##### Table of Contents



SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
20549 FORM 10-Q (Mark One) þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the quarterly period ended: March 31, 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
(Address of principal executive offices)(zip code) Registrants telephone number, including area codes:
(352) 481 828   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 NOo Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act
Rule 12b-2) Yes o Noþ The number of Common Shares outstanding as of May 13, 2005 : Class
    
    Number of Shares OutstandingCommon
    
    7,329,602




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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
    
    
    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
    
    
    6Three months ended March 31, 2005
    
    
    7Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    15General
    
    
    15Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004
    
    
    19Item 3  Quantitative and Qualitative Disclosures about Market Risk
    
    
    28Item 4  Controls and Procedures
    
    
    28PART II  OTHER INFORMATION
    
    
    29Item 1  Legal Proceedings
    
    
    29Item 2  Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    31Item 3  Defaults Upon Senior Securities
    
    
    31Item 4  Submission of Matters to a Vote of Security Holders
    
    
    31Item 5  Other Information
    
    
    31Item 6  Exhibits
    
    
    31EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32




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The Cronos Group PART I  FINANCIAL INFORMATION 
 Item 1  Financial Statements 
 Management Representation Unless the context indicates otherwise, the Company means The Cronos Group excluding its
subsidiaries, and Cronos or the Group means The Cronos Group including its subsidiaries. The condensed unaudited consolidated interim financial statements included herein have been
prepared by the Company pursuant to the rules and regulations of the Securities and Exchange
Commission (SEC). Certain information and disclosures normally included in annual financial
statements prepared in accordance with accounting principles generally accepted in the United
States of America have been condensed or omitted pursuant to such rules and regulations. These condensed unaudited consolidated financial statements should be read in conjunction with
the financial statements and the notes thereto included in the Companys latest Annual Report on
Form 10-K. This financial information reflects, in the opinion of management, all adjustments necessary
to present fairly the results for the interim periods. The results of operations for such interim
periods are not necessarily indicative of the results to be expected for the full year. The information in this Quarterly Report on Form 10-Q contains certain forward-looking
statements within the meaning of the securities laws. These forward-looking statements reflect
the current view of the Group with respect to future events and financial performance and are
subject to a number of risks and uncertainties, many of which are beyond the Groups control. All
statements, other than statements of historical facts included in this report, regarding the
Groups strategy, future operations, financial position, estimated revenues, projected costs,
prospects, plans and objectives of the Group are forward-looking statements. When used in this
report, the words will, believe, anticipate, intend, estimate, expect, project, and
similar expressions are intended to identify forward-looking statements, although not all
forward-looking statements contain these identifying words. All forward-looking statements speak
only as of the date of this report. The Group does not undertake any obligation to update or
revise publicly any forward-looking statements, whether as a result of new information, future
events or otherwise. 1




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 
 Condensed Unaudited Consolidated Statements of Income Three Months EndedMarch 31,2005
    
    
    2004Gross lease revenue
    
    $
    34,004
    
    
    $
    30,903Equipment trading revenue
    
    
    135
    
    
    
    2,576Commissions, fees and other income:- Related parties
    
    
    187
    
    
    
    223- Unrelated parties
    
    
    875
    
    
    
    334Gain on settlement of litigation
    
    
    1,333
    
    
    
    Total revenues
    
    
    36,534
    
    
    
    34,036Direct operating expenses
    
    
    4,552
    
    
    
    7,008Payments to Managed Container Programs:- Related parties
    
    
    8,188
    
    
    
    6,490- Unrelated parties
    
    
    9,069
    
    
    
    7,952Equipment trading expenses
    
    
    127
    
    
    
    2,296Depreciation and amortization
    
    
    4,592
    
    
    
    4,294Selling, general and administrative expenses
    
    
    5,793
    
    
    
    4,242Interest expense
    
    
    1,521
    
    
    
    1,154Recovery of amount payable to a Managed Container Program
    
    
    (703
    )
    
    
    Total expenses
    
    
    33,139
    
    
    
    33,436Income before income taxes and equity in earnings of affiliate
    
    
    3,395
    
    
    
    600Income taxes
    
    
    (509
    )
    
    
    (343
    )Equity in earnings of unconsolidated affiliate
    
    
    743
    
    
    
    532Net income
    
    
    3,629
    
    
    
    789Other comprehensive income (loss):- change in fair value of forward exchange contracts, net of tax
    
    
    
    
    
    
    271-change in fair value of derivatives held by affiliate, net of tax
    
    
    619
    
    
    
    (237
    )Comprehensive income
    
    $
    4,248
    
    
    $
    823Basic net income per common share
    
    $
    0.50
    
    
    $
    0.11Diluted net income per common share
    
    $
    0.46
    
    
    $
    0.10
 The accompanying notes are an integral part of these condensed unaudited consolidated financial
statements. 2




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 
 Condensed Unaudited Consolidated Balance Sheets March 31,
    
    
    December 31,2005
    
    
    2004AssetsCash and cash equivalents
    
    $
    11,340
    
    
    $
    17,579Restricted cash
    
    
    1,073
    
    
    
    1,489Amounts due from lessees, net
    
    
    25,712
    
    
    
    25,136Amounts receivable from Managed Container Programs
    
    
    2,559
    
    
    
    3,386New container equipment for resale
    
    
    26,339
    
    
    
    17,116Net investment in direct financing leases
    
    
    8,293
    
    
    
    7,382Investments in unconsolidated affiliates
    
    
    17,379
    
    
    
    15,364Container equipment, net
    
    
    168,298
    
    
    
    166,584Other equipment, net
    
    
    1,015
    
    
    
    963Goodwill, net
    
    
    11,038
    
    
    
    11,038Other intangible assets, net
    
    
    486
    
    
    
    533Related party loan receivable
    
    
    
    
    
    
    1,280Other assets
    
    
    3,386
    
    
    
    3,899Total assets
    
    
    276,918
    
    
    $
    271,749Liabilities and shareholders equityAmounts payable to Managed Container Programs
    
    $
    22,686
    
    
    $
    22,034Amounts payable to container manufacturers
    
    
    37,286
    
    
    
    27,838Direct operating expense payables and accruals
    
    
    4,076
    
    
    
    5,592Other amounts payable and accrued expenses
    
    
    6,097
    
    
    
    8,810Debt and capital lease obligations
    
    
    121,989
    
    
    
    127,953Current and deferred income taxes
    
    
    3,417
    
    
    
    3,238Deferred income and unamortized acquisition fees
    
    
    6,684
    
    
    
    5,925Total liabilities
    
    
    202,235
    
    
    
    201,390Shareholders equityCommon shares issued (7,398,602; 7,381,349 shares)
    
    
    14,797
    
    
    
    14,763Additional paid-in capital
    
    
    45,400
    
    
    
    45,358Common shares held in treasury (112,000 shares)
    
    
    (297
    )
    
    
    (297
    )Accumulated other comprehensive income
    
    
    849
    
    
    
    230Restricted retained earnings
    
    
    1,832
    
    
    
    1,832Retained earnings
    
    
    12,102
    
    
    
    8,473Total shareholders equity
    
    
    74,683
    
    
    
    70,359Total liabilities and shareholders equity
    
    $
    276,918
    
    
    $
    271,749
 The accompanying notes are an integral part of these condensed unaudited consolidated financial
statements. 3




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 
 Condensed Unaudited Consolidated Statements of Cash Flows Three Months EndedMarch 31,2005
    
    
    2004Net cash provided by operating activities
    
    $
    6,626
    
    
    $
    5,588Cash flows from investing activitiesPurchase of container and other equipment
    
    
    (9,012
    )
    
    
    (11,937
    )Investment in unconsolidated affiliate
    
    
    (652
    )
    
    
    (139
    )Investment in equipment acquired for direct financing lease
    
    
    (125
    )
    
    
    Proceeds from sales of container and other equipment
    
    
    2,685
    
    
    
    6,238Net cash used in investing activities
    
    
    (7,104
    )
    
    
    (5,838
    )Cash flows from financing activitiesProceeds from issuance of term debt
    
    
    2,355
    
    
    
    11,929Repayments of term debt and capital lease obligations
    
    
    (9,449
    )
    
    
    (10,506
    )Dividend paid
    
    
    (363
    )
    
    
    (145
    )Recovery of related party loan
    
    
    1,280
    
    
    
    Restricted cash
    
    
    416
    
    
    
    Net cash (used in) provided by financing activities
    
    
    (5,761
    )
    
    
    1,278Net (decrease) increase in cash and cash equivalents
    
    
    (6,239
    )
    
    
    1,028Cash and cash equivalents at beginning of period
    
    
    17,579
    
    
    
    8,432Cash and cash equivalents at end of period
    
    $
    11,340
    
    
    $
    9,460Supplementary disclosure of cash flow information:Cash paid during the period for:- interest
    
    $
    1,468
    
    
    $
    954- income taxes
    
    
    404
    
    
    
    371Cash received during the period for:- interest
    
    
    842
    
    
    
    9- income taxes
    
    
    271
    
    
    
    Non-cash activities:- container equipment acquired under capital lease
    
    
    721
    
    
    
    268- container equipment transferred to direct financing leases
    
    
    952
    
    
    
    - direct finance lease equipment acquired under capital lease
    
    
    532
    
    
    
    
 The accompanying notes are an integral part of these condensed unaudited consolidated financial
statements. 4




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 
 Consolidated Unaudited Statement of Shareholders Equity Three months ended March 31, 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
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,629
    
    
    
    3,629Issue of common shares
    
    
    34
    
    
    
    42
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    76Other comprehensive
income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    619
    
    
    
    
    
    
    
    
    
    
    
    619Balance,
March 31, 2005
    
    $
    14,797
    
    
    $
    45,400
    
    
    $
    (297
    )
    
    $
    849
    
    
    $
    1,832
    
    
    $
    12,102
    
    
    $
    74,683
 The accompanying notes are an
integral part of these condensed unaudited consolidated
financial statements. 5




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 
 Notes to the Condensed Unaudited Consolidated Financial Statements 1. The condensed unaudited consolidated financial statements include the accounts of The Cronos
Group and its wholly owned subsidiaries. All material intercompany accounts and transactions have
been eliminated. Investments in which the Group does not own a majority interest or otherwise
control or have the ability to assert significant influence over the investee have been accounted
for under the equity method of accounting. 2. Stock-Based Compensation The Group has adopted disclosure requirements under the Financial Accounting Standards Board
(FASB) Statement of Financial Accounting Standards (SFAS) No. 123  Accounting for Stock-Based
Compensation (SFAS 123) and SFAS No. 148  Accounting for Stock-Based Compensation  Transition
and Disclosure (SFAS 148), but continues to account for stock-based compensation under
Accounting Principles Board Opinion (APB) No. 25  Accounting for Stock Issued to Employees
(APB 25). Under APB 25, compensation expense is measured as the amount by which the quoted
market price of the stock at the date of the grant or award exceeds the exercise price, if any, to
be paid by an employee and is recognized as expense over the period in which the related services
are performed. In accordance with SFAS 123, the Company discloses the fair value of its stock
options, which is calculated based on the Black Scholes option-pricing model. If the stock options had been accounted for under a fair value based method of accounting, the
impact on the Groups net income and net income per share would have been as follows: Three Months EndedMarch 31,2005
    
    
    2004Net income:- as reported
    
    $
    3,629
    
    
    $
    789- add stock-based compensation expense included in reported
net income, net of related tax effects
    
    
    
    
    
    
    1- deduct stock-based compensation expense computed in
accordance with SFAS 123, net of tax effects
    
    
    
    
    
    
    (12
    )- pro forma
    
    $
    3,629
    
    
    $
    778Basic net income per share:- as reported
    
    $
    0.50
    
    
    $
    0.11- pro forma
    
    $
    0.50
    
    
    $
    0.11Diluted net income per share:- as reported
    
    $
    0.46
    
    
    $
    0.10- pro forma
    
    $
    0.46
    
    
    $
    0.10
 6




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 3. Operating segment data All revenues and expenses that are specifically identifiable to the containers within each
reportable segment have been allocated to that segment and individual product revenues have been
aggregated within the reportable segments. Prior to December 2004, the US Limited Partnership
Programs segment and the Joint Venture Program segment were combined in a single reportable
segment, Container Equity Programs, in accordance with the aggregation criteria of SFAS No. 131 
Disclosure about Segments of an Enterprise and Related Information (SFAS 131). At December 31,
2004, the Joint Venture Program exceeded the 10% revenue threshold of SFAS 131 and accordingly was
reported as a separate segment. Corresponding items of segment information have been restated for
the first quarter of 2004. Segment information is provided in the tables below: 
  USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended March 31, 2005Items directly attributable to segments:- gross lease revenue
    
    $
    6,160
    
    
    $
    4,990
    
    
    $
    11,861
    
    
    $
    10,993
    
    
    $
    34,004- direct operating expenses
    
    
    (863
    )
    
    
    (351
    )
    
    
    (1,825
    )
    
    
    (1,513
    )
    
    
    (4,552
    )net lease revenue
    
    
    5,297
    
    
    
    4,639
    
    
    
    10,036
    
    
    
    9,480
    
    
    
    29,452- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    353- payments to Managed Container Programs
    
    
    (3,971
    )
    
    
    (4,217
    )
    
    
    (9,069
    )
    
    
    
    
    
    
    (17,257
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,484
    )
    
    
    (4,484
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,606
    )
    
    
    (1,606
    )Segment profit
    
    $
    1,326
    
    
    $
    422
    
    
    $
    967
    
    
    $
    3,743
    
    
    $
    6,458Segment assets at end of period
    
    $
    7,422
    
    
    $
    23,419
    
    
    $
    11,959
    
    
    $
    234,118
    
    
    $
    276,918
 USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    OwnedPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalThree months ended March 31, 2004Items directly attributable to segments:- gross lease revenue
    
    $
    6,534
    
    
    $
    3,277
    
    
    $
    11,332
    
    
    $
    9,760
    
    
    $
    30,903- direct operating expenses
    
    
    (1,836
    )
    
    
    (295
    )
    
    
    (3,060
    )
    
    
    (1,817
    )
    
    
    (7,008
    )net lease revenue
    
    
    4,698
    
    
    
    2,982
    
    
    
    8,272
    
    
    
    7,943
    
    
    
    23,895- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    382
    
    
    
    382- payments to Managed Container Programs
    
    
    (3,760
    )
    
    
    (2,730
    )
    
    
    (7,952
    )
    
    
    
    
    
    
    (14,442
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,194
    )
    
    
    (4,194
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,124
    )
    
    
    (1,124
    )Segment profit
    
    $
    938
    
    
    $
    252
    
    
    $
    320
    
    
    $
    3,007
    
    
    $
    4,517Segment assets at end of period
    
    $
    9,776
    
    
    $
    12,515
    
    
    $
    13,645
    
    
    $
    207,199
    
    
    $
    243,135
 7




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The Cronos Group (US dollar amounts in thousands, except per share amounts) Reconciliation of profit for reportable segments to income before income taxes and equity in
earnings of unconsolidated affiliate: Three Months EndedMarch 31,2005
    
    
    2004Segment profit
    
    $
    6,458
    
    
    $
    4,517Equipment trading revenue
    
    
    135
    
    
    
    2,576Unallocated commissions, fees and other operating income
    
    
    661
    
    
    
    158Gain on settlement of litigation
    
    
    1,333
    
    
    
    Other interest income
    
    
    48
    
    
    
    17Equipment trading expenses
    
    
    (127
    )
    
    
    (2,296
    )Amortization of intangible assets
    
    
    (47
    )
    
    
    (47
    )Non container depreciation
    
    
    (61
    )
    
    
    (53
    )Selling, general and administrative expenses
    
    
    (5,793
    )
    
    
    (4,242
    )Non container interest credit (expense)
    
    
    85
    
    
    
    (30
    )Recovery of amount payable to a Managed Container Program
    
    
    703
    
    
    
    Income before income taxes and equity in earnings of affiliate
    
    $
    3,395
    
    
    $
    600
 Three Months EndedMarch 31,2005
    
    
    2004Reconciliation to total revenues:Revenues directly attributable to segments:- gross lease revenue
    
    $
    34,004
    
    
    $
    30,903- direct financing lease income
    
    
    353
    
    
    
    38234,357
    
    
    
    31,285Other revenues:- equipment trading revenue
    
    
    135
    
    
    
    2,576- unallocated commissions, fees and other operating income
    
    
    661
    
    
    
    158- gain on settlement of litigation
    
    
    1,333
    
    
    
    - other interest income
    
    
    48
    
    
    
    17Total revenues
    
    $
    36,534
    
    
    $
    34,036
 8




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The Cronos Group (US dollar amounts in thousands, except per share amounts) 4. Earnings per common share The components of basic and diluted net income per share were as follows: Three Months EndedMarch 31,2005
    
    
    2004Net income available for common shareholders
    
    $
    3,629
    
    
    $
    789Average outstanding shares of common stock
    
    
    7,282,098
    
    
    
    7,260,080Dilutive effect of:- 1998 stock option
    
    
    183,747
    
    
    
    69,221- warrants
    
    
    
    
    
    
    44,916- 1999 stock option plan
    
    
    273,640
    
    
    
    50,640- non-employee directors equity plan
    
    
    179,866
    
    
    
    139,603Common stock and common stock equivalents
    
    
    7,919,351
    
    
    
    7,564,460Basic net income per share
    
    $
    0.50
    
    
    $
    0.11Diluted net income per share
    
    $
    0.46
    
    
    $
    0.10
 On February 4, 2005, 200,000 warrants to purchase 200,000 common shares of the Company
were cancelled in connection with the restructuring of a debt facility. 5. Amounts receivable from Managed Container Programs Amounts receivable from Managed Container Programs include amounts due from related parties of
$2.3 million and $3.4 million at March 31, 2005 and December 31, 2004, respectively. 9




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The Cronos Group 6. Investments in unconsolidated affiliates Investments take two primary forms: Under the first form, the investments comprise the Groups equity interests as a general
partner in nine US Limited Partnership Programs. In accordance with FASB Interpretation No. 46
Revised  Consolidation of Variable Interest Entities (FIN 46R), the Company has determined that
the nine Limited Partnerships qualify as variable interest entities. In each case, the Company has
concluded that neither the Company, nor any of its subsidiaries, is the primary beneficiary of any
US Limited Partnership Program. The partnerships are all California Limited Partnerships managed by Cronos Capital Corp., a
subsidiary of the Company. Since 1979, seventeen public limited partnerships raised over $480
million from over 37,000 investors. Eight of the original seventeen partnerships have now been
dissolved. These general partner investments are accounted for using the equity method. In the case of
each program, the investment from the Group comprises a nominal general partner capital
contribution of $1, representing total Cronos contributions of $9. Earnings in respect of the
equity in the interests in the US Limited Partnership Programs attributable to the $1 general
partner capital contribution were immaterial at March 31, 2005 and December 31, 2004, respectively,
and were reported as a component of Payments to Managed Container Programs rather than Equity in
earnings of unconsolidated affiliates due to their immateriality. The objectives of the partnerships are to invest in marine cargo containers to generate a
continuing income for distribution to the limited partners, and to realize the residual value of
the container equipment at the end of its useful economic life or upon the dissolution of the
individual partnerships. At March 31, 2005 and December 31, 2004, respectively, the US Limited
Partnership Programs had total assets of $101.8 million and $107.3 million, and total liabilities
of $2.9 million and $3.3 million. The general partner is indemnified by the partnerships for any
liabilities suffered by it arising out of its activities as general partner, except in the case of
misconduct or negligence. As a limited partnership, the limited partners may not be assessed for
additional capital contributions and it is possible that the general partner could be liable if the
assets of the partnerships are not sufficient to pay their liabilities. However, the Group
considers that the risk of any such loss is not material. Therefore, the maximum exposure for
Cronos to losses as a result of its involvement with the US Limited Partnership Programs at March
31, 2005 and December 31, 2004, was $2.2 million and $3.1 million, respectively, representing the
total amount due for management fees and other items from the partnerships. Under the second form, the Group has a 50% equity investment in an entity known as the Joint
Venture Program or CF Leasing Limited. The Joint Venture Program is a container purchase entity
that was established in 2002 to acquire and lease marine cargo containers to third parties. It is
a bankruptcy-remote, special purpose entity organized under the laws of Bermuda. Its objective is
to generate income for distribution to the equity holders or for reinvestment in additional
equipment and to realize the residual value of the container equipment at the end of its useful
economic life. The Joint Venture Program is accounted for using the equity method. The Group has
determined that the Joint Venture Program is not a variable interest entity as defined by FIN 46R.
At March 31, 2005 and December 31, 2004 respectively, the Joint Venture Program had total assets of
$143 million and $130.5 million, and total liabilities of $108.6 million and $100.2 million. For
the three month periods ended March 31, 2005 and 2004, the Joint Venture Program reported net
income of $1.5 million and $1.1 million, respectively. At March 31 2005 and December 31, 2004,
respectively, the carrying value of the Groups investment in the Joint Venture Program
approximated its underlying equity in the net assets of the program. The maximum exposure for
Cronos to losses as a result of its involvement with the Joint Venture Program at March 31, 2005
and December 31, 2004, was $17.5 million and $15.5 million, respectively, representing the total of
its equity investment in the Joint Venture Program and the management fees due to Cronos from the
program. At March 31, 2005 and December 31, 2004, the retained earnings of the Group represented
by unremitted retained earnings of the Joint Venture Program were $6 million and $4.7 million,
respectively. 10




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##### Table of Contents



The Cronos Group 7. Container equipment Container equipment is net of accumulated depreciation of $121.3 million and $128 million at
March 31, 2005 and December 31, 2004, respectively. The Group reviews the carrying value of its Owned Container equipment when changes in
circumstances require consideration as to whether the carrying value of the equipment may have
become impaired, pursuant to SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived
Assets. Management considers assets to be impaired if the carrying value of the asset exceeds the
future projected cash flows from use and eventual disposition (undiscounted and without interest
charges). When impairment is deemed to exist, the assets are written down to fair value. The
Group periodically evaluates future cash flows and potential impairment of its fleet by container
type rather than for each individual container. Therefore, future losses could result for
individual container dispositions due to various factors including age, condition, suitability for
continued leasing, as well as geographic location of the containers. In addition, management
judgment is required in estimating future cash flows from container operations. Accordingly, the
estimates may not be indicative of the amounts that may be realized in future periods. 8. Hedging transactions and derivative financial instruments The purpose of Cronos foreign currency hedging activities is to reduce the risk that
transactions that are denominated in non US dollar currencies will be affected by adverse exchange
rate movements between the US dollar and the sales transaction currency. During the three months
ended March 31, 2004, $0.1 million after taxes was credited to other comprehensive income
representing the increase in the fair value of forward contracts. In addition, $0.2 million was
reclassified from other comprehensive income to equipment trading revenue on the contracted sales
agreement performance dates. The estimate of fair value was based on the estimated replacement
cost of each hedge. The final forward contract expired in June 2004. 9. Amounts payable to Managed Container Programs Amounts payable to Managed Container Programs include amounts payable to related parties of
$12.6 million and $11.7 million at March 31, 2005 and December 31, 2004, respectively. 10. Debt and capital lease obligations Debt and capital lease obligations are secured by container equipment and include amounts due
within twelve months of $10.1 million and $13.8 million at March 31, 2005 and December 31, 2004,
respectively. Interest rates under these facilities range from 3.9% to 6.4%, and they extend to
various dates through to 2014. All of the debt and capital lease facilities involve agreements between subsidiaries of the
Company and financial institutions. The Company has provided parent company guarantees for $69.2
million of the outstanding debt and capital facilities which provide that, in the event of a
default by the subsidiary, the Company will pay all amounts due under the agreements as they fall
due. Based on March 2005 interest rates, the maximum potential amount of future payments for the
guaranteed debt and capital lease facilities is $86.3 million. At March 31, 2005, the fair value
of the facilities exceeded the carrying value by $0.1 million. The estimate of fair value was
based on borrowing rates currently available to the Group for debt with similar terms and average
maturities. The debt and capital lease facilities are secured by container equipment. The Group
receives free and clear title to the collateralized container equipment once all payments due under
a facility have been made. In the event that the Group cannot make the payments due under a debt
or capital lease obligation facility, the financial institutions are entitled to recover the
collateralized equipment and either use the related cash flows or sell the equipment and take the
sale proceeds to discharge outstanding obligations of the Company. The Company considers that the
cash flows and / or sales proceeds generated by the collateralized equipment would be sufficient to
cover outstanding obligations. 11




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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 At March 31, 2005, the
Group had outstanding orders to purchase $16.1 million of container equipment. ii. Parent Guarantee under Agreements with Private Container Programs The Company has provided parent guarantees for certain agreements between wholly owned
subsidiaries of the Company and Private Container Programs. The agreements are in the form of a
master lease and provide that the subsidiary companies make payments to the Private Container
Programs based on rentals collected after deducting direct operating expenses and the income earned
by the subsidiary company for managing the containers. The subsidiary company is not liable to
make payments to the Private Container Program if the containers are not placed on a lease or if a
lessee fails to pay the lease rentals. At each financial statement date, the amounts due under each agreement are recorded as a
liability and disclosed under amounts payable to Managed Container Programs. The amount payable at
March 31, 2005, was $4.5 million. The terms of the guarantees generally obligate the Company to
ensure payments and other obligations of the subsidiary companies are performed on a timely basis
and in accordance with the terms of the agreement. The agreements with the Private Container Programs expire between 2005 and 2015. Should a
default occur, the Company would be required to make the contracted payments on behalf of the
subsidiary companies over the remaining term of the agreements or until such time as the default
was remedied. Based on the $4.5 million earned by the Private Container Programs for the first
quarter of 2005, the Company estimates that the maximum amount of future payments would be $72.7
million. The fair value of the estimated amount of maximum future payments is $61.5 million. iii. Guarantees under fixed non-cancellable operating leases Certain subsidiaries of the Group have fixed operating lease agreements for container
equipment with Private Container Programs. The Company has provided parent company guarantees for
the $26.8 million of minimum future lease payments outstanding under these agreements at March 31,
2005. The agreements provide that, in the event of a default by the subsidiary, the Company will
pay all amounts due under the agreements as they fall due. The agreements contain purchase options
which allow the Group to acquire the containers after a period of ten years. As of March 31, 2005,
the future minimum annual lease payments under the non-cancellable operating leases were: US dollar amounts in thousandsApril 1 to December 31, 2005
    
    $
    3,9972006
    
    
    5,1932007
    
    
    2,5572008
    
    
    2,5572009
    
    
    2,5572010 and thereafter
    
    
    9,945Total
    
    $
    26,806
 12




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##### Table of Contents



The Cronos Group iv. Agreements with Private Container Programs  early termination options Approximately 65% (based on original equipment cost) of the agreements with Private Container
Programs contain early termination options, whereby the container owner may terminate the agreement
if certain performance thresholds are not achieved. At March 31, 2005, approximately 42% (based on
original equipment cost) of total agreements with Private Container Programs were eligible for
early termination. Cronos believes that early termination of these agreements by the Private
Container Programs is unlikely. v. Agreements with Private Container Programs  change of control provisions Approximately 60% (based on original equipment cost) of the agreements with Private Container
Programs provide that a change in ownership of the Group, without the prior consent of the
container owner, may constitute an event of default under the agreement. In substantially all of
these agreements, the consent of the container owners may not be unreasonably withheld. In the
event that consent is not obtained, 36% of total agreements may require the Group to transfer
possession of the equipment to another equipment manager. Such transfer of possession may result
in the Group incurring certain costs. The remaining 24% of total agreements can elect for the
Group to purchase the equipment pursuant to the terms of their respective agreements, generally a
stipulated percentage (determined by age of the equipment) of the original cost of the equipment. vi. Sale of Amersham Estate In 2003, the Group secured two judgments against Stefan M. Palatin, a former chairman of the
Group, from the UK courts aggregating approximately $2.3 million, and secured two charging orders
(the Cronos Charging Orders), in the nature of liens, to enforce the judgments against Mr.
Palatins beneficial interest in an estate located in Amersham, England (the Amersham Estate).
The first charging order secured by Cronos was in respect of the remaining balance, and related
interest, owed under a loan note by Mr. Palatin. The Group had established a reserve against for
the principal balance of $1.280 million in prior years. The second charging order was secured in
respect of additional amounts owed by Mr. Palatin for which the Group had not recorded a
receivable. The Group brought an action (the Foreclosure Action) in the UK courts seeking to foreclose
the Cronos Charging Orders and obtain an order of sale for the Amersham Estate to satisfy the
judgments secured against Mr. Palatin. On June 25, 2004, the High Court of Justice, London,
entered its order, upon the application of the Group, granting the Group possession of the Amersham
Estate, and directing that the Estate be sold and the net proceeds of sale applied in satisfaction
of the Cronos Charging Orders, aggregating $2.3 million. The Court also awarded the Group interest
on this sum from July 8, 2003 and costs. On December 17, 2004, the Group entered into a contract
of sale for the Amersham Estate. In December 2004, the Group conducted a review of the amount due under the loan note and
concluded that it was recoverable. Accordingly, the $1.280 million provision that had previously
been recorded against the principal balance of the loan note was reversed and the receivable
reinstated. In addition, the Group conducted a review of the remaining proceeds of $1.333 million expected
on the sale of the Amersham Estate, comprising the second charging order and interest due in
connection with the first and second charging orders, and concluded that as these items represented
contingent gains, they should not be recognized until the consummation of the sale of the Amersham
Estate and the settlement of all contingencies requisite to the distribution of funds to the Group. The sale of the Amersham Estate was completed in January 2005 and the Group received $3.220
million in respect of the Cronos Charging Orders, related interest and costs. This receipt
included $1.280 million in respect of the repayment of the outstanding loan note, $1.333 million in
respect of the contingent gains and $0.607 million in respect of the costs that had been awarded to
the Group. Accordingly, a $1.333 million gain was recognized in the first quarter of 2005 on the
completion of the sale of the property and on the distribution of the amounts due to Cronos. 13




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##### Table of Contents



The Cronos Group vii. Contrin Settlement Since 1983, the Group has managed containers for Austrian investment entities collectively
known as Contrin. As the Group has previously reported, since August 2000 the Group has defended
three lawsuits brought by Contrin, one in Luxembourg and two in the United Kingdom. On November
17, 2003, the Group entered into a settlement (the Settlement Agreement) with Contrin. The terms of the Settlement Agreement detailed the payment dates for amounts totalling $3.5
million to Contrin. Cronos calculated that the present value of the total $3.5 million future cash
payments under the Settlement Agreement, discounted using an appropriate risk-free interest rate,
was $3.3 million and has charged interest to the Companys income statement over the period for
performance of the Settlement Agreement using the effective interest rate method. In accordance
with the terms of the Settlement Agreement, the Group has made payments aggregating $2.613 million
to Contrin comprising installment payments of $0.550 million and a further payment of $2.063
million in February 2005 from the proceeds of the Amersham Estate. In the first quarter of 2005, an agreement was reached among the Group, Contrin and the
liquidator of Transocean Equipment Manufacturing and Trading Limited (TOEMT) under the terms of
which, Contrin will be allocated surplus proceeds from the sale of the Amersham Estate in an amount
sufficient to fully discharge the Groups remaining payment obligations to Contrin under the
Settlement Agreement. This agreement was subject to Court approval. On April 11, 2005, the court
entered its order approving the February settlement. Accordingly, the Groups financial
obligations to Contrin under the Settlement Agreement have now been fully discharged and a $0.7
million provision that had previously been recorded against the Settlement Agreement was reversed
to the income statement in the first quarter of 2005. viii. TOEMT Since the 1980s the Group has managed containers for Transocean Equipment Manufacturing and
Trading Limited (TOEMT (UK)), an English company. A separate company by the same name was
registered in the Isle of Man (TOEMT (Isle of Man)). Both TOEMTs are in liquidation in England,
represented by the same liquidator. When the Group learned of the insolvency proceeding commenced
on behalf of TOEMT (UK) in 1998, it set aside the distributions payable with respect to the
containers managed for TOEMT in a separate bank account pending clarification of the proper
claimant to the distributions. The Group turned over the set-aside distributions (amounting to approximately $1.3 million) to
the liquidator in December 2003. As of December 31, 2004, only nine (9) containers remained in the
portfolio of containers managed by the Group for TOEMT. As part of the February 25, 2005
settlement agreement described above, the Group agreed to purchase the remaining nine containers,
effective January 1, 2005. In return, the liquidator of TOEMT has agreed to drop claims with
respect to the turnover of the $1.3 million and the Groups management of containers for TOEMT. As disclosed in, Part II Item 1  Legal Proceedings, on December 13, 2004, the liquidator
filed an ordinary application (in the nature of a complaint) in the UK High Court of Justice
against the Group and two of its subsidiaries, Cronos Containers N.V. and Cronos Containers
(Cayman) Limited. The Group believes the liquidators claims are wholly without merit, and intends to vigorously
defend them. The estimate of possible losses ranges from nil to $55 million. 14




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##### Table of Contents



The Cronos Group 
 Item 2  Managements Discussion and Analysis of Financial Condition and Results of Operations 
 General The Group generates revenues by leasing to ocean carriers marine containers that are owned
either by Managed Container Programs, comprising US Limited Partnership Programs, the Joint Venture
Program and Private Container Programs, or by the Group itself  Owned Containers. These leases,
which generate most of the Groups revenues, are generally operating leases. All containers, whether owned or managed, are operated as part of a single fleet. The Group
has discretion over which ocean carriers, container manufacturers and suppliers of goods and
services it deals with. Since the Groups agreements with the owners of Managed Container Programs
contain leases within the scope of SFAS No. 13  Accounting for Leases (SFAS 13), they are
accounted for in the Groups financial statements as leases under which the container owners are
lessors and the Group is lessee. In the first three months of 2005, 94% of payments to owners of
Managed Container Programs represented agreements which generally provided that the amounts payable
to container owners were based upon the rentals to ocean carriers after deducting direct operating
expenses and the income earned by Cronos for managing the equipment. The remaining 6% of payments
to Managed Container Programs represented agreements under which there were fixed payment terms.
Minimum lease payments on the agreements with fixed payment terms are included in Note 11 to the
condensed unaudited consolidated financial statements herein. 15




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##### Table of Contents



The Cronos Group Market Overview During the first quarter of 2005, the market for leased containers remained strong, with
Cronos able to achieve the highest first quarter utilisation levels in the Companys history.
Traditionally, leasing companys experience some slowdown in demand in the first quarter of a year
as shipping lines reduce their activity during Chinese New Year holidays, and Cronos did see a
slight reduction in demand from the previous quarter. Shipping lines in 2005 are reporting better
success at moving their container equipment into demand locations, which has resulted in a better
balance between shipping line requirements and leasing company availability. This is set against a
background of unprecedented activity throughout 2004 when demand often exceeded supply. Overall, the utilization rates for leased containers remain at historically high levels and
demand remains strong for all container types. The following table summarizes the combined
utilization of the Cronos container fleet at each of the dates indicated (based on approximate
original equipment cost). March 31,
    
    December 31,
    
    March 31,2005
    
    2004
    
    2004Utilization of Cronos container fleet
    
    
    93
    %
    
    
    94
    %
    
    
    90
    %
 In 2004, global container trade experienced strong growth for the third successive year and
the majority of the leading shipping lines reported earnings growth. This was due primarily to the
pace of growth in the volume of trade between China and other countries. Off-hire inventories of containers declined throughout the world in 2004 as shipping lines
employed more leased containers to meet the growth in containerised trade. At March 31, 2005,
Cronos inventories of off-hire containers were 20% lower than at the same time in 2004. This
decline in inventories has resulted in substantial decreases in storage expenses. Declining
inventories have also contributed to an increase in the proceeds realized on the sale of used
containers, as fewer containers are available to meet the demand of buyers. Cronos will continue
to dispose of off-hire inventories in locations where sales prices equal or exceed internal
economic targets, and Cronos expects the rate of disposals to increase in 2005 if the leasing
market shows signs of a significant slowdown. Based on current forecasts for world trade growth and predictions from industry analysts that
demand will remain strong in 2005, Cronos does not expect a significant decline in utilization
rates in 2005. The increased volume of trade in recent years resulted in shortages of both containership and
container capacity. Shipping lines have embarked on a major program of new ship building and the
total world order book is at record levels for new containerships that will be delivered in 2005
and 2006. Based on current orders, it is predicted that the capacity of the worlds containership
fleet will exceed 10 million TEU by the end of 2007 compared to less than 7 million TEU at the
beginning of 2004. The strong increase in trade volumes in recent years has led to increasing port and railroad
congestion in certain locations, particularly in the US and Europe. This has increased the
turnaround time for containerships and containers, and further reduced the amount of available
capacity. In the first quarter of 2005, Cronos experienced a strong demand for new containers, and was
able to take delivery of $40 million of new equipment, of which approximately 74% has been
committed to initial leases. Leasing companies have reported that the increase in activity
following Chinese New Year has been slower than in 2004, and as a result the total level of new dry
cargo container inventories in China is higher than expected. Cronos will monitor industry
inventories of new dry cargo containers to determine if there are any potential market
implications. Currently, Cronos expects to continue to place orders for new equipment, across all
product types, throughout 2005 in order to keep pace with customer demands. 16




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##### Table of Contents



The Cronos Group The current price for a new twenty-foot dry cargo container is approximately $2,250 compared
to a price of $2,000 in the first quarter of 2004. Manufacturers indicate that there is unlikely
to be a major reduction in the price of new containers in the near future due to the recent
increase in the price of steel and raw materials such as iron ore. Accordingly, although container
prices may fluctuate in the near term, the long-term outlook for container prices continues to show
an inflationary bias tied to energy costs, steel prices and interest rates. Cronos has booked
sufficient production space with the container manufacturers to meet its current requirements. The Group has not undertaken any major repositioning moves since the first calendar quarter of
2004, due primarily to the shortage of containership slot capacity. If suitable carriers can be
sourced, the Group will reposition off-hire equipment from the US east coast in 2005 in order to
take advantage of the strong demand for containers in the Asian trade routes. The objective of
each move is to improve future profitability, as savings in storage expense and increased future
lease revenues should exceed the once-off cost of repositioning the containers. Item 1  Business in the Companys 2004 Form 10-K for a detailed description of the
principal risks that attend the Company and its business. 17




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##### Table of Contents



The Cronos Group Review of Cronos Operations Container Fleet Of the $40 million of new container equipment added to the Cronos fleet in the first quarter
of 2005, $23 million was acquired for the Joint Venture Program, $11 million was acquired for Owned
Container operations and $6 million was acquired for Private Container Programs. Dry cargo containers accounted for 55% of the $40 million new container investment, tank
containers for 20%, refrigerated containers for 14% and dry freight specials for 11%. Cronos Fleet (in TEU thousands) at,March 31,
    
    
    December 31,
    
    
    March 31,2005
    
    
    2004
    
    
    2004US Limited Partnership Programs
    
    
    84.0
    
    
    
    86.4
    
    
    
    92.2Joint Venture Program
    
    
    73.3
    
    
    
    68.2
    
    
    
    40.8Private Container Programs
    
    
    163.7
    
    
    
    161.1
    
    
    
    166.6Owned Containers
    
    
    125.7
    
    
    
    123.6
    
    
    
    115.4Total Fleet
    
    
    446.7
    
    
    
    439.3
    
    
    
    415.0
 The Group operates a diversified fleet of containers. Specialized containers, comprising
refrigerated containers, tanks and dry freight specials, accounted for 48% of the Cronos owned
fleet (based on original equipment cost) at March 31, 2005. Due to their specialized nature,
demand for certain of these containers is less likely to be affected by global economic downturns.
The following table summarizes the composition of the total fleet at March 31, 2005, by operating
segment, based on original equipment cost. US Limited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned
    
    
    TotalPrograms
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    FleetDry cargo containers
    
    
    82
    %
    
    
    60
    %
    
    
    85
    %
    
    
    52
    %
    
    
    71
    %Refrigerated containers
    
    
    15
    %
    
    
    17
    %
    
    
    3
    %
    
    
    23
    %
    
    
    14
    %Tank containers
    
    
    3
    %
    
    
    15
    %
    
    
    8
    %
    
    
    9
    %
    
    
    8
    %Dry freight specials:CPCs
    
    
    
    
    
    
    6
    %
    
    
    
    
    
    
    8
    %
    
    
    3
    %Rolltrailers
    
    
    
    
    
    
    
    
    
    
    1
    %
    
    
    5
    %
    
    
    2
    %Other dry freight specials
    
    
    
    
    
    
    2
    %
    
    
    3
    %
    
    
    3
    %
    
    
    2
    %Total
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
    
    
    100
    %
 18




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##### Table of Contents



The Cronos Group 
 Three Months Ended March 31, 2005 Compared to Three Months Ended March 31, 2004 Overview Cronos reported net income of $3.6 million in the first quarter of 2005 compared to $0.8
million in the corresponding period of 2004. The increase in profitability can be attributed
primarily to:  §
    Strong leasing demand, reflecting the high volume of global container trade;§
    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;§
    Income recognized on the recovery of amounts owed by a related party; and,§
    Discharge of amount payable to a Private Container Program. Analysis & Discussion Gross lease revenue (GLR)of $34 million for the first quarter of 2005 was $3.1 million, or
10%, higher than for the same period in 2004. Of the increase, $1.9 million was due to the
increase in fleet size and $1.2 million was due to the combined effect of the change in utilization
and per diem rates. GLR increased for almost all product types, with the exception of refrigerated
containers where GLR declined by $0.4 million due primarily to the disposal of older equipment at
the end of its economic life. Direct operating expensesof $4.6 million in the first three months of 2005 were $2.5 million,
or 35%, lower than in the corresponding period of 2004 due primarily to reductions in
inventory-related and activity-related costs:  §
    Storage expenses declined by $0.7 million due to the reduction in off-hire container inventories;§
    Repositioning expense declined by $1.1 million (discussion in Market Overview above); and,§
    Handling and repair costs declined by a total of $0.5 million reflecting the decline in
container redeliveries. Operating segment information USLimited
    
    
    Joint
    
    
    PrivatePartnership
    
    
    Venture
    
    
    Container
    
    
    Owned(in thousands)
    
    Programs
    
    
    Program
    
    
    Programs
    
    
    Containers
    
    
    TotalQuarter ended March 31, 2005- gross lease revenue
    
    $
    6,160
    
    
    $
    4,990
    
    
    $
    11,861
    
    
    $
    10,993
    
    
    $
    34,004- direct operating expenses
    
    
    (863
    )
    
    
    (351
    )
    
    
    (1,825
    )
    
    
    (1,513
    )
    
    
    (4,552
    )- net lease revenue
    
    
    5,297
    
    
    
    4,639
    
    
    
    10,036
    
    
    
    9,480
    
    
    
    29,452- direct financing lease income
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    353
    
    
    
    353- payments to Managed Container Programs
    
    
    (3,971
    )
    
    
    (4,217
    )
    
    
    (9,069
    )
    
    
    
    
    
    
    (17,257
    )- container depreciation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (4,484
    )
    
    
    (4,484
    )- container interest expense
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,606
    )
    
    
    (1,606
    )Segment profit
    
    $
    1,326
    
    
    $
    422
    
    
    $
    967
    
    
    $
    3,743
    
    
    $
    6,458
 19




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##### Table of Contents



The Cronos Group US Limited Partnership Programs:Segment profit increased to $1.3 million in the three
months ended March 31, 2005, compared to $0.9 million for the same period of 2004.  §
    Net lease revenuefor this segment increased by $0.6 million over the corresponding
period in 2004 as the improvement in fleet utilization resulted in increased GLR and lower
inventory-related direct operating expenses. This more than offset the effect of the
disposal of containers at the end of their useful economic life.§
    Payments to US Limited Partnership Programsincreased by $0.2 million, reflecting the
increase in net lease revenue for this segment. Joint Venture Program:Segment profit increased to $0.4 million in the first quarter of 2005
from $0.3 million in the same period of 2004.  §
    Net lease revenuefor this segment increased by $1.7 million, or 56%, in the first three
months of 2005 reflecting the significant investment in additional equipment for the
program.§
    Payments to the Joint Venture Programincreased by $1.5 million in the first quarter of
2005, which is in line with the increase in net lease revenue for this segment. Private Container Programs:Segment profit increased to $1 million in the three months ended
March 31, 2005, from $0.3 million in the same period of 2004.  §
    Net lease revenueincreased by $1.8 million when compared to the first three months of
2004. The improvement in fleet utilization resulted in a $0.5 million increase in GLR and
a $1.2 million reduction in inventory-related and activity-related direct operating
expenses.§
    Payments to Private Container Programsin the first quarter of 2005 increased by $1.1
million over the corresponding period of 2004. The ratio of segment profit to net lease
revenue increased to 10% in the quarter ended March 31, 2005, from 4% 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. 20




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The Cronos Group Segment profit on Owned Containersfor the first quarter of 2005 increased by $0.7 million, or
24%, over the same period in 2004.  §
    Net lease revenuesof $9.5 million were $1.5 million, or 19%, higher than in the
corresponding period of 2004 reflecting the combined effects of increases in utilization,
fleet size and lease per diems;§
    Container depreciationof $4.5 million was $0.3 million, or 7%, 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;§
    Container interest expenseof $1.6 million was $0.5 million, or 43%, higher than in the
first quarter of 2004 due primarily to increases in the three month US dollar interest rate
since the first quarter of 2004. Equipment trading revenueof $0.1 million for the first quarter of 2005 represented a
transaction undertaken in Scandinavia for which the Group used its relationships with equipment
manufacturers to assist a third party to design and acquire their own equipment and organize
delivery to designated locations. Equipment trading expenses represented equipment and related
costs for this activity. The profit generated by equipment trading activity in the first quarter
of 2005 was $0.3 million lower than in the same period of 2004. Commissions, fees and other incomeof $1.1 million in the first quarter of 2005 were $0.5
million higher than in the same period of 2004. The main changes were attributable to:  §
    A $0.2 million increase in design and consultancy fee income reflecting the successful
first phase of a project undertaken with a European customer. This project is expected to
generate $0.5 million in additional fee income in the remainder of 2005;§
    An increase of $0.2 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. 21




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The Cronos Group Gain on settlement of litigation:In January 2005, the Group completed the sale of the
Amersham Estate. The order for the sale of the Amersham Estate had been directed by the UK courts
so that the proceeds of the sale could be applied to discharge two charging orders that the Group
had secured against Mr. Palatin and his beneficial interest in the Amersham Estate. The Group
received a total of $2.613 million in respect of the two charging orders and related interest. The first charging order secured by Cronos was in respect of the remaining principal balance
of $1.280 million owed under a loan note by Mr. Palatin and related interest of $0.347 million. The second charging order was secured in respect of additional amount of $0.5 million owed by
Mr. Palatin and related interest of $0.486 million. In December 2004, the Group conducted a review of the $2.613 million proceeds expected on the
sale of the Amersham Estate. The Group concluded that the loan note subject to the first charging order was recoverable and
accordingly, the $1.280 million reserve that had previously been recorded against the principal
balance of the loan note in 1997 was reversed and the receivable reinstated in December 2004. The remaining proceeds of $1.333 million expected on the sale of the Amersham Estate,
comprised the second charging order and interest due in connection with the first and second
charging orders. A receivable had not previously been recorded for these items. The Group
concluded that as these items represented contingent gains, they should not be recognized until the
consummation of the sale of the Amersham Estate and the settlement of all contingencies requisite
to the distribution of funds to the Group. Accordingly, the $1.333 million of additional proceeds
were recognized in the first quarter of 2005 on the completion of the sale of the property and the
distribution of the amounts due to Cronos under the charging orders. Selling, general and administrative expensesof $5.8 million in the first quarter of 2005 were
$1.6 million higher than for the corresponding period of 2004. The primary reasons for the
increase were:  §
    A $0.6 million increase in manpower costs due in part to changes in salary levels in
line with inflation and other pay awards and in part 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 $0.4 million in legal costs for the TOEMT and Palatin legal actions;§
    $0.2 million of severance costs for a minor
restructuring program that was announced and
implemented in the first quarter of 2005; and,§
    A $0.1 million increase in the expense recognized for a stock appreciation rights plan
reflecting a larger increase in the Group share price in 2005 than in the prior year. 22




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The Cronos Group Recovery of amount payable to a Managed Container Program:In 2003 the Group entered into a
Settlement Agreement with Contrin. The Settlement Agreement provided for Cronos to pay Contrin a total of $3.5 million if the
Group was unable to foreclose the Cronos Charging Orders against the Amersham Estate by the third
anniversary of the effective date of the settlement (December 17, 2006). In addition, had the net
proceeds of foreclosure of the Amersham Estate in satisfaction of the Cronos Charging Orders and
any charging order obtained by the Group to enforce the Austrian Judgment totaled less than $3.5
million, then the Group agreed to make up the difference. In 2003, the Company calculated that the present value of the total $3.5 million future cash
payments under the Settlement Agreement installment payment plan, discounted using an appropriate
risk-free interest rate, was $3.3 million. In addition, the Group had previously recorded a
reserve of approximately $3 million against the Contrin claims. Interest has been charged to the
Companys income statement over the period for performance of the Settlement Agreement using the
effective interest rate method. Under the Settlement Agreement installment payment plan, Cronos paid Contrin $0.3 million in
November 2003 and $0.250 million in February 2004. Cronos made an additional payment of $2.063
million on the completion of the sale of the Amersham Estate and the distribution to Cronos of the
amounts due to Cronos under the two charging orders in the first quarter of 2005. The balance of
$0.887 million was due on or before November 17, 2006. In the first quarter of 2005, the Group, Contrin, and the TOEMT liquidator settled their
differences with respect to the allocation of the Amersham Surplus Proceeds, agreeing to an
allocation of such proceeds between Contrin and the liquidator. This agreement was approved by the
Court supervising the TOEMT liquidation in April 2005. Under the agreement, Contrin will be
allocated Amersham Surplus Proceeds in an amount sufficient to fully discharge the Groups
remaining payment obligations to Contrin under the terms of Settlement Agreement. In March 2005, the total payable to Contrin in the Cronos financial statements of $0.790
million, comprising the balance of the 1997 reserve of $0.703 million and interest accrued since
the date of the 2003 Settlement Agreement of $0.087 million was recognized as income. Income Taxesof $0.5 for the first quarter of 2005 were $0.2 million higher than in the first
quarter of 2004 reflecting the increase in Cronos profitability. The effective tax rate of 15% for
the first three months of 2005 is based on the best estimate by the Group of the expected tax rate
to be applicable for the 2005 fiscal year. Equity in earnings of affiliatefor the first quarter of 2005 was $0.7 million compared to
$0.5 million for the same period in 2004. This increase in earnings is primarily due to the
expansion of the container fleet in the Joint Venture Program. 23




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The Cronos Group Liquidity and Capital Resources The Group uses cash from a number of sources in order to meet its operating and other cash
flow commitments. The primary sources of cash generated by operating activities are gross lease revenue provided
by the Groups container fleet, fee revenues from its Managed Container Programs and other parties
and income earned on equipment trading and direct financing lease transactions. Cash is utilized to meet costs relating to day-to-day fleet support, payments to Managed
Container Programs, selling, general and administrative expenses, interest expense, servicing the
current portion of long-term borrowings, financing a portion of Owned Container acquisitions,
providing equity contributions to fund 10% of the capital requirements of the Joint Venture Program
and making payments to container manufacturers on equipment trading transactions. Cash flows relating to gross lease revenue are largely dependent upon the timely collections
of lease revenues from shipping lines. At March 31, 2005, the amounts due from lessees was $25.7
million representing an increase of $0.6 million from the position at December 31, 2004. This
increase is due to the increase in the amounts billed for gross lease revenue and disposal proceeds
in the first quarter of 2005. Based on loss experience for the last twelve years, bad debts have
approximated 1% of lease revenues. The Group monitors the aging of lease receivables, collections
and the credit status of existing and potential customers. There is always a risk that some
shipping lines may experience financial difficulty. Any resultant material increase in the level
of bad debts could potentially affect the ability of the Group to meet its operating and other
commitments. The Group utilizes the proceeds arising from the transfer of equipment held for resale to
Managed Container Programs to pay the related amount due to container manufacturers. At March 31,
2005, the Group held $26.3 million of container equipment for resale to Managed Container Programs,
including the Joint Venture Program. This represented a $9.2 million increase over the position at
December 31, 2004, and was due to a significant increase in the number of containers ordered by the
Group due to the strong demand for leased containers, an increase in the number of Managed
Container Programs seeking to invest in container equipment and an increase in the level of funding
available to programs such as the Joint Venture Program. Proceeds generated by the sale of Owned Containers at the end of their economic life are
utilized to repay the related balance of any debt or capital lease facility outstanding. The Group utilizes surplus cash balances to make short-term debt repayments and thereby reduce
interest expense. Such amounts may be redrawn at a later date for operating activities and other
purposes. The ability of the Group to add new equipment to both its owned and managed fleets was one of
the main reasons for the improvement in profitability in the first quarter of 2005 and in recent
years. Cronos recognizes that its ability to secure funding from third parties in order to expand
its container fleet is crucial to its future growth and profitability. Traditionally, Cronos has utilized funding from each of its operating segments to expand its
container fleet. Owned Containers:The primary debt facilities include financial covenants that are tested on a
quarterly basis and measure minimum tangible net worth, the maximum level of total liabilities to
tangible net worth, the maximum level of debt and capital lease obligations to tangible net worth,
interest expense coverage and debt service coverage. At March 31, 2005, the Group was in
compliance with these covenants. Future compliance with the covenants will depend on the ability
of the Group to report a minimum level of income before income taxes at the end of each calendar
quarter for the preceding twelve month period and to maintain minimum levels of debt service
coverage. The breach of a covenant constitutes an event of default. Under the terms of a loan facility, the Group is required to hold minimum balances on deposit
in restricted cash accounts. The calculation of the minimum balance is based on projected future
interest payments and the balance required will usually increase in line with the loan balances.
The accounts would be utilized in the event that adequate funds were not available to meet the
scheduled debt service payments. 24




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The Cronos Group At March 31, 2005, the Group had $134 million of available container borrowing facilities
under which $122 million was outstanding. In addition, the Group had $2 million of unutilized
credit facilities that are available, if required, for operating activities. The primary source of debt funding available to the Group is its revolving credit facility
(the Revolving Credit Facility) which the Group has utilized to fund the acquisition of new
equipment and to refinance existing debt and capital lease facilities. New equipment is funded 80%
by debt and 20% by cash provided by the Group. In September 2004, the Revolving Credit Facility
was amended to the effect that the revolving credit period was extended to September 23, 2005, and
unless the revolving credit period is extended on that date, the balance outstanding as of
September 23, 2005, will be repaid over five years. The maximum commitment of the lenders under
the Revolving Credit Facility is $70 million. At March 31, 2005, the balance outstanding under
the Revolving Credit Facility was $64 million. The balance of funds available under the Revolving
Credit Facility will be utilized to purchase new equipment during 2005. The Group usually makes
monthly repayments under the Revolving Credit Facility and, from time to time, may sell equipment
that has been financed by the facility to Managed Container Programs. Any such reductions to the
facility may be redrawn to fund the acquisition of new equipment subject to the satisfaction of
certain conditions relating to the maintenance of minimum collateral levels. The Revolving Credit Facility is subject to annual review, and the ability of the Group to
expand its owned container fleet may be constrained if the revolving credit period is not renewed
on an annual basis or if the Group cannot provide the 20% cash required for new container
acquisitions. In addition to the Revolving Credit Facility, the Group finances the acquisition of equipment
with term debt and capital lease facilities. In 2004, the Group secured an additional $9.2 million
of funding under such facilities. The Group enters into annual discussions with lenders in order
to increase the amounts available under existing facilities and to add new facilities. Based on
current discussions with a number of lenders, the Group expects that the amount of funding provided
by these lenders will increase in 2005. Joint Venture Program:The Joint Venture Program has been a major source of funding for the
Group since its inception in 2002. At March 31, 2005, the Joint Venture Program had capacity for an
additional $53 million of new equipment. Additional debt and equity funding is subject to annual
review. Therefore, the future growth of the Joint Venture Program may be constrained if increased
equity and debt funding is not approved on an annual basis or if the Group cannot provide the 10%
cash required for its equity contribution. The Group is currently negotiating an expansion of the Joint Venture Program in order to
increase its levels of debt and equity funding. The indebtedness of the Joint Venture Program
could potentially be securitized at a later date. In connection with the expansion of the Joint
Venture Program, the Group is considering a sale of approximately $80 million of containers to the
program. Currently, these containers are primarily financed by the Revolving Credit Facility. The
negotiations have not yet been finalized, and accordingly the expansion of the Joint Venture
Program and the sale of container assets to the Joint Venture Program may not occur. Private Container Programs:The growth experienced in global container trade in recent years
has attracted capital to this segment. Private Container Programs acquired over $20 million of new
container equipment in 2004 representing and approximately $9 million of equipment in the first
quarter of 2005. Based on current negotiations with several Private Container Programs, the Group
expects that the level of capital invested in new container equipment will grow in 2005. US Limited Partnership Programs:During 2004, the Group introduced a new US Limited
Partnership Program. This program is designed to raise a maximum of $25 million of proceeds from
limited partners and may also seek to augment the size of its container fleet by financing the
purchase of additional equipment under loan facilities secured from commercial lenders. At March
31, 2005, this program had acquired a total of approximately $4 million of new container equipment
from the Group since inception. 25




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The Cronos Group Cash Flow Statements for the Three Months ended March 31, 2005 and 2004 Cash Provided By Operating Activities:Net cash provided by operating activities during the
first quarter of 2005 was $6.6 million, an increase of 19% over the same period in 2004. The
increase was primarily due to:  §
    Increased cash collections of $6.6 million over the corresponding period in 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. The increase in cash flow attributable to these items was partially offset by:  §
    Increased distributions to Managed Container Programs of approximately $6.2 million
in the first quarter 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. In the first quarter of 2005, $24.6 million of proceeds from the sale of container equipment for
resale to Managed Container Programs was utilized to make the related payment to the container
manufacturers. Cash Used In Investing Activities:Investing activities include the acquisition of containers
for the Groups owned container fleet, the purchase of other assets related to the operation of the
worldwide Cronos office network, and equity investments in the Joint Venture Program. Net cash
used in investing activities in the first quarter of 2005 was $7.1 million and included the
following items:  §
    The Group paid $9.1 million for container equipment and equipment placed on direct
finance leases;§
    The Group invested a further $0.7 million in the Joint Venture Program to fund its
equity share of container purchases made by the program; and,§
    The Group received $2.7 million from the disposal of container equipment at the end
of its useful economic life. Net cash used in the first quarter of 2004 was $5.8 million and included the following items:  §
    The Group paid $11.9 million for new container equipment of which $5 million was
sold to a Private Container Program;§
    The Group realized a further $1.2 million on the disposal of equipment at the end of
its economic life; and,§
    The Group made a contribution of $0.1 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: Net cash used in financing activities during
the first quarter of 2005 was $5.8 million and included the following items:  §
    The Group utilized $2.4 million of debt funding to finance the purchase of container
equipment;§
    The Group made repayments of $9.4 million to financial institutions which included
$4 million prepaid to the Groups Revolving Credit Facility using surplus cash in order
to reduce interest expense;§
    The Group paid a dividend of $0.4 million to its shareholders;§
    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. 26




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The Cronos Group Net cash provided by financing activities during the first quarter of 2004 was $1.3 million and
included the following items:  §
    The Group utilized $11.9 million of debt to fund equipment acquisitions;§
    The Group repaid $10.5 million to financial institutions, which included $5 million
received on the equipment sale to a Private Container Program, $2.5 million of
scheduled repayments and $3 million prepaid using surplus cash balances to reduce
interest expense; and,§
    The Group paid a dividend of $0.1 million to its shareholders. Capital Resources Capital Expenditures and Commitments The Group purchases new containers for its own account and for resale to Managed Container
Programs and other parties. At March 31, 2005, the Group owed container manufacturers $37.3
million for equipment. The Group intends to fund $10.2 million of this equipment utilizing new and
existing debt and capital lease facilities, $26.3 million from sales to Managed Container Programs
and $0.8 million from sales to customers under equipment trading transactions. In
addition, the Group had outstanding orders to purchase container
equipment of $16.1 million
at March 31, 2005. Of this amount, the Group intends to sell $7.8 million to the Joint Venture
Program, $5.7 million to Private Container Programs and $0.4 million to a third party under an
equipment trading transaction. The remaining $2.2 million will be financed by the Group using
existing container funding facilities and cash. In February 2005, the Group acquired 100% ownership of a variable interest entity in which it
held a 0.01% share. The Group had determined that it was the primary beneficiary of the variable
interest entity in December 1993. The debt held by the variable interest entity was restructured
in February 2005. In connection with this restructuring, the Group issued a guarantee for $10
million of the outstanding debt and the lender cancelled an option to acquire 25% of the variable
interest entity. In addition, 200,000 warrants to purchase 200,000 common shares of the Company
were cancelled effective February 4, 2005. The warrants, which were exercisable at $4.41 per share
were held by the lender to the variable interest entity under the restructured debt facility. See
the 8-K report filed with the SEC on February 10, 2005. On November 11, 2004, the Board of Directors declared a dividend of 10 cents per common share,
of which 5 cents per common share was paid on January 10, 2005, for the fourth quarter of 2004, and
5 cents per common share was paid on April 15, 2005, for the first quarter of 2005. In March, 2005, subject to shareholder approval at the 2005 annual meeting of shareholders,
the Board of Directors declared a dividend of $0.06 per common share for the second quarter of
2005, payable on July 15, 2005, to shareholders of record as of the close of business on June 24,
2005. The Group believes that it has sufficient capital resources to support its operating and
investing activities for the next twelve months. Critical Accounting Policies and Estimates Critical accounting policies are those that reflect significant judgments or uncertainties,
and potentially may result in materially different results under different assumptions and
conditions. Management has identified the following critical accounting policies that should be
read in conjunction with the Groups 2004 consolidated financial statements on Form 10-K.  §
    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. 27




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The Cronos Group 
 Item 3  Quantitative and Qualitative Disclosures about Market Risk Interest rate risk:Outstanding borrowings are subject to interest rate risk. Almost 97% of
total borrowings had floating interest rates at March 31, 2005. The Group conducted an analysis of
borrowings outstanding at March 31, 2005, and found that if a 10% increase were applied to variable
interest rates, the effect would be to reduce annual cash flows by $0.4 million. Exchange rate risk:Substantially all purchases of container equipment are in US dollars.In
2004, approximately 95% of the Groups revenues were billed and paid in US dollars and
approximately 84% of expenses were incurred and paid in US dollars. For non US dollar denominated
revenues and expenses, the Group may enter into foreign currency contracts to reduce exposure to
exchange rate risk. Of the non US dollar expenses, approximately 70% were individually small,
unpredictable and were incurred in various denominations. Thus, such amounts are not suitable for
cost-effective hedging. As exchange rates are outside of the control of the Group, there can be no assurance that such
fluctuations will not adversely affect its results of operations and financial condition. By
reference to 2004, it is estimated that for every 10% incremental decline in value of the US dollar
against various foreign currencies, the effect would be to reduce cash flows by $1 million in any
given year. 
 Item 4  Controls and Procedures The principal executive and principal financial officers of the Company have evaluated the
disclosure controls and procedures of the Group as of the end of the period covered by this report.
As used herein, the term disclosure controls and procedures has the meaning given to the term by
Rule 13a-15 under the Securities Exchange Act of 1934, as amended (Exchange Act), and includes
the controls and other procedures of the Group that are designed to ensure that information
required to be disclosed by the Company in the reports that it files with the SEC under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in
the SECs rules and forms. Based upon their evaluation, the principal executive and financial
officers of the Company have concluded that the Groups disclosure controls and procedures were
effective such that the information required to be disclosed by the Company in this report is
recorded, processed, summarized and reported within the time periods specified in the SECs rules
and forms applicable to the preparation of this report and is accumulated and communicated to
management of the Group, including the principal executive and principal financial officers, as
appropriate to allow timely decisions regarding required disclosures. There have been no significant changes in the Groups internal controls or in other factors
that could significantly affect the Groups internal controls subsequent to the evaluation
described above conducted by the Companys principal executive and financial officers. 28




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The Cronos Group 
 PART II  OTHER INFORMATION 
 Item 1  Legal Proceedings The Contrin Settlement The Group manages containers for investment entities collectively known as Contrin in its
Private Container Programs segment. Approximately 1% (measured by TEUs) of the Groups fleet of
containers is owned by Contrin. As the Group reported in its 8-K report of the same date, on November 17, 2003, the Group and
Contrin entered into a settlement agreement (the Settlement Agreement) that resolved three
lawsuits that Contrin had brought against the Group, one in Luxembourg and two in the United
Kingdom. Under the terms of the Settlement Agreement, the parties undertook to pursue diligently
certain claims they had against Stefan M. Palatin, a former chairman of the Group, to prosecute
those claims to judgment, and to pursue execution of the judgments against Mr. Palatins beneficial
interest in an estate located in Amersham, England (the Amersham Estate). The Settlement
Agreement obligated the Group to pay Contrin a total of $3.5 million over the term of the
Agreement. Under the terms of the Settlement Agreement, the Group paid Contrin $0.3 million in
November 2003 and $0.250 million in February 2004. The Group prosecuted claims aggregating approximately $2.3 million against Mr. Palatin in the
UK courts, secured final judgments against Mr. Palatin in this amount (plus interest and costs),
and, on June 25, 2004, secured an order of sale of the Amersham Estate from the High Court of
Justice, London. Pursuant to the Courts order of sale secured by the Group, the Amersham Estate was sold on
January 31, 2005 for £3.4 million British pounds (at the then current exchange rate, approximately
$6.4 million). The Group received $3.2 million of the proceeds in satisfaction of the final
judgments secured against Mr. Palatin, the related interest and costs. The balance of the proceeds
(the Amersham Surplus Proceeds) from the sale of the Amersham Estate was deposited with the Court
under the terms of the Courts order of sale. An amount of $0.6 million was retained by the Group
to cover costs incurred by the Group in connection with the foreclosure. Pursuant to the
Settlement Agreement, $0.550 million of the sales proceeds paid to the Group were retained by the
Group to offset payments previously made to Contrin and $2.1 million was paid to Contrin. Under the Settlement Agreement, Contrin pursued a civil action against Mr. Palatin in the UK
to recover $2.6 million, plus interest and costs, for monies diverted to Mr. Palatin from Contrin
in 1994. Under the Settlement Agreement, any monies Contrin recovered from this action were to be
shared between the Group and Contrin. The Group is currently in litigation with Transocean Equipment Manufacturing and Trading
Limited (TOEMT), as described below. The liquidator of TOEMT secured charging orders against the
Amersham Estate, in satisfaction of default judgments he secured against Mr. Palatin, aggregating
in excess of £3 million British pounds. The liquidator asserted that, under his charging orders,
he was entitled to the entire Amersham Surplus Proceeds. In the first quarter of 2005, the Group, Contrin, and the TOEMT liquidator settled their
differences with respect to the allocation of the Amersham Surplus Proceeds, agreeing to an
allocation of such proceeds between Contrin and the liquidator. The agreement was subject to
approval of the Court supervising the TOEMT liquidation. Under the agreement, Contrin will be
allocated Amersham Surplus Proceeds in an amount sufficient to fully discharge the Groups
remaining payment obligations to Contrin under the terms of Settlement Agreement. On April 11,
2005, the court entered its order approving the February 25 settlement. Accordingly, the Groups
financial obligations to Contrin under the Settlement Agreement have now been fully discharged. See Item 2  Managements Discussion and Analysis of Financial Condition and Results of
Operations herein and Note 15 to the 2004 Consolidated Financial Statements for a discussion of
the related accounting treatment. 29




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The Cronos Group TOEMT Litigation Since the 1980s the Group has managed containers for Transocean Equipment Manufacturing and
Trading Limited (TOEMT (UK)), an English company. A separate company by the same name was
registered in the Isle of Man (TOEMT (Isle of Man)). Both TOEMTs are in liquidation in England,
represented by the same liquidator. When the Group learned of the insolvency proceeding commenced
on behalf of TOEMT (UK) in 1998, it set aside the distributions payable with respect to the
containers managed for TOEMT in a separate bank account pending clarification of the proper
claimant to the distributions. The Group turned over the set-aside distributions (amounting to approximately $1.3 million) to
the liquidator in December 2003. As of December 31, 2004, only nine (9) containers remained in the
portfolio of containers managed by the Group for TOEMT. As part of the February 25, 2005
settlement agreement, described above under The Contrin Settlement, the Group has agreed to
purchase the remaining nine containers, effective January 1, 2005. In return, the liquidator of
TOEMT has agreed to drop claims with respect to the turnover of the $1.3 million and the Groups
management of containers for TOEMT. On December 13, 2004, the liquidator filed his ordinary application (in the nature of a
complaint) in the High Court of Justice, Chancery Division, Companies Court, London, against the
Company and two of its subsidiaries, Cronos Containers N.V. (CNV) and Cronos Containers (Cayman)
Limited (CAY). See the 8-K report filed with the SEC on January 13, 2005. By the ordinary application, the liquidator seeks a declaration pursuant to Section 213 of the
UK Insolvency Act of 1986, as amended (Insolvency Act), that the respondents were knowingly
parties to the carrying on of the business of the two TOEMTs with the intent to defraud the
creditors of the two TOEMTs and / or for other fraudulent purposes, by assisting Mr. Palatin in
diverting assets from the two TOEMTs to himself, to entities in which he was interested, and/or to
his associates, otherwise than for proper purposes and otherwise than for full consideration. The liquidator alleges that the respondents knowingly were parties to the carrying on of the
business of the two TOEMTs to defraud the creditors of the two TOEMTs by reason of: 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. The liquidator further seeks a declaration pursuant to Section 213 of the Insolvency Act that
the respondents and each of them is liable to contribute to the assets of the two TOEMTs the amount
of the deficiency as regards the creditors of the two TOEMTs, which the liquidator currently
estimates to be at least $55 30




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The Cronos Group million, or, alternatively, that the respondents make such contributions to the assets of the
two TOEMTs as the Court thinks fit. The liquidator seeks an order from the Court that the respondents and each of them pay to the
liquidator any sums found to be due to him by reason of the conduct alleged above, plus interest
and costs. On May 3, 2005, the respondents filed their application with the court to set aside the
courts order granting the liquidator permission to serve his ordinary application on the
respondents and, alternatively, for an order granting respondents summary judgment against the
liquidator on his claims. The respondents anticipate that their application will be heard by the
court in June or July of 2005. The Group believes that the liquidators claims are wholly without merit and intends to
vigorously defend them. 
 Item 2  Unregistered Sales of Equity Securities and Use of Proceeds Not applicable 
 Item 3  Defaults Upon Senior Securities Not applicable 
 Item 4  Submission of Matters to a Vote of Security Holders Not applicable 
 Item 5  Other Information Not applicable 
 Item 6  Exhibits (a) Exhibits Number
    
    Exhibit31.1
    
    Rule 13a-14 Certification31.2
    
    Rule 13a-14 Certification32
    
    Section 1350 Certifications
 31




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The Cronos Group 
 Signatures Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly
caused this report to be signed on its behalf by the undersigned thereunto duly authorized. THE CRONOS GROUP SIGNATURE
    
    TITLE
    
    DATEBy
    
    /s/ PETER J. YOUNGER
    
    President and Chief Operating Officer
    
    May 13, 2005Peter J. Younger/s/ FRANK P. VAUGHAN
    
    Senior Vice President,
    
    May 13, 2005Frank P. Vaughan
    
    Chief Financial Officer,Chief Accounting Officer(Principal Financial and Accounting Officer)
 32




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The Cronos Group 
 Exhibit Index Number
    
    Exhibit
    
    Page31.1
    
    Rule 13a-14 Certification
    
    E131.2
    
    Rule 13a-14 Certification
    
    E232.1
    
    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. 33