##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-Q
  þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: June 30, 2006
 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
  LUXEMBOURG
    
    NOT APPLICABLE(State or other Jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 5, Rue Guillaume Kroll, L-1882 LUXEMBOURG
 
 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 þ NO o
 Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer,
or a non-accelerated filer. See definition of accelerated filer and large accelerated filer in
Rule 12b-2 of the Exchange Act.
 Large accelerated filer o Accelerated filer o Non- accelerated filer þ
 Indicate by check mark whether the registrant is a shell company (as defined in Exchange Act Rule
12b-2) Yes o No þ
 The number of Common Shares outstanding as of August 8, 2006:
 Class
    
    Number of Shares OutstandingCommon
    
    7,648,788




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##### 



The Cronos Group
 TABLE OF CONTENTS
 PART I  FINANCIAL INFORMATION
    
    
    1Item 1  Financial Statements
    
    
    1Management Representation
    
    
    1Condensed Unaudited Consolidated Statements of Income and Comprehensive Income
    
    
    2Condensed Unaudited Consolidated Balance Sheets
    
    
    3Condensed Unaudited Consolidated Statements of Cash Flows
    
    
    4Consolidated Unaudited Statement of Shareholders Equity
    
    
    5Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    19Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
    
    
    22Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
    
    
    24Liquidity and Capital Resources
    
    
    28Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4  Controls and Procedures
    
    
    30PART II  OTHER INFORMATION
    
    
    31Item 1  Legal Proceedings
    
    
    31Item 1A  Risk Factors
    
    
    31Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3  Defaults Upon Senior Securities
    
    
    31Item 4  Submission of Matters to a Vote of Security Holders
    
    
    32Item 5  Other Information
    
    
    35Item 6  Exhibits
    
    
    35EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 10.3EXHIBIT 10.4EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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##### Table of Contents



The Cronos Group
 
 PART I  FINANCIAL INFORMATION
 
 Item 1  Financial Statements
 
        1




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##### Table of Contents



The Cronos Group
 
 Condensed Unaudited Consolidated Statements of Income and Comprehensive Income
 (US dollar amounts in thousands, except per share amounts)
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Gross lease revenue
    
    $
    35,038
    
    
    $
    34,469
    
    
    $
    70,302
    
    
    $
    68,473Equipment trading revenue
    
    
    1,649
    
    
    
    1,815
    
    
    
    3,375
    
    
    
    1,950Commissions, fees and other income:- Related parties
    
    
    129
    
    
    
    218
    
    
    
    332
    
    
    
    405- Unrelated parties
    
    
    1,253
    
    
    
    1,675
    
    
    
    2,240
    
    
    
    2,550- Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,333Total revenues
    
    
    38,069
    
    
    
    38,177
    
    
    
    76,249
    
    
    
    74,711Direct operating expenses
    
    
    4,208
    
    
    
    4,688
    
    
    
    9,315
    
    
    
    9,240Payments to Managed Container Programs:- Related parties
    
    
    13,892
    
    
    
    8,247
    
    
    
    26,351
    
    
    
    16,435- Unrelated parties
    
    
    7,402
    
    
    
    9,035
    
    
    
    15,201
    
    
    
    18,104Equipment trading expenses
    
    
    1,389
    
    
    
    1,624
    
    
    
    2,961
    
    
    
    1,751Depreciation and amortization
    
    
    2,951
    
    
    
    4,578
    
    
    
    5,901
    
    
    
    9,170Selling, general and administrative expenses
    
    
    5,015
    
    
    
    4,909
    
    
    
    10,149
    
    
    
    10,702Interest expense
    
    
    1,855
    
    
    
    1,854
    
    
    
    3,499
    
    
    
    3,375Recovery of amount payable to Managed Container Program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (703
    )Total expenses
    
    
    36,712
    
    
    
    34,935
    
    
    
    73,377
    
    
    
    68,074Income before income taxes and equity in earnings of affiliate
    
    
    1,357
    
    
    
    3,242
    
    
    
    2,872
    
    
    
    6,637Income taxes
    
    
    (204
    )
    
    
    (476
    )
    
    
    (431
    )
    
    
    (985
    )Equity in earnings of unconsolidated affiliate
    
    
    1,340
    
    
    
    711
    
    
    
    2,611
    
    
    
    1,454Net income
    
    
    2,493
    
    
    
    3,477
    
    
    
    5,052
    
    
    
    7,106Other comprehensive income (loss):- change in fair value of derivatives held by affiliate, net of tax
    
    
    286
    
    
    
    (433
    )
    
    
    802
    
    
    
    186Comprehensive income
    
    $
    2,779
    
    
    $
    3,044
    
    
    $
    5,854
    
    
    $
    7,292Basic net income per common share
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.67
    
    
    $
    0.97Diluted net income per common share
    
    $
    0.31
    
    
    $
    0.44
    
    
    $
    0.62
    
    
    $
    0.90
  2




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##### Table of Contents



The Cronos Group
 
 Condensed Unaudited Consolidated Balance Sheets
 (US dollar amounts in thousands, except per share amounts)
 June 30,
    
    
    December 31,2006
    
    
    2005AssetsCash and cash equivalents
    
    $
    16,785
    
    
    $
    15,829Restricted cash
    
    
    250
    
    
    
    4,200Amounts due from lessees
    
    
    28,468
    
    
    
    28,540Amounts receivable from Managed Container Programs
    
    
    3,586
    
    
    
    3,391New container equipment for resale
    
    
    27,529
    
    
    
    38,142Net investment in direct financing leases
    
    
    11,922
    
    
    
    12,678Investments in unconsolidated affiliates
    
    
    39,922
    
    
    
    31,358Container equipment, net
    
    
    117,938
    
    
    
    121,988Other equipment, net
    
    
    711
    
    
    
    1,130Goodwill
    
    
    11,038
    
    
    
    11,038Other intangible assets, net
    
    
    251
    
    
    
    345Other assets
    
    
    3,666
    
    
    
    3,093Total assets
    
    $
    262,066
    
    
    $
    271,732Liabilities and shareholders equityAmounts payable to Managed Container Programs
    
    
    27,467
    
    
    
    25,462Amounts payable to container manufacturers
    
    
    30,352
    
    
    
    52,790Direct operating expense payables and accruals
    
    
    4,755
    
    
    
    5,432Other amounts payable and accrued expenses
    
    
    5,392
    
    
    
    11,873Debt and capital lease obligations
    
    
    99,584
    
    
    
    87,780Current and deferred income taxes
    
    
    3,121
    
    
    
    3,174Deferred income and unamortized acquisition fees
    
    
    7,706
    
    
    
    7,684Total liabilities
    
    
    178,377
    
    
    
    194,195Shareholders equityCommon shares issued (7,650,947; 7,519,959 shares)
    
    
    15,302
    
    
    
    15,040Additional paid-in capital
    
    
    43,843
    
    
    
    43,807Common shares held in treasury (112,000 shares)
    
    
    (297
    )
    
    
    (297
    )Accumulated other comprehensive income
    
    
    1,682
    
    
    
    880Restricted retained earnings
    
    
    1,832
    
    
    
    1,832Retained earnings
    
    
    21,327
    
    
    
    16,275Total shareholders equity
    
    
    83,689
    
    
    
    77,537Total liabilities and shareholders equity
    
    $
    262,066
    
    
    $
    271,732
  3




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##### Table of Contents



The Cronos Group
 
 Condensed Unaudited Consolidated Statements of Cash Flows
 (US dollar amounts in thousands, except per share amounts)
 Six Months EndedJune 30,2006
    
    
    2005Net cash provided by operating activities
    
    $
    7,410
    
    
    $
    15,245Cash flows from investing activitiesPurchase of container and other equipment
    
    
    (17,096
    )
    
    
    (15,560
    )Investment in unconsolidated affiliate
    
    
    (5,145
    )
    
    
    (1,903
    )Investment in equipment acquired for direct financing lease
    
    
    (236
    )
    
    
    (4,019
    )Proceeds from sales of container and other equipment
    
    
    5,338
    
    
    
    4,748Restricted cash
    
    
    3,950
    
    
    
    364Net cash used in investing activities
    
    
    (13,189
    )
    
    
    (16,370
    )Cash flows from financing activitiesProceeds from issuance of term debt
    
    
    16,159
    
    
    
    12,079Repayments of term debt and capital lease obligations
    
    
    (8,970
    )
    
    
    (14,224
    )Dividend paid
    
    
    (1,045
    )
    
    
    (728
    )Recovery of related party loan
    
    
    
    
    
    
    1,280Proceeds from issuance of common stock
    
    
    591
    
    
    
    309Net cash provided by (used in) financing activities
    
    
    6,735
    
    
    
    (1,284
    )Net increase (decrease) in cash and cash equivalents
    
    
    956
    
    
    
    (2,409
    )Cash and cash equivalents at beginning of period
    
    
    15,829
    
    
    
    17,579Cash and cash equivalents at end of period
    
    $
    16,785
    
    
    $
    15,170Supplementary disclosure of cash flow information:Cash paid during the period for:- interest
    
    $
    2,886
    
    
    $
    3,201- income taxes
    
    
    480
    
    
    
    616Cash received during the period for:- interest
    
    
    69
    
    
    
    102- income taxes
    
    
    
    
    
    
    53Non-cash activities:- container equipment acquired under capital lease
    
    
    2,504
    
    
    
    889- container equipment transferred to direct financing leases
    
    
    1,213
    
    
    
    1,063- direct finance lease equipment acquired under capital lease
    
    
    1,950
    
    
    
    523
  4




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##### Table of Contents



The Cronos Group
 
 Consolidated Unaudited Statement of Shareholders Equity
 (US dollar amounts in thousands, except per share amounts)
 Six months ended June 30, 2006
 AccumulatedAdditional
    
    
    Common
    
    
    other
    
    
    Restricted
    
    
    
    
    
    
    TotalCommon
    
    
    paid-in
    
    
    shares held
    
    
    comprehensive
    
    
    retained
    
    
    Retained
    
    
    shareholdersshares
    
    
    capital
    
    
    in treasury
    
    
    income
    
    
    earnings
    
    
    earnings
    
    
    equityBalance,
January 1, 2006
    
    $
    15,040
    
    
    $
    43,807
    
    
    $
    (297
    )
    
    $
    880
    
    
    $
    1,832
    
    
    $
    16,275
    
    
    $
    77,537Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    5,052
    
    
    
    5,052Issue of common shares
    
    
    262
    
    
    
    362
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    624Declaration of dividend
    
    
    
    
    
    
    (535
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (535
    )Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    802
    
    
    
    
    
    
    
    
    
    
    
    802Stock based
compensation
    
    
    
    
    
    
    209
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    209Balance,
June 30, 2006
    
    $
    15,302
    
    
    $
    43,843
    
    
    $
    (297
    )
    
    $
    1,682
    
    
    $
    1,832
    
    
    $
    21,327
    
    
    $
    83,689
 Six months ended June 30, 2005
 AccumulatedAdditional
    
    
    Common
    
    
    other
    
    
    Restricted
    
    
    
    
    
    
    TotalCommon
    
    
    paid-in
    
    
    shares held
    
    
    comprehensive
    
    
    retained
    
    
    Retained
    
    
    shareholdersshares
    
    
    capital
    
    
    in treasury
    
    
    income
    
    
    earnings
    
    
    earnings
    
    
    equityBalance,
January 1, 2005
    
    $
    14,763
    
    
    $
    45,358
    
    
    $
    (297
    )
    
    $
    230
    
    
    $
    1,832
    
    
    $
    8,473
    
    
    $
    70,359Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    7,106
    
    
    
    7,106Issue of common shares
    
    
    240
    
    
    
    308
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    548Declaration of dividend
    
    
    
    
    
    
    (443
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (443
    )Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    186
    
    
    
    
    
    
    
    
    
    
    
    186Balance,
June 30, 2005
    
    $
    15,003
    
    
    $
    45,223
    
    
    $
    (297
    )
    
    $
    416
    
    
    $
    1,832
    
    
    $
    15,579
    
    
    $
    77,756
  5




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
     i.     1998 stock option
  ii.     1999 stock option plan
  iii.     The non-employee directors equity plan
   6




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
 iv.     2005 equity incentive plan
   v.     Stock grant
  vi.     Stock appreciation rights
   7




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
 vii.     Summary of Stock Option Activity Under All Plans
 WeightedAverageWeighted
    
    
    Remaining
    
    
    AggregateAverage
    
    
    Contractual
    
    
    Intrinsic ValueShares
    
    
    Exercise Price
    
    
    Life (Years)
    
    
    (in thousands)Outstanding on January 1, 2006
    
    
    902,504
    
    
    $
    4.741
    
    
    
    4.0Exercised
    
    
    (120,000
    )
    
    $
    5.125Outstanding at June 30, 2006
    
    
    782,504
    
    
    $
    4.682
    
    
    
    3.5
    
    
    $
    5,343Exercisable at June 30, 2006
    
    
    782,504
    
    
    $
    4.68
    
    
    
    3.5
    
    
    $
    5,343
 viii. Adoption of new accounting standard
      Three Months
    
    
    Six MonthsEnded
    
    
    EndedJune 30, 2005
    
    
    June 30, 2005Net income:- as reported
    
    $
    3,477
    
    
    $
    7,106- add stock-based compensation expense included in
reported net income, net of related tax effects
    
    
    
    
    
    
    - deduct stock-based compensation expense computed
in accordance with SFAS 123R, net of related tax effects
    
    
    
    
    
    
    - pro forma
    
    $
    3,477
    
    
    $
    7,106Basic net income per share:- as reported
    
    $
    0.47
    
    
    $
    0.97- pro forma
    
    $
    0.47
    
    
    $
    0.97Diluted net income per share:- as reported
    
    $
    0.44
    
    
    $
    0.90- pro forma
    
    $
    0.44
    
    
    $
    0.90
 8




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
    USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedUS dollar amounts in thousands
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended June 30, 2006Items directly attributable to segments:- gross lease revenue
    
    $
    4,403
    
    
    $
    13,098
    
    
    $
    10,026
    
    
    $
    7,511
    
    
    $
    35,038- direct operating expenses
    
    
    (653
    )
    
    
    (999
    )
    
    
    (1,736
    )
    
    
    (820
    )
    
    
    (4,208
    )net lease revenue
    
    
    3,750
    
    
    
    12,099
    
    
    
    8,290
    
    
    
    6,691
    
    
    
    30,830- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445
    
    
    
    445- payments to Managed Container Programs
    
    
    (2,825
    )
    
    
    (11,067
    )
    
    
    (7,402
    )
    
    
    
    
    
    
    (21,294
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,837
    )
    
    
    (2,837
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,854
    )
    
    
    (1,854
    )Segment profit
    
    $
    925
    
    
    $
    1,032
    
    
    $
    888
    
    
    $
    2,445
    
    
    $
    5,290Segment assets at end of period
    
    $
    4,067
    
    
    $
    52,830
    
    
    $
    10,749
    
    
    $
    194,420
    
    
    $
    262,066
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedUS dollar amounts in thousands
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended June 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    6,089
    
    
    $
    5,322
    
    
    $
    11,762
    
    
    $
    11,296
    
    
    $
    34,469- direct operating expenses
    
    
    (999
    )
    
    
    (325
    )
    
    
    (1,881
    )
    
    
    (1,483
    )
    
    
    (4,688
    )net lease revenue
    
    
    5,090
    
    
    
    4,997
    
    
    
    9,881
    
    
    
    9,813
    
    
    
    29,781- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    460
    
    
    
    460- payments to Managed Container Programs
    
    
    (3,694
    )
    
    
    (4,553
    )
    
    
    (9,035
    )
    
    
    
    
    
    
    (17,282
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,469
    )
    
    
    (4,469
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,852
    )
    
    
    (1,852
    )Segment profit
    
    $
    1,396
    
    
    $
    444
    
    
    $
    846
    
    
    $
    3,952
    
    
    $
    6,638Segment assets at end of period
    
    $
    8,127
    
    
    $
    25,251
    
    
    $
    12,027
    
    
    $
    222,812
    
    
    $
    268,217
 9




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedUS dollar amounts in thousands
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalSix months ended June 30, 2006Items directly attributable to segments:- gross lease revenue
    
    $
    9,257
    
    
    $
    24,605
    
    
    $
    20,885
    
    
    $
    15,555
    
    
    $
    70,302- direct operating expenses
    
    
    (1,478
    )
    
    
    (2,052
    )
    
    
    (3,909
    )
    
    
    (1,876
    )
    
    
    (9,315
    )net lease revenue
    
    
    7,779
    
    
    
    22,553
    
    
    
    16,976
    
    
    
    13,679
    
    
    
    60,987- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    847- payments to Managed Container Programs
    
    
    (5,725
    )
    
    
    (20,626
    )
    
    
    (15,201
    )
    
    
    
    
    
    
    (41,552
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,669
    )
    
    
    (5,669
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,497
    )
    
    
    (3,497
    )Segment profit
    
    $
    2,054
    
    
    $
    1,927
    
    
    $
    1,775
    
    
    $
    5,360
    
    
    $
    11,116Segment assets at end of period
    
    $
    4,067
    
    
    $
    52,830
    
    
    $
    10,749
    
    
    $
    194,420
    
    
    $
    262,066
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedUS dollar amounts in thousands
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalSix months ended June 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    12,249
    
    
    $
    10,312
    
    
    $
    23,623
    
    
    $
    22,289
    
    
    $
    68,473- direct operating expenses
    
    
    (1,862
    )
    
    
    (676
    )
    
    
    (3,706
    )
    
    
    (2,996
    )
    
    
    (9,240
    )net lease revenue
    
    
    10,387
    
    
    
    9,636
    
    
    
    19,917
    
    
    
    19,293
    
    
    
    59,233- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    813
    
    
    
    813- payments to Managed Container Programs
    
    
    (7,665
    )
    
    
    (8,770
    )
    
    
    (18,104
    )
    
    
    
    
    
    
    (34,539
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,953
    )
    
    
    (8,953
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,458
    )
    
    
    (3,458
    )Segment profit
    
    $
    2,722
    
    
    $
    866
    
    
    $
    1,813
    
    
    $
    7,695
    
    
    $
    13,096Segment assets at end of period
    
    $
    8,127
    
    
    $
    25,251
    
    
    $
    12,027
    
    
    $
    222,812
    
    
    $
    268,217
 10




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,US dollar amounts in thousands
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Segment profit
    
    $
    5,290
    
    
    $
    6,638
    
    
    $
    11,116
    
    
    $
    13,096Equipment trading revenue
    
    
    1,649
    
    
    
    1,815
    
    
    
    3,375
    
    
    
    1,950Unallocated commissions, fees and other operating income
    
    
    819
    
    
    
    1,390
    
    
    
    1,504
    
    
    
    2,051Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,333Other interest income
    
    
    118
    
    
    
    43
    
    
    
    221
    
    
    
    91Equipment trading expenses
    
    
    (1,389
    )
    
    
    (1,624
    )
    
    
    (2,961
    )
    
    
    (1,751
    )Amortization of intangible assets
    
    
    (47
    )
    
    
    (47
    )
    
    
    (94
    )
    
    
    (94
    )Non container depreciation
    
    
    (67
    )
    
    
    (62
    )
    
    
    (138
    )
    
    
    (123
    )Selling, general and administrative expenses
    
    
    (5,015
    )
    
    
    (4,909
    )
    
    
    (10,149
    )
    
    
    (10,702
    )Non container interest (expense) credit
    
    
    (1
    )
    
    
    (2
    )
    
    
    (2
    )
    
    
    83Recovery of amount payable to a Managed Container Program
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    703Income before income taxes and equity in earnings of affiliate
    
    $
    1,357
    
    
    $
    3,242
    
    
    $
    2,872
    
    
    $
    6,637
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,US dollar amounts in thousands
    
    2006
    
    
    2005
    
    
    2006
    
    
    2005Revenues directly attributable to segments:- gross lease revenue
    
    $
    35,038
    
    
    $
    34,469
    
    
    $
    70,302
    
    
    $
    68,473- direct financing lease income
    
    
    445
    
    
    
    460
    
    
    
    847
    
    
    
    81335,483
    
    
    
    34,929
    
    
    
    71,149
    
    
    
    69,286Other revenues:- equipment trading revenue
    
    
    1,649
    
    
    
    1,815
    
    
    
    3,375
    
    
    
    1,950- unallocated commissions, fees and other operating income
    
    
    819
    
    
    
    1,390
    
    
    
    1,504
    
    
    
    2,051- gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,333- other interest income
    
    
    118
    
    
    
    43
    
    
    
    221
    
    
    
    91Total revenues
    
    $
    38,069
    
    
    $
    38,177
    
    
    $
    76,249
    
    
    $
    74,711
  11




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2006
    
    
    2005
    
    
    2006
    
    
    2005Net income available for common shareholders
    
    $
    2,493
    
    
    $
    3,477
    
    
    $
    5,052
    
    
    $
    7,106Average outstanding shares of common stock
    
    
    7,532,047
    
    
    
    7,353,267
    
    
    
    7,522,664
    
    
    
    7,317,683Dilutive effect of:- 1998 stock option
    
    
    193,275
    
    
    
    188,935
    
    
    
    195,310
    
    
    
    186,341- 1999 stock option plan
    
    
    198,056
    
    
    
    263,178
    
    
    
    200,762
    
    
    
    268,409- non-employee directors equity plan
    
    
    107,368
    
    
    
    123,935
    
    
    
    108,307
    
    
    
    151,900- 2005 equity incentive plan
    
    
    80,458
    
    
    
    
    
    
    
    64,579
    
    
    
    Common stock and common stock equivalents
    
    
    8,111,204
    
    
    
    7,929,315
    
    
    
    8,091,622
    
    
    
    7,924,333Basic net income per share
    
    $
    0.33
    
    
    $
    0.47
    
    
    $
    0.67
    
    
    $
    0.97Diluted net income per share
    
    $
    0.31
    
    
    $
    0.44
    
    
    $
    0.62
    
    
    $
    0.90
 12




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
   US dollar amounts in thousandsCostBalance, December 31, 2004
    
    $
    294,575Additions
    
    
    64,457Disposals
    
    
    (161,551
    )Balance, December 31, 2005
    
    $
    197,481Additions
    
    
    6,634Disposals
    
    
    (28,539
    )Balance, June 30, 2006
    
    $
    175,576Accumulated depreciationBalance, December 31, 2004
    
    $
    127,991Depreciation expense
    
    
    14,890Disposals
    
    
    (67,388
    )Balance, December 31, 2005
    
    $
    75,493Depreciation expense
    
    
    5,669Disposals
    
    
    (23,524
    )Balance, June 30, 2006
    
    $
    57,638Book valueJune 30, 2006
    
    $
    117,938December 31, 2005
    
    $
    121,988
   13




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The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
         14




---



##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
       i
 ii
 iii
 iv
    15




---



##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
    §
    
    Container equipment  depreciable lives;§
    
    Container equipment  valuation;§
    
    Deferred taxation;§
    
    Allowance for doubtful accounts;§
    
    Goodwill;§
    
    Reporting lease revenue on a gross basis for Managed Container Programs; and,§
    
    US Limited Partnership Programs  evaluation of expected losses and expected residual
returns in accordance with FIN 46R.
 11.
    
    Commitments and contingencies (to be read in conjunction with Note 17 to the Companys 2005
consolidated financial statements on Form 10-K).
 i. Commitments
  ii. Parent Guarantee under Agreements with Private Container Programs
    16




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
 iii. Guarantees under fixed non-cancellable operating leases
  US dollar amounts in thousandsJuly 1 to December 31, 2006
    
    $
    1,2612007
    
    
    2,5222008
    
    
    2,5222009
    
    
    2,5222010
    
    
    7,6122011 and thereafter
    
    
    2,304Total
    
    $
    18,743
 iv. Agreements with Private Container Programs  early termination options
  v. Agreements with Private Container Programs  change of control provisions
  vi. Joint Venture Program  change of control provisions
  17




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##### Table of Contents



The Cronos Group
 Notes to the Condensed Unaudited Consolidated Financial Statements
 vii. TOEMT & Provision for legal claims
  18




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##### Table of Contents



The Cronos Group
 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
  Funding Overview
    Owned Containers:
     19




---



##### Table of Contents



The Cronos Group
 Managed Container Programs
  Joint Venture Program:
  US Limited Partnership Programs:
 Private Container Programs:
 20




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##### Table of Contents



The Cronos Group
 Overview of Operating Performance
  June 30,
    
    
    March 31,
    
    
    December 31,
    
    
    June 30,2006
    
    
    2006
    
    
    2005
    
    
    2005Utilization at end of period
    
    
    93
    %
    
    
    90
    %
    
    
    91
    %
    
    
    93
    %
  US Limited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned
    
    
    TotalBased on original equipment cost
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    FleetDry cargo containers
    
    
    78
    %
    
    
    46
    %
    
    
    85
    %
    
    
    40
    %
    
    
    60
    %Specialized containers:Refrigerated containers
    
    
    15
    %
    
    
    28
    %
    
    
    2
    %
    
    
    25
    %
    
    
    19
    %Tank containers
    
    
    6
    %
    
    
    14
    %
    
    
    8
    %
    
    
    12
    %
    
    
    10
    %Dry freight specials
    
    
    1
    %
    
    
    12
    %
    
    
    5
    %
    
    
    23
    %
    
    
    11
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  §
    
    Cronos implemented new lease arrangements with a number of existing customers that
resulted in increased leases outs; and,§
    
    A sharp rise in new container prices resulted in shipping lines leasing increasing
quantities of containers rather than purchasing new equipment for their own fleets. In
the first quarter of 2006, the price of a new twenty-foot dry cargo container increased
from $1,450 to $1,900 quarter in response to rising steel prices. The current price is
approximately $2,000.
 Gross Lease Revenue & Direct Operating Expenses
  §
    
    GLR for specialized containers increased by $1 million, or 8%, over the first quarter
reflecting the high levels of investment in new specialized equipment acquisitions;§
    
    Typically, a high proportion of the ancillary component of gross lease revenue is
earned when containers are redelivered. Ancillary revenue includes drop-off charges and
revenues that are earned on container repairs. For dry containers, ancillary revenues
declined by $1.2 million in line with the decline of dry container redeliveries; and,§
    
    Dry container direct operating expenses declined by $0.9 million due to reductions in
repair and storage expenses reflecting reductions in both redeliveries and inventories.
 Net Income
  21




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##### Table of Contents



The Cronos Group
 
 Three Months Ended June 30, 2006 Compared to Three Months Ended June 30, 2005
  §
    
    A decline of $0.4 million in licence and consultancy fee income due to a reduction in
the volume of transactions undertaken in 2006;§
    
    A decline of $0.2 million on gains recorded on the disposal of fixed assets. This was
due both to lower disposal volumes of Owned Containers and a decline in the container
sales prices; and,§
    
    Increased interest rates.
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 Operating segment information
 USLimited
    
    
    Joint
    
    
    PrivateUS dollar amounts in thousands
    
    Partnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended June 30, 2006Items directly attributable to segments:- gross lease revenue
    
    $
    4,403
    
    
    $
    13,098
    
    
    $
    10,026
    
    
    $
    7,511
    
    
    $
    35,038- direct operating expenses
    
    
    (653
    )
    
    
    (999
    )
    
    
    (1,736
    )
    
    
    (820
    )
    
    
    (4,208
    )net lease revenue
    
    
    3,750
    
    
    
    12,099
    
    
    
    8,290
    
    
    
    6,691
    
    
    
    30,830- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    445
    
    
    
    445- payments to Managed Container Programs
    
    
    (2,825
    )
    
    
    (11,067
    )
    
    
    (7,402
    )
    
    
    
    
    
    
    (21,294
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,837
    )
    
    
    (2,837
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,854
    )
    
    
    (1,854
    )Segment profit
    
    $
    925
    
    
    $
    1,032
    
    
    $
    888
    
    
    $
    2,445
    
    
    $
    5,290
 US Limited Partnership Programs:
 §
    
    Net lease revenue declined by $1.3 million due to the effect of the disposal of
containers at the end of their useful economic life and the liquidation of four
partnership programs in the preceding twelve months; and,§
    
    Payments to US Limited Partnership Programs declined in line with net lease revenue.
 22




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##### Table of Contents



The Cronos Group
 Joint Venture Program:
 §
    
    Net lease revenueincreased by $7.1 million in the second quarter of 2006 reflecting the
significant investment in additional equipment for the program, including the acquisition
of $73.8 million of container fixed assets from the Group in August 2005; and,§
    
    Payments to the Joint Venture Programincreased by $6.5 million in the second quarter of
2006, in line with the increase in net lease revenue for this segment.
 Private Container Programs:
 §
    
    Net lease revenueof $8.3 million declined by $1.6 million when compared to the
corresponding period of 2005 due primarily to a reduction in the quantity of containers
owned by these programs;§
    
    Payments to Private Container Programsdeclined by $1.6 million in the second quarter of
2006 reflecting the decline in net lease revenue; and,§
    
    The ratio of segment profit to net lease revenueincreased from 9% to 11% due to the
expiration of an agreement with relatively high fixed payment terms in the second half of
2005.
 Owned Containers:
 §
    
    Net lease revenueof $6.7 million was $3.1 million lower than in the corresponding
period of 2005, reflecting the decline in the size of the owned container fleet;§
    
    Container depreciationof $2.8 million in the second quarter of 2006 was $1.6 million
lower than in the same period of 2005. The primary factors for the decline were:
 -
    
    The sale of the container fixed assets to the Joint Venture Program in
the third calendar quarter of 2005; and,-
    
    The change in the estimate of useful lives for tank, rolltrailer and
flat rack products on October 1, 2005.
 §
    
    Container interest expenseof $1.9 million was unchanged when compared to the second
quarter of 2005. The increase in interest expense attributable to higher interest rates
was offset by the effect of lower debt balances further to the repayment of $64.2 million
of debt utilizing part of the proceeds generated by the fixed asset sale to the Joint
Venture Program in August 2005.
 Equipment trading revenue
 Commissions, fees and other income
 -
    
    A $0.4 million decrease in licence and consultancy fee income as fewer
transactions were undertaken when compared to the corresponding period of 2005;
and,-
    
    A $0.2 million reduction in gains recorded on the disposal of container
assets due both to lower disposal volumes and a decline in the container sales
prices.
 Selling, general and administrative expenses
 Income Taxes
 Equity in earnings of unconsolidated affiliate
 23




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##### Table of Contents



The Cronos Group
 
 Six Months Ended June 30, 2006 Compared to Six Months Ended June 30, 2005
 Overview
    §
    
    Income of $1.3 million recognized on the recovery of amounts owed by a related party;§
    
    The recovery of $0.8 million payable to a Private Container Program; and,§
    
    Legal expenses of $1.4 million incurred in connection with a former chairman and chief
executive officer and the TOEMT litigation.
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 Operating segment information
 USLimited
    
    
    Joint
    
    
    PrivateUS dollar amounts in thousands
    
    Partnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalSix months ended June 30, 2006Items directly attributable to segments:- gross lease revenue
    
    $
    9,257
    
    
    $
    24,605
    
    
    $
    20,885
    
    
    $
    15,555
    
    
    $
    70,302- direct operating expenses
    
    
    (1,478
    )
    
    
    (2,052
    )
    
    
    (3,909
    )
    
    
    (1,876
    )
    
    
    (9,315
    )net lease revenue
    
    
    7,779
    
    
    
    22,553
    
    
    
    16,976
    
    
    
    13,679
    
    
    
    60,987- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    847
    
    
    
    847- payments to Managed Container Programs
    
    
    (5,725
    )
    
    
    (20,626
    )
    
    
    (15,201
    )
    
    
    
    
    
    
    (41,552
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,669
    )
    
    
    (5,669
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,497
    )
    
    
    (3,497
    )Segment profit
    
    $
    2,054
    
    
    $
    1,927
    
    
    $
    1,775
    
    
    $
    5,360
    
    
    $
    11,116
 24




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##### Table of Contents



The Cronos Group
 US Limited Partnership Programs:
 §
    
    Net lease revenuefor this segment decreased by $2.6 million over the corresponding
period in 2005 due primarily to the effect of the disposal of containers at the end of
their useful economic life and the liquidation of four partnership programs in the
preceding twelve months.§
    
    Payments to US Limited Partnership Programsdeclined by $1.9 million when compared to
the corresponding period in 2005 reflecting the decline in net lease revenue.§
    
    The ratio of segment profit to net lease revenueremained unchanged at 26%.
 Joint Venture Program:
 §
    
    Net lease revenuefor this segment increased by $12.9 million in the first six months of
2006 reflecting the significant investment in additional equipment for the program; and,§
    
    Payments to the Joint Venture Programincreased by $11.9 million in the first half of
2006, which is in line with the increase in net lease revenue for this segment.
 Private Container Programs:
 §
    
    Net lease revenuefor this segment declined by $2.9 million when compared to the first
six months of 2005 due primarily to the disposal of equipment; and,§
    
    Payments to Private Container Programsdecreased by $2.9 million over the corresponding
period of 2005 reflecting the decline in net lease revenue.§
    
    The ratio of segment profit to net lease revenueincreased to 10% in the first half of
2006, from 9% in the same period of 2005. This was due to the expiration of an agreement
with relatively high fixed payment terms in the second half of 2005.
 Segment profit on Owned Containers
 §
    
    Net lease revenueof $13.7 million was $5.6 million lower than in the corresponding
period of 2005 reflecting the decline in the size of the owned container fleet;§
    
    Container depreciationof $5.7 million was $3.3 million lower than in the same period of
2005. The decline was due primarily to:
 -
    
    The sale of the container fixed assets to the Joint Venture Program in
the third calendar quarter of 2005; and,-
    
    The change in the estimate of useful lives for tank, rolltrailer and
flat rack products on October 1, 2005.
 §
    
    Container interest expenseof $3.5 million was almost unchanged when compared to the
first half of 2005. The increase in interest expense attributable to higher interest rates
was offset by the effect of lower debt balances further to the repayment of $64.2 million
of debt utilizing part of the proceeds generated by the fixed asset sale to the Joint
Venture Program in August 2005.
 Equipment trading revenue
 25




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##### Table of Contents



The Cronos Group
 Commissions, fees and other income
 Gain on settlement of litigation:
    Selling, general and administrative expenses
 Recovery of amount payable to a Managed Container Program:
      26




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##### Table of Contents



The Cronos Group
 Income Taxes
 Equity in earnings of unconsolidated affiliate
 27




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##### Table of Contents



The Cronos Group
 
 Liquidity and Capital Resources
  Balance Sheet and Cash Flows
 Cash and cash equivalents
       Restricted cash
  Amounts due from lessees, net
   Amounts receivable from Managed Container Programs
  New container equipment held for resale & Amounts payable to container manufacturers
  28




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##### Table of Contents



The Cronos Group
  Other amounts payable and accrued expenses
  Commitments to container manufacturers
  Declared dividends
    
 Item 3  Quantitative and Qualitative Disclosures about Market Risk
 Interest rate risk:
 Exchange rate risk: .
  Credit risk
 29




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##### Table of Contents



The Cronos Group
 
 Item 4  Controls and Procedures
   30




---



##### Table of Contents



The Cronos Group
 
 PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings
 Settlement of TOEMT Litigation
        
 Item 1A  Risk Factors
   
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  31




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##### Table of Contents



The Cronos Group
 
 Item 4  Submission of Matters to a Vote of Security Holders
   Proposal No. 1
  Vote
    
    CountFor
    
    
    6,959,427Authority withheld
    
    
    39,341
  Proposal No. 2
  Vote
    
    CountFor
    
    
    6,983,183Against
    
    
    14,545Abstain
    
    
    1,040No Vote
    
    
    0
  Proposal No. 3
  Vote
    
    CountFor
    
    
    5,450,727Against
    
    
    6,756Abstain
    
    
    2,540No Vote
    
    
    1,538,745
  32




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##### Table of Contents



The Cronos Group
 Proposal No. 4
  Vote
    
    CountFor
    
    
    6,946,107Against
    
    
    40,244Abstain
    
    
    12,417No Vote
    
    
    0
  Proposal No. 5
  Vote
    
    CountFor
    
    
    6,945,607Against
    
    
    40,744Abstain
    
    
    12,417No Vote
    
    
    0
  Proposal No. 6
  Vote
    
    CountFor
    
    
    6,975,538Against
    
    
    600Abstain
    
    
    22,630No Vote
    
    
    0
  33




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##### Table of Contents



The Cronos Group
 Proposal No. 7
  Vote
    
    CountFor
    
    
    6,950,210Against
    
    
    29,733Abstain
    
    
    18,825No Vote
    
    
    0
  Proposal No. 8
  Vote
    
    CountFor
    
    
    6,950,098Against
    
    
    34,901Abstain
    
    
    13,769No Vote
    
    
    0
  Proposal No. 9
  Vote
    
    CountFor
    
    
    6,976,638Against
    
    
    1,100Abstain
    
    
    21,030No Vote
    
    
    0
  34




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##### Table of Contents



The Cronos Group
 
 Item 5  Other Information
  
 Item 6  Exhibits
 (a)
    
    Exhibits
 Number
    
    Exhibit10.1
    
    Assignment agreement dated
March 10, 2006, between MKB and Centrál
Workout Pénzügyi Rt. (translated from the original Hungarian)
pursuant to Exchange Rule 12b-12(d)10.2
    
    Deed of Release dated June 27, 2006, in respect of TOEMT litigation10.3
    
    Deed of Settlement dated June 27, 2006, in respect of TOEMT litigation10.4
    
    Amendment Number 8 to Amended and Restated Loan Agreement between CF
Leasing Limited and Fortis Bank (Nederland) N.V., dated June 14, 200631.1
    
    Rule 13a-14 Certification31.2
    
    Rule 13a-14 Certification32
    
    Section 1350 Certifications
 
 Signatures
   SIGNATURE
    
    TITLE
    
    DATEBy
    
    /s/ PETER J. YOUNGER
    
    President and Chief Operating Officer
    
    August 10, 2006Peter J. Younger/s/ FRANK P. VAUGHAN
    
    Chief Financial Officer,
    
    August 10, 2006Frank P. Vaughan
    
    Senior Vice President(Principal Financial and Accounting Officer)
 35




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##### Table of Contents



The Cronos Group
 
 Exhibit Index
 Number
    
    Exhibit10.1
    
    Assignment agreement dated
March 10, 2006, between MKB and Centrál
Workout Pénzügyi Rt. (translated from the original Hungarian)
pursuant to Exchange Rule 12b-12(d)10.2
    
    Deed of Release dated June 27, 2006, in respect of TOEMT litigation10.3
    
    Deed of Settlement dated June 27, 2006, in respect of TOEMT litigation10.4
    
    Amendment Number 8 to Amended and Restated Loan Agreement between CF
Leasing Limited and Fortis Bank (Nederland) N.V., dated June 14, 200631.1
    
    Rule 13a-14 Certification31.2
    
    Rule 13a-14 Certification32
    
    Certification pursuant to 18 U.S.C. § 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002. *
 
 *
    
    This certification, required by Section 906 of the
Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not
deemed to be filed with the Commission or subject to the rules and
regulations promulgated by the Commission under the Securities Exchange Act of
1934, as amended, or to the liabilities of Section 18 of said Act. 36