all employees. Benefits payable under the pension plans are based on years of
services and/or final average salary. The funding policy for the pension plans
is based on an actuarially determined costs method allowable under Internal
Revenue Service regulations.

Contributions to the GATX plans are allocated to GFC on the basis of
payroll costs. GFC's allocated share of the contributions to these plans was
$2.3 million, $2.1 million and $26.6 million in 2004, 2003 and 2002,
respectively.

Periodic (benefits) costs pertaining to the GATX plans are allocated to GFC
on the basis of payroll costs with respect to normal cost and on the basis of
actuarial determinations for prior service cost. Ongoing pension (benefits) for
continuing operations for 2004, 2003 and 2002 were $(1.8) million, $(1.8)
million and $(.4) million, respectively. Plan benefit obligations, plan assets,
and the components of net periodic costs for individual subsidiaries of GATX,
including GFC, have not been determined.

In addition to periodic benefits, special termination pension benefit
expenses of $.2 million were incurred in 2002 for certain incremental benefits
paid to terminated or retired employees.

In addition to the pension plans, GFC'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 GFC
with immediate benefits under the GATX pension plan. The plans are either
contributory or noncontributory, depending on various factors.

66

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

During 2004, certain corporate employees and related support and
administration activities were transferred to the parent company. As part of
this internal reorganization, the accrued benefit liability of $42.2 million
referenced above was also transferred. Other post retirement expense will
continue to be allocated to GFC consistent with the methodology utilized in
prior periods.

67

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

The previous tables include amounts allocated each year to discontinued
operations, all of which were immaterial. Amounts shown for the curtailment gain
and special termination expense resulted from the Technology sale.

Assumptions as of December 31:

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 2004 was 8.50% for participants over the age of 65 and 10.00% for
participants under the age of 65. The assumed health care cost trend rate
anticipated for 2005 will be 9.00% for participants over the age of 65 and 8.00%
for participants under the age of 65. Over a five-year period, the trend rates
will decline gradually to 6.00% and remain at that level thereafter.

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

GFC expects to contribute approximately $1.6 million to its pension plans
(domestic and foreign) and approximately $6.0 million to its other
post-retirement benefit plans in 2005. Allocation from GATX of additional
contributions will be dependent on a number of factors including plan asset
investment returns and actuarial experience. Subject to the impact of these
factors, GFC may make additional material plan contributions.

In December 2003, the Medicare Prescription Drug, Improvement and
Modernization Act of 2003 (the Act) was enacted. The Act introduces a
prescription drug benefit under Medicare (Medicare Part D) that provides several
options for Medicare eligible participants and employers, including a federal
subsidy payable to companies that elect to provide a retiree prescription drug
benefit which is at least actuarially equivalent to Medicare Part D. During the
third quarter of 2004, GFC concluded its evaluation of the provisions of the Act
and elected to maintain its drug program entitling it to the subsidy available
under the Medicare Act. The impact of the Medicare Act was accounted for in
accordance with FASB Staff Position No. 106-2, "Accounting and Disclosure
Requirements Related to the Medicare Prescription Drug, Improvement and
Modernization Act of 2003" and was recognized during 2004 resulting in a
reduction in the accumulated post-retirement benefit obligation of $3.4 million
and a decrease to net other post-retirement benefit expense of $.3 million.

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

CONCENTRATIONS

Concentration of Revenues -- GFC's revenues are derived from a wide range
of industries and companies. Approximately 19% of total revenues are generated
from customers in the chemical industry; for similar services, 15% of revenues
are derived from the petroleum industry and 12% of revenues are derived from the
commercial jet aircraft industry. GFC's foreign identifiable revenues include
earnings in affiliated companies as well as fully consolidated railcar
operations in Canada, Mexico, Poland, Austria and Germany. The Company did not
derive revenues in excess of 10% of consolidated revenues from any one foreign
country for the years ended December 31, 2004 and 2003. In 2002, Canada
contributed 12% to total GFC's revenues and share of affiliates' earnings from
continuing operations.

68

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

Concentration of Credit Risk -- Under its lease agreements with lessees,
GFC retains legal ownership of the asset except where such assets have been
financed by sale-leasebacks. For most loan financings to customers, the loan is
collateralized by the equipment. GFC 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. GFC
maintains an allowance for possible losses to provide for potential losses that
could arise should customers become unable to discharge their obligations to
GFC. The Company did not derive revenues in excess of 10% of consolidated
revenues from any one customer for any of the three years ended December 31,
2004, 2003 and 2002.

OFF-BALANCE SHEET ITEMS

Unconditional Purchase Obligations -- At December 31, 2004, GFC's
unconditional purchase obligations of $522.3 million consisted primarily of
railcar commitments and scheduled aircraft acquisitions over the period of 2005
through 2008. GFC had commitments of $327.8 million related to the committed
railcar purchase program, entered into in 2002. GFC also had commitments of
$74.1 million for orders and options for interests in two new aircraft to be
delivered in 2006. Unconditional purchase obligations also include $115.1
million of other rail related commitments. GFC has an obligation under the terms
of the DEC acquisition agreement to cause DEC to make qualified investments of
$23.9 million by December 31, 2005. To the extent there are no 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, GFC 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 GFC's balance
sheet investments, these guarantees expose GFC to credit, market and equipment
risk; accordingly, GFC evaluates its commitments and other contingent
obligations using techniques similar to those used to evaluate funded
transactions.

The following table shows GFC's commercial commitments for continuing
operations (in millions):

At December 31, 2004, the maximum potential amount of lease, loan or
residual value guarantees under which GFC or its subsidiaries could be required
to perform was $807.0 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 $3.1 million. The expirations of these guarantees range from 2005
to 2017. Any liability resulting from GFC'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

69

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2004. GFC 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 GFC's commitment to third parties
that an asset or group of assets will be worth a specified amount at the end of
a lease term. 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.
GFC is not aware of any event of default which would require it to satisfy these
guarantees, and expects the affiliates to generate sufficient cash flow to
satisfy their lease and loan obligations.

GFC and its subsidiaries are also parties to outstanding letters of credit
and bonds primarily related to workers' compensation and general liability
insurance coverages. In GFC's past experience, virtually no claims have been
made against these financial instruments. At December 31, 2004, 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 regulations. GFC'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 GFC's land holdings, including previously owned
properties, 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, GFC 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. GFC has been notified that it is a
potentially responsible party (PRP) for study and cleanup costs at six (6)
Superfund sites 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, GFC may be considered a PRP under certain
other laws. Accordingly, under CERCLA and other federal and state statutes, GFC
may be held jointly and severally liable for all environmental costs associated
with a particular site. If there are other PRPs, GFC 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,
GFC 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

70

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

site characteristics or changes in regulatory requirements. GFC 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. GFC does not believe that a
liability exists for known environmental risks beyond what has been provided for
in the environmental reserve.

GFC is involved in a number of administrative and judicial proceedings and
other mandatory cleanup efforts at approximately eleven (11) sites, including
the Superfund sites, at which it is participating in the study or cleanup, or
both, of alleged environmental contamination. The Company recognized
environmental expense of $13.3 million in 2004 which consisted of $15.5 million
for the Staten Island property sold, offset by a Rail reserve reduction as a
result of favorable resolution of certain environmental matters. GFC did not
recognize an environmental expense in 2003 or 2002 GFC paid $0.4 million, $1.4
million and $1.0 million during 2004, 2003 and 2002, respectively, for mandatory
and unasserted claims cleanup efforts, including amounts expended under federal
and state voluntary cleanup programs. GFC has recorded liabilities for
remediation and restoration of all known sites of $37.5 million at December 31,
2004, compared with $26.0 million at December 31, 2003. These amounts are
included in other liabilities on GFC's balance sheet. GFC's environmental
liabilities are not discounted. GFC anticipates that the majority of the accrued
costs at December 31, 2004, will be paid over the next five years and no
individual site is considered to be material.

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 GFC's best estimates of all costs for
remediation and restoration of affected sites, without reduction for anticipated
recoveries from third parties, and include both asserted and unasserted claims.
However, GFC's total 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 GFC's results of
operations, financial position or liquidity.

Legal -- GFC 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 GFC 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 for indemnity with respect to asbestos-
related claims filed against a former subsidiary has been made against the
Company under a limited indemnity given in connection with the sale of such
subsidiary. The number of these claims and the corresponding demands for
indemnity against the Company increased in the aggregate 2004. It is possible
that the number of these claims could continue to grow and that the cost of
these claims could correspondingly increase in the future.

The amounts claimed in some of the above-described proceedings are
substantial and the ultimate liability cannot be determined at this time.
However, it is the opinion of management that amounts, if any, required to be
paid by GFC and its subsidiaries in the discharge of such liabilities are not
likely to be material

71

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

to GFC's consolidated financial position or results of operations. Adverse court
rulings or changes in applicable law could affect claims made against GFC and
its subsidiaries, and increase the number, and change the nature, of such
claims.

NOTE 17. ADVANCES TO PARENT

Interest income on advances to GATX, which is included in gross income on
the income statement, was $23.2 million in 2004, $24.7 million in 2003 and $26.2
million in 2002. These advances have no fixed maturity date. Interest income on
advances to GATX was based on an interest rate that is adjusted annually in
accordance with an estimate of applicable rates.

NOTE 18. ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

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

72

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

NOTE 19. SUPPLEMENTAL CASH FLOW INFORMATION

The following tables summarize the components of portfolio proceeds and
discontinued operations reported on the consolidated statement of cash flows (in
millions):

PORTFOLIO PROCEEDS

DISCONTINUED OPERATIONS

Cash paid for interest and recovered for income 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):

73

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

In 2004, GFC completed the sale of GATX Technology (Technology) and $291.5
million of nonrecourse debt was assumed by the acquirer.

In 2003, GFC 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.

NOTE 20. DISCONTINUED OPERATIONS

Consistent with GFC's strategy of focusing on the company's core
businesses, railcar and aircraft leasing, GFC sold its Technology business
during 2004. On June 30, 2004, GFC completed the sale of substantially all the
assets and related nonrecourse debt of Technology and its Canadian affiliate to
CIT Group Inc. for net proceeds of $234.1 million. Subsequently, the remaining
assets consisting primarily of interest in two joint ventures were sold by year
end. Financial data for the Technology segment has been segregated as
discontinued operations for all periods presented.

Technology's income from operations for the twelve months ended December
31, 2004 was $18.3 million, net of taxes of $11.8 million. Operating results
were favorably impacted by the suspension of depreciation on operating lease
assets associated with Technology's assets classified as held for sale during
the second quarter of 2004. The effect of ceasing depreciation was approximately
$14.3 million after-tax. The 2004 loss on the sale of the Technology segment was
$7.2 million, net of taxes of $4.8 million. The $7.2 million loss reflected a
write-off of $7.6 million of goodwill as well as sale-related expenses including
severance costs and losses on terminated leases. Technology's 2003 and 2002
operating results were $15.2 million and $4.7 million, net of taxes of $9.8
million and $2.6 million, respectively. Technology's operating results included
interest expense of $12.9 million, $24.5 million, and $40.7 million in 2004,
2003, and 2002 respectively. Debt balances and interest expense were allocated
to Technology based upon a fixed leverage ratio, expressed as a ratio of debt to
equity. Technology's leverage ratio was set at 1:1 (excluding nonrecourse debt)
for all reporting periods.

In 2002, GFC completed the divestiture of Terminals. Financial data for
Terminals has been segregated as discontinued operations for all periods
presented.

In the first quarter of 2002, GFC 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. There was no operating activity at Terminals during
2002-2004.

The following table summarizes the gross income, income before taxes and
the (loss) gain on sale of segment, net of tax, which has been reclassified to
discontinued operations for all periods presented (in millions):

NOTE 21. REDUCTION IN WORKFORCE

During 2002, GFC 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

74

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 2004, all of the employee terminations were completed.

The following is the reserve activity for the year ended December 31, 2004
(in millions):

Reserve balance at 12/31/03................................. $2.6
Benefits paid............................................... (.8)
Occupancy costs paid........................................ (.4)
Other adjustments........................................... (.3)
----
Reserve balance at 12/31/04................................. $1.1
====

The $.3 million adjustment represents a transfer of a portion of the
liability to the parent company.

During 2001, GFC recorded a pre-tax charge of $10.9 million related to its
2001 reduction in workforce. This reduction was part of GFC's initiative to
reduce selling, general and administrative costs in response to current economic
conditions and the divestiture of Terminals operations. This charge included
involuntary employee separation costs of $5.2 million for 135 employees
company-wide, as well as legal fees of $.1 million, occupancy costs of $5.1
million and other costs of $.5 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, 2004
(in millions):

Reserve balance at 12/31/03................................. $ .7
Occupancy costs paid........................................ (.1)
----
Reserve balance at 12/31/04................................. $ .6
====

Management expects the Company's reserve balance at December 31, 2004
related to the reductions in workforce to be adequate. Remaining cash payments
of $1.7 million will be funded from ongoing operations and are not expected to
have a material impact on GFC's liquidity.

NOTE 22. FOREIGN OPERATIONS

GFC has a number of investments in subsidiaries and affiliated companies
that are located in or derive revenues from various foreign countries. GFC'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 GFC'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 based 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 the years ended December 31, 2004 and 2003. In 2002, Canada
contributed 12% to total GFC's revenues and share of affiliates' earnings from
continuing operations. In addition, no foreign country represented more than 10%
of GFC's identifiable assets for continuing operations in 2004, 2003 or 2002.

75

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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

Foreign cash flows generated are used to meet local operating needs and for
reinvestment. For non-U.S. 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 income
(loss).

NOTE 23. 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 GFC'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.

GFC provides services primarily through three operating segments: Rail, Air
and Specialty. Other is comprised of corporate results (including selling,
general and administrative (SG&A) expense and interest expense not allocated to
segments), and the results of American Steamship Company (ASC), a Great Lakes
shipping company.

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

Air is principally engaged in leasing narrowbody aircraft to commercial
airlines and others throughout the world. Air typically provides net leases
under which the lessee is responsible for maintenance, insurance and taxes.

Specialty is comprised of the former specialty finance and venture finance
business units, which are now managed as one operating segment. 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.

76

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

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, 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.

GFC allocates 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, corporate SG&A,
human resources, legal, financial support and executive costs. Directly
attributable expenses are generally allocated to the segments and shared costs
are retained in Other. Amounts allocated to the segments are approximated based
on management's best estimate and judgment of direct support services.

Debt balance 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 and Specialty's leverage ratio was
set at 4:1. Any GFC 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, 2004, 2003 and 2002 (in millions):

77

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)

78

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

None.

ITEM 9A. CONTROLS AND PROCEDURES

MANAGEMENT'S REPORT REGARDING THE EFFECTIVENESS OF DISCLOSURE CONTROLS AND
PROCEDURES

The Company's management, with the participation of its principal executive
and principal financial officers, have conducted an evaluation of the Company's
disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e)
of the Securities Exchange Act of 1934 (the "Exchange Act")). Based on such
evaluation, the Company's Chief Executive Officer and Chief Financial Officer
have concluded that as of the end of the period covered by this annual report,
the Company's disclosure controls and procedures were effective.

MANAGEMENT'S REPORT REGARDING THE EFFECTIVENESS OF INTERNAL CONTROL AND
PROCEDURES

The Company's management is responsible for establishing and maintaining
adequate internal control over financial reporting as defined in Rules 13a-15(f)
and 15d-15(f) of the Exchange Act for the Company. The Company's internal
control over financial reporting is designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of
financial statements for external purposes in accordance with generally accepted
accounting principles. The Company's internal control over financial reporting
includes those policies and procedures that:

(i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the
assets of the Company;

(ii) provide reasonable assurance that transactions are recorded as
necessary to permit preparation of financial statements in accordance with
generally accepted accounting principles, and that receipts and
expenditures of the Company are being made only in accordance with
authorizations of management and directors of the Company; and

(iii) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use or disposition of the Company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over a financial
reporting may not prevent or detect misstatements. In addition, projections of
any evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate as a result of changes in conditions, or that the
degree of compliance with the applicable policies and procedures may
deteriorate.

The Company's management, with the participation of its principal executive
and principal financial officers, has conducted an evaluation of the Company's
internal control over financial reporting as of the end of the period covered by
this annual report based on the framework in Internal Control-Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission. Such evaluation included reviewing the documentation of the
Company's internal controls, evaluating the design effectiveness of the internal
controls and testing their operating effectiveness.

Based on such evaluation, the Company's management has concluded that as of
the end of the period covered by this annual report, the Company's internal
control over financial reporting was effective.

Ernst & Young LLP, the independent registered public accounting firm that
audited the financial statements included in this annual report has issued an
attestation report on the management's assessment of the Company's internal
control over financial reporting. That report appears below.

79

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM ON
INTERNAL CONTROL OVER FINANCIAL REPORTING

The Board of Directors of GATX Financial Corporation

We have audited management's assessment, included in the accompanying
Management's Report Regarding the Effectiveness of Internal Control and
Procedures, that GATX Financial Corporation maintained effective internal
control over financial reporting as of December 31, 2004, based on criteria
established in Internal Control -- Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (the COSO criteria). GATX
Financial Corporation's management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the
effectiveness of internal control over financial reporting. Our responsibility
is to express an opinion on management's assessment and an opinion on the
effectiveness of the company's internal control over financial reporting based
on our audit.

We conducted our audit in accordance with the standards of the Public
Company Accounting Oversight Board (United States). Those standards require that
we plan and perform the audit to obtain reasonable assurance about whether
effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal
control over financial reporting, evaluating management's assessment, testing
and evaluating the design and operating effectiveness of internal control, and
performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our
opinion.

A company's internal control over financial reporting is a process designed
to provide reasonable assurance regarding the reliability of financial reporting
and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company's internal control over
financial reporting includes those policies and procedures that (1) pertain to
the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the company are
being made only in accordance with authorizations of management and directors of
the company; and (3) provide reasonable assurance regarding prevention or timely
detection of unauthorized acquisition, use, or disposition of the company's
assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Also, projections of any
evaluation of effectiveness to future periods are subject to the risk that
controls may become inadequate because of changes in conditions, or that the
degree of compliance with the policies or procedures may deteriorate.

In our opinion, management's assessment that GATX Financial Corporation
maintained effective internal control over financial reporting as of December
31, 2004, is fairly stated, in all material respects, based on the COSO
criteria. Also, in our opinion, GATX Financial Corporation maintained, in all
material respects, effective internal control over financial reporting as of
December 31, 2004, based on the COSO criteria.

We also have audited, in accordance with the standards of the Public
Company Accounting Oversight Board (United States), the consolidated balance
sheets as of December 31, 2004 and 2003, and the related consolidated statements
of income, changes in shareholder's equity, cash flows, and comprehensive income
for each of the three years in the period ended December 31, 2004 of GATX
Financial Corporation and our report dated March 4, 2005 expressed an
unqualified opinion thereon.

ERNST & YOUNG LLP

Chicago, Illinois
March 4, 2005
80

CHANGES IN INTERNAL CONTROL OVER FINANCIAL REPORTING

No change in the Company's internal control over financial reporting (as
such term is defined above) that occurred during the fiscal quarter ended
December 31, 2004 has materially affected, or is reasonably likely to materially
affect, the Company's internal control over financial reporting.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT

Not required.

ITEM 11. EXECUTIVE COMPENSATION

Not required.

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

Not required.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

Not required.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Not required.

81

PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES

82

SIGNATURES

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

GATX FINANCIAL CORPORATION
(Registrant)

/s/ RONALD H. ZECH
--------------------------------------
Ronald H. Zech
Chairman,
Chief Executive Officer and Director
March 14, 2005

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, Chief Executive
------------------------------------------------------ Officer and Director
Ronald H. Zech (Principal Executive
March 14, 2005 Officer)

/s/ BRIAN A. KENNEY President and Director
------------------------------------------------------
Brian A. Kenney
March 14, 2005

/s/ ROBERT C. LYONS Vice President and Chief
------------------------------------------------------ Financial Officer
Robert C. Lyons (Principal Financial
March 14, 2005 Officer)

/s/ WILLIAM M. MUCKIAN Vice President, Controller
------------------------------------------------------ and Chief Accounting Officer
William M. Muckian (Principal Accounting
March 14, 2005 Officer)

83

EXHIBIT INDEX