##### Table of Contents









SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549




---

Form 10-K



---

(Mark One)

x

ANNUAL REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the fiscal year ended: December 31, 2003

OR

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR
15(d) OF THE


SECURITIES EXCHANGE ACT OF 1934


For the transition period
from:                               to

Commission file number: 0-24464

THE CRONOS GROUP

(Exact name of Registrant as specified in its
charter)


|                                                                   |  |                                     
|------------------------------------------------------------------ |  | ------------------------------------
|LUXEMBOURG                                                         |  | NOT APPLICABLE                      
|(State or other Jurisdiction of incorporation
    or organization) |  | (I.R.S. Employer Identification No.)

16, ALLÉE MARCONI, BOÎTE POSTALE
260, L-2120 LUXEMBOURG

(Address of principal executive offices)(zip
code)


Registrants telephone number, including
area codes:

(352) 453145




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Securities registered pursuant to
Section 12(b) of the Act.

|                             |  |                                                             
|---------------------------- |  | ------------------------------------------------------------
|Title of each class
    None |  | Name of each exchange on which registered
    Not applicable

Securities registered pursuant to
Section 12(g) of the Act.

Common Shares, $2 par value per
share

(Title of Class)


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 o

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.     o

Indicate by check mark whether the registrant is
an accelerated filer (as defined in Exchange Act
Rule 12b-2)     YES o  NO x

The aggregate market value of voting stock of the
registrant held by non-affiliates as of March 24, 2004
(Common Shares) was approximately $41,092,053.

The number of Common Shares outstanding as of
March 25, 2004:

|       |  |                             
|------ |  | ----------------------------
|Class  |  | Number of Shares Outstanding
|       |  |                             
|Common |  | 7,260,080                   

Portions of the following documents have been
incorporated by reference into this report.

|                                                          |  |                               
|--------------------------------------------------------- |  | ------------------------------
|Document                                                  |  | Form 10-K Parts               
|                                                          |  |                               
|Proxy Statement for Annual Meeting to be held in
    2004 |  | Part II  Item 5,
    Part III



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The Cronos Group

TABLE OF CONTENTS

|                  |                                                                                                        |      |    |    | 
|----------------- | ------------------------------------------------------------------------------------------------------ | ---- | -- | -- | 
|                  |                                                                                                        | Page
|                  |                                                                                                        |     
|Introductory Note |                                                                                                        |      | ii |   
|PART I            |                                                                                                        |      | 1  |   
|                  | Item 1 
    Description of Business                                                                   |      |    | 1  | 
|                  | Item 2 
    Properties                                                                                |      |    | 9  | 
|                  | Item 3 
    Legal Proceedings                                                                         |      |    | 9  | 
|                  | Item 4 
    Submission of Matters to a Vote of Security Holders                                       |      |    | 11 | 
|PART II           |                                                                                                        |      | 12 |   
|                  | Item 5 
    Market for the Companys Common Equity and Related
    Stockholder Matters                |      |    | 12 | 
|                  | Item 6 
    Selected Financial Data                                                                   |      |    | 14 | 
|                  | Item 7 
    Managements Discussion and Analysis of Financial Condition
    and Results of Operations |      |    | 16 | 
|                  | Item 7A 
    Quantitative and Qualitative Disclosures about Market Risk                               |      |    | 32 | 
|                  | Item 8 
    Financial Statements and Supplementary Data                                               |      |    | 33 | 
|                  | Item 9 
    Changes In and Disagreements with Accountants on Accounting and
    Financial Disclosure  |      |    | 33 | 
|                  | Item 9A 
    Controls and Procedures                                                                  |      |    | 33 | 
|PART III          |                                                                                                        |      | 34 |   
|                  | Item 10 
    Directors and Executive Officers of the Group                                            |      |    | 34 | 
|                  | Item 11 
    Executive Compensation                                                                   |      |    | 35 | 
|                  | Item 12 
    Security Ownership of Certain Beneficial Owners and
    Management                       |      |    | 35 | 
|                  | Item 13 
    Certain Relationships and Related Transactions                                           |      |    | 35 | 
|                  | Item 14 
    Principal Accountant Fees and Services                                                   |      |    | 35 | 
|PART IV           |                                                                                                        |      | 36 |   
|                  | Item 15 
    Exhibits, Financial Statement Schedules, and Reports on
    Form 8-K                     |      |    | 36 | 
|EXHIBIT 10.18    
|EXHIBIT 10.20    
|EXHIBIT 10.22    
|EXHIBIT 10.26    
|EXHIBIT 21.1     
|EXHIBIT 23.1     
|EXHIBIT 31.1     
|EXHIBIT 31.2     
|EXHIBIT 32.1     



i



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##### Table of Contents






INTRODUCTORY NOTE

Unless the context indicates otherwise, the
Company means The Cronos Group and, where
appropriate, includes its subsidiaries and predecessors, while
Cronos or the Group means The Cronos
Group together with its subsidiaries and predecessors.

TEU means twenty-foot equivalent
units, the standard unit of physical measurement in the
container industry. All references herein to $ or
Dollars are to United States dollars.

All statements in this report regarding the
market for the Companys container leasing services and the
Companys revenues, expenses, and financial condition, and
any statement containing the words anticipate,
believe, plan, estimate,
expect, intend or other similar
expressions, constitute forward-looking statements. The actual
results of operations may differ materially from those contained
in any forward-looking statement. This cautionary statement
applies to all forward-looking statements wherever they appear
in this report.

An investment in the common shares of the Company
involves a high degree of risk. The principal risks that attend
the Company and its business include the following:



| |                                                                                                                                                                                                                                                                                  
| | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Cronos is heavily dependent upon third-parties to
    supply it with the capital needed to acquire containers; such
    capital may not be available to the Group to enable it to expand
    its fleet of containers.                                                            
|
| | The market for the Companys outstanding
    common shares is not liquid. The Companys five largest
    groups of shareholders control approximately 71% of its
    outstanding common shares. For 2003, the average daily trading
    volume in the Companys shares was 3,410.

The Group is subject to other risks in the
operation of its business. For a discussion of the container
leasing industry and the Groups business, see
Description of Business and Managements
Discussion and Analysis of Financial Condition and Results of
Operations herein.

For a discussion of the Groups legal
proceedings, see Item 3 Legal Proceedings
herein. For a discussion of the Groups commitments and
contingencies, see Note 15, Commitments and
Contingencies, to the Companys 2003 Consolidated
Financial Statements. For a discussion of the market for the
Companys common shares, see Market for the
Companys Common Equity and Related Stockholder
Matters herein.

ii



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PART I






|         |                        
|-------- | -----------------------
|Item 1  | Description of Business



| |             
| | ------------
| | Introduction

The Company is a limited liability company
(société anonyme)organized in Luxembourg with
its registered office at 16, Allée Marconi, Boîte
Postale 260, L-2120 Luxembourg (telephone (352) 453145).
The Company is registered with the Luxembourg Registrar of
Companies under registration number R.C.S. Lux. B. 27489. The
internet address of the Company is www.cronos.com. Cronos
Containers Limited, the Companys principal container
leasing subsidiary, is a UK corporation located at The Ice
House, Dean Street, Marlow, Buckinghamshire, SL7 3AB, England.

Cronos is the successor to Intermodal Equipment
Associates (IEA) and Leasing Partners International
(LPI). IEA began managing and leasing dry cargo
containers in 1978, primarily under master leases. LPI was
established in 1983 to manage and lease refrigerated containers.
In 1990, LPI acquired IEA and the companies combined their
operations under the new name Cronos. In December 1995 and
January 1996, the Company and a selling shareholder sold
3,643,000 common shares of the Company in a public offering (the
Public Offering).

Cronos is one of the worlds leading lessors
(by aggregate TEU capacity) of intermodal marine containers. It
owns and manages a fleet of dry cargo, refrigerated, tank and
dry freight special containers. Through an extensive global
network of offices and agents, Cronos leases both its own and
other owners containers to over 400 ocean carriers and
transport operators, including the majority of the 30 largest
ocean carriers.

Industry
Background

A marine cargo container is a reusable metal
container designed for the efficient carriage of cargo with a
minimum of exposure to loss through damage or theft. Containers
are manufactured to conform to worldwide standards of container
dimensions and container ship fittings adopted by the
International Standards Organization (ISO) in 1968.
The standard container is either 20 long ×
8 wide × 8 6 high
(one TEU) or 40 long ×
8 wide × 8 6 high
(two TEU). Standardization of the construction, maintenance and
handling of containers allows containers to be picked up,
dropped off, stored and repaired effectively throughout the
world. This standardization is the foundation on which the
container industry has developed.

Standard dry cargo containers are rectangular
boxes constructed to carry a wide variety of cargoes ranging
from heavy industrial raw materials to light-weight finished
goods. Specialized containers such as refrigerated and tank
containers are utilized for the transport of
temperature-sensitive goods and for the carriage of liquid
cargo. Cellular Palletwide Containers (CPCs) provide
shipping lines with a container with extra width for the
carriage of unitized or palletized cargoes. See Fleet
Profile herein.

One of the primary benefits of containerization
has been the ability of the shipping industry to effectively
lower freight rates due to the efficiencies created by
standardized intermodal containers. Containers can be handled
much more efficiently than loose cargo and are typically shipped
via several modes of transportation, including truck, rail and
ship. Containers require loading and unloading only once and
remain sealed until arrival at the final destination,
significantly reducing transport time, labor and handling costs,
as well as losses due to damage and theft. Efficient movement of
containerized cargo between ship and shore reduces the amount of
time that a ship must spend in port.

The logistical advantages and reduced freight
rates brought about by containerization have been major
catalysts for world trade growth since the late 1960s, resulting
in increased demand for containers. The worlds container
fleet has grown from an estimated 270,000 TEU in 1969 to
approximately 17 million TEU by the end of 2003.

The container leasing business is cyclical and
depends largely upon the volume of world trade.

Benefits
of Leasing

The container fleets of leasing companies
represent approximately 46% of the worlds container fleet
with the balance owned predominantly by shipping lines. Shipping
lines, which traditionally operate on tight profit

1



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margins, often supplement their owned fleets of
containers with leased containers, and in doing so, achieve the
following financial and operational benefits:




| |                                                                                                                                                                                          
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | Leasing allows the shipping lines to utilize the
    equipment they need without having to make large capital
    expenditures;                                                          
|
| | Leasing offers a shipping line an alternative
    source of financing in a traditionally capital-intensive
    industry;                                                                 
|
| | Leasing enables shipping lines to expand their
    routes and market shares at a relatively low cost without making
    a permanent commitment to support their new structure;           
|
| | Leasing allows shipping lines to respond to
    changing seasonal and trade route demands, thereby optimizing
    their capital investment and minimizing storage costs;                 
|
| | Leasing provides shipping lines with the
    flexibility to respond to rapidly changing market opportunities
    as they arise without relying exclusively on their owned
    containers.

Types
of Leases  to Ocean Carriers

Master leasesare
leases under which a customer may lease a certain number of
containers as needed under a general agreement between the
lessor and the lessee. Such leases provide customers with
greater flexibility by allowing them to pick up and drop off
containers where and when needed, subject to restrictions and
availability, on pre-agreed terms. Master leases also define the
number of containers that may be returned within each calendar
month, the return locations and applicable drop-off charges. Due
to the increased flexibility they offer, master leases usually
command higher per diem rates and generate more ancillary
revenue (including pick-up, drop-off, handling and off-hire
revenue) than term leases. Ocean carriers generally use master
leases to help manage trade imbalances (where more containerized
cargo moves in one direction than another) by picking up a
container in one port and dropping it off at another location
after one or more legs of a voyage. The commercial terms of
master leases are usually negotiated or renewed annually.

Term leasesare for
a fixed period of time, typically ranging from three to five
years. In most cases, containers cannot be returned prior to the
expiration of the lease. Some term lease agreements contain
early termination penalties that apply in the event of early
redelivery. Term leases provide greater revenue stability to the
lessor, but at lower lease rates than master leases. Ocean
carriers use term leases to lower their operating costs when
they have a need for identified containers for a specified term.

Direct financing leasesare usually long-term in nature,
typically ranging from three to seven years, and require
relatively low levels of customer service. They ordinarily
require fixed payments over a defined period and provide
customers with an option to purchase the subject containers at
the end of the lease term. Per diem rates include an element of
repayment of capital and therefore are higher than rates charged
under either term or master leases.

The percentage mix of equipment on master, term
and direct financing leases varies widely among leasing
companies.

Lease rates depend on several factors including
the customer credit rating, type of lease, length of term, type
and age of the equipment, equipment replacement costs, interest
rates, maintenance provided, and market conditions.

Company
Strategy

Cronos focuses on optimizing the return on
container investment capital by providing flexible master, term
and direct financing leases to the worlds top ocean
carriers, across a broad range of dry and specialized containers.

2



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Lease
Profile

Cronos offers flexible leasing arrangements
primarily through master and term leases for dry cargo
containers.

|                 |                 |                                                           |     |              |      |      |     |          |      |             |     |     |      |  |     |     |      |  |     |     |      | 
|---------------- | --------------- | --------------------------------------------------------- | --- | ------------ | ---- | ---- | --- | -------- | ---- | ----------- | --- | --- | ---- |  | --- | --- | ---- |  | --- | --- | ---- | 
|                 |                 |                                                          
|                 |                 | Percentage of Fleet by Lease Type as of December 31, 2003
|                 |                 |                                                          
|                 |                 |                                                           |     | Dry Freight  |      |     
|Type of Lease    |                 | Dry Cargo                                                 |     | Refrigerated |      | Tank |     | Specials |      | Total Fleet
|                 |                 |                                                           |     |              |      |      |     |          |      |            
|Master           |                 |                                                           | 61% |              |      |      | 28% |          |      |             | 62% |     |      |  | 45% |     |      |  | 59% |    
|Term             |                 |                                                           |     |              |      |      |     |          |      |             |     |     |      |  |     |     |      |  |     |    
|                 | - short-term(1) |                                                           |     | 14%          |      |      |     | 23%      |      |             |     | 11% |      |  |     | 15% |      |  |     | 15% |     
|                 | - long-term(2)  |                                                           |     | 23%          |      |      |     | 47%      |      |             |     | 23% |      |  |     | 24% |      |  |     | 23% |     
|Direct Financing |                 |                                                           | 2%  |              |      |      | 2%  |          |      |             | 4%  |     |      |  | 16% |     |      |  | 3%  |    
|                 |                 |                                                           |     |              |      |      |     |          |      |             |     |     |      |  |     |     |      |  |     |    
|                 |                 | Total                                                     |     |              | 100% |      |     |          | 100% |             |     |     | 100% |  |     |     | 100% |  |     |     | 100% | 
|                 |                 |                                                           |     |              |      |      |     |          |      |             |     |     |      |  |     |     |      |  |     |    




|    |                                                                                                     
|--- | ----------------------------------------------------------------------------------------------------
|(1) | Short-term leases represent term leases that are
    scheduled to expire in 2004.                   
|   
|(2) | Long-term leases represent term leases, the
    majority of which will expire between 2005 and 2008.

The terms and conditions of the Groups
leases provide that customers are responsible for paying all
taxes and service charges arising from container use,
maintaining the containers in good and safe operating condition
while on lease and paying for repairs, excluding ordinary wear
and tear, upon redelivery. Some leases provide for a
damage protection plan whereby lessees, for an
additional payment (which may be in the form of a higher per
diem rate), are relieved of the responsibility of paying some of
the repair costs upon redelivery of the containers. The Group
provides this service to selected customers. Repairs provided
under such a plan are carried out by the same depots, under the
same procedures, as the repairs to containers not covered by
such plans. Customers are also required to insure leased
containers against physical damage, loss and against third-party
liability for loss, damage, bodily injury or death.

Customers

Cronos is not dependent upon any particular
customer or group of customers. None of the Groups
customers accounts for more than 10% of its revenue, and the ten
largest customers accounted for approximately 43% of the total
TEU fleet on-hire. The majority of Cronos customers are
billed and pay in United States dollars.

Cronos sets maximum credit limits for all
customers, limiting the number of containers leased to each
customer according to established credit criteria. Cronos
continually tracks its credit exposure to each customer.
Cronos credit committee meets quarterly to analyze the
performance of existing customers and to recommend actions to be
taken in order to minimize credit risks. Cronos uses specialist
third-party credit information services and reports prepared by
local staff to assess credit quality.

The Group may be subject to unexpected loss in
rental revenue from container lessees that default under their
container lease agreements.

Fleet
Profile

Cronos focuses on supplying to its customers
high-quality containers, manufactured to specifications that
exceed ISO standards and designed to minimize repair and
operating costs. Cronos operates a fleet of dry cargo,
refrigerated, tank and dry freight special containers. Cronos
believes that this fleet diversification enables it to broaden
its business base with its customers by supplying a wide range
of their equipment requirements.

Dry cargo containers are the most commonly used
type of container in the shipping industry. Cronos dry
cargo containers are constructed of all Corten® steel
(i.e.,Corten® roofs, walls, doors and
undercarriage), which is a high-tensile steel yielding greater
damage and corrosion resistance than mild steel.

Refrigerated containers are used to transport
temperature-sensitive products, such as meat, fruit, vegetables
and photographic film. All of Cronos refrigerated
containers have high-grade stainless steel interiors. The
majority of Cronos 20 refrigerated containers have
high-grade stainless steel outer walls, while

3



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##### Table of Contents



most of the 40 refrigerated containers are
steel framed with aluminum outer walls to reduce weight. As with
the dry cargo containers, all refrigerated containers are
designed to minimize repair and maintenance and maximize damage
resistance. Cronos refrigerated containers are designed
and manufactured to include the latest generation refrigeration
equipment, with the most recently built units controlled by
modular microprocessors.


Cronos tank containers are constructed and
maintained in accordance with strict international codes for the
worldwide transport and storage of bulk liquids on both land and
sea. These codes include ISO, International Maritime
Organization (IMO) and American Society of
Mechanical Engineers (ASME) VIII Pressure
Vessel Design Code. The fleet comprises both T4 and T11 type
tanks, which can carry highly flammable, corrosive, toxic and
oxidizing substances as well as non-hazardous cargoes such as
food stuffs and oils. They range in capacity from
17,500 litres to 31,000 litres and are generally
insulated and equipped with a heating system (steam or
electrical) or, alternatively, a refrigeration system.

Dry freight specials include CPCs, rolltrailers,
open tops and flatracks. Cronos owns the patents for the CPC, a
specialized container designed specifically for the carriage of
European coastal cargo on metric pallets. The patents expire on
a series of dates between 2006 and 2013. CPCs allow for the
side-by-side stowage of pallets which is not possible in a
standard ISO container, therefore increasing the load capacity
per container. Cronos earns CPC licence fee income on the sale
of CPCs to third-parties. A rolltrailer is a heavy-duty chassis
used for moving cargo onto and off of ships. Cronos entered the
rolltrailer market in 1996 when it acquired a Swedish company
with a fleet of rolltrailers.

During 2003, the size of the Groups total
fleet, both owned and managed, increased by a net 10,800 TEU,
representing new container acquisitions of 38,300 TEU and
disposals of 27,500 TEU. The total cost of new container
acquisitions for the total fleet in 2003 was $64.8 million.

|                      |                            |                                    |       |      |  |      |       |      |  |      |       |     |  |  |       |     |  |  |       |     | 
|--------------------- | -------------------------- | ---------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- | --- |  |  | ----- | --- |  |  | ----- | --- | 
|                      |                            |                                   
|                      |                            | Cronos Fleet (in TEU thousands) at
|                      |                            | December 31,                      
|                      |                            |                                   
|                      |                            | 2003                               |       | 2002 |  | 2001 |       | 2000 |  | 1999
|                      |                            |                                    |       |      |  |      |       |      |  |     
|Dry Cargo             |                            |                                    | 370.5 |      |  |      | 364.5 |      |  |      | 368.4 |     |  |  | 375.9 |     |  |  | 346.6 |    
|Refrigerated          |                            |                                    | 12.3  |      |  |      | 13.3  |      |  |      | 13.9  |     |  |  | 12.5  |     |  |  | 13.6  |    
|Tank                  |                            |                                    | 2.7   |      |  |      | 2.4   |      |  |      | 2.3   |     |  |  | 2.0   |     |  |  | 2.0   |    
|Dry Freight Specials: |                            |                                    |       |      |  |      |       |      |  |      |       |     |  |  |       |     |  |  |       |    
|                      | CPCs                       |                                    |       | 13.1 |  |      |       | 8.3  |  |      |       | 5.4 |  |  |       | 3.3 |  |  |       | 3.1 | 
|                      | Rolltrailer                |                                    |       | 2.8  |  |      |       | 2.7  |  |      |       | 2.5 |  |  |       | 2.5 |  |  |       | 1.9 | 
|                      | Other Dry Freight Specials |                                    |       | 4.4  |  |      |       | 3.8  |  |      |       | 3.4 |  |  |       | 3.0 |  |  |       | 2.7 | 
|                      |                            |                                    |       |      |  |      |       |      |  |      |       |     |  |  |       |     |  |  |       |    
|Total Fleet           |                            |                                    | 405.8 |      |  |      | 395.0 |      |  |      | 395.9 |     |  |  | 399.2 |     |  |  | 369.9 |    
|                      |                            |                                    |       |      |  |      |       |      |  |      |       |     |  |  |       |     |  |  |       |    

Operating
Segments

Cronos has three operating segments, which are
determined based on the source of container funding for the
Groups container fleet acquisitions:

1. Container Equity Programs
(Container Equity Programs),

2. Other Managed Container Programs
(Other Managed Container Programs), and

3. Owned Containers (Owned
Containers).

Lease agreements with Container Equity
Programs & Other Managed Container
Programs.The majority of agreements
with Container Equity Programs and Other Managed Container
Programs (collectively Managed Container Programs)
are in the form of a master lease, under the terms of which, the
Group is not liable to make any payments to the Managed
Container Programs until such time as the containers have been
placed on lease to an ocean carrier. The agreements generally
provide that the Group will make payments to the Managed
Container Programs based upon the rentals collected from ocean
carriers after deducting direct operating expenses and the
income earned by the Group for managing the containers.

Although all containers, regardless of the source
of funding or ownership, are leased as part of a single global
fleet, management separately monitors its performance through
Container Equity Programs, Other Managed Container Programs and
Owned Containers operations.

4



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##### Table of Contents



The following chart summarizes the composition of
the Cronos fleet (based on original equipment cost) at
December 31 for each of the years indicated:

|                                 |       |      |     |      |  |      |     |      |  |      |     |      |  |  |     |      |  |  |     |      | 
|-------------------------------- | ----- | ---- | --- | ---- |  | ---- | --- | ---- |  | ---- | --- | ---- |  |  | --- | ---- |  |  | --- | ---- | 
|                                 |       | 2003 |     | 2002 |  | 2001 |     | 2000 |  | 1999
|                                 |       |      |     |      |  |      |     |      |  |     
|Container Equity Programs        |       |      | 33% |      |  |      | 31% |      |  |      | 29% |      |  |  | 31% |      |  |  | 33% |     
|Other Managed Container Programs |       |      | 36% |      |  |      | 39% |      |  |      | 40% |      |  |  | 40% |      |  |  | 39% |     
|Owned Containers                 |       |      | 31% |      |  |      | 30% |      |  |      | 31% |      |  |  | 29% |      |  |  | 28% |     
|                                 |       |      |     |      |  |      |     |      |  |      |     |      |  |  |     |      |  |  |     |     
|                                 | Total |      |     | 100% |  |      |     | 100% |  |      |     | 100% |  |  |     | 100% |  |  |     | 100% | 
|                                 |       |      |     |      |  |      |     |      |  |      |     |      |  |  |     |      |  |  |     |     

As of December 31, 2003, no single owner,
other than the Group, owned more than 13% of the Cronos fleet
(based on original equipment cost).

One customer, Mediterranean Shipping Company S.A.
(MSC), accounted for 11% of gross lease revenue of
the Container Equity Programs operating segment in the year
ended December 31, 2003. MSC is a private company based in
Switzerland and is ranked as the second largest container liner
operator in the world.

The Group evaluates the performance of its
operating segments based on segment profit or loss. Gross lease
revenue is deemed to be earned based on the physical location of
the containers while on lease and, as substantially all of the
Groups lease revenue is earned on containers used in
global trade routes, the Group believes that it does not possess
discernible geographic reporting segments as defined in
Statement of Financial Accounting Standards (SFAS)
No. 131.

Segment revenues from external customers, segment
profit or loss and total assets are disclosed in the
Groups Financial Statements and are incorporated herein by
reference. See Note 3 to the 2003 Consolidated Financial
Statements.

Container
Equity Programs

This segment comprises the US limited partnership
programs (the US Limited Partnership Programs) and
the joint venture program (the Joint Venture
Program). See Material Off-Balance Sheet
Arrangements, Transactions and Obligations under
Managements Discussion and Analysis of Financial
Condition and Results of Operations herein.

Segment profits earned from the Container Equity
Programs were $4.1 million, $3.6 million, and
$5.1 million for the years ended December 31, 2003,
2002 and 2001, respectively (see Note 3 to the 2003
Consolidated Financial Statements). In addition, the Group
recognized its share in the equity of the Joint Venture Program
of $1.5 million and $0.3 million for the years ended
December 31, 2003 and 2002, respectively.

US Limited Partnership
Programs:Cronos raised capital
through investment syndication activities from 1979 to 1997 by
organizing and sponsoring limited partnership public offerings.
Cronos sponsored sixteen public limited partnerships and raised
over $478 million from over 37,000 investors, providing the
means to purchase 181,000 TEU of dry cargo containers, 3,500 TEU
of refrigerated containers and 300 TEU of tank containers.

The US Limited Partnership Programs provide
compensation to Cronos, the general partner, consisting of the
following fees and commissions:



| |   |                                                                                                                                                                                                                                                                                                               
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisition feesrepresent a once-off fee equal to 5%
    of the original cost of equipment acquired by the partnerships.
    Such fees are amortized for accounting purposes by Cronos, in
    the statement of operations on a straight-line basis over the
    period of the agreement to which they relate;
|
| |  | Management feesequal to 7% of gross lease revenue;                                                                                                                                                                                                                                                            
|
| |  | Incentive feesequal
    to 15% of distributable cash after the limited partners have
    received a return of their adjusted capital contributions and
    distributions in an amount equal to a cumulative compounded rate
    between 8% to 10% per annum (depending on the program);                       
|
| |  | Reimbursed administrative expensesfor certain overhead and operating
    expenses;                                                                                                                                                                                                                            

5



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##### Table of Contents





| |   |                                                                                                                                                                
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | General partner shareequal to 5% of distributable cash
    generated by the partnerships operating activities and 1%
    of distributions from sales proceeds.

Joint Venture
Program:Cronos established the Joint
Venture Program in 2002 with a current lender to the Company.
The Joint Venture Program provides compensation to Cronos
consisting of the following fees:



| |   |                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Acquisition feesequal to 1.25% of the original cost of
    equipment acquired by the Joint Venture Program. Such fees are
    paid on or about the date of the equipment purchase and are
    amortized for accounting purposes by Cronos, in the statement of
    operations on a straight-line basis over the period of the
    agreement to which they relate;
|
| |  | Management feesequal to 8% of net lease revenue;                                                                                                                                                                                                                                                                                                                 
|
| |  | Disposition feesequal to 5% of the excess of the
    disposal proceeds over the net book value of the container
    disposed.                                                                                                                                                                                                                                    

Other
Managed Container Programs

Cronos manages containers pursuant to agreements
negotiated directly with corporations, partnerships and private
individuals located in Europe, the United States and South
Africa. The terms of the agreements vary from 1 to 15 years
and take two principal forms.

Under the first form of agreement, Cronos
generally earns compensation equal to gross lease revenue less
direct operating expenses less the payment to the Managed
Container Programs (the Managed Containers),
computed in accordance with the terms of each individual
agreement. In certain cases, Cronos may also earn an incentive
fee.

Under the second form of agreement, the container
owner is entitled to a fixed payment for a specified term (see
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations
herein).

Segment profits earned by the Group from Other
Managed Container Programs were $1.6 million,
$0.4 million and $1.4 million for the years ended
December 31, 2003, 2002 and 2001, respectively (see
Note 3 to the 2003 Consolidated Financial Statements).

Owned
Containers

Cronos uses various forms of debt funding to
finance its owned fleet including bank loans and capital leases.
Container ownership provides the Group with the ability to
generate lease revenues over the life of the container, matched
with related interest and depreciation expenses. From time to
time, Cronos also owns containers on a temporary basis until
such time that the containers are sold to the Container Equity
Programs and Other Managed Container Programs. Most containers
identified for sale to Managed Container Programs are purchased
new by Cronos, and sold to owners of Managed Container Programs
within six months. This strategy allows Cronos more flexibility
to negotiate and buy containers strategically, based on market
conditions. In addition, Cronos may on occasion own equipment
that has been acquired specifically for resale to third-parties
that does not enter the Cronos managed fleet.

Assets that are funded by capital lease are
initially reported at the fair value of the asset categorized
within container equipment, with an equivalent liability
reported as capital lease obligations. Container equipment is
depreciated over its expected useful life. Finance charges are
reported over the lease term in accordance with the effective
interest method and are recorded as interest expense.



| |              
| | -------------
| | Environmental

Countries that are signatories to the Montreal
Protocol on the environment agreed in November 1992 to restrict
the use of environmentally destructive refrigerants, banning
production (but not use) of chlorofluorocarbon compounds
(CFCs) beginning in January 1996. Since then, the
environmental impact of CFCs has become increasingly prominent.
On January 1, 2001, it became illegal for environmentally
destructive refrigerants to be handled, other than for disposal,
in most of the countries that are members of the European Union.
CFCs are used in the operation, insulation and manufacture of
refrigerated containers. All of Cronos refrigerated
containers purchased since June 1993 use non-CFC refrigerant gas
in the operation and insulation

6



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##### Table of Contents



of the containers, although a reduced quantity of
CFCs are still used in the container manufacturing process. The
replacement refrigerant used in the Groups new
refrigerated containers may also become subject to similar
governmental regulations. In the past, the Group has retrofitted
certain refrigerated containers with non-CFC refrigerants.
Cronos has decided not to retrofit any additional containers. In
the unlikely event that any such further retrofitting expenses
should be required, they would not be material to the financial
position or results of operations of the Group.




| |          
| | ---------
| | Employees

As of December 31, 2003, Cronos had
75 employees worldwide; 40 were located in Europe, 20
in the United States and 15 in Asia and Australia combined. None
of Cronos employees is covered by a collective bargaining
agreement.



| |                   
| | ------------------
| | Acquisition Policy

Cronos acquisition policy for the total
fleet is driven by capital availability, market requirements and
anticipated future demand, including demand generated by trade
growth and the replacement of containers retired around the
world. The Group believes that the worldwide manufacturing
capacity for all container types is adequate to meet its current
and near-term requirements.

In recent years, China has emerged as the primary
location for almost all types of container manufacturing.
Refrigeration units, which represent approximately half of the
cost of a refrigerated container, are purchased from the two the
primary suppliers of container refrigeration units headquartered
in the United States who have manufacturing plants in the Far
East, United States and Europe. These units are shipped to the
container manufacturer for installation into the container.

All of the tank containers in the Cronos fleet
have been purchased from manufacturers based in the United
Kingdom, South Africa, Belgium and China.



| |                       
| | ----------------------
| | Repair and Maintenance

All containers are inspected and repaired when
redelivered by customers who are obligated to pay for all damage
repairs, excluding wear and tear, according to standardized
industry guidelines. As described under Description of
Business  Lease Profile some customers enter
into a damage protection plan. Depots in major port areas
perform repair and maintenance work that is verified by either
independent surveyors or the Cronos technical and operations
staff.

Before any repair or refurbishment is authorized
on older containers in the Cronos fleet, the Cronos technical
and operations staff review the age, condition and type of
container and its suitability for continued leasing. Cronos
compares the cost of such repair or refurbishment with the
prevailing market resale price that might be obtained for that
container and makes the appropriate decision whether to repair
or sell the container. Cronos is authorized to make this
decision for most of the owners for whom it manages equipment
and makes the decision by applying the same standards to the
managed containers as to its own containers.



| |                               
| | ------------------------------
| | Disposition of Used Containers

Cronos estimates that the period for which most
containers will be used in the Group fleet as a leased marine
cargo container ranges from 12 to 15 years.

Cronos disposes of used containers in a worldwide
secondary market in which buyers include wholesalers,
mini-storage operators, construction companies and others. The
market for used containers generally depends on new container
prices, the quantity of containers targeted for disposal and the
overall lease market for containers at a particular location.



| |           
| | ----------
| | Operations

Cronos sales and marketing operations are
conducted through Cronos Containers Limited (CCL), a
wholly-owned subsidiary based in the United Kingdom. CCL is
supported in this role by area offices and dedicated agents
located in San Francisco, New Jersey, Antwerp, Genoa,
Hamburg, Gothenburg, Singapore, Hong Kong, Sydney, Tokyo,
Taipei, Seoul, Rio de Janeiro, Shanghai and Madras.

7



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##### Table of Contents



Cronos also maintains agency relationships with
20 independent agents around the world who are generally paid a
commission based upon revenues generated in the region or the
number of containers that are leased from their area. These
agents are located in jurisdictions where the volume of
Cronos business necessitates a presence in the area but is
not sufficient to justify a fully-functioning Cronos office or
dedicated agent. Agents provide marketing support to the area
offices covering the region, together with limited operational
support.

In addition, Cronos relies on the services of
approximately 300 independently owned and operated depots around
the world to inspect, repair, maintain and store containers
while off-hire. The Groups area offices authorize all
container movements into and out of the depot and supervise all
repairs and maintenance performed by the depot. The Groups
technical staff set the standards for repair of the Cronos fleet
throughout the world and monitor the quality of depot repair
work. The depots provide a link to the Groups operations,
as the redelivery of a container into a depot is the point at
which the container is off-hired from one customer and repaired
in preparation for re-leasing to the next customer.

Cronos global network is integrated with
its computer system and provides 24-hour communication between
offices, agents and depots. The system allows Cronos to manage
and control its global fleet by providing the responsiveness and
flexibility necessary to service the leasing market effectively.
This system is an integral part of Cronos service, as it
processes information received from the various offices,
generates billings to lessees and produces a wide range of
reports on all aspects of the Groups leasing activities.
The system records the life history of each container, including
the length of time on-hire, repair costs, as well as port
activity trends, leasing activity and equipment data per
customer. The operations and marketing data is fully interfaced
with Cronos finance and accounting system to provide
revenue, cost and asset information to management and staff
around the world.

In recent years, Cronos and other lessors have
developed certain internet-based applications. For Cronos, these
applications allow customer access to make on-line product
inquiries. The Group is continuing to develop this side of its
business and will introduce other internet options as suitable
applications are identified.



| |            
| | -----------
| | Competition

Competition among container leasing companies is
based upon several factors, including the location and
availability of inventory, lease rates, the type, quality and
condition of the containers, the quality and flexibility of the
service offered, the availability of suitable financing and the
professional relationship between the customer and the lessor.
Other factors include the speed with which a leasing company can
prepare its containers for lease and the ease with which a
lessee believes it can do business with a lessor or its local
area office. Not all container leasing companies compete in the
same market as some supply only dry cargo containers and not
specialized containers.

Cronos competes with various container leasing
companies in the markets in which it conducts business. The
container leasing companies essentially comprises three broad
groups. The first group includes five leasing companies that
control almost 70% of the total leased fleet. The second group,
which includes Cronos, controls approximately 20% of the total
leased fleet. The third group includes the smaller, more
specialized fleet operators.

Some of Cronos competitors have greater
financial resources than Cronos and may be more capable of
offering lower per diem rates on a larger fleet. In Cronos
experience, however, ocean carriers generally lease containers
from several leasing companies in order to minimize dependence
on a single supplier.

Economies of scale, worldwide operations,
diversity, size of fleet and financial strength are increasingly
important to the successful operation of a container leasing
business. Additionally, as containerization continues to grow,
and regions such as China, South America and the Indian
sub-continent generate an increasing volume of containerized
cargo, customers may demand more flexibility from leasing
companies, particularly regarding the structure of leases, per
diem rates, pick-up and drop-off locations, and the availability
of containers.

Cronos believes it has created a strategic
advantage due to its product and funding diversity, allowing it
to develop a wider customer portfolio and lower risk profile.

8



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##### Table of Contents





| |          
| | ---------
| | Insurance

Cronos lease agreements typically require
ocean carriers to obtain insurance to cover all risks of
physical damage and loss of the equipment under lease, as well
as public liability and property damage insurance. However, the
precise nature and amount of the insurance carried by each ocean
carrier varies from lessee to lessee.

In addition, Cronos has purchased secondary
insurance effective in the event that a lessee fails to have
adequate primary coverage. This insurance covers liability
arising out of bodily injury and/ or property damage as a result
of the ownership and operation of the containers, as well as
insurance against loss or damage to the containers, loss of
lease revenue in certain cases and cost of container recovery
and repair in the event that a customer goes into bankruptcy.
Cronos believes that the nature and amounts of its insurance are
customary in the container leasing industry and subject to
standard industry deductions and exclusions.






|         |           
|-------- | ----------
|Item 2  | Properties

Cronos leases approximately 6,300 square
feet of office space near London, England, where its container
leasing operations are conducted. Cronos also leases
approximately 6,700 square feet of office space in
San Francisco, California, where its Managed Container
Program activities are based. Cronos also conducts its container
leasing operations from smaller offices that are leased in New
Jersey, Genoa, Gothenburg, Hamburg, Hong Kong, Singapore and
Sydney.

The containers owned and managed by Cronos are
described under Item 1  Description of
Business. As of December 31, 2003, Cronos owned
89,384 TEU of dry cargo containers, 6,077 TEU of
refrigerated containers, 11,379 TEU of CPCs, 2,115 TEU
of rolltrailers, 756 TEU of tank containers, and
1,547 TEU of other specialized equipment. The majority of
Owned Containers are financed by debt and capital lease
obligations. Under the terms of the debt agreements, the
containers act as collateral for the outstanding loan balance.
For assets financed by capital lease facilities, although the
Group takes all the risks and rewards of ownership, the lessor
retains title to the equipment until the capital lease
obligation has been discharged and any purchase options have
been exercised by the Group. As of December 31, 2003,
Cronos managed a total of 281,114 TEU of dry cargo
containers, 6,221 TEU of refrigerated containers,
1,914 TEU of tank containers, 1,730 TEU of CPCs,
728 TEU of rolltrailers, and 2,831 TEU of other
specialized equipment.






|         |                  
|-------- | -----------------
|Item 3  | Legal Proceedings

The
Contrin Settlement

The Group manages containers for investment
entities collectively known as Contrin in its Other
Managed Container Programs. Approximately 1% (measured by TEUs)
of the Groups fleet of containers is owned by Contrin. As
previously reported by Cronos, since August 2000 the Group has
been defending three lawsuits brought by Contrin, one in
Luxembourg and two in the United Kingdom. On November 17,
2003, the Group and Contrin settled their differences and
entered into a Settlement Agreement (the Settlement
Agreement). The Group reported the settlement in a
Form 8-K report filed with the Securities and Exchange
Commission on November 26, 2003, and filed a copy of the
Settlement Agreement as an exhibit to the report. Reference is
made to the Form 8-K report for a complete description of
the settlement.

The Group has secured two judgments against its
former chairman, Stefan M. Palatin, from the UK courts
aggregating approximately $2.3 million, and has secured two
charging orders (the Cronos Charging Orders), in the
nature of liens, to enforce the judgments against
Mr. Palatins beneficial interest in an estate located
in Amersham, England (the Amersham Estate). The
Group has brought an action (the Foreclosure Action)
in the UK courts seeking to foreclose the Cronos Charging Orders
and obtain an order of sale of the Amersham Estate to satisfy
the judgments secured against Mr. Palatin.

Under the Settlement Agreement, Contrin agreed to
file a civil action against Mr. Palatin in Austria for
recovery of $2.6 million, plus interest and costs. This
civil action follows Mr. Palatins criminal conviction
in Austria, affirmed on appeal, for, among other things,
defrauding Contrin of the $2.6 million. Contrin had sought
recovery of these monies from the Group in Contrins
Luxembourg lawsuit filed against the Group, now settled as part
of the settlement with Contrin. Contrin agrees, if it secures a
final judgment (the Austrian Judgment) against
Mr. Palatin in Austria, to register the Austrian Judgment
in the UK and to assign the Austrian Judgment to the Group for
collection against the Amersham Estate. On or about
November 28,

9



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##### Table of Contents



2003, Contrin filed its civil action against
Mr. Palatin in Austria for recovery of $2.6 million,
plus interest and costs.


If the Amersham Estate is foreclosed upon in
satisfaction of the Cronos Charging Orders and any Austrian
Judgment secured by Contrin against Mr. Palatin, the
parties agree that the first $4.85 million of net
foreclosure proceeds from the sale of the Amersham Estate and
attributable to the Cronos Charging Orders and/or Austrian
Judgment will be allocated and paid to Contrin, with the balance
of foreclosure proceeds allocated and paid to Cronos in
satisfaction of the remaining unsatisfied amount, if any, of the
Cronos Charging Orders.

The Settlement Agreement provides for Cronos to
pay Contrin a total of $3.5 million if the Group is unable
to foreclose the Cronos Charging Orders against the Amersham
Estate by the third anniversary of the effective date of the
settlement (December 17, 2006). In addition if the net
proceeds of foreclosure of the Amersham Estate in satisfaction
of the Cronos Charging Orders and any charging order obtained by
the Group to enforce the Austrian Judgment total less than
$3.5 million then the Group agrees to make up the
difference.

The Settlement Agreement provides for Cronos to
pay Contrin a total of $2.8 million (not $3.5 million)
if the Group forecloses the Cronos Charging Orders against the
Amersham Estate by December 17, 2006, and, by the date of
foreclosure, Contrin has not secured a lien on the Amersham
Estate in aid of its action against Mr. Palatin in Austria
or a charging order against the Amersham Estate to satisfy any
Austrian Judgment it secures. In this case, should the net
proceeds of foreclosure of the Amersham Estate in satisfaction
of the Cronos Charging Orders total less than $2.8 million
then the Group agrees to make up the difference.

The Settlement Agreement specifies an installment
payment plan under which Cronos paid Contrin $0.3 million
in November 2003 and $0.250 million in February 2004 and
requires further payments of $0.450 million on or before
January 3, 2005, $0.250 million on or before
April 4, 2005, $0.250 million on or before
July 4, 2005, $0.250 million on or before
October 3, 2005 and $0.250 million on or before
January 4, 2006. The balance of $1.5 million is due on
or before November 17, 2006.

Each payment reduces, dollar for dollar, the
Companys obligation to pay Contrin $3.5 million (or
$2.8 million, as the case may be), and will count as a
credit (i.e., a reduction) to Contrins entitlement
to $4.85 million of net foreclosure proceeds from the sale
of the Amersham Estate. If foreclosure of the Cronos Charging
Orders against the Amersham Estate occurs before any of these
payments is due, then the Groups obligation to make the
remaining payment(s) is excused.

Under the Settlement Agreement an escrow account
will be established with an independent bank or trust company in
London for deposit of the proceeds from foreclosure of the
Amersham Estate as a result of the enforcement of the Cronos
Charging Orders and any charging order obtained to enforce the
Austrian Judgment. The Company shall deposit to the escrow
account the proceeds of any foreclosure of the Amersham Estate
in response to the Cronos Charging Orders, generally aftersubtracting (and, subject to its obligation to pay by the
third anniversary of the settlement, $3.5 million, as
described above, retaining) therefrom the amount of any
installments made by the Group to Contrin as described in the
preceding two paragraphs.

By the terms of the Settlement Agreement, Contrin
has agreed to dismiss the three actions it has brought against
the Group and releases the Group from all claims asserted by
Contrin in the three actions. Other than for the express
obligations undertaken by the Group under the Settlement
Agreement, the Group denies all liability to Contrin by reason
of the claims asserted by Contrin in the three actions, and the
Settlement Agreement is explicit that nothing in the Settlement
Agreement is to be deemed an admission of, or evidence of, any
wrongdoing or liability on the part of the Group.

The Company calculated that the present value of
the total $3.5 million future cash payments under the
Settlement Agreement installment payment plan, discounted using
an appropriate risk-free interest rate, was $3.3 million.
As discussed herein, the Group made the first installment
payment of $0.3 million in November 2003. In addition, the
Group had previously recorded a reserve of approximately
$3 million against the Contrin claims. Interest will be
charged to the Companys income statement over the period
for performance of the Settlement Agreement using the effective
interest rate method.

10



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##### Table of Contents



Valuation of the Amersham
Estate.In connection with the
Foreclosure Action brought by the Group against Mr. Palatin
to foreclose the Cronos Charging Orders against the Amersham
Estate, the Group secured an independent valuation of the
Amersham Estate. The firm that conducted the valuation was not
able to conduct an on-site inspection of the Amersham Estate and
therefore based its valuation upon publicly available
information about the Estate and sales of comparable properties.
The firm valued the Amersham Estate within the range of
3 million British Pounds to 4 million British Pounds
(at current exchange rates, the equivalent of approximately
US $5.5 million to US $7.3 million). The
land records of the county in which the Amersham Estate is
located do not disclose any mortgage or other indebtedness
encumbering the Amersham Estate.

No assurance can be given that the Group will be
successful in foreclosing the Cronos Charging Orders against the
Amersham Estate, that the sales price achieved from any such
foreclosure would exceed (or equal) the valuation of the Estate
of between 3 million British Pounds and 4 million
British Pounds, or that the net proceeds of any such foreclosure
would be sufficient to satisfy the Cronos Charging Orders and/or
any Austrian Judgment secured by Contrin against
Mr. Palatin.

Palatin Bankruptcy.On or about December 9, 2003, a creditor of
Mr. Palatin initiated a bankruptcy proceeding against him
in Austria. The bankruptcy filing has stayed Contrins
prosecution of its civil action against Mr. Palatin. While
the bankruptcy filing requires the Group to serve the bankruptcy
trustee with notice of the Groups Foreclosure Action in
the UK, the Group does not believe that the bankruptcy will
effect a stay of prosecution of the Foreclosure Action. The
Group is working cooperatively with Contrin in an attempt to
minimize the impact of the Palatin bankruptcy on the
implementation of the settlement.






|         |                                                        
|-------- | -------------------------------------------------------
|Item 4  | Submission of Matters to a Vote of Security
    Holders

Not Applicable

11



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##### Table of Contents






PART II




Item 5  Market for the
Companys Common Equity and Related Stockholder
Matters

As of March 25, 2004, there were outstanding
7,260,080 common shares. They were held of record by
approximately 481 holders.

Prior to December 1995, there was no trading
market for the Companys common shares. Subsequent to the
Companys public offering, the common shares were quoted
and traded over-the-counter on the Nasdaq National Market System
under the symbol CRNSF. In March 1999, the Company
announced that it would comply with the reporting requirements
applicable generally to US public companies and would therefore
trade under the symbol CRNS. There is no trading
market for the common shares outside the United States. The
table below shows the high and low reported closing prices for
the common shares on the Nasdaq National Market System for the
last two years for the quarterly periods indicated. Closing
prices are market quotations and reflect inter-dealer prices,
without retail mark up, mark down or commission and may not
necessarily represent actual transactions.

|                   |                |             |   |       |  |  |   |       | 
|------------------ | -------------- | ----------- | - | ----- |  |  | - | ----- | 
|                   |                |            
|                   |                | Price Range
|                   |                |            
|                   |                | High        |   | Low  
|                   |                |             |   |      
|Calendar Year 2002 |                |             |   |       |  |  |   |      
|                   | First Quarter  |             | $ | 5.000 |  |  | $ | 3.600 | 
|                   | Second Quarter |             | $ | 4.240 |  |  | $ | 3.000 | 
|                   | Third Quarter  |             | $ | 4.450 |  |  | $ | 3.803 | 
|                   | Fourth Quarter |             | $ | 4.010 |  |  | $ | 2.500 | 
|Calendar Year 2003 |                |             |   |       |  |  |   |      
|                   | First Quarter  |             | $ | 4.000 |  |  | $ | 2.700 | 
|                   | Second Quarter |             | $ | 4.240 |  |  | $ | 2.700 | 
|                   | Third Quarter  |             | $ | 4.660 |  |  | $ | 3.700 | 
|                   | Fourth Quarter |             | $ | 5.810 |  |  | $ | 3.991 | 

There are currently no Luxembourg foreign
exchange control restrictions on the payment of dividends on the
common shares or on the conduct of Cronos operations. In
addition, there are no limitations on holding or voting
applicable to foreign holders of common shares, imposed by
Luxembourg law, by the Companys Articles of Incorporation
or otherwise, other than those restrictions which apply equally
to Luxembourg holders of common shares.

On December 10, 2002, the Board of Directors
declared an interim dividend of 4 cents per common share. The
Company paid 50% of this dividend in January 2003 and 50% in
April 2003.

In each of June and August 2003, the Company
declared dividends of 2 cents per common share which were paid
in July and October 2003, respectively. On November 4,
2003, a dividend of 4 cents per common share was approved,
payable 2 cents per common share on January 8, 2004, for
the fourth quarter of 2003 to shareholders of record as of the
close of business on December 22, 2003, and 2 cents per
common share on April 16, 2004, for the first quarter of
2004 to shareholders of record as of the close of business on
March 25, 2004.

The following summary of the material Luxembourg
tax consequences is not a comprehensive description of all of
the tax considerations that are applicable to the holders of
common shares, and does not deal with the tax consequences
applicable to all categories of holders, some of which may be
subject to special rules.

Under present Luxembourg law, as long as the
Company maintains its status as a holding company, no income
tax, withholding tax (including with respect to dividends),
capital gains tax or estate inheritance tax is payable in
Luxembourg by shareholders in respect of the common shares,
except for shareholders domiciled, resident (or, in certain
circumstances, formerly resident) or having a permanent
establishment in Luxembourg. The reciprocal tax treaty between
the United States and Luxembourg limiting the rate of any
withholding tax is therefore inapplicable.

The top US federal income tax rate for dividends
received by an individual subject to US taxation was reduced by
the Jobs and Growth Tax Relief Reconciliation Act of 2003 to
15%, the same rate applicable to

12



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##### Table of Contents



capital gains. The reduced rate for dividends
expires in 2009. The reduced rate applies to dividends received
from a domestic corporation or a qualified foreign
corporation. The Group currently qualifies as a
qualified foreign corporation by reason of the fact
that its outstanding common shares are traded on Nasdaq. The
reduced dividend rate does not apply to dividends paid on common
shares owned for less than 60 days in the 120-day period
surrounding the ex-dividend date, or on common shares purchased
with borrowed funds if the dividend was included in investment
income in claiming an interest deduction.


Equity
Compensation Plan Information

Information regarding the Groups equity
compensation plans, including both shareholder approved plans
and non-shareholder approved plans, will be set forth in the
section entitled Compensation of Executive Officers and
Directors in the Groups definitive Proxy Statement
to be filed within 120 days after the Groups fiscal
year-end of December 31, 2003, which information is
incorporated herein by reference.

See Note 17 to the Consolidated Financial
Statements for a description of the equity compensation plans.

13



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##### Table of Contents








|         |                        
|-------- | -----------------------
|Item 6  | Selected Financial Data

The following table sets forth consolidated
financial information for the Group as of and for the periods
noted. The balance sheet and statements of operations data have
been derived from the Consolidated Financial Statements of the
Company. The table should be read in conjunction with
Item 7  Managements Discussion and
Analysis of Financial Condition and Results of Operations
and the 2003 Consolidated Financial Statements and related notes
thereto included elsewhere in this Annual Report.

|                                                                                            |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |       | 
|------------------------------------------------------------------------------------------- | ------------------------------------------- | ------------------------------------- | ------- | ----------- |  | -------- | ------- | -------- |  | -------- | ------- | ----- |  | - | ------- | ----- |  | - | ------- | ----- | 
|                                                                                            |                                             |                                      
|                                                                                            |                                             | Years Ended December 31,             
|                                                                                            |                                             |                                      
|                                                                                            |                                             | 2003(1)                               |         | 2002        |  | 2001     |         | 2000     |  | 1999    
|                                                                                            |                                             |                                       |         |             |  |          |         |          |  |         
|                                                                                            |                                             |                                       |         | Restated(2) |  | Restated |         | Restated |  | Restated
|                                                                                            |                                             |                                       |         |             |  | (3)(4)   |         |          |  |         
|                                                                                            |                                             |                                      
|                                                                                            |                                             | (in thousands, except per share data)
|Statements of Operations Data:                                                              |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |      
|Gross lease revenue                                                                         |                                             | $                                     | 117,501 |             |  | $        | 113,643 |          |  | $        | 120,345 |       |  | $ | 137,605 |       |  | $ | 132,140 |      
|Total revenues                                                                              |                                             |                                       | 126,263 |             |  |          | 119,323 |          |  |          | 131,688 |       |  |   | 147,206 |       |  |   | 140,485 |      
|Income before cumulative effect of change in
    accounting principle                       |                                             |                                       | 4,190   |             |  |          | 2,309   |          |  |          | 3,401   |       |  |   | 3,605   |       |  |   | 338     |      
|Basic net income per share before cumulative
    effect of change in accounting principle   |                                             | $                                     | 0.57    |             |  | $        | 0.31    |          |  | $        | 0.43    |       |  | $ | 0.39    |       |  | $ | 0.04    |      
|                                                                                            |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |      
|Diluted net income per share before cumulative
    effect of change in accounting principle |                                             | $                                     | 0.55    |             |  | $        | 0.31    |          |  | $        | 0.42    |       |  | $ | 0.39    |       |  | $ | 0.04    |      
|                                                                                            |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |      
|Shares used in:                                                                             |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |      
|                                                                                            | - basic net income per share calculations   |                                       |         | 7,322       |  |          |         | 7,365    |  |          |         | 8,001 |  |   |         | 9,158 |  |   |         | 8,983 | 
|                                                                                            | - diluted net income per share calculations |                                       |         | 7,602       |  |          |         | 7,425    |  |          |         | 8,052 |  |   |         | 9,214 |  |   |         | 8,998 | 
|Cash dividends declared per common share                                                    |                                             | $                                     | 0.08    |             |  | $        | 0.04    |          |  |          |        |       |  |   |        |       |  |   |        |      
|Balance Sheet Data (at end of
    period):                                                  |                                             |                                       |         |             |  |          |         |          |  |          |         |       |  |   |         |       |  |   |         |      
|Cash and cash equivalents                                                                   |                                             | $                                     | 8,432   |             |  | $        | 5,626   |          |  | $        | 5,794   |       |  | $ | 7,947   |       |  | $ | 10,114  |      
|Total assets                                                                                |                                             |                                       | 238,037 |             |  |          | 236,303 |          |  |          | 251,402 |       |  |   | 258,774 |       |  |   | 275,990 |      
|Long-term debt and capital lease obligations                                                |                                             |                                       | 106,434 |             |  |          | 114,864 |          |  |          | 124,686 |       |  |   | 112,853 |       |  |   | 127,733 |      
|Total debt and capital lease obligations                                                    |                                             |                                       | 119,205 |             |  |          | 128,950 |          |  |          | 138,385 |       |  |   | 132,350 |       |  |   | 145,723 |      
|Shareholders equity                                                                        |                                             |                                       | 62,033  |             |  |          | 59,082  |          |  |          | 57,104  |       |  |   | 60,147  |       |  |   | 57,375  |      



---



|    |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(1) | In 2003, the Group recorded a tax benefit of
    $2.7 million following the transfer of assets to an
    affiliate resident in a different jurisdiction. Under the
    prevailing tax legislation, the Group was able to complete the
    transaction without generating a recapture of tax depreciation.
    As a result, the deferred tax associated with these assets was
    credited to income. In addition, the Group incurred
    $0.5 million of breakage costs in connection with the
    refinancing of the assets.
|   
|(2) | In 2002, the Group recorded a tax benefit of
    $2.5 million further to a settlement with an overseas tax
    authority.                                                                                                                                                                                                                                                                                                                                                                                                    
|   
|(3) | During 2001, the Group recorded $2 million
    of accounting charges relating to the impairment of certain
    long-lived assets.                                                                                                                                                                                                                                                                                                                                                                                            
|   
|(4) | In 2001, the Group recorded $6 million in
    income from recovery of related party loans representing the
    partial recovery of interest and principal under two promissory
    notes between the Group and a former chairman.                                                                                                                                                                                                                                                                                            

Restatement
of Consolidated Financial Statements

In December 2003, the Group adopted
Interpretation No. 46 Revised (FIN 46R),
Consolidation of Variable Interest Entities.
FIN 46R clarifies the application of Accounting Research
Bulletin No. 51 (ARB 51), to certain
entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. ARB 51 requires that an enterprises
consolidated financial statements include subsidiaries in which
the enterprise has a controlling financial interest. That
requirement

14



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##### Table of Contents



has usually been applied to subsidiaries in which
an enterprise has a majority voting interest. The voting
interest approach is not effective in identifying controlling
financial interests in entities that are not controllable
through voting interests or in which the equity investors do not
bear the residual economic risk.


FIN 46R explains how an enterprise
identifies variable interest entities in order to assess its
interests in variable interest entities and decide whether to
consolidate that entity. The Group has applied FIN 46R to
all entities it believes are subject to FIN 46R as of
December 31, 2003, and has determined that it is the
primary beneficiary of a variable interest entity. Accordingly,
Cronos has applied FIN 46R by restating previously issued
financial statements with a cumulative effect adjustment in the
beginning of the first year restated.

The Group holds a 0.1% share in the variable
interest entity to which it sold $49.7 million of
containers in a series of transactions in prior years. Cronos
manages the containers in return for a management fee and holds
an option to acquire 75% of the container owning company for one
US dollar which can be exercised once certain conditions
relating to the repayment of the indebtedness of the variable
interest entity have been met.

At December 31, 2003, the variable interest
entity held cash balances of $1.1 million, restricted cash
of $0.5 million, container assets of $26.2 million
(stated at net book value), debt facilities of
$24.6 million and $12.9 million of amounts payable to
subsidiaries of the Company. The debt is scheduled to be repaid
from the cash generated by the container assets. Such amounts
are subordinate to the repayment of the variable interest entity
debt.

The following table sets forth the effect of the
restatement adjustments.

|                                                                  |                                                                                             |                                       |         |        |   |      |         |        |   |   |         |        |   |   |         |        |  
|----------------------------------------------------------------- | ------------------------------------------------------------------------------------------- | ------------------------------------- | ------- | ------ | - | ---- | ------- | ------ | - | - | ------- | ------ | - | - | ------- | ------ | -
|                                                                  |                                                                                             |                                      
|                                                                  |                                                                                             | Years Ended December 31,             
|                                                                  |                                                                                             |                                      
|                                                                  |                                                                                             | 2002                                  |         | 2001   |   | 2000 |         | 1999  
|                                                                  |                                                                                             |                                       |         |        |   |      |         |       
|                                                                  |                                                                                             |                                      
|                                                                  |                                                                                             | (in thousands, except per share data)
|Statements of Operations Data:                                    |                                                                                             |                                       |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Net income as previously reported                                 |                                                                                             | $                                     | 3,058   |        |   | $    | 3,170   |        |   | $ | 5,216   |        |   | $ | 1,914   |       
|                                                                  | - adjustment for effect of change in
    accounting principle that is applied retroactively |                                       |         | (749   | ) |      |         | 231    |   |   |         | (1,611 | ) |   |         | (1,576 | )
|Net income as restated                                            |                                                                                             | $                                     | 2,309   |        |   | $    | 3,401   |        |   | $ | 3,605   |        |   | $ | 338     |       
|Basic net income per share as previously reported                 |                                                                                             | $                                     | 0.42    |        |   | $    | 0.40    |        |   | $ | 0.57    |        |   | $ | 0.21    |       
|                                                                  | - adjustment for effect of change in
    accounting principle that is applied retroactively |                                       | $       | (0.11  | ) |      | $       | 0.03   |   |   | $       | (0.18  | ) |   | $       | (0.17  | )
|Basic net income per share as restated                            |                                                                                             | $                                     | 0.31    |        |   | $    | 0.43    |        |   | $ | 0.39    |        |   | $ | 0.04    |       
|Diluted net income per share as previously
    reported           |                                                                                             | $                                     | 0.41    |        |   | $    | 0.39    |        |   | $ | 0.57    |        |   | $ | 0.21    |       
|                                                                  | - adjustment for effect of change in
    accounting principle that is applied retroactively |                                       | $       | (0.10  | ) |      | $       | 0.03   |   |   | $       | (0.18  | ) |   | $       | (0.17  | )
|Diluted net income per share as restated                          |                                                                                             | $                                     | 0.31    |        |   | $    | 0.42    |        |   | $ | 0.39    |        |   | $ | 0.04    |       
|Balance Sheet Data (at end of
    period):                        |                                                                                             |                                       |         |        |   |      |         |        |   |   |         |        |   |   |         |       
|Cash and cash equivalents as previously reported                  |                                                                                             | $                                     | 4,626   |        |   | $    | 4,914   |        |   | $ | 6,601   |        |   | $ | 8,701   |       
|                                                                  | - adjustment for effect of change in
    accounting principle                               |                                       |         | 1,000  |   |      |         | 880    |   |   |         | 1,346  |   |   |         | 1,413  |  
|Cash and cash equivalents as restated                             |                                                                                             | $                                     | 5,626   |        |   | $    | 5,794   |        |   | $ | 7,947   |        |   | $ | 10,114  |       
|Total assets as previously reported                               |                                                                                             | $                                     | 214,189 |        |   | $    | 225,819 |        |   | $ | 230,893 |        |   | $ | 231,867 |       
|                                                                  | - adjustment for effect of change in
    accounting principle                               |                                       |         | 22,114 |   |      |         | 25,583 |   |   |         | 27,881 |   |   |         | 44,123 |  
|Total assets as restated                                          |                                                                                             | $                                     | 236,303 |        |   | $    | 251,402 |        |   | $ | 258,774 |        |   | $ | 275,990 |       
|Total debt & capital lease obligations
    as previously reported |                                                                                             | $                                     | 100,997 |        |   | $    | 107,920 |        |   | $ | 99,379  |        |   | $ | 109,978 |       
|                                                                  | - adjustment for effect of change in
    accounting principle                               |                                       |         | 27,953 |   |      |         | 30,465 |   |   |         | 32,971 |   |   |         | 35,745 |  
|Total debt & capital lease obligations
    as restated            |                                                                                             | $                                     | 128,950 |        |   | $    | 138,385 |        |   | $ | 132,350 |        |   | $ | 145,723 |       
|Shareholders equity                                              |                                                                                             | $                                     | 64,206  |        |   | $    | 61,479  |        |   | $ | 64,753  |        |   | $ | 60,370  |       
|                                                                  | - adjustment for effect of change in
    accounting principle                               |                                       |         | (5,124 | ) |      |         | (4,375 | ) |   |         | (4,606 | ) |   |         | (2,995 | )
|Shareholders equity as restated                                  |                                                                                             | $                                     | 59,082  |        |   | $    | 57,104  |        |   | $ | 60,147  |        |   | $ | 57,375  |       

15



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##### Table of Contents








|         |                                                                                          
|-------- | -----------------------------------------------------------------------------------------
|Item 7  | Managements Discussion and Analysis
    of Financial Condition and Results of Operations

The following discussion of the Groups
financial condition and results of operations should be read in
conjunction with the 2003 Consolidated Financial Statements and
the notes thereto and the other financial and statistical
information appearing elsewhere in this annual report. The 2003
Consolidated Financial Statements have been prepared in
accordance with accounting principles generally accepted in the
United States of America (US GAAP).

The segment information presented in Note 3
to the Groups 2003 Consolidated Financial Statements
relates to the containers of the Groups fleet owned by the
Group itself or by Managed Container Programs (comprising
Container Equity Programs and Other Managed Container Programs).
Owned Containers include containers held for resale.

All containers, whether owned or managed, are
operated as part of a single fleet. The Group has discretion
over which ocean carriers, container manufacturers and suppliers
of goods and services it deals with. Since the Groups
agreements with the owners of Managed Container Programs contain
leases within the scope of SFAS No. 13
(SFAS 13) Accounting for Leases,
they are accounted for in the Groups financial statements
as leases under which the container owners are lessors and the
Group is lessee. In 2003, 88% of payments to owners of Managed
Container Programs represented agreements which generally
provided that the amounts payable to container owners were based
upon the rentals to ocean carriers after deducting direct
operating expenses and the income earned by Cronos for managing
the equipment. The remaining 12% of payments to Managed
Container Programs represented agreements under which there were
fixed payment terms. Minimum lease payments on the agreements
with fixed payment terms are included in Note 13
(c) to the Groups 2003 Consolidated Financial
Statements.

Gross lease revenueis generated by leasing containers,
both owned by the Group and by Managed Container Programs, to
ocean carriers under operating leases, excluding billings in
advance. These amounts are billed on a monthly basis. Amounts
due under master leases are calculated by the Group at the end
of each month and billed approximately 6 to 8 days
thereafter. Amounts due under term leases are set forth in the
respective lease agreements and are generally billed and payable
on a monthly basis. Changes in gross lease revenue depend
primarily upon fleet size, utilization rates and per diem rates.

Equipment trading revenue and expensesrepresent revenue earned from the sale
of equipment to third-parties and the costs of the equipment
sold.

In equipment trading transactions, the Group
enters into an agreement in which it undertakes to supply
equipment to a third-party. Simultaneously, Cronos enters into a
separate agreement with a container manufacturer for the
acquisition of the equipment. The Group acts as principal in
such transactions and accordingly the revenue and expenses are
reported gross. This equipment does not enter the Cronos fleet
of managed containers.

Commissions, fees and other operating incomeincludes acquisition fees relating to
the Groups Managed Container Programs, income from direct
financing leases, fees earned in connection with equipment
consultancy and design services, licence fee income earned in
connection with the patented CPCs (see Item 1 
Description of Business), fees from the disposal of
used containers in the Managed Container Programs and
miscellaneous other fees and income. This item is affected by
the size of managed programs and the contracted acquisition fee,
the level of consultancy and design work undertaken, the
quantity of CPCs acquired by third-parties, the number and value
of direct financing leases and income from disposals of used
containers. Although acquisition fees are generally received in
cash at the inception of a Managed Container Program and are
non-refundable, they are amortized in the statement of
operations on a straight-line basis over the period of the
managed container agreement to which they relate.

Direct operating expensesare direct costs associated with
leasing both owned and managed containers. Management analyzes
direct operating expenses as a percentage of gross lease
revenue. Direct operating expenses may be categorized as follows:



| |   |                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------
| |  | Activity-relatedexpenses include agents costs and
    depot costs such as repairs, maintenance and handling.

16



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##### Table of Contents





| |   |                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Inventory-relatedexpenses relate to off-hire containers
    and comprise storage and repositioning costs. These costs are
    sensitive to the quantity of off-hire containers as well as the
    frequency at which containers are re-delivered.
|
| |  | Legal and otherexpenses include legal costs,
    insurance and provisions for doubtful accounts.                                                                                                                                                 

Payments to Managed Container Programsreflect the amounts due to the owners
of containers in Managed Container Programs computed in
accordance with the terms of the individual agreements.

Selling, general and administrative expensesinclude all employee and office costs,
professional fees, business insurance and computer systems costs.

Segment profit or lossfor reported segments, comprises items
directly attributable to specific containers in each of the
Groups operating segments including gross lease revenue,
direct operating expenses, payments to Managed Container
Programs, direct financing lease income, container interest
expense, container depreciation expense and certain impairment
charges.

Market
Overview

Industry observers report that global container
trade grew by an estimated 8% in 2003. Following similar growth
in 2002, container leasing companies have experienced high
levels of demand for existing equipment and off-hire container
inventories have declined as a result.

The current market contrasts sharply with the
market in 2001 when the shipping and container leasing
industries experienced a sharp drop in demand. The fall in
demand together with lower prices for new equipment produced
strong downward pressure on lease rates.

As a result of the market downturn in 2001,
shipping lines and container leasing companies reduced their
levels of investment in new container equipment in 2001 and in
the first half of 2002. This had the effect of addressing, to
some extent, the problems of container over-supply caused by
higher levels of production in 1999 and 2000. In addition, since
the downturn in 2001, some shipping lines opted to lease greater
amounts of containers than in previous years by scaling back
their level of investment in new container equipment, thereby
generating increased demand for new production from the leasing
companies. However, there are indications that shipping lines
intend to increase their levels of container purchasing in 2004.
This may have a negative impact on the demand for leased
containers.

In 2002 and 2003, the growth in the marketplace
together with relatively low equipment and financing costs led
to a strong upturn in the level of new container investment by
leasing companies. Reports from container manufacturers and
industry observers suggest that new container production in 2003
surpassed record levels set in earlier years. For 2004, the
level of new container investment is forecast to equal or exceed
2003 levels. However, the cost of new container equipment has
increased significantly in the first months of 2004 as a result
of higher steel prices. These factors could potentially result
in a change in the level of demand and may cause a reduction in
the returns earned on the capital invested in new equipment.

As the global economy continues to evolve,
shipping lines are faced with rising container imbalances in
most major trade routes, rising operating costs associated with
repositioning empty containers into high demand locations, and
freight rates, despite their recent increases, remain at levels
lower than those achieved in previous years. Cronos believes
that these conditions favor the larger more established shipping
lines that have witnessed strong recoveries in their performance
over the last few years. The Group will monitor the aging of
lease receivables, collections and the credit status of existing
and potential customers in order to detect any signs of a
deterioration in their credit position.

Global container trade is affected by a wide
range of issues including the performance of the worlds
major economies, the performance of global stock markets and
geopolitical issues such as those that currently exist in the
Middle East and Asia, all of which can potentially change the
level of demand for leased containers.

17



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##### Table of Contents



Funding

One of the main reasons for the improvement in
profitability in 2003 was the ability of the Group to add new
equipment to both its owned and managed fleets. Cronos
recognizes that its ability to secure funding from third-parties
in order to expand its container fleet is crucial to its future
growth and profitability

Traditionally, Cronos has utilized funding from
each of its operating segments to grow its container fleet. In
more recent years, growth has been generated by the Owned
Container segment through debt and capital leases and by the
Container Equity Programs segment through the addition of
equipment to the Joint Venture Program. Each of these sources
provides a flexible financing structure with competitive pricing.

Owned Containers:The primary debt and capital lease facilities include financial
covenants that are tested on a quarterly basis relating to
minimum tangible net worth, maximum level of total liabilities
to tangible net worth, maximum level of debt and capital lease
obligations to tangible net worth, interest expense coverage and
debt service coverage. In 2003, the Group was in compliance with
these covenants. Future compliance with the covenants will
depend on the ability of the Group to report a minimum level of
income before income taxes at the end of each calendar quarter
(equal to 110% of interest expense for the preceding twelve
month period), and to maintain the current portion of borrowings
within financial covenant limits. The breach of a covenant
constitutes an event of default.

The primary source of debt funding available to
the Group is its revolving credit facility (the Revolving
Credit Facility) which the Group has utilized to fund the
acquisition of new equipment and to refinance existing debt and
capital lease obligation facilities. New equipment is funded 80%
by debt and 20% by cash provided by the Group. During 2003, the
Revolving Credit Facility was amended and the maximum commitment
of the lenders thereunder increased from $50 million to
$70 million. The amended agreement provides that the
balance outstanding as of September 18, 2004, will be
amortized over five years. At December 31, 2003, the
balance outstanding under the Revolving Credit Facility was
$61.4 million. The remaining debt will be utilized to
purchase new equipment in the first half of 2004. The Revolving
Credit Facility is subject to annual review and the ability of
the Group to expand its owned container fleet may be constrained
if increased funding is not approved on an annual basis or if
the Group cannot provide the 20% cash required for new container
acquisitions.

Container Equity
Programs:The Joint Venture Program
has been a major source of funding for the Group since its
inception in 2002. At December 2003, the Joint Venture Program
had capacity for an additional $30 million of new
equipment. Additional debt and equity funding is subject to
annual review. Therefore, the future growth of the Joint Venture
Program may be constrained if increased equity and debt funding
is not approved on an annual basis or if the Group cannot
provide the 10% cash required for its equity contribution. See
further discussion in Material Off-Balance Sheet
Arrangements, Transactions and Obligations herein.

Other Managed Container
Programs:Since 2001, this segment has
not provided any significant funding due largely due to the
severe downturn experienced in the marketplace that year.
However, there are indications that the growth experienced in
global container trade in recent years may attract new capital
to this segment. See further discussion in Material
Off-Balance Sheet Arrangements, Transactions and
Obligations herein.

Review of Cronos Operations

Container
Fleet

|                                 |  |                                 |       |      |  |      |       |      |  |      |       |  |  |  |       |  |  |  |       | 
|-------------------------------- |  | ------------------------------- | ----- | ---- |  | ---- | ----- | ---- |  | ---- | ----- |  |  |  | ----- |  |  |  | ----- | 
|                                 |  |                                
|                                 |  | Cronos Fleet (in TEU thousands)
|                                 |  | at December 31,                
|                                 |  |                                
|                                 |  | 2003                            |       | 2002 |  | 2001 |       | 2000 |  | 1999
|                                 |  |                                 |       |      |  |      |       |      |  |     
|Container Equity Programs        |  |                                 | 131.2 |      |  |      | 110.8 |      |  |      | 112.8 |  |  |  | 119.2 |  |  |  | 124.6 | 
|Other Managed Container Programs |  |                                 | 163.3 |      |  |      | 180.2 |      |  |      | 187.1 |  |  |  | 184.0 |  |  |  | 168.2 | 
|Owned Containers                 |  |                                 | 111.3 |      |  |      | 104.0 |      |  |      | 96.0  |  |  |  | 96.0  |  |  |  | 77.1  | 
|                                 |  |                                 |       |      |  |      |       |      |  |      |       |  |  |  |       |  |  |  |       | 
|Total Fleet                      |  |                                 | 405.8 |      |  |      | 395.0 |      |  |      | 395.9 |  |  |  | 399.2 |  |  |  | 369.9 | 
|                                 |  |                                 |       |      |  |      |       |      |  |      |       |  |  |  |       |  |  |  |       | 

18



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##### Table of Contents



In 2003, the size of the total fleet grew by 3%.
The Owned Container fleet grew by 7% as Cronos funded the
acquisition of new equipment with its Revolving Credit Facility
and capital leases. The size of the Container Equity Programs
fleet increased by 18% reflecting the addition of new equipment
to the Joint Venture Program. The Other Managed Container
Programs fleet declined by 9% due to a lack of any significant
new investment in this segment and the disposal of older
equipment.

During 2002, the size of the total fleet declined
slightly. The Owned Container fleet increased by 8% as new
container additions offset the sale of certain equipment to the
Joint Venture Program. The Container Equity Programs fleet
declined by 2% as the sale of older US Limited Partnership
Program equipment more than offset the addition of new equipment
by the Joint Venture Program which started in the third quarter.
The Other Managed Container Programs fleet declined by 4%.

The Group operates a diversified fleet of
containers. Specialized containers, comprising refrigerated
containers, tanks and dry freight specials, accounted for over
45% of the Cronos owned fleet (based on original equipment cost)
at December 31, 2003. Due to their specialized nature,
demand for certain of these containers is less likely to be
affected by global economic downturns. The following table
summarizes the composition of the total fleet at
December 31, 2003, by operating segment based on original
equipment cost.

|                      |                            |           |    |               |     |            |    |   |     |   |    |   |     |  
|--------------------- | -------------------------- | --------- | -- | ------------- | --- | ---------- | -- | - | --- | - | -- | - | --- | -
|                      |                            | Container |    | Other Managed |     |           
|                      |                            | Equity    |    | Container     |     | Owned     
|                      |                            | Programs  |    | Programs      |     | Containers
|                      |                            |           |    |               |     |           
|Dry Cargo             |                            |           | 74 | %             |     |            | 83 | % |     |   | 55 | %
|Refrigerated          |                            |           | 18 | %             |     |            | 6  | % |     |   | 27 | %
|Tank                  |                            |           | 7  | %             |     |            | 7  | % |     |   | 5  | %
|Dry freight specials: |                            |           |    |               |     |            |    |   |     |   |    |  
|                      | CPCs                       |           |    | 1             | %   |            |    |  |     |   |    | 8 | %  
|                      | Rolltrailer                |           |    |              |     |            |    | 1 | %   |   |    | 4 | %  
|                      | Other Dry Freight Specials |           |    |              |     |            |    | 3 | %   |   |    | 1 | %  
|                      |                            |           |    |               |     |            |    |   |     |   |    |  
|                      |                            | Total     |    |               | 100 | %          |    |   | 100 | % |    |   | 100 | %
|                      |                            |           |    |               |     |            |    |   |     |   |    |  

Per
Diem Rental Rates

Between January 2001 and December 2002, the
combined per diem rate for the Cronos fleet of dry cargo
containers declined by approximately 25%. Dry cargo container
per diem rates declined by a further 7% during 2003. This may be
attributed to three main factors:



| |   |                                                                                                                                                                                                            
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Per diem rental rates decreased in line with the
    reduction in container prices and interest rates.                                                                                                     
|
| |  | Cronos converted lease agreements with several
    shipping lines from master to long-term leases. These
    conversions provide greater revenue stability but at lower lease
    rates than master leases.
|
| |  | Cronos initiated new term leases for older
    equipment, which, while resulting in lower per diem rates,
    significantly lowered inventory levels.                                                      

The following factors are important when
assessing the impact of a reduction in per diem rental rates:



| |   |                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | The improvement in utilization that can result
    from lower per diem rates may have a significant favorable
    effect on direct operating expenses due to the reduction in
    storage and other inventory costs.
|
| |  | The global economic pressures that cause a
    reduction in lease rates may also contribute, to some extent, to
    a reduction in interest rates.                                                                  

Utilization

Since the beginning of 2001, the improvement in
market conditions and the implementation of several Cronos
marketing initiatives resulted in a 57% reduction in off-hire
dry container inventories resulting in a 16 percentage
point increase in utilization.

19



---



##### Table of Contents



The following chart summarizes the combined
utilization of the Cronos dry container fleet (based on
approximate original equipment cost).

|                                    |  |      |    |      |  |      |    |   |  |  |    |  
|----------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  |  | -- | -
|                                    |  | 2003 |    | 2002 |  | 2001
|                                    |  |      |    |      |  |     
|Utilization at December 31          |  |      | 89 | %    |  |      | 85 | % |  |  | 73 | %
|Average utilization during the year |  |      | 86 | %    |  |      | 80 | % |  |  | 72 | %

In order to take advantage of market
opportunities, Cronos repositions off-hire equipment from low
demand to high demand locations as part of its overall leasing
strategy. During 2003, the Group incurred $4.5 million for
repositioning moves, primarily from US east coast and certain
European locations to the Far East. The cost of repositioning
containers is offset by savings in storage expense and increased
future lease revenues. The Group has tightened the terms of its
lease agreements with shipping lines to reduce the possibility
of a similar build up of inventories in the future.

Year
Ended December 31, 2003 Compared to Year Ended
December 31, 2002

Overview

Cronos reported net income of $4.2 million
in 2003 compared to $2.3 million in the prior year. The
increase in profitability in 2003 can be attributed primarily to:



| |   |                                                                                                                                                                               
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Growth in global container trade.                                                                                                                                             
|
| |  | Increased availability of funding for investment
    in new container production and, in particular, the growth and
    profitability of the Joint Venture Program.           
|
| |  | Lower costs of financing. However, interest
    expense for 2003 included $0.5 million of breakage costs
    which were incurred in connection with a refinancing transaction.
|
| |  | An increase in income earned for the management
    of equipment in Other Managed Container Programs due to the
    conversion of an agreement from a fixed to variable basis.

During 2003, Cronos added $64.8 million of
new container equipment to its fleet of which $44.5 million
was acquired for the Joint Venture Program and
$20.3 million was acquired for Owned Container operations.
Dry cargo containers represented 63% of new container
investment, refrigerated containers 11%, CPCs 15%, tanks 6%,
with rolltrailers and other specials accounting for 5%. The
majority of new dry cargo and refrigerated containers were
placed on term lease. This reflects the strong demand from the
ocean carriers for this type of lease together with a Cronos
funding base designed to add more term leases which provide
revenue stability and a low cost base.

Analysis & Discussion

Gross lease revenue (GLR)of $117.5 million for the year
ended December 31, 2003, was $3.9 million, or 3%,
higher than for the prior year. Of the increase,
$2.4 million was due to the combined effect of the change
in utilization and per diem rates and $1.5 million was due
to the increase in fleet size. GLR increased for almost all
product types, with the exception of refrigerated containers
where GLR declined by $0.5 million due to the disposal of
older equipment at the end of its economic life.

Direct operating expenseswere $25.5 million in 2003, a
decrease of $1.3 million, or 5%, compared to 2002. The
primary reasons for the decline were:



| |   |                                                                                                                                                                                                                                                                                                                                                  
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A reduction of $2.2 million in
    inventory-related costs reflecting a $3 million decline in
    storage due to the reduction in off-hire container inventories,
    partially offset by an increase of $0.8 million in
    repositioning expense reflecting the cost of moving off-hire
    equipment from low demand to high demand locations.
|
| |  | A $0.8 million increase in the amount of
    legal and other costs as the provision for doubtful accounts was
    increased to reflect the deterioration in the credit position of
    a Far East based shipping line.                                                                                                                           

20



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##### Table of Contents



Operating segment information(see Note 3 to the 2003
Consolidated Financial Statements).

|                             |                                          |           |       |           |   |            |       |         |   |   |       |         |   |   |        |         |  
|---------------------------- | ---------------------------------------- | --------- | ----- | --------- | - | ---------- | ----- | ------- | - | - | ----- | ------- | - | - | ------ | ------- | -
|                             |                                          |           |       | Other     |   |            |       |        
|                             |                                          | Container |       | Managed   |   |            |       |        
|                             |                                          | Equity    |       | Container |   | Owned      |       |        
|(in thousands)               |                                          | Programs  |       | Programs  |   | Containers |       | Total  
|                             |                                          |           |       |           |   |            |       |        
|Year ended December 31, 2003 |                                          |           |       |           |   |            |       |         |   |   |       |         |   |   |        |        
|                             | - gross lease revenue                    |           | $     | 35,188    |   |            | $     | 44,901  |   |   | $     | 37,412  |   |   | $      | 117,501 |  
|                             | - direct operating expenses              |           |       | (7,915    | ) |            |       | (10,704 | ) |   |       | (6,889  | ) |   |        | (25,508 | )
|                             |                                          |           |       |           |   |            |       |         |   |   |       |         |   |   |        |        
|                             | - net lease revenue                      |           |       | 27,273    |   |            |       | 34,197  |   |   |       | 30,523  |   |   |        | 91,993  |  
|                             | - direct financing lease income          |           |       |          |   |            |       |        |   |   |       | 1,510   |   |   |        | 1,510   |  
|                             | - payments to Managed Container Programs |           |       | (23,159   | ) |            |       | (32,571 | ) |   |       |        |   |   |        | (55,730 | )
|                             | - container depreciation                 |           |       |          |   |            |       |        |   |   |       | (17,282 | ) |   |        | (17,282 | )
|                             | - container interest expense             |           |       |          |   |            |       |        |   |   |       | (5,665  | ) |   |        | (5,665  | )
|                             |                                          |           |       |           |   |            |       |         |   |   |       |         |   |   |        |        
|Segment profit               |                                          | $         | 4,114 |           |   | $          | 1,626 |         |   | $ | 9,086 |         |   | $ | 14,826 |        
|                             |                                          |           |       |           |   |            |       |         |   |   |       |         |   |   |        |        

Container Equity
Programs:segment profit increased to
$4.1 million in 2003 from $3.6 million in 2002.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                             
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net lease revenuefor this segment increased by
    $5.5 million over the prior year. This is primarily due to
    the increase in GLR as the additional investment in equipment
    for the Joint Venture Program together with the improvement in
    fleet utilization more than offset the effect of the disposal of
    older US Limited Partnership Program equipment and lower
    dry per diem rates.
|
| |  | Payments to Container Equity Programsincreased by $4.9 million, which
    is in line with the increase in net lease revenue for this
    segment.                                                                                                                                                                                                                                                           

Other Managed Container
Programs:segment profit increased to
$1.6 million in 2003 from $0.4 million in 2002.



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net lease revenueincreased by $0.6 million when
    compared to 2002. GLR for this segment declined as the effect of
    the disposal of older equipment more than offset the impact of
    improved utilization. However, this was more than offset by a
    $1.2 million reduction in direct operating expenses.                                                                                                                                                                                                                                                                                                  
|
| |  | Payments to Other Managed Container Programsdecreased as the payments attributable
    to the increase in net lease revenue were more than offset by a
    $1.3 million reduction in the payments to one owner of a
    Managed Container Program where the payment terms for a number
    of agreements changed from a fixed to a variable payment basis.
    Under the variable payment basis, the amount payable to the
    Managed Container Program is based on the rentals to the ocean
    carriers after deducting direct operating expenses and the
    income earned by Cronos for managing the equipment.

Segment profit on Owned Containersincreased by $2 million to
$9.1 million in 2003.



| |   |                                                                                                                                                                                                                                                                                                                                        
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | GLRdeclined by
    $0.8 million due primarily to the sale of equipment to the
    Joint Venture Program in the second half of 2002 and in the
    first half of 2003.                                                                                                                                                                  
|
| |  | Container depreciationof $17.3 million in 2003 declined
    by $1.1 million from 2002 as the increase in depreciation
    attributable to new container additions was more than offset by
    the disposal of refrigerated equipment at the end of its
    economic life and by the sale of equipment to the Joint Venture
    Program.
|
| |  | Container interest expenseof $5.7 million in 2003, was
    $1.5 million, or 21%, lower than in 2002. The main changes
    in interest expense were attributable to:                                                                                                                                                                    



| |   |                                                                                                                                                                                                                                                                                                      
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | A reduction of the total level of debt and
    capital lease obligations in 2003 when compared to 2002. This is
    primarily as a result of the reduction of $11.3 million of
    indebtedness in September 2002 related to the sale of
    $18.8 million of equipment to the Joint Venture Program.
|
| | - | Lower interest rates.                                                                                                                                                                                                                                                                                
|
| | - | $0.5 million of breakage costs in December
    2003 as a result of the refinancing of approximately
    $9 million of fixed rate debt.                                                                                                                                                               

21



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##### Table of Contents



Equipment trading revenueof $5 million in 2003 represented
transactions undertaken in which the Group used its
relationships with equipment manufacturers to assist
third-parties to design and acquire their own equipment and
organize delivery to designated locations. Equipment trading
expenses represented equipment and related costs for this
activity. The Group earned $0.4 million from equipment
trading activity during 2003, compared with $0.1 million in
2002.

Commissions, fees and other operating incomeof $3.6 million in 2003 were
$0.7 million, or 16%, lower than in 2002. The decrease was
primarily due to:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A total reduction of $0.6 million in CPC
    licence fee income and consultancy and design fee income due to
    lower third-party demand for new CPC and other container
    acquisitions during 2003.                                                                                                                                                                                                                                                          
|
| |  | A reduction of $0.4 million in fees earned
    on the disposal of containers owned by Managed Container
    Programs. This was due in part to the fact that greater
    quantities of equipment had reached the end of their economic
    life and were therefore sold in earlier years and in part to the
    fact that the off-hire inventories, from which disposals may be
    made, declined in line with increased market demand for leased
    containers.
|
| |  | A reduction of $0.2 million in amortized
    acquisition fee income reflecting a maturing portfolio of
    Managed Container Programs.                                                                                                                                                                                                                                                                                                                           
|
| |  | A reduction of $0.2 million in income earned
    on the sublease of two properties as a result of office
    relocations in the US and in the UK.                                                                                                                                                                                                                                                                                                                
|
| |  | An increase of $0.3 million in direct
    financing lease income reflecting the addition of a number of
    new direct financing leases.                                                                                                                                                                                                                                                                                                                         
|
| |  | An increase of $0.4 million in unrealized
    exchange gains recognized primarily on Euro direct financing
    lease receivables.                                                                                                                                                                                                                                                                                                                                

Interest incomeof
$0.1 million for the year ended December 31, 2003, was
$0.2 million lower than in 2002. This is due to the global
reduction in interest rates and the utilization of surplus cash
balances to pay down revolving credit and overdraft balances.

Amortization of intangible assetsof $0.2 million was unchanged
from 2002.

Selling, general and administrative expenseswere $15.8 million in 2003, an
increase of $1.5 million, when compared to 2002. Of the
total increase, $0.9 million can be attributed to the
decline in the value of the US dollar against other major
currencies. The balance of the increase was due to:



| |   |                                                                                                                                                                                           
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | An increase of $0.5 million in manpower
    costs as a result of changes in salary levels in line with
    inflation and other pay awards.                                                
|
| |  | A $0.2 million increase in the expense
    recognized for a stock appreciation rights plan reflecting a
    higher Group share price at December 2003 when compared to the
    prior year.
|
| |  | An increase of $0.2 million in legal costs
    for the Contrin and Palatin legal actions.                                                                                                 
|
| |  | A reduction of $0.3 million in occupancy
    costs due to office relocations in the UK and the US.                                                                                        

Income Taxes.Since
1996, the Group has been able to claim capital allowances
(depreciation for tax purposes) on certain equipment purchased
in that year and thereby defer taxation payments. In December
2003, as part of a refinancing transaction for the facility that
had funded the acquisition of this equipment, the assets were
sold to another Group company in a different jurisdiction. As
discussed above, the Group incurred $0.5 million of
breakage costs in connection with the refinancing transaction.
In accordance with the governing UK taxation legislation, the
Group was able to complete the transfer of the assets without
generating a resulting tax repayment. As a result, the
$2.7 million of deferred tax associated with these assets
was credited to income. This was partially offset by tax charges
of $1.2 million.

Equity in earnings of affiliatewas $1.5 million in 2003 compared
to $0.3 million in the period September to December 2003.
These earnings represent the recognition of the Cronos share of
net income generated by the Joint Venture Program entity that
was set up in September of 2002.

22



---



##### Table of Contents



Year
Ended December 31, 2002 Compared to Year Ended
December 31, 2001

Overview

Cronos reported income before the cumulative
effect of a change in accounting policy of $2.3 million in
2002 compared to $3.4 million in 2001. The results of both
years included non operating items which had the effect of
increasing the income before the cumulative effect of a change
in accounting policy by $2.5 million and $3.7 million
for the years ended December 31, 2002 and 2001,
respectively.

Excluding non-operating items, the reduction in
the loss before the cumulative effect of a change in accounting
policy can primarily be attributed to:



| |   |                                                                                                                     
| | - | --------------------------------------------------------------------------------------------------------------------
| |  | Growth in global container trade.                                                                                   
|
| |  | Increased profitability of Owned Containers due
    to the addition of new container equipment during 2002 and 2001.
|
| |  | Lower funding costs.                                                                                                
|
| |  | The inception of the Joint Venture Program.                                                                         

However, the positive impact of these factors was
partially offset by:



| |   |                                                                                                                                                                                            
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A reduction in the level of income earned from
    managing equipment owned by Managed Container Programs due in
    part to the disposal of equipment at the end of its economic
    life.
|
| |  | A reduction in CPC licence fee income.                                                                                                                                                     

Analysis & Discussion

Gross lease revenueof $113.6 million for the year
ended December 31, 2002, was $6.7 million, or 6%,
lower than for the year ended December 31, 2001. Of this
decline, $7.4 million was caused by the combined effect of
the change in per diem rates and utilization partly offset by a
$0.7 million increase that was attributable to a higher
average fleet size during 2002.

Direct operating expenseswere $26.8 million in 2002, a
decrease of $4.1 million, or 13%, compared to 2001. Reduced
storage costs accounted for almost all of the decline and
reflected lower inventory levels due to the increased demand for
dry cargo containers during the year.

Operating segment information(see Note 3 to the 2003
Consolidated Financial Statements).

|                             |                                          |           |       |           |   |            |     |         |   |   |       |         |   |   |        |         |  
|---------------------------- | ---------------------------------------- | --------- | ----- | --------- | - | ---------- | --- | ------- | - | - | ----- | ------- | - | - | ------ | ------- | -
|                             |                                          |           |       | Other     |   |            |     |        
|                             |                                          | Container |       | Managed   |   |            |     |        
|                             |                                          | Equity    |       | Container |   | Owned      |     |        
|(in thousands)               |                                          | Programs  |       | Programs  |   | Containers |     | Total  
|                             |                                          |           |       |           |   |            |     |        
|Year ended December 31, 2002 |                                          |           |       |           |   |            |     |         |   |   |       |         |   |   |        |        
|                             | - gross lease revenue                    |           | $     | 29,925    |   |            | $   | 45,466  |   |   | $     | 38,252  |   |   | $      | 113,643 |  
|                             | - direct operating expenses              |           |       | (8,130    | ) |            |     | (11,906 | ) |   |       | (6,757  | ) |   |        | (26,793 | )
|                             |                                          |           |       |           |   |            |     |         |   |   |       |         |   |   |        |        
|                             | - net lease revenue                      |           |       | 21,795    |   |            |     | 33,560  |   |   |       | 31,495  |   |   |        | 86,850  |  
|                             | - direct financing lease income          |           |       |          |   |            |     |        |   |   |       | 1,194   |   |   |        | 1,194   |  
|                             | - payments to Managed Container Programs |           |       | (18,214   | ) |            |     | (33,158 | ) |   |       |        |   |   |        | (51,372 | )
|                             | - container depreciation                 |           |       |          |   |            |     |        |   |   |       | (18,407 | ) |   |        | (18,407 | )
|                             | - container interest expense             |           |       |          |   |            |     |        |   |   |       | (7,209  | ) |   |        | (7,209  | )
|                             |                                          |           |       |           |   |            |     |         |   |   |       |         |   |   |        |        
|Segment profit               |                                          | $         | 3,581 |           |   | $          | 402 |         |   | $ | 7,073 |         |   | $ | 11,056 |        
|                             |                                          |           |       |           |   |            |     |         |   |   |       |         |   |   |        |        

Container Equity
Programs:segment profit declined by
$1.5 million to $3.6 million in 2002.



| |  |   |                                                                                                                                                                                                                                                                                                                                                                                                                                                             
| |  | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  |  | Net lease revenuefor this segment declined by
    $2.3 million over prior year. GLR declined by
    $3.8 million as the combined effect of the reduction in dry
    container per diem rates and the disposal of older
    US Limited Partnership Program equipment more than offset
    the effect of the increase in utilization. Direct operating
    expenses declined by $1.5 million in line with the
    reduction in off-hire container inventories.

23



---



##### Table of Contents





| |   |                                                                                                                  
| | - | -----------------------------------------------------------------------------------------------------------------
| |  | Payments to Container Equity Programsdecreased by $0.8 million
    reflecting the reduction in net lease revenue.

Other Managed Container
Programs:segment profit of
$0.4 million in 2002 was $1 million lower than in 2001:



| |   |                                                                                                                                                                                                                                                                                                                                                                                                                       
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net lease revenuedecreased by $2.2 million when
    compared to 2001. GLR for this segment declined by
    $3.5 million as the combined effect of the reduction in per
    diem rates and a smaller fleet size, reflecting the disposal of
    older equipment, more than offset the impact of improved
    utilization. However, this was partly offset by a
    $1.3 million reduction in direct operating expenses.
|
| |  | Payments to Other Managed Container Programsdecreased by $1.2 million in line
    with the change in net lease revenue for those agreements where
    the amount payable varies according to the level of net lease
    revenue earned.                                                                                                                                                                               

Segment Profit on Owned Containersincreased by $6.6 million to
$7.1 million in 2002.



| |   |                                                                                                                                                
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------
| |  | Net lease revenueincreased by $1.9 million due
    primarily to the acquisition of new equipment during 2002 and
    2001.                     
|
| |  | Direct financing lease incomeincreased by $0.9 million
    reflecting the addition of new direct financing lease equipment
    during 2002.    
|
| |  | Container depreciationof $18.4 million in 2002
    increased by $0.7 million over 2001.                                                        
|
| |  | Container interest expensedeclined by $2.6 million to
    $7.2 million in 2002, primarily due to the effect of lower
    interest rates.       
|
| |  | Impairment losses:segment profit for 2001 included the effect of a $2 million
    impairment loss recognized on certain refrigerated equipment.

Equipment trading revenueof $1 million in 2002 represented
transactions undertaken in which the Group used its
relationships with equipment manufacturers to assist
third-parties to design and acquire their own equipment and
organize delivery to designated locations. Equipment trading
expenses represented equipment and related costs for this
activity. The Group earned $0.1 million from equipment
trading activity during 2002, compared with $0.3 million in
2001.

Commissions, fees and other operating incomeof $4.3 million in 2002 were
$1.1 million, or 21%, lower than in 2001. The decrease was
primarily due to:



| |   |                                                                                                                                                              
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------
| |  | A reduction of $1 million in CPC licence fee
    income due to lower third-party demand for new CPC containers
    during 2002.                              
|
| |  | A reduction of $0.4 million in amortized
    acquisition fee income reflecting a maturing portfolio of
    Managed Container Programs.                       
|
| |  | A total reduction of $0.5 million on fees
    earned on the disposal of containers owned by Managed Container
    Programs, property rental and other income.
|
| |  | An increase of $0.8 million increase in
    income earned on direct financing leases.                                                                        

Interest incomeof
$0.3 million for the year ended December 31, 2002 was
unchanged when compared to the prior year. In both 2002 and
2001, the reduction in interest rates reduced the amount of
interest income earned when compared to previous years.

Non container depreciationfor leasehold and computer assets was
$0.6 million lower than in 2001. This was due to certain
computer assets reaching the end of their useful life and the
relocation of the UK office to new leasehold premises in the
second quarter of 2002.

Amortizationof
intangible assets declined by $0.4 million in 2002 due to
the adoption of SFAS No. 142.

24



---



##### Table of Contents



Selling, general and administrative expenseswere $14.3 million in 2002, an
increase of $0.2 million, when compared to 2001. The
increase was primarily due to:



| |   |                                                                  
| | - | -----------------------------------------------------------------
| |  | An increase of manpower costs of
    $0.3 million.               
|
| |  | Increased business insurance and other costs of
    $0.2 million.
|
| |  | A reduction of $0.3 million in information
    technology costs. 

Income Taxes.During
the second quarter of 2002, the Group agreed to a settlement
with a foreign taxation authority. This followed a review that
focused primarily on the transfer prices under the terms of the
principal trading agreements between Cronos Group companies
prior to December 31, 1998. The Group had previously
recorded a charge of $2.9 million in this regard. As a
result of the settlement, the Group reversed $2.5 million
of the tax liability and recorded a tax benefit of the same
amount. Further to the settlement, the Group performed an
evaluation of its worldwide tax position during the third
quarter. Based on this review, the Group recorded a net tax
benefit of $0.4 million in its US subsidiaries. The total
income tax benefit for 2002 was partly offset by
$0.7 million of income tax charges. In 2001, the Group
recorded income from the recovery of related party loans of
$6 million and a gain on sale of investment of
$0.3 million in jurisdictions where such income is not
subject to income taxes. In addition, the Group utilized
taxation losses that were carried forward from prior years to
reduce 2001 taxable income. The 2001 charge for income taxes of
$0.1 million represented 2% of income before income taxes.

Equity in earnings of affiliateof $0.3 million in 2002
represents the recognition of the Cronos share of earnings from
the Joint Venture Program entity that was set up in September of
2002.

Liquidity and Capital Resources

The Group uses cash from a number of sources in
order to meet its operating and other cash flow commitments.

Operating cash flow.The Groups operating cash flow is derived from lease
revenues generated by the Groups container fleet, fee
revenues from its Managed Container Programs and other parties
and income earned on equipment trading transactions.

Operating cash flow is utilized to meet costs
relating to day-to-day fleet support, payments to Managed
Container Programs, selling, general and administrative
expenses, interest expense, servicing the current portion of
long-term borrowings, financing a portion of certain debt funded
equipment acquisitions and providing equity contributions to
fund 10% of the capital requirements of the Joint Venture
Program.

Operating cash flow is largely dependent upon the
timely collections of lease revenues from shipping lines. Based
on loss experience for the last twelve years, bad debts have
approximated 1% of lease revenues. The Group monitors the aging
of lease receivables, collections and the credit status of
existing and potential customers. There is a risk that some
shipping lines may experience financial difficulty. Any
resultant material increase in the level of bad debts could
potentially impair the ability of the Group to meet its
operating and other commitments.

At December 31, 2003, the Group had
$129.4 million of available container borrowing facilities
under which $119.2 million was outstanding. In addition,
the Group had $1.7 million of credit facilities under which
there were no amounts outstanding. The credit facilities are
available, if required, for operating cash flow purposes.

Cash
Flow Statements for the years ended December 31, 2003, 2002
and 2001

Cash from Operating
Activities.Net cash provided by
operating activities during 2003, 2002 and 2001 was
$22.7 million, $21.4 million and $21 million,
respectively. The increase in net cash generated in 2003 was
primarily due to cash flows generated by increased gross lease
revenue, lower direct operating expenses and lower interest
costs which were partly offset by increased payments to Managed
Container Programs, reduced cash flows from commissions fees and
other operating income and increased selling, general and
administrative costs. The net cash generated in 2002 included
$1.2 million of income tax repayments relating primarily to
a settlement with a foreign taxation authority during the year.
In addition, during 2002, the increase in cash generated by the
decline in direct operating expense payments, lower financing
costs and reduced payments to

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Managed Container Programs were more than offset
by the decline in cash flows resulting from the reduction in
gross lease revenue and the decline in the level of commissions
and fees generated. The net cash generated in 2001 reflected
earnings from operations, as well as cash generated from the
sale of new container equipment purchased for resale to a new
Other Managed Container Program. This sale generated
$8 million in proceeds of which $6.8 million was used
to pay container manufacturers.


Cash from Investing
Activities.The Group uses cash from
investing activities to acquire containers for its owned fleet,
to purchase other assets related to the operation of its
worldwide office network and to fund investment activities. Net
cash used in 2003 investing activities was $9.8 million.
Payments of $16.9 million for new container and other
equipment and $2.6 million of equity contributions to the
Joint Venture Program were partially offset by $9.6 million
of proceeds from the sale of container equipment. This included
$4.6 million of proceeds further to a sale to the Joint
Venture Program. Net cash used in investing activities was
$3.2 million in 2002. Proceeds from the sale of container
equipment of $12.5 million included $9.8 million of
equipment that was sold to the Joint Venture Program. In
addition, the Group received a dividend of $1.4 million
from the Joint Venture Program. These items were more than
offset by total expenditure of $17.2 million on fixed
assets and direct financing lease equipment. Net cash used in
investing activities was $23.9 million in 2001, reflecting
the acquisition of $22.4 million of container and other
equipment and the investment of $6.5 million in direct
financing leases. Net cash provided by investing activities
during 2001 comprised proceeds generated from the sale of
container equipment of $4.5 million and proceeds from the
sale of investments of $0.5 million.

Cash from Financing
Activities.The Group uses cash from
financing activities to fund capital acquisitions and the
short-term purchases of new container equipment held for resale.
Net cash used in financing activities was $10.1 million in
2003 as the Group utilized $35.6 million of revolving
credit and term loan facilities to fund equipment acquisitions
and to refinance $16.9 million of existing debt and capital
lease obligations. This was partly offset by the repayment of
$28 million of debt and capital lease obligations including
a $4.6 million repayment after an equipment sale to the
Joint Venture Program. In addition the Group made
$0.6 million in dividend payments and repurchased
$0.3 million of its common shares. Net cash used in
financing activities was $18.3 million for 2002. Proceeds
from the issuance of new term debt of $17.9 million were
more than offset by the repayment of $36.2 million of debt
and capital lease obligations, including $11.3 million that
was repaid at the inception of the Joint Venture Program. Net
cash provided by financing activities was $0.7 million for
2001. In July 2001, the Group entered into a $60 million
revolving credit facility, under which Cronos refinanced
$37.6 million of existing debt. The Group has borrowed an
additional $24.5 million to finance new container
production. In addition to the refinancing of existing debt, the
Group repaid $24.8 million of debt and capital lease
obligations during 2001.

Capital
Resources

Capital
Expenditures and Commitments

The Group purchases new containers for its Owned
Container operations and for resale to its Managed Container
Programs and other parties. At December 31, 2003, the Group
owed container manufacturers $17.3 million for equipment.
The Group will fund $5.7 million of this equipment
utilizing its available container funding facilities,
$6 million will be paid by the Joint Venture Program,
$3.7 million will be paid by Other Managed Container
Programs and the remaining $1.9 million will be paid by
third-parties under equipment services transactions.

In addition, at December 31, 2003, the Group
had commitments of $7.4 million to purchase container
equipment in 2004. Of this, $3.4 million will be financed
by the Group using available container funding facilities and
$4 million will be paid by the Joint Venture Program.

On April 1, 2003, the Group sold
$4.6 million of containers to the Joint Venture Program and
transferred an additional $1 million of containers as a
capital contribution. The Group utilized the proceeds from the
sale of containers to repay approximately $4.6 million of
indebtedness outstanding under an existing revolving line of
credit. The sale of the containers by the Group to the Joint
Venture Program was at book value, which approximated fair
value, and therefore did not result in a gain or loss.

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Capital expenditures for containers in 2003, 2002
and 2001 were $16.5 million, $15.5 million and
$22.3 million respectively. Other capital expenditures in
2003, 2002 and 2001 were $0.3 million, $0.3 million
and $0.1 million, respectively.

At the 2002 annual meeting of the shareholders of
the Company, the shareholders granted to the Board of Directors
of the Company the authority to adopt and implement from time to
time a share repurchase program, subject to certain
restrictions. The Board adopted a share repurchase program on
December 10, 2002, authorizing the expenditure of up to
$500,000 to purchase no more than 200,000 of the Companys
outstanding common shares. Under the program adopted by the
Board, the Company repurchased, in the fourth calendar quarter
of 2002, 12,000 of its common shares.

At the annual meeting of shareholders of the
Company held on June 5, 2003, the shareholders approved an
extension of the grant of authority to the Board to implement a
share repurchase program and granted the Board the authority to
authorize common share repurchases both in the open market and
through privately-negotiated transactions. On August 14,
2003, the Company repurchased 100,000 of its outstanding common
shares from a single shareholder of the Company at a purchase
price of $2.60 per share, or $260,000 in the aggregate.

On November 4, 2003, a dividend of 4 cents
per common share was approved, payable 2 cents per common share
on January 8, 2004, for the fourth quarter of 2003 to
shareholders of record as of the close of business on
December 22, 2003, and 2 cents per common share on
April 16, 2004, for the first quarter of 2004 to
shareholders of record as of the close of business on
March 25, 2004.

Cronos intends to use funding from each of its
operating segments to finance future fleet growth.

The Group believes that it has sufficient capital
resources to support its operating and investing activities for
the next twelve months.

Material
Off-Balance Sheet Arrangements, Transactions and
Obligations

Joint Venture
Program.In September 2002, Cronos
established the Joint Venture Program with a financial
institution (the Bank). The Joint Venture Program is
a $100 million container purchase program which was
established to acquire and lease to third party lessees marine
cargo containers through a joint venture 50% owned by a
subsidiary of the Company and 50% owned by an affiliate of the
Bank. The Group and the Bank have each committed approximately
$10 million in equity to the Joint Venture Program and the
Bank and another financial institution have committed a total of
$80 million in debt financing. Therefore, the lenders
provide up to 80% of the cost of acquiring the containers with
Cronos and the Bank as the joint venture partners, each
providing one-half of the equity to fund the balance of the
capital requirements of the Joint Venture Program. The joint
venture entity is a bankruptcy-remote, special purpose company
organized under the laws of Bermuda and is accounted for under
the equity method of accounting. The Group has determined that
the Joint Venture Program is within the scope of FIN 46R,
however it is not a variable interest entity. At
December 31, 2003, the maximum exposure to losses for
Cronos as a result of its involvement with the Joint Venture
Program was $8.6 million, representing its investment in
the Joint Venture Program.

At December 31, 2003, the Joint Venture
Program had fixed assets and direct financing leases with a book
value of $68 million partly funded by debt of
$54.8 million. In 2004, it is expected that the Joint
Venture Program will acquire an additional $30 million of
assets and this investment will require additional equity of
approximately $3 million from each of the joint venture
partners. A further discussion of the Groups involvement
and transactions with the Joint Venture Program is provided in
Item 1  Description of Business
herein.

US Limited Partnership Programs 
General Partner.The Group acts as
general partner for eight US Limited Partnership Programs. A
further discussion of the Groups involvement and
transactions with the US Limited Partnership Programs is
provided in Item 1  Description of
Business herein. The partnership agreement provides that
the general partner will not be liable to the partnership or to
the limited partners for any act or omission performed or
omitted by it in good faith, but that it may be liable for
misconduct or negligence. The general partner will be
indemnified by the partnership for any liabilities suffered by
it arising out of its activities as general partner, except in
the case of misconduct or negligence. As a limited liability
partnership, the limited partners may not be assessed for
additional capital contributions and therefore it is possible
that the general partner could be liable for any additional
contributions required. A majority of the

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limited partners in a partnership can remove the
general partner, thereby terminating the agreement with Cronos.
The Group has determined that the US Limited Partnership
Programs are variable interest entities as defined in
FIN 46R, however the Group is not the primary beneficiary
for any of the US Limited Partnership Programs.


Loan Guarantee to a US Limited
Partnership Program.During 2000, the
Group provided a guarantee under a $5 million third-party
loan note (the Note), with a 2006 maturity date, to
one of the US Limited Partnership Programs. Under the terms of
the guarantee, the Group may be liable for any principal and
interest outstanding under the terms of the Note in the event of
a default by this US Limited Partnership Program. At
December 31, 2003, the maximum potential amount of future
payments under the guarantee was $2.2 million and the fair
value of the guarantee was $2.1 million.

Fixed Operating Leases
Obligations.Cronos, as lessee, has
entered into fixed operating lease contracts for container
equipment, computer equipment and office space. In 2003 the
rental expense was $7.7 million of which the fixed
operating lease rental expense for container equipment was
$6.8 million. See Contractual Obligations
herein and Note 13 (c) to the 2003 Consolidated
Financial Statements for the minimum amount of future lease
payments due under fixed operating and other lease contracts.

Legal Settlement.On
November 17, 2003, Cronos and Contrin entered into a
Settlement Agreement, resolving litigation which had commenced
in August 2000 (see Legal Proceedings and
Contractual Obligations herein). Under the terms of
the Settlement Agreement, Cronos has agreed to make certain
future payments to Contrin.

Agreements with Other Managed Container
Programs  early termination
options.At December 31, 2003,
approximately 60% (based on original equipment cost) of the
agreements with Other Managed Container Programs contain early
termination options, whereby the container owner may terminate
the agreement if certain performance thresholds are not
achieved. At December 31, 2003, approximately 45% (based on
original equipment cost) of the total agreements were eligible
for early termination. Cronos believes that early termination of
these agreements is unlikely.

Agreements with Other Managed Container
Programs  change of control
provisions.At December 31, 2003,
approximately 66% (based on original equipment cost) of
agreements with Other Managed Container Programs provide that a
change in ownership of the Group, without the prior consent of
the container owner, may constitute an event of default under
the agreement. In substantially all of these agreements, the
consent of the container owners may not be unreasonably
withheld. In the event that consent is not obtained, 38% of the
total agreements may require the Group to transfer possession of
the equipment to another equipment manager. Such transfer of
possession may result in the Group incurring certain costs. The
remaining 28% of total agreements may require the Group to
purchase the equipment from the container owners pursuant to the
terms of their respective agreements, generally a stipulated
percentage (determined by age of the equipment) of the original
cost of the equipment.

A further discussion of the Groups
involvement and transactions with the Other Managed Container
Programs is provided in Item 1 
Description of Business herein.

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Contractual Obligations

The following table sets forth the payments by
period for Cronos contractual obligations. For a discussion of
the Groups commitments and contingencies, see
Note 15, Commitments and Contingencies, to the
Companys 2003 Consolidated Financial Statements.

|                                                                    |  |                                      |        |                        |  |       |        |       |  |           |        |  |  |   |        |  |  |   |        | 
|------------------------------------------------------------------- |  | ------------------------------------ | ------ | ---------------------- |  | ----- | ------ | ----- |  | --------- | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                                                    |  |                                      |        |                       
|                                                                    |  |                                      |        | Payments Due by Period
|                                                                    |  |                                      |        |                       
|                                                                    |  |                                      |        | Less than              |  | 1-3   |        | 3-5   |  | More than
|                                                                    |  | Total                                |        | 1 Year                 |  | Years |        | Years |  | 5 Years  
|                                                                    |  |                                      |        |                        |  |       |        |       |  |          
|                                                                    |  |                                     
|                                                                    |  | (US dollar equivalent, in thousands)
|Long-term debt obligations                                          |  | $                                    | 89,331 |                        |  | $     | 6,501  |       |  | $         | 29,920 |  |  | $ | 38,654 |  |  | $ | 14,256 | 
|Capital lease obligations                                           |  | $                                    | 29,874 |                        |  | $     | 6,270  |       |  | $         | 9,510  |  |  | $ | 7,548  |  |  | $ | 6,546  | 
|Fixed Operating lease obligations to Managed
    Container Programs |  | $                                    | 42,715 |                        |  | $     | 9,447  |       |  | $         | 14,170 |  |  | $ | 5,958  |  |  | $ | 13,140 | 
|Term lease rental obligations to Managed
    Container Programs     |  | $                                    | 51,382 |                        |  | $     | 19,540 |       |  | $         | 22,874 |  |  | $ | 8,696  |  |  | $ | 272    | 
|Loan guarantees to US Limited Partnership Program                   |  | $                                    | 2,102  |                        |  | $     | 841    |       |  | $         | 841    |  |  | $ | 420    |  |  |   |       | 
|Container purchase obligations                                      |  | $                                    | 17,312 |                        |  | $     | 17,312 |       |  |           |       |  |  |   |       |  |  |   |       | 
|Container purchase commitments                                      |  | $                                    | 7,397  |                        |  | $     | 7,397  |       |  |           |       |  |  |   |       |  |  |   |       | 
|Legal settlement                                                    |  | $                                    | 3,200  |                        |  | $     | 250    |       |  | $         | 2,950  |  |  |   |       |  |  |   |       | 

Container purchase obligations.Cronos has outstanding obligations to
pay container manufacturers for containers that were acquired by
the Group in 2003.

Container purchase commitments.The Group has contracted with
container manufacturers for the production of new equipment in
2004.

Term lease rental obligations to Managed
Container Programs.This represents
the amounts payable to Managed Container Programs from the
minimum term lease rentals receivable in future years from ocean
carriers (see Note 5 and Note 13 (c) to the 2003
Consolidated Financial Statements). No amount will be payable to
the Managed Container Program if the ocean carrier fails to pay
the future term lease rentals to the Group.

Critical Accounting Policies and
Estimates

Container equipment  depreciable
lives.Container equipment is either
depreciated over a life of 12 years to a residual value of
15%, or, over a life of 15 years to a residual value of
10%. Management evaluates the period of amortization and
residual values to determine whether subsequent events and
circumstances warrant revised estimates of useful lives and
residual values.

Container equipment  valuation.The Group reviews owned container
equipment when changes in circumstances require consideration as
to whether the carrying value of the equipment has become
impaired, pursuant to guidance established in
SFAS No. 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. Management considers assets
to be impaired if the carrying value of the asset exceeds the
future projected cash flows from related operations
(undiscounted and without interest charges). When impairment is
deemed to exist, the assets are written down to fair value or
projected discounted cash flows from related operations. The
Group evaluates future cash flows and potential impairment of
its fleet by container type rather than for each individual
container. Therefore, future losses could result for individual
container disposals due to various factors including age,
condition, suitability for continued leasing, as well as
geographic location of the containers where disposed.

Deferred Taxation.Under SFAS No. 109
(SFAS 109) Accounting for Income
Taxes, the Group is required to record a valuation
allowance if realization of a deferred tax asset is unlikely.
Substantial weight must be given to recent historical results
and near term projections, and management must assess the
availability of tax planning strategies that might impact either
the need for, or the amount of, any valuation allowance.

Based on the recent history of operating losses
in its US subsidiaries, the near term outlook and
managements evaluation of available tax planning
strategies, the Group has maintained a 100% valuation

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allowance for its deferred tax asset related to
net operating loss carryforwards in the US since 1998. As of
December 31, 2003, the Groups valuation allowance
aggregated $3.5 million. In the event the Group were to
determine that it would be able to realize its deferred tax
asset, a reversal of part or all of the valuation allowance
would be recorded.


Allowance for doubtful accounts.Cronos continually tracks its credit
exposure to each customer using specialist third-party credit
information services and reports prepared by local staff to
assess credit quality. Cronos credit committee meets
quarterly to analyze the performance of existing customers and
to recommend actions to be taken in order to minimize credit
risks. Over the last 10 years, bad debts have approximated
1% of gross lease revenues. Based on this information, Cronos
has calculated an allowance for doubtful accounts comprising
specific amounts provided against known probable losses on
certain customers plus an additional amount based on loss
experience for other customers. However, the Group may be
subject to unexpected loss in rental revenue from container
lessees that default under their container lease agreements.

Goodwill.On
January 1, 2002, the Group adopted SFAS No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which provides that intangible assets with finite
useful lives be amortized over that life and that goodwill and
intangible assets with indefinite lives will not be amortized,
but will rather be tested at least annually for impairment. The
annual impairment test uses cash flow discounting techniques to
determine the fair value of respective reporting units.
Management discounts the projected future net cash flows to be
generated by the reporting units based on historic and projected
trends for per diem revenues, utilization, container disposal
proceeds and funding costs over the expected remaining life of
the unit. Although the projected trends are based on historical
and current available information, they require subjective
management judgment for projections relating to utilization
rates, per diem rates, the disposal age of the containers,
equipment residual values, cash collections and interest rates.

Gross lease revenue  Managed
Container Programs.Cronos leases
equipment to ocean carriers that is owned by its Managed
Container Programs. Cronos acts as principal in the lease
arrangement with shipping lines based on the characteristics of
these transactions in which Cronos determines the ocean carrier
to which the equipment is leased, sets the applicable lease
rental rate, acts as primary obligor in the transaction and
collects the lease rentals. Accordingly, Cronos reports the
resulting lease income on a gross basis, rather than net of its
lease costs to the Managed Container Programs.

US Limited Partnership Programs 
FIN 46R.The Group has determined
that the US Limited Partnership Programs are variable interest
entities as defined in FIN 46R. Cronos has performed an
analysis of the expected losses and the expected residual
returns of the US Limited Partnership Programs and determined
that the Group is not the primary beneficiary. Although the
assumptions used in the calculation of expected losses and
expected residual returns are based on historical and current
available information, they require subjective management
judgment for projections relating to utilization rates, per diem
rates, the disposal age of the containers, equipment residual
values and cash collections.

New Accounting Pronouncements

In December 2003, the Group adopted
FIN 46R  Consolidation of Variable Interest
Entities. FIN 46R clarifies the application of Accounting
Research Bulletin No. 51 (ARB 51) to certain
entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. ARB 51 requires that an enterprises
consolidated financial statements include subsidiaries in which
the enterprise has a controlling financial interest. That
requirement has usually been applied to subsidiaries in which an
enterprise has a majority voting interest. The voting interest
approach is not effective in identifying controlling financial
interests in entities that are not controllable through voting
interests or in which the equity investors do not bear the
residual economic risk.

FIN 46R explains how an enterprise
identifies variable interest entities in order to assess its
interests in variable interest entities and decide whether to
consolidate that entity. The Group has applied FIN 46R to
all entities it believes are subject to FIN 46R as of
December 31, 2003, and has determined that it is the
primary beneficiary of a variable interest entity. Accordingly,
Cronos has applied FIN 46R by restating previously issued
financial statements with a cumulative effect adjustment in the
beginning of the first year restated.

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The Group holds a 0.1% share in the variable
interest entity to which it sold $49.7 million of
containers in a series of transactions in prior years. Cronos
manages the containers in return for a management fee and holds
an option to acquire 75% of the container owning company which
can be exercised once certain conditions relating to the
repayment of the indebtedness of the variable interest entity
have been met.

At December 31, 2003, the variable interest
entity held cash balances of $1.1 million, restricted cash
of $0.5 million, container assets of $26.2 million
(stated at net book value) and debt facilities of
$24.6 million. The debt is scheduled to be repaid from the
cash generated by the container assets. At December 31,
2003, Cronos subsidiaries held total amounts receivable from the
variable interest entity of $9.5 million. Such amounts are
subordinate to the repayment of the variable interest entity
debt.

SFAS No. 132 (Revised 2003),
(SFAS 132R) requires an entity to make
additional disclosures about pensions and other postretirement
benefits. These disclosures include information describing the
types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows and components of net periodic
benefit cost. SFAS 132R is effective, with certain
exceptions, for plans beginning with fiscal years ending after
December 15, 2003. SFAS 132R is effective for interim
reporting period disclosures beginning after December 15,
2003 and after the provisions of this statement are adopted.
Cronos does not provide pensions or other postretirement
benefits, and therefore this standard will have no impact on its
consolidated financial statements.

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149 (SFAS 149),
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. This statement amends and clarifies
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities, and is effective for contracts entered into
or modified after June 30, 2003. The adoption of
SFAS 149 does not have a material impact on the
consolidated financial statements of the Group.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS 150 modifies the accounting for certain financial
instruments that, under previous guidance, issuers could account
for as equity. It requires that those instruments be classified
as liabilities in statements of financial position.

SFAS 150 affects an issuers accounting
for three types of freestanding financial instruments, namely:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | mandatorily redeemable shares, which the issuing
    company is obligated to buy back in exchange for cash or other
    assets.                                                                                                     
|
| | - | instruments, other than outstanding shares, that
    do or may require the issuer to buy back some of its shares in
    exchange for cash or other assets. These instruments include put
    options and forward purchase contracts.
|
| | - | obligations that can be settled with shares, the
    monetary value of which is fixed, tied solely or predominantly
    to a variable such as a market index, or varies inversely with
    the value of the issuers shares.        

SFAS 150 does not apply to features embedded
in financial instruments that are not derivatives in their
entirety.

In addition to its requirements for the
classification and measurement of financial instruments within
its scope, SFAS 150 also requires disclosures about
alternative ways of settling those instruments and the capital
structure of entities, all of whose shares are mandatorily
redeemable.

SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The implementation of
SFAS 150 required the cumulative effect of a change in an
accounting principle to be reported for financial instruments
created before the issuance date of SFAS 150 and still
existing at the beginning of the interim period of adoption.
Restatement was not permitted.

The adoption of SFAS 150 does not have a
material impact on the consolidated financial statements of the
Group.

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Inflation

Management believes that inflation has not had a
material adverse effect on the Groups results of
operations.






|          |                                                               
|--------- | --------------------------------------------------------------
|Item 7A  | Quantitative and Qualitative Disclosures
    about Market Risk

The following table sets forth principal cash
flows and related weighted average interest rates by expected
maturity dates for debt and capital lease obligations at
December 31, 2003:

|                                              |                                    |                                      |   |                                                              |  |          |   |        |  |      |   |        |  |            |   |        |  |  |   |        |  |  |   |        |  |  |   |        | 
|--------------------------------------------- | ---------------------------------- | ------------------------------------ | - | ------------------------------------------------------------ |  | -------- | - | ------ |  | ---- | - | ------ |  | ---------- | - | ------ |  |  | - | ------ |  |  | - | ------ |  |  | - | ------ | 
|                                              |                                    |                                      |   |                                                             
|                                              |                                    |                                      |   | Expected Maturity Date of Debt and Capital Lease Obligations
|                                              |                                    |                                      |   |                                                             
|                                              |                                    |                                      |   |                                                              |  | 2009 and
|                                              |                                    | Total                                |   | 2004                                                         |  | 2005     |   | 2006   |  | 2007 |   | 2008   |  | thereafter
|                                              |                                    |                                      |   |                                                              |  |          |   |        |  |      |   |        |  |           
|                                              |                                    |                                     
|                                              |                                    | (US dollar equivalent, in thousands)
|Long-term debt and capital lease obligations: |                                    |                                      |   |                                                              |  |          |   |        |  |      |   |        |  |            |   |        |  |  |   |        |  |  |   |        |  |  |   |       
|                                              | Variable rate US dollar facilities |                                      | $ | 118,176                                                      |  |          | $ | 12,490 |  |      | $ | 17,956 |  |            | $ | 20,838 |  |  | $ | 24,439 |  |  | $ | 21,651 |  |  | $ | 20,802 | 
|                                              | Average interest rate %            |                                      |   |                                                              |  |          |   | 3.2    |  |      |   | 2.7    |  |            |   | 2.7    |  |  |   | 2.7    |  |  |   | 2.7    |  |  |   | 2.7    | 
|                                              | Variable rate EURO facilities      |                                      | $ | 966                                                          |  |          | $ | 218    |  |      | $ | 278    |  |            | $ | 358    |  |  | $ | 112    |  |  |   |       |  |  |   |       | 
|                                              | Average interest rate %            |                                      |   |                                                              |  |          |   | 3.6    |  |      |   | 3.6    |  |            |   | 3.6    |  |  |   | 3.6    |  |  |   |       |  |  |   |       | 
|                                              | Fixed rate US dollar facilities    |                                      | $ | 63                                                           |  |          | $ | 63     |  |      |   |       |  |            |   |       |  |  |   |       |  |  |   |       |  |  |   |       | 
|                                              | Average interest rate %            |                                      |   |                                                              |  |          |   | 8.3    |  |      |   |       |  |            |   |       |  |  |   |       |  |  |   |       |  |  |   |       | 

Interest rate risk:Outstanding borrowings are subject to interest rate risk. At
December 31, 2003, over 99% of total borrowings had
floating interest rates. The Group conducted an analysis of
borrowings with variable interest rates to determine their
sensitivity to interest rate changes. In this analysis, the same
change was applied to the current balance outstanding, leaving
all other factors constant. It was found that if a 10% increase
were applied to market rates, the expected effect would be to
reduce annual cash flows by $0.3 million.

Exchange rate risk:In 2003, over 95% of the Groups revenues were billed and
paid in US dollars. The Group believes that the proportion of US
dollar revenues may decrease in future years, reflecting a more
diversified customer base and lease portfolio. Approximately 80%
of costs in 2003 were incurred and paid in US dollars. Of the
remaining costs, approximately 72% are individually small,
unpredictable and were incurred in various denominations. Thus,
such amounts are not suitable for cost-effective hedging.

As exchange rates are outside of the control of
the Group, there can be no assurance that such fluctuations will
not adversely affect its results of operations and financial
condition. By reference to 2003, it is estimated that for every
10% incremental decline in value of the US dollar against
various foreign currencies, the effect would be to reduce cash
flows by $0.9 million in any given year.

The table below provides information about the
Groups derivative financial instruments, direct financing
leases and sales transactions by functional currency and
presents such information in US dollar equivalents. The table
summarizes information on instruments and transactions that are
sensitive to foreign currency exchange rates, including foreign
currency forward exchange agreements, Euro
(EUR) denominated debt obligations, Euro denominated direct
financing leases and Euro denominated sales transactions. For
debt obligations, the table presents principal cash flows and
related weighted average interest rates by expected maturity
dates. For direct financing leases the table presents net lease
receivable cash flows by expected maturity dates. For Euro sales
transactions, sales amounts are presented by the expected
transaction date. For foreign currency forward exchange
agreements, the table presents the notional amounts and weighted
average

32



---



##### Table of Contents



exchange rates by expected
(contractual) maturity dates. These notional amounts
generally are used to calculate the contractual payments to be
exchanged under the contract.


|                                 |                             |                                        |       |          |       |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |   |   |   |       |       |       |   |       |       |       | 
|-------------------------------- | --------------------------- | -------------------------------------- | ----- | -------- | ----- | ---- | - | ---- | - | ---- | - | ---------- | - | ----- | - | ----- | - |  | - | -- | - |  | - | - | - | - | ----- | ----- | ----- | - | ----- | ----- | ----- | 
|                                 |                             |                                        |       |          |       |     
|                                 |                             | Expected Maturity Date                 |       |          |       |     
|                                 |                             |                                        |       |          |       |     
|                                 |                             |                                        |       | 2009 and |       |      |   | Fair
|                                 |                             | 2004                                   |       | 2005     |       | 2006 |   | 2007 |   | 2008 |   | thereafter |   | Total |   | Value
|                                 |                             |                                        |       |          |       |      |   |      |   |      |   |            |   |       |   |      
|                                 |                             |                                       
|                                 |                             | (US dollar equivalent, in thousands)  
|Direct financing leases (EUR):   |                             |                                        |       |          |       |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |   |   |   |       |       |       |   |       |      
|                                 | - net lease receivables     |                                        | $     | 636      |       |      | $ | 781  |   |      | $ | 1,002      |   |       | $ | 148   |   |  | $ | 92 |   |  |   |  |   |   | $     | 2,569 |       |   | $     | 2,569 |      
|Capital lease obligations (EUR): |                             |                                        |       |          |       |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |   |   |   |       |       |       |   |       |      
|                                 | variable rate (EUR)         |                                        | $     | 218      |       |      | $ | 278  |   |      | $ | 358        |   |       | $ | 112   |   |  |   |   |   |  |   |  |   |   | $     | 966   |       |   | $     | 966   |      
|                                 | average interest rate %     |                                        |       | 3.6      |       |      |   | 3.6  |   |      |   | 3.6        |   |       |   | 3.6   |   |  |   |    |   |  |   |   |   |   |       | 3.6   |       |   |       |       |      
|Sales contract (EUR):            |                             | $                                      | 2,563 |          |       |      |  |      |   |      |  |            |   |       |  |       |   |  |  |    |   |  |  |   |   | $ | 2,563 |       |       | $ | 2,553 |      
|                                 | Forward exchange contracts: |                                        |       |          |       |      |   |      |   |      |   |            |   |       |   |       |   |  |   |    |   |  |   |   |   |   |       |       |       |   |       |       |      
|                                 |                             | (pay EUR/ receive USD) contract amount |       | $        | 2,106 |      |   |      |  |      |   |            |  |       |   |       |  |  |   |    |  |  |   |   |  |   |       | $     | 2,106 |   |       | $     | 2,092 | 
|                                 |                             | average contract exchange rate         |       |          | 1.03  |      |   |      |  |      |   |            |  |       |   |       |  |  |   |    |  |  |   |   |  |   |       |       | 1.03  |   |       |       |       | 






|         |                                                
|-------- | -----------------------------------------------
|Item 8  | Financial Statements and Supplementary
    Data

Independent Auditors Report

The financial statements listed in this
Item 8 are set forth herein beginning on page F1:

Consolidated Balance Sheets  At
December 31, 2003 and 2002

Consolidated Statements of Income for the Years
Ended December 31, 2003, 2002 and 2001



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001

Consolidated Statements of Cash Flows for the
Years Ended December 31, 2003, 2002 and 2001

Notes to Consolidated Financial Statements






|         |                                                                                         
|-------- | ----------------------------------------------------------------------------------------
|Item 9  | Changes In and Disagreements with
    Accountants on Accounting and Financial Disclosure

None






|          |                        
|--------- | -----------------------
|Item 9A  | Controls and Procedures

The principal executive and principal financial
officers of the Company have evaluated the disclosure controls
and procedures of the Group as of the end of the period covered
by this report. As used herein, the term disclosure
controls and procedures has the meaning given to the term
by Rule 13a-15 under the Securities Exchange Act of 1934,
as amended (Exchange Act), and includes the controls
and other procedures of the Group that are designed to ensure
that information required to be disclosed by the Company in the
reports that it files with the SEC under the Exchange Act is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms. Based upon
their evaluation, the principal executive and financial officers
of the Company have concluded that the Groups disclosure
controls and procedures were effective such that the information
required to be disclosed by the Company in this report is
recorded, processed, summarized and reported within the time
periods specified in the SECs rules and forms applicable
to the preparation of this report and is accumulated and
communicated to management of the Group, including the principal
executive and principal financial officers, as appropriate to
allow timely decisions regarding required disclosures.

There have been no significant changes in the
Groups internal controls or in other factors that could
significantly affect the Groups internal controls
subsequent to the evaluation described above conducted by the
Companys principal executive and financial officers.

33



---



##### Table of Contents






PART III






|          |                                                   
|--------- | --------------------------------------------------
|Item 10  | Directors and Executive Officers of the
    Group.

Information concerning the directors of the
Group, including those standing for re-election, will be set
forth under the proposal entitled Election of
Directors in the Groups definitive Proxy Statement
(the Proxy Statement) to be filed with the
Commission no later than 120 days after the Companys
fiscal year covered by this annual report, which information is
incorporated herein by reference.

The names of the executive officers of the Group,
and their ages, titles, and biographies as of the date hereof,
are set forth below:

Dennis J. Tietz; age 51; Chairman and
Chief Executive Officer

Mr. Tietz was appointed Chief Executive
Officer of the Company in December 1998, and Chairman of the
Board of Directors in March 1999. From 1986 until his election
as Chief Executive Officer of the Company, Mr. Tietz was
responsible for the organization and marketing of investment
programs managed by Cronos Capital Corp. (CCC)
(formerly called Intermodal Equipment Associates), an indirect
subsidiary of the Company. From 1981 to 1986, Mr. Tietz
supervised container lease operations in both the United States
and Europe. Prior to joining CCC in 1981, Mr. Tietz was
employed by Trans Ocean Leasing Corporation, San Francisco,
California, a container leasing company, as regional manager
based in Houston, with responsibility for leasing and
operational activities in the US Gulf.

Mr. Tietz holds a B.S. degree in Business
Administration from San Jose State University.
Mr. Tietz is a licensed principal with the National
Association of Securities Dealers. Mr. Tietz served as
Chairman of the International Institute of Container Lessors for
its 2001 fiscal year, and currently sits on the Executive
Committee of the Institutes Board of Directors.

Peter J. Younger; age 47; Chief Operating
and Financial Officer

Mr. Younger was elected to the Board of
Directors of the Company at the 1999 annual meeting of
shareholders. Mr. Younger was appointed as Chief Operating
Officer of the Company in August 2000, as Executive Vice
President in April 1999, and as Chief Financial Officer in March
1997. From 1991 to 1997, Mr. Younger served as Vice
President of Finance of Cronos. From 1987 to 1991,
Mr. Younger served as Vice President and Controller of CCC
in San Francisco. Prior to 1987, Mr. Younger was a
certified public accountant and a principal with the accounting
firm of Johnson, Glaze and Co. in Salem, Oregon.

Mr. Younger holds a B.S. degree in Business
Administration from Western Baptist College, Salem, Oregon.

John M. Foy; age 58; Senior Vice
President

Mr. Foy is directly responsible for
Cronos lease marketing operations in North America,
Central America, and South America, and is based in
San Francisco. From 1985 to 1993, Mr. Foy was Vice
President/ Pacific of Cronos with responsibility for dry cargo
container lease marketing and operations in the Pacific Basin.
From 1977 to 1985, Mr. Foy was Vice President of Marketing
for Nautilus Leasing Services in San Francisco with
responsibility for worldwide leasing activities. From 1974 to
1977, Mr. Foy was Regional Manager for Flexi-Van Leasing, a
container lessor, with responsibility for container leasing
activities in the Western United States.

Mr. Foy holds a B.A. degree in Political
Science from University of the Pacific and Bachelor of Foreign
Trade from Thunderbird Graduate School of International
Management.

Nico Sciacovelli; age 54; Senior Vice
President

Mr. Sciacovelli was elected Senior Vice
President/ Europe, Middle East, and Africa of Cronos in June
1997. Mr. Sciacovelli is directly responsible for the
Groups lease marketing and operations in Europe, the
Middle East, and Africa, and is based in Italy. Since joining
Cronos in 1983, Mr. Sciacovelli has served as Area Director
and Area Manager for Southern Europe. Prior to joining Cronos,
Mr. Sciacovelli was a sales manager with
Interpool, Inc., a container and chassis lessor.

34



---



##### Table of Contents



John C. Kirby; age 50; Senior Vice
President

Mr. Kirby is responsible for container
purchasing, contract and billing administration, container
repairs and leasing-related systems, and is based in the United
Kingdom. Mr. Kirby joined CCC in 1985 as European Technical
Manager and advanced to Director of European Operations in 1986,
a position he held with CCC, and later CCL, until his promotion
to Vice President/ Operations of Cronos in 1992. In June 1997,
Mr. Kirby was promoted to the position of Senior Vice
President/ Operations. From 1982 to 1985, Mr. Kirby was
employed by CLOU Containers, a container leasing company, as
Technical Manager, based in Hamburg, Germany. Mr. Kirby
holds a professional engineering qualification from the
Mid-Essex Technical College in England.

Section 16(a)
Beneficial Ownership Reporting Compliance.

Information regarding Section 16
(a) beneficial ownership reporting compliance will be set
forth under Security Ownership of Certain Beneficial
Owners and Management  Section 16
(a) Beneficial Ownership Reporting Compliance in the
Proxy Statement, which information is incorporated herein by
reference.

Code
of Ethics.

The Group has adopted a Code of Ethics for its
directors, officers (including the Companys principal
executive and principal financial officers), and employees. The
Code of Ethics is available at the Companys website at
www.cronos.com. Shareholders may request a free copy of
the Code of Ethics from:



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The Cronos Group 
     c/o Cronos Capital Corp. 
     One Front Street, Suite 925 
     San Francisco, California, 94111 
     Attention: Investor Relations





|          |                        
|--------- | -----------------------
|Item 11  | Executive Compensation.

Information regarding the Groups
compensation of its directors and named executive officers is
set forth under Compensation of Executive Officers and
Directors in the Proxy Statement, which information is
incorporated herein by reference.





|          |                                                                    
|--------- | -------------------------------------------------------------------
|Item 12  | Security Ownership of Certain Beneficial
    Owners and Management.

Information regarding security ownership of
certain beneficial owners, directors, and executive officers is
set forth under Security Ownership of Certain Beneficial
Owners and Management in the Proxy Statement, which
information is incorporated herein by reference.

Information concerning the Groups equity
compensation plans, including both shareholder approved and
non-shareholder approved plans, is set forth under
Compensation of Executive Officers and Directors in
the Proxy Statement, which information is incorporated herein by
reference.





|          |                                                    
|--------- | ---------------------------------------------------
|Item 13  | Certain Relationships and Related
    Transactions.

Information concerning certain relationships and
related transactions is set forth under Compensation of
Executive Officers and Directors in the Proxy Statement,
which information is incorporated herein by reference.





|          |                                            
|--------- | -------------------------------------------
|Item 14  | Principal Accountant Fees and
    Services.

Information concerning principal accountant fees
and services is set forth under the proposal entitled
Appointment of Deloitte & Touche S.A. as
Independent Auditors in the Proxy Statement, which
information is incorporated herein by reference.



---

The Company intends to file its definitive Proxy
Statement with the Commission no later than 120 days after
the end of the Groups fiscal year (December 31,
2003). In the event that the Company does not file its
definitive Proxy Statement with the Commission on or before
120 days after the fiscal year covered by this annual
report, then the Company shall provide the information required
by Part III in an amendment to this annual report, filed
not later than the end of the 120-day period.

35



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##### Table of Contents






PART IV






|          |                                                                     
|--------- | --------------------------------------------------------------------
|Item 15  | Exhibits, Financial Statement Schedules,
    and Reports on Form 8-K

(a)(1) Financial Statements

Independent Auditors Report



| |                                                                                                         
| | --------------------------------------------------------------------------------------------------------
| | Consolidated Balance Sheets  At
    December 31, 2003 and 2002                                         
|
| | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001              
|
| | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001
|
| | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001          

Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedules



| |                                                                                                                                                                          
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The financial statements of CF Leasing Limited
    have been filed in accordance with Regulation S-X as a 50%
    entity accounted for by the equity method by the Group.

(a) (3) Exhibits



| |                                                                                                                                                                                                                                                                         
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | The following exhibits are filed herewith or are
    incorporated by reference to exhibits previously filed with the
    Commission. The Company shall furnish copies of exhibits for a
    reasonable fee (covering the expense of furnishing copies) upon
    request.
|
| | Previously filed material contracts that are no
    longer in force or effect and that were entered into more than
    two years prior to the date of the filing of this report are not
    listed in this index.                                                       

|       |      |                     |  |                                                                                                                                                                                                                                                                                                                                                                                                
|------ | ---- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |      | Exhibit Description
|       |      |                    
|       | 2.1  |                     |  | Purchase Agreement by and between Cronos
    Equipment (Bermuda) Limited (CEB) and CF Leasing
    Limited, dated as of September 18, 2002 (incorporated by
    reference to Exhibit 2.1 to the Companys Current
    Report on Form 8-K, dated September 18, 2002).                                                                                                                          
|       | 3.1  |                     |  | Co-ordinated Articles of Incorporation
    (incorporated by reference to Exhibit 1.1 to the
    Companys Annual Report on Form 20-F for the year
    ended December 31, 1997 (File No. 0-24464)).                                                                                                                                                                                             
|       | 3.2  |                     |  | Policies and procedures with respect to the
    indemnification of directors and officers of the Company, as
    adopted by the Board of Directors on August 4, 1999
    (incorporated by reference to Exhibit 3.2 to the
    Companys Registration Statement on Form S-3, dated
    November 24, 1999).                                                                                      
|       | 10.1 |                     |  | Guarantee, dated as of July 19, 2001, by and
    between the Group and Fortis Bank N.V., as agent and on behalf
    of itself (incorporated by reference to Exhibit 10.20 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended June 30, 2001).                                                                                                                         
|       | 10.2 |                     |  | Amendment No. 1 to the Guarantee, dated as
    of July 19, 2001, by and between the Group and Fortis Bank
    N.V., as agent and on behalf of itself (incorporated by
    reference to Exhibit 10.4 to the Companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003).                                                                                          
|       | 10.3 |                     |  | Loan Agreement, dated as of July 19, 2001,
    by and between Cronos Finance (Bermuda) Limited
    (CFBL) as issuer, and Fortis Bank (Nederland) N.V.
    (Fortis) as agent on behalf of the noteholder, and
    itself, as the initial noteholder (incorporated by reference to
    Exhibit 10.21 to the Companys Quarterly Report on
    Form 10-Q for the quarter ended June 30, 2001).
|       | 10.4 |                     |  | Amendment No. 1 to the Amended and Restated
    Loan Agreement dated as of August 6, 2001, by and between
    CFBL and Fortis (incorporated by reference to Exhibit 10.4
    to the Companys Annual Report on Form 10-K for the
    year ended December 31, 2001).                                                                                                                            

36



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##### Table of Contents



|                                              |       |                     |  |                                                                                                                                                                                                                                                                                                                                                            
|--------------------------------------------- | ----- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number                                        |       | Exhibit Description
|                                              |       |                    
|                                              | 10.5  |                     |  | Amendment No. 2 to the Amended and Restated
    Loan Agreement dated as of November 20, 2001, by and
    between CFBL and Fortis (incorporated by reference to
    Exhibit 10.5 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2001).                                                                                     
|                                              | 10.6  |                     |  | Amendment No. 3, dated as of
    September 18, 2002, to the Amended and Restated Loan
    Agreement, dated as of July 19, 2001, by and between CFBL
    and Fortis, (incorporated by reference to Exhibit 10.22 to
    the Companys Current Report on Form 8-K, dated
    September 18, 2002).                                                            
|                                              | 10.7  |                     |  | Amendment No. 4, dated as of March 7,
    2003, to the Amended and Restated Loan Agreement, dated as of
    July 19, 2001, by and between CFBL and Fortis,
    (incorporated by reference to Exhibit 10.7 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2002).                                                       
|                                              | 10.8  |                     |  | Amendment No. 5, dated as of
    September 23, 2003, to the Amended and Restated Loan
    Agreement, dated as of July 19, 2001, by and between CFBL
    and Fortis (incorporated by reference to Exhibit 10.1 to
    the Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2003).                                            
|                                              | 10.9  |                     |  | Management Agreement by and between CF Leasing
    Limited and Cronos Containers (Cayman) Limited, dated as of
    September 18, 2002 (incorporated by reference
    Exhibit 10.23 to the Companys Current Report on
    Form 8-K, dated September 18, 2002).                                                                                             
|                                              | 10.10 |                     |  | Amendment No. 1, dated as of March 7,
    2003 to the Management Agreement, dated as of September 18,
    2002, by and between the CF Leasing Limited and Cronos
    Containers (Cayman) Limited, (incorporated by reference to
    Exhibit 10.9 to the Companys Annual Report on
    Form 10-K for the year ended December 31, 2002).                    
|                                              | 10.11 |                     |  | Amendment No. 2, dated as of
    October 15, 2003 to the Management Agreement, dated as of
    September 18, 2002, by and between the CF Leasing Limited
    and Cronos Containers (Cayman) Limited Fortis (incorporated by
    reference to Exhibit 10.5 to the Companys Quarterly
    Report on Form 10-Q for the quarter ended
    September 30, 2003).
|                                              | 10.12 |                     |  | Collateral Agreement dated as of
    November 16, 2001, by and between CEB, CFBL and Fortis
    (incorporated by reference to Exhibit 10.6 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                                      
|                                              | 10.13 |                     |  | Amendment No. 1 to the Collateral Agreement
    dated as of November 16, 2001, by and between CEB, CFBL and
    Fortis (incorporated by reference to Exhibit 10.3 to
    Companys Quarterly Report on Form 10-Q for the
    quarter ended September 30, 2003).                                                                                            
|                                              | 10.14 |                     |  | Grant of Security Interest (Patents) dated as of
    November 19, 2001, by and between CEB, CFBL and Fortis
    (incorporated by reference to Exhibit 10.7 to the
    Companys Annual Report on Form 10-K for the year
    ended December 31, 2001).                                                                                                      
|Executive Compensation Plans and Arrangements
|                                              | 10.15 |                     |  | Stock Appreciation Rights Agreement by and
    between the Company and Peter J. Younger, dated as of
    October 13, 1999 (incorporated by reference to
    Exhibit 10.1 to the Companys Registration Statement
    on Form S-3, dated November 24, 1999).                                                                                                
|                                              | 10.16 |                     |  | 1999 Stock Option Plan (incorporated by reference
    to Exhibit 4.1 to the Companys Registration Statement
    on Form S-8, dated February 25, 2000).                                                                                                                                                                                                    
|                                              | 10.17 |                     |  | Employment Agreement by and between Cronos
    Containers Inc. and John Foy, dated April 1, 1999, as
    amended on December 1, 1999 (incorporated by reference to
    Exhibit 10.25 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 1999).                                                                              
|                                              | 10.18 |                     |  | Amendment, dated November 4, 2003, to the
    Employment Agreement between Cronos Containers Inc. and John
    Foy, dated April 1, 1999, as amended on December 1,
    1999, December 1, 2000, December 1, 2001,
    October 15, 2002 and November 5, 2002.                                                                                                
|                                              | 10.19 |                     |  | Service Agreement by and between Cronos
    Containers Limited and John Kirby, dated February 29, 2000
    (incorporated by reference to Exhibit 10.18 to the
    Companys Annual Report on Form 10-K, for the year
    ended December 31, 2002).                                                                                                         

37



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##### Table of Contents



|       |       |                     |  |                                                                                                                                                                                                                                                            
|------ | ----- | ------------------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number |       | Exhibit Description
|       |       |                    
|       | 10.20 |                     |  | Amendment, dated November 4, 2003, to the
    Service Agreement by and between Cronos Containers Limited and
    John Kirby, dated February 29, 2000.                                                                                                      
|       | 10.21 |                     |  | Employment Agreement by and between Cronos
    Containers S.R.L. and Nico Sciacovelli, dated December 1,
    1999 (incorporated by reference to Exhibit 10.1 to the
    Companys Quarterly Report on Form 10-Q for the period
    ended March 31, 2000).  
|       | 10.22 |                     |  | Amendment, dated November 4, 2003, to the
    Employment Agreement between Cronos Containers S.R.L. and Nico
    Sciacovelli, dated December 1, 1999, as amended
    December 1, 2000, December 18, 2001 and
    November 5, 2002.                         
|       | 10.23 |                     |  | Amendment to the 1999 Stock Option Plan, dated
    June 1, 2001 (incorporated by reference to
    Exhibit 10.16 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2001).                                                   
|       | 10.24 |                     |  | Amended and Restated Employment Agreement between
    Cronos and Dennis J. Tietz, dated November 8, 2001
    (incorporated by reference to Exhibit 10.17 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2001).      
|       | 10.25 |                     |  | Amended and Restated Employment Agreement between
    Cronos and Peter J. Younger, dated December 1, 2001
    (incorporated by reference to Exhibit 10.18 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2001).     
|       | 10.26 |                     |  | Amended and Restated Employment Agreement between
    Cronos and Peter J. Younger, dated October 1, 2003.                                                                                                                                                  
|       | 10.27 |                     |  | Amended and Restated Indemnification Agreement
    between Cronos and Charles Tharp, dated November 6, 2002
    (incorporated by reference to Exhibit 10.27 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002).   
|       | 10.28 |                     |  | Amended and Restated Indemnification Agreement
    between Cronos and Maurice Taylor, dated November 6, 2002
    (incorporated by reference to Exhibit 10.28 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002).  
|       | 10.29 |                     |  | Amended and Restated Indemnification Agreement
    between Cronos and Dennis J. Tietz, dated November 6, 2002
    (incorporated by reference to Exhibit 10.29 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002). 
|       | 10.30 |                     |  | Amended and Restated Indemnification Agreement
    between Cronos and Peter J. Younger, dated November 6, 2002
    (incorporated by reference to Exhibit 10.30 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002).
|       | 10.31 |                     |  | Indemnification Agreement between Cronos and S.
    Nicholas Walker, dated November 6, 2002 (incorporated by
    reference to Exhibit 10.31 to the Companys Annual
    Report on Form 10-K for the period ended December 31,
    2002).                   
|       | 10.32 |                     |  | Indemnification Agreement between Cronos and
    Robert M. Melzer, dated November 6, 2002 (incorporated by
    reference to Exhibit 10.32 to the Companys Annual
    Report on Form 10-K for the period ended December 31,
    2002).                     
|       | 10.33 |                     |  | Indemnification Agreement between Cronos
    Containers Limited and John C. Kirby, dated
    November 22, 2002 (incorporated by reference to
    Exhibit 10.33 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2002).    
|       | 10.34 |                     |  | Indemnification Agreement between Cronos
    Containers Inc. and John M. Foy, dated November 1, 2002
    (incorporated by reference to Exhibit 10.34 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002).          
|       | 10.35 |                     |  | Indemnification Agreement between Cronos
    Containers S.R.L. and Nico Sciacovelli, dated November 22,
    2002 (incorporated by reference to Exhibit 10.35 to the
    Companys Annual Report on Form 10-K for the period
    ended December 31, 2002).  
|       | 10.36 |                     |  | Stock Option Agreement between Cronos and Charles
    Tharp, dated January 10, 2003 (incorporated by reference to
    Exhibit 10.36 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2002).                               

38



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##### Table of Contents



|               |       |                     |  |                                                                                                                                                                                                                                      
|-------------- | ----- | ------------------- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Number         |       | Exhibit Description
|               |       |                    
|               | 10.37 |                     |  | Stock Option Agreement between Cronos and Maurice
    Taylor, dated January 10, 2003 (incorporated by reference
    to Exhibit 10.37 to the Companys Annual Report on
    Form 10-K for the period ended December 31, 2002).        
|               | 10.38 |                     |  | Stock Option Agreement between Cronos and S.
    Nicholas Walker, dated January 10, 2003 (incorporated by
    reference to Exhibit 10.38 to the Companys Annual
    Report on Form 10-K for the period ended December 31,
    2002).
|               | 10.39 |                     |  | Stock Option Agreement between Cronos and Robert
    M. Melzer, dated January 10, 2003 (incorporated by
    reference to Exhibit 10.39 to the Companys Annual
    Report on Form 10-K for the period ended December 31,
    2002).  
|Other Exhibits
|               | 21.1  |                     |  | List of principal wholly-owned subsidiaries at
    December 31, 2003.                                                                                                                                                                
|               | 23.1  |                     |  | Consent of Independent Auditors dated
    March 26, 2004.                                                                                                                                                                            
|               | 31.1  |                     |  | Rule 13a-14 Certification.                                                                                                                                                                                                           
|               | 31.2  |                     |  | Rule 13a-14 Certification.                                                                                                                                                                                                           
|               | 32.1  |                     |  | Certification pursuant to 18 U.S.C.
    § 1350, as adopted pursuant to Section 906 of the
    Sarbanes-Oxley Act of 2002.                                                                                                            

(b) Reports on Form 8K



| |                                                                                                                                                             
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------
| | On November 26, 2003, a Current Report on
    Form 8-K was filed by the Company announcing the settlement
    of litigation between the Company and Contrin.

39



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##### Table of Contents



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.

Date:
March 26, 2004

| |                 
| | ----------------
| | THE CRONOS GROUP



| |     |                    
| | --- | -------------------
| | By: | /s/ DENNIS J. TIETZ

| |                          
| | -------------------------
| |                          
| | Dennis J. Tietz          
| | Chairman of the Board and
| | Chief Executive Officer  

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 dates indicated.

|                                                      |  |                                                                                                                                                   |  |               
|----------------------------------------------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------------
|Signature                                             |  | Title                                                                                                                                             |  | Date          
|                                                      |  |                                                                                                                                                   |  |               
|By /s/ DENNIS J. TIETZDennis J. Tietz                 |  | Chairman of the Board and
    Chief Executive Officer
    (Principal Executive Officer)                                                           |  | March 26, 2004
|By /s/ PETER J. YOUNGERPeter J. Younger               |  | Director, Chief Operating Officer, Chief
    Financial Officer, and
    Chief Accounting Officer
    (Principal Financial and Accounting Officer) |  | March 26, 2004
|By /s/ MAURICE TAYLORMaurice Taylor                   |  | Director                                                                                                                                          |  | March 26, 2004
|By /s/ CHARLES THARPCharles Tharp                     |  | Director                                                                                                                                          |  | March 26, 2004
|By /s/ STEPHEN NICHOLAS WALKERStephen Nicholas Walker |  | Director                                                                                                                                          |  | March 26, 2004
|By /s/ ROBERT M. MELZERRobert M. Melzer               |  | Director                                                                                                                                          |  | March 26, 2004

40



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##### Table of Contents



FINANCIAL STATEMENTS 
Item 15(a)(1) and (a)(2)

|       |  |                                                                                                                                                                          |  |      |      | 
|------ |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------ |  | ---- | ---- | 
|       |  |                                                                                                                                                                          |  | Page
|       |  |                                                                                                                                                                          |  |     
|(a)(1) |  | The Cronos Group                                                                                                                                                         |  |      |      | 
|       |  | Independent Auditors Report                                                                                                                                             |  |      | F-2  | 
|       |  | Consolidated Statements of Income for the Years
    Ended December 31, 2003, 2002 and 2001                                                                               |  |      | F-3  | 
|       |  | Consolidated Balance Sheets  At
    December 31, 2003 and 2002                                                                                                          |  |      | F-4  | 
|       |  | Consolidated Statements of Cash Flows for the
    Years Ended December 31, 2003, 2002 and 2001                                                                           |  |      | F-6  | 
|       |  | Consolidated Statements of Shareholders
    Equity for the Years Ended December 31, 2003, 2002 and 2001                                                                 |  |      | F-8  | 
|       |  | Notes to Consolidated Financial Statements                                                                                                                               |  |      | F-9  | 
|(a)(2) |  | Financial Statement Schedules                                                                                                                                            |  |      |      | 
|       |  | The financial statements of CF Leasing Limited
    have been filed in accordance with Regulation S-X as a 50%
    entity accounted for by the equity method by the Group |  |      | F-42 | 



---



##### Table of Contents



THE CRONOS GROUP

Consolidated financial statements as of
December 31, 2003 and 2002

and for the years ended December 31,
2003, 2002 and 2001


and Independent Auditors
Report


F-1



---



##### Table of Contents



INDEPENDENT AUDITORS REPORT

To the Board of Directors and Stockholders of The
Cronos Group

We have audited the accompanying consolidated
balance sheets of The Cronos Group and subsidiaries
(collectively the Group) as of December 31,
2003 and 2002, and the related consolidated statements of
income, stockholders equity, and cash flows for each of the
three years in the period ended December 31, 2003. These
financial statements are the responsibility of the Groups
management. Our responsibility is to express an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with
auditing standards generally accepted in the United States of
America. 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, such consolidated financial
statements present fairly, in all material respects, the
financial position of the Group as of December 31, 2003 and
2002, and the results of their operations and their cash flows
for each of the three years in the period ended
December 31, 2003, in conformity with accounting principles
generally accepted in the United States of America.

As discussed in Note 2 to the consolidated
financial statements, in 2003 the Group changed its method of
accounting for consolidation to conform to Financial Accounting
Standards Board Interpretation No. 46 (revised December
2003), Consolidation of Variable Interest Entities, and restated
the 2002 and 2001 consolidated financial statements for the
change. In 2002 the Group changed its method of accounting for
goodwill and other intangible assets to conform to Statement of
Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets.

/s/ Deloitte & Touche LLP

Reading, United Kingdom


March 26, 2004


F-2



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##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2003,
2002 and 2001


(US dollar amounts in thousands, except per
share amounts)


|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |        |  
|---------------------------------------------------------------------------------------------------------------------------------- | -------------------------------------------------------------------------------------- | ---- | ------- | -------- | - | -------- | ------- | ------ |  | - | ------- | ------ | -
|                                                                                                                                   |                                                                                        | 2003 |         | 2002     |   | 2001    
|                                                                                                                                   |                                                                                        |      |         |          |   |         
|                                                                                                                                   |                                                                                        |      |         | Restated |   | Restated
|Gross lease revenue                                                                                                                |                                                                                        | $    | 117,501 |          |   | $        | 113,643 |        |  | $ | 120,345 |       
|Equipment trading revenue                                                                                                          |                                                                                        |      | 4,991   |          |   |          | 1,045   |        |  |   | 5,279   |       
|Commissions, fees and other operating income:                                                                                      |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|                                                                                                                                   | - Container Equity Programs                                                            |      |         | 1,116    |   |          |         | 1,240  |  |   |         | 1,334  |  
|                                                                                                                                   | - Unrelated parties                                                                    |      |         | 2,525    |   |          |         | 3,071  |  |   |         | 4,105  |  
|Interest income                                                                                                                    |                                                                                        |      | 130     |          |   |          | 324     |        |  |   | 324     |       
|Realized holding gain on sale of investment                                                                                        |                                                                                        |      |        |          |   |          |        |        |  |   | 301     |       
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Total revenues                                                                                                                     |                                                                                        |      | 126,263 |          |   |          | 119,323 |        |  |   | 131,688 |       
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Direct operating expenses                                                                                                          |                                                                                        |      | 25,508  |          |   |          | 26,793  |        |  |   | 30,857  |       
|Payments to Managed Container Programs:                                                                                            |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|                                                                                                                                   | - Container Equity Programs                                                            |      |         | 23,159   |   |          |         | 18,214 |  |   |         | 19,033 |  
|                                                                                                                                   | - Other Managed Container Programs                                                     |      |         | 32,571   |   |          |         | 33,158 |  |   |         | 34,399 |  
|Equipment trading expenses                                                                                                         |                                                                                        |      | 4,600   |          |   |          | 969     |        |  |   | 4,942   |       
|Amortization of intangible assets                                                                                                  |                                                                                        |      | 188     |          |   |          | 188     |        |  |   | 560     |       
|Depreciation                                                                                                                       |                                                                                        |      | 17,495  |          |   |          | 18,537  |        |  |   | 18,499  |       
|Selling, general and administrative expenses                                                                                       |                                                                                        |      | 15,791  |          |   |          | 14,285  |        |  |   | 14,109  |       
|Interest expense                                                                                                                   |                                                                                        |      | 5,754   |          |   |          | 7,334   |        |  |   | 9,810   |       
|Income from recovery of related party loans                                                                                        |                                                                                        |      |        |          |   |          |        |        |  |   | (6,000  | )     
|Impairment losses                                                                                                                  |                                                                                        |      |        |          |   |          |        |        |  |   | 2,000   |       
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Total expenses                                                                                                                     |                                                                                        |      | 125,066 |          |   |          | 119,478 |        |  |   | 128,209 |       
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Income (loss) before income taxes, equity in
    earnings of affiliate and cumulative effect of change in
    accounting principle |                                                                                        |      | 1,197   |          |   |          | (155    | )      |  |   | 3,479   |       
|Income taxes benefit (provision)                                                                                                   |                                                                                        |      | 1,494   |          |   |          | 2,158   |        |  |   | (78     | )     
|Equity in earnings of unconsolidated affiliate                                                                                     |                                                                                        |      | 1,499   |          |   |          | 306     |        |  |   |        |       
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Income before cumulative effect of change in
    accounting principle                                                              |                                                                                        |      | 4,190   |          |   |          | 2,309   |        |  |   | 3,401   |       
|Cumulative effect of change in accounting
    principle, net of tax                                                                |                                                                                        |      |        |          |   |          |        |        |  |   | (4,606  | )     
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Net income (loss)                                                                                                                  |                                                                                        |      | 4,190   |          |   |          | 2,309   |        |  |   | (1,205  | )     
|Other comprehensive income (loss):                                                                                                 |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|                                                                                                                                   | - unrealized holding loss arising during the year
    on available for sale securities |      |         |         |   |          |         |       |  |   |         | (150   | )
|                                                                                                                                   | - reclassification adjustment                                                          |      |         |         |   |          |         |       |  |   |         | (294   | )
|                                                                                                                                   | - change in fair value of forward exchange
    contracts                               |      |         | (325     | ) |          |         |       |  |   |         |        |  
|                                                                                                                                   | - change in fair value of derivatives held by
    affiliate                            |      |         | (81      | ) |          |         |       |  |   |         |       |  
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Comprehensive income (loss)                                                                                                        |                                                                                        | $    | 3,784   |          |   | $        | 2,309   |        |  | $ | (1,649  | )     
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Basic net income (loss) per common
    share                                                                                       |                                                                                        | $    | 0.57    |          |   | $        | 0.31    |        |  | $ | (0.15   | )     
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       
|Diluted net income (loss) per common
    share                                                                                     |                                                                                        | $    | 0.55    |          |   | $        | 0.31    |        |  | $ | (0.15   | )     
|                                                                                                                                   |                                                                                        |      |         |          |   |          |         |        |  |   |         |       

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

F-3



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##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


(US dollar amounts in thousands, except per
share amounts)


|                                                                                                                                          |  |      |         |          |  |   |         | 
|----------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | -------- |  | - | ------- | 
|                                                                                                                                          |  | 2003 |         | 2002    
|                                                                                                                                          |  |      |         |         
|                                                                                                                                          |  |      |         | Restated
|Assets                                                                                                                                    |  |      |         |          |  |   |         | 
|Cash and cash equivalents                                                                                                                 |  | $    | 8,432   |          |  | $ | 5,626   | 
|Restricted cash                                                                                                                           |  |      | 1,033   |          |  |   | 993     | 
|Amounts due from lessees, net                                                                                                             |  |      | 22,766  |          |  |   | 22,580  | 
|Amounts receivable from Managed Container
    Programs, including amounts due from related parties of $3,377
    and $3,400, respectively |  |      | 3,399   |          |  |   | 3,609   | 
|New container equipment for resale                                                                                                        |  |      | 10,816  |          |  |   | 2,570   | 
|Net investment in direct financing leases,
    including amounts due within twelve months of $2,164 and $1,885,
    respectively          |  |      | 8,376   |          |  |   | 7,912   | 
|Investment in unconsolidated affiliate                                                                                                    |  |      | 8,570   |          |  |   | 3,603   | 
|Container equipment, net of accumulated
    depreciation of $115,466 and $110,267, respectively                                           |  |      | 155,504 |          |  |   | 166,598 | 
|Other equipment, net of accumulated depreciation
    of $10,162 and $10,354, respectively                                                 |  |      | 604     |          |  |   | 513     | 
|Goodwill, net                                                                                                                             |  |      | 11,038  |          |  |   | 11,038  | 
|Other intangible assets, net                                                                                                              |  |      | 721     |          |  |   | 909     | 
|Other assets                                                                                                                              |  |      | 6,778   |          |  |   | 10,352  | 
|                                                                                                                                          |  |      |         |          |  |   |         | 
|Total assets                                                                                                                              |  | $    | 238,037 |          |  | $ | 236,303 | 
|                                                                                                                                          |  |      |         |          |  |   |         | 

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

F-4



---



##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED BALANCE SHEETS

December 31, 2003 and 2002


(US dollar amounts in thousands, except per
share amounts)


|                                                                                                                                       |  |      |         |          |  |   |         |  
|-------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------- | -------- |  | - | ------- | -
|                                                                                                                                       |  | 2003 |         | 2002    
|                                                                                                                                       |  |      |         |         
|                                                                                                                                       |  |      |         | Restated
|Liabilities and shareholders
    equity                                                                                               |  |      |         |          |  |   |         |  
|Amounts payable to Managed Container Programs,
    including amounts payable to related parties of $9,341 and
    $8,243, respectively |  | $    | 17,643  |          |  | $ | 17,618  |  
|Amounts payable to container manufacturers                                                                                             |  |      | 17,312  |          |  |   | 8,590   |  
|Direct operating expense payables and accruals                                                                                         |  |      | 5,269   |          |  |   | 5,071   |  
|Other amounts payable and accrued expenses                                                                                             |  |      | 8,489   |          |  |   | 6,255   |  
|Debt and capital lease obligations, including
    amounts due within twelve months of $12,771 and $14,086,
    respectively            |  |      | 119,205 |          |  |   | 128,950 |  
|Income taxes                                                                                                                           |  |      | 267     |          |  |   | 565     |  
|Deferred income taxes                                                                                                                  |  |      | 2,714   |          |  |   | 4,971   |  
|Deferred income and deferred acquisition fees                                                                                          |  |      | 5,105   |          |  |   | 5,201   |  
|                                                                                                                                       |  |      |         |          |  |   |         |  
|Total liabilities                                                                                                                      |  |      | 176,004 |          |  |   | 177,221 |  
|                                                                                                                                       |  |      |         |          |  |   |         |  
|Shareholders equity                                                                                                                   |  |      |         |          |  |   |         |  
|Common shares, par value $2 per share
    (25,000,000 shares authorized; 7,372,080 shares issued
    and outstanding)                  |  |      | 14,744  |          |  |   | 14,744  |  
|Additional paid-in capital                                                                                                             |  |      | 46,552  |          |  |   | 47,125  |  
|Common shares held in treasury (2003: 112,000,
    2002: 12,000)                                                                       |  |      | (297    | )        |  |   | (37     | )
|Accumulated other comprehensive income                                                                                                 |  |      | (406    | )        |  |   |        |  
|Restricted retained earnings                                                                                                           |  |      | 1,832   |          |  |   | 1,832   |  
|Accumulated deficit                                                                                                                    |  |      | (392    | )        |  |   | (4,582  | )
|                                                                                                                                       |  |      |         |          |  |   |         |  
|Total shareholders equity                                                                                                             |  |      | 62,033  |          |  |   | 59,082  |  
|                                                                                                                                       |  |      |         |          |  |   |         |  
|Total liabilities and shareholders
    equity                                                                                         |  | $    | 238,037 |          |  | $ | 236,303 |  
|                                                                                                                                       |  |      |         |          |  |   |         |  

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

F-5



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##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the years ended December 31, 2003,
2002 and 2001


(US dollar amounts in thousands, except per
share amounts)


|                                                                                      |                                                                       |                             |         |          |        |          |         |        |       |   |         |        |        |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | --------------------------- | ------- | -------- | ------ | -------- | ------- | ------ | ----- | - | ------- | ------ | ------ | -
|                                                                                      |                                                                       | 2003                        |         | 2002     |        | 2001    
|                                                                                      |                                                                       |                             |         |          |        |         
|                                                                                      |                                                                       |                             |         | Restated |        | Restated
|Cash flows from operating activities                                                  |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|Net income (loss)                                                                     |                                                                       | $                           | 4,190   |          |        | $        | 2,309   |        |       | $ | (1,205  | )     
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|                                                                                      | - impairment losses                                                   |                             |         |         |        |          |         |       |       |   |         | 2,000  |       
|                                                                                      | - cumulative effect of change in accounting
    principle, net of tax |                             |         |          |        |          |         |        |       |   |         | 4,606  |       
|                                                                                      | - depreciation and amortization                                       |                             |         | 17,683   |        |          |         | 18,725 |       |   |         | 19,059 |       
|                                                                                      | - income from recovery of related party loans                         |                             |         |         |        |          |         |       |       |   |         | (6,000 | )     
|                                                                                      | - decrease in unamortized acquisition fees                            |                             |         | (640     | )      |          |         | (1,403 | )     |   |         | (1,647 | )     
|                                                                                      | - provision for losses on accounts receivable                         |                             |         | 1,077    |        |          |         | 440    |       |   |         | 630    |       
|                                                                                      | - loss (gain) on disposal of fixed
    assets                         |                             |         | 270      |        |          |         | 224    |       |   |         | (85    | )     
|                                                                                      | - gain on sale of investment securities                               |                             |         |         |        |          |         |       |       |   |         | (301   | )     
|                                                                                      | - undistributed equity in earnings of
    affiliate                   |                             |         | (1,499   | )      |          |         | (306   | )     |   |         |       |       
|                                                                                      | - (decrease) increase in current and
    deferred income taxes        |                             |         | (2,555   | )      |          |         | (1,376 | )     |   |         | (205   | )     
|                                                                                      | - (increase) decrease in new container
    equipment for resale       |                             |         | (8,246   | )      |          |         | (1,107 | )     |   |         | 6,282  |       
|                                                                                      | - decrease in amounts receivable:                                     |                             |         |          |        |          |         |        |       |   |         |        |       
|                                                                                      |                                                                       | - Container Equity Programs |         |          | 23     |          |         |        | 933   |   |         |        | 1,532  |  
|                                                                                      |                                                                       | - unrelated parties         |         |          | 989    |          |         |        | 3,517 |   |         |        | 4,880  |  
|                                                                                      | - increase (decrease) in amounts payable and
    accrued expenses:    |                             |         |          |        |          |         |        |       |   |         |        |       
|                                                                                      |                                                                       | - Container Equity Programs |         |          | 1,098  |          |         |        | 277   |   |         |        | (2,538 | )
|                                                                                      |                                                                       | - unrelated parties         |         |          | 10,320 |          |         |        | (796  | ) |         |        | (5,976 | )
|                                                                                      |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|Net cash provided by operating
    activities                                         |                                                                       |                             | 22,710  |          |        |          | 21,437  |        |       |   | 21,032  |       
|                                                                                      |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|Cash flows from investing activities                                                  |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|Purchase of container equipment                                                       |                                                                       |                             | (16,545 | )        |        |          | (15,511 | )      |       |   | (22,324 | )     
|Purchase of other equipment                                                           |                                                                       |                             | (324    | )        |        |          | (269    | )      |       |   | (43     | )     
|Investment in direct financing leases                                                 |                                                                       |                             | (29     | )        |        |          | (1,372  | )      |       |   | (6,526  | )     
|Investment in Container Equity Programs                                               |                                                                       |                             | (2,550  | )        |        |          |        |        |       |   |        |       
|Proceeds from sales of container equipment                                            |                                                                       |                             | 9,632   |          |        |          | 12,481  |        |       |   | 4,519   |       
|Dividends received from Container Equity Program                                      |                                                                       |                             |        |          |        |          | 1,375   |        |       |   |        |       
|Proceeds from sale of investment securities                                           |                                                                       |                             |        |          |        |          |        |        |       |   | 484     |       
|                                                                                      |                                                                       |                             |         |          |        |          |         |        |       |   |         |       
|Net cash used in investing
    activities                                             |                                                                       |                             | (9,816  | )        |        |          | (3,296  | )      |       |   | (23,890 | )     
|                                                                                      |                                                                       |                             |         |          |        |          |         |        |       |   |         |       

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

F-6



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##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF CASH
FLOWS

For the years ended December 31, 2003,
2002 and 2001


(US dollar amounts in thousands, except per
share amounts)


|                                                          |                                                                      |      |         |          |  |          |         |       |  |   |         |        | 
|--------------------------------------------------------- | -------------------------------------------------------------------- | ---- | ------- | -------- |  | -------- | ------- | ----- |  | - | ------- | ------ | 
|                                                          |                                                                      | 2003 |         | 2002     |  | 2001    
|                                                          |                                                                      |      |         |          |  |         
|                                                          |                                                                      |      |         | Restated |  | Restated
|Cash flows from financing activities                      |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Proceeds from issuance of term debt                       |                                                                      | $    | 35,649  |          |  | $        | 17,919  |       |  | $ | 62,114  |       
|Repayments of term debt and capital lease
    obligations |                                                                      |      | (44,854 | )        |  |          | (36,201 | )     |  |   | (62,358 | )     
|Dividends paid                                            |                                                                      |      | (583    | )        |  |          |        |       |  |   |        |       
|Shares repurchased                                        |                                                                      |      | (260    | )        |  |          | (37     | )     |  |   |        |       
|Decrease (increase) in restricted cash                    |                                                                      |      | (40     | )        |  |          | 10      |       |  |   | 948     |       
|                                                          |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Net cash (used in) provided by financing
    activities   |                                                                      |      | (10,088 | )        |  |          | (18,309 | )     |  |   | 704     |       
|                                                          |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Net increase (decrease) in cash and cash
    equivalents  |                                                                      |      | 2,806   |          |  |          | (168    | )     |  |   | (2,154  | )     
|Cash and cash equivalents at beginning of
    year        |                                                                      |      | 5,626   |          |  |          | 5,794   |       |  |   | 7,948   |       
|                                                          |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Cash and cash equivalents at end of
    year              |                                                                      | $    | 8,432   |          |  | $        | 5,626   |       |  | $ | 5,794   |       
|                                                          |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Supplementary disclosure of cash flow information:        |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|Cash paid during the year for:                            |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|                                                          | - interest                                                           |      | $       | 4,765    |  |          | $       | 6,656 |  |   | $       | 10,837 | 
|                                                          | - income taxes                                                       |      |         | 1,189    |  |          |         | 568   |  |   |         | 339    | 
|Cash received during the year for:                        |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|                                                          | - dividends                                                          |      |         |         |  |          |         | 1,375 |  |   |         |       | 
|                                                          | - interest                                                           |      |         | 269      |  |          |         | 274   |  |   |         | 451    | 
|                                                          | - income taxes                                                       |      |         | 45       |  |          |         | 1,198 |  |   |         | 58     | 
|Retention deposit utilized to repay capital lease         |                                                                      |      | 2,743   |          |  |          |        |       |  |   |        |       
|Non-cash items:                                           |                                                                      |      |         |          |  |          |         |       |  |   |         |       
|                                                          | - container equipment contributed to
    Container Equity Programs   |      |         | 999      |  |          |         | 4,672 |  |   |         |       | 
|                                                          | - container equipment acquired under capital
    leases              |      |         | 1,812    |  |          |         | 7,612 |  |   |         | 4,985  | 
|                                                          | - container equipment transferred to direct
    financing leases     |      |         | 1,268    |  |          |         |      |  |   |         |       | 
|                                                          | - direct financing lease equipment acquired
    under capital leases |      |         | 391      |  |          |         | 1,235 |  |   |         | 1,018  | 
|                                                          | - other fixed assets acquired under capital
    leases               |      |         |         |  |          |         |      |  |   |         | 276    | 
|                                                          | - transfer to long-term ownership of
    container equipment         |      |         |         |  |          |         | 225   |  |   |         | 4,045  | 

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

F-7



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##### Table of Contents



THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF SHAREHOLDERS
EQUITY

For the years ended December 31, 2003,
2002 and 2001


(US dollar amounts in thousands, except per
share amounts)


|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|---------------------------------------------------------------------- |  | ------ | ------ | ---------- |  | ------------- | ------ | ------------- |  | ----------- | --- | ---------- |  | ------------ | ---- | ------------- |  | - | ------ | - |  | - | ----- |  |  | - | ------- | - |  | - | ------ | -
|                                                                       |  |        |        |            |  |               |        | Accumulated   |  |             |     |            |  | Unrestricted |      |              
|                                                                       |  |        |        | Additional |  | Share         |        | other         |  | Common      |     | Restricted |  | retained     |      | Total        
|                                                                       |  | Common |        | paid-in    |  | subscriptions |        | comprehensive |  | shares held |     | retained   |  | earnings     |      | shareholders
|                                                                       |  | shares |        | capital    |  | receivable    |        | income        |  | in treasury |     | earnings   |  | (deficit)    |      | equity       
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |              
|Balance, December 31, 2000 originally
    reported                     |  | $      | 18,317 |            |  | $             | 49,925 |               |  | $           | (79 | )          |  | $            | 444  |               |  | $ |       |   |  | $ | 1,832 |  |  | $ | (5,686  | ) |  | $ | 64,753 |  
|Restatement of previous financial statements                           |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   | (4,606  | ) |  |   | (4,606 | )
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|Balance, December 31, 2000
    restated                                |  |        | 18,317 |            |  |               | 49,925 |               |  |             | (79 | )          |  |              | 444  |               |  |   |       |   |  |   | 1,832 |  |  |   | (10,292 | ) |  |   | 60,147 |  
|Net income restated                                                    |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   | 3,401   |   |  |   | 3,401  |  
|MEIP expirations                                                       |  |        |        |            |  |               | (79    | )             |  |             | 79  |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |       |  
|Receipt of shares in settlement of related party
    loans             |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   | (6,000 | ) |  |   |       |  |  |   |         |   |  |   | (6,000 | )
|Change in unrealized holding gain on available
    for sale securities |  |        |        |            |  |               |        |               |  |             |     |            |  |              | (444 | )             |  |   |        |   |  |   |       |  |  |   |         |   |  |   | (444   | )
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|Balance, December 31, 2001                                             |  |        | 18,317 |            |  |               | 49,846 |               |  |             |    |            |  |              |     |               |  |   | (6,000 | ) |  |   | 1,832 |  |  |   | (6,891  | ) |  |   | 57,104 |  
|Net income restated                                                    |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   | 2,309   |   |  |   | 2,309  |  
|Retirement and cancellation of treasury shares                         |  |        | (3,588 | )          |  |               | (2,412 | )             |  |             |     |            |  |              |      |               |  |   | 6,000  |   |  |   |       |  |  |   |         |   |  |   |       |  
|Employee share grant                                                   |  |        | 15     |            |  |               | (15    | )             |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |       |  
|Declaration of dividends                                               |  |        |        |            |  |               | (294   | )             |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   | (294   | )
|Purchase of treasury shares                                            |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   | (37    | ) |  |   |       |  |  |   |         |   |  |   | (37    | )
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|Balance, December 31, 2002                                             |  |        | 14,744 |            |  |               | 47,125 |               |  |             |    |            |  |              |     |               |  |   | (37    | ) |  |   | 1,832 |  |  |   | (4,582  | ) |  |   | 59,082 |  
|Net income                                                             |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   | 4,190   |   |  |   | 4,190  |  
|Retirement and cancellation of treasury shares                         |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|Employee share grant                                                   |  |        |        |            |  |               | 10     |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   | 10     |  
|Declaration of dividends                                               |  |        |        |            |  |               | (583   | )             |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   | (583   | )
|Purchase of treasury shares                                            |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   | (260   | ) |  |   |       |  |  |   |         |   |  |   | (260   | )
|Other comprehensive loss for year                                      |  |        |        |            |  |               |        |               |  |             |     |            |  |              | (406 | )             |  |   |        |   |  |   |       |  |  |   |         |   |  |   | (406   | )
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  
|Balance, December 31, 2003                                             |  | $      | 14,744 |            |  | $             | 46,552 |               |  | $           |    |            |  | $            | (406 | )             |  | $ | (297   | ) |  | $ | 1,832 |  |  | $ | (392    | ) |  | $ | 62,033 |  
|                                                                       |  |        |        |            |  |               |        |               |  |             |     |            |  |              |      |               |  |   |        |   |  |   |       |  |  |   |         |   |  |   |        |  

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

F-8



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##### Table of Contents



THE CRONOS GROUP

NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS

(US dollar amounts in thousands, except per
share amounts)


1   Summary of significant
accounting policies

a)  Nature of
operations

The principal activity of The Cronos Group (the
Company) and its subsidiaries (together, the
Group or Cronos) is the leasing to ocean
carriers of marine containers that are owned by the Group or
managed by the Group on behalf of other owners.

The Company is incorporated in Luxembourg. The
common shares of the Company are publicly traded on the Nasdaq
National Market System under the symbol CRNS.

The consolidated financial statements include the
accounts of the Company and its subsidiaries, all of which are
wholly owned. All significant intercompany accounts and
transactions have been eliminated in consolidation. Investments
in which the Group does not own a majority interest or otherwise
control or have the ability to assert significant influence over
the investee have been accounted for under the equity method of
accounting.

The Group provides a worldwide service and,
accordingly, has significant operations and assets in key
shipping locations, particularly in the United States, Europe
and Asia.

The Group enters into agreements (the
Agreements) with managed container programs (the
Managed Container Programs) to manage the leasing of
their containers (the Managed Containers) to ocean
carriers. These Agreements have taken two principal forms. Under
the first principal form, the Company has organized container
equity programs (Container Equity Programs), where
the Group has entered into two types of arrangements. Firstly,
the Group has organized public limited partnerships in the
United States (the US Limited Partnership Programs)
and purchases and manages containers on behalf of the US Limited
Partnership Programs. Secondly, the Group has a 50% equity
investment in a joint venture container purchase entity (the
Joint Venture Program). A subsidiary of the Group
manages the containers held in the Joint Venture Program.
Container Equity Programs are considered to be related parties
of the Group (see Note 8).

Under the second principal form, the Group enters
into Agreements with other container owners (the Other
Managed Container Programs) that provide for the Group to
purchase and manage containers for such container owners.

Although the provisions of the Agreements vary,
they all permit the Group to use the Managed Containers together
with containers owned by the Group as part of a single fleet,
which the Group operates without regard to ownership. The Group
has discretion over which ocean carriers, container
manufacturers and suppliers of goods and services with which it
may deal. The Agreements contain leases within the scope of
Statement of Financial Accounting Standards (SFAS)
No. 13 and they are accounted for as leases under which the
container owners are lessors and the Group is lessee.

b)  Basis of
accounting

The Groups accounting records are
maintained in United States dollars and the consolidated
financial statements are prepared in accordance with accounting
principles generally accepted in the United States of America
(US GAAP).

The preparation of financial statements in
conformity with US GAAP 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 and the amounts of
revenues and expenses during the reporting period. The most
significant estimates relate to the calculation of bad debt
allowances, the annual impairment testing of intangible assets
and the carrying value of equipment including

F-9



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


estimates relating to depreciable lives, residual
values and asset impairments. Actual results could differ from
those estimates.

On December 31, 2003, Cronos adopted
Interpretation No. 46R (FIN 46R) by
restating previously issued financial statements with a
cumulative charge of $4,606 at the beginning of 2001, the first
year restated. FIN 46R was a revision of Interpretation
No. 46 (FIN 46), Consolidation of
Variable Interest Entities, an interpretation of
ARB 51 (see Note 1u and Note 2).

c)  Leases

i.   Group as lessor

The Group leases-out containers to ocean carriers
under master leases, term leases and direct financing leases.

Operating leases with
customers.The Group enters into
master and term leases with ocean carriers, principally as
lessor in operating leases, for marine cargo containers that are
either owned by the Managed Container Programs or by the Group
itself. Operating lease rentals are recognized as gross lease
revenue on a straight-line basis in accordance with US GAAP.

Master leases do not specify the exact number of
containers to be leased or the term that each container will
remain on-hire but allow the ocean carrier to pick up and drop
off containers at various locations specified in the lease
agreement. Lease rentals, which are generally based upon the
number of containers used by the ocean carrier and the
applicable per diem rate, are therefore all contingent rentals.

Term leases provide the ocean carriers with
specified container equipment for a specified term. The rentals
are based upon the number of containers leased, the applicable
per diem rate and the length of the lease, irrespective of the
number of days during which the ocean carrier actually uses the
containers. Term leases typically range from a period of three
to five years.

Direct financing leases with
customers.The Group has entered into
direct financing leases as lessor for container equipment owned
by the Group. The net investment in direct financing leases
represents the receivables due from lessees net of unearned
income. Unearned income is recognized in the statements of
income to give a constant return on capital over the lease term
and is recorded as part of commissions, fees and other operating
income.

Direct financing leases are usually long-term in
nature, typically ranging from a period of three to seven years
and require relatively low levels of customer service. They
ordinarily require fixed payments over a defined period and
provide customers with an option to purchase the subject
containers at the end of the lease term. Per diem rates include
an element of repayment of capital and therefore are higher than
rates charged under either term or master leases.

ii.  Group as lessee

Operating leases.The majority of Agreements with Managed Container Programs are
in the form of a master lease. Under the terms of the master
lease, the Group is not liable to make any payments to the
Managed Container Programs until such time as the Managed
Containers have been placed on lease to an ocean carrier. The
Agreements generally provide that the Group will make payments
to the Managed Container Programs based upon the rentals
collected from ocean carriers after deducting direct operating
expenses and the income earned by the Group for managing the
equipment.

The terms of the Agreements vary from 1 to
15 years. Containers generally have an expected useful
economic life of 12 to 15 years. The Agreements generally
contain provisions which permit earlier termination

F-10



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


under certain conditions upon
60-90 days notice. For the US Limited Partnership
Programs, a majority of the limited partners in a partnership
can remove the subsidiary of the Company which acts as general
partner, thereby terminating the Agreement with the Group. For
the Joint Venture Program, the Agreement with the Group may be
terminated should an event of default, as stipulated in the
Agreement, occur. Under the Agreements with Other Managed
Container Programs, certain container owners can terminate the
Agreement if stipulated performance thresholds are not achieved
by the Group (see Note 15). The Group believes that early
termination is unlikely in normal circumstances.

Payments by the Group to Managed Container
Programs are charged to the statement of income in each period
based upon the amounts paid and payable under the Agreements
with container owners.

Other operating lease rentals are expensed on a
straight-line basis over the lease term.

Capital leases.Assets held under capital leases are initially reported at the
fair value of the asset categorized within container equipment,
with an equivalent liability reported as capital lease
obligations. Where the asset is recorded within container
equipment, it is depreciated over its expected useful life.
Finance charges are reported over the lease term in accordance
with the effective interest method and are recorded as interest
expense.

d)  Equipment trading revenue and
expenses

Equipment trading revenue represents revenue
earned from the sale of equipment to third-parties. Equipment
trading expenses are the costs of the equipment sold. In such
transactions, the Group enters into an agreement in which it
undertakes to supply equipment to a third-party buyer.
Simultaneously, the Group enters into a separate agreement with
a container manufacturer for the acquisition of the equipment.
The Group acts as principal in such transactions and accordingly
the revenue and expenses are reported gross. This equipment does
not enter the Cronos fleet of managed containers unless the
third-party buyer defaults on the agreement. Equipment trading
revenue and expenses are recognized when the contracted parties
meet the terms of the respective contractual agreements.

e)  Commissions, fees and other
operating income

This comprises acquisition fees, income on direct
financing leases, fees earned in connection with equipment
consultancy and design services, licence fees earned in
connection with the patented cellular palletwide container
(CPC), fees earned on the disposal of Managed
Containers, gains and losses resulting from the disposal of
fixed assets and other income.

Acquisition fees represent amounts paid by the
Managed Container Programs when the Group enters into an
Agreement and begins to manage new container equipment on their
behalf. Such fees are generally non-refundable and are deferred
and recognized as income on a straight-line basis over the term
of the Agreements. Licence fees and fees earned in connection
with equipment consultancy and design services are recognized on
the accrual basis based on the terms of the contractual
agreements.

f)  Income taxes

Income taxes are accounted for using the
liability method in accordance with SFAS No. 109
(SFAS 109), Accounting for Income
Taxes. Deferred income taxes have been provided for the
tax effects of temporary differences between financial reporting
and tax bases of assets and liabilities, using enacted tax rates
in effect in the years in which the differences are expected to
reverse. The effect of a change in tax laws or rates over the
deferred tax liabilities and assets is recognized when the tax
laws or rates are enacted, and the effect is included in income
from continuing operations for the period that includes the

F-11



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


enactment date. Valuation allowances are recorded
to reduce deferred tax assets when it is more likely than not
that a tax benefit will not be realized.

g)  Net income per common
share

Net income per share data have been calculated in
accordance with SFAS No. 128
(SFAS 128), Earnings per Share.

Basic and diluted earnings per share are computed
by dividing net income by the weighted average number of shares
outstanding during each year. In accordance with SFAS 128,
the effect of options outstanding at December 31, 2003,
2002 and 2001, presented in the table below, has been computed
using the treasury stock method. The computation of diluted
earnings per share does not assume the conversion, exercise or
contingent issuance of securities that would have an
antidilutive effect on earnings per share. The difference
between outstanding shares and weighted average number of shares
outstanding used for both basic and diluted earnings per share
is attributable to purchases of treasury stock for all years
presented.

The components of basic and diluted net income
(loss) per share were as follows:


|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |        | 
|------------------------------------------------------- | ------------------------------------- | ---- | --------- | -------- |  | -------- | --------- | ------ |  | - | --------- | ------ | 
|                                                        |                                       | 2003 |           | 2002     |  | 2001    
|                                                        |                                       |      |           |          |  |         
|                                                        |                                       |      |           | Restated |  | Restated
|Net income (loss) available for common
    shareholders |                                       | $    | 4,190     |          |  | $        | 2,309     |        |  | $ | (1,205    | )     
|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |       
|Average outstanding shares of common stock              |                                       |      | 7,321,908 |          |  |          | 7,364,850 |        |  |   | 8,001,089 |       
|Dilutive effect of:                                     |                                       |      |           |          |  |          |           |        |  |   |           |       
|                                                        | - 1998 stock option plan              |      |           | 75,000   |  |          |           | 17     |  |   |           | 21,451 | 
|                                                        | - Warrants                            |      |           | 50,000   |  |          |           |       |  |   |           | 12,929 | 
|                                                        | - 1999 stock option plan              |      |           |         |  |          |           |       |  |   |           | 2,510  | 
|                                                        | - Non employee directors equity plan |      |           | 154,746  |  |          |           | 60,517 |  |   |           | 14,056 | 
|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |       
|Common shares and common share equivalents              |                                       |      | 7,601,654 |          |  |          | 7,425,384 |        |  |   | 8,052,035 |       
|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |       
|Basic net income (loss) per share                       |                                       | $    | 0.57      |          |  | $        | 0.31      |        |  | $ | (0.15     | )     
|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |       
|Diluted net income (loss) per share                     |                                       | $    | 0.55      |          |  | $        | 0.31      |        |  | $ | (0.15     | )     
|                                                        |                                       |      |           |          |  |          |           |        |  |   |           |       

During the years ended December 31, 2003 and
2002, options to acquire 500,000 and 700,000 shares,
respectively, were outstanding with respective weighted average
exercise prices of $5.11 and $4.91, but were not included in the
computation of diluted net income per share because the
options exercise price was greater than the average market
price of the common shares.

h)  Cash
equivalents

Cash equivalents are highly liquid commercial
debt instruments purchased with original maturities of three
months or less. The carrying value approximates fair value. Cash
and cash equivalents are maintained in accounts which, at times,
may exceed federally insured deposit limits. No losses have been
experienced in such accounts and management believes it is not
exposed to any significant credit risk. The Group places its
cash and cash equivalents in investment grade, short-term debt
instruments and limits the amount of credit exposure to any one
commercial issuer.

i)  Allowance for doubtful
accounts

Amounts due from lessees represent gross lease
revenue due from customers, less an allowance for doubtful
accounts. The allowance for doubtful accounts comprises specific
amounts provided against known probable losses plus an
additional amount based on loss experience and is recorded as
part of direct operating expenses.

F-12



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


j)  New container equipment for
resale

New container equipment for resale represents new
containers purchased by the Group with an intent to resell to
container owners and is stated at the lower of original unit
cost or net realizable value. Such sales are usually made at
original cost and accordingly no gain or loss arises.

In certain instances, rental income may be earned
on container equipment for resale and is included within gross
lease revenue. Containers not sold to container owners within
six months from date of purchase are transferred to the
Groups container equipment. Depreciation is then
calculated from the original date of acquisition. The amount of
depreciation which would have been provided on container
equipment for resale, had it been transferred to long-term
ownership at the balance sheet date and the amount of rental
income earned on equipment for resale are not material to the
Companys operations.

k)  Investments, including
investments in related parties

i.   Investment
securities

Investment securities are classified as either
available for sale or trading securities. Available for sale
securities are reported at fair market value with unrealized
gains and losses included in shareholders equity as
accumulated other comprehensive income.

ii.  Investments in Container Equity
Programs

Investments in Container Equity Programs are
accounted for using the equity method and take two forms:

Under the first form, investments comprise the
Groups general and limited partner interests in the US
Limited Partnership Programs, in which a subsidiary company,
Cronos Capital Corp., acts as a general partner.

Under the second form the Group has a 50% equity
investment in the Joint Venture Program. The joint venture
entity is a bankruptcy-remote, special purpose entity organized
under the laws of Bermuda.

l)   Container
equipment

Container equipment is carried at cost, adjusted
for impairment, if appropriate, less accumulated depreciation.
Containers, both owned by the Group and acquired under capital
leases are depreciated on a straight-line basis as follows:

Refrigerated container equipment is depreciated
either over a useful life of 12 years to a residual value
of 15% or over a useful life of 15 years to a residual
value of 10%. Dry cargo and all other container equipment is
depreciated over a useful life of 15 years to a residual
value of 10%.

m) Other equipment

Other equipment is carried at cost less
accumulated depreciation. Depreciation for leasehold
improvements is recorded on a straight-line basis over the lower
of the useful life or the lease term. Depreciation for other
equipment is recorded on a straight-line basis over a life of
four to seven years.

n)  Restricted cash

Under the terms of two loan facilities, the Group
is required to hold minimum balances on deposit in restricted
cash accounts. The accounts would be utilized in the event that
adequate funds were not available to meet the scheduled debt
service payments.

F-13



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


o)  Intangible
assets

Intangible assets consist of goodwill and
patents.Until December 31, 2001,
goodwill was amortized over a period of 40 years and
patents were amortized on a straight-line basis over their
estimated useful lives, to a residual of zero. On
January 1, 2002, the Group adopted SFAS No. 142
(SFAS 142), Goodwill and Other Intangible
Assets, which provides that intangible assets with finite
useful lives be amortized over that life and that goodwill and
intangible assets with indefinite lives will not be amortized,
but will rather be tested at least annually for impairment. As a
result of the implementation of SFAS 142, annual goodwill
amortization expense declined by $373. Patents will continue to
be amortized on a straight-line basis over their estimated
useful lives, to a residual of zero in 2007.

p)  Translation of foreign
currencies

The majority of the Groups revenue is
denominated in US dollars as are a significant proportion
of total costs, including container purchases. Accordingly, the
functional currency of the Group is the US dollar, the
currency in which the financial statements are prepared.

Transactions denominated in other currencies are
translated into US dollars and recorded at the rate of exchange
at the date of the transaction. Balances denominated in other
currencies are translated into US dollars at the rate of
exchange on the balance sheet date. Exchange differences arising
are charged or credited to the statements of income.

q)  Stock-based
compensation

The Group accounts for stock-based awards to
employees using the intrinsic value method prescribed in
Accounting Practices Board Opinion (APB)
No. 25, Accounting for Stock Issued to
Employees. Under the intrinsic value method, compensation
cost equal to the difference between the market price of the
shares and the option price on the measurement date (the date
upon which both the number of shares the employee is entitled to
receive and option price is known) is recognised from the date
of grant over the vesting period of options. Where the
measurement date occurs after the date of grant, as in the case
of performance related options and stock appreciation rights,
compensation cost is recorded under variable plan accounting
such that the difference between the price of the shares at each
balance sheet date and the option exercise price is charged to
income over the vesting period and is adjusted in subsequent
periods up to the measurement date.

SFAS No. 123
(SFAS 123) Accounting for Stock-Based
Compensation, as amended, introduced a fair value based
method of accounting for stock based compensation. It
encourages, but does not require, companies to recognize expense
for grants of stock, stock options and other equity instruments
to employees based on fair value accounting rules. The Group
decided not to adopt the fair value based method of accounting,
but provides the pro forma net income and earnings per share
disclosures under the fair value method, as required by
SFAS 123.

In December 2002, the Financial Accounting
Standards Board issued SFAS No. 148
(SFAS 148), Accounting for Stock-Based
Compensation  Transition and Disclosure.
SFAS 148 provides alternative methods of transition for a
voluntary change to the fair value based method of accounting
for stock-based compensation. In addition, SFAS 148 amended
the disclosure requirements of SFAS 123 to require
prominent disclosures in both annual and interim financial
statements of the method of accounting for stock-based employee
compensation and the method used to report results. The Company
has adopted the disclosure requirements of SFAS 148.

F-14



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


If the Stock Options had been accounted for under
SFAS No. 123, the impact on the Groups net
income and net income per share would have been as follows:

|                                     |                                                                                                         |      |   |          |   |          |   |       |   |  |   |        |  
|------------------------------------ | ------------------------------------------------------------------------------------------------------- | ---- | - | -------- | - | -------- | - | ----- | - |  | - | ------ | -
|                                     |                                                                                                         | 2003 |   | 2002     |   | 2001    
|                                     |                                                                                                         |      |   |          |   |         
|                                     |                                                                                                         |      |   | Restated |   | Restated
|Net income (loss):                   |                                                                                                         |      |   |          |   |          |   |       |   |  |   |       
|                                     | - as reported                                                                                           |      | $ | 4,190    |   |          | $ | 2,309 |   |  | $ | (1,205 | )
|                                     | - add stock-based employee compensation
    included in reported net income, net of related tax effects |      |   | 115      |   |          |   | (65   | ) |  |   | 70     |  
|                                     | - deduct stock-based compensation expense
    computed in accordance with SFAS 123, net of tax effects  |      |   | (148     | ) |          |   | (330  | ) |  |   | (544   | )
|                                     |                                                                                                         |      |   |          |   |          |   |       |   |  |   |       
|                                     | - pro forma                                                                                             |      | $ | 4,157    |   |          | $ | 1,914 |   |  | $ | (1,679 | )
|                                     |                                                                                                         |      |   |          |   |          |   |       |   |  |   |       
|Basic net income (loss) per share:   |                                                                                                         |      |   |          |   |          |   |       |   |  |   |       
|                                     | - as reported                                                                                           |      | $ | 0.57     |   |          | $ | 0.31  |   |  | $ | (0.15  | )
|                                     | - pro forma                                                                                             |      | $ | 0.57     |   |          | $ | 0.26  |   |  | $ | (0.21  | )
|Diluted net income (loss) per share: |                                                                                                         |      |   |          |   |          |   |       |   |  |   |       
|                                     | - as reported                                                                                           |      | $ | 0.55     |   |          | $ | 0.31  |   |  | $ | (0.15  | )
|                                     | - pro forma                                                                                             |      | $ | 0.55     |   |          | $ | 0.26  |   |  | $ | (0.21  | )

r)  Accounting for
warrants

Warrants issued in conjunction with debt are
accounted for in accordance with APB No. 14
(APB 14), Accounting for Convertible Debt
and Debt Issued with Stock Purchase Warrants. Under
APB 14, the proceeds of debt issued with detachable
warrants are allocated between the two instruments based on
their relative fair values, at time of issuance. Any resulting
discount on the debt is accreted over the life of the debt,
using the effective interest rate method. The fair value
assigned to warrants is credited to additional paid-in capital
at the time of issuance of the warrants.

s)  Asset
impairment

Certain long-lived assets of the Group are
reviewed when changes in circumstances require consideration as
to whether their carrying value has become impaired, pursuant to
guidance established in SFAS No. 144
(SFAS 144), Accounting for the Impairment
or Disposal of Long-Lived Assets. Management considers
assets to be impaired if the carrying value of the asset exceeds
the future projected cash flows from related operations
(undiscounted and without interest charges). When impairment is
deemed to exist, the assets are written down to fair value or
projected discounted cash flows from related operations. The
Group periodically evaluates future cash flows and potential
impairment of its fleet by container type rather than for each
individual container. Therefore, future losses could result for
individual container dispositions due to various factors
including age, condition, suitability for continued leasing, as
well as geographic location of the containers where disposed.
Management also re-evaluates the period of amortization to
determine whether subsequent events and circumstances warrant
revised estimates of useful lives.

t)  Derivative financial
instruments

The Group accounts for derivative financial
instruments in accordance with SFAS No. 133
(SFAS 133) Accounting for Derivative
Instruments and Hedging Activities as amended by
SFAS No. 137 and SFAS No. 138.
SFAS No. 133 was further amended by
SFAS No. 149 (SFAS 149),
Amendment of Statement 133 on Derivative Instruments and
Hedging Activities. SFAS 133 requires that all
derivative instruments be recorded on the balance sheet at their
fair value and that changes in the fair value

F-15



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


of derivatives are recorded each period in
earnings or other comprehensive income, depending on the type of
hedging instrument and the effectiveness of the hedges.

The current risk management strategy of the Group
involves the use of forward currency contracts to hedge
contracted future sales denominated in the Euro in order to
offset the effect of changes in exchange rates between the Euro
and the US dollar. All such contracts are highly effective
cash flow hedges and are adjusted to their fair market values at
the end of each calendar quarter.

The Group evaluates all derivative instruments
each quarter to determine that they are highly effective. Any
ineffectiveness is recorded in the statements of income.

u)  New
pronouncements

In December 2003, the Group adopted
FIN 46R  Consolidation of Variable Interest
Entities. FIN 46R clarifies the application of Accounting
Research Bulletin No. 51 (ARB 51), to
certain entities in which equity investors do not have the
characteristics of a controlling financial interest or do not
have sufficient equity at risk for the entity to finance its
activities without additional subordinated financial support
from other parties. ARB 51 requires that an enterprises
consolidated financial statements include subsidiaries in which
the enterprise has a controlling financial interest. That
requirement has usually been applied to subsidiaries in which an
enterprise has a majority voting interest. The voting interest
approach is not effective in identifying controlling financial
interests in entities that are not controllable through voting
interests or in which the equity investors do not bear the
residual economic risk.

FIN 46R explains how an enterprise
identifies variable interest entities in order to assess its
interests in variable interest entities and decide whether to
consolidate that entity. The Group has applied FIN 46R to
all entities it believes are subject to FIN 46R as of
December 31, 2003, and has determined that it is the
primary beneficiary of a variable interest entity. Accordingly,
Cronos adopted FIN 46R by restating previously issued
financial statements with a cumulative charge of $4,606 at the
beginning of 2001, the first year restated.

SFAS No. 132 (revised 2003),
(SFAS 132R) requires an entity to make
additional disclosures about pensions and other postretirement
benefits. These disclosures include information describing the
types of plan assets, investment strategy, measurement date(s),
plan obligations, cash flows and components of net periodic
benefit cost. SFAS 132R is effective, with certain
exceptions, for plans beginning with fiscal years ending after
December 15, 2003. SFAS 132R is effective for interim
reporting period disclosures beginning after December 15,
2003 and after the provisions of this statement are adopted.
Cronos does not provide pensions or other postretirement
benefits, and therefore this standard will have no impact on its
consolidated financial statements.

In April 2003, the Financial Accounting Standards
Board issued SFAS 149. This statement amends and clarifies
reporting for derivative instruments, including certain
derivative instruments embedded in other contracts and for
hedging activities, and is effective for contracts entered into
or modified after June 30, 2003. The adoption of
SFAS 149 does not have a material impact on the
consolidated financial statements of the Group.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150 (SFAS 150),
Accounting for Certain Financial Instruments with
Characteristics of both Liabilities and Equity.
SFAS 150 modifies the accounting for certain financial
instruments that, under previous guidance, issuers could account
for as equity. It requires that those instruments be classified
as liabilities in statements of

F-16



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


financial position. SFAS 150 affects an
issuers accounting for three types of freestanding
financial instruments, namely:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | mandatorily redeemable shares, which the issuing
    company is obligated to buy back in exchange for cash or other
    assets.                                                                                                     
|
| | - | instruments, other than outstanding shares, that
    do or may require the issuer to buy back some of its shares in
    exchange for cash or other assets. These instruments include put
    options and forward purchase contracts.
|
| | - | obligations that can be settled with shares, the
    monetary value of which is fixed, tied solely or predominantly
    to a variable such as a market index, or varies inversely with
    the value of the issuers shares.        

SFAS 150 does not apply to features embedded
in financial instruments that are not derivatives in their
entirety.

In addition to its requirements for the
classification and measurement of financial instruments within
its scope, SFAS 150 also requires disclosures about
alternative ways of settling those instruments and the capital
structure of entities, all of whose shares are mandatorily
redeemable.

SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. The implementation of
SFAS 150 required the cumulative effect of a change in an
accounting principle to be reported for financial instruments
created before the issuance date of SFAS 150 and still
existing at the beginning of the interim period of adoption.
Restatement was not permitted.

The adoption of SFAS 150 does not have a
material impact on the consolidated financial statements of the
Group.



|  |                                                          
|- | ---------------------------------------------------------
|2 | Restatement of previously issued financial
    statements

In December 2003, the Group adopted
FIN 46R  Consolidation of Variable Interest
Entities. The Group has determined that it is the primary
beneficiary of a variable interest entity and has applied
FIN 46R by restating previously issued financial statements
with a cumulative effect adjustment in the beginning of the
first year presented in these financial statements.

The Group holds a 0.1% share in the variable
interest entity that was established as a container purchase
company in 1996 and acquired $49,700 of containers from Cronos
in a series of transactions in prior years. The variable
interests of the Group in the entity are comprised of a
management fee, that the Cronos earns in return for managing the
containers of the entity, a non-interest bearing loan note and
an option to acquire 75% of the container owning company which
can be exercised once certain conditions relating to the
repayment of the indebtedness of the variable interest entity
have been met.

At December 31, 2003, the variable interest
entity held cash balances of $1,118, restricted cash of $500,
container assets of $26,153 (stated at net book value) and debt
facilities of $24,589. The debt is scheduled to be repaid from
the cash generated by the container assets. At December 31,
2003, Cronos subsidiaries held total amounts receivable from the
variable interest entity of $12,898. Such amounts are
subordinate to the repayment of the variable interest entity
debt.

F-17



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


The consolidation of the variable interest had
the effect of increasing container depreciation and interest
expense and decreasing payments to Managed Container Programs.
The following table sets forth the effect of the restatement
adjustments.

|                                                        |                                                               |              |       |       |   |   |        |        |  
|------------------------------------------------------- | ------------------------------------------------------------- | ------------ | ----- | ----- | - | - | ------ | ------ | -
|                                                        |                                                               |             
|                                                        |                                                               | Years Ended 
|                                                        |                                                               | December 31,
|                                                        |                                                               |             
|                                                        |                                                               | 2002         |       | 2001 
|                                                        |                                                               |              |       |      
|Net income as previously reported                       |                                                               | $            | 3,058 |       |   | $ | 3,170  |       
|                                                        | - adjustment for effect of change in
    accounting principle |              |       | (749  | ) |   |        | (4,375 | )
|Net income (loss) as restated                           |                                                               | $            | 2,309 |       |   | $ | (1,205 | )     
|Basic net income per share as previously reported       |                                                               | $            | 0.42  |       |   | $ | 0.40   |       
|                                                        | - adjustment for effect of change in
    accounting principle |              | $     | (0.11 | ) |   | $      | (0.55  | )
|Basic net income (loss) per share as restated           |                                                               | $            | 0.31  |       |   | $ | (0.15  | )     
|Diluted net income per share as previously
    reported |                                                               | $            | 0.41  |       |   | $ | 0.39   |       
|                                                        | - adjustment for effect of change in
    accounting principle |              | $     | (0.10 | ) |   | $      | (0.54  | )
|Diluted net income (loss) per share as restated         |                                                               | $            | 0.31  |       |   | $ | (0.15  | )     

The following table sets forth the effect of the
restatement adjustments at December 31, 2002:

|                                                                  |                                                               |   |         |         | 
|----------------------------------------------------------------- | ------------------------------------------------------------- | - | ------- | ------- | 
|Total assets as previously reported                               |                                                               | $ | 214,189 |        
|                                                                  | - adjustment for effect of change in
    accounting principle |   |         | 22,114  | 
|Total assets as restated                                          |                                                               | $ | 236,303 |        
|Total debt & capital lease obligations
    as previously reported |                                                               | $ | 100,997 |        
|                                                                  | - adjustment for effect of change in
    accounting principle |   |         | 27,953  | 
|Total debt and capital lease obligations as
    restated          |                                                               | $ | 128,950 |        
|Shareholders equity                                              |                                                               | $ | 64,206  |        
|                                                                  | - adjustment for effect of change in
    accounting principle |   |         | (5,124) | 
|Shareholders equity as restated                                  |                                                               | $ | 59,082  |        

In addition, the Group has determined that it
holds variable interests in other variable interest entities. In
accordance with FIN 46R, the Group has conducted a review
of the expected losses and expected residual returns of the
variable interest entities and concluded that Cronos is not the
primary beneficiary in each case. See Note 8 
Investments.

F-18



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


3   Operating segment
data

Segment information is provided in the tables
below:

|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |         |  
|-------------------------------------------------- | ---------------------------------------- | --------- | ------ | --------- | - | ---------- | ------ | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                   |                                          |           |        | Other     |   |            |        |        
|                                                   |                                          | Container |        | Managed   |   |            |        |        
|                                                   |                                          | Equity    |        | Container |   | Owned      |        |        
|                                                   |                                          | Programs  |        | Programs  |   | Containers |        | Total  
|                                                   |                                          |           |        |           |   |            |        |        
|Year ended December 31, 2003                       |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Items directly attributable to operating segments: |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | - gross lease revenue                    |           | $      | 35,188    |   |            | $      | 44,901  |   |   | $       | 37,412  |   |   | $       | 117,501 |  
|                                                   | - direct operating expenses              |           |        | (7,915    | ) |            |        | (10,704 | ) |   |         | (6,889  | ) |   |         | (25,508 | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | net lease revenue                        |           |        | 27,273    |   |            |        | 34,197  |   |   |         | 30,523  |   |   |         | 91,993  |  
|                                                   | - direct financing lease income          |           |        |           |   |            |        |         |   |   |         | 1,510   |   |   |         | 1,510   |  
|                                                   | - payments to Managed Container Programs |           |        | (23,159   | ) |            |        | (32,571 | ) |   |         |        |   |   |         | (55,730 | )
|                                                   | - container depreciation                 |           |        |          |   |            |        |        |   |   |         | (17,282 | ) |   |         | (17,282 | )
|                                                   | - container interest expense             |           |        |          |   |            |        |        |   |   |         | (5,665  | ) |   |         | (5,665  | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Segment profit                                     |                                          | $         | 4,114  |           |   | $          | 1,626  |         |   | $ | 9,086   |         |   | $ | 14,826  |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Total assets                                       |                                          | $         | 21,346 |           |   | $          | 11,353 |         |   | $ | 205,338 |         |   | $ | 238,037 |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Expenditure for segment assets                     |                                          | $         | 3,646  |           |   | $          | 124    |         |   | $ | 18,880  |         |   | $ | 22,650  |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        

Reconciliation of profit for reportable segments
to income before income taxes and equity in earnings of
affiliate:

|                                                                   |  |   |         |  
|------------------------------------------------------------------ |  | - | ------- | -
|Segment profit                                                     |  | $ | 14,826  |  
|Equipment trading revenue                                          |  |   | 4,991   |  
|Unallocated commissions, fees and other operating
    income       |  |   | 2,131   |  
|Interest income                                                    |  |   | 130     |  
|Equipment trading expenses                                         |  |   | (4,600  | )
|Amortization of intangible assets                                  |  |   | (188    | )
|Non container depreciation                                         |  |   | (213    | )
|Selling, general and administrative expenses                       |  |   | (15,791 | )
|Non container interest expense                                     |  |   | (89     | )
|                                                                   |  |   |         |  
|Income before income taxes and equity in earnings
    of affiliate |  | $ | 1,197   |  
|                                                                   |  |   |         |  

F-19



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |         |  
|-------------------------------------------------- | ---------------------------------------- | --------- | ------ | --------- | - | ---------- | ------ | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                   |                                          |           |        | Other     |   |            |        |        
|                                                   |                                          | Container |        | Managed   |   |            |        |        
|                                                   |                                          | Equity    |        | Container |   | Owned      |        |        
|                                                   |                                          | Programs  |        | Programs  |   | Containers |        | Total  
|                                                   |                                          |           |        |           |   |            |        |        
|Year ended December 31, 2002,
    restated         |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Items directly attributable to operating segments: |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | - gross lease revenue                    |           | $      | 29,925    |   |            | $      | 45,466  |   |   | $       | 38,252  |   |   | $       | 113,643 |  
|                                                   | - direct operating expenses              |           |        | (8,130    | ) |            |        | (11,906 | ) |   |         | (6,757  | ) |   |         | (26,793 | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | net lease revenue                        |           |        | 21,795    |   |            |        | 33,560  |   |   |         | 31,495  |   |   |         | 86,850  |  
|                                                   | - direct financing lease income          |           |        |          |   |            |        |        |   |   |         | 1,194   |   |   |         | 1,194   |  
|                                                   | - payments to Managed Container Programs |           |        | (18,214   | ) |            |        | (33,158 | ) |   |         |        |   |   |         | (51,372 | )
|                                                   | - container depreciation                 |           |        |          |   |            |        |        |   |   |         | (18,407 | ) |   |         | (18,407 | )
|                                                   | - container interest expense             |           |        |          |   |            |        |        |   |   |         | (7,209  | ) |   |         | (7,209  | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Segment profit                                     |                                          | $         | 3,581  |           |   | $          | 402    |         |   | $ | 7,073   |         |   | $ | 11,056  |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Total assets                                       |                                          | $         | 15,489 |           |   | $          | 13,053 |         |   | $ | 207,761 |         |   | $ | 236,303 |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Expenditure for segment assets                     |                                          | $         | 4,743  |           |   | $          | 120    |         |   | $ | 21,408  |         |   | $ | 26,271  |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        

Reconciliation of profit for reportable segments
to loss before income taxes and equity in earnings of affiliate:

|                                                                 |  |   |         |  
|---------------------------------------------------------------- |  | - | ------- | -
|Segment profit                                                   |  | $ | 11,056  |  
|Equipment trading revenue                                        |  |   | 1,045   |  
|Unallocated commissions, fees and other operating
    income     |  |   | 3,117   |  
|Interest income                                                  |  |   | 324     |  
|Equipment trading expenses                                       |  |   | (969    | )
|Amortization of intangible assets                                |  |   | (188    | )
|Non container depreciation                                       |  |   | (130    | )
|Selling, general and administrative expenses                     |  |   | (14,285 | )
|Non container interest expense                                   |  |   | (125    | )
|                                                                 |  |   |         |  
|Loss before income taxes and equity in earnings
    of affiliate |  | $ | (155)   |  
|                                                                 |  |   |         |  

F-20



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |         |  
|-------------------------------------------------- | ---------------------------------------- | --------- | ------ | --------- | - | ---------- | ------ | ------- | - | - | ------- | ------- | - | - | ------- | ------- | -
|                                                   |                                          |           |        | Other     |   |            |        |        
|                                                   |                                          | Container |        | Managed   |   |            |        |        
|                                                   |                                          | Equity    |        | Container |   | Owned      |        |        
|                                                   |                                          | Programs  |        | Programs  |   | Containers |        | Total  
|                                                   |                                          |           |        |           |   |            |        |        
|Year ended December 31, 2001,
    restated         |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Items directly attributable to operating segments: |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | - gross lease revenue                    |           | $      | 33,744    |   |            | $      | 48,966  |   |   | $       | 37,635  |   |   | $       | 120,345 |  
|                                                   | - direct operating expenses              |           |        | (9,631    | ) |            |        | (13,185 | ) |   |         | (8,041  | ) |   |         | (30,857 | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|                                                   | net lease revenue                        |           |        | 24,113    |   |            |        | 35,781  |   |   |         | 29,594  |   |   |         | 89,488  |  
|                                                   | - direct financing lease income          |           |        |          |   |            |        |        |   |   |         | 344     |   |   |         | 344     |  
|                                                   | - payments to Managed Container Programs |           |        | (19,033   | ) |            |        | (34,399 | ) |   |         |        |   |   |         | (53,432 | )
|                                                   | - container depreciation                 |           |        |          |   |            |        |        |   |   |         | (17,727 | ) |   |         | (17,727 | )
|                                                   | - container interest expense             |           |        |          |   |            |        |        |   |   |         | (9,768  | ) |   |         | (9,768  | )
|                                                   | - impairment losses                      |           |        |          |   |            |        |        |   |   |         | (2,000  | ) |   |         | (2,000  | )
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Segment profit                                     |                                          | $         | 5,080  |           |   | $          | 1,382  |         |   | $ | 443     |         |   | $ | 6,905   |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Total assets                                       |                                          | $         | 13,238 |           |   | $          | 13,394 |         |   | $ | 224,770 |         |   | $ | 251,402 |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        
|Expenditure for segment assets                     |                                          | $         | 89     |           |   | $          | 145    |         |   | $ | 38,983  |         |   | $ | 39,217  |        
|                                                   |                                          |           |        |           |   |            |        |         |   |   |         |         |   |   |         |        

Reconciliation of profit for reportable segments
to income before income taxes, equity in earnings of affiliate
and cumulative effect of change in accounting principle:

|                                                                                                                        |  |   |         |  
|----------------------------------------------------------------------------------------------------------------------- |  | - | ------- | -
|Segment profit                                                                                                          |  | $ | 6,905   |  
|Equipment trading revenue                                                                                               |  |   | 5,279   |  
|Unallocated commissions, fees and other operating
    income                                                            |  |   | 5,095   |  
|Interest income                                                                                                         |  |   | 324     |  
|Gain on sale of investment                                                                                              |  |   | 301     |  
|Equipment trading expenses                                                                                              |  |   | (4,942  | )
|Amortization of intangibles                                                                                             |  |   | (560    | )
|Non container depreciation                                                                                              |  |   | (772    | )
|Selling, general and administrative expenses                                                                            |  |   | (14,109 | )
|Non container interest expense                                                                                          |  |   | (42     | )
|Income from recovery of related party loans                                                                             |  |   | 6,000   |  
|                                                                                                                        |  |   |         |  
|Income before income taxes, equity in earnings of
    affiliate and cumulative effect of change in accounting principle |  | $ | 3,479   |  
|                                                                                                                        |  |   |         |  

The segments shown above depict the different
forms of funding entered into by the Group for its container
fleet acquisitions and represent different levels of
profitability and risk to the Group. Although there are a number
of different types of funding arrangements within each segment,
the arrangements fall into three principal
categories  Owned Containers, Container Equity
Programs and Other Managed Container Programs. Owned containers
are those which are financed by the Groups own capital
resources, debt facilities and capital leases, and include new
container equipment for resale. The funding arrangements of the
Container Equity Programs and Other Managed Container Programs
are described in Note 1 and Note 8.

All revenues and expenses that are specifically
identifiable to the containers within each segment are allocated
to that segment. The Group manages a number of different
container products, revenue details on

F-21



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


which are given below. Individual product
revenues have been aggregated within the operating segments
reported.

Total assets for Container Equity Programs
included an investment in an unconsolidated affiliate of $8,570,
$3,603 and $0 at December 31, 2003, 2002 and 2001,
respectively.

Gross lease revenue from external customers by
product comprised:

|                        |  |      |         |      |  |      |         |  |  |   |         | 
|----------------------- |  | ---- | ------- | ---- |  | ---- | ------- |  |  | - | ------- | 
|                        |  | 2003 |         | 2002 |  | 2001
|                        |  |      |         |      |  |     
|Dry cargo containers    |  | $    | 80,773  |      |  | $    | 78,760  |  |  | $ | 84,921  | 
|Refrigerated containers |  |      | 20,829  |      |  |      | 21,293  |  |  |   | 22,422  | 
|Tanks                   |  |      | 6,713   |      |  |      | 6,123   |  |  |   | 5,908   | 
|Dry freight specials    |  |      | 9,186   |      |  |      | 7,467   |  |  |   | 7,094   | 
|                        |  |      |         |      |  |      |         |  |  |   |         | 
|Total                   |  | $    | 117,501 |      |  | $    | 113,643 |  |  | $ | 120,345 | 
|                        |  |      |         |      |  |      |         |  |  |   |         | 

No single customer accounted for 10% or more of
total revenues in the years ended December 31, 2003, 2002
and 2001, respectively.

Lease revenue is deemed to be earned based on the
physical location of the containers while on lease. Almost all
of the Groups lease revenue is earned on containers used
by its customers in global trade routes. Accordingly, the Group
believes that it does not possess discernible geographic
reporting segments as defined in SFAS No. 131
(SFAS 131), Disclosures about Segments of
an Enterprise and Related Information.

4   Income taxes

The (benefit) provision for income taxes
comprises:

|                                           |             |      |        |        |   |      |        |        |   |   |      |       |  
|------------------------------------------ | ----------- | ---- | ------ | ------ | - | ---- | ------ | ------ | - | - | ---- | ----- | -
|                                           |             | 2003 |        | 2002   |   | 2001
|                                           |             |      |        |        |   |     
|Current taxes:                             |             |      |        |        |   |      |        |        |   |   |      |      
|                                           | US Federal  |      | $      | (5     | ) |      | $      | (611   | ) |   | $    |      |  
|                                           | US State    |      |        | 93     |   |      |        |       |   |   |      |      |  
|                                           | Non US      |      |        | 760    |   |      |        | (1,690 | ) |   |      | (316  | )
|                                           |             |      |        |        |   |      |        |        |   |   |      |      
|                                           |             |      | 848    |        |   |      | (2,301 | )      |   |   | (316 | )    
|                                           |             |      |        |        |   |      |        |        |   |   |      |      
|Deferred taxes:                            |             |      |        |        |   |      |        |        |   |   |      |      
|                                           | US Federal  |      |        | 46     |   |      |        | (425   | ) |   |      | (843  | )
|                                           | US State    |      |        | (41    | ) |      |        | 142    |   |   |      | (234  | )
|                                           | Withholding |      |        |       |   |      |        |       |   |   |      | 145   |  
|                                           | Non US      |      |        | (2,347 | ) |      |        | 426    |   |   |      | 1,326 |  
|                                           |             |      |        |        |   |      |        |        |   |   |      |      
|                                           |             |      | (2,342 | )      |   |      | 143    |        |   |   | 394  |      
|                                           |             |      |        |        |   |      |        |        |   |   |      |      
|Total (benefit) provision for income taxes |             | $    | (1,494 | )      |   | $    | (2,158 | )      |   | $ | 78   |      
|                                           |             |      |        |        |   |      |        |        |   |   |      |      

F-22



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


Differences between the (benefit) provision for
taxes that would be computed at the US statutory rate and the
actual tax (benefit) provision were:

|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|------------------------------------------------------- |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|                                                        |  | 2003 |        | 2002 |  | 2001
|                                                        |  |      |        |      |  |     
|US federal provision                                    |  | $    | 406    |      |  | $    | (53    | ) |  | $ | 1,183  |  
|Non US income not subject to US corporate taxes         |  |      | (1,227 | )    |  |      | (1,586 | ) |  |   | (2,508 | )
|US state taxes (net of federal tax benefit)             |  |      | 52     |      |  |      | (145   | ) |  |   | (234   | )
|Non US corporate taxes                                  |  |      | (1,587 | )    |  |      | (1,299 | ) |  |   | 1,010  |  
|Tax on unremitted retained earnings of
    subsidiaries |  |      |       |      |  |      |       |   |  |   | 145    |  
|Valuation allowance                                     |  |      | 983    |      |  |      | 1,358  |   |  |   | 371    |  
|Other                                                   |  |      | (121   | )    |  |      | (433   | ) |  |   | 111    |  
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  
|Actual tax (benefit) provision                          |  | $    | (1,494 | )    |  | $    | (2,158 | ) |  | $ | 78     |  
|                                                        |  |      |        |      |  |      |        |   |  |   |        |  

Income (loss) before income taxes, equity in
earnings in affiliate and cumulative effect of change in
accounting principle comprises:

|       |  |      |        |      |  |      |        |   |  |   |        |  
|------ |  | ---- | ------ | ---- |  | ---- | ------ | - |  | - | ------ | -
|       |  | 2003 |        | 2002 |  | 2001
|       |  |      |        |      |  |     
|US     |  | $    | (2,416 | )    |  | $    | (4,822 | ) |  | $ | (3,897 | )
|Non US |  |      | 3,613  |      |  |      | 4,667  |   |  |   | 7,376  |  
|       |  |      |        |      |  |      |        |   |  |   |        |  
|       |  | $    | 1,197  |      |  | $    | (155   | ) |  | $ | 3,479  |  
|       |  |      |        |      |  |      |        |   |  |   |        |  

Temporary differences giving rise to the net
deferred income tax liability as of the balance sheet date were:

|                                                                              |  |      |       |      |  |   |        | 
|----------------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                                                                              |  | 2003 |       | 2002
|                                                                              |  |      |       |     
|Assets                                                                        |  |      |       |      |  |   |        | 
|Acquisition fees                                                              |  | $    | 730   |      |  | $ | 1,036  | 
|Losses carried forward                                                        |  |      | 1,561 |      |  |   | 2,432  | 
|Disallowed interest expense carried forward                                   |  |      | 1,238 |      |  |   | 1,491  | 
|Alternative minimum tax credit                                                |  |      |      |      |  |   |       | 
|Other                                                                         |  |      | 367   |      |  |   | 372    | 
|                                                                              |  |      |       |      |  |   |        | 
|Total deferred income tax assets                                              |  |      | 3,896 |      |  |   | 5,331  | 
|                                                                              |  |      |       |      |  |   |        | 
|Liabilities                                                                   |  |      |       |      |  |   |        | 
|Depreciation                                                                  |  |      | 3,186 |      |  |   | 6,603  | 
|Partnership income taxable in different periods
    for book and tax purposes |  |      | (482  | )    |  |   | 776    | 
|Unremitted retained earnings of subsidiaries                                  |  |      | 422   |      |  |   | 422    | 
|Valuation allowance                                                           |  |      | 3,484 |      |  |   | 2,501  | 
|                                                                              |  |      |       |      |  |   |        | 
|Total deferred income tax liabilities                                         |  |      | 6,610 |      |  |   | 10,302 | 
|                                                                              |  |      |       |      |  |   |        | 
|Net deferred income tax liabilities                                           |  | $    | 2,714 |      |  | $ | 4,971  | 
|                                                                              |  |      |       |      |  |   |        | 

F-23



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


Tax losses have arisen in certain US entities. As
of December 31, 2003, the deferred tax asset associated
with these losses carried forward will expire as follows:

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|2004                |  | $ | 68    | 
|2005                |  |   | 41    | 
|2006                |  |   | 80    | 
|2007                |  |   | 35    | 
|2008                |  |   | 22    | 
|2009 and thereafter |  |   | 1,315 | 
|                    |  |   |       | 
|Total               |  | $ | 1,561 | 
|                    |  |   |       | 

At December 31, 2003, the Group had net
operating loss carryforwards available of approximately $3,289,
$4,965 and $- for federal, state and foreign income taxes,
respectively, to offset future income tax liabilities. The
expected tax effect of these losses is reflected as a deferred
tax asset. A valuation allowance has been established in the US
subsidiaries since the realization of tax benefits of net
operating loss carryforwards is not more likely than not. The
amount of the valuation allowance is reviewed on a quarterly
basis.

The Group has a potential deferred income tax
liability on unremitted retained earnings of certain
subsidiaries. Upon remittance of such earnings to the parent
company, tax may be withheld by certain jurisdictions in which
the Group operates. Management has considered the Groups
remittance intentions in arriving at the related provision for
deferred income taxes.

5   Amounts due from
lessees

a)  Group as lessor

The Group earns rental income from leasing
containers to ocean carriers under operating leases. The
containers are either owned by the Group or by Managed Container
Programs (see Note 1) and the rental income is
included in gross lease revenue in the statements of income. The
cost and net book value of Group container equipment is detailed
in Note 9.

Contingent rentals approximated $73,000, $65,000,
and $82,000 of gross lease revenue, respectively, in the years
ended December 31, 2003, 2002 and 2001, respectively.

As of December 31, 2003, the minimum lease
rentals receivable in future years under term operating leases
were:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2004                |  | $ | 35,812 | 
|2005                |  |   | 23,999 | 
|2006                |  |   | 16,419 | 
|2007                |  |   | 9,336  | 
|2008                |  |   | 3,653  | 
|2009 and thereafter |  |   | 307    | 
|                    |  |   |        | 
|Total               |  | $ | 89,526 | 
|                    |  |   |        | 

Rental income from leasing containers owned by
Managed Container Programs to ocean carriers was $80,089,
$75,391 and $82,710 for the years ended December 31, 2003,
2002 and 2001, respectively (see Note 3).

The Group also leases office space and earned
revenue of $98, $319 and $380 for the years ended
December 31, 2003, 2002 and 2001, respectively.

F-24



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


b)  Allowance for doubtful
accounts

The activity in the allowance for doubtful
accounts was:

|                                |  |      |       |      |  |      |       |   |  |   |       |  
|------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                |  | 2003 |       | 2002 |  | 2001
|                                |  |      |       |      |  |     
|Beginning of year               |  | $    | 2,063 |      |  | $    | 2,601 |   |  | $ | 2,765 |  
|Provision for doubtful accounts |  |      | 1,077 |      |  |      | 440   |   |  |   | 630   |  
|Write-offs, net of recoveries   |  |      | (844  | )    |  |      | (978  | ) |  |   | (794  | )
|                                |  |      |       |      |  |      |       |   |  |   |       |  
|End of year                     |  | $    | 2,296 |      |  | $    | 2,063 |   |  | $ | 2,601 |  
|                                |  |      |       |      |  |      |       |   |  |   |       |  

6   Net investment in direct
financing leases

The Group, as lessor, has entered into various
leases of equipment that qualify as direct financing leases. The
minimum future lease rentals under these direct financing
leases, net of unearned income, are due as follows:

|                   |        |             |       |              |       |                |       |       |       |   |        |       |        | 
|------------------ | ------ | ----------- | ----- | ------------ | ----- | -------------- | ----- | ----- | ----- | - | ------ | ----- | ------ | 
|                   |        | Net lease   |       | Unearned     |       | Minimum future
|                   |        | receivables |       | lease income |       | lease rentals 
|                   |        |             |       |              |       |               
|December 31, 2002  |        | $           | 7,912 |              |       | $              | 2,819 |       |       | $ | 10,731 |      
|                   |        |             |       |              |       |                |       |       |       |   |        |      
|December 31, 2003: |        |             |       |              |       |                |       |       |       |   |        |      
|                   | - 2004 |             |       | 2,164        |       |                |       | 1,350 |       |   |        | 3,514 |       
|                   | - 2005 |             |       | 2,107        |       |                |       | 977   |       |   |        | 3,084 |       
|                   | - 2006 |             |       | 2,219        |       |                |       | 541   |       |   |        | 2,760 |       
|                   | - 2007 |             |       | 1,007        |       |                |       | 260   |       |   |        | 1,267 |       
|                   | - 2008 |             |       | 879          |       |                |       | 71    |       |   |        | 950   |       
|                   |        |             |       |              |       |                |       |       |       |   |        |      
|                   |        | Total       |       | $            | 8,376 |                |       | $     | 3,199 |   |        | $     | 11,575 | 
|                   |        |             |       |              |       |                |       |       |       |   |        |      

7   New container equipment for
resale

Activity during the year in new container
equipment for resale was:

|                                                              |                                            |      |        |         |   |      |        |        |   |   |        |        |  
|------------------------------------------------------------- | ------------------------------------------ | ---- | ------ | ------- | - | ---- | ------ | ------ | - | - | ------ | ------ | -
|                                                              |                                            | 2003 |        | 2002    |   | 2001
|                                                              |                                            |      |        |         |   |     
|Beginning of year                                             |                                            | $    | 2,570  |         |   | $    | 1,463  |        |   | $ | 11,790 |       
|Container purchases                                           |                                            |      | 47,054 |         |   |      | 11,920 |        |   |   | 8,947  |       
|Container disposals:                                          |                                            |      |        |         |   |      |        |        |   |   |        |       
|                                                              | - sold to Container Equity Programs        |      |        | (37,751 | ) |      |        | (9,062 | ) |   |        | (18    | )
|                                                              | - sold to Other Managed Container Programs |      |        |        |   |      |        |       |   |   |        | (7,451 | )
|                                                              | - sold to other parties                    |      |        | (1,057  | ) |      |        | (1,677 | ) |   |        | (4,942 | )
|Transferred to net investment in direct financing
    leases  |                                            |      |       |         |   |      |       |        |   |   | (932   | )     
|Transferred to long-term ownership of container
    equipment |                                            |      |       |         |   |      | (74    | )      |   |   | (5,931 | )     
|                                                              |                                            |      |        |         |   |      |        |        |   |   |        |       
|End of year                                                   |                                            | $    | 10,816 |         |   | $    | 2,570  |        |   | $ | 1,463  |       
|                                                              |                                            |      |        |         |   |      |        |        |   |   |        |       

As part of organizing Container Equity Programs,
the Group purchases containers for resale to these programs.
These transactions were entered into on normal commercial terms.

F-25



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


8   Investments, including
investments in related parties

Investments comprise:

|                                       |  |      |       |      |  |   |       | 
|-------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                       |  | 2003 |       | 2002
|                                       |  |      |       |     
|Investment in unconsolidated affiliate |  | $    | 8,570 |      |  | $ | 3,603 | 
|                                       |  |      |       |      |  |   |       | 

i.   Investment in Container
Equity Programs

Investments in Container Equity Programs take two
forms:

Under the first form, the investments comprise
the Groups equity interests as a general partner and as a
limited partner in eight US Limited Partnership Programs. In
accordance with FIN 46R, the Company has determined that
the eight Limited Partnerships qualify as variable interest
entities. In each case, the Company has concluded that neither
the Company, nor any of its subsidiaries, is the primary
beneficiary of any US Limited Partnership Program.

Cronos raised capital through investment
syndication activities from 1979 to 1997 by organizing and
sponsoring public limited partnership offerings and originally
sponsored sixteen public limited partnerships, raising over
$478,000 from over 37,000 investors; eight of the original
sixteen partnerships have now been dissolved. These general and
limited partner investments are accounted for using the equity
method.

The partnerships are all California Limited
Partnerships managed by Cronos Capital Corp., a subsidiary of
the Company. The objectives of the partnership are to invest in
marine cargo containers to generate a continuing income for
distribution to the limited partners, and to realise the
residual value of the container equipment at the end of its
useful economic life or upon the dissolution of the individual
partnerships. At December 31, 2003 and 2002 respectively,
the US Limited Partnership Programs had total assets of $126,425
and $151,801, and total liabilities of $5,411 and $6,893. The
general partner will be indemnified by the partnership for any
liabilities suffered by it arising out of its activities as
general partner, except in the case of misconduct or negligence.
As a limited liability partnership, the limited partners may not
be assessed for additional capital contributions and therefore
it is possible that the general partner could be liable for any
additional contributions required.

Under the second form, the Group has a 50% equity
investment in an entity known as the Joint Venture Program or CF
Leasing Limited. The Joint Venture Program is a container
purchase entity that was established in 2002 and is a
bankruptcy-remote, special purpose entity organized under the
laws of Bermuda. The Joint Venture Program is accounted for
using the equity method. The Group has determined that the joint
venture is not a variable interest entity as defined by
FIN 46R. At December 31, 2003 and 2002, respectively,
the Joint Venture Program had total assets of $72,331 and
$29,466, and total liabilities of $55,191 and $22,260. For the
year ended December 31, 2003, the Joint Venture Program
reported net income of $2,998, and during the period from
September 18, 2002 (date of inception) to December 31,
2002, it reported net income of $611. During 2002, Cronos
received a distribution of $1,125 representing a repayment of
excess capital at the inception of the Joint Venture Program
together with a subsequent distribution of $250 from earnings.
The maximum exposure of Cronos to losses as a result of its
involvement with the Joint Venture Program is limited to the
level of its equity investment in the Joint Venture Program at
any point in time.

F-26



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


The activity in the investment in unconsolidated
affiliate was:

|                                                          |  |      |       |      |  |   |        |  
|--------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | -
|                                                          |  | 2003 |       | 2002
|                                                          |  |      |       |     
|Beginning of year                                         |  | $    | 3,603 |      |  | $ |       |  
|Investment in joint venture                               |  |      | 3,549 |      |  |   | 4,672  |  
|Equity in earnings of affiliate                           |  |      | 1,499 |      |  |   | 306    |  
|Distributions received from joint venture                 |  |      |      |      |  |   | (1,375 | )
|Change in fair value of interest rate swap
    agreements |  |      | (81   | )    |  |   |       |  
|                                                          |  |      |       |      |  |   |        |  
|End of year                                               |  | $    | 8,570 |      |  | $ | 3,603  |  
|                                                          |  |      |       |      |  |   |        |  

ii.  Investment
Securities

During 2001, the Group recorded a gain of $301 on
the final settlement of an escrow subject to the terms of a tax
indemnification agreement.

9       Container
and other equipment

The activity in container equipment for the years
ended December 31, 2003 and 2002, was:

|                                                             |  |   |         |  
|------------------------------------------------------------ |  | - | ------- | -
|Cost, restated                                               |  |   |         |  
|Balance, December 31, 2001                                   |  | $ | 280,295 |  
|Additions                                                    |  |   | 18,723  |  
|Disposals                                                    |  |   | (14,606 | )
|Container equipment contributed to Joint Venture
    Program |  |   | (7,547  | )
|                                                             |  |   |         |  
|Balance, December 31, 2002                                   |  |   | 276,865 |  
|Additions                                                    |  |   | 18,357  |  
|Disposals                                                    |  |   | (23,253 | )
|Container equipment contributed to Joint Venture
    Program |  |   | (999    | )
|                                                             |  |   |         |  
|Balance, December 31, 2003                                   |  | $ | 270,970 |  
|                                                             |  |   |         |  
|Accumulated depreciation, restated                           |  |   |         |  
|Balance, December 31, 2001                                   |  | $ | 96,636  |  
|Depreciation expense                                         |  |   | 18,407  |  
|Disposals                                                    |  |   | (1,901  | )
|Container equipment contributed to Joint Venture
    Program |  |   | (2,875  | )
|                                                             |  |   |         |  
|Balance, December 31, 2002                                   |  | $ | 110,267 |  
|Depreciation expense                                         |  |   | 17,282  |  
|Disposals                                                    |  |   | (12,083 | )
|                                                             |  |   |         |  
|Balance, December 31, 2003                                   |  | $ | 115,466 |  
|                                                             |  |   |         |  
|Book value                                                   |  |   |         |  
|December 31, 2003                                            |  | $ | 155,504 |  
|                                                             |  |   |         |  
|December 31, 2002                                            |  | $ | 166,598 |  
|                                                             |  |   |         |  

Depreciation expense in 2001 was $17,727.

F-27



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


The Group recorded depreciation expense for other
equipment of $213, $130 and $772 for the years ended
December 31, 2003, 2002 and 2001, respectively.



| |                
| | ---------------
| | Impairment loss

In the second quarter of 2001, the Group reviewed
its refrigerated container equipment to consider recent changes
in the marketplace and economic environment and to identify the
consequences, if any, from an accounting perspective. Management
identified a number of issues that had an impact on the carrying
value of certain equipment at June 30, 2001.

In 1992, the Montreal Protocol outlawed the
production of the R12 refrigerant gas by developed countries.
Since that date, shipping lines and leasing companies continued
to operate fleets including equipment with the R12 refrigerant
gas. However, the environmental impact of refrigerant gases has
become increasingly prominent. On January 1, 2001, it
became illegal for R12 to be handled, other than for disposal,
in most of the countries that are members of the European Union.

Several of the major shipping lines that lease
from Cronos and other leasing companies made a commitment in
2001 to eliminate containers with the R12 refrigerant gas from
their fleets. Over the course of 2001, these factors together
with the deteriorating economic environment resulted in a very
slow leasing market for R12 equipment. In addition, it was
forecast that residual prices for R12 containers would decrease
as equipment was returned.

Cronos management considered the impact of these
factors in June 2001 and decided to change the current marketing
strategy for R12 equipment. Management concluded effective
July 1, 2001, that inventories of R12 equipment would be
targeted for immediate sale. Management also conducted a review
of R12 equipment that was on lease at June 30, 2001.

R12 Assets to be disposed
of:In June 2001 management committed
to a plan to dispose of 531 containers with a carrying value of
$2,400. It was concluded that the carrying value of the assets
exceeded fair value and accordingly an impairment charge of
$1,400 was recorded to operations under impairment losses. Fair
value was determined by discounting expected cash flows. The
assets are reported as part of the Owned Container business
segment. In accordance with SFAS 144, the containers that
remained unsold at June 2002, were reclassified from other
assets to container equipment in the third quarter of 2002.

R12 Assets to be held and
used:Management conducted a review of
776 containers with a carrying value of $3,700 that were on
lease at June 30, 2001. It was concluded that the carrying
value of these assets exceeded the future cash flows expected to
result from the rental of the assets and their eventual
disposition, and therefore was not recoverable. Accordingly a
charge of $600 was recorded to operations under impairment
losses. Fair value was determined by discounting expected cash
flows. The assets are reported as part of the Owned Container
business segment.

F-28



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


10     Goodwill and
intangible assets

The activity in the intangible assets was:

|                           |  |          |        |         |  |       |       |  |  |   |        | 
|-------------------------- |  | -------- | ------ | ------- |  | ----- | ----- |  |  | - | ------ | 
|                           |  | Goodwill |        | Patents |  | Total
|                           |  |          |        |         |  |      
|Cost                       |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2001 |  | $        | 16,231 |         |  | $     | 2,096 |  |  | $ | 18,327 | 
|Additions                  |  |          |       |         |  |       |      |  |  |   |       | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2002 |  |          | 16,231 |         |  |       | 2,096 |  |  |   | 18,327 | 
|Additions                  |  |          |       |         |  |       |      |  |  |   |       | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2003 |  | $        | 16,231 |         |  | $     | 2,096 |  |  | $ | 18,327 | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Accumulated amortization   |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2001 |  | $        | 5,193  |         |  | $     | 999   |  |  | $ | 6,192  | 
|Amortization expense       |  |          |       |         |  |       | 188   |  |  |   | 188    | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2002 |  |          | 5,193  |         |  |       | 1,187 |  |  |   | 6,380  | 
|Amortization expense       |  |          |       |         |  |       | 188   |  |  |   | 188    | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Balance, December 31, 2003 |  | $        | 5,193  |         |  | $     | 1,375 |  |  | $ | 6,568  | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|Book value                 |  |          |        |         |  |       |       |  |  |   |        | 
|December 31, 2003          |  | $        | 11,038 |         |  | $     | 721   |  |  | $ | 11,759 | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 
|December 31, 2002          |  | $        | 11,038 |         |  | $     | 909   |  |  | $ | 11,947 | 
|                           |  |          |        |         |  |       |       |  |  |   |        | 

The amortization expense in 2001 was $560.

i.   Goodwill

Goodwill arose on the acquisition in 1990 of
Intermodal Equipment Associates and the acquisition in 1996 of
Intermodal Management AB.

The goodwill relating to the acquisition of
Intermodal Equipment Associates, with a book value of $7,209 at
December 31, 2003, has been allocated equally across the
three reportable segments. The goodwill relating to the
acquisition of Intermodal Management AB, with a book value of
$3,829 at December 31, 2003, has been allocated to the
Owned Containers segment.

ii.   Patents

The Group entered into agreements to acquire the
patent rights relating to the CPC, the Slimwall CPC and the
intellectual property of Cargo Unit Containers Limited in August
1996 for a total consideration of $2,096 from a third-party (the
Seller). In April 2000, the Group entered into
another agreement with the Seller which provided that, in
consideration for the sum of $1,000, the Group would fully
discharge any liabilities for accrued royalties, acquire full
right, title and interest that the Seller may have had to
receive royalties in the future and acquire all residual rights
as the Seller had or may have had under the Agreements.

F-29



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


In accordance with SFAS 142, patents are
amortized on a straight-line basis over their estimated useful
life to a residual value of $0 in 2007. The estimated aggregate
amortization expense for the next five years may be presented as
follows:

|      |  |   |     | 
|----- |  | - | --- | 
|2004  |  | $ | 188 | 
|2005  |  |   | 188 | 
|2006  |  |   | 188 | 
|2007  |  |   | 157 | 
|2008  |  |   |    | 
|      |  |   |     | 
|Total |  | $ | 721 | 
|      |  |   |     | 

SFAS 142 addresses the initial recognition
and measurement of intangible assets acquired in a business
combination and the accounting for goodwill and other intangible
assets subsequent to their acquisition. SFAS 142 provides
that intangible assets with finite useful lives be amortized and
that goodwill and intangible assets with indefinite lives will
not be amortized, but will be tested annually for impairment.
Cronos conducts its impairment test in December of each year,
and in December 2003 concluded that the carrying value of
goodwill was not impaired. The impact of the adoption of
SFAS 142 on the results of operations of the Group may be
presented as follows:

|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|-------------------------------------------- |  | ------------------- | ----- | -------- |  | -------- | ----- |  |  | - | ------ | -
|                                             |  |                    
|                                             |  | For the Years Ended
|                                             |  | December 31,       
|                                             |  |                    
|                                             |  | 2003                |       | 2002     |  | 2001    
|                                             |  |                     |       |          |  |         
|                                             |  |                     |       | Restated |  | Restated
|Net income (loss):                           |  |                     |       |          |  |          |       |  |  |   |        |  
|Reported net income (loss)                   |  | $                   | 4,190 |          |  | $        | 2,309 |  |  | $ | (1,205 | )
|Add back Goodwill amortization               |  |                     |      |          |  |          |      |  |  |   | 373    |  
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|Adjusted net income (loss)                   |  | $                   | 4,190 |          |  | $        | 2,309 |  |  | $ | (832   | )
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|Earnings (loss) per share:                   |  |                     |       |          |  |          |       |  |  |   |        |  
|Reported basic net income (loss) per share   |  | $                   | 0.57  |          |  | $        | 0.31  |  |  | $ | (0.15  | )
|Add back Goodwill amortization               |  |                     |      |          |  |          |      |  |  | $ | 0.05   |  
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|Adjusted basic net income (loss) per share   |  | $                   | 0.57  |          |  | $        | 0.31  |  |  | $ | (0.10  | )
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|Reported diluted net income (loss) per share |  | $                   | 0.55  |          |  | $        | 0.31  |  |  | $ | (0.15  | )
|Add back Goodwill amortization               |  |                     |      |          |  |          |      |  |  | $ | 0.05   |  
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  
|Adjusted diluted net income (loss) per share |  | $                   | 0.55  |          |  | $        | 0.31  |  |  | $ | (0.10  | )
|                                             |  |                     |       |          |  |          |       |  |  |   |        |  

11  Hedging transactions and
derivative financial instruments

The purpose of Cronos foreign currency hedging
activities is to reduce the risk that eventual US dollar net
cash inflows resulting from non US dollar denominated sales
transactions will be adversely affected by changes in exchange
rates. During 2003, Cronos entered into foreign currency forward
contracts to reduce exposure to exchange rate risks associated
with a Euro denominated sales agreement. The hedges have been
designated fully effective cash flow hedges as the critical
terms of the forward contracts match those of the hedged items.
The changes in the fair value of the hedges are reported as a
component of other comprehensive income and will be reclassified
into earnings as equipment trading revenue in 2004, the
contracted performance date. For the year ended
December 31, 2003, $325 after taxes was charged to other
comprehensive income representing the decline in the fair value
of the forward contracts. In addition, in the

F-30



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


fourth calendar quarter of 2003, $100 was
reclassified to equipment trading revenue, representing the
decline in the fair value of the forward contracts relating to
revenue recognized during the quarter. The forward contracts
expire in 2004.

12  Other assets

Other assets includes the following items:

|                                                            |  |      |       |      |  |   |        | 
|----------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ------ | 
|                                                            |  | 2003 |       | 2002
|                                                            |  |      |       |     
|Unamortized loan origination fees                           |  | $    | 2,038 |      |  | $ | 1,962  | 
|Amounts receivable under equipment trading
    transactions |  |      | 1,812 |      |  |   | 949    | 
|Prepaid expenses                                            |  |      | 928   |      |  |   | 1,146  | 
|Retention deposits                                          |  |      | 729   |      |  |   | 4,010  | 
|Deposits for leasehold properties and other items           |  |      | 506   |      |  |   | 304    | 
|Sales tax receivables                                       |  |      | 345   |      |  |   | 330    | 
|Amounts held on deposit for Managed Container
    Program   |  |      |      |      |  |   | 1,267  | 
|Other                                                       |  |      | 420   |      |  |   | 384    | 
|                                                            |  |      |       |      |  |   |        | 
|                                                            |  | $    | 6,778 |      |  | $ | 10,352 | 
|                                                            |  |      |       |      |  |   |        | 

i.At
December 31, 2003 and 2002, amounts of $729 and $4,010,
respectively, were held as retention deposits by financial
institutions in connection with long-term funding transactions.
At December 31, 2003, the remaining release dates for these
amounts ranged between 2004 and 2005 in accordance with the
terms of the funding transactions (see Note 13).

ii.At
December 31, 2002, an amount of $1,267 was held in a
deposit account in connection with amounts due to a Managed
Container Program (see Note 15 vii).

13  Debt and lease
obligations

As of December 31, 2003, the Group had
$129,396 of term facilities (including capital lease financing)
under which $119,205 was outstanding and $1,679 of credit
facilities under which $0 was outstanding. The unused portion of
the term facilities is available to fund the acquisition of
container equipment and may require a cash contribution from the
Group of up to 20% of the cost of the new container. Fixed and
floating interest rates under these facilities ranged from 2.7%
to 8.3%, at December 31, 2003. The terms of these
facilities extend to various dates through 2013. The rate of
interest for the majority of floating rate facilities is based
on a three month London Inter Bank Offered Rate
(Libor) plus a margin. The size of the margin is
dependent on the financial institution and the nature, size and
term of the facility.

All of the debt and capital lease facilities
involve agreements between subsidiaries of the Company and
financial institutions. The Company has provided parent company
guarantees for the $119,205 outstanding which provide that, in
the event of a default by the subsidiary, the Company will pay
all amounts due under the agreements as they fall due. Based on
December 31, 2003 interest rates, the maximum potential
amount of future payments for the guaranteed debt and capital
lease facilities is $130,227. At December 31, 2003, the
fair value of the facilities approximated the carrying value.
The debt and capital lease facilities are secured by container
equipment. The Group receives free and clear title to the
collateralised container equipment once all payments due under a
facility have been made. In the event that the Group cannot make
the guaranteed payments, the financial institutions are entitled
to recover the collateralised equipment and either use the
related cash flows or sell the equipment and take the sale
proceeds to discharge outstanding obligations of the Company.
The Company considers that the cash flows and/or sales proceeds
generated by the collateralised equipment should be sufficient
to cover outstanding obligations.

F-31



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


Debt and capital lease obligations are comprised
of:

|                                 |  |      |         |          |  |                    |         |  |  |  |                       | 
|-------------------------------- |  | ---- | ------- | -------- |  | ------------------ | ------- |  |  |  | --------------------- | 
|                                 |  |      |         |          |  | Interest rate % at
|                                 |  | 2003 |         | 2002     |  | December 2003/2002
|                                 |  |      |         |          |  |                   
|                                 |  |      |         | Restated |  |                   
|Floating rate debt               |  | $    | 89,268  |          |  | $                  | 79,703  |  |  |  | 3.2  3.4 / 2.9  3.6 | 
|Fixed rate debt                  |  |      | 63      |          |  |                    | 13,923  |  |  |  | 8.3 / 8.6             | 
|                                 |  |      |         |          |  |                    |         |  |  |  |                       | 
|Total debt                       |  |      | 89,331  |          |  |                    | 93,626  |  |  |  |                       | 
|Obligations under capital leases |  |      | 29,874  |          |  |                    | 35,324  |  |  |  | 2.7  4.4 / 2.9  8.3 | 
|                                 |  |      |         |          |  |                    |         |  |  |  |                       | 
|Total                            |  | $    | 119,205 |          |  | $                  | 128,950 |  |  |  |                       | 
|                                 |  |      |         |          |  |                    |         |  |  |  |                       | 

a)   Debt

Bank loans, the majority of which have floating
interest rates, have installments payable through 2013. The
weighted average interest rates for the years ended
December 31, 2003, 2002 and 2001, were 4.7%, 5.6% and 6.7%,
respectively.

At December 31, 2003, there were no material
fixed rate long-term debt facilities. As of December 31,
2002, the estimated fair value of fixed rate long-term debt was
$14,851 for which the carrying value was $13,861. The fair value
of fixed rate long-term debt was calculated using the market
rates prevailing at December 31, 2002.

In September 2003, the Group amended a revolving
line of credit agreement and increased the maximum commitment of
the lenders thereunder from $50,000 to $70,000, and has agreed
to amortize the balance outstanding under the revolving line of
credit, as of September 18, 2004, over five years. In the
fourth quarter of 2003, Cronos utilized the revolving line of
credit facility to refinance $16,900 of existing debt and
capital lease facilities and charged $544 of breakage costs to
income.

The primary facilities include financial
covenants that are tested on a quarterly basis relating to
minimum tangible net worth, maximum level of total liabilities
to tangible net worth, maximum level of debt and capital lease
obligations to tangible net worth, interest expense coverage and
debt service coverage. At December 31, 2003, the Group was
in compliance with each covenant. Future compliance with the
covenants will depend on the ability of the Group to report a
minimum level of income before income taxes at the end of each
calendar quarter (equal to 110% of interest expense for the
preceding twelve months), and to maintain the current portion of
borrowings within financial covenant limits. The breach of a
covenant constitutes an event of default.

As of December 31, 2003, the annual
maturities of debt were:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2004                |  | $ | 6,501  | 
|2005                |  |   | 12,412 | 
|2006                |  |   | 17,508 | 
|2007                |  |   | 20,072 | 
|2008                |  |   | 18,582 | 
|2009 and thereafter |  |   | 14,256 | 
|                    |  |   |        | 
|Total               |  | $ | 89,331 | 
|                    |  |   |        | 

F-32



---



##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


b)  Capital lease
obligations

The cost and net book value of assets acquired
through capital leases was $43,007 and $31,856, respectively, at
December 31, 2003 ($47,418 and $37,210, respectively, at
December 31, 2002). Amortization in respect of these leases
is included in depreciation expense. In addition, the net
investment in direct financing lease equipment acquired through
capital leases was $3,180 and $2,336 at December 31, 2003
and 2002, respectively.

As of December 31, 2003, the minimum lease
payments under capital leases representing interest and
principal were:

|                    |  |           |        |          |  |       |       |  |  |   |        | 
|------------------- |  | --------- | ------ | -------- |  | ----- | ----- |  |  | - | ------ | 
|                    |  | Principal |        | Interest |  | Total
|                    |  |           |        |          |  |      
|2004                |  | $         | 6,270  |          |  | $     | 1,080 |  |  | $ | 7,350  | 
|2005                |  |           | 5,822  |          |  |       | 847   |  |  |   | 6,669  | 
|2006                |  |           | 3,688  |          |  |       | 673   |  |  |   | 4,361  | 
|2007                |  |           | 4,479  |          |  |       | 519   |  |  |   | 4,998  | 
|2008                |  |           | 3,069  |          |  |       | 368   |  |  |   | 3,437  | 
|2009 and thereafter |  |           | 6,546  |          |  |       | 466   |  |  |   | 7,012  | 
|                    |  |           |        |          |  |       |       |  |  |   |        | 
|Total               |  | $         | 29,874 |          |  | $     | 3,953 |  |  | $ | 33,827 | 
|                    |  |           |        |          |  |       |       |  |  |   |        | 

At December 31, 2002, the current maturities
under capital leases were $6,187.

c)  Operating leases 
Group as lessee

The total fixed operating lease rental expense
for container equipment, computer equipment and office space was
$7,688, $11,618 and $11,926 for the years ended
December 31, 2003, 2002 and 2001, respectively.

Certain subsidiaries of the Group have fixed
operating lease Agreements for container equipment with Other
Managed Container Programs. Under these Agreements, the fixed
operating lease rental expense was $6,811, $10,382 and $10,379
for the years ended December 31, 2003, 2002 and 2001,
respectively. Rental expense for containers, of which $48,919,
$40,990 and $43,053 was contingent for the years ended
December 31, 2003, 2002 and 2001, respectively, is shown in
the statements of income as payments to Managed Container
Programs and is described in Note 1. The Company has
provided parent company guarantees for the $39,207 of minimum
future lease payments outstanding under these Agreements at
December 31, 2003. The agreements provide that, in the
event of a default by the subsidiary, the Company will pay all
amounts due under the Agreements as they fall due. The
Agreements contain purchase options which allow the Group to
acquire the containers after a period of ten years.

As described in Note 5, the Group has
entered into term operating leases with ocean carriers for
equipment that is owned by the Managed Container Programs. The
minimum lease rentals receivable in future years under these
leases is $89,526. The amounts due to the Managed Container
Programs will be calculated after deducting direct operating
expenses and the income due to Cronos for managing the
containers in accordance with the terms of the individual
Agreements. No amount will be payable to the Managed Container
Program if the ocean carrier fails to pay the future term lease
rentals to the Group.

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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


As of December 31, 2003, future minimum
lease payments under operating leases were:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2004                |  | $ | 28,987 | 
|2005                |  |   | 21,534 | 
|2006                |  |   | 15,510 | 
|2007                |  |   | 9,361  | 
|2008                |  |   | 5,293  | 
|2009 and thereafter |  |   | 13,412 | 
|                    |  |   |        | 
|Total               |  | $ | 94,097 | 
|                    |  |   |        | 

14  Deferred income and deferred
acquisition fees

Deferred income and deferred acquisition fees
comprise:

|                          |  |      |       |      |  |   |       | 
|------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                          |  | 2003 |       | 2002
|                          |  |      |       |     
|Advance billings          |  | $    | 1,980 |      |  | $ | 1,436 | 
|Deferred acquisition fees |  |      | 3,125 |      |  |   | 3,765 | 
|                          |  |      |       |      |  |   |       | 
|                          |  | $    | 5,105 |      |  | $ | 5,201 | 
|                          |  |      |       |      |  |   |       | 

The recognition of deferred acquisition fees is
not contingent upon the performance or continuation of any of
the Agreements to which they relate. On the termination of an
Agreement, any deferred fees are recognized immediately. As of
December 31, 2003, deferred acquisition fees are scheduled
to be recognized as follows:

|                    |  |   |       | 
|------------------- |  | - | ----- | 
|2004                |  | $ | 924   | 
|2005                |  |   | 698   | 
|2006                |  |   | 488   | 
|2007                |  |   | 382   | 
|2008                |  |   | 203   | 
|2009 and thereafter |  |   | 430   | 
|                    |  |   |       | 
|Total               |  | $ | 3,125 | 
|                    |  |   |       | 

15  Commitments and
contingencies

i.   Commitments

At December 31, 2003, the Group had
outstanding orders to purchase container equipment of $7,397.

ii.  Guarantee to US Limited
Partnership Program

During 2000, the Group provided a guarantee under
a $5,000 third-party loan note (the Note) with a
2006 maturity date, to a US Limited Partnership Program. Under
the terms of the guarantee, the Group may be liable for any
principal and interest outstanding under the terms of the Note
in the event of a default by the US Limited Partnership Program.
At December 31, 2003, the maximum potential amount of
future payments under the guarantee was $2,187 and the fair
value of the guarantee was $2,092. The Group has not recorded a
liability for its obligation under the guarantee.

Under the terms of the contract with the
financial institution, if the lessee fails to make payments,
other than in the event of being declared bankrupt, the Group
has guaranteed that it will continue to make payments to the
financial institution. The guarantee and agreement with the
financial institution will expire in 2005.

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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


iii.  Parent Guarantee under
Agreements with Other Managed Container Programs

As described in Note 1, subsidiaries of the
Company have entered into Agreements with Other Managed
Container Programs to manage their containers pursuant to the
terms and conditions of the respective Agreements. Under
thirteen of these Agreements, the Company has guaranteed the
contractual obligations of the subsidiaries. The terms of the
guarantees generally obligate the Company to ensure payments and
other obligations of the subsidiaries are performed on a timely
basis and in accordance with the terms of the Agreement. Should
a default occur, the Company would be required to perform the
obligations of the subsidiaries until the default was remedied.

These Agreements with Other Managed Container
Programs expire between 2004 and 2012. Should a default occur,
the maximum potential amount payable by the Company at the time
of the default is estimated to be $4,100, equivalent to the
amount payable to the Other Managed Container Programs at
December 31, 2003. If the default is not remedied and the
Other Managed Container Programs do not subsequently terminate
the Agreements, quarterly payments would be due by the Company
over the remaining term of the Agreements. Based on current
market conditions, the Company estimates that the maximum amount
of future payments would be $75,702. The fair value of the
estimated amount of maximum future payments is $61,860.

iv.  Agreements with Other
Managed Container Programs  early termination
options

Approximately 60% (based on original equipment
cost) of the Agreements with Other Managed Container Programs
contain early termination options, whereby the container owner
may terminate the Agreement if certain performance thresholds
are not achieved. At December 31, 2003, approximately 45%
(based on original equipment cost) of total Agreements were
eligible for early termination. Cronos believes that early
termination of these Agreements by the Other Managed Container
Programs is unlikely.

v.   Agreements with Other
Managed Container Programs  change of control
provisions

Approximately 66% (based on original equipment
cost) of Agreements with Other Managed Container Programs
provide that a change in ownership of the Group, without the
prior consent of the container owner, may constitute an event of
default under the Agreement. In substantially all of these
Agreements, the consent of the container owners may not be
unreasonably withheld. In the event that consent is not
obtained, 38% of total Agreements may require the Group to
transfer possession of the equipment to another equipment
manager. Such transfer of possession may result in the Group
incurring certain costs. The remaining 28% of total Agreements
may require the Group to purchase the equipment from the
container owners pursuant to the terms of their respective
Agreements, generally a stipulated percentage (determined by age
of the equipment) of the original cost of the equipment.

vi.  Contrin
Settlement

Since 1983, the Group has managed containers for
Austrian investment entities collectively known as
Contrin. As the Group has previously reported, since
August 2000 the Group has been defending three lawsuits brought
by Contrin, one in Luxembourg and two in the United Kingdom. On
November 17, 2003, the Group entered into a settlement with
Contrin. The settlement is summarised under Legal
Proceedings herein, and was reported in the Groups
Form 8-K report filed with the Securities and Exchange
Commission on November 26, 2003.

The terms of the settlement agreement detailed
the payment dates for amounts totalling $3,500 to Contrin.
Cronos calculated that the present value of the total
$3,500 future cash payments under the settlement agreement,
discounted using an appropriate risk-free interest rate, was
$3,300. The Group made

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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


the first installment payment of $300 in November
2003. In addition, the Group had previously recorded a reserve
of approximately $3,000 against the Contrin claims. Interest
will be charged to the Companys income statement over the
period for performance of the Settlement Agreement using the
effective interest rate method.

vii. TOEMT

Since the 1980s, the Group has managed containers
for Transocean Equipment Manufacturing and Trading Limited, a
United Kingdom corporation (TOEMT (U.K.)). In late
1998 the Group learned that TOEMT had been separately registered
by the same name in the Isle of Man (TOEMT (Isle of
Man)). Both the TOEMTs are in liquidation, represented by
the same liquidator. Since the Group learned of the second
TOEMT, it set aside the distributions payable with respect to
the containers managed for TOEMT in a separate bank account
pending clarification of the proper claimant of the
distributions. Contrin, as a creditor of TOEMT, has claimed an
entitlement to all of the distributions attributable to the
containers managed by the Group for TOEMT.

After negotiations with the liquidator, the Group
turned over the set-aside distributions (amounting to
approximately $1,334) to the liquidator on December 17,
2003. The Group is in discussions with the liquidator with a
view to winding-up the Groups management of containers for
TOEMT and expediting the liquidation of the two TOEMTs. The
Group expects to wind up its involvement with the two TOEMTs
without material cost to the Group.

16  Common shares

|                               |  |      |           |      |  |      |           |   |  |  |            |  
|------------------------------ |  | ---- | --------- | ---- |  | ---- | --------- | - |  |  | ---------- | -
|                               |  | 2003 |           | 2002 |  | 2001
|                               |  |      |           |      |  |     
|Common shares outstanding:     |  |      |           |      |  |      |           |   |  |  |            |  
|At beginning of year           |  |      | 7,360,080 |      |  |      | 7,364,580 |   |  |  | 9,158,378  |  
|New common shares issued       |  |      |          |      |  |      | 7,500     |   |  |  |           |  
|Common shares held in treasury |  |      | (100,000  | )    |  |      | (12,000   | ) |  |  | (1,793,798 | )
|                               |  |      |           |      |  |      |           |   |  |  |            |  
|At end of year                 |  |      | 7,260,080 |      |  |      | 7,360,080 |   |  |  | 7,364,580  |  
|                               |  |      |           |      |  |      |           |   |  |  |            |  

On December 11, 1998, an option to purchase
300,000 common shares was granted to the chief executive officer
on his appointment (see Note 17).

On June 3, 1999, the 1999 Stock Option Plan
(the Plan) was approved by the Board of Directors.
The Plan authorizes the issuance of 500,000 common shares to key
employees (see Note 17).

In August 1999, the Company issued an additional
300,000 common shares and warrants to purchase 200,000 common
shares in connection with the Groups refinancing of
approximately $47,800 of its short-term and other indebtedness.
The warrants are exercisable at $4.41 per share and expire
on August 15, 2004, plus ninety days or, if later, the date
on which there has been full repayment of the monies borrowed
under the associated refinancing. Using a Black Scholes model,
the fair value of the warrant was determined to be $246 and such
amount was credited to additional paid-in capital. The
corresponding debt discount has been deferred and is being
amortized over the life of the associated refinancing using the
interest method in accordance with SFAS No. 91.

On October 29, 1999, a Shareholder Rights
Plan (the Rights Plan) was adopted. Under the Rights
Plan, one common share purchase right was distributed as a
dividend on each share of the Companys common shares as of
the close of business on October 25, 1999. The rights will
be attached to and trade with all certificates representing
common shares. The rights expire on October 28, 2009, and
are redeemable by the

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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


Company at any time prior to this date. The
rights will only be exercisable on the acquisition by any person
or related group of persons of 20% or more of the Companys
common shares. The rights entitle the holder, with the exception
of the acquiring person or group, to purchase a specified number
of the Companys common shares for 50% of their market
value at that time. The rights will not be triggered if the
Companys Board of Directors has previously approved such
an acquisition.

On January 10, 2001, the Non-Employee
Directors Equity Plan (the Equity Plan) was
approved by the shareholders. The Equity Plan authorized the
issuance of 275,000 common shares to non-employee directors (see
Note 17).

In May 2001, the Group was awarded 1,793,798
outstanding common shares in the Company that were beneficially
owned by a former chairman and chief executive officer in part
consideration for amounts owed under two promissory notes.
Cronos formally cancelled and retired the 1,793,798 shares
in June 2002 which represented a 19.6% reduction in the number
of outstanding common shares of the Group.

On December 10, 2002, a share repurchase
plan was approved, whereby the Board of Directors has authorized
the expenditure of up to $500 over the period ending
December 10, 2003, for the repurchase of not more than
200,000 shares of the Companys common shares. At
December 31, 2002, 12,000 shares had been repurchased
at $3.10 per share. At the annual meeting of shareholders
of the Company held on June 5, 2003, the shareholders
approved an extension of the grant of authority to the Board to
implement a share repurchase program and granted the Board the
authority to authorize common share repurchases both in the open
market and through privately-negotiated transactions. On
August 14, 2003, the Company repurchased 100,000 of its
outstanding common shares from a single shareholder of the
Company at a purchase price of $2.60 per share, or $260 in
the aggregate.

All 7,260,080 of common shares outstanding rank
equally in respect of shareholder rights.

17  Stock-Based
Compensation

Stock-based compensation comprises:

i.   1998 Stock Option
Plan

In December 1998, the Company granted the chief
executive officer of the Company, on his appointment, the option
to acquire 300,000 common shares in the Company. The term of the
option is ten years, and may be exercised, in whole or in part,
at any time from the date of grant. If the options are
exercised, payment for shares is to be made by cash, the
surrender of the Companys common shares already owned by
the employee (valued at their fair market value on the date of
the surrender), or an alternate form of payment as may be
approved by the Companys Compensation Committee (the
Committee). The number and price of shares subject
to the option will be adjusted in the event of any stock split,
declaration of a stock dividend, or like changes in the capital
stock of the Company.

ii.  1999 Stock Option
Plan

The 1999 Stock Option Plan authorizes the
issuance of 500,000 common shares and permits the Company to
award to key employees incentive options and non-qualified stock
options. The number of shares available for issuance under the
Plan may be adjusted in the event of any subdivision of the
outstanding shares of the common shares of the Company, the
declaration of a dividend payable in common shares of the
Company, or like events. The Plan terminated on
December 31, 2002. A total of 500,000 options have been
granted under the Plan and the exercise price of each option was
determined by the Committee on the date of each grant. The
exercise price of a stock option may be paid in cash or
previously owned stock or both. The

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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


options vest and are exercisable at the rate of
25% per year on the first four anniversary dates of the
grant. The term of each option is ten years.

iii.  The Non-Employee
Directors Equity Plan

The non-employee directors participate in the
Non-Employee Directors Equity Plan (the Equity
Plan) in two ways: by electing to receive, in lieu of the
cash compensation otherwise payable to the non-employee
director, an award of Directors Stock Units,
and through the receipt of directors options
(Directors Options) to acquire common shares
of the Company. A Directors Stock Unit is defined as the
equivalent of one common share of the Company. A total of
275,000 common shares were made available for issuance under the
Equity Plan, both to supply shares for the settlement of
Directors Stock Units into common shares of the Company
and for issuance upon the exercise of Directors Options.
The option may be exercised within 10 years of the grant
date. The Directors Options shall vest and become
exercisable over three years, with one third exercisable on the
first three anniversary dates following the date of the grant.
The exercise price of each Directors Option equals the
average of the fair market value of the common shares for the
twenty trading days immediately preceding the date of grant of
the Directors Options. A total of 274,998 Directors
and Directors Stock Units have been issued under the
Equity Plan.

During the years ended December 31, 2003,
2002 and 2001, the number of Directors Stock Units awarded
in lieu of compensation and the related weighted average fair
values was 15,999, 49,563 and 28,932, respectively, and $3.34,
$3.86 and $4.89, respectively. At December 31, 2003 the
weighted average remaining contractual life was 8.2 years.

Compensation expense of $0, $195 and $164 was
recognized for the Equity Plan for the years ending
December 31, 2003, 2002 and 2001, respectively.

iv.  Stock grant

On December 1, 2002, a total of
7,500 shares were granted to eligible employees of the
Company and its subsidiaries. The purpose of the Companys
restricted stock grants is to increase the number of
shareholders of the Company and to further align the interests
of the grantees with the interests of the shareholders of the
Company. No cash payment will be required of the grantees for
the shares. A total of 8,000 Cronos shares have been authorized
for grant hereunder. The shares vest upon the second anniversary
of the date of grant if the grantee has remained an employee
from the date of grant. Upon vesting, the shares are no longer
subject to forfeiture. A grantee shall be entitled to all rights
of a shareholder of the Company during the time the shares are
subject to forfeiture. The fair value of the grant was
determined to be $21 calculated at $2.80 per share, being
the market value of the shares on the date of the grant, and is
amortized to income over the vesting period. At
December 31, 2003, the remaining contractual life was
1 year.

v.   Stock Appreciation
Rights

On October 13, 1999, the Board resolved to
grant stock appreciation rights (SARs) to a key
executive of 200,000 share units. A SAR is defined as the
equivalent of one common share of the Company. The grant of the
SARs entitles the grantee to receive cash payments from the
Company as provided for in the SAR agreement. The SARs were
granted at a grant price of $4.375 per SAR. As of the date
of the award, the closing price of the Companys common
shares was $4.875 per share. On October 13, 2002, the
SARs became fully vested.

In addition, on October 13, 1999, the Board
approved the grant of 60,000 SARs to its non-employee directors.
The grant represented 15,000 SARs for each current non-employee
director, with a grant price of $4.094. On October 13,
1999, the closing price of the Companys common shares was
$4.875 per share. In

F-38



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


2001, the current non-employee directors were
granted the option to convert the SARs into Directors Options
under the Equity Plan discussed above. This right of conversion
was exercised by all non-employee directors.

In accordance with SFAS 123, the
compensation expense incurred in respect of SARs is estimated
using the price of the Companys common shares on the
balance sheet date as a surrogate for the price on the date of
exercise. A liability is created for the estimated compensation
expense and is adjusted up or down at each balance sheet date
for changes in the price of the Companys stock.
Compensation expense of $103 and $32 was recognized for the
years ended December 31, 2003 and 2001, respectively. For
the year ended December 31, 2002, a credit of $94 was
recorded to compensation expense. No SARs were redeemed during
the three years ended December 31, 2003.

Summary of Stock Option Activity Under All
Plans

|                           |  |                                  |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |          |   |  |   |        | 
|-------------------------- |  | -------------------------------- | ------- | -------- |  | ------ | ----- | -------- |  | ------ | ------- | -------- |  | - | ----- |  |  |  | -------- | - |  | - | ------ | 
|                           |  |                                 
|                           |  | For the Years Ended December 31,
|                           |  |                                 
|                           |  |                                  |         |          |  |       
|                           |  | 2003                             |         | 2002     |  | 2001  
|                           |  |                                  |         |          |  |       
|                           |  |                                  |         | Weighted |  |        |       | Weighted |  |        |         | Weighted
|                           |  |                                  |         | Average  |  |        |       | Average  |  |        |         | Average 
|                           |  |                                  |         | Exercise |  |        |       | Exercise |  |        |         | Exercise
|                           |  | Shares                           |         | Price    |  | Shares |       | Price    |  | Shares |         | Price   
|                           |  |                                  |         |          |  |        |       |          |  |        |         |         
|Outstanding on January 1   |  |                                  | 980,000 |          |  | $      | 4.733 |          |  |        | 920,000 |          |  | $ | 4.755 |  |  |  | 717,600  |   |  | $ | 6.457  | 
|Granted                    |  |                                  | 504     |          |  | $      | 3.577 |          |  |        | 60,000  |          |  | $ | 4.390 |  |  |  | 245,000  |   |  | $ | 4.746  | 
|SAR conversion             |  |                                  |        |          |  |        |      |          |  |        |        |          |  |   |      |  |  |  | 60,000   |   |  | $ | 4.094  | 
|Forfeited/ expired         |  |                                  |        |          |  |        |      |          |  |        |        |          |  |   |      |  |  |  | (102,600 | ) |  | $ | 16.250 | 
|                           |  |                                  |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |          |   |  |   |        | 
|Outstanding on December 31 |  |                                  | 980,504 |          |  | $      | 4.732 |          |  |        | 980,000 |          |  | $ | 4.733 |  |  |  | 920,000  |   |  | $ | 4.755  | 
|                           |  |                                  |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |          |   |  |   |        | 
|Exercisable on December 31 |  |                                  | 728,750 |          |  | $      | 4.71  |          |  |        | 543,750 |          |  | $ | 4.660 |  |  |  | 378,750  |   |  | $ | 4.557  | 
|                           |  |                                  |         |          |  |        |       |          |  |        |         |          |  |   |       |  |  |  |          |   |  |   |        | 

For options outstanding at December 31,
2003, the exercise prices ranged from $3.58 to $5.25, and the
weighted average remaining contractual life was 6.1 years.

vi.  Fair Value
Disclosures

For the years ended December 31, 2003 and
2002, the exercise price for the options granted was less than
the market value of the Company shares on the date of the grant.
For such stock options, the weighted average exercise prices
were $3.58 and $4.39 respectively, and the weighted average fair
values were $1.25 and $2.03, respectively. During 2001, 185,000
options were granted at an exercise price equal to the market
price on the date of the grant with a weighted average exercise
price of $4.875 and a weighted average fair value of $1.71. In
addition, 120,000 options were granted during 2001 where the
exercise price for the options granted was less than the market
value on the date of the grant. The weighted average exercise
price and the weighted average fair value for such options on
the date of the grant was $4.23 and $2.14, respectively.

In the case of share grants where the exercise
price to be paid is less than the quoted market price of the
Company shares at the date of the grant, the Group has
recognized compensation expense of $12, $29 and $38 during the
years ended December 31, 2003, 2002 and 2001 respectively.

F-39



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##### Table of Contents



THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


The weighted average fair value of options was
determined based on the Black Scholes model, utilizing the
following assumptions:

|                        |  |      |      |      |  |      |      |   |  |  |      |  
|----------------------- |  | ---- | ---- | ---- |  | ---- | ---- | - |  |  | ---- | -
|                        |  | 2003 |      | 2002 |  | 2001
|                        |  |      |      |      |  |     
|Expected term in years  |  |      | 10   |      |  |      | 10   |   |  |  | 10   |  
|Risk free interest rate |  |      | 3.8  | %    |  |      | 5.0  | % |  |  | 5.2  | %
|Volatility              |  |      | 11.7 | %    |  |      | 11.5 | % |  |  | 10.7 | %
|Dividends               |  |      | 0    | %    |  |      | 0    | % |  |  | 0    | %

18  Restricted retained
earnings

On an annual basis, Luxembourg law requires
appropriation of an amount equal to at least 5% of net income to
a legal reserve until such reserve equals 10% of the stated
capital related to the outstanding common and preferred shares.
This reserve is not available for dividends. At
December 31, 2003 and 2002, the legal reserve exceeded the
legal minimum by $357.

19  Related party
transactions

The Group had the following transactions with
related parties during the years ended December 31, 2003,
2002 and 2001, respectively:

i.   In
May 2001, pursuant to legal actions in the US courts, the Group
was awarded 1,793,798 outstanding common shares in the Company
that were beneficially owned by Mr. Palatin, a former
chairman and chief executive officer of the Company, in part
consideration for amounts owed under two promissory notes.
Mr. Palatin owed the Group $6,227 in principal and $356 in
interest under the promissory notes at the time the Group filed
its complaint. The Group was also awarded fees and expenses,
including attorneys fees, incurred in securing the final
judgment. The Group reduced the amount owed by Mr. Palatin
to a Cronos subsidiary by $6,000, which is a valuation based on
the estimated fair value of the shares received. Cronos formally
cancelled and retired the 1,793,798 shares in June 2002.
Cancelation of the shares represented a 19.6% reduction in the
number of outstanding common shares of the Group. As described
in Legal Proceedings herein, the Group continues to
pursue legal actions against Mr. Palatin. Any future
amounts received from the settlement will be recorded as income
when received.

ii.   For
the years ended December 31, 2003 and 2002, the Group sold
$42,360 and $18,800 of containers, respectively to a Container
Equity Program in which it holds a 50% equity interest. In
addition, during the years ended December 31, 2003 and
2002, the Group transferred an additional $999 and $4,672 of
containers as capital contributions, respectively.

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THE CRONOS GROUP


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands, except per
share amounts)


20  Quarterly financial data
(unaudited)

Quarterly financial data has been restated to
reflect the adoption of FIN 46R. In addition, a
reclassification has been made to the quarterly data in order to
conform to the presentation for the year ended December 31,
2003.

|                                                                                |  |          |        |          |  |          |        |     |  |   |        |   |  |   |        | 
|------------------------------------------------------------------------------- |  | -------- | ------ | -------- |  | -------- | ------ | --- |  | - | ------ | - |  | - | ------ | 
|(in thousands, except per share data)                                           |  | 1st      |        | 2nd      |  | 3rd      |        | 4th
|                                                                                |  |          |        |          |  |          |        |    
|                                                                                |  | Restated |        | Restated |  | Restated |        |    
|2003 quarterly financial data                                                   |  |          |        |          |  |          |        |     |  |   |        |   |  |   |        | 
|Total revenues as previously reported                                           |  | $        | 30,678 |          |  | $        | 30,804 |     |  | $ | 32,509 |   |  | $ | 33,293 | 
|- adjustment for effect of change in accounting
    principle/ reclassification |  |          | (216   | )        |  |          | (294   | )   |  |   | (511   | ) |  |   |       | 
|Total revenues as restated                                                      |  | $        | 30,462 |          |  | $        | 30,510 |     |  | $ | 31,998 |   |  | $ | 33,293 | 
|Net income as previously reported                                               |  | $        | 469    |          |  | $        | 509    |     |  | $ | 876    |   |  | $ | 2,364  | 
|- adjustment for effect of change in accounting
    principle                   |  |          | 30     |          |  |          | (90    | )   |  |   | 32     |   |  |   |       | 
|Net income as restated                                                          |  | $        | 499    |          |  | $        | 419    |     |  | $ | 908    |   |  | $ | 2,364  | 
|Basic net income per common share as previously
    reported                    |  | $        | 0.06   |          |  | $        | 0.07   |     |  | $ | 0.12   |   |  | $ | 0.32   | 
|- adjustment for effect of change in accounting
    principle                   |  |          |       |          |  |          |       |     |  |   |       |   |  |   |       | 
|Basic net income per common share as restated                                   |  | $        | 0.06   |          |  | $        | 0.07   |     |  | $ | 0.12   |   |  | $ | 0.32   | 
|Diluted net income per common share as previously
    reported                  |  | $        | 0.06   |          |  | $        | 0.07   |     |  | $ | 0.12   |   |  | $ | 0.30   | 
|- adjustment for effect of change in accounting
    principle                   |  |          |       |          |  |          |       |     |  |   |       |   |  |   |       | 
|Diluted net income per common share as restated                                 |  | $        | 0.06   |          |  | $        | 0.07   |     |  | $ | 0.12   |   |  | $ | 0.30   | 

|                                                                                |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |  
|------------------------------------------------------------------------------- |  | -------- | ------ | -------- |  | -------- | ------ | -------- |  | - | ------ | - |  | - | ------ | -
|                                                                                |  | 1st      |        | 2nd      |  | 3rd      |        | 4th     
|                                                                                |  |          |        |          |  |          |        |         
|                                                                                |  | Restated |        | Restated |  | Restated |        | Restated
|2002 quarterly financial data                                                   |  |          |        |          |  |          |        |          |  |   |        |   |  |   |        |  
|Total revenues as previously reported                                           |  | $        | 29,992 |          |  | $        | 29,408 |          |  | $ | 29,463 |   |  | $ | 30,828 |  
|- adjustment for effect of change in accounting
    principle/ reclassification |  |          | 9      |          |  |          | (77    | )        |  |   | (164   | ) |  |   | (136   | )
|Total revenues as restated                                                      |  | $        | 30,001 |          |  | $        | 29,331 |          |  | $ | 29,299 |   |  | $ | 30,692 |  
|Net income as previously reported                                               |  | $        | 188    |          |  | $        | 2,593  |          |  | $ | 219    |   |  | $ | 58     |  
|- adjustment for effect of change in accounting
    principle                   |  |          | (263   | )        |  |          | (345   | )        |  |   | (153   | ) |  |   | 12     |  
|Net income (loss) as restated                                                   |  | $        | (75    | )        |  | $        | 2,248  |          |  | $ | 66     |   |  | $ | 70     |  
|Basic net income per common share as previously
    reported                    |  | $        | 0.03   |          |  | $        | 0.35   |          |  | $ | 0.03   |   |  | $ | 0.01   |  
|- adjustment for effect of change in accounting
    principle                   |  | $        | (0.04  | )        |  | $        | (0.05  | )        |  | $ | (0.02  | ) |  |   |       |  
|Basic net income (loss) per common share as
    restated                        |  | $        | (0.01  | )        |  | $        | 0.30   |          |  | $ | 0.01   |   |  | $ | 0.01   |  
|Diluted net income per common share as previously
    reported                  |  | $        | 0.03   |          |  | $        | 0.35   |          |  | $ | 0.03   |   |  |   |       |  
|- adjustment for effect of change in accounting
    principle                   |  | $        | (0.04  | )        |  | $        | (0.05  | )        |  | $ | (0.02  | ) |  | $ | 0.01   |  
|Diluted net income (loss) per common share as
    restated                      |  | $        | (0.01  | )        |  | $        | 0.30   |          |  | $ | 0.01   |   |  | $ | 0.01   |  

F-41



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##### Table of Contents



CF LEASING LIMITED

Financial statements as of December 31,
2003 and 2002

and for the year ended December 31, 2003
and for the period


September 18, 2002 to December 31,
2002


and Independent Auditors
Report


F-42



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INDEPENDENT AUDITORS REPORT

To the Shareholders and Board of Directors of CF
Leasing Limited:

We have audited the accompanying balance sheets
of CF Leasing Limited (the Company) as of
December 31, 2003 and 2002, and the related statements of
income, cash flows and shareholders equity for the year
ended December 31, 2003 and the period from
September 18, 2002 to December 31, 2002. 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
auditing standards generally accepted in the United States of
America. Those standards require that we plan and perform the
audits 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 present
fairly, in all material respects, the financial position of the
Company as of December 31, 2003 and 2002, and the results
of its operations and its cash flows for the year ended
December 31, 2003 and the period from September 18,
2002 to December 31, 2002, in conformity with accounting
principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Reading, United Kingdom


March 26, 2004


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CF LEASING LIMITED

BALANCE SHEETS

December 31, 2003 and 2002


(US dollar amounts in thousands)


|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|----------------------------------------------------------------------------------------------------------------------------- |  | ---- | -- | ---- |  | ---- | ------ | - |  | - | ------ | 
|                                                                                                                              |  | Note |    | 2003 |  | 2002
|                                                                                                                              |  |      |    |      |  |     
|Assets                                                                                                                       
|Cash and cash equivalents                                                                                                     |  |      |    |      |  | $    | 1,370  |   |  | $ | 1,277  | 
|Restricted cash                                                                                                               |  |      |    |      |  |      | 421    |   |  |   | 220    | 
|Amounts receivable from a related party                                                                                       |  |      | 9  |      |  |      | 1,350  |   |  |   | 295    | 
|Net investment in direct financing leases,
    including amounts due within twelve months of $1,005 and $260
    respectively |  |      | 2  |      |  |      | 6,466  |   |  |   | 1,594  | 
|Container equipment, net of accumulated
    depreciation of $4,074 and $779 respectively                                      |  |      | 4  |      |  |      | 61,565 |   |  |   | 25,831 | 
|Other assets                                                                                                                  |  |      |    |      |  |      | 1,159  |   |  |   | 249    | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Total assets                                                                                                                  |  |      |    |      |  | $    | 72,331 |   |  | $ | 29,466 | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Liabilities and shareholders
    equity                                                                                      |  |      |    |      |  |      |        |   |  |   |        | 
|Amounts payable to a related party                                                                                            |  |      | 10 |      |  |      | 273    |   |  |   | 29     | 
|Other amounts payable and accrued expenses                                                                                    |  |      |    |      |  |      | 76     |   |  |   | 29     | 
|Loan notes issued to affiliate and other party                                                                                |  |      | 5  |      |  |      | 54,842 |   |  |   | 22,202 | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Total liabilities                                                                                                             |  |      |    |      |  |      | 55,191 |   |  |   | 22,260 | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Shareholders equity                                                                                                          |  |      |    |      |  |      |        |   |  |   |        | 
|Common shares, par value $1 per share
    (24,000 shares authorised, issued and outstanding)                                  |  |      |    |      |  |      | 24     |   |  |   | 24     | 
|Additional paid-in capital                                                                                                    |  |      |    |      |  |      | 14,169 |   |  |   | 7,071  | 
|Accumulated other comprehensive loss                                                                                          |  |      |    |      |  |      | (162   | ) |  |   |       | 
|Accumulated surplus                                                                                                           |  |      |    |      |  |      | 3,109  |   |  |   | 111    | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Total shareholders equity                                                                                                    |  |      |    |      |  |      | 17,140 |   |  |   | 7,206  | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 
|Total liabilities and shareholders
    equity                                                                                |  |      |    |      |  | $    | 72,331 |   |  | $ | 29,466 | 
|                                                                                                                              |  |      |    |      |  |      |        |   |  |   |        | 

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

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##### Table of Contents



CF LEASING LIMITED

STATEMENTS OF INCOME

For the year ended December 31, 2003 and
for the period


September 18, 2002 to December 31,
2002


(US dollar amounts in thousands)


|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|------------------------------------------------------- |  | ---- | - | ---- |  | ---- | ----- | - |  | - | ----- | 
|                                                        |  | Note |   | 2003 |  | 2002
|                                                        |  |      |   |      |  |     
|Container revenue                                       |  |      | 3 |      |  | $    | 7,184 |   |  | $ | 1,619 | 
|Fees and other income                                   |  |      | 7 |      |  |      | 894   |   |  |   | 5     | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|Total revenues                                          |  |      |   |      |  |      | 8,078 |   |  |   | 1,624 | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|Depreciation                                            |  |      | 4 |      |  |      | 3,330 |   |  |   | 779   | 
|Selling, general and administrative expenses            |  |      |   |      |  |      | 90    |   |  |   | 10    | 
|Interest expense                                        |  |      | 8 |      |  |      | 1,660 |   |  |   | 224   | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|Total expenses                                          |  |      |   |      |  |      | 5,080 |   |  |   | 1,013 | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|Net income                                              |  |      |   |      |  |      | 2,998 |   |  |   | 611   | 
|Other comprehensive loss:                               |  |      |   |      |  |      |       |   |  |   |       | 
|Fair market value of adjustments on cash flow
    hedge |  |      | 6 |      |  |      | (162  | ) |  |   |      | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 
|Comprehensive income                                    |  |      |   |      |  | $    | 2,836 |   |  | $ | 611   | 
|                                                        |  |      |   |      |  |      |       |   |  |   |       | 

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

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CF LEASING LIMITED

STATEMENTS OF CASH FLOWS

For the year ended December 31, 2003 and
for the period


September 18, 2002 to December 31,
2002


(US dollar amounts in thousands, except per
share amounts)


|                                                                                      |                                                                       |      |         |        |   |   |         |       |  
|------------------------------------------------------------------------------------- | --------------------------------------------------------------------- | ---- | ------- | ------ | - | - | ------- | ----- | -
|                                                                                      |                                                                       | 2003 |         | 2002  
|                                                                                      |                                                                       |      |         |       
|Cash flows from operating activities                                                  |                                                                       |      |         |        |   |   |         |      
|Net income                                                                            |                                                                       | $    | 2,998   |        |   | $ | 611     |      
|Adjustments to reconcile net income to net cash
    provided by operating activities: |                                                                       |      |         |        |   |   |         |      
|                                                                                      | - Depreciation                                                        |      |         | 3,330  |   |   |         | 779   |  
|                                                                                      | - Gain on disposal of fixed assets                                    |      |         | (17    | ) |   |         | (3    | )
|                                                                                      | - Increase in amounts receivable                                      |      |         | (1,135 | ) |   |         | (859  | )
|                                                                                      | - Increase in amounts payable to unrelated
    parties                |      |         | 116    |   |   |         | 152   |  
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Net cash provided by operating
    activities                                         |                                                                       |      | 5,292   |        |   |   | 680     |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Cash flows from investing activities                                                  |                                                                       |      |         |        |   |   |         |      
|Purchase of container equipment                                                       |                                                                       |      | (38,253 | )      |   |   | (18,862 | )    
|Investment in equipment acquired for direct
    financing leases                      |                                                                       |      | (5,689  | )      |   |   |        |      
|Proceeds from sales of container equipment                                            |                                                                       |      | 205     |        |   |   | 7       |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Net cash used in investing
    activities                                             |                                                                       |      | (43,737 | )      |   |   | (18,855 | )    
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Cash flows from financing activities                                                  |                                                                       |      |         |        |   |   |         |      
|Proceeds from issuance of term debt                                                   |                                                                       |      | 32,640  |        |   |   | 22,202  |      
|Dividend paid                                                                         |                                                                       |      |        |        |   |   | (500    | )    
|Return to investors of capital contributions                                          |                                                                       |      |        |        |   |   | (2,250  | )    
|Cash deposits (restricted)                                                            |                                                                       |      | (201    | )      |   |   |        |      
|Additional paid in capital                                                            |                                                                       |      | 6,099   |        |   |   |        |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Net cash provided by financing
    activities                                         |                                                                       |      | 38,538  |        |   |   | 19,452  |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Net increase in cash                                                                  |                                                                       |      | 93      |        |   |   | 1,277   |      
|Cash at beginning of year                                                             |                                                                       |      | 1,277   |        |   |   |        |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Cash at end of year                                                                   |                                                                       | $    | 1,370   |        |   | $ | 1,277   |      
|                                                                                      |                                                                       |      |         |        |   |   |         |      
|Supplementary disclosure of cash flow information:                                    |                                                                       |      |         |        |   |   |         |      
|Cash paid during the year for:                                                        |                                                                       |      |         |        |   |   |         |      
|                                                                                      | - interest                                                            |      | $       | 1,433  |   |   | $       | 188   |  
|                                                                                      | - dividends                                                           |      |         |       |   |   |         | 2,750 |  
|Non-cash items:                                                                       |                                                                       |      |         |        |   |   |         |      
|                                                                                      | - container equipment contributed as equity                           |      |         | 999    |   |   |         | 7,753 |  
|                                                                                      | - net investment in direct financing leases
    contributed as equity |      |         |       |   |   |         | 1,591 |  

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

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##### Table of Contents



CF LEASING LIMITED

STATEMENTS OF SHAREHOLDERS
EQUITY

For the year ended December 31, 2003 and
for the period


September 18, 2002 to December 31,
2002


(US dollar amounts in thousands)


|                                                 |  |        |    |            |  |               |        |          |  |               |      |   |  |   |       |   |  |   |        |  
|------------------------------------------------ |  | ------ | -- | ---------- |  | ------------- | ------ | -------- |  | ------------- | ---- | - |  | - | ----- | - |  | - | ------ | -
|                                                 |  |        |    |            |  | Accumulated   |        |          |  |              
|                                                 |  |        |    | Additional |  | other         |        |          |  | Total        
|                                                 |  | Common |    | paid-in    |  | comprehensive |        | Retained |  | shareholders
|                                                 |  | shares |    | capital    |  | income        |        | earnings |  | equity       
|                                                 |  |        |    |            |  |               |        |          |  |              
|Balance, September 17, 2002                      |  | $      | 12 |            |  |               |        |          |  |               |      |   |  |   |       |   |  | $ | 12     |  
|Net income                                       |  |        |    |            |  |               |        |          |  |               |      |   |  |   | 611   |   |  |   | 611    |  
|Equity dividends paid                            |  |        |    |            |  |               |        |          |  |               |      |   |  |   | (500  | ) |  |   | (500   | )
|Shares issued                                    |  |        | 12 |            |  |               | 7,071  |          |  |               |      |   |  |   |       |   |  |   | 7,083  |  
|                                                 |  |        |    |            |  |               |        |          |  |               |      |   |  |   |       |   |  |   |        |  
|Balance, December 31, 2002                       |  |        | 24 |            |  |               | 7,071  |          |  |               |      |   |  |   | 111   |   |  |   | 7,206  |  
|Capital contributions                            |  |        |    |            |  |               | 7,098  |          |  |               |      |   |  |   |       |   |  |   | 7,098  |  
|Net income                                       |  |        |    |            |  |               |        |          |  |               |      |   |  |   | 2,998 |   |  |   | 2,998  |  
|Reduction in fair value of financial derivatives |  |        |    |            |  |               |        |          |  |               | (162 | ) |  |   |       |   |  |   | (162   | )
|                                                 |  |        |    |            |  |               |        |          |  |               |      |   |  |   |       |   |  |   |        |  
|Balance, December 31, 2003                       |  | $      | 24 |            |  | $             | 14,169 |          |  | $             | (162 | ) |  | $ | 3,109 |   |  | $ | 17,140 |  
|                                                 |  |        |    |            |  |               |        |          |  |               |      |   |  |   |       |   |  |   |        |  

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

F-47



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##### Table of Contents



CF LEASING LIMITED

NOTES TO THE FINANCIAL STATEMENTS

(US dollar amounts in thousands)


1.   Summary of significant
accounting policies

A summary of the principal accounting policies,
all of which have been applied consistently throughout the year,
is set out below.

a)  Nature of
operations

CF Leasing Limited (the Company) was
incorporated in Bermuda on October 5, 2001. Its principal
activity is the investment in and leasing of marine cargo
containers. From the date of incorporation until
September 17, 2002, FB Aviation & Intermodal
Finance Holding B.V. (FB Intermodal Finance),
formerly MeesPierson Transport & Logistics Holding B.V.
was the sole member of the Company. On September 18, 2002,
Cronos Equipment (Bermuda) Limited (CEB) acquired
12,000 shares in the Company becoming a 50% equity holder.

The Company has entered into a master lease
agreement (the Agreement) with Cronos Containers
(Cayman) Ltd. (CAY), an affiliate of CEB, whereby
CAY will manage the containers under specific guidelines
provided for in the Agreement. Pursuant to the Agreement, CAY
will perform or contract with its related party, Cronos
Containers Limited (CCL) to perform all services
related to operating and leasing the containers, including the
leasing, managing and re-leasing containers to ocean carriers.
The Agreement permits CCL to use the containers owned or leased
by CAY, together with containers owned or managed by CCL and its
affiliates, as part of a single fleet operated without regard to
ownership. CAY, CEB and CCL are wholly-owned subsidiaries of The
Cronos Group.

The Agreement is in the form of a master lease
whereby payments do not become due from CAY until such time as
the containers have been placed on lease to an ocean carrier.
The Agreement contains leases within the scope of Statement of
Financial Accounting Standards (SFAS)
No. 13  Accounting for Leases
(SFAS 13), and is accounted for as a lease
under which the Company is lessor and CAY is lessee.

The Company finances the acquisition of marine
cargo containers through equity contributions from FB Intermodal
Finance and CEB and under a syndicated loan facility for which
Fortis Bank (Nederland) N.V. (Fortis) acts as agent.
FB Intermodal Finance and Fortis are ultimately equally owned by
Fortis S.A./N.V., a company incorporated in Belgium, and by
Fortis N.V., a company incorporated in The Netherlands.

These financial statements have been prepared
solely for the purpose of meeting the local requirements to
prepare accounts in Bermuda and for the use of the directors.

b)  Basis of
accounting

The Company utilises the accrual method of
accounting. Container revenue is recorded by the Company in each
period based upon the Agreement with CAY.

c)  Leases

Operating leases.As
mentioned under note 1 a)  Nature of
operations, the Company has entered into a master lease
agreement with CAY, whereby CAY will contract with CCL to lease
containers to ocean carriers, principally as lessor in operating
leases. The lease agreements, which CCL enters into with ocean
carriers, generally take the form of a master lease or term
lease.

Master leases do not specify the exact number of
containers to be leased or the term that each container will
remain on-hire but allow the ocean carrier to pick up and drop
off containers at various locations specified in the lease
agreement. Lease rentals, which are generally based upon the
number of containers used by the ocean carrier and the
applicable per diem rate, are therefore all contingent rentals.

F-48



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CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


Term leases provide the ocean carriers with
specified container equipment for a specified term. The rentals
are based upon the number of containers leased, the applicable
per diem rate and the length of the lease, irrespective of the
number of days during which the ocean carrier actually uses the
containers. Term leases typically range from a period of three
to five years.

The Company recognises container revenue based
upon operating lease rentals from the operating lease agreements
between CCL and its various lessees, less direct operating
expenses incurred by CCL and management fees due to CAY.

Direct financing leases with
customers.The Company has entered
into direct financing leases as lessor for container equipment,
which it owns. The net investment in direct financing leases
represents the receivables due from lessees net of unearned
income. Unearned income is recognised in the Statement of Income
to give a constant return on capital over the lease term and is
recorded as part of commissions, fees and other operating income.

Direct financing leases are usually long-term in
nature, typically ranging from a period of three to seven years
and require relatively low levels of customer service. They
ordinarily require fixed payments over a defined period and
provide customers with an option to purchase the subject
containers at the end of the lease term. Per diem rates include
an element of repayment of capital and therefore are higher than
rates charged under either term or master leases.

d)  Taxation

The Company is an exempt company as defined by
the Companies Act 1981 (Bermuda), and accordingly no income tax
provision nor income tax disclosure is required.

e)  Translation of foreign
currencies

The majority of the Companys revenue is
denominated in US dollars as are a significant proportion of
total costs, including container purchases. Accordingly, the
functional currency of the Company is the US dollar, the
currency in which the financial statements are prepared.

Transactions denominated in other currencies are
translated into US dollars and recorded at the rate of exchange
at the date of the transaction. Balances denominated in other
currencies are translated into US dollars at the rate of
exchange on the balance sheet date. Exchange differences arising
are charged or credited to the statements of income.

f)  Cash and cash
equivalents

The Company places its cash in short-term current
and deposit bank accounts with original maturities of three
months or less. No losses have been experienced in such accounts
and management believes it is not exposed to any significant
credit risk.

g)  Container
equipment

Container equipment is carried at cost less
accumulated depreciation. Containers are depreciated on a
straight-line basis as follows:

Refrigerated container equipment is depreciated
over a useful life of 12 years to a residual value of 15%.
Dry cargo and other container equipment is depreciated over a
useful life of 15 years to a residual value of 10%.

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##### Table of Contents



CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


h)  Asset
impairment

Container equipment is reviewed when changes in
circumstances require consideration as to whether their carrying
value has become impaired, pursuant to guidance established in
SFAS No. 144  Accounting for the
Impairment or Disposal of Long-Lived Assets. Management
considers assets to be impaired if the carrying value of the
asset exceeds the future projected cash flows from related
operations (undiscounted and without interest charges). When
impairment is deemed to exist, the assets are written down to
fair value or projected discounted cash flows from related
operations. The Company evaluates future cash flows and
potential impairment of its fleet by container type rather than
for each individual container. Therefore, future losses could
result for individual container dispositions due to various
factors including age, condition, suitability for continued
leasing, as well as geographic location of the containers where
disposed. Management also evaluates the period of amortisation
to determine whether subsequent events and circumstances warrant
revised estimates of useful lives. No impairment charge has been
recorded for any of the periods presented in these financial
statements.

i)  Fair value of financial
instruments

SFAS No. 107 
Disclosures about Fair Value of Financial
Instruments requires the disclosure of fair value, to the
extent practicable for financial instruments, which are
recognised or unrecognised in the balance sheet. Fair value of
the financial instruments disclosed in the balance sheet is not
necessarily representative of the amount that could be realized
or settled, nor does the fair value amount consider the tax
consequences of realization or settlement. For certain financial
instruments, including cash and cash equivalents, and trade
receivables and payables, it was assumed that the carrying
amount approximated fair value because of the near term
maturitics of such obligations.

j)  Use of
estimates

The financial statements are prepared in
conformity with accounting principles generally accepted in the
United States of America (US GAAP), which 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 and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from
those estimates.

k)  Derivative financial
instruments

The Company accounts for derivative financial
instruments in accordance with
SFAS No. 133  Accounting for
Derivative Instruments and Hedging Activities
(SFAS 133) as amended by SFAS No. 137
and SFAS No. 138. SFAS No. 133 was further
amended by SFAS No. 149  Amendment of
Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). SFAS 133
requires that all derivative instruments be recorded on the
balance sheet at their fair value and that changes in the fair
value of derivatives are recorded each period in earnings or
other comprehensive income, depending on the type of hedging
instrument and the effectiveness of the hedges.

The current risk management strategy of the
Company involves the use of interest rate swap agreements which
are designed to manage interest rate risks created by the
Companys variable interest rate loan facility. All such
contracts are highly effective cash flow hedges since the terms
of the interest rate swap agreements are substantially similar
to the hedged loan agreements and the book values of the
derivatives are adjusted to their fair market values at the end
of each calendar quarter.

The Company evaluates all derivative instruments
each quarter to determine that they are highly effective. Any
ineffectiveness is recorded in the statements of income.

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CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


l)   New Accounting
Pronouncements

In April 2003, the Financial Accounting Standards
Board issued SFAS No. 149  Amendment
of Statement 133 on Derivative Instruments and Hedging
Activities (SFAS 149). This statement
amends and clarifies reporting for derivative instruments,
including certain derivative instruments embedded in other
contracts and for hedging activities, and is effective for
contracts entered into or modified after 30 June 2003. The
adoption of SFAS 149 does not have a material impact on the
Company.

In May 2003, the Financial Accounting Standards
Board issued SFAS No. 150  Accounting
for Certain Financial Instruments with Characteristics of both
Liabilities and Equity (SFAS 150).
SFAS 150 modifies the accounting for certain financial
instruments that, under previous guidance, issuers could account
for as equity. It requires that those instruments be classified
as liabilities in statements of financial position.
SFAS 150 affects an issuers accounting for three
types of freestanding financial instruments, namely:



| |   |                                                                                                                                                                                                                                     
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| | - | mandatorily redeemable shares, which the issuing
    company is obligated to buy back in exchange for cash or other
    assets.                                                                                                     
|
| | - | instruments, other than outstanding shares, that
    do or may require the issuer to buy back some of its shares in
    exchange for cash or other assets. These instruments include put
    options and forward purchase contracts.
|
| | - | obligations that can be settled with shares, the
    monetary value of which is fixed, tied solely or predominantly
    to a variable such as a market index, or varies inversely with
    the value of the issuers shares.        

SFAS 150 does not apply to features embedded
in financial instruments that are not derivatives in their
entirety.

In addition to its requirements for the
classification and measurement of financial instruments within
its scope, SFAS 150 also requires disclosures about
alternative ways of settling those instruments and the capital
structure of entities, all of whose shares are mandatorily
redeemable.

SFAS 150 is effective for financial
instruments entered into or modified after May 31, 2003,
and otherwise is effective at the beginning of the first interim
period beginning after June 15, 2003. It is to be
implemented by reporting the cumulative effect of a change in an
accounting principle for financial instruments created before
the issuance date of SFAS 150 and still existing at the
beginning of the interim period of adoption. Restatement is not
permitted. The adoption of SFAS 150 does not have any
impact on the financial statements of the Company.

2.   Restricted cash

Under the terms of its primary debt facilities,
the Company is required to hold minimum balances on deposit in
its restricted cash account. The minimum balance on the
restricted cash account equates to one quarter of interest on
the outstanding principal balance of the loan with Fortis. The
account would be utilised in the event that adequate funds were
not available to meet the scheduled debt service payments, or in
order to pay fees in connection with the selection of a
replacement manager in the event of a default that is not
remedied.

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CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


3.   Net investment in direct
financing leases

The Company, as lessor, has entered into various
leases of equipment that qualify as direct financing leases. The
minimum future lease rentals under these direct financing
leases, net of unearned income, are due as follows:

|                    |  |             |       |                |  |                |       |  |  |   |       | 
|------------------- |  | ----------- | ----- | -------------- |  | -------------- | ----- |  |  | - | ----- | 
|                    |  | Net Lease   |       | Unearned Lease |  | Minimum Future
|                    |  | Receivables |       | Income         |  | Lease Rentals 
|                    |  |             |       |                |  |               
|December 31, 2002   |  | $           | 1,594 |                |  | $              | 278   |  |  | $ | 1,872 | 
|                    |  |             |       |                |  |                |       |  |  |   |       | 
|December 31, 2003   |  |             |       |                |  |                |       |  |  |   |       | 
|2004                |  |             | 1,213 |                |  |                | 699   |  |  |   | 1,912 | 
|2005                |  |             | 1,365 |                |  |                | 554   |  |  |   | 1,919 | 
|2006                |  |             | 1,576 |                |  |                | 372   |  |  |   | 1,948 | 
|2007                |  |             | 1,595 |                |  |                | 180   |  |  |   | 1,775 | 
|2008                |  |             | 656   |                |  |                | 20    |  |  |   | 676   | 
|2009 and thereafter |  |             | 61    |                |  |                | 1     |  |  |   | 62    | 
|                    |  |             |       |                |  |                |       |  |  |   |       | 
|Total               |  | $           | 6,466 |                |  | $              | 1,826 |  |  | $ | 8,292 | 
|                    |  |             |       |                |  |                |       |  |  |   |       | 

4.   Container
revenue

Container revenue included $1,000 and $344 of
contingent revenue for the year ended December 31, 2003,
and for the period September 18, 2002 to December 31,
2002, respectively.

As of December 31, 2003, the minimum
container revenue receivable in future years on term operating
leases were:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2004                |  | $ | 8,647  | 
|2005                |  |   | 8,057  | 
|2006                |  |   | 7,034  | 
|2007                |  |   | 4,811  | 
|2008                |  |   | 1,671  | 
|2009 and thereafter |  |   | 237    | 
|                    |  |   |        | 
|Total               |  | $ | 30,457 | 
|                    |  |   |        | 

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CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


5.   Container
equipment

|                            |  |   |        |  
|--------------------------- |  | - | ------ | -
|Cost                        |  |   |        |  
|Balance, September 17, 2002 |  |   |       |  
|Additions                   |  | $ | 26,613 |  
|Disposals                   |  |   | (3     | )
|                            |  |   |        |  
|Balance, December 31, 2002  |  | $ | 26,610 |  
|                            |  |   |        |  
|Additions                   |  |   | 39,252 |  
|Disposals                   |  |   | (223   | )
|                            |  |   |        |  
|Balance, December 31, 2003  |  | $ | 65,639 |  
|                            |  |   |        |  
|Accumulated depreciation    |  |   |        |  
|Balance, September 17, 2002 |  |   |       |  
|Depreciation expense        |  |   | 779    |  
|Disposals                   |  |   |       |  
|                            |  |   |        |  
|Balance, December 31, 2002  |  | $ | 779    |  
|                            |  |   |        |  
|Depreciation expense        |  |   | 3,330  |  
|Disposals                   |  |   | (35    | )
|                            |  |   |        |  
|Balance, December 31, 2003  |  | $ | 4,074  |  
|                            |  |   |        |  
|Book value                  |  |   |        |  
|December 31, 2003           |  | $ | 61,565 |  
|                            |  |   |        |  
|December 31, 2002           |  | $ | 25,831 |  
|                            |  |   |        |  

6.   Debt

As of December 31, 2003, the Company had an
$80,000 loan facility under which $54,842 was outstanding. The
rate of interest on this facility is based on an adjusted London
Inter Bank Offered Rate (Libor) plus a margin. The
size of the margin is dependent on the length of time the
facility has been in use and on the amount outstanding. The
terms of the loan facility require the Company to enter into
interest rate swap agreements (see note 7) to convert
floating interest rates into fixed rates and thereby manage its
exposure to fluctuations in future interest rates. Amounts due
under this facility are secured against container equipment. The
average interest rate under this facility was 3.1% and 3% for
the year ended December 31, 2003, and for the period
September 18, 2002 to December 31, 2002, respectively.

The Company has issued loan notes to Fortis and
to another bank under this loan facility for which Fortis acts
as agent. The amount outstanding under the loan notes held by
Fortis was $28,260 and $9,868 at December 31, 2003 and
2002, respectively.

Debt comprised:

|                   |  |      |        |      |  |                         |        |  |  |  |           | 
|------------------ |  | ---- | ------ | ---- |  | ----------------------- | ------ |  |  |  | --------- | 
|                   |  |      |        |      |  | Interest Rate % at     
|                   |  | 2003 |        | 2002 |  | December 31, 2003/ 2002
|                   |  |      |        |      |  |                        
|Floating rate debt |  | $    | 12,697 |      |  | $                       | 22,202 |  |  |  | 2.7/3.2   | 
|Fixed rate debt    |  |      | 42,145 |      |  |                         |       |  |  |  | 4.0-5.4/ | 
|                   |  |      |        |      |  |                         |        |  |  |  |           | 
|Total debt         |  | $    | 54,842 |      |  | $                       | 22,202 |  |  |  |           | 
|                   |  |      |        |      |  |                         |        |  |  |  |           | 

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##### Table of Contents



CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


At December 31, 2003, the estimated fair
value of debt, which was calculated using the market rates
prevailing at the balance sheet date was $58,157. At
December 31, 2002, the fair value of debt approximated the
carrying value.

As of December 31, 2003, the annual
maturities of debt were:

|                    |  |   |        | 
|------------------- |  | - | ------ | 
|2004                |  | $ | 1,371  | 
|2005                |  |   | 5,484  | 
|2006                |  |   | 5,621  | 
|2007                |  |   | 6,170  | 
|2008                |  |   | 6,718  | 
|2009 and thereafter |  |   | 29,478 | 
|                    |  |   |        | 
|Total               |  | $ | 54,842 | 
|                    |  |   |        | 

7.   Derivative accounting
policies

The Company has adopted SFAS 133 as amended,
which requires that all derivative instruments be recorded on
the balance sheet at their fair value. Changes in the fair value
of derivatives are recorded each period in earnings or other
comprehensive income, depending on the type of hedging
instrument and the effectiveness of the hedges.

At the inception of the hedging relationship, the
Company must designate the derivative instrument as a fair value
hedge, a cash flow hedge or the hedge of a net investment in a
foreign operation. The Company has designated its derivative
financial instruments as cash flow hedges and tested the
effectiveness of these instruments at inception. Thereafter,
effectiveness testing is performed quarterly.

The Companys risk management strategy
includes utilising derivative financial instruments (in the form
of interest rate swap agreements), which effectively convert
floating interest rates into fixed rates and thereby manages its
exposure to fluctuations in future interest rates.

As of December 31, 2003, the Company had
entered into five interest rate swap agreements with a financial
institution for which the notional balance was $42,145. These
agreements are used by the Company to manage interest rate risks
created by its variable interest rate loan facility. These
agreements terminate at various dates during the period 2006 to
2008. The Company has concluded that these agreements perfectly
match the interest payments due on the loan facility to which
they relate, and are therefore considered perfect hedges.

At December 31, 2003, the unrealised loss on
these cash flow hedges of $162 was recorded as other
comprehensive loss. Management estimates that approximately $57
of the accumulated other comprehensive loss will be reclassified
into the statement of income within the next twelve months.
Amounts recorded in other comprehensive loss will be
reclassified into earnings upon the expiry of the interest swap
agreements.

8.   Fees and other
income

Fees and other income included direct financing
lease income of $590 and $32 for the year ended
December 31, 2003, and for the period September 18,
2002 to December 31, 2002, respectively.

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CF LEASING LIMITED


NOTES TO THE FINANCIAL STATEMENTS
(continued)

(US dollar amounts in thousands)


9.   Related party
transactions

The Company had the following transactions with
related parties during the year ended December 31, 2003,
and for the period September 18, 2002 to December 31,
2003, respectively:

|                        |       |      |   |        |  |  |   |        | 
|----------------------- | ----- | ---- | - | ------ |  |  | - | ------ | 
|                        |       | 2003 |   | 2002  
|                        |       |      |   |       
|Container acquisitions: |       |      |   |        |  |  |   |       
|                        | - CAY |      | $ | 39,470 |  |  | $ | 18,800 | 
|                        | - CEB |      |   | 4,609  |  |  |   |       | 

During the year ended December 31, 2003, and
for the period September 18, 2002 to December 31,
2003, the statements of income of the Company included the
following transactions with related parties:

|                                                                    |  |      |       |      |  |   |       | 
|------------------------------------------------------------------- |  | ---- | ----- | ---- |  | - | ----- | 
|                                                                    |  | 2003 |       | 2002
|                                                                    |  |      |       |     
|Container revenue earned from CAY                                   |  | $    | 7,184 |      |  | $ | 1,619 | 
|Fortis interest expense (acting as agent for the
    loan facility) |  |      | 1,660 |      |  |   | 224   | 

10. Amounts receivable from a related
party

The Company had amounts receivable for container
revenue from CAY of $1,350 and $295 at December 31, 2003
and 2002, respectively.

11. Amount payable to a related
party

In addition to the loan notes payable to Fortis,
the Company had amounts payable to Fortis for interest expense
of $273 and $29 at December 31, 2003 and 2002, respectively.

F-55