##### 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, 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
    
    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 an accelerated filer (as defined in Exchange Act
Rule 12b-2) Yes o No þ
 The number of Common Shares outstanding as of August 10, 2005 :
 Class
    
    Number of Shares OutstandingCommon
    
    7,394,377




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##### Table of Contents



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
    
    
    15General
    
    
    15Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
    
    
    18Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
    
    
    20Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    32Item 4  Controls and Procedures
    
    
    32PART II  OTHER INFORMATION
    
    
    33Item 1
 Legal ProceedingsItem 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    34Item 3  Defaults Upon Senior Securities
    
    
    34Item 4  Submission of Matters to a Vote of Security Holders
    
    
    34Item 5  Other Information
    
    
    39Item 6  Exhibits
    
    
    39EXHIBIT 10.1EXHIBIT 10.2EXHIBIT 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
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Gross lease revenue
    
    $
    34,469
    
    
    $
    32,112
    
    
    $
    68,473
    
    
    $
    63,015Equipment trading revenue
    
    
    1,815
    
    
    
    798
    
    
    
    1,950
    
    
    
    3,374Commissions, fees and other income:- Related parties
    
    
    218
    
    
    
    227
    
    
    
    405
    
    
    
    450- Unrelated parties
    
    
    1,675
    
    
    
    890
    
    
    
    2,550
    
    
    
    1,224- Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    Total revenues
    
    
    38,177
    
    
    
    34,027
    
    
    
    74,711
    
    
    
    68,063Direct operating expenses
    
    
    4,688
    
    
    
    4,951
    
    
    
    9,240
    
    
    
    11,959Payments to Managed Container Programs:- Related parties
    
    
    8,247
    
    
    
    7,745
    
    
    
    16,435
    
    
    
    14,235- Unrelated parties
    
    
    9,035
    
    
    
    8,965
    
    
    
    18,104
    
    
    
    16,917Equipment trading expenses
    
    
    1,624
    
    
    
    503
    
    
    
    1,751
    
    

    
    2,799Depreciation and amortization
    
    
    4,578
    
    
    
    4,671
    
    
    
    9,170
    
    
    
    8,965Selling, general and administrative expenses
    
    
    4,909
    
    
    
    4,336
    
    
    
    10,702
    
    
    
    8,578Interest expense
    
    
    1,854
    
    
    
    1,194
    
    
    
    3,375
    
    
    
    2,348Recovery of amount payable to Managed Container Program
    
    
    
    
    
    
    
    
    
    
    (703
    )
    
    
    Total expenses
    
    
    34,935
    
    
    
    32,365
    
    
    
    68,074
    
    
    
    65,801Income before income taxes and equity in earnings of affiliate
    
    
    3,242
    
    
    
    1,662
    
    
    
    6,637
    
    
    
    2,262Income taxes
    
    
    (476
    )
    
    
    (249
    )
    
    
    (985
    )
    
    
    (592
    )Equity in earnings of unconsolidated affiliate
    
    
    711
    
    
    
    657
    
    
    
    1,454
    
    
    
    1,189Net income
    
    
    3,477
    
    
    
    2,070
    
    
    
    7,106
    
    
    
    2,859Other comprehensive income (loss):- change in fair value of forward exchange contracts, net of tax
    
    
    
    
    
    
    54
    
    
    
    
    
    
    
    325- change in fair value of derivatives held by affiliate, net of tax
    
    
    (433
    )
    
    
    68
    
    
    
    186
    
    
    
    (169
    )Comprehensive income
    
    $
    3,044
    
    
    $
    2,192
    
    
    $
    7,292
    
    
    $
    3,015Basic net income per common share
    
    $
    0.47
    
    
    $
    0.29
    
    
    $
    0.97
    
    
    $
    0.39Diluted net income per common share
    
    $
    0.44
    
    
    $
    0.27
    
    
    $
    0.90
    
    
    $
    0.37
  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
 June 30,
    
    
    December 31,2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    15,170
    
    
    $
    17,579Restricted cash
    
    
    1,125
    
    
    
    1,489Amounts due from lessees, net
    
    
    26,536
    
    
    
    25,136Amounts receivable from Managed Container Programs
    
    
    3,247
    
    
    
    3,386New container equipment for resale
    
    
    11,917
    
    
    
    17,116Net investment in direct financing leases
    
    
    11,271
    
    
    
    7,382Investments in unconsolidated affiliates
    
    
    18,906
    
    
    
    15,364Container equipment, net
    
    
    163,669
    
    
    
    166,584Other equipment, net
    
    
    985
    
    
    
    963Goodwill, net
    
    
    11,038
    
    
    
    11,038Other intangible assets, net
    
    
    439
    
    
    
    533Related party loan receivable
    
    
    
    
    
    
    1,280Other assets
    
    
    3,914
    
    
    
    3,899Total assets
    
    $
    268,217
    
    
    $
    271,749Liabilities and shareholders equityAmounts payable to Managed Container Programs
    
    $
    24,042
    
    
    $
    22,034Amounts payable to container manufacturers
    
    
    18,631
    
    
    
    27,838Direct operating expense payables and accruals
    
    
    4,828
    
    
    
    5,592Other amounts payable and accrued expenses
    
    
    5,073
    
    
    
    8,810Debt and capital lease obligations
    
    
    126,858
    
    
    
    127,953Current and deferred income taxes
    
    
    3,657
    
    
    
    3,238Deferred income and unamortized acquisition fees
    
    
    7,372
    
    
    
    5,925Total liabilities
    
    
    190,461
    
    
    
    201,390Shareholders equityCommon shares issued (7,501,377; 7,381,349 shares)
    
    
    15,003
    
    
    
    14,763Additional paid-in capital
    
    
    45,223
    
    
    
    45,358Common shares held in treasury (112,000 shares)
    
    
    (297
    )
    
    
    (297
    )Accumulated other comprehensive income
    
    
    416
    
    
    
    230Restricted retained earnings
    
    
    1,832
    
    
    
    1,832Retained earnings
    
    
    15,579
    
    
    
    8,473Total shareholders equity
    
    
    77,756
    
    
    
    70,359Total liabilities and shareholders equity
    
    $
    268,217
    
    
    $
    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
 Six Months EndedJune 30,2005
    
    
    2004Net cash provided by operating activities
    
    $
    15,245
    
    
    $
    11,539Cash flows from investing activitiesPurchase of container and other equipment
    
    
    (15,560
    )
    
    
    (19,068
    )Investment in unconsolidated affiliate
    
    
    (1,903
    )
    
    
    (890
    )Investment in equipment acquired for direct financing lease
    
    
    (4,019
    )
    
    
    (373
    )Proceeds from sales of container and other equipment
    
    
    4,748
    
    
    
    8,757Net cash used in investing activities
    
    
    (16,734
    )
    
    
    (11,574
    )Cash flows from financing activitiesProceeds from issuance of term debt
    
    
    12,079
    
    
    
    18,962Repayments of term debt and capital lease obligations
    
    
    (14,224
    )
    
    
    (17,914
    )Dividend paid
    
    
    (728
    )
    
    
    (290
    )Recovery of related party loan
    
    
    1,280
    
    
    
    Issue of common stock
    
    
    309
    
    
    
    Restricted cash
    
    
    364
    
    
    
    (374
    )Net cash (used in) provided by financing activities
    
    
    (920
    )
    
    
    384Net (decrease) increase in cash and cash equivalents
    
    
    (2,409
    )
    
    
    349Cash and cash equivalents at beginning of period
    
    
    17,579
    
    
    
    8,432Cash and cash equivalents at end of period
    
    $
    15,170
    
    
    $
    8,781Supplementary disclosure of cash flow information:Cash paid during the period for:- interest
    
    $
    3,201
    
    
    $
    1,955- income taxes
    
    
    616
    
    
    
    799Cash received during the period for:- interest
    
    
    102
    
    
    
    10- income taxes
    
    
    53
    
    
    
    Non-cash activities:- container equipment acquired under capital lease
    
    
    889
    
    
    
    917- container equipment transferred to direct financing leases
    
    
    1,063
    
    
    
    - direct finance lease equipment acquired under capital lease
    
    
    523
    
    
    
    
  4




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The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
 
 Consolidated Unaudited Statement of Shareholders Equity
 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,
December 31, 2004
    
    $
    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
 (US dollar amounts in thousands, except per share amounts)
 
 Notes to the Condensed Unaudited Consolidated Financial Statements
     Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income:- as reported
    
    $
    3,477
    
    
    $
    2,070
    
    
    $
    7,106
    
    
    $
    2,859- add stock-based compensation expense included in
reported net income, net of related tax effects
    
    
    
    
    
    
    1
    
    
    
    
    
    
    
    1- deduct stock-based compensation expense computed in
accordance with SFAS 123, net of tax effects
    
    
    
    
    
    
    (6
    )
    
    
    
    
    
    
    (18
    )- pro forma
    
    $
    3,477
    
    
    $
    2,065
    
    
    $
    7,106
    
    
    $
    2,842Basic net income per share:- as reported
    
    $
    0.47
    
    
    $
    0.29
    
    
    $
    0.97
    
    
    $
    0.39- pro forma
    
    $
    0.47
    
    
    $
    0.28
    
    
    $
    0.97
    
    
    $
    0.39Diluted net income per share:- as reported
    
    $
    0.44
    
    
    $
    0.27
    
    
    $
    0.90
    
    
    $
    0.37- pro forma
    
    $
    0.44
    
    
    $
    0.27
    
    
    $
    0.90
    
    
    $
    0.37
 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 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
    
    
    $
    6,395
    
    
    $
    12,027
    
    
    $
    241,668
    
    
    $
    268,217
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended June 30, 2004Items directly attributable to segments:- gross lease revenue
    
    $
    6,660
    
    
    $
    3,795
    
    
    $
    11,767
    
    
    $
    9,890
    
    
    $
    32,112- direct operating expenses
    
    
    (1,235
    )
    
    
    (254
    )
    
    
    (1,978
    )
    
    
    (1,484
    )
    
    
    (4,951
    )net lease revenue
    
    
    5,425
    
    
    
    3,541
    
    
    
    9,789
    
    
    
    8,406
    
    
    
    27,161- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    392
    
    
    
    392- payments to Managed Container Programs
    
    
    (4,505
    )
    
    
    (3,240
    )
    
    
    (8,965
    )
    
    
    
    
    
    
    (16,710
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,517
    )
    
    
    (4,517
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,168
    )
    
    
    (1,168
    )Segment profit
    
    $
    920
    
    
    $
    301
    
    
    $
    824
    
    
    $
    3,113
    
    
    $
    5,158Segment assets at end of period
    
    $
    9,017
    
    
    $
    13,955
    
    
    $
    13,743
    
    
    $
    223,838
    
    
    $
    260,553
 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
    
    
    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
    
    
    $
    6,395
    
    
    $
    12,027
    
    
    $
    241,668
    
    
    $
    268,217
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalSix months ended June 30, 2004Items directly attributable to segments:- gross lease revenue
    
    $
    13,194
    
    
    $
    7,072
    
    
    $
    23,099
    
    
    $
    19,650
    
    
    $
    63,015- direct operating expenses
    
    
    (3,071
    )
    
    
    (549
    )
    
    
    (5,038
    )
    
    
    (3,301
    )
    
    
    (11,959
    )net lease revenue
    
    
    10,123
    
    
    
    6,523
    
    
    
    18,061
    
    
    
    16,349
    
    
    
    51,056- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    774
    
    
    
    774- payments to Managed Container Programs
    
    
    (8,265
    )
    
    
    (5,970
    )
    
    
    (16,917
    )
    
    
    
    
    
    
    (31,152
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (8,711
    )
    
    
    (8,711
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,292
    )
    
    
    (2,292
    )Segment profit
    
    $
    1,858
    
    
    $
    553
    
    
    $
    1,144
    
    
    $
    6,120
    
    
    $
    9,675Segment assets at end of period
    
    $
    9,017
    
    
    $
    13,955
    
    
    $
    13,743
    
    
    $
    223,838
    
    
    $
    260,553
 8




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##### Table of Contents



The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
  Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Segment profit
    
    $
    6,638
    
    
    $
    5,158
    
    
    $
    13,096
    
    
    $
    9,675Equipment trading revenue
    
    
    1,815
    
    
    
    798
    
    
    
    1,950
    
    
    
    3,374Unallocated commissions, fees and other operating income
    
    
    1,390
    
    
    
    703
    
    
    
    2,051
    
    
    
    861Gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    Other interest income
    
    
    43
    
    
    
    22
    
    
    
    91
    
    
    
    39Equipment trading expenses
    
    
    (1,624
    )
    
    
    (503
    )
    
    
    (1,751
    )
    
    
    (2,799
    )Amortization of intangible assets
    
    
    (47
    )
    
    
    (47
    )
    
    
    (94
    )
    
    
    (94
    )Non container depreciation
    
    
    (62
    )
    
    
    (107
    )
    
    
    (123
    )
    
    
    (160
    )Selling, general and administrative expenses
    
    
    (4,909
    )
    
    
    (4,336
    )
    
    
    (10,702
    )
    
    
    (8,578
    )Non container interest credit (expense)
    
    
    (2
    )
    
    
    (26
    )
    
    
    83
    
    
    
    (56
    )Recovery of amount payable to a Managed Container Program
    
    
    
    
    
    
    
    
    
    
    703
    
    
    
    Income before income taxes and equity in earnings of affiliate
    
    $
    3,242
    
    
    $
    1,662
    
    
    $
    6,637
    
    
    $
    2,262
 Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Reconciliation to total revenues:Revenues directly attributable to segments:- gross lease revenue
    
    $
    34,469
    
    
    $
    32,112
    
    
    $
    68,473
    
    
    $
    63,015- direct financing lease income
    
    
    460
    
    
    
    392
    
    
    
    813
    
    
    
    77434,929
    
    
    
    32,504
    
    
    
    69,286
    
    
    
    63,789Other revenues:- equipment trading revenue
    
    
    1,815
    
    
    
    798
    
    
    
    1,950
    
    
    
    3,374- unallocated commissions, fees and other
operating income
    
    
    1,390
    
    
    
    703
    
    
    
    2,051
    
    
    
    861- gain on settlement of litigation
    
    
    
    
    
    
    
    
    
    
    1,333
    
    
    
    - other interest income
    
    
    43
    
    
    
    22
    
    
    
    91
    
    
    
    39Total revenues
    
    $
    38,177
    
    
    $
    34,027
    
    
    $
    74,711
    
    
    $
    68,063
  9




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The Cronos Group
 (US dollar amounts in thousands, except per share amounts)
   Three Months Ended
    
    
    Six Months EndedJune 30,
    
    
    June 30,2005
    
    
    2004
    
    
    2005
    
    
    2004Net income available for common shareholders
    
    $
    3,477
    
    
    $
    2,070
    
    
    $
    7,106
    
    
    $
    2,859Average outstanding shares of common stock
    
    
    7,353,267
    
    
    
    7,260,080
    
    
    
    7,317,683
    
    
    
    7,260,080Dilutive effect of:- 1998 stock option
    
    
    188,935
    
    
    
    95,488
    
    
    
    186,341
    
    
    
    82,354- warrants
    
    
    
    
    
    
    62,568
    
    
    
    
    
    
    
    53,742- 1999 stock option plan
    
    
    263,178
    
    
    
    101,786
    
    
    
    268,409
    
    
    
    111,660- non-employee directors equity plan
    
    
    123,935
    
    
    
    154,956
    
    
    
    151,900
    
    
    
    147,625Common stock and common stock equivalents
    
    
    7,929,315
    
    
    
    7,674,878
    
    
    
    7,924,333
    
    
    
    7,655,461Basic net income per share
    
    $
    0.47
    
    
    $
    0.29
    
    
    $
    0.97
    
    
    $
    0.39Diluted net income per share
    
    $
    0.44
    
    
    $
    0.27
    
    
    $
    0.90
    
    
    $
    0.37
     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
 10.
    
    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 thousandsJuly 1 to December 31, 2005
    
    $
    3,1322006
    
    
    5,1932007
    
    
    2,5572008
    
    
    2,5572009
    
    
    2,5572010 and thereafter
    
    
    9,945Total
    
    $
    25,941
 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
     14




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The Cronos Group
 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
 
 General
   15




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##### Table of Contents



The Cronos Group
 Market Overview
  June 30,
    
    
    December 31,
    
    
    June 30,2005
    
    
    2004
    
    
    2004Utilization of Cronos container fleet
    
    
    93
    %
    
    
    94
    %
    
    
    92
    %
         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
    
    
    83
    %
    
    
    62
    %
    
    
    86
    %
    
    
    51
    %
    
    
    70
    %Refrigerated containers
    
    
    14
    %
    
    
    18
    %
    
    
    3
    %
    
    
    22
    %
    
    
    14
    %Tank containers
    
    
    3
    %
    
    
    13
    %
    
    
    7
    %
    
    
    10
    %
    
    
    8
    %Dry freight specials:CPCs
    
    
    
    
    
    
    5
    %
    
    
    
    
    
    
    8
    %
    
    
    4
    %Rolltrailers
    
    
    
    
    
    
    
    
    
    
    2
    %
    
    
    5
    %
    
    
    2
    %Other dry freight specials
    
    
    
    
    
    
    2
    %
    
    
    2
    %
    
    
    4
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
  Cronos Fleet (in TEU thousands) at,June 30,
    
    
    December 31,
    
    
    June 30,2005
    
    
    2004
    
    
    2004US Limited Partnership Programs
    
    
    81.1
    
    
    
    86.4
    
    
    
    90.0Joint Venture Program
    
    
    79.9
    
    
    
    68.2
    
    
    
    49.6Private Container Programs
    
    
    165.0
    
    
    
    161.1
    
    
    
    163.1Owned Containers
    
    
    117.6
    
    
    
    123.6
    
    
    
    124.6Total Fleet
    
    
    443.6
    
    
    
    439.3
    
    
    
    427.3
 17




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##### Table of Contents



The Cronos Group
 
 Three Months Ended June 30, 2005 Compared to Three Months Ended June 30, 2004
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 Operating segment information
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned(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
    
    
    $
    6,638
 18




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##### Table of Contents



The Cronos Group
 US Limited Partnership Programs:
 
    
    Net lease revenuefor this segment declined by $0.3 million over the corresponding
period in 2004 as the effect of the disposal of containers at the end of their useful
economic life more than offset the improvement in fleet utilization and the reduction in
direct operating expenses; and,
    
    Payments to US Limited Partnership Programsdeclined by $0.8 million when compared to
the corresponding period in 2004. The ratio of segment profit to net lease revenue
increased to 27% in the second quarter of 2005, from 17% for the second quarter of 2004 as
the management fee attributable to the performance of and 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 revenuefor this segment increased by $1.5 million in the second quarter of
2005 reflecting the significant investment in additional equipment for the program; and,
    
    Payments to the Joint Venture Programincreased by $1.3 million in the second quarter of
2005, which corresponds with the increase in net lease revenue for this segment.
 Private Container Programs:
 
    
    Net lease revenuefor this segment of $9.9 million represents an increase of $0.1
million when compared to the corresponding period of 2004; and,
    
    Payments to Private Container Programsincreased by $0.1 million in the second quarter
of 2005 in line with the increase in net lease revenue. The ratio of segment profit to net
lease revenue was approximately 8.5% for each of the second quarters of 2005 and 2004.
 Segment profit on Owned Containers
 
    
    Net lease revenuefor this segment of $9.8 million was $1.4 million higher than in the
corresponding period of 2004, reflecting the combined effects of increases in utilization,
fleet size and lease per diems. The size of the owned container fleet declined in June
2005 when the Group sold approximately $8 million of containers to a Private Container
Program;
    
    Container depreciationof $4.5 million was almost unchanged from the same period in 2004
as the increase in depreciation attributable to new container additions offset the effect
of the disposal of equipment at the end of its economic life; and,
    
    Container interest expenseof $1.9 million was $0.7 million higher than in the second
quarter of 2004 due primarily to increases in US interest rates since the first quarter of
2004.
 Equipment trading revenue
 Commissions, fees and other income
 
    
    A $0.2 million increase in design and consultancy fee income reflecting a project
undertaken with a European customer;
    
    A $0.1 million increase in license fees earned on CPCs acquired by third parties; and,
    
    An increase of $0.4 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).
 19




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##### Table of Contents



The Cronos Group
 Selling, general and administrative expenses
 Income Taxes
 Equity in earnings of affiliate
 
 Six Months Ended June 30, 2005 Compared to Six Months Ended June 30, 2004
 Overview
  
    
    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 amount payable to a Private Container Program.
 Analysis & Discussion
 Gross lease revenue (GLR)
 Direct operating expenses
 
    
    Storage expenses declined by $0.7 million due to the reduction in off-hire container inventories;
    
    Repositioning expense declined by $1.2 million; and,
    
    Handling and repair costs declined by a total of $0.8 million, reflecting the decline in
container redeliveries.
 20




---



##### Table of Contents



The Cronos Group
 Operating segment information
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned(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
    
    
    $
    13,096
 21




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##### Table of Contents



The Cronos Group
 US Limited Partnership Programs:
 
    
    Net lease revenuefor this segment increased by $0.3 million over the corresponding
period in 2004. Direct operating expenses declined by $1.2 million, reflecting lower
inventory-related and activity-related costs. GLR declined by $0.9 million as the increase
in revenue attributable to the improvement in fleet utilization and lease per diem rates
was more than offset by the disposal of containers at the end of their useful economic
life; and,
    
    Payments to US Limited Partnership Programsdeclined by $0.6 million when compared to
the corresponding period in 2004. The ratio of segment profit to net lease revenue
increased to 26% in the first half of 2005, from 18% in the first half 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 revenuefor this segment increased by $3.1 million in the first six months of
2005 reflecting the significant investment in additional equipment for the program; and,
    
    Payments to the Joint Venture Programincreased by $2.8 million in the first half of
2005, which is in line with the increase in net lease revenue for this segment.
 Private Container Programs:
 
    
    Net lease revenuefor this segment increased by $1.9 million when compared to the first
six months of 2004. The improvement in fleet utilization resulted in a $0.5 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 $1.2 million over the corresponding
period of 2004. The ratio of segment profit to net lease revenue increased to 9% in the
first half of 2005, from 6% in the same period of 2004. The level of payments to Private
Container Programs with variable payment terms increased in line with net lease revenue.
Under the variable payment basis, the amount payable to the Private Container Program is
based on the rentals to the ocean carriers after deducting direct operating expenses and
the compensation earned by Cronos for managing the equipment. The level of payments to
Private Container Programs with fixed payment terms declined as a result of changes that
were made by the Group to agreements with two container owners in the fourth quarter of
2004. In the first case, the Group amended the terms of a fixed payment agreement, and the
amended agreement is now accounted for as a capital lease obligation in the Owned Container
segment. In the second case, the Group purchased approximately $1 million of containers
from the container owner thereby terminating the fixed payment agreement.
 Segment profit on Owned Containers
 
    
    Net lease revenueof $19.3 million was $2.9 million, higher than in the corresponding
period of 2004 reflecting the combined effects of increases in utilization, fleet size and
lease per diems;
    
    Container depreciationof $9 million was $0.2 million higher than in the same period of
2004 as the increase in depreciation attributable to new container additions more than
offset the effect of the disposal of equipment at the end of its economic life; and,
    
    Container interest expenseof $3.5 million was $1.2 million higher than in the first
half of 2004 due primarily to increases in US interest rates.
 Equipment trading revenue
 22




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The Cronos Group
  23




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##### Table of Contents



The Cronos Group
 Commissions, fees and other income
 
    
    A $0.4 million increase in design and consultancy fee income reflecting a project
undertaken with a European customer;
    
    An increase of $0.6 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 (discussion in Market Overview above); 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.
 Gain on settlement of litigation:
    Selling, general and administrative expenses
 
    
    A $0.7 million increase in manpower costs due to changes in salary levels in line with
inflation and other pay awards due to the recruitment of additional employees to support
both the growth in the business and the additional corporate governance and compliance
workload;
    
    An increase of $1 million in legal costs for the TOEMT and Palatin legal actions; and,
    
    $0.2 million of severance costs for a minor restructuring progam that was announced and
implemented in the first quarter of 2005.
 24




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##### Table of Contents



The Cronos Group
 Recovery of amount payable to a Managed Container Program:
      Income Taxes
 Equity in earnings of affiliate
 25




---



##### Table of Contents



The Cronos Group
 Liquidity and Capital Resources
         26




---



##### Table of Contents



The Cronos Group
   
    
    the maximum debt commitment available to the Joint Venture Program increased from
$150 million to $300 million.
  
    
    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
and accordingly no gain or loss arose on the sale;
    
    the Group utilized part of the proceeds generated by the sale of equipment to repay
a debt facility with an outstanding balance of $16.2 million;
    
    the maximum debt commitment available under the Revolving Credit Facility was
reduced from $70 million to $45 million;
    
    the interest rate on the Revolving Credit Facility declined by 25 basis points; and,
    
    following these transactions, the outstanding debt balance on the Revolving Credit
Facility on August 1 was $21.1 million.
   Owned Containers:
    27




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##### Table of Contents



The Cronos Group
    Joint Venture Program:
 Private Container Programs:
 US Limited Partnership Programs:
 28




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##### Table of Contents



The Cronos Group
 Cash Flow Statements for the Six Months ended June 30, 2005 and 2004
 Cash Provided By Operating Activities:
 
    
    Increased cash collections of $16.8 million when compared to the first six 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 $1.5 million decline in payments for direct operating expenses and other payables.
  
    
    Increased distributions to Managed Container Programs of approximately $14.9 million
during the first half 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 Used In Investing Activities:
 
    
    The Group paid $19.6 million for container equipment and equipment placed on direct
finance leases;
    
    The Group invested a further $1.9 million in the Joint Venture Program to fund its
equity share of container purchases made by the program; and,
    
    The Group received $4.7 million from the disposal of container equipment at the end
of its useful economic life.
  
    
    The Group paid $19.4 million for new container equipment of which $5 million was
sold to a Private Container Program;
    
    The Group realized a further $3.8 million on the disposal of equipment at the end of
its economic life; and,
    
    The Group made a contribution of $0.9 million to the Joint Venture Program to fund
its equity share of container purchases made by the program.
 Cash (Used In) Provided By Financing Activities
 
    
    The Group utilized $12.1 million of debt funding to finance the purchase of
container equipment;
    
    The Group made repayments of $14.2 million to financial institutions which included
$5.4 million prepaid to the Groups Revolving Credit Facility using surplus cash in
order to reduce interest expense;
    
    The Group paid dividends totalling $0.7 million to its shareholders;
    
    The Group received $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 received $1.280 million from the recovery of a related party loan; and,
    
    The minimum restricted cash balance requirement declined by $0.4 million under the
restructuring terms of a debt facility.
 29




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##### Table of Contents



The Cronos Group
  
    
    The Group utilized $19 million of debt to fund equipment acquisitions;
    
    The Group repaid $17.9 million to financial institutions, which comprised $5 million
received on the equipment sale to a Private Container Program, $5.4 million of
scheduled repayments, and $7.5 million prepaid using surplus cash balances to reduce
interest expense; and,
    
    The Group paid a dividend of $0.3 million to its shareholders.
 Capital Resources
 Capital Expenditures and Commitments
       Critical Accounting Policies and Estimates
  
    
    Container equipment  depreciable lives
    
    Container equipment  valuation
    
    Deferred taxation
    
    Allowance for doubtful accounts
    
    Goodwill
 30




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##### Table of Contents



The Cronos Group
 
    
    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.
 31




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##### Table of Contents



The Cronos Group
 
 Item 3  Quantitative and Qualitative Disclosures about Market Risk
 Interest rate risk:
 Exchange rate risk: .
  
 Item 4  Controls and Procedures
   32




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##### Table of Contents



The Cronos Group
 
 PART II  OTHER INFORMATION
 Item 1  Legal Proceedings
 TOEMT Litigation
    
    
    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 assets by TOEMT (UK) to the Group worth
approximately $16 million, which 5,500,000 ordinary shares were
then redeemed and/or transferred to Palatin and/or his nominee for
no or no proper consideration;
    
    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;
    
    The making of various payments (amounting to in excess of $0.9
million) between approximately June 1993 and February 1996 by CNV
to third parties, including 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 the TOEMTs businesses or interests;
    
    The making of improper cash withdrawals (amounting to in excess of
$2 million), between approximately December 1991 and June 1999
from TOEMT (UK)s bank accounts, with the assistance of CNV, which
withdrawals were allegedly for the benefit of Palatin and / or his
wife rather than for any legitimate commercial purpose or other
purpose of the TOEMTs businesses or interests; and,
    
    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.
   33




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##### Table of Contents



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
   Proposal No. 1
  Nominee
    
    Vote
    
    CountRobert M. Melzer
    
    For
    
    
    6,840,164Authority Withheld
    
    
    9,280Stephen Nicholas Walker
    
    For
    
    
    6,840,164Authority Withheld
    
    
    9,280
  34




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##### Table of Contents



The Cronos Group
 Proposal No. 2
  Vote
    
    CountFor
    
    
    3,756,634Against
    
    
    1,486,527Abstain
    
    
    6,075Broker Non-Votes
    
    
    1,600,208
  Proposal No. 3
  Vote
    
    CountFor
    
    
    6,845,289Against
    
    
    3,655Abstain
    
    
    500Broker Non-Votes
    
    
    0
  Proposal No. 4
  Vote
    
    CountFor
    
    
    5,243,031Against
    
    
    5,105Abstain
    
    
    1,100Broker Non-Votes
    
    
    1,600,208
  35




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##### Table of Contents



The Cronos Group
 Proposal No. 5
  Vote
    
    CountFor
    
    
    6,836,249Against
    
    
    6,105Abstain
    
    
    7,090Broker Non-Votes
    
    
    0
  Proposal No. 6
  Vote
    
    CountFor
    
    
    6,821,374Against
    
    
    18,480Abstain
    
    
    9,590Broker Non-Votes
    
    
    0
  Proposal No. 7
  Vote
    
    CountFor
    
    
    6,833,889Against
    
    
    3,855Abstain
    
    
    11,700Broker Non-Votes
    
    
    0
 36




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##### Table of Contents



The Cronos Group
  37




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##### Table of Contents



The Cronos Group
 Proposal No. 8
  Vote
    
    CountFor
    
    
    6,831,439Against
    
    
    4,855Abstain
    
    
    13,150Broker Non-Votes
    
    
    0
  Proposal No. 9
  Vote
    
    CountFor
    
    
    6,830,889Against
    
    
    6,355Abstain
    
    
    12,200Broker Non-Votes
    
    
    0
  Proposal No. 10
  Vote
    
    CountFor
    
    
    6,834,178Against
    
    
    8,691Abstain
    
    
    6,575Broker Non-Votes
    
    
    0
  38




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##### Table of Contents



The Cronos Group
 
 Item 5  Other Information
  
 Item 6  Exhibits
 (a)
    
    ExhibitsNumber
    
    Exhibit10.1
    
    Amendment No. 1, dated as of June 15, 2005 to the Amended and
Restated Management Agreement, dated as of June 15, 2004, by and
between CF Leasing Ltd and Cronos Containers (Cayman) Ltd.10.2
    
    Amendment No. 3, dated as of June 15, 2005 to the Members
Agreement, dated September 18, 2002, among CF Leasing Ltd, FB
Aviation & Intermodal Finance Holding BV and Cronos Containers
(Cayman) Ltd.31.1
    
    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, 2005Peter J. Younger/s/ FRANK P. VAUGHAN
    
    Chief Financial Officer,
    
    August 10, 2005Frank P. Vaughan
    
    Senior Vice President(Principal Financial and Accounting Officer)
 39




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##### Table of Contents



The Cronos Group
 
 Exhibit Index
 Number
    
    Exhibit
    
    Page10.1
    
    Amendment No.1, dated as of June 15, 2005 to the Amended
and Restated Management Agreement, dated as of
June 15, 2004, by and between CF Leasing Ltd and Cronos
Containers (Cayman) Ltd.
    
    E110.2
    
    Amendment No.3, dated as of June 15, 2005 to the Members
Agreement, dated September 18, 2002, among CF Leasing Ltd,
FB Aviation & Intermodal Finance Holding
BV and Cronos Containers (Cayman) Ltd.
    
    E531.1
    
    Rule 13a-14 Certification
    
    E 931.2
    
    Rule 13a-14 Certification
    
    E1032
    
    Certification pursuant to 18 U.S.C. § 1350, as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002. *
    
    E11
 
 *
    
    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. 40