SECURITIES AND EXCHANGE COMMISSION
FORM 10-Q
(Mark One)
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended: June 30, 2003
OR
| o | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from: to
Commission file number: 0-24464
THE CRONOS GROUP
| LUXEMBOURG (State or other Jurisdiction of incorporation or organization) |
NOT APPLICABLE (I.R.S. Employer Identification No.) |
16, ALLÉE MARCONI, BOÎTE POSTALE 260, L-2120 LUXEMBOURG
(Address of principal executive offices)(zip code)
Registrant’s telephone number, including area codes:
(352) 453145
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
The number of Common Shares outstanding as of August 12, 2003:
| Class | Number of Shares Outstanding | |||
| Common | 7,360,080 | |||
The Cronos Group
TABLE OF CONTENTS
PART I — FINANCIAL INFORMATION |
1 | ||||
Item 1 — FINANCIAL STATEMENTS |
1 | ||||
Management Representation |
1 | ||||
Condensed Unaudited Consolidated Statements of Income |
2 | ||||
Condensed Unaudited Consolidated Balance Sheets |
3 | ||||
Condensed Unaudited Consolidated Statements of Cash Flows |
4 | ||||
Consolidated Unaudited Statement of Shareholders’ Equity |
5 | ||||
Notes to the Condensed Unaudited Consolidated Financial Statements |
6 | ||||
Item 2 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS |
14 | ||||
General |
14 | ||||
Three Months Ended June 30, 2003 Compared to Three Months Ended June 30, 2002 |
15 | ||||
Six Months Ended June 30, 2003 Compared to Six Months Ended June 30, 2002 |
16 | ||||
Liquidity and Capital Resources |
17 | ||||
Item 3 — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
20 | ||||
Item 4 — CONTROLS AND PROCEDURES |
20 | ||||
PART II — OTHER INFORMATION |
21 | ||||
Item 1 — Legal Proceedings |
21 | ||||
Item 2 — Changes in Securities and Use of Proceeds |
23 | ||||
Item 3 — Defaults Upon Senior Securities |
23 | ||||
Item 4 — Submission of Matters to a Vote of Security Holders |
23 | ||||
Item 5 — Other Information |
25 | ||||
Item 6 — Exhibits and Reports on Form 8-K |
25 | ||||
The Cronos Group
PART I — FINANCIAL INFORMATION
Item 1 — Financial Statements
Management Representation
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.
The unaudited condensed consolidated interim financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.
These condensed consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.
This financial information reflects, in the opinion of management, all adjustments necessary to present fairly, the results for the interim periods. Such adjustments consist of only normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.
The Cronos Group
Condensed Unaudited Consolidated Statements of Income
(US dollar amounts in thousands, except share amounts)
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Gross lease revenue |
$ | 28,626 | $ | 27,925 | $ | 57,379 | $ | 56,254 | ||||||||
Equipment trading revenue |
790 | 197 | 1,445 | 581 | ||||||||||||
Commissions, fees and other income: |
||||||||||||||||
- Container Equity Programs |
276 | 309 | 557 | 620 | ||||||||||||
- Unrelated parties |
816 | 977 | 1,589 | 1,945 | ||||||||||||
Equity in earnings of affiliate |
296 | — | 512 | — | ||||||||||||
Total revenues |
30,804 | 29,408 | 61,482 | 59,400 | ||||||||||||
Direct operating expenses |
7,206 | 7,217 | 12,891 | 14,974 | ||||||||||||
Payments to Managed Container Owners: |
||||||||||||||||
- Container Equity Programs |
5,072 | 4,079 | 10,537 | 8,034 | ||||||||||||
- Other Managed Container Owners |
8,569 | 8,781 | 18,079 | 17,607 | ||||||||||||
Equipment trading expenses |
738 | 151 | 1,308 | 518 | ||||||||||||
Depreciation and amortization |
3,550 | 3,889 | 7,283 | 7,738 | ||||||||||||
Selling, general and administrative expenses |
3,771 | 3,404 | 7,599 | 6,770 | ||||||||||||
Interest expense |
1,094 | 1,659 | 2,341 | 3,303 | ||||||||||||
Total expenses |
30,000 | 29,180 | 60,038 | 58,944 | ||||||||||||
Income before income taxes |
804 | 228 | 1,444 | 456 | ||||||||||||
Income taxes provision (benefit) |
295 | (2,365 | ) | 466 | (2,325 | ) | ||||||||||
Net income |
509 | 2,593 | 978 | 2,781 | ||||||||||||
Net income per common share (basic and diluted) |
$ | 0.07 | $ | 0.35 | $ | 0.13 | $ | 0.38 | ||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The Cronos Group
Condensed Unaudited Consolidated Balance Sheets
(US dollar amounts in thousands, except share amounts)
| June 30, | December 31, | |||||||
| 2003 | 2002 | |||||||
Assets |
||||||||
Cash and cash equivalents |
$ | 4,227 | $ | 4,626 | ||||
Restricted cash |
452 | 493 | ||||||
Amounts due from lessees, net |
22,545 | 22,580 | ||||||
Amounts receivable from container owners |
7,507 | 7,542 | ||||||
New container equipment for resale |
14,277 | 2,570 | ||||||
Net investment in direct financing leases |
8,208 | 7,912 | ||||||
Investment in unconsolidated affiliate |
5,589 | 3,603 | ||||||
Container equipment, net |
128,070 | 136,926 | ||||||
Other equipment, net |
630 | 513 | ||||||
Goodwill, net |
11,038 | 11,038 | ||||||
Other intangible assets, net |
815 | 909 | ||||||
Other assets |
15,849 | 15,477 | ||||||
Total assets |
$ | 219,207 | $ | 214,189 | ||||
Liabilities and shareholders’ equity |
||||||||
Amounts payable to container owners |
$ | 18,474 | $ | 18,583 | ||||
Amounts payable to container manufacturers |
20,312 | 8,590 | ||||||
Direct operating expense payables and accruals |
6,144 | 5,071 | ||||||
Debt and capital lease obligations |
92,684 | 100,997 | ||||||
Current and deferred income taxes |
5,390 | 5,536 | ||||||
Deferred income and unamortized acquisition fees |
4,854 | 5,201 | ||||||
Other amounts payable and accrued expenses |
6,307 | 6,005 | ||||||
Total liabilities |
154,165 | 149,983 | ||||||
Shareholders’ equity |
||||||||
Common shares issued and outstanding (7,372,080 shares) |
14,744 | 14,744 | ||||||
Additional paid-in capital |
46,983 | 47,125 | ||||||
Common shares held in treasury (12,000 shares) |
(37 | ) | (37 | ) | ||||
Restricted retained earnings |
1,832 | 1,832 | ||||||
Retained earnings |
1,520 | 542 | ||||||
Total shareholders’ equity |
65,042 | 64,206 | ||||||
Total liabilities and shareholders’ equity |
$ | 219,207 | $ | 214,189 | ||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The Cronos Group
Condensed Unaudited Consolidated Statements of Cash Flows
(US dollar amounts in thousands, except share amounts)
| Six Months Ended | ||||||||
| June 30, | ||||||||
| 2003 | 2002 | |||||||
Net cash provided by operating activities |
$ | 9,729 | $ | 8,916 | ||||
Cash flows from investing activities |
||||||||
Purchase of container equipment |
(7,572 | ) | (13,541 | ) | ||||
Purchase of property and other equipment |
(235 | ) | (205 | ) | ||||
Investment in unconsolidated affiliate |
(475 | ) | — | |||||
Investment in direct financing lease equipment |
(283 | ) | (1,028 | ) | ||||
Proceeds from sales of container and other equipment |
7,570 | 1,335 | ||||||
Net cash used in investing activities |
(995 | ) | (13,439 | ) | ||||
Cash flows from financing activities |
||||||||
Proceeds from issuance of term debt and capital lease obligations |
8,636 | 15,407 | ||||||
Repayments of term debt and capital lease obligations |
(17,516 | ) | (10,732 | ) | ||||
Dividend paid |
(294 | ) | — | |||||
Cash deposits (restricted) |
41 | (41 | ) | |||||
Net cash (used in) provided by financing activities |
(9,133 | ) | 4,634 | |||||
Net (decrease) increase in cash and cash equivalents |
(399 | ) | 111 | |||||
Cash and cash equivalents at beginning of period |
4,626 | 4,914 | ||||||
Cash and cash equivalents at end of period |
$ | 4,227 | $ | 5,025 | ||||
Supplementary disclosure of cash flow information: |
||||||||
Cash paid during the period for: |
||||||||
- interest |
$ | 2,107 | $ | 2,789 | ||||
- income taxes |
756 | 208 | ||||||
Cash received during the period for: |
||||||||
- interest |
146 | 27 | ||||||
- income taxes |
60 | 107 | ||||||
Non-cash activities: |
||||||||
- container equipment acquired under capital lease |
— | 3,930 | ||||||
- direct financing lease equipment acquired under capital lease |
567 | 116 | ||||||
- equity contribution to Joint Venture Program |
999 | — | ||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The Cronos Group
Consolidated Unaudited Statement of Shareholders’ Equity
(US dollar amounts in thousands, except share amounts)
Six months ended June 30, 2003
| Additional | Common | Restricted | Total | |||||||||||||||||||||
| Common | paid-in | shares held | retained | Retained | shareholders' | |||||||||||||||||||
| shares | capital | in treasury | earnings | earnings | equity | |||||||||||||||||||
Balance,
December 31, 2002 |
$ | 14,744 | $ | 47,125 | $ | (37 | ) | $ | 1,832 | $ | 542 | $ | 64,206 | |||||||||||
Amortization of
employee share
grant |
— | 5 | — | — | — | 5 | ||||||||||||||||||
Declaration of
dividend |
(147 | ) | (147 | ) | ||||||||||||||||||||
Net income |
— | — | — | — | 978 | 978 | ||||||||||||||||||
Balance,
June 30, 2003 |
$ | 14,744 | $ | 46,983 | $ | (37 | ) | $ | 1,832 | $ | 1,520 | $ | 65,042 | |||||||||||
The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.
The Cronos Group
Notes to the Condensed Unaudited Consolidated Financial Statements
(US dollar amounts in thousands, except per share amounts)
| 1. | The condensed unaudited consolidated financial statements include the accounts of The Cronos Group and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. | |
| 2. | Stock-Based Compensation (US dollar amounts in thousands, except share and per share amounts) |
The Group has adopted disclosure requirements under Statement of Financial Accounting Standards No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation”, but continues to account for stock-based compensation under Accounting Principles Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” under which no compensation expense has been recognized. In accordance with SFAS 123, the Company discloses the fair value of its stock options, which is calculated based on the Black Scholes option-pricing model.
In December 2002, the Financial Accounting Standards Board issued SFAS No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS 148 amended the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the method used to report results. The Company has adopted the disclosure requirements of SFAS 148.
If the stock options had been accounted for under SFAS 123, the impact on the Group’s net income and net income per share would have been as follows:
| Three Months Ended | Six Months Ended | |||||||||||||||
| June 30, | June 30, | |||||||||||||||
| 2003 | 2002 | 2003 | 2002 | |||||||||||||
Net income: |
||||||||||||||||
- as reported |
$ | 509 | $ | 2,593 | $ | 978 | $ | 2,781 | ||||||||
- stock-based compensation expense,
net of tax effects |
(29 | ) | (63 | ) | (84 | ) | (186 | ) | ||||||||
- pro forma |
$ | 480 | $ | 2,530 | $ | 894 | $ | 2,595 | ||||||||
Basic and diluted net income per share: |
||||||||||||||||
- as reported |
$ | 0.07 | $ | 0.35 | $ | 0.13 | $ | 0.38 | ||||||||
- pro forma |
$ | 0.07 | $ | 0.34 | $ | 0.12 | $ | 0.35 | ||||||||
The Cronos Group
| 3. | Operating segment data |
Condensed segment information is provided in the tables below:
| Other | ||||||||||||||||
| Container | Managed | |||||||||||||||
| Equity | Container | Owned | ||||||||||||||
| Programs | Owners | Containers | Total | |||||||||||||
Three months ended June 30, 2003 |
||||||||||||||||
Gross lease revenue |
$ | 8,505 | $ | 12,381 | $ | 7,740 | $ | 28,626 | ||||||||
Operating profit before indirect items |
1,739 | 496 | 2,398 | 4,633 | ||||||||||||
Operating profit (loss) |
535 | (664 | ) | 1,670 | 1,541 | |||||||||||
Segment assets at end of period |
15,874 | 20,752 | 156,821 | 193,447 | ||||||||||||
Three months ended June 30, 2002 |
||||||||||||||||
Gross lease revenue |
$ | 7,002 | $ | 12,502 | $ | 8,421 | $ | 27,925 | ||||||||
Operating profit before indirect items |
1,034 | 155 | 2,500 | 3,689 | ||||||||||||
Operating profit (loss) |
28 | (1,002 | ) | |||||||||||||