Back to GetFilings.com

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

i

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.

ii

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.

1

      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.

2

      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

3

      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

4

     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

5

      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.

6

      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.

7

      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

8

      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

9

      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.

10

      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

11

      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

12

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.

      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.

      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.

      On December 10, 2002, the Board of Directors of the Company resolved to commence the payment of quarterly dividends on the outstanding common shares of the Company, subject to the Company’s ongoing ability to pay such dividends. Because under Luxembourg law and the Company’s Articles of Association, dividends may not be declared during the first six months of the year unless a meeting of shareholders is held and the shareholders approve the financial statements for the prior calendar year, and because the annual meeting of shareholders is scheduled to be held during the second quarter of 2003, the Board of Directors declared a dividend of 4 cents per common share on the outstanding common shares of the Company, 2 cents per common share for the fourth quarter of 2002 (which was paid January 9, 2003 to shareholders of record as of December 23, 2002), and 2 cents per common share for the first calendar quarter of 2003, payable April 17, 2003 to shareholders of record on March 28, 2003.

      In addition, on December 10, 2002, the Board of Directors authorized the repurchase of up to 200,000 of the Company’s common shares. Repurchases of common shares are limited to “block” purchases, as defined by the SEC’s Rule 10b-18 (generally, purchases of 2,000 shares or more) and will be made in the open

13

      As of December 31, 2002, the Company had repurchased 12,000 of its common shares at an aggregate price of $37,200 or, on average, $3.10 per share. Subject to the conditions stated above, up to an additional 188,000 common shares may be repurchased under the program.

14

Item 6 — Selected Financial Data

      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 2002 Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report.

15

      The following discussion of the Group’s financial condition and results of operations should be read in conjunction with the 2002 Consolidated Financial Statements and the notes thereto and the other financial and statistical information appearing elsewhere in this annual report. The 2002 Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

     General

      The segment information presented in Note 2 to the Group’s 2002 Consolidated Financial Statements relates to the portions of the Group’s fleet owned by the Group itself, Owned Containers, or by the Group’s managed container programs (“Managed Container Owners”), which comprise Container Equity Programs and Other Managed Container Owners. Owned Containers include containers held for resale. The Group bears the risk of ownership with respect to containers in the Owned Containers segment, but not with respect to the majority of containers in the Managed Container Owners segment, although the Group bears the risk that the management agreements could be terminated, resulting in the removal of the corresponding managed containers from the fleet. At December 31, 2002, approximately 31%, 44% and 25% of the Group’s fleet (by original equipment cost) was owned by way of Container Equity Programs, Other Managed Container Owners and Owned Containers, respectively.

      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 management agreements with the Managed Container Owners meet the definition of leases in 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 2002, 81% of payments to Managed Container Owners 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 a management fee. The remaining 19% of payments to Managed Container Owners represented agreements under which there were fixed payment terms. Minimum lease payments on the agreements with fixed payment terms are presented in Note 11 (c) to the Group’s 2002 Consolidated Financial Statements.

      Gross lease revenue is generated by leasing to ocean carriers, marine containers that are owned either by Managed Container Owners or by the Group itself and represents revenue from 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 represents revenue earned from the sale of equipment to third-parties. Equipment trading expenses are 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 (containers leased under lease-purchase arrangements), fees earned in connection with equipment consultancy and design services, license fee income earned in connection with the patented CPCs (see “Fleet Profile” herein), fees from the disposal of used containers, 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. The quantity of CPCs acquired is in turn affected by the availability of financing to the third-party purchasers. Although acquisition fees are generally received in cash at the inception of a managed container

16

      Direct operating expenses are direct costs associated with leasing both owned and managed containers. These expenses may be categorized as activity-related, inventory-related, and legal and other expenses. Activity-related expenses include agents costs and depot costs such as repairs, maintenance and handling. 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 Owners reflect the amounts due to Managed Container Owners, 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.

      Operating profit or loss, for reported segments, includes items directly attributable to specific containers in each of the Group’s operating segments. It also includes items not directly attributable to any specific container. Such indirect items are allocated across operating segments. Items directly attributable to specific containers include gross lease revenue, direct operating expenses, equipment trading revenue and expenses, payments to Managed Container Owners, commissions, fees and other operating income, equity in earnings of Container Equity Programs, container interest expense, container depreciation expense and certain impairment charges. Indirect items allocated across segments include selling, general and administrative expenses and non-container interest and depreciation expense.

      Joint Venture Container Purchase Entity. In September 2002, Cronos established the Joint Venture Program with a major international financial services provider (the “Bank”), and 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 through a joint venture 50% owned by a subsidiary of the Company and 50% owned by an affiliate of the Bank. 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 Bank and another financial institution have committed a total of $50 million in debt financing to the Joint Venture Program, and the Group and the Bank have each committed approximately $6.5 million in equity to the Joint Venture Program. The intention is to expand the Joint Venture Program, as additional lenders become part of the lending group, with the lenders providing up to 80% of the cost of acquiring the containers and the joint venture partners each providing one-half of the equity to fund the balance of the capital requirements of the Joint Venture Program.

      Interest in Other Managed Container Owner. (see Critical Accounting Policies herein and Note 10 to the Group’s 2002 Consolidated Financial Statements). Cronos holds a 0.1% share in a Managed Container Owner 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 non-interest bearing loan notes and an option to acquire 75% of the container owning company in August 2006 for one US dollar. The loan notes, which had a carrying value of $5.3 million at December 31, 2002, are subordinate to other loan notes due to third-parties and fall due for repayment after the other loan notes have been repaid from funds generated from the containers.

      Fixed Non-Cancellable Operating Leases. Cronos, as lessee, has entered into fixed operating lease contracts for container equipment, computer equipment and office space. In 2002 the rental expense was $11.6 million of which the fixed operating lease rental expense for container equipment was $10.4 million. Fixed non-cancellable operating lease rental expense for containers is shown in the statements of income as payments to Managed Container Owners.

      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. Under the terms of the guarantee, the Group may be liable for any principal and interest outstanding under the terms of the

17

      Guarantee of third-party loan & rent support agreement. During 1996 and 1997, the Group sold a total of $26.3 million of equipment, which was under a direct financing lease with a major shipping line, to a third-party. The third-party financed the acquisition of this equipment with a loan of $26.3 million, with a 2004 maturity date, to which the Group provided a first loss guarantee for 20% of the outstanding debt. The Group can collateralize up to 50% of the guarantee with a first security interest in additional equipment. At December 31, 2002, the balance outstanding under the loan was $4.6 million. In addition, under the terms of a rent support agreement for which Cronos earns a fee of $0.1 million per annum, the Group is required to deposit an amount equal to the aggregate of all rental charges scheduled to be paid under the direct financing lease for the next twelve months or until the end of the lease, if sooner, upon the occurrence of a continuing event of default by the shipping line. Annual rental charges under the lease, with a 2004 scheduled maturity date, approximate $3.5 million.

      Guarantee under a purchase, assignment and agency agreement. During 1996, the Group entered into a term lease with a lessee in the ordinary course of business. During 1997, the containers held under the lease were sold, and the lease assigned, to a financial institution. The transaction was accounted for as a sale. As part of this contract, the Group continues to manage the containers held under the term lease and invoices the lessee and collects monies on behalf of the financial institution. Rental under the lease is approximately $0.5 million per annum of which the Group remits $0.4 million to the financial institution as rent and $0.1 million to a retention account held as security by the institution. As compensation for this service, the Group earns an agency fee. Under the terms of the contract with the financial institution, if the lessee fails to make payments, other than in the event of being declared bankrupt, the Group has guaranteed that it will continue to make payments to the financial institution. The guarantee and agreement with the financial institution will expire in 2005.

      Agreements with Other Managed Container Owners — early termination options. Approximately 49% (based on original equipment cost) of the Agreements with Other Managed Container Owners contain early termination options, whereby the container owner may terminate the Agreement if certain performance thresholds are not achieved. At December 31, 2002, approximately 37% (based on original equipment cost) of total Agreements were eligible for early termination. Cronos believes that early termination of these Agreements by the Other Managed Container Owners is unlikely.

      Agreements with Other Managed Container Owners — change of control provisions. Approximately 54% (based on original equipment cost) of Agreements with Other Managed Container Owners 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, 31% of total Agreements may require the Group to transfer possession of the equipment to another equipment manager. Such transfer of possession may result in the Group incurring certain costs. The remaining 23% 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.

      The following table sets forth the payments by period where Cronos has entered into fixed non-cancellable operating leases, and the commitment expiration by period where it has provided loan guarantees and entered into rent support agreements for third-parties. For a discussion of the Group’s commitments and contingencies, see Note 13, “Commitments and Contingencies”, to the Company’s 2002 Consolidated Financial Statements.

Amount of Operating Lease Payments and Commitment Expiration by Period

18

      Amounts receivable from Other Managed Container Owner (see Note 10 to the Group’s 2002 Consolidated Financial Statements). In 1998, 1997 and 1996, the Group sold containers to a third-party container owner for a total of $49.7 million. The total consideration for the container sales comprised cash, management fees receivable on revenues earned by the containers, non-interest bearing loan notes and an option to acquire 75% of the container owning company in August 2006 for one US dollar. The loan notes, which are subordinate to other loan notes due to third-parties, fall due for repayment after the other loan notes have been repaid from funds generated from the containers, which are managed by the Group.

      The four elements of the transactions were essential and integral parts of the consideration. Collectively, they gave the Group the right to receive management fees and certain proceeds on the disposal of the containers.

      Management periodically discounts the projected future net cash flows to be generated by the containers based on historic and projected trends for per diem revenues, utilization, container disposal proceeds and funding costs over the expected remaining life of the containers. The discounted value of the future cash flows is used to support the combined carrying value of the loan note and management fees receivable from the third-party container owner.

      The Group recorded an impairment charge against the carrying value of the receivables from the third-party container owner in the second quarter of 2001. Due to the global economic downturn, management revised the projections for per diem revenues and utilization downwards. Based on the revised projected trends, the Group considered that the carrying value of the loan notes due from the third-party container owner exceeded the discounted value of the future cash flows by $2 million.

      Under current projections, gross lease revenue is forecast to increase in 2003 by approximately 10% over the level reported in 2002 and remain at this level until the fleet size decreases due to container disposals. Projected gross lease revenue is based on current per diem and utilization rates. The underlying leasing and disposal assumptions are consistent with 10 year historical information including available information for comparable US Limited Partnerships and other managed programs. The maximum estimated remaining life for the containers is 9.5 years.

      Although the projected trends are based on historical and current available information, they require subjective management judgement for projections relating to utilization rates, per diem rates, the disposal age of the containers, equipment residual values, cash collections and interest rates.

      Container equipment — depreciable lives. Refrigerated container equipment is depreciated over a useful life of 12 years to a residual value of 15%. Dry cargo and other container equipment is depreciated over a useful life of 15 years to a residual value of 10%. Management re-evaluates the period of amortization and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives and residual values.

      Container equipment — valuation. The Group reviews container equipment when changes in circumstances require consideration as to whether the carrying value of the equipment has become impaired, pursuant to guidance established in 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 related operations (undiscounted and without interest charges). When impairment is deemed to exist, the assets are written down to fair value or projected discounted cash flows from related operations. 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 disposals due to various factors including age, condition, suitability for continued leasing, as well as geographic location of the containers where disposed.

      Deferred Taxation. Under SFAS No. 109 (“SFAS 109”) “Accounting for Income Taxes”, the Group is required to record a valuation allowance if realization of a deferred tax asset is not “more-likely-than-not”. Substantial weight must be given to recent historical results and near term projections, and management must assess the availability of tax planning strategies that might impact either the need for, or the amount of, any valuation allowance.

19

      Based on the recent history of operating losses in its US subsidiaries, the near term outlook and management’s evaluation of available tax planning strategies, the Group has maintained a 100% valuation allowance for its deferred tax asset related to net operating loss carryforwards in the US since 1998. As of December 31, 2002, the Group’s valuation allowance aggregated $2.5 million. In the event the Group were to determine that it would be able to realize its deferred tax asset, a reversal of part or all of the valuation allowance would be recorded.

      Allowance for doubtful accounts. Cronos continually tracks its credit exposure to each customer using specialist third-party credit information services and reports prepared by local staff to assess credit applications. 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. Over the last 10 years, bad debts have approximated 1% of lease revenues. Based on this information, Cronos has calculated an allowance for doubtful accounts comprising specific amounts provided against known probable losses plus an additional amount based on loss experience. However, the Group may be subject to unexpected loss in rental revenue from container lessees that default under their container lease agreements.

      Intangibles. Intangible assets consist of goodwill and patents. On January 1, 2002, the Group adopted SFAS No. 142 (“SFAS 142”), “Goodwill and Other Intangible Assets”, which provides that intangible assets with finite useful lives be amortized over that life and that goodwill and intangible assets with indefinite lives will not be amortized, but will rather be tested at least annually for impairment. Patents will continue to be amortized on a straight-line basis over their estimated useful lives, to a residual of zero. In addition to market valuations, the annual impairment test uses cash flow discounting techniques to determine the fair value of respective reporting units. Management discounts the projected future net cash flows to be generated by the reporting units based on historic and projected trends for per diem revenues, utilization, container disposal proceeds and funding costs over the expected remaining life of the unit. Although the projected trends are based on historical and current available information, they require subjective management judgement for projections relating to utilization rates, per diem rates, the disposal age of the containers, equipment residual values, cash collections and interest rates.

Results of Operations

      Improved market conditions for all container types and the implementation of several Cronos marketing initiatives during 2002 resulted in a 46% reduction in off-hire container inventories. Utilization increased by 12% from 73% at the beginning of the year to 85% by the end of December.

      Lower levels of new worldwide container production in 2001 and the first half of 2002 addressed, to some extent, the problems of container over-supply caused by higher levels of production in 1999 and 2000. As a result, demand increased for the existing container fleets of leasing companies and shipping lines. In many parts of Asia and particularly in the south eastern ports, demand exceeded supply. In addition, in 2002, imports to Europe and the US declined thereby slowing the build up in container inventories in these locations. To exploit such opportunities, the Group repositioned off-hire equipment to locations of greatest demand and pursued leasing opportunities through its global network of marketing resources.

      Since December 2001, the combined per diem rate for the Cronos fleet of dry cargo containers declined by approximately 12%. Most of this decline occurred in the first three months of 2002 and is attributable to three main factors.

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

      The combined effect of the reduction in per diem rates resulted in reduced gross lease revenue, but also significantly lowered direct operating expenses due to the reduction in storage and other inventory costs.

20

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

      Cronos uses debt and capital leases to finance the acquisition of container equipment and investments in direct financing leases. The primary 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 2002, 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 for each quarter (equal to 110% of interest expense for that quarter), and to generate sufficient cash from operations and other activities to maintain the current portion of borrowings within financial covenant limits. The breach of a covenant constitutes an event of default.

      The Group operates a diversified fleet of containers, including refrigerated containers, tanks, CPCs and rolltrailers. Specialized containers account for over 50% of the Cronos owned fleet (based on original equipment cost). Due to their specialized nature, demand for certain of these containers is less likely to be affected by global economic downturns.

      Cronos reported net income of $3.1 million, $3.2 million and $5.2 million for the years ended December 31, 2002, 2001 and 2000, respectively. The following chart represents certain key performance measurements, expressed as a percentage of total revenues:

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

      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. Revenue from dry cargo and refrigerated containers accounted for all of the decline as the effect of the increase in utilization reported during 2002 was more than offset by the effect of reduced per diem rates and the disposal of older dry cargo 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 $4.4 million in 2002 was $1.1 million, or 19%, lower than in 2001. Reductions of $0.9 million in CPC license fee income due to lower third-party demand for new CPC containers during 2002, $0.4 million in amortized acquisition fee income reflecting a maturing portfolio of managed container programs, $0.1 million on fees earned on the disposal of managed container program containers, $0.1 million in design and consultancy fee income, $0.1 million in property rental income and $0.3 in other items were partly offset by an $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.

21

      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.

      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 increased demand for dry cargo containers during the year.

      Payments to Managed Container Owners were $55.1 million for the year ended December 31, 2002, a decrease of $1.8 million, or 3%, when compared to the prior year. This is due primarily to the decline in dry cargo container net lease revenue for each of the managed segments.

      Depreciation and amortization was $15.5 million for 2002, compared with $15.8 million for 2001. Depreciation expense for leasehold and computer assets was $0.6 million lower than in 2001. This is 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. This was offset by a $0.7 million increase in container depreciation expense reflecting the addition of new container equipment. The amortization of intangible assets declined by $0.4 million in 2002 due to the adoption of SFAS No. 142.

      Selling, general and administrative expenses were $14.3 million in 2002, an increase of $0.2 million, when compared to 2001. Reductions of $0.3 million in information technology costs and $0.1 million in occupancy costs were more than offset by increased manpower costs of $0.3 million, increased professional services expenses of $0.1 million and increased business insurance and other costs of $0.2 million. The decrease in occupancy costs was mainly due to an office relocation in the UK during 2002. During 2002, the decline in the US dollar relative to the UK pound and to the Euro had the effect of increasing the cost of overheads in these economic areas.

      Interest expense of $6.2 million in 2002, was $1.6 million, or 21%, lower than in 2001. The decline in interest expense was attributable to the reduction in interest rates and lower total debt balances in 2002.

      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.

          Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

      Gross lease revenue of $120.3 million for the year ended December 31, 2001, was $17.3 million, or 13%, lower than for the year ended December 31, 2000. Gross lease revenue for dry cargo containers decreased by $14.9 million due to the combined effect of lower utilization and per diem rates together with equipment disposals. Revenue for refrigerated containers was $2.5 million lower than in 2000 due to the combined effect of lower utilization and per diem rates, product obsolescence and equipment disposals. This downward trend was reversed to some extent by the addition of approximately $20 million of new term lease equipment to the fleet during the year. Revenue for tank containers declined by $0.6 million due primarily to a reduction in per diem rates. Gross lease revenue for dry freight specials was $0.7 million higher than in the prior year.

      Equipment trading revenue of $5.3 million in 2001 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. After deducting equipment trading expenses of $4.9 million for the year, the Group earned $0.3 million from this activity in 2001.

      Commissions, fees and other operating income of $5.4 million in 2001 was $0.4 million, or 8%, higher than in 2000. Increases of $0.3 million earned in connection with equipment design services, $0.3 million in

22

      Investment gains of $0.3 million for the year ended December 31, 2001 represented the sale of shares that had been held in escrow as security for a 1994 tax indemnification agreement. This agreement expired on December 31, 2000, and the shares were released during the first quarter of 2001. The gain of $3.6 million for the year ended December 31, 2000, represented profit realized pursuant to the receipt of shares from two escrow accounts that had been held pending post-closing reports and adjustments related to the Agreement and Plan of Merger between Transamerica Corporation and Trans Ocean Limited in 1996.

      Interest income was $0.3 million in 2001, compared to $0.9 million in 2000. Interest income earned in 2000 included $0.2 million of income earned on cash on deposit in investment related escrow accounts, and interest income earned on other cash deposits. In 2001, a general decline in interest rates and lower cash balances reduced the amount of interest income earned.

      Direct operating expenses were $30.9 million in 2001, an increase of $4.2 million, or 16%, compared to 2000. An increase of $4.7 million in inventory-related costs, reflecting a larger off-hire fleet, together with an increase in activity-related costs of $0.7 million, was partly offset by a total reduction of $1.2 million in legal costs and in provisions for doubtful accounts.

      Payments to Managed Container Owners were $57 million for the year ended December 31, 2001, a decrease of $14.7 million, or 21%, when compared to the prior year. This was a result of a decline in net lease revenue due to the global economic environment for those agreements where the amounts payable to container owners were based upon the rentals to ocean carriers after deducting direct operating expenses and a management fee. Payments to US Limited Partnerships were $7.7 million lower than the prior year. Payments to Other Managed Container Owners were $37.9 million in 2001, a decrease of $7 million, or 16%, from 2000.

      Depreciation and amortization decreased by $0.3 million, to $15.8 million during 2001. A $0.3 million increase in container depreciation due to the addition of new equipment during 2001 was more than offset by a $0.4 million reduction in depreciation for non-container assets and a reduction in goodwill amortization expense of $0.2 million.

      Selling, general and administrative expenses were $14.1 million in 2001, a decline of $3.5 million, or 20%, when compared to 2000. This was primarily due to reductions of $1.7 million in non-operating legal and related expenses, $1.1 million in manpower costs, $0.3 million in professional services costs and $0.2 million in each of occupancy and information technology. Non-operating legal and related expenses were $0.5 million in 2001. In 2000, manpower costs included a total of $0.9 million for bonus and termination costs. There were minimal expenses for these items in 2001.

      Interest expense of $7.8 million in 2001, was $1.6 million, or 17%, lower than in 2000. This decrease was primarily due to the effect of lower interest rates. Interest expense during 2001 included a $0.1 million non-recurring charge incurred in connection with the refinancing of certain loan facilities. Interest expense for 2000 included interest on a loan facility relating to a building, which was sold in June of that year.

      Income Taxes. In 2001, The Group recorded a charge for income taxes of $0.1 million, representing 2% of income before income taxes. During the year 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.

      Income from recovery of related party loans for the year ended December 31, 2001, represented the partial recovery of interest and principal receivable under two promissory notes between the Group and a former chairman and chief executive officer of the Group. The Group had previously made a provision against some of the amounts owed under the promissory notes in December 1997. In May 2001, Cronos was awarded 1.8 million outstanding common shares in the Company that were beneficially owned by the former chairman and chief executive officer in partial consideration for amounts owed under the promissory notes. These shares have been recorded as common shares in treasury. The valuation of $6 million was based on the estimated fair value of the shares received.

23

      Impairment charges of $4 million for the year ended December 31, 2001, were recorded against certain refrigerated containers and against loan notes receivable from a third-party container owner.

      In the second quarter of 2001, the Group undertook a review of its refrigerated container equipment and identified a number of issues that have had an impact on the carrying value of certain equipment, which uses the R12 refrigerant gas. As a result of the review, management concluded that inventories of R12 equipment would be targeted for immediate sale and that 531 containers with a carrying value of $2.4 million exceeded fair value. Additionally, a review was conducted of 776 containers with a carrying value of $3.7 million that were on lease at June 30, 2001. It was concluded that the carrying value of these assets exceeded the future cash flows expected to result from the use of the assets and their eventual disposition. As a result of these reviews, an impairment charge of $2 million was recorded.

      The Group also reviewed the carrying value of loan notes receivable from a third-party container owner in the second quarter of 2001. The carrying value of the loan notes are measured in terms of the discounted value of projected future net cash flows to be generated based on historical and projected trends on per diem revenues, utilization, container disposal proceeds and funding costs over the expected useful life of the containers. Due to the global economic downturn, management revised the projections for per diem revenues and utilization downwards. Based on the revised projected trends, the Group considered that the carrying value of the loan notes due from the third-party container owner exceeded the discounted value of the future cash flows by $2 million. Accordingly, an impairment of $2 million was recorded (see discussion of “Critical Accounting Policy” herein).

Liquidity and Capital Resources

      The funding sources available to the Group and its consolidated subsidiaries include operating cash flow and borrowings.

      The Group’s operating cash flow is derived from lease revenues generated by the Group’s container fleet and fee revenues from its managed container programs and other parties. Operating cash flow is utilized to meet costs relating to day-to-day fleet support, payments to Managed Container Owners, selling, general and administrative expenses, interest expense, servicing the current portion of long-term borrowings and financing a portion of certain debt funded equipment acquisitions.

      Operating cash flow is largely dependent upon the timely collections of lease revenues from shipping lines. Based on loss experience for the last ten 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. In the current economic climate 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 commitments.

      At December 31, 2002, the Group had $106 million of available container borrowing facilities under which $101 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.

      On December 10, 2002, the Board of Directors declared a quarterly dividend of 2 cents per common share which was paid on January 9, 2003. In addition the Board declared a quarterly dividend of 2 cents per common share for the first calendar quarter of 2003, payable April 17, 2003 to shareholders of record as of March 28, 2003.

24

          Cash Flow Statements for the years ended December 31, 2002, 2001 and 2000

      Cash from Operating Activities. Net cash provided by operating activities during 2002, 2001 and 2000 was $19.1 million, $19.1 million and $17.8 million, respectively. The net cash generated in 2002 reflected earnings from operations including $1.2 million of income tax repayments relating primarily to a settlement with a foreign taxation authority during the year. The net cash generated in 2001 reflected earnings from operations, as well as cash generated from the sale of new container equipment purchased for resale to a new managed container owner program. This sale generated $8 million in proceeds of which $6.8 million was used to pay container manufacturers. The net cash generated in 2000 reflected earnings from operations and an $8.7 million increase in amounts due to container manufacturers. This was partly offset by a $9.3 million increase in new container equipment for resale and a $1.6 million increase in the net amounts due from lessees.

      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, on occasion, to acquire subsidiaries and other investments. Net cash used in investing activities was $3.5 million in 2002. Proceeds from the sale of container equipment of $12.3 million included $9.8 million of equipment that was sold to a new Container Equity Program. In addition, the Group received a dividend of $1.4 million from a Container Equity Program. These items were more than offset by total expenditure of $17.2 million on fixed assets and direct finance lease equipment. Net cash used in investing activities was $24 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 $4.4 million and proceeds from the sale of investments of $0.5 million. Net cash provided by investing activities for 2000 was $10.7 million. During 2000, the Group generated $10.9 million in proceeds from the sale of a building and container equipment, and received $1.2 million of funds that had been held in an escrow account.

      Cash from Financing Activities. The Group uses cash from financing activities to fund capital acquisition requirements and short-term purchasing requirements of new containers held for resale. Net cash used in financing activities was $15.8 million for 2002. Proceeds from the issuance of new term debt of $17.9 million was more than offset by the repayment of $33.7 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 $3.2 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 $22.3 million of debt and capital lease obligations during 2001. Net cash used in financing activities for 2000 was $30.7 million. During 2000, in addition to scheduled debt repayments, the Group utilized proceeds from the sale of a building, proceeds from the sale of shares, and the release of cash deposits to prepay $11.8 million of debt.

          Capital Resources

          Capital Expenditures and Commitments

      The Group purchases new containers for its own account and for resale to its Managed Container Owners and other parties. At December 31, 2002, the Group owed container manufacturers $8.6 million for equipment. The Group will fund $6.1 million of this equipment utilizing available container funding facilities and the remaining $2.5 million will be sold to a Container Equity Program.

      In addition, the Group had outstanding orders to purchase container equipment at December 31, 2002 of $0.9 million. These orders relate to containers to be financed by the Group using available container funding facilities.

      Capital expenditures for containers in 2002, 2001 and 2000 were $10.9 million, $22.3 million and $2.1 million respectively. Other capital expenditures in 2002, 2001 and 2000 were $0.3 million, $0.1 million and $0.1 million, respectively.

      On September 18, 2002, Cronos established the Joint Venture Program with a major international financial services provider, and 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 through a joint venture 50% owned by a

25

      The Group sold approximately $18.8 million of containers to the Joint Venture Program and transferred an additional $4.7 million of containers as a capital contribution. The Group utilized the proceeds from the sale of containers to repay approximately $10.2 million of indebtedness outstanding under its existing revolving line of credit with the Bank. In addition, an initial distribution from the Joint Venture Program of approximately $1.1 million was utilized to further reduce the existing revolving line of credit with the Bank. The sale of the containers by the Group to the Joint Venture Program did not result in a material gain (or loss).

      On July 19, 2001, the Group entered into a $60 million revolving credit facility with the Bank. This facility was for a term of three years with an interest rate of London Inter Bank Offered Rate (“Libor”) plus 2.25%, payable monthly in arrears. The first drawdown under the facility was utilized to refinance existing loan facilities and to fund new container additions.

      In connection with the establishment of the Joint Venture Program and the repayment of a portion of the outstanding balance under the revolving credit facility with the Bank, the Group has amended its revolving line of credit agreement with the Bank to reduce the maximum commitment of the Bank thereunder from $60 million to $50 million, and has agreed to amortize the balance outstanding under the revolving line of credit, as of September 18, 2003, over five years.

      On December 10, 2002, the Board of Directors authorized the repurchase of up to 200,000 of the Company’s common shares. Repurchases of common shares are limited to “block” purchases, as defined by the SEC’s Rule 10b-18 (generally, purchases of 2,000 shares or more) and will be made in the open market, at times and prices considered appropriate by the Company, until no later than December 10, 2003 (unless extended by the Board). Depending on market conditions and other factors, share repurchases may be commenced or suspended at any time or from time-to-time, without prior notice. The Company has retained Deutsche Bank Securities, Inc. to effect all repurchases under the program.

      As of December 31, 2002, the Company had repurchased 12,000 of its common shares at an aggregate price of $37,200 or, on average, $3.10 per share. Subject to the conditions stated above, up to an additional 188,000 common shares may be repurchased under the program.

      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 on January 9, 2003, to shareholders of record as of December 23, 2002. The remaining 50% will be paid on April 17, 2003, to shareholders of record as of March 28, 2003.

      During 1996, the Group entered into agreements (the “Agreements”) to acquire the patent rights relating to the CPC, the Slimwall CPC and the intellectual property of Cargo Unit Containers Limited from a third-party (the “Seller”). Under the terms of the intellectual property agreement (the “Agreement”), it was agreed that royalties received by the Group as defined in the Agreement would be shared equally between the Group and the Seller. In April 2000, the Group entered into another agreement with the Seller which provided that, in consideration for the sum of $1 million, the Group would fully discharge any liabilities for accrued royalties, acquire full right, title and interest that the Seller may have had to receive royalties in the future and acquire all residual rights as the Seller had or may have had under the Agreements. In accordance with the agreed-upon installment payment plan, the Group paid $1 million to the Seller during 2000, thus fulfilling its obligations under the agreement.

New Accounting Pronouncements

      In June 2002, the Financial Accounting Standards Board issued SFAS No. 146 (“SFAS 146”), “Accounting for Costs Associated with Exit or Disposals Activities”. The Company does not consider the provisions of SFAS 146 to have any effect on the results from operations presented herein.

      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 amends the disclosure requirements of SFAS 123 to require prominent

26

      In November 2002, the Financial Accounting Standards Board issued Interpretation No. 45 (“FIN 45”), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others”. FIN 45 requires (i) that for financial statements issued after the issuance of FIN 45, certain disclosures be made by the guarantor in its financial statements and (ii) that for guarantees issued after December 31, 2002 a guarantor recognize, at the inception of a guarantee, a liability for the fair value of the obligation undertaken in issuing the guarantee. Accounting for guarantees issued prior to the initial application of FIN 45 shall not be revised or restated to reflect the recognition or measurement provisions of FIN 45.

      In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”. The Group has not yet completed the process of identifying whether it has variable interests in any variable interest entities. The Group is evaluating the impact that will result from adopting FIN 46 and is therefore unable to disclose the impact that adopting FIN 46 will have on its financial position and results of operation when such statement is adopted.

Inflation

      Management believes that inflation has not had a material adverse effect on the Group’s results of operations.

      The following table sets forth principal cash flows and related weighted average interest rates by expected maturity dates for debt and capital lease obligations at December 31, 2002:

      Interest rate risk: Outstanding borrowings are subject to interest rate risk. At December 31, 2002, 85% of total borrowings had floating interest rates. The Group conducted an analysis of borrowings with variable interest rates to determine their sensitivity to interest rate changes. In this analysis, the same change was applied to the current balance outstanding, leaving all other factors constant. It was found that if a 10% increase were applied to market rates, the expected effect would be to reduce annual cash flows by $0.3 million.

      Exchange rate risk: In 2002, over 96% of the Group’s revenues were billed and paid in US dollars. The Group believes that the proportion of US dollar revenues may decrease in future years, reflecting a more diversified customer base and lease portfolio. Approximately 78% of costs in 2002 were incurred and paid in US dollars. Of the remaining costs, approximately 77% are individually small, unpredictable and were incurred in various denominations. Thus, such amounts are not suitable for cost-effective hedging.

      As exchange rates are outside of the control of the Group, there can be no assurance that such fluctuations will not adversely affect its results of operations and financial condition. By reference to 2002, it is estimated that for every 10% incremental decline in value of the US dollar against various foreign currencies, the effect would be to reduce cash flows by $1.2 million in any given year.

27

      Independent Auditors’ Report

The financial statements listed in this Item 8 are set forth herein beginning on page F1:

      Consolidated Balance Sheets — At December 31, 2002 and 2001

      Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000

	Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000

      Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

      Notes to Consolidated Financial Statements

      None

28

PART III

      The Company hereby incorporates by reference the information required by Part III (Items 10, 11, 12, and 13) from the Company’s definitive proxy statement to be filed no later than 120 days after the end of the Company’s fiscal year covered by this annual report. In the event that the Company does not file its definitive proxy statement with the Commission on or before 120 days after the end of the fiscal year covered by this annual report, then the Company shall provide the information required by Part III in an amendment to this annual report, filed not later than the end of the 120-day period.

      The principal executive and principal financial officers of the Company have evaluated the disclosure controls and procedures of the Group within 90 days prior to the filing of this annual report. As used herein, the term “disclosure controls and procedures” has the meaning given to the term by Rule 13a-14 under the Securities Exchange Act of 1934, as amended (“Exchange Act”), and includes the controls and other procedures of the Group that are designed to ensure that information required to be disclosed by the Company in the reports that it files with the SEC under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. Based upon their evaluation, the principal executive and financial officers of the Company have concluded that the Group’s disclosure controls and procedures provide reasonable assurance that the information required to be disclosed by the Company in this report is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms applicable to the preparation of this report.

      There have been no significant changes in the Group’s internal controls or in other factors that could significantly affect the Group’s internal controls subsequent to the evaluation described above conducted by the Company’s principal executive and financial officers.

29

PART IV

Item 15 — Exhibits, Financial Statement Schedules, and Reports on Form 8-K

(a)(1) Financial Statements

      Independent Auditors’ Report

      Consolidated Balance Sheets — At December 31, 2002 and 2001

      Consolidated Statements of Income for the Years Ended December 31, 2002, 2001 and 2000

	Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000

      Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

      Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedules

	All schedules for which provision is made in the applicable regulations of the Commission are not required under the related instructions or are inapplicable, and therefore have been omitted.

(a) (3) Exhibits

	The following exhibits are filed herewith or are incorporated by reference to exhibits previously filed with the Commission. The Company shall furnish copies of exhibits for a reasonable fee (covering the expense of furnishing copies) upon request.
	Previously filed material contracts that are no longer in force or effect and that were entered into more than two years prior to the date of the filing of this report are not listed in this index.

30

31

(b) Reports on Form 8K

	On May 23, 2002, a Current Report on Form 8-K was filed by the Company announcing the grant of common shares of the Company to certain eligible employees and agents.

32

	On October 2, 2002, a Current Report on Form 8-K was filed by the Company announcing the establishment of a joint venture container purchase program with a major European financial institution.
	On December 10, 2002, a Current Report on Form 8-K was filed by the Company declaring a quarterly dividend of 2 cents per common share, to be paid January 9, 2003, to shareholders of record as of December 23, 2002, and authorized the repurchase of up to 200,000 of the Registrant’s common shares.

33

SIGNATURES

      Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

     Date: March 20, 2003

	THE CRONOS GROUP

	By:	/s/ DENNIS J TIETZ

	Dennis J Tietz
	Chairman of the Board and
	Chief Executive Officer

      Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.

34

CERTIFICATION

I, Dennis J. Tietz, certify that:

1.	I have reviewed this annual report on Form 10-K of The Cronos Group (the “Registrant”);
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
3.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors (or persons performing the equivalent functions):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6.	The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ DENNIS J. TIETZ
Dennis J. Tietz
Chief Executive Officer

35

CERTIFICATION

I, Peter J. Younger, certify that:

1.	I have reviewed this annual report on Form 10-K of The Cronos Group (the “Registrant”);
2.	Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;
4.	Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the Registrant as of, and for, the periods presented in this annual report;
4.	The Registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the Registrant and have:

	a)	designed such disclosure controls and procedures to ensure that material information relating to the Registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared;

	b)	evaluated the effectiveness of the Registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

	c)	presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.	The Registrant’s other certifying officer and I have disclosed, based on our most recent evaluation, to the Registrant’s auditors and the audit committee of Registrant’s Board of Directors (or persons performing the equivalent functions):

	a)	all significant deficiencies in the design or operation of internal controls which could adversely affect the Registrant’s ability to record, process, summarize and report financial data and have identified for the Registrant’s auditors any material weaknesses in internal controls; and

	b)	any fraud, whether or not material, that involves management or other employees who have a significant role in the Registrant’s internal controls; and

6.	The Registrant’s other certifying officer and I have indicated in this annual report whether there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

Date: March 20, 2003

/s/ PETER J. YOUNGER
_______________________________________ Peter J. Younger
Chief Financial Officer

36

THE CRONOS GROUP

Consolidated financial statements as of December 31, 2002 and 2001

F-1

INDEPENDENT AUDITORS’ REPORT

To the Shareholders and Board of Directors of The Cronos Group:

      We have audited the accompanying consolidated balance sheets of The Cronos Group and its subsidiaries (collectively the “Group”) as of December 31, 2002, and 2001, and the related consolidated statements of income, cash flows and shareholders’ equity for each of the three years in the period ended December 31, 2002. These financial statements are the responsibility of the Group’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of The Cronos Group and its subsidiaries as of December 31, 2002 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2002, in conformity with accounting principles generally accepted in the United States of America.

      As discussed in Notes 2 and 9 to the consolidated financial statements, in 2002 the Company changed its method of accounting for goodwill and other intangible assets to conform to Statement of Financial Accounting Standards No. 142, “Goodwill and Other Intangible Assets”.

/s/ Deloitte & Touche LLP

F-2

THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF INCOME