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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended: March 31, 2003
OR

For the transition period from:           to          

Commission file number: 0-24464

THE CRONOS GROUP

16, ALLÉE MARCONI, BOÎTE POSTALE 260, L-2120 LUXEMBOURG
(Address of principal executive offices)(zip code)

Registrant’s telephone number, including area codes:
(352) 453145

               Indicate by check mark whether the Registrant (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  [   ]

               The number of Common Shares outstanding as of May 13, 2003:

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The Cronos Group

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The Cronos Group

PART I — FINANCIAL INFORMATION

Item 1 — Financial Statements

               Management Representation

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

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

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

               This financial information reflects, in the opinion of management, all adjustments necessary to present fairly, the results for the interim periods. Such adjustments consist of only normal recurring adjustments. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

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Condensed Unaudited Consolidated Statements of Income

(US dollar amounts in thousands, except share amounts)

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

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Condensed Unaudited Consolidated Balance Sheets

(US dollar amounts in thousands, except share amounts)

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

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Condensed Unaudited Consolidated Statements of Cash Flows

(US dollar amounts in thousands, except share amounts)

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

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Consolidated Unaudited Statement of Shareholders’ Equity

(US dollar amounts in thousands, except share amounts)

Three months ended March 31, 2003

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

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Notes to the Condensed Unaudited Consolidated Financial Statements

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

1.		The condensed unaudited consolidated financial statements include the accounts of The Cronos Group and its wholly owned subsidiaries. All material intercompany accounts and transactions have been eliminated.
2.		Stock-Based Compensation (US dollar amounts in thousands, except share and per share amounts)

               The Group has adopted disclosure requirements under SFAS No. 123 (“SFAS 123”) “Accounting for Stock-Based Compensation”, but continues to account for stock-based compensation under Accounting Practices Board Opinion (“APB”) No. 25, “Accounting for Stock Issued to Employees” under which no compensation expense has been recognized. In accordance with SFAS 123, the Company discloses the fair value of its stock options, which is calculated based on the Black Scholes model.

               In December 2002, the Financial Accounting Standards Board issued SFAS No. 148 (“SFAS 148”), “Accounting for Stock-Based Compensation – Transition and Disclosure”. SFAS 148 provides alternative methods of transition for a voluntary change to the fair value based method of accounting for stock-based compensation. In addition, SFAS 148 amended the disclosure requirements of SFAS 123 to require prominent disclosures in both annual and interim financial statements of the method of accounting for stock-based employee compensation and the method used to report results. The Company has adopted the disclosure requirements of SFAS 148.

               If the stock options had been accounted for under SFAS 123, the impact on the Group’s net income and net income per share would have been as follows:

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Notes to the Condensed Unaudited Consolidated Financial Statements

3.     Operating segment data

Condensed segment information is provided in the tables below:

Reconciliation of operating profit for reportable segments to income before income taxes:

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Notes to the Condensed Unaudited Consolidated Financial Statements

4.		Earnings per common share (US dollar amounts in thousands, except share and per share amounts)
		The components of basic and diluted net income per share were as follows:

5.

Amounts receivable from container owners

               Amounts receivable from container owners include amounts due from related parties of $3.3 million and $3.4 million at March 31, 2003 and December 31, 2002, respectively.

6.

Investments in related parties

               Investments in related parties take two forms:

               Under the first form the investments comprise interests as a general partner and as a limited partner in eight sponsored funds. These general and limited partner investments are accounted for using the equity method. The subsidiary of the Company that acts as a general partner maintains insurance for bodily injury, death and property damage for which a partnership may be liable, and may be contingently liable for uninsured obligations of the partnerships. The investment in US Limited Partnerships was $nil at both March 31, 2003 and December 31, 2002, respectively.

               Under the second form the Group has a 50% equity investment in a joint venture container purchase entity (the “Joint Venture Program”). The Joint Venture Program operates as a bankruptcy-remote, special purpose entity organized under the laws of Bermuda and is accounted for using the equity method. The investment in the joint venture entity was $3.8 million and $3.6 million at March 31, 2003 and December 31, 2002.

7.

Container equipment

               Container equipment is net of accumulated depreciation of $91.8 million and $91.7 million at March 31, 2003 and December 31, 2002, respectively.

8.

Amounts payable to container owners

               Amounts payable to container owners include amounts payable to related parties of $8.4 million and $8.2 million at March 31, 2003 and December 31, 2002, respectively.

9.

Debt and capital lease obligations

               Debt and capital lease obligations are secured by container equipment and include amounts due within twelve months of $14.8 million and $13.1 million at March 31, 2003 and December 31, 2002, respectively. Interest rates under these facilities range from 2.9% to 8.6% and they extend to various dates through 2012. At March 31, 2003, the Group had provided guarantees for the payment of the $101.4 million of outstanding debt and capital lease obligations, plus related interest.

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Notes to the Condensed Unaudited Consolidated Financial Statements

10.		Commitments and contingencies (to be read in conjunction with Note 13 to the Company’s 2002 Consolidated Financial Statements on Form 10-K)
i.		Commitments
		At March 31, 2003, the Group had outstanding orders to purchase $10 million of container equipment.
ii.		Guarantee to US Limited Partnership

               During 2000, the Group provided an unsecured 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 Note in the event of a default by the US Limited Partnership. At March 31, 2003, the balance outstanding under the Note was $2.7 million.

iii.

Guarantee of third-party loan and 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 March 31, 2003, the balance outstanding under the loan was $3.5 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.

iv.

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 was 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 provided an unsecured guarantee that it will continue to make payments to the financial institution. The guarantee and agreement with the financial institution will expire in 2005.

v.

Guarantees under fixed non-cancellable operating leases

               Cronos, as lessee, has entered into secured fixed operating lease contracts for container equipment under which it has guaranteed the payment of the future minimum lease obligations. As of March 31, 2003, the future minimum annual lease payments under these non-cancellable operating leases were:

vi.

Agreements with Other Managed Container Owners – early termination options

               Approximately 49% (based on original equipment cost) of the agreements (the “Agreements”) with Other Managed Container Owners contain early termination options, whereby the container owner may terminate

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Notes to the Condensed Unaudited Consolidated Financial Statements

the Agreement if certain performance thresholds are not achieved. At March 31, 2003, approximately 36% (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.

vii.

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.

viii.

Contingencies – Disputes with Contrin Holding S.A.

               Since 1983, the Group has managed containers for Austrian investment entities sponsored by companies owned or controlled by Contrin Holding S.A., a Luxembourg holding company, and for Contrin Holding S.A. itself (collectively, “Contrin”).

               As described further below, the Group is in litigation with Contrin over funds that Contrin claims to have remitted to the Group for the purchase of containers. Contrin claims that in 1994 it transmitted $2.6 million to the Group for the purchase of containers. The Group did not receive these funds and believes that the funds were diverted to an account controlled by Stefan M. Palatin, a former chairman and chief executive officer of the Group, and that this was known or should have been known by Contrin.

               In December 1997, the Group recorded an accrual of $3.4 million relating to the alleged transfer of $2.6 million, the related interest, plus the estimated settlement costs of this and other claims by Contrin. On March 31, 2003, the balance of this accrual was $3 million.

               On August 8, 2000, Contrin, through an 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 Contrin’s complaint, requesting that the District Court dismiss the proceeding for lack of jurisdiction over the dispute, and 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 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 currently 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, in June of 2000, filed claims for indemnity against Mr. Palatin and his wife in the High Court of Justice, London, England, and in July 2000, separately, a claim against Barclays Bank PLC (“Barclays”). Barclays was the bank that received the $2.6 million from Contrin. For a description of these claims, see “Legal Proceedings”.

               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, Contrin asserts that CNV, wrongfully and in violation of the container management agreement between

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Notes to the Condensed Unaudited Consolidated Financial Statements

Contrin and CNV, failed to distribute to Contrin $0.5 million in distributions for the second through fourth calendar quarters of 1996. Contrin 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 CWC in any amount. The trial of CWC’s claim, initially set for January 27, 2003, was 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. For the status of this separate claim by CNV against the Palatins and Klamath, see “Legal Proceedings”.

               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.

               Contrin has also asserted an interest in the containers managed by the Group for Transocean Equipment Manufacturing and Trading Limited (“TOEMT”) and in the distributions payable with respect to such containers, as discussed below.

               Management considers that prudent provision has been made in the financial statements for the Contrin matters noted above. There is a reasonable possibility that a material change could occur with respect to these commitments and contingencies within one year of the date of these financial statements. In such an event, management estimates that possible losses could exceed the amount accrued by $3.5 million.

               ix.      TOEMT

               TOEMT, which is currently in liquidation in the United Kingdom, has been separately registered by the same name in both the United Kingdom and in the Isle of Man. At March 31, 2003, the Group had $1.3 million in amounts payable to TOEMT on deposit in a bank account pending clarification of the proper claimants to the distributions payable with respect to the containers owned by TOEMT. Contrin has provided the Group with copies of default judgements that Contrin secured in January and June 2001 from the Commercial Court of Vienna, Austria, against TOEMT, the UK company, in the amount of $0.1 million, and against TOEMT, the Isle of Man company, in the amount of $0.4 million. Contrin has recently retained separate UK insolvency counsel, and has initiated proceedings to place TOEMT (Isle of Man) in liquidation. Contrin has claimed an entitlement to all of the distributions that the Group has set aside in the separate bank account on the TOEMT containers, and its insolvency counsel, which also represents the liquidator of the UK TOEMT and the proposed liquidator of TOEMT (Isle of Man) has requested an accounting and extensive information on the Group’s management of the containers for TOEMT. Until clarification is secured by the court(s) overseeing the liquidation(s) of UK TOEMT and TOEMT (Isle of Man) and / or through agreement with the liquidators of TOEMT, the Group presently intends to continue to set aside the distributions due and payable by the Group on the containers it manages for TOEMT.

11.

New accounting pronouncements

               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.

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Notes to the Condensed Unaudited Consolidated Financial Statements

               In January 2003, the Financial Accounting Standards Board issued Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities”. FIN 46 is applicable immediately to any variable interest entity created after January 31, 2003, and must be applied in the first fiscal year or interim period after June 15, 2003, for an interest in a variable interest entity that was acquired before February 1, 2003. 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.

               In April 2003, the Financial Accounting Standards Board issued SFAS No. 149 (“SFAS 149”), “Amendment of Statement 133 on Derivative Instruments and Hedging Activities”. The Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for other hedging activities under Statement 133. SFAS 149 is effective for contracts entered into or modified after June 30, 2003, and for hedging relationships designated after June 30, 2003. The Group is evaluating SFAS 149 but does not believe it will have an impact on its financial statements.

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Item 2 — Management’s Discussion and Analysis of Financial Condition and Results of Operations

               General

               The Group generates revenues by leasing to ocean carriers, marine containers that are owned either by managed container programs (“Managed Container Owners”), comprising Container Equity Programs and Other Managed Container Owners, or by the Group itself (“Owned Containers”). These leases, which generate most of the Group’s revenues, are generally operating leases.

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

               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 the three months ended March 31, 2003, 84% 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 16% 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.

               The Group reviews its Owned Container equipment when changes in circumstances require consideration as to whether the carrying value of the equipment has become impaired, pursuant to SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets”. Management considers assets to be impaired if the carrying value of the asset exceeds the future projected cash flows from 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 dispositions due to various factors including age, condition, suitability for continued leasing, as well as geographic location of the containers where disposed. In addition, subjective management judgement is required in estimating future cash flows from container operations. Accordingly, the estimates may not be indicative of the amounts that may be realized in future periods.

               Cronos operates a diversified fleet of containers, including refrigerated containers, tanks, Cellular Palletwide Containers (“CPCs”) and rolltrailers (“Specialized Containers”). Specialized Containers account for over 50% of the Cronos owned fleet (based on original equipment cost).

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               The following chart summarizes the composition of the Cronos fleet (in thousands), based on twenty-foot equivalent units (“TEU”), by equipment type, at March 31 for each of the periods indicated:

               Off-hire container inventories have declined by 44% since January 2002. This is due to an improvement in market conditions and to the implementation of several Cronos marketing initiatives. Utilization increased by 12% to 85% at March 2003, from 73% at the beginning of 2002. The Company will seek to exploit market demand by moving off-hire containers from low demand markets into markets of higher demand as and when conditions allow.

               During the fourth quarter of 2002 and the first quarter of 2003, the payment terms for a number of Agreements with a container owner in the Other Managed Container Owner segment changed from a fixed payment basis to one under which the Group will earn a management fee based upon the rentals to ocean carriers after deducting direct operating expenses.

               During the first quarter of 2003, the Group added $14 million of new equipment to its container fleet. Of this amount, $8.5 million was invested in dry cargo containers, primarily for term and direct finance leases. CPCs represented $2.2 million of new container expenditure, with refrigerated containers, tanks and dry freight specials accounting for the remaining balance.

               Three Months Ended March 31, 2003 Compared to Three Months Ended March 31, 2002

               Gross lease revenue of $28.8 million for the three months ended March 31, 2003, was $0.4 million, or 2%, higher than in the corresponding period of 2002. Revenue for dry cargo containers increased by $0.4 million reflecting the increases in both the quantity of on hire containers and in fleet size. CPC gross lease revenue increased by $0.2 million due primarily to a 59% increase in the size of the CPC fleet. However, such increases were partly offset by a reduction in revenue for refrigerated containers due to the disposal of older equipment.

               Equipment trading revenue of $0.7 million in the first quarter of 2003 represented transactions undertaken in which the Group used its relationships with equipment manufacturers to assist third-parties to design and acquire their own equipment and organize delivery to designated locations. Equipment trading expenses of $0.6 million represented equipment and related costs for this activity. The Group earned $0.1 million from equipment trading activity during the first three months of 2003.

               Commissions, fees and other income for the quarter ended March 31, 2003, of $1.1 million were $0.2 million, or 18%, lower than in the same quarter of 2002. Increases of $0.1 million in each of direct finance lease income and unrealized exchange gains recognized on Euro direct finance lease receivables were offset by declines of $0.2 million in equipment design and consultancy fee income, $0.1 million in property fee income and $0.1 million in acquisition fee income. The reduction of property income follows the decision of the Group to relocate its UK office during the second quarter of 2002 to a leasehold premises. Previously, the Group had sublet this property to third-party tenants.

               Direct operating expenses of $5.7 million for the three months ended March 31, 2003, were $2.1 million, or 27%, lower than in the same period of 2002, due primarily to the improved utilization of the dry

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container fleet. A total reduction of $1.9 million was achieved in storage and handling costs compared to the corresponding period in 2002. Repositioning expenses were $0.7 million lower than in 2002. However, the Group recorded a $0.5 million increase in the provision for doubtful accounts reflecting a deterioration in the credit position of a Far East based shipping line.

               Payments to Managed Container Owners of $15 million during the three months ended March 31, 2003, were $2.2 million, or 17%, higher when compared to the corresponding period in 2002. This increase is attributable to a total increase in net lease revenue (gross lease revenue net of direct operating expenses) for the managed segments and includes the effect of the Joint Venture Program, which commenced in September 2002. This was partly offset by a $0.3 million reduction in payments to a container owner resulting from the change of a number of agreements from a fixed payment basis to a variable management fee basis (see discussion above).

               Depreciation and amortization of $3.7 million for the three months ended March 31, 2003, was $0.1 million lower than in the same period of 2002. The reduction was primarily due to the sale of containers from the Group to the Joint Venture Program in September 2002.

               Selling, general and administrative expenses of $3.8 million in the first quarter of 2003 were $0.5 million, or 14%, higher than in the corresponding period of 2002. This was due to increases of $0.3 million in manpower costs and $0.1 million in each of audit and other professional costs and insurance. The increase in the level of total expenses compared to the corresponding period in 2002 is partially due to the decline in the value of the US dollar against Sterling, the Euro and other major currencies. It is estimated that $0.3 million of the total increase in selling, general and administrative expenses may be attributable to exchange rate movements.

               Interest expense of $1.2 million for the three months ended March 31, 2003, declined by $0.4 million, or 24%, when compared to the corresponding period in 2002. The decline in interest expense is attributable to the reduction in interest rates during 2002, as well as lower debt balances resulting from the partial repayment of the Group’s revolving credit facility in September 2002 following the sale of equipment to the Joint Venture Program.

               Income taxes for the first three months of 2003 were $0.2 million, or 27% of pre-tax income, compared to less than $0.1 million, or 18% of pre-tax income in the corresponding period of 2002. The increase in income taxes primarily reflects the improvement in earnings. In addition, in the first quarter of 2002, the Group utilised prior year trading losses in a subsidiary to further reduce taxation expense.

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 eleven years, bad debts have approximated 1% of lease revenues. The Group monitors the ageing 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 March 31, 2003, the Group had $103.4 million of available container borrowing facilities under which $101.4 million was outstanding. In addition, the Group had $1.7 million of unutilized credit facilities, which are available, if required, for operating cash flow purposes.

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               Cash Flow Statements for the Three Months ended March 31, 2003 and 2002

               Cash from Operating Activities: Net cash provided by operating activities was $5.4 million and $4.6 million during the first three months of 2003 and 2002, respectively. The cash provided by operating activities was primarily generated by earnings from operations in each respective year.

               Cash from Investing Activities: Net cash used in investing activities was $5.3 million in the first three months of 2003, reflecting the acquisition of $3.2 million of container and other equipment, and $0.7 million of equipment placed on direct finance leases. Additionally there was a $3.5 million reduction in amounts due to container manufacturers. This was partly offset by the sale of $1.4 million of container equipment and $0.6 million of direct finance lease equipment. Net cash used in investing activities was $5.8 million in the first quarter of 2002, reflecting the acquisition of $5.5 million of container equipment and an investment of $0.7 million in direct finance lease equipment. This was partly offset with proceeds of $0.5 million from the sale of container equipment.

               Cash from Financing Activities: Net cash provided by financing activities was $0.2 million during the first three months of 2003. Proceeds from the issuance of new term debt of $7 million were only partly offset by the repayment of $6.6 million of debt and capital lease obligations. Additionally, the Company paid a dividend of $0.1 million in the first quarter. Net cash provided by financing activities was $2.5 million during the first quarter of 2002. Proceeds from the issuance of new term debt of $8 million was partly offset by $5.5 million of debt and capital lease obligations repaid by the Group.

               Capital Resources

               The Group purchases new containers for its own account and for resale to Managed Container Owners and other parties. At March 31, 2003, the Group owed container manufacturers $10.3 million for equipment. The Group will fund $2.9 million of this equipment utilizing new and existing container funding facilities and the remaining $7.4 million will be sold to a Container Equity Program.

               In addition, the Group had outstanding orders to purchase container equipment of $10 million at March 31, 2003. Of this amount, $3.4 million will be financed by the Group using new and existing container funding facilities, $6 million will be sold to a Container Equity Program and $0.6 million will be sold to a third-party under an equipment trading transaction.

               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% was paid on April 17, 2003, to shareholders of record as of March 28, 2003.

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

Item 3 — Quantitative and Qualitative Disclosures about Market Risk

               Interest rate risk: Outstanding borrowings are subject to interest rate risk. Approximately 86% of total borrowings had floating interest rates at March 31, 2003. 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 was applied to variable interest rates, the expected effect would be to reduce annual cash flows by $0.3 million.

               Exchange rate risk: Substantially all of the Group’s revenues are billed and paid in US dollars and a significant portion of costs are billed and paid in US dollars. Of the remaining costs, the majority are individually small, unpredictable and incurred in various denominations and thus are not suitable for cost effective hedging. By reference to 2002, it is estimated that for every 10% incremental decline in the value of the US dollar against various foreign currencies, the effect would be to reduce annual cash flows by $0.9 million in any given year.

               As exchange rates are outside of the control of the Group, there can be no assurance that such fluctuations will not adversely effect its results of operations and financial condition.

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Item 4 — Controls and Procedures

               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 quarterly 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.

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               PART II — OTHER INFORMATION

Item 1 — Legal Proceedings

               Contrin’s $2.6 Million Claim. The Group manages containers for investment entities sponsored by or affiliated with 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 claims that in 1994 it transmitted $2.6 million to Cronos for the purchase of containers. The Group did not receive these funds and believes that the funds were diverted to an account controlled by Mr. Palatin, and that this was known or should have been known by Contrin.

               On August 8, 2000, Contrin, through its affiliate, 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 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. On December 22, 2002, the court rendered its decision rejecting the defendants’ motion for dismissal and on February 26, 2003, the court rejected the defendants’ motion for leave to appeal the court’s decision, awarded the Company 90% of its costs in opposing the motions, and ordered the defendants to pay $30,000 on account of these costs. The defendants have failed to comply with the court’s order, and their counsel have resigned. The Group has sought and secured a debarring order, preventing the defendants from defending the action until they comply with the court’s cost award.

               On July 13, 2000, the Group also filed a protective claim against 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.

               Contrin’s $0.5 Million Claim. On August 2, 2001, CWC filed a separate claim against CNV 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

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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 is scheduled for December 8, 2003.

               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. The defendants in this action were also subject to the court’s award of costs rendered in the $2.6 million action, discussed above. They have failed to comply with the order, and their counsel have likewise resigned from representing them in this claim. On May 2, 2003, CNV secured a default judgment against the Palatins in the amount of $0.5 million, plus interest.

               Contrin’s Disposals Claim. On September 18, 2002, three Austrian affiliates of Contrin filed the Disposals Claim against CNV in the High Court of Justice, London, England. 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. The parties are currently engaged in discovery.

               Collection of Palatin Notes

               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 Court by a subsidiary of the Company, Cronos Equipment (Bermuda) Limited (“CEB”) against Mr. Palatin in the amount of $6.6 million. The court further ordered the Group’s transfer agent to cancel 1,793,798 outstanding common shares of the Company owned of record by Klamath (the “Klamath Shares”), beneficially owned by Mr. Palatin, in partial satisfaction of the New York State Supreme Court judgement, and to transfer the Klamath Shares on the books and records of the transfer agent to CEB. The Group’s transfer agent promptly cancelled the Klamath Shares and issued a new stock certificate for 1,793,798 common shares of the Company to CEB. The Court also ordered Mr. Palatin and Klamath to pay CEB’s fees and expenses, including attorneys’ fees, incurred in securing the final judgement.

               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.

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               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.

Item 2 — Changes in Securities and Use of Proceeds

               Not applicable

Item 3 — Defaults Upon Senior Securities

               Not applicable

Item 4 — Submission of Matters to a Vote of Security Holders

               Not applicable

Item 5 — Other Information

               Not applicable

Item 6 — Exhibits and Reports on Form 8-K

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Signatures

     Pursuant to the requirements 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.

THE CRONOS GROUP

SIGNATURE				TITLE		DATE
By		/s/ PETER J YOUNGER Peter J Younger		Director, Chief Operating Officer, Chief Financial Officer and Chief Accounting Officer (Principal Financial and Accounting Officer)		May 14, 2003

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CERTIFICATION

               I, Dennis J Tietz, certify that:

               1. I have reviewed this quarterly report on Form 10-Q of The Cronos Group (the “Registrant”);

               2. Based on my knowledge, this quarterly 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 quarterly report;

               3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the “Evaluation Date”); and

	(c) presented in this quarterly 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 function):

	(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 quarterly report whether or not 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: May 14, 2003

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

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CERTIFICATION

               I, Peter J Younger, certify that:

               1. I have reviewed this quarterly report on Form 10-Q of The Cronos Group (the “Registrant”);

               2. Based on my knowledge, this quarterly 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 quarterly report;

               3. Based on my knowledge, the financial statements, and other financial information included in this quarterly 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 quarterly 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 we 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 quarterly 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 quarterly report (the “Evaluation Date”); and

	(c) presented in this quarterly 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 function):

	(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 quarterly report whether or not 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: May 14, 2003

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

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               Exhibit Index

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