##### 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: September 30, 2005
 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
(State or other Jurisdiction of incorporation or organization)
    
    NOT APPLICABLE
(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
 Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2) Yes o No 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 November 14, 2005:
 Class
    
Number of Shares OutstandingCommon
    
    7,439,959




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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
    
    
    5Notes to the Condensed Unaudited Consolidated Financial Statements
    
    
    6Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    16General
    
    
    16Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
    
    
    18Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
    
    
    21Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    29Item 4  Controls and Procedures
    
    
    30PART II  OTHER INFORMATION
    
    
    31Item 1  Legal Proceedings
    
    
    31Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    32Item 3  Defaults Upon Senior Securities
    
    
    32Item 4  Submission of Matters to a Vote of Security Holders
    
    
    32Item 5  Other Information
    
    
    32Item 6  Exhibits
    
    
    32EXHIBIT 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
 (US dollar amounts in thousands, except per share amounts)
 
 Condensed Unaudited Consolidated Statements of Income and Comprehensive Income
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross lease revenue
    
    $
    35,007
    
    
    $
    33,780
    
    
    $
    103,480
    
    
    $
    96,795Equipment trading revenue
    
    
    260
    
    
    
    658
    
    
    
    2,210
    
    
    
    4,032Commissions, fees and other income:- Related parties
    
    
    209
    
    
    
    264
    
    
    
    614
    
    
    
    714- Unrelated parties
    
    
    1,187
    
    
    
    646
    
    
    
    3,737
    
    
    
    1,870- Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    Total revenues
    
    
    36,663
    
    
    
    35,348
    
    
    
    111,374
    
    
    
    103,411Direct operating expenses
    
    
    4,264
    
    
    
    4,218
    
    
    
    13,504
    
    
    
    16,177Payments to Managed Container Programs:- Related parties
    
    
    11,381
    
    
    
    8,360
    
    
    
    27,816
    
    
    
    22,595- Unrelated parties
    
    
    9,177
    
    
    
    9,626
    
    
    
    27,281
    
    
    
    26,543Equipment trading expenses
    
    
    227
    
    
    
    614
    
    
    
    1,978
    
    
    
    3,413Depreciation and amortization
    
    
    3,293
    
    
    
    4,634
    
    
    
    12,463
    
    
    
    13,599Selling, general and administrative expenses
    
    
    5,635
    
    
    
    5,070
    
    
    
    16,337
    
    
    
    13,648Interest expense
    
    
    1,562
    
    
    
    1,365
    
    
    
    4,937
    
    
    
    3,713Recovery of amount payable to Managed Container Program
    
    
    
    
    
    
    
    
    
    
    (703
    )
    
    
    Total expenses
    
    
    35,539
    
    
    
    33,887
    
    
    
    103,613
    
    
    
    99,688Income before income taxes and equity in earnings of affiliate
    
    
    1,124
    
    
    
    1,461
    
    
    
    7,761
    
    
    
    3,723Income taxes
    
    
    (169
    )
    
    
    (276
    )
    
    
    (1,154
    )
    
    
    (868
    )Equity in earnings of unconsolidated affiliate
    
    
    1,238
    
    
    
    851
    
    
    
    2,692
    
    
    
    2,040Net income
    
    
    2,193
    
    
    
    2,036
    
    
    
    9,299
    
    
    
    4,895Other comprehensive income:- change in fair value of forward exchange contracts, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    325- change in fair value of derivatives held by affiliate, net of tax
    
    
    483
    
    
    
    241
    
    
    
    669
    
    
    
    72Comprehensive income
    
    $
    2,676
    
    
    $
    2,277
    
    
    $
    9,968
    
    
    $
    5,292Basic net income per common share
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    1.26
    
    
    $
    0.67Diluted net income per common share
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    1.17
    
    
    $
    0.63
  2




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 
 Condensed Unaudited Consolidated Balance Sheets
 September 30,
    
    
    December 31,2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    17,009
    
    
    $
    17,579Restricted cash
    
    
    250
    
    
    
    1,489Amounts due from lessees, net
    
    
    28,151
    
    
    
    25,136Amounts receivable from Managed Container Programs
    
    
    2,904
    
    
    
    3,386New container equipment for resale
    
    
    18,839
    
    
    
    17,116Net investment in direct financing leases
    
    
    13,276
    
    
    
    7,382Investments in unconsolidated affiliates
    
    
    28,609
    
    
    
    15,364Container equipment, net
    
    
    105,585
    
    
    
    166,584Other equipment, net
    
    
    1,179
    
    
    
    963Goodwill, net
    
    
    11,038
    
    
    
    11,038Other intangible assets, net
    
    
    392
    
    
    
    533Related party loan receivable
    
    
    
    
    
    
    1,280Other assets
    
    
    3,166
    
    
    
    3,899Total assets
    
    $
    230,398
    
    
    $
    271,749Liabilities and shareholders equityAmounts payable to Managed Container Programs
    
    $
    27,246
    
    
    $
    22,034Amounts payable to container manufacturers
    
    
    37,306
    
    
    
    27,838Direct operating expense payables and accruals
    
    
    4,972
    
    
    
    5,592Other amounts payable and accrued expenses
    
    
    6,398
    
    
    
    8,810Debt and capital lease obligations
    
    
    63,937
    
    
    
    127,953Current and deferred income taxes
    
    
    3,608
    
    
    
    3,238Deferred income and unamortized acquisition fees
    
    
    6,912
    
    
    
    5,925Total liabilities
    
    
    150,379
    
    
    
    201,390Shareholders equityCommon shares issued (7,547,668; 7,381,349 shares)
    
    
    15,096
    
    
    
    14,763Additional paid-in capital
    
    
    44,717
    
    
    
    45,358Common shares held in treasury (112,000 shares)
    
    
    (297
    )
    
    
    (297
    )Accumulated other comprehensive income
    
    
    899
    
    
    
    230Restricted retained earnings
    
    
    1,832
    
    
    
    1,832Retained earnings
    
    
    17,772
    
    
    
    8,473Total shareholders equity
    
    
    80,019
    
    
    
    70,359Total liabilities and shareholders equity
    
    $
    230,398
    
    
    $
    271,749
  3




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 
 Condensed Unaudited Consolidated Statements of Cash Flows
 Nine Months EndedSeptember 30,2005
    
    
    2004Net cash provided by operating activities
    
    $
    21,989
    
    
    $
    18,369Cash flows from investing activitiesPurchase of container and other equipment
    
    
    (24,338
    )
    
    
    (25,819
    )Investment in unconsolidated affiliate
    
    
    (9,654
    )
    
    
    (2,822
    )Investment in equipment acquired for direct financing lease
    
    
    (6,689
    )
    
    
    (57
    )Proceeds from sales of container and other equipment
    
    
    82,090
    
    
    
    11,233Net cash provided by (used in) investing activities
    
    
    41,409
    
    
    
    (17,465
    )Cash flows from financing activitiesProceeds from issuance of term debt
    
    
    20,744
    
    
    
    23,864Repayments of term debt and capital lease obligations
    
    
    (86,395
    )
    
    
    (22,354
    )Dividend paid
    
    
    (1,170
    )
    
    
    (508
    )Recovery of related party loan
    
    
    1,280
    
    
    
    Issue of common stock
    
    
    334
    
    
    
    Restricted cash
    
    
    1,239
    
    
    
    (509
    )Net cash (used in) provided by financing activities
    
    
    (63,968
    )
    
    
    493Net (decrease) increase in cash and cash equivalents
    
    
    (570
    )
    
    
    1,397Cash and cash equivalents at beginning of period
    
    
    17,579
    
    
    
    8,432Cash and cash equivalents at end of period
    
    $
    17,009
    
    
    $
    9,829Supplementary disclosure of cash flow information:Cash paid during the period for:- interest
    
    $
    5,256
    
    
    $
    3,026- income taxes
    
    
    818
    
    
    
    894Cash received during the period for:- interest
    
    
    196
    
    
    
    25- income taxes
    
    
    53
    
    
    
    Non-cash activities:- container equipment acquired under capital lease
    
    
    1,495
    
    
    
    4,820- container equipment transferred to direct financing leases
    
    
    1,279
    
    
    
    - direct finance lease equipment acquired under capital lease
    
    
    523
    
    
    
    
  4




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 
 Consolidated Unaudited Statement of Shareholders Equity
 Nine months ended September 30, 2005
 AccumulatedAdditional
    
    
    Common
    
    
    other
    
    
    Restricted
    
    
    
    
    
    
    TotalCommon
    
    
    paid-in
    
    
    shares held
    
    
    comprehensive
    
    
    retained
    
    
    Retained
    
    
    shareholders'shares
    
    
    capital
    
    
    in treasury
    
    
    income
    
    
    earnings
    
    
    earnings
    
    
    equityBalance, December 31,
2004
    
    $
    14,763
    
    
    $
    45,358
    
    
    $
    (297
    )
    
    $
    230
    
    
    $
    1,832
    
    
    $
    8,473
    
    
    $
    70,359Net income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    9,299
    
    
    
    9,299Issue of common shares
    
    
    333
    
    
    
    256
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    589Declaration of dividend
    
    
    
    
    
    
    (961
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (961
    )Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    669
    
    
    
    
    
    
    
    
    
    
    
    669Stock based
compensation
    
    
    
    
    
    
    64
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    64Balance, September 30,
2005
    
    $
    15,096
    
    
    $
    44,717
    
    
    $
    (297
    )
    
    $
    899
    
    
    $
    1,832
    
    
    $
    17,772
    
    
    $
    80,019
  5




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 
 Notes to the Condensed Unaudited Consolidated Financial Statements
      Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income:- as reported
    
    $
    2,193
    
    
    $
    2,036
    
    
    $
    9,299
    
    
    $
    4,895- add stock-based compensation expense included in
reported
net income, net of related tax effects
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    3- deduct stock-based compensation expense computed in
accordance with SFAS 123, net of tax effects
    
    
    
    
    
    
    (3
    )
    
    
    
    
    
    
    (21
    )- pro forma
    
    $
    2,193
    
    
    $
    2,034
    
    
    $
    9,299
    
    
    $
    4,877Basic net income per share:- as reported
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    1.26
    
    
    $
    0.67- pro forma
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    1.26
    
    
    $
    0.67Diluted net income per share:- as reported
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    1.17
    
    
    $
    0.63- pro forma
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    1.17
    
    
    $
    0.63
 6




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
    USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended September 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    5,844
    
    
    $
    9,099
    
    
    $
    11,928
    
    
    $
    8,136
    
    
    $
    35,007- direct operating expenses
    
    
    (857
    )
    
    
    (607
    )
    
    
    (1,731
    )
    
    
    (1,069
    )
    
    
    (4,264
    )net lease revenue
    
    
    4,987
    
    
    
    8,492
    
    
    
    10,197
    
    
    
    7,067
    
    
    
    30,743- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    450- payments to Managed Container Programs
    
    
    (3,633
    )
    
    
    (7,748
    )
    
    
    (9,177
    )
    
    
    
    
    
    
    (20,558
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,180
    )
    
    
    (3,180
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,561
    )
    
    
    (1,561
    )Segment profit
    
    $
    1,354
    
    
    $
    744
    
    
    $
    1,020
    
    
    $
    2,776
    
    
    $
    5,894Segment assets at end of period
    
    $
    7,679
    
    
    $
    9,908
    
    
    $
    12,630
    
    
    $
    200,181
    
    
    $
    230,398
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended September 30, 2004Items directly attributable to segments:- gross lease revenue
    
    $
    6,743
    
    
    $
    4,465
    
    
    $
    12,046
    
    
    $
    10,526
    
    
    $
    33,780- direct operating expenses
    
    
    (1,017
    )
    
    
    (266
    )
    
    
    (1,711
    )
    
    
    (1,224
    )
    
    
    (4,218
    )net lease revenue
    
    
    5,726
    
    
    
    4,199
    
    
    
    10,335
    
    
    
    9,302
    
    
    
    29,562- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    369
    
    
    
    369- payments to Managed Container Programs
    
    
    (4,527
    )
    
    
    (3,833
    )
    
    
    (9,626
    )
    
    
    
    
    
    
    (17,986
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,507
    )
    
    
    (4,507
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,344
    )
    
    
    (1,344
    )Segment profit
    
    $
    1,199
    
    
    $
    366
    
    
    $
    709
    
    
    $
    3,820
    
    
    $
    6,094Segment assets at end of period
    
    $
    9,576
    
    
    $
    16,858
    
    
    $
    14,827
    
    
    $
    217,660
    
    
    $
    258,921
 7




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalNine months ended September 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    18,093
    
    
    $
    19,411
    
    
    $
    35,551
    
    
    $
    30,425
    
    
    $
    103,480- direct operating expenses
    
    
    (2,719
    )
    
    
    (1,283
    )
    
    
    (5,437
    )
    
    
    (4,065
    )
    
    
    (13,504
    )net lease revenue
    
    
    15,374
    
    
    
    18,128
    
    
    
    30,114
    
    
    
    26,360
    
    
    
    89,976- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,263
    
    
    
    1,263- payments to Managed Container Programs
    
    
    (11,298
    )
    
    
    (16,518
    )
    
    
    (27,281
    )
    
    
    
    
    
    
    (55,097
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,133
    )
    
    
    (12,133
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,019
    )
    
    
    (5,019
    )Segment profit
    
    $
    4,076
    
    
    $
    1,610
    
    
    $
    2,833
    
    
    $
    10,471
    
    
    $
    18,990Segment assets at end of period
    
    $
    7,679
    
    
    $
    9,908
    
    
    $
    12,630
    
    
    $
    200,181
    
    
    $
    230,398
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalNine months ended September 30, 2004Items directly attributable to segments:- gross lease revenue
    
    $
    19,937
    
    
    $
    11,537
    
    
    $
    35,145
    
    
    $
    30,176
    
    
    $
    96,795- direct operating expenses
    
    
    (4,088
    )
    
    
    (815
    )
    
    
    (6,749
    )
    
    
    (4,525
    )
    
    
    (16,177
    )net lease revenue
    
    
    15,849
    
    
    
    10,722
    
    
    
    28,396
    
    
    
    25,651
    
    
    
    80,618- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,143
    
    
    
    1,143- payments to Managed Container Programs
    
    
    (12,791
    )
    
    
    (9,804
    )
    
    
    (26,543
    )
    
    
    
    
    
    
    (49,138
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13,220
    )
    
    
    (13,220
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,636
    )
    
    
    (3,636
    )Segment profit
    
    $
    3,058
    
    
    $
    918
    
    
    $
    1,853
    
    
    $
    9,938
    
    
    $
    15,767Segment assets at end of period
    
    $
    9,576
    
    
    $
    16,858
    
    
    $
    14,827
    
    
    $
    217,660
    
    
    $
    258,921
 8




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
  Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Segment profit
    
    $
    5,894
    
    
    $
    6,094
    
    
    $
    18,990
    
    
    $
    15,767Equipment trading revenue
    
    
    260
    
    
    
    658
    
    
    
    2,210
    
    
    
    4,032Unallocated commissions, fees and other operating income
    
    
    837
    
    
    
    541
    
    
    
    2,888
    
    
    
    1,441Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    Other interest income
    
    
    109
    
    
    
    
    
    
    
    200
    
    
    
    Equipment trading expenses
    
    
    (227
    )
    
    
    (614
    )
    
    
    (1,978
    )
    
    
    (3,413
    )Amortization of intangible assets
    
    
    (47
    )
    
    
    (47
    )
    
    
    (141
    )
    
    
    (141
    )Non container depreciation
    
    
    (66
    )
    
    
    (80
    )
    
    
    (189
    )
    
    
    (238
    )Selling, general and administrative expenses
    
    
    (5,635
    )
    
    
    (5,070
    )
    
    
    (16,337
    )
    
    
    (13,648
    )Non container interest (expense) credit
    
    
    (1
    )
    
    
    (21
    )
    
    
    82
    
    
    
    (77
    )Recovery of amount payable to a Managed Container Program
    
    
    
    
    
    
    
    
    
    
    703
    
    
    
    Income before income taxes and equity in earnings of affiliate
    
    $
    1,124
    
    
    $
    1,461
    
    
    $
    7,761
    
    
    $
    3,723
 Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reconciliation to total revenues:Revenues directly attributable to segments:- gross lease revenue
    
    $
    35,007
    
    
    $
    33,780
    
    
    $
    103,480
    
    
    $
    96,795- direct financing lease income
    
    
    450
    
    
    
    369
    
    
    
    1,263
    
    
    
    1,14335,457
    
    
    
    34,149
    
    
    
    104,743
    
    
    
    97,938Other revenues:- equipment trading revenue
    
    
    260
    
    
    
    658
    
    
    
    2,210
    
    
    
    4,032- unallocated commissions, fees and other operating income
    
    
    837
    
    
    
    541
    
    
    
    2,888
    
    
    
    1,441- gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    - other interest income
    
    
    109
    
    
    
    
    
    
    
    200
    
    
    
    Total revenues
    
    $
    36,663
    
    
    $
    35,438
    
    
    $
    111,374
    
    
    $
    103,411
  9




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The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
   Three Months Ended
    
    
    Nine Months EndedSeptember 30,
    
    
    September 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income available for common shareholders
    
    $
    2,193
    
    
    $
    2,036
    
    
    $
    9,299
    
    
    $
    4,895Average outstanding shares of common stock
    
    
    7,432,807
    
    
    
    7,260,080
    
    
    
    7,356,058
    
    
    
    7,260,080Dilutive effect of:- 1998 stock option
    
    
    186,888
    
    
    
    133,145
    
    
    
    186,523
    
    
    
    99,285- warrants
    
    
    
    
    
    
    87,873
    
    
    
    
    
    
    
    65,120- 1999 stock option plan
    
    
    256,559
    
    
    
    175,109
    
    
    
    264,459
    
    
    
    132,993- non-employee directors equity plan
    
    
    118,699
    
    
    
    177,241
    
    
    
    140,833
    
    
    
    157,268Common stock and common stock equivalents
    
    
    7,994,953
    
    
    
    7,833,448
    
    
    
    7,947,873
    
    
    
    7,714,746Basic net income per share
    
    $
    0.30
    
    
    $
    0.28
    
    
    $
    1.26
    
    
    $
    0.67Diluted net income per share
    
    $
    0.27
    
    
    $
    0.26
    
    
    $
    1.17
    
    
    $
    0.63
      10




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The Cronos Group
        11




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##### Table of Contents



The Cronos Group
           12




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##### Table of Contents



The Cronos Group
 11.
    
    Commitments and contingencies (to be read in conjunction with Note 15 to the Companys 2004
consolidated financial statements on Form 10-K).
 i. Commitments
  ii. Parent Guarantee under Agreements with Private Container Programs
    iii. Guarantees under fixed non-cancellable operating leases
  US dollar amounts in thousandsOctober 1 to December 31, 2005
    
    $
    1,7112006
    
    
    2,5572007
    
    
    2,5572008
    
    
    2,5572009
    
    
    2,5572010 and thereafter
    
    
    9,945Total
    
    $
    21,884
 13




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##### Table of Contents



The Cronos Group
 iv. Agreements with Private Container Programs  early termination options
  v. Agreements with Private Container Programs  change of control provisions
  vi. TOEMT
  TOEMT Liquidators Challenge to New York Judgment Deficiency
  14




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The Cronos Group
        15




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The Cronos Group
 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
  
 General
   Market Overview
  September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004Utilization at end of period
    
    
    92%
    
    
    
    94%
    
    
    
    95%Average utilization since January 1
    
    
    93%
    
    
    
    92%
    
    
    
    91%
    16




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##### Table of Contents



The Cronos Group
       Review of Cronos Fleet
  US Limited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned
    
    
    TotalPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    FleetDry cargo containers
    
    
    81%
    
    
    
    56%
    
    
    
    86%
    
    
    
    46%
    
    
    
    68%Refrigerated containers
    
    
    15%
    
    
    
    23%
    
    
    
    3%
    
    
    
    21%
    
    
    
    15%Tank containers
    
    
    4%
    
    
    
    12%
    
    
    
    7%
    
    
    
    10%
    
    
    
    9%Dry freight specials:CPCs
    
    
    
    
    
    
    5%
    
    
    
    
    
    
    
    11%
    
    
    
    4%Rolltrailers
    
    
    
    
    
    
    1%
    
    
    
    1%
    
    
    
    8%
    
    
    
    2%Other dry freight specials
    
    
    
    
    
    
    3%
    
    
    
    3%
    
    
    
    4%
    
    
    
    2%Total
    
    
    100%
    
    
    
    100%
    
    
    
    100%
    
    
    
    100%
    
    
    
    100%
 17




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##### Table of Contents



The Cronos Group
  Cronos Fleet (in TEU thousands) at,September 30,
    
    
    December 31,
    
    
    September 30,2005
    
    
    2004
    
    
    2004US Limited Partnership Programs
    
    
    74.5
    
    
    
    86.4
    
    
    
    88.3Joint Venture Program
    
    
    127.6
    
    
    
    68.2
    
    
    
    59.5Private Container Programs
    
    
    162.3
    
    
    
    161.1
    
    
    
    163.7Owned Containers
    
    
    77.2
    
    
    
    123.6
    
    
    
    120.2Total Fleet
    
    
    441.6
    
    
    
    439.3
    
    
    
    431.7
 Overview of Operating Performance
   §
    
    Strong leasing demand, reflecting the high volume of global container trade;§
    
    An increase in fleet size due to availability of funding for investment in new container
production and, in particular, the growth and profitability of the Joint Venture Program;§
    
    Strong residual values for equipment at the end of its economic leasing life;§
    
    Income recognized on the recovery of amounts owed by a related party; and,§
    
    The discharge of an amount payable to a Private Container Program.
  §
    
    In September, the Group restructured its marketing department. As a result, net income
declined by approximately $0.7 million (net of income tax adjustments) due to a one-off
termination charge (see Note 4 to the unaudited condensed consolidated financial
statements herein); and,§
    
    On August 1, the Group completed the restructuring of its funding facilities and as part
of this program, sold $73.8 million of container fixed assets to the Joint Venture Program.
The third quarter net income declined by $0.2 million as a result (see Liquidity and
Capital Resources herein).
 
 Three Months Ended September 30, 2005 Compared to Three Months Ended September 30, 2004
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 18




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The Cronos Group
 Operating segment information
 US(in thousands)
    
    Limited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended September 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    5,844
    
    
    $
    9,099
    
    
    $
    11,928
    
    
    $
    8,136
    
    
    $
    35,007- direct operating expenses
    
    
    (857
    )
    
    
    (607
    )
    
    
    (1,731
    )
    
    
    (1,069
    )
    
    
    (4,264
    )net lease revenue
    
    
    4,987
    
    
    
    8,492
    
    
    
    10,197
    
    
    
    7,067
    
    
    
    30,743- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    450
    
    
    
    450- payments to Managed Container Programs
    
    
    (3,633
    )
    
    
    (7,748
    )
    
    
    (9,177
    )
    
    
    
    
    
    
    (20,558
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (3,180
    )
    
    
    (3,180
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,561
    )
    
    
    (1,561
    )Segment profit
    
    $
    1,354
    
    
    $
    744
    
    
    $
    1,020
    
    
    $
    2,776
    
    
    $
    5,894
 US Limited Partnership Programs:
 §
    
    Net lease revenuedeclined by $0.7 million compared to the corresponding period in 2004
due primarily to the effect of the disposal of containers at the end of their useful
economic life; and,§
    
    Payments to US Limited Partnership Programsdeclined by $0.9 million when compared to
the corresponding period in 2004. The ratio of segment profit to net lease revenue
increased to 27% in the third quarter of 2005, from 21% for the third quarter of 2004 as
the management fee attributable to the cash generated by the programs improved in line with
the increase in disposal activity and higher levels of cash collections.
 Joint Venture Program:
 §
    
    Net lease revenueincreased by $4.3 million in the third quarter of 2005 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 $3.9 million in the third quarter of
2005, which corresponds with the increase in net lease revenue for this segment.
 Private Container Programs:
 §
    
    Net lease revenueof $10.2 million declined by $0.1 million when compared to the
corresponding period of 2004 due to a reduction in the quantity of containers owned by
these programs; and,§
    
    Payments to Private Container Programsdecreased by $0.4 million in the third quarter of
2005 when compared to the corresponding period in 2004. The ratio of segment profit to net
lease revenue increased to 10% in the third quarter of 2005 compared to 7% for the third
quarter of 2004. This resulted from the acquisition by the Group of container equipment
that had previously been financed by Private Container Programs under agreements with
fixed payment terms.
 19




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##### Table of Contents



The Cronos Group
 Owned Containers:
 §
    
    Net lease revenueof $7.1 million was $2.2 million lower than in the corresponding
period of 2004, reflecting the decline in the size of the owned container fleet;§
    
    Container depreciationof $3.2 million was $1.3 million lower than the same period in
2004; and,§
    
    Container interest expenseof $1.6 million was $0.2 million higher than in the third
quarter of 2004. The increase in interest expense attributable to higher interest rates
and $0.2 million of breakage costs, incurred as a result of the restructure of the
Revolving Credit Facility, was partially offset by the effect of the repayment of $64.2
million of debt utilizing part of the proceeds generated by the fixed asset sale to the
Joint Venture Program.
 Equipment trading revenue
 Commissions, fees and other income
 §
    
    An increase of $0.3 million on the gain recorded on the disposal of fixed assets due to
the increased disposal proceeds realized on the sale of equipment at the end of its
economic life (see discussion in Market Overview above);§
    
    A $0.1 million increase in design and consultancy fee income reflecting a project
undertaken with a European customer; and,§
    
    A $0.1 million increase in fees earned on the disposal of containers owned by Managed
Container Programs that again reflected the strong market for used containers.
 Selling, general and administrative expenses
 §
    
    A $1 million charge in respect of one-time termination benefits that were recorded on
the implementation of a restructuring plan; and,§
    
    A decrease of $0.4 million in the expense recognized for a stock appreciation rights
plan, reflecting a smaller increase in the Groups share price in the third quarter of 2005
than in the corresponding period of 2004.
 Income Taxes
 Equity in earnings of affiliate
 20




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##### Table of Contents



The Cronos Group
 
 Nine Months Ended September 30, 2005 Compared to Nine Months Ended September 30, 2004
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 §
    
    Storage expenses declined by $0.4 million due to the reduction in off-hire container inventories;§
    
    Repositioning expense declined by $1.3 million; and,§
    
    Handling and repair costs declined by a total of $0.6 million, reflecting the overall
decline in container redeliveries.
 Operating segment information
 US(in thousands)
    
    Limited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalNine months ended September 30, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    18,093
    
    
    $
    19,411
    
    
    $
    35,551
    
    
    $
    30,425
    
    
    $
    103,480- direct operating expenses
    
    
    (2,719
    )
    
    
    (1,283
    )
    
    
    (5,437
    )
    
    
    (4,065
    )
    
    
    (13,504
    )net lease revenue
    
    
    15,374
    
    
    
    18,128
    
    
    
    30,114
    
    
    
    26,360
    
    
    
    89,976- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,263
    
    
    
    1,263- payments to Managed Container Programs
    
    
    (11,298
    )
    
    
    (16,518
    )
    
    
    (27,281
    )
    
    
    
    
    
    
    (55,097
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (12,133
    )
    
    
    (12,133
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,019
    )
    
    
    (5,019
    )Segment profit
    
    $
    4,076
    
    
    $
    1,610
    
    
    $
    2,833
    
    
    $
    10,471
    
    
    $
    18,990
 US Limited Partnership Programs:
 §
    
    Net lease revenuedecreased by $0.5 million over the corresponding period in 2004. GLR
declined by $1.8 million due primarily to the effect of the disposal of containers at the
end of their useful economic life. Direct operating expenses declined by $1.4 million,
reflecting lower inventory-related and activity-related costs; and,§
    
    Payments to US Limited Partnership Programsdeclined by $1.5 million when compared to
the corresponding period in 2004. The ratio of segment profit to net lease revenue
increased to 27% in the first nine months of 2005, from 19% in the first nine months of
2004 as the management fee attributable to the cash generated by the programs improved in
line with the increase in disposal activity and higher levels of cash collections.
 Joint Venture Program:
 21




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##### Table of Contents



The Cronos Group
 §
    
    Net lease revenueincreased by $7.4 million in the first nine months of 2005 reflecting
the significant investment in additional equipment for the program including the
acquisition of $73.8 million of container fixed assets from the Group; and,§
    
    Payments to the Joint Venture Programincreased by $6.7 million in the first nine months
of 2005, which is in line with the increase in net lease revenue for this segment.
 Private Container Programs:
 §
    
    Net lease revenueincreased by $1.7 million compared to the first nine months of 2004.
The improvement in fleet utilization resulted in a $0.4 million increase in GLR and a $1.3
million reduction in inventory-related and activity-related direct operating expenses; and,§
    
    Payments to Private Container Programsincreased by $0.7 million over the corresponding
period of 2004. The ratio of segment profit to net lease revenue increased to 9% in the
first nine months of 2005, from 7% in the same period of 2004. This resulted from the
acquisition by the Group of container equipment that had previously been financed by
Private Container Programs under agreements with fixed payment terms.
 Owned Containers:
 §
    
    Net lease revenueof $26.4 million was $0.7 million higher than in the corresponding
period of 2004 reflecting the combined effects of increases in utilization and in the
average size of the fleet over the period;§
    
    Container depreciationof $12.1 million was $1.1 million lower than in the same period
of 2004 as the effect of the disposal of equipment more than offset the increase in
depreciation attributable to new container additions; and,§
    
    Container interest expenseof $5 million was $1.4 million higher than in the first nine
months of 2004. The increase in interest expense attributable to higher interest rates and
$0.2 million of breakage costs, incurred as a result of the restructure of the Revolving
Credit Facility, was partially offset by the effect of the repayment of $64.2 million of
debt utilizing part of the proceeds generated by the fixed asset sale to the Joint Venture
Program.
 Equipment trading revenue
 Commissions, fees and other income
 §
    
    An increase of $0.8 million on the gain recorded on the disposal of fixed assets due to
the increased disposal proceeds realized on the sale of equipment at the end of its
economic life (see discussion in Market Overview above);§
    
    A $0.4 million increase in design and consultancy fee income reflecting a project
undertaken with a European customer; and,§
    
    A $0.2 million increase in fees earned on the disposal of containers owned by Managed
Container Programs that again reflected the strong market for used containers.
 Gain on settlement of litigation:
  22




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##### Table of Contents



The Cronos Group
   Selling, general and administrative expenses
 §
    
    An increase of $1.1 million in legal costs for the TOEMT and Palatin legal actions; and,§
    
    $1.2 million of charges in respect of one-time termination benefits. A charge of $0.2
million was recorded for a minor restructuring program that was announced and implemented in
the first quarter of 2005. A charge of $1 million was recorded on the implementation of a
restructuring program in the third quarter of 2005.
 Recovery of amount payable to a Managed Container Program:
      Income Taxes
 23




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##### Table of Contents



The Cronos Group
  Equity in earnings of affiliate
 Liquidity and Capital Resources
          Restructure of Funding Sources
  §
    
    the maximum debt commitment available to the Joint Venture Program increased from
$150 million to $300 million.
 24




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##### Table of Contents



The Cronos Group
  §
    
    the Group increased its aggregate equity contribution commitment to the Joint
Venture Program from $20 million to $30 million;§
    
    the Group sold $73.8 million of equipment that had been financed in the Revolving
Credit Facility to the Joint Venture Program. This equipment was sold at book value,
which approximates fair value, and accordingly no gain or loss arose on the sale;§
    
    The Group utilized part of the proceeds from the sale to fund an equity contribution
of $7.3 million to the Joint Venture Program to finance the fixed asset acquisition;§
    
    the Group repaid a debt facility with an outstanding balance of $16.2 million;§
    
    the Group repaid $48 million of Revolving Credit Facility debt reducing the balance
outstanding to $21.1 million on August 1, 2005;§
    
    the maximum debt commitment available under the Revolving Credit Facility was
reduced from $70 million to $45 million; and,§
    
    the interest rate on the Revolving Credit Facility declined by 25 basis points.
   Owned Containers:
    25




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##### Table of Contents



The Cronos Group
  26




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##### Table of Contents



The Cronos Group
 Joint Venture Program:
 Private Container Programs:
 US Limited Partnership Programs:
 Cash Flow Statements for the Nine Months ended September 30, 2005 and 2004
 Cash Provided By Operating Activities:
 §
    
    Increased cash collections of $21.9 million when compared to the first nine months
of 2004. This was due to the combined effect of the increase in the amounts billed
and collected for gross lease revenue and container sales;§
    
    The receipt of $1.333 million on the distribution of the proceeds from the sale of
the Amersham Estate; and,§
    
    A $1.4 million decline in payments for direct operating expenses and other
payables.
  §
    
    Increased distributions to Managed Container Programs during the first nine months
of 2005, reflecting the increase in GLR and the reduction in direct operating expenses
for these programs, and,§
    
    Increased payments for interest expense and for selling, general and administrative
expenses.
  Cash flows from Investing Activities:
 §
    
    The Group received $82.1 million from the disposal of container equipment of which
$73.8 million was generated from the sale of fixed assets to the Joint Venture Program.
The balance of the proceeds were related to the sale of container equipment at the end
of its useful economic life.
  §
    
    Payments totalling $31 million paid for container equipment and equipment placed on direct
financing leases; and,§
    
    Investments of $9.7 million in the Joint Venture Program by the Group to fund its
equity share of container purchases made by the program.
 27




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##### Table of Contents



The Cronos Group
  §
    
    The Group paid $25.8 million for new container equipment of which $5 million was
subsequently sold to a Private Container Program;§
    
    The Group realized a further $6.2 million on the disposal of equipment at the end of
its economic life; and,§
    
    The Group made a contribution of $2.8 million to the Joint Venture Program to fund
its equity share of container purchases made by the program.
 Cash flows from Financing Activities
 §
    
    The Group utilized $20.7 million of debt funding to finance the purchase of
container equipment;§
    
    The Group made repayments of $86.4 million to financial institutions. This included
$64.2 million of repayments from the cash generated by the sale of fixed assets to the
Joint Venture Program;§
    
    The Group paid dividends totalling $1.2 million to its shareholders.
  §
    
    The receipt of $1.280 million from the recovery of a related party loan; and,§
    
    The receipt of $0.3 million upon the issuance of new shares pursuant to the
terms of the 1999 Stock Option Plan and the Non-Employee Directors Equity Plan.
  §
    
    The Group utilized $23.9 million of debt to fund equipment acquisitions;§
    
    The Group repaid $22.4 million to financial institutions, which comprised $5 million
received on the equipment sale to a Private Container Program, $7.8 million of
scheduled repayments, and $9.6 million prepaid using surplus cash balances to reduce
interest expense; and,§
    
    The Group paid a dividend of $0.5 million to its shareholders.
 Capital Resources
 Capital Expenditures and Commitments
    28




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##### Table of Contents



The Cronos Group
    Critical Accounting Policies and Estimates
  §
    
    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§
    
    US Limited Partnership Programs  evaluation of expected losses and expected residual
returns in accordance with FIN 46R.
 
 Item 3  Quantitative and Qualitative Disclosures about Market Risk
 Interest rate risk:
 Exchange rate risk: .
  29




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The Cronos Group
 
 Item 4  Controls and Procedures
   30




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The Cronos Group
 
 PART II  OTHER INFORMATION
 
 Item 1  Legal Proceedings
 TOEMT Litigation
    1.
    
    The transfer on or about November 25, 1991, to TOEMT (UK) of 5,500,000 ordinary
shares of the Group in consideration of the contribution of shares in Trans Ocean
Limited by TOEMT (UK) to the Group worth approximately $16 million, which 5,500,000
ordinary shares were then redeemed and/or transferred to Mr. Palatin and/or his nominee
for no or no proper consideration;2.
    
    The transfer on or about December 31, 1991, to TOEMT (UK) of 90,000 preference
shares (worth approximately $9 million) which were then transferred to Barton Holding
Limited (a company allegedly controlled by Palatin) for no or no proper consideration,
and a loan which the liquidator alleges not to have been repaid;3.
    
    The making of various payments (amounting to approximately $1 million) between
approximately April 1993 and February 1996 by CNV to third parties, including Mr.
Palatin or entities in which he was interested and/or his associates, which payments
were made otherwise than for any legitimate commercial purpose or any other purpose of
TOEMT (UK)s business or interests;4.
    
    The making of improper cash withdrawals (amounting to in excess of $2 million),
between approximately February 1991 and June 1999 from TOEMT (UK)s bank accounts, with
the assistance of CNV, which withdrawals were allegedly for the benefit of Mr. Palatin
and/or his wife rather than for any legitimate commercial purpose or other purpose of
TOEMT (UK)s business or interests; and5.
    
    The diversion between 1991 and 1993 (with the assistance of CNV) of TOEMT
(UK)s container business to TOEMT (Isle of Man), for no or for no proper
consideration.
    31




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The Cronos Group
      
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
  
 Item 3  Defaults Upon Senior Securities
  
 Item 4  Submission of Matters to a Vote of Security Holders
  
 Item 5  Other Information
  
 Item 6  Exhibits
 (a)
    
    Exhibits
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The Cronos Group
 Number
    
    Exhibit31.1
    
    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
    
    November 14, 2005Peter J. Younger/s/ FRANK P. VAUGHAN
    
    Chief Financial Officer,
    
    November 14, 2005Frank P. Vaughan
    
    Senior Vice President(Principal Financial and Accounting Officer)
 33




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The Cronos Group
 
 Exhibit Index
 Number
    
    Exhibit
    
    Page31.1
    
    Rule 13a-14 Certification
    
    E131.2
    
    Rule 13a-14 Certification
    
    E232
    
    Certification pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
    
    E3
 
 *
    
    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. 34