SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended: March 31, 2004

OR

For the transition period from: ______________ to _______________

Commission file number: 0-24464

THE CRONOS GROUP

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 is an accelerated filer (as defined in Exchange Act Rule 12b-2) Yeso No x

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 May 14, 2004 :

The Cronos Group

TABLE OF CONTENTS

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 condensed unaudited consolidated interim financial statements included herein have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and disclosures normally included in annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations.

     These condensed unaudited consolidated financial statements should be read in conjunction with the financial statements and the notes thereto included in the Company’s latest Annual Report on Form 10-K.

     This financial information reflects, in the opinion of management, all adjustments necessary to present fairly, the results for the interim periods. 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.

     As discussed in the Company’s 2003 Form 10-K, the Group adopted Financial Accounting Standards Board (“FASB”) Interpretation No. 46 Revised - “Consolidation of Variable Interest Entities” (“FIN 46R”) in December 2003 by restating previously issued financial statements with a cumulative effect adjustment at the beginning of 2001. This restatement included the first three quarters of 2003.

     The information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Group with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Group’s control. All statements, other than statements of historical facts included in this report, regarding the Group’s strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Group are forward-looking statements. When used in this report, the words “will”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Group does not undertake or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Condensed Unaudited Consolidated Statements of Income

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Condensed Unaudited Consolidated Balance Sheets

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Condensed Unaudited Consolidated Statements of Cash Flows

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Consolidated Unaudited Statement of Shareholders’ Equity

Three months ended March 31, 2004

The accompanying notes are an integral part of these condensed unaudited consolidated financial statements.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Notes to the Condensed Unaudited Consolidated Financial Statements

1. The condensed unaudited consolidated financial statements include the accounts of The Cronos Group and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated. Investments in which the Group does not own a majority interest or otherwise control or have the ability to assert significant influence over the investee have been accounted for under the equity method of accounting.

2. Restatement of previously issued condensed unaudited consolidated financial statements

     Quarterly financial data has been restated to reflect the adoption of FIN 46R. In addition, a reclassification has been made to the quarterly data in order to conform to the presentation for the year ended December 31, 2003.

Quarterly financial data for the three months ended March 31, 2003:

3. Stock-Based Compensation

     The Group has adopted disclosure requirements under Statement of Financial Accounting Standards (“SFAS”) No. 123 — “Accounting for Stock-Based Compensation” (“SFAS 123”) and SFAS No. 148 — “Accounting for Stock-Based Compensation — Transition and Disclosure” (“SFAS 148”), but continues to account for stock-based compensation under Accounting Principles Board Opinion (“APB”) No. 25 — “Accounting for Stock Issued to Employees” (“APB 25”). Under APB 25, compensation expense is measured as the amount by which the quoted market price of the stock at the date of the grant or award exceeds the exercise price, if any, to be paid by an employee and is recognized as expense over the period in which the related services are performed. In accordance with SFAS 123, the Company discloses the fair value of its stock options, which is calculated based on the Black Scholes option-pricing model.

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

     If the stock options had been accounted for under a fair value based method of accounting, the impact on the Group’s net income and net income per share would have been as follows:

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

4. Operating segment data

Segment information is provided in the tables below:

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The Cronos Group

(US dollar amounts in thousands, except per share amounts)

Reconciliation of profit for reportable segments to income before income taxes and equity in earnings of affiliate:

5. Earnings per common share

     The components of basic and diluted net income per share were as follows:

     As at March 31, 2003, options to acquire 1,180,000 shares were outstanding with a weighted average exercise price of $4.68 each but were not included in the computation of diluted net income per share because the options’ exercise price was greater than the average market price of the common shares.

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The Cronos Group

6. Amounts receivable from Managed Container Programs

     Amounts receivable from Managed Container Programs include amounts due from related parties of $3.5 million and $3.4 million at March 31, 2004, and December 31, 2003, respectively.

7. Investments

     Investments comprise investments in Container Equity Programs and take two forms:

     Under the first form, the investments comprise the Group’s equity interests as a general partner in eight US Limited Partnership Programs. In accordance with FIN 46R, the Company has determined that the eight limited partnerships qualify as variable interest entities. In each case, the Company has concluded that neither the Company, nor any of its subsidiaries, is the primary beneficiary of any US Limited Partnership Program.

     Cronos raised capital through investment syndication activities from 1979 to 1997 by organizing and sponsoring public limited partnership offerings and originally sponsored sixteen public limited partnerships, raising over $478 million from over 37,000 investors; eight of the original sixteen partnerships have now been dissolved. These general partner investments are accounted for using the equity method.

     The partnerships are all California limited partnerships managed by Cronos Capital Corp., a subsidiary of the Company. The objectives of the partnerships are to invest in marine cargo containers to generate a continuing income for distribution to the limited partners, and to realise the residual value of the container equipment at the end of its useful economic life or upon the dissolution of the individual partnerships. At March 31, 2004, the US Limited Partnership Programs had total assets of $120.4 million and total liabilities of $4.7 million. The general partner is indemnified by the partnerships for any liabilities suffered by it arising out of its activities as general partner, except in the case of misconduct or negligence. As a limited 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.

     Under the second form, the Group has a 50% equity investment in an entity known as the Joint Venture Program or CF Leasing Ltd. The Joint Venture Program is a container purchase entity that was established in 2002 to acquire and lease marine cargo containers to third parties. It is a bankruptcy-remote, special purpose entity organized under the laws of Bermuda. The Joint Venture Program is accounted for using the equity method. The Group has determined that the joint venture is not a variable interest entity as defined by FIN 46R. At March 31, 2004, the Joint Venture Program had total assets of $78.7 million and total liabilities of $60.2 million. For the three months ended March 31, 2004, the Joint Venture Program reported total revenues of $3.3 million and net income of $1.1 million. The maximum exposure of Cronos to losses as a result of its involvement with the Joint Venture Program is limited to the level of its equity investment in the Joint Venture Program at any point in time.

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The Cronos Group

8. Container equipment

     Container equipment is net of accumulated depreciation of $117 million and $115.5 million at March 31, 2004, and December 31, 2003, respectively.

     The Group reviews its Owned Container equipment when changes in circumstances require consideration as to whether the carrying value of the equipment may have become impaired, pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Management considers assets to be impaired if the carrying value of the asset exceeds the future projected cash flows from use and eventual disposition (undiscounted and without interest charges). When impairment is deemed to exist, the assets are written down to fair value. The Group periodically evaluates future cash flows and potential impairment of its fleet by container type rather than for each individual container. Therefore, future losses could result for individual container dispositions due to various factors including age, condition, suitability for continued leasing, as well as geographic location of the containers where disposed. In addition, subjective management judgement is required in estimating future cash flows from container operations. Accordingly, the estimates may not be indicative of the amounts that may be realized in future periods.

9. Hedging transactions and derivative financial instruments

     The purpose of Cronos’ foreign currency hedging activities is to reduce the risk that non US dollar denominated sales transactions will be adversely affected by exchange rate movements between the sales transaction currency and the US dollar. During 2003, Cronos entered into foreign currency forward contracts to reduce exposure to exchange rate risks associated with a Euro denominated sales agreement. The hedge has been designated a fully effective cash flow hedge as the critical terms of the forward contracts match those of the hedged item. The changes in the fair value of the hedge are reported as a component of other comprehensive income and are reclassified into earnings as equipment trading revenue on the contracted performance dates of the sales agreement. For the quarter ended March 31, 2004, $0.1 million after taxes was credited to other comprehensive income representing the increase in the fair value of the forward contracts. In addition, $0.2 million was reclassified from other comprehensive income to equipment trading revenue during the quarter on the related contracted sales agreement performance dates. The remaining forward contracts expire in the second calendar quarter of 2004.

10. Amounts payable to Managed Container Programs

     Amounts payable to Managed Container Programs include amounts payable to related parties of $8.8 million and $9.3 million at March 31, 2004, and December 31, 2003, respectively.

11. Debt and capital lease obligations

     Debt and capital lease obligations are secured by container equipment and include amounts due within twelve months of $13.9 million and $12.8 million at March 31, 2004, and December 31, 2003, respectively. Interest rates under these facilities range from 2.6% to 3.4% and they extend to various dates through 2013.

     All of the debt and capital lease facilities involve agreements between subsidiaries of the Company and financial institutions. The Company has provided parent company guarantees for the $120.9 million outstanding which provide that, in the event of a default by the subsidiary, the Company will pay all amounts due under the agreements as they fall due. Based on March 2004 interest rates, the maximum potential amount of future payments for the guaranteed debt and capital lease facilities is $129.9 million. At March 31, 2004, the fair value of the facilities approximated the carrying value. The debt and capital lease facilities are secured by container equipment. The Group receives free and clear title to the collateralised container equipment once all payments due under a facility have been made. In the event that the Group cannot make the guaranteed payments, the financial institutions are entitled to recover the collateralised equipment and either use the related cash flows or sell the equipment and take the sale proceeds to discharge outstanding obligations of the Company. The Company considers that the cash flows and / or sales proceeds generated by the collateralised equipment should be sufficient to cover outstanding obligations.

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12. Commitments and contingencies (to be read in conjunction with Note 15 to the Company’s 2003 consolidated financial statements on Form 10-K)

i. Commitments

     At March 31, 2004, the Group had outstanding orders to purchase $17.9 million of container equipment.

ii. Guarantee to US Limited Partnership

     During 2000, the Group provided a guarantee under a $5 million third-party loan note (the “Note”) with a 2006 maturity date, to a US Limited Partnership Program. 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 the US Limited Partnership Program. At March 31, 2004, the balance outstanding under the Note was $1.9 million, the maximum potential amount of future payments was $2 million and the fair value of the Note was $1.9 million. The Group has not recorded a liability for its obligation under the guarantee.

iii. Parent Guarantee under Agreements with Other Managed Container Programs

     The Company has provided parent guarantees for certain agreements between wholly owned subsidiaries of the Company and Managed Container Programs. The agreements are in the form of a master lease and provide that the subsidiary companies make payments to the Managed Container Programs based on the rentals collected from ocean carriers after deducting direct operating expenses and the income earned by the subsidiary company for managing the containers. The subsidiary company is not liable to make payments to the Managed Container Program if the containers are not placed on lease to an ocean carrier or if the ocean carrier fails to pay the lease rentals.

     At each financial statement date, the amounts due under each agreement are recorded as a liability and disclosed under amounts payable to Managed Container Programs. The amount payable at March 31, 2004, was $3.8 million. The terms of the guarantees generally obligate the Company to ensure payments and other obligations of the subsidiary companies are performed on a timely basis and in accordance with the terms of the agreement.

     The agreements with the Managed Container Programs expire between 2004 and 2012. Should a default occur, the Company would be required to make the contracted payments on behalf of the subsidiary companies over the remaining term of the agreements or until such time as the default was remedied. Based on the $3.8 million payable at March 2004, the Company estimates that the maximum amount of future payments would be $70.2 million. The fair value of the estimated amount of maximum future payments is $57.4 million.

iv. Guarantees under fixed non-cancellable operating leases

     Certain subsidiaries of the Group have fixed operating lease agreements for container equipment with Other Managed Container Programs. The Company has provided parent company guarantees for the $37.6 million of minimum future lease payments outstanding under these agreements at March 31, 2004. The agreements provide that, in the event of a default by the subsidiary, the Company will pay all amounts due under the agreements as they fall due. The agreements contain purchase options which allow the Group to acquire the containers after a period of ten years. As of March 31, 2004, the future minimum annual lease payments under these non-cancellable operating leases were: