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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)

      x

For the fiscal year ended: December 31, 2003

OR

      o

For the transition period from:                               to                               

Commission file number: 0-24464

THE CRONOS GROUP

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

Registrant’s telephone number, including area codes:

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

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

Common Shares, $2 par value per share

      Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.     YES x  NO o

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant’s knowledge, in definitive proxy or information statements incorporated by reference in PART III of this Form 10-K or any amendment to this Form 10-K.     o

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

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

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

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

The Cronos Group

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INTRODUCTORY NOTE

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

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

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

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

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

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

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

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PART I

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

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

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

          Industry Background

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

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

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

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

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

          Benefits of Leasing

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

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

          Types of Leases — to Ocean Carriers

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

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

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

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

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

          Company Strategy

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

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          Lease Profile

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

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

          Customers

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

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

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

          Fleet Profile

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

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

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

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

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

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

          Operating Segments

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

      1. Container Equity Programs (“Container Equity Programs”),

      2. Other Managed Container Programs (“Other Managed Container Programs”), and

      3. Owned Containers (“Owned Containers”).

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

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

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

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

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

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

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

          Container Equity Programs

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

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

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

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

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

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	•	General partner share equal to 5% of distributable cash generated by the partnerships’ operating activities and 1% of distributions from sales proceeds.

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

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

          Other Managed Container Programs

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

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

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

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

          Owned Containers

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

                   The Contrin Settlement

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

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

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

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

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

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

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

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

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

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

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

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

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

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

      Not Applicable

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PART II

Item 5 — Market for the Company’s Common Equity and Related Stockholder Matters

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

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

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

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

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

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

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

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

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          Equity Compensation Plan Information

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

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

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

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

          Restatement of Consolidated Financial Statements

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

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

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

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

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

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

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

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

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

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

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

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

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

	•	Activity-related expenses include agents costs and depot costs such as repairs, maintenance and handling.

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

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

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

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

          Market Overview

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

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

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

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

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

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

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          Funding

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

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

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

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

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

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

Review of Cronos Operations

     Container Fleet

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

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

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

          Per Diem Rental Rates

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

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

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

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

      Utilization

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

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

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

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

Overview

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

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

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

Analysis & Discussion

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Overview

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

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

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

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

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

Analysis & Discussion

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

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

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

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

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

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	•	Payments to Container Equity Programs decreased by $0.8 million reflecting the reduction in net lease revenue.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Liquidity and Capital Resources

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

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

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

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

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

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

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

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

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

          Capital Resources

          Capital Expenditures and Commitments

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

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

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

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

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

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

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

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

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

          Material Off-Balance Sheet Arrangements, Transactions and Obligations

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

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

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

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

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

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

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

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

      A further discussion of the Group’s involvement and transactions with the Other Managed Container Programs is provided in Item 1 — “Description of Business” herein.

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Contractual Obligations

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