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SECURITIES AND EXCHANGE COMMISSION

Form 10-K

(Mark One)

      x

For the fiscal year ended: December 31, 2002

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

      The aggregate market value of voting stock of the registrant held by non-affiliates as of March 24, 2003 (Common Shares) was approximately $21,123,430.

      The number of Common Shares outstanding as of March 24, 2003:

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

The Cronos Group

TABLE OF CONTENTS

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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. Our 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 Group is in dispute with a group of container owners over actions taken by prior management; the group of container owners has filed lawsuits against Cronos in Luxembourg and in the United Kingdom, claiming damages in excess of $3 million, before interest and costs.
	The market for the Company’s outstanding common shares is not liquid. The Company’s six largest groups of shareholders control approximately 72% of its outstanding common shares. For 2002, the average daily trading volume in the Company’s shares was 1,365.

      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 “Legal Proceedings” herein. For a discussion of the Group’s commitments and contingencies, see Note 13, “Commitments and Contingencies”, to the Company’s 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

Item 1 — Description of Business

          Introduction

      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 Barton Holding Ltd., a selling shareholder, sold in a public offering (the “Public Offering”) 3,643,000 common shares of the Company.

      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. Dry freight specials represent a small but growing segment of the world container fleet and include rolltrailers, cellular palletwide containers (“CPCs”), flatrack and open top 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 all 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 with no moving parts, other than doors and are typically made of steel. They are 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. CPCs provide shipping lines with a container with extra width for the carriage of unitized or palletized cargoes. Dry cargo containers currently constitute approximately 88% (in TEU) of the worldwide container fleet. Refrigerated containers and tank containers currently constitute approximately 5% (in TEU) of the worldwide container fleet, with open-tops and other specialized containers constituting the remaining 7%. See “Fleet Profile” below.

      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 and 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 and reduces the transit time of freight moves.

      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 16 million TEU by the end of 2002.

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

          Benefits of Leasing

      Leasing companies own approximately 44% of the world’s container fleet with the balance owned predominantly by shipping lines. Shipping lines, which traditionally operate on tight profit margins, often supplement their owned fleet of containers by leasing a portion of their equipment from container leasing companies, and in doing so, achieve the following financial and operational benefits:

	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 storage costs.

          Types of Leases

      Direct financing leases are usually long-term in nature 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 typically include an element of repayment of capital and therefore are higher than rates charged under either term or master leases.

      Master leases are leases under which a customer reserves the right to 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 customers to pick up and drop off containers where and when needed, subject to restrictions and availability, on pre-agreed terms. The commercial terms of master leases are negotiated annually. 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 fees (including pick-up, drop-off, handling and off-hire fees) 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.

      Term leases are for a fixed period of time and include both long-and short-term commitments, with most extending from three to five years. Term lease agreements may contain early termination penalties that apply in the event of early redelivery. In most cases, however, equipment is not returned prior to the expiration of the lease. Term leases provide greater revenue stability to the lessor, but at lower lease rates than master leases. Ocean carriers use long-term leases when they have a need for identified containers for a specified term. They differ from master leases in that they define the number of containers to be leased and the lease term.

      The percentage of equipment on term leases as compared to master leases varies widely among leasing companies, depending upon each company’s strategy on margins, operating costs and cash flows.

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

          Company Strategy

      Cronos focuses primarily on providing flexible term and master leases to the world’s top ocean carriers, across a broad range of dry and specialized containers.

          Lease Profile

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

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      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 plans are carried out by the same depots, under the same procedures, as are 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 44% 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 applications.

      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 primarily dry cargo and refrigerated containers but, since 1993, it has diversified into tanks and other specialized containers. Cronos believes that this fleet diversification enables it to increase business 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. Over 99% of Cronos’ dry cargo fleet is 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 most of the 40’ refrigerated containers are steel framed with aluminum outer walls to reduce weight. As with the dry cargo containers, all refrigerated containers are designed to minimize repair and maintenance and maximize damage resistance. Cronos’ refrigerated containers are designed and manufactured to include the latest generation refrigeration equipment, with the most recently built units controlled by modular microprocessors.

      Cronos’ tank containers, both owned and managed, 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

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      Cronos diversified into dry freight specials in 1996, when it acquired Intermodal Leasing AB, a Swedish company with a fleet of approximately 800 rolltrailers, a type of heavy-duty chassis used for moving cargo onto and off of ships. Cronos markets this product on a worldwide basis through its network of offices and agents, and has increased its rolltrailer fleet to 2,667 TEU at the end of 2002. Cronos owns the patents for the CPC, a specialized container designed specifically for the carriage of European coastal cargo on “Euro” or “metric” pallets. 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.

      During 2002, the size of the Group’s total fleet decreased by 900 TEU, representing new container production of 20,246 TEU and net of disposals of 21,146 TEU. The total cost of new container production for the total fleet in 2002 was $32.2 million.

     Purchasing Policy

      Cronos’ purchasing policy is driven by capital availability, market requirements and anticipated future demand, including demand generated by trade growth and the replacement of containers retired from fleets 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 Thermo King and Carrier Transicold, the primary suppliers of container refrigeration units based in the United States. 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.

     Repair and Maintenance

      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. Some customers are relieved of the responsibility for paying some repair costs upon redelivery of containers, as described under “Description of Business — Lease Profile”. 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

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     Disposition of Used Containers

      Cronos estimates that the period for which a container may be used as a leased marine cargo container ranges from 12 to 15 years.

      Cronos disposes of used containers in a worldwide 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.

     Operations

      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.

      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.

     Competition

      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. In addition to dry cargo containers, refrigerated containers and tanks, Cronos supplies a wide range dry freight special equipment.

      Cronos competes with various container leasing companies in the markets in which it conducts business. Mergers and acquisitions have been a feature of the container leasing industry for over a decade and the leasing market essentially comprises three distinct groups: the very large (in TEU terms) companies, GE SeaCo, Textainer Group, Transamerica Leasing, Triton Container International Ltd. and Interpool Inc., who

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      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.

      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 will generally lease containers from more than one leasing company in order to minimize dependence on a single supplier. Furthermore, by having as many suppliers as possible, the carrier is able to maximize the number of off-hires and off-hire locations available, as typically each supplier may limit the number of containers which can be off-hired by location. The advantage to the carrier is that this prevents the carrier from being burdened with an excess number of off-hired containers, which incur both storage and per diem charges, in a low demand market.

Operating Segments

      Cronos has three operating segments, which are determined based on source of container funding:

	1. Container Equity Programs (“Container Equity Programs”),
	2. Other Managed Container Owners (“Other Managed Container Owners”), and
	3. Owned Containers (“Owned Containers”).

      In September 2002, the Group announced the establishment of a joint venture container purchase program (the “Joint Venture Program”). Prior to the inception of the Joint Venture Program, the Cronos operating segments were defined as containers managed on behalf of US Limited Partnerships, containers managed on behalf of Other Managed Container Owners, and containers owned by the Group itself. In accordance with Statement of Financial Accounting Standards (“SFAS”) No. 131, “Disclosures about Segments of an Enterprise and Related Information”, Cronos structures operating segments based on the way in which management organizes the Group for making operating decisions and assessing performance. The Group views the new Joint Venture Program as a natural extension to its US Limited Partnership programs. The Joint Venture Program will target the same container products and customer base and the operating decision making and performance assessment processes will be consistent with those used for the US Limited Partnership programs. Accordingly, the Group has combined the US Limited Partnerships and the Joint Venture Program into a revised operating segment entitled Container Equity Programs.

      Cronos has used various financing programs within its three segments. These financing programs enable Cronos to expand its fleet without being dependent upon any single source of financing. Cronos believes it is important to diversify its financing sources both by market and type of financial instrument. This diversification reduces its reliance on individual financial markets and provides for a more balanced financing structure.

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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, 2002, no single owner, other than the Group, held more than 13% of the Cronos fleet (based on original equipment cost).

      All containers, whether owned or managed, are leased as part of a single global fleet, without regard to ownership. One customer, Mediterranean Shipping Company S.A. (“MSC”), generated 11.5% of gross lease revenue of the Container Equity Program in the year ended December 31, 2002. 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 operating profit or loss. Lease revenue is deemed to be earned based on the physical location of the containers while on lease. Substantially all of the Group’s lease revenue is earned on containers used in global trade routes. Accordingly, the Group believes that it does not possess discernible geographic reporting segments as defined in SFAS No. 131. See Note 2 to the 2002 Consolidated Financial Statements.

      Segment revenues from external customers, operating profit or loss and total assets are disclosed in the Group’s Financial Statements and are incorporated herein by reference.

     Container Equity Programs

      Cronos raised capital through investment syndication activities from 1979 to 1997 by organizing and sponsoring public limited partnership 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. A majority of the limited partners in a partnership can remove the general partner, thereby terminating the agreement with Cronos. However, upon any such removal, the general partner is entitled to payment, generally over five years, of the present fair market value of its interest in the partnership.

      The US Limited Partnerships provide compensation to Cronos consisting of the following fees and commissions:

	•	Acquisition fees: equal to 5% of the original cost of equipment purchased by the partnerships, recognized for accounting purposes over a 12-year period;
	•	Base management fees: equal to 7% of gross lease revenue;
	•	General partner share: equal to 5% of distributable cash generated by the partnerships’ operating activities;
	•	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.

      Management fees, acquisition fees and equity in Container Equity Programs recorded by the Group, were $5.1 million, $6.4 million, and $8.3 million, respectively, for the years ended December 31, 2002, 2001 and 2000, respectively.

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      In September 2002, Cronos established the Joint Venture Program with a current lender to the Company. The purpose of the Joint Venture Program is to acquire and lease to third party lessees marine cargo containers. The Joint Venture Program will provide compensation to Cronos consisting of the following fees:

	•	Management fees: equal to 8% of net lease revenue;
	•	Acquisition fees: equal to 1.25% of the original cost of equipment purchased by the Joint Venture Program, recognized for accounting purposes over a 12-year period;
	•	Disposition fees: equal to 5% of the excess of the disposal proceeds over the net book value of a container.

      In addition to Container Equity Programs, Cronos manages containers pursuant to agreements negotiated directly with corporations, partnerships and private individuals located in Europe, Asia, the United States and South Africa. Cronos’ obligations to investors in the Container Equity Programs and to Other Managed Container Owners are substantially similar. 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 consisting of management fees of between 5% and 30% of the net lease revenue generated by the containers. In addition, Cronos has historically earned an acquisition fee under these agreements of approximately 2.5% to 5% of the aggregate original equipment cost of the equipment managed for the owners where Cronos has negotiated the purchase of the equipment. In certain cases, an incentive fee may also be earned. Acquisition fees under the agreements are generally recognized in Cronos’ statements of operations over periods ranging from 7 to 15 years, representing the life of the agreements to which they relate.

      The containers managed for these owners may be combined into pools with containers of similar age and type and managed pursuant to generally similar management agreements. The owners of the containers in each pool share revenues and expenses, which are allocated pro rata in order to minimize the effect of possible over-utilization or under-utilization of any particular containers. Pooling was designed to minimize conflicts of interest and promote administrative convenience. Revenues and expenses are allocated among owners based upon the aggregate original equipment cost of the containers owned by each owner and the number of days that such containers were in the pool, compared to the total aggregate original equipment cost of all containers in the pool and the total number of days in the period.

      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). Minimum lease payments on the agreements, which have fixed payment terms are presented in Note 11 (c) to the Group’s 2002 Consolidated Financial Statements.

      Total fees earned by the Group from Other Managed Container Owners were $1.2 million, $3 million and $7.4 million for the years ended December 31, 2002, 2001 and 2000, respectively.

      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 its Container Equity Programs and Other Managed Container Owner programs. Most containers targeted for transfer to managed programs are purchased new by Cronos, and sold to a managed container owner within six months. This strategy allows Cronos more flexibility to negotiate and buy containers strategically, based on market conditions and later sell these containers after the initial lease profile is established for a particular group of containers.

      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. CFCs are used in the operation, insulation and

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      As of December 31, 2002, Cronos had 75 employees worldwide; 40 were located in Europe, 21 in the United States and 14 in Asia and Australia combined. None of Cronos’ employees is covered by a collective bargaining agreement.

      Cronos’ lease agreements typically require lessees 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, from where its container leasing operations are conducted. Cronos also leases approximately 12,160 square feet of office space (of which approximately 4,260 square feet is sub-let) in San Francisco, California, where its Managed Container Owner activities are based. Cronos also conducts its container leasing operations from offices in New Jersey, Genoa, Gothenburg, Hamburg, Hong Kong, Singapore and Sydney generally under shorter-term leases of varying durations. The containers owned and managed by Cronos are described under Item 1 — “Description of Business — Company Strategy — Fleet Profile, Operating Segments — Container Equity Programs, Other Managed Container Owners and Owned Containers”, above. As of December 31, 2002, Cronos owned 62,321 TEU of dry cargo containers, 6,951 TEU of refrigerated containers, 8,214 TEU of CPCs, 2,013 TEU of rolltrailers, 493 TEU of tank containers, and 1,226 TEU of other specialized equipment. As of December 31, 2002, Cronos managed a total of 302,165 TEU of dry cargo containers, 6,373 TEU of refrigerated containers, 1,911 TEU of tank containers, 654 TEU of rolltrailers, and 2,639 TEU of other specialized equipment.

      Contrin’s $2.6 Million Claim. The Group manages containers for investment entities sponsored by or affiliated with Contrin Holding S.A., a Luxembourg holding company (“Contrin”). Approximately 1% (measured by TEUs) of the Group’s fleet of containers is owned by Contrin. The Group is in litigation with Contrin over funds that Contrin claims to have remitted to Cronos for the purchase of containers. Contrin

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      On August 8, 2000, Contrin, through its affiliate, Contrin Worldwide Container Leasing GmbH (“CWC”), filed an action in the Luxembourg District Court against the Company, seeking recovery of $2.6 million, together with interest and costs. On January 10, 2001, the Company responded to CWC’s complaint, (i) requesting that the District Court dismiss the proceeding for lack of jurisdiction over the dispute, and (ii) denying Contrin’s claims on the merits. Since January 10, 2001, the parties have supplemented their pleadings and filed documentary evidence with the court to respond to assertions made and evidence submitted by the other party. No date has been set for a final hearing on CWC’s claims against the Company.

      On September 26, 2002, the Company issued its “intervening” summons in the proceeding, naming Mr. Palatin, his wife, and Klamath Enterprises S.A. (“Klamath”) as cross-defendants. By its intervening summons, the Company claims the right to indemnity from the Palatins and Klamath for any liability imposed upon the Company in favor of Contrin on Contrin’s claims against the Company. Klamath is a Panamanian company and the record owner of an estate located in Amersham, England. The Company alleges that a substantial portion of the $2.6 million transferred by Contrin for the purchase of containers was diverted by the Palatins to improve and furnish the Amersham estate, in which they lived in 1994, and that Mr. Palatin is the beneficial owner of Klamath. The Company has served the summons on Klamath and is in the process of serving the summons on the Palatins. Once served, the cross-defendants will have the opportunity to file responsive pleadings and evidence. Klamath, through its Austrian counsel, has indicated that it will challenge the jurisdiction of the Luxembourg court over it.

      In anticipation of the filing of Contrin’s claims against the Company in Luxembourg, the Group, on June 1, 2000, filed a protective claim in the High Court of Justice, London, England, against Mr. Palatin and his wife. By this claim, the Group seeks to establish that the Palatins are liable to the Group for any liability which the Group may have to Contrin arising out of the 1994 transfers. On March 29, 2001, the Group secured a “freezing injunction” from the High Court of Justice in aid of its UK claim against the Palatins. By the injunction, the Palatins are prohibited from selling, charging, or otherwise disposing of their interest in the Amersham estate. The injunction also extends to Klamath, the record owner of the estate.

      The Palatins and Klamath contested the jurisdiction of the High Court of Justice over them, or, in the alternative, requested that the court exercise its discretion not to exercise jurisdiction over them. In support of their application, the Palatins filed an affidavit with the court asserting that the Amersham estate is owned by Pontino S.A., a Panamanian company, in which they disclaim any interest. The Group opposed the applications of the Palatins and Klamath. A hearing was held on the defendants’ motion for dismissal on November 27, 2002, and on December 22, 2002, the court rendered its decision rejecting the defendants’ motion for dismissal. A further hearing was held on February 26, 2003, at which time the court rejected the defendants’ motion for leave to appeal the court’s decision, and awarded the Company 90% of its costs in opposing the motions, ordering the defendants to pay $30,000 on account of these costs. The defendants have indicated they may petition the court of appeal for its consent to appeal the court’s decision on jurisdiction.

      In light of the Company’s issuance of its intervening summons against the Palatins and Klamath in the Luxembourg proceeding, described above, the Group sought a stay of prosecution of the UK proceeding pending the outcome of the Luxembourg proceeding. The court, by its decision of December 22, 2002, rejecting the defendants’ motion to dismiss, declined to stay prosecution of the UK proceeding pending the outcome of the Luxembourg proceeding. Accordingly, depending upon whether the defendants appeal the court’s ruling on jurisdiction, the Group will have to decide whether to pursue its claim for indemnity against the Palatins and Klamath in Luxembourg or in the UK.

      On July 13, 2000, the Group also filed a protective claim against Barclays Bank PLC (“Barclays”) in the High Court of Justice, London, England. Barclays was the bank that received the $2.6 million from Contrin. By its claim, the Group seeks a declaration that Barclays is liable to the Group for $2.6 million, plus interest and costs, arising out of Contrin’s 1994 transfer to an account with Barclays in the name of Mrs. Palatin. In February 2001, the Group obtained an order from the court requiring the production of documents by Barclays. The Group and Barclays have agreed to a stay of the action and that stay remains in place.

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      Austrian Conviction of Mr. Palatin. In July 1998, the Vienna public prosecutor initiated criminal proceedings against Mr. Palatin, Axel Friedberg, a director of the Company from January 1997 through March 1999, and a third defendant, the managing director of the Austrian companies affiliated with Contrin. The focus of the indictment was the defendants’ conduct in managing, or controlling the management of the Austrian entities affiliated with Contrin.

      One of the counts of the indictment involved Contrin’s transfer, in 1994, of $2.6 million, discussed above. Specifically, the 1998 indictment alleged that Mr. Palatin instructed the managing director of Contrin’s Austrian affiliates to transfer this amount, intended for the purchase of containers to be managed by the Group, to the personal account of Mrs. Palatin. The Vienna public prosecutor alleged that this conduct constituted the crime of gross fraud under the Austrian criminal code.

      The trial of the defendants proceeded intermittently through October 15, 2002. On that date, the court, in the form of two judges and two lay jurors, rendered its judgement, convicting Messrs. Palatin and Contrin’s managing director of certain of the counts brought against them, and acquitting Mr. Friedberg of the counts brought against him. Mr. Palatin was convicted of gross fraud with respect to the transfer by Contrin of $2.6 million in 1994. The public prosecutor withdrew the count alleging that Contrin’s managing director colluded in this transfer. Mr. Palatin was also convicted of three of the other counts involving his mismanagement of the Austrian entities affiliated with Contrin, and was sentenced to nine years in prison.

      The defendants have entered appeals of their convictions. The Group intends to proceed vigorously with the prosecution of its proceedings against Mr. Palatin, his wife, and Klamath, notwithstanding Mr. Palatin’s conviction in Austria.

      Contrin’s $0.5 Million Claim. On August 2, 2001, CWC filed a separate claim against Cronos Containers N.V. (“CNV”), a wholly-owned Netherlands Antilles subsidiary of the Company, in the High Court of Justice, London, England. By its claim, CWC asserts that CNV, wrongfully and in violation of the container management agreement between CWC and CNV, failed to distribute to CWC $0.5 million in distributions for the second through fourth calendar quarters of 1996. CWC seeks recovery of this sum, plus interest. On December 31, 2001, CNV filed its defense to CWC’s claim, denying CWC’s claims and denying that CNV is liable to the CWC in any amount. The trial of CWC’s claim, initially set for January 27, 2003, has been postponed. The new trial date has yet to be scheduled.

      Concurrently with the filing of its defense to CWC’s claims, CNV filed a separate claim against the Palatins and Klamath, seeking recovery of $0.5 million from the Palatins that CNV alleges was misappropriated from CNV by Mr. Palatin. On April 8, 2002, Klamath filed its application with the court seeking an order declaring that the court has no jurisdiction over Klamath or, in the alternative, that it should exercise its discretion not to assert jurisdiction over the Group’s claims against Klamath. The Palatins filed their application for dismissal with the court on July 5, 2002, alleging that the court has no jurisdiction over them. CNV opposed both applications, and both were heard by the court at the same time as Klamath’s and the Palatins’ challenge to the jurisdiction of the UK court over them with respect to the Group’s $2.6 million claim against them, discussed above. The court, by its decision of December 22, 2002, rejected the defendants’ jurisdictional challenge to CNV’s claim.

      Contrin’s Disposals Claim. On September 18, 2002, three Austrian affiliates of Contrin filed a claim against CNV in the High Court of Justice, London, England (the “Disposals Claim”). The claimants assert that CNV has breached container management agreements entered into in 1993 by selling containers without obtaining the consent of the claimants, in violation of the terms of the container management agreements. The claimants assert that they are entitled to all sums received by CNV from the sale of containers wrongfully disposed of under the container management agreements or, alternatively, that CNV is liable for damages for wrongfully depriving the claimants of the use and possession of the containers sold. Claimants assert damages in excess of $0.1 million, and request an accounting, interest, and costs.

      CNV filed its defense to the Disposals Claim on December 13, 2002, denying the substantive allegations of the claim and that the claimants are entitled to the relief claimed or to any other relief.

      On May 8, 2001, the Massachusetts Superior Court entered its judgement against Mr. Palatin and Klamath, affirming the default judgement secured on February 8, 2000, in the New York State Supreme

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      As of May 8, 2001, the amount owed by Mr. Palatin to CEB under the New York judgement totaled $7.3 million, representing the amount of the judgement ($6.6 million) plus interest thereon at 9% per annum. The Group reduced the amount owed by Mr. Palatin to CEB under the judgement by $6 million as a result of the cancellation of the Klamath Shares, leaving a balance due under the judgement of $1.3 million as of May 8, 2001.

      On November 23, 2001, CEB filed its claim against Mr. Palatin in the High Court of Justice, London, England, for the purpose of collecting the remaining balance due to CEB under the New York judgement. CEB will seek to enforce the claim against the Amersham estate discussed above. On July 5, 2002, Mr. Palatin filed his application with the court seeking an order declaring that the court has no jurisdiction over him or, in the alternative, that it should exercise its discretion not to assert jurisdiction over him on the ground of forum non conveniens. CEB opposed Mr. Palatin’s application, and on December 22, 2002, the court rejected the application at the same time that it rejected Mr. Palatin’s and Klamath’s jurisdictional challenges to the other claims brought by the Group against the Palatins and Klamath in the UK, discussed above. CEB has now filed its motion for summary judgement on its claim; the motion is to be heard on May 23, 2003.

      At the annual shareholders meeting held June 12, 2002, the shareholders approved a proposal to retire and cancel the Klamath Shares then held of record by CEB. As a result of this approval, the Klamath shares were cancelled.

      Not Applicable

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PART II

      As of March 20, 2003, there were outstanding 7,360,080 common shares. They were held of record by approximately 354 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 ending on the dates 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.