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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

Commission file number: 0-24464

THE CRONOS GROUP

(Exact name of Registrant as specified in its charter)

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

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

(Title of Class)

      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

      Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2 of the Act)     YES o  NO x

      The aggregate market value of common shares held by non-affiliates of the registrant calculated by reference to the closing price on June 30, 2004, (the last business day of the registrant’s second fiscal quarter in 2004), was approximately $41,029,463.

      The number of Common Shares outstanding as of March 22, 2005:

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

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TABLE OF CONTENTS

The Cronos Group

INTRODUCTORY NOTE

      Unless the context indicates otherwise, the “Company” means The Cronos Group excluding its subsidiaries, and “Cronos” or the “Group” means The Cronos Group including its subsidiaries.

      “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.

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

PART I

          Introduction

      The Company is a limited liability company (société anonyme holding) 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.

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

      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. 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 the majority of the 25 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 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. Cellular Palletwide Containers (“CPCs”) provide shipping lines with a container of extra interior width for the carriage of unitized or palletized cargoes. See “Fleet Profile” herein.

      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 ship, truck and rail. Containers require loading and unloading only once and remain sealed until arrival at the final destination, significantly reducing transport time, labor and handling costs, as well as 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.

      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 17 million TEU by the end of 2004.

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

          Benefits of Leasing for Shipping Lines

      The container fleets of leasing companies represent approximately 46% of the world’s total container fleet with the balance owned predominantly by shipping lines. Shipping lines, which traditionally operate on tight profit margins, often supplement their owned fleets of containers with leased containers, and in doing so, achieve the following financial and operational benefits:

          Types of Leases Available to Shipping Lines

      Master leases are leases under which a customer may lease a certain number of containers as they are required under a general agreement between the lessor and the lessee. Such leases provide customers with greater flexibility by allowing them to pick up and drop off containers where and when needed, subject to restrictions and availability, on pre-agreed terms. Master leases also define the number of containers that may be returned within each calendar month, the permitted 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 revenue (including pick-up, drop-off, handling and off-hire revenue) 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. The commercial terms of master leases are usually negotiated or renewed annually.

      Term leases are for a fixed period of time, typically ranging from three to five years. In most cases, containers cannot be returned prior to the expiration of the lease. Some term lease agreements contain early termination penalties that apply in the event of early redelivery. Term leases provide greater revenue stability to the lessor, but at lower lease rates than master leases. Ocean carriers use term leases to lower their operating costs when they have a need for an identified number of containers for a specified term.

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

      The mix of container equipment held under master, term and direct financing leases varies widely among leasing companies.

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

          Company Strategy

      Cronos focuses on optimizing the return on container investment capital by providing flexible master, term and direct financing leases to the world’s top ocean carriers, across a broad range of dry cargo and specialized containers.

          Lease Profile

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

      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 or all of the repair costs upon redelivery of the containers. The Group offers this service to selected customers. Repairs provided under such a plan are carried out by the same depots, under the same procedures, as the repairs to containers not covered by such plans. Customers are also required to insure leased containers against physical damage and loss, as well as 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 56% of the total leased TEU fleet. 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 quality.

      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 high-quality containers to its customers. These containers are manufactured to specifications that exceed ISO standards and are designed to minimize repair and operating costs. Cronos

operates a fleet of dry cargo, refrigerated, tank and dry freight special containers. Cronos believes that this fleet diversification enables it to broaden its business base with its customers by supplying a wide range of their equipment requirements.

      The following chart summarizes the gross lease revenue recorded by product for each of the years presented:

      Dry cargo containers are the most commonly used type of container in the shipping industry. Cronos’ dry cargo containers are 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 and vegetables. The majority of Cronos’ refrigerated containers have high-grade stainless steel interiors and muffler grade outer walls. 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 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 codes include the ISO, the International Maritime Organization (“IMO”) and the American Society of Mechanical Engineers (“ASME”) VIII Pressure Vessel Design Code. The fleet comprises both T4 and T11 type tanks, which can carry highly flammable, corrosive, toxic and oxidizing substances as well as non-hazardous cargoes such as food and oils. Tank containers range in capacity from 17,500 litres to 31,000 litres and are generally insulated and equipped with a heating system (steam or electrical).

      Dry freight specials include CPCs, rolltrailers, open tops, flatracks and bulkers. Cronos owns the patents for the CPC, a specialized container designed specifically for the carriage of cargo on metric pallets. The patents expire at various dates between 2006 and 2013. 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. Cronos earns CPC licence fee income on the sale of CPCs to third parties. A rolltrailer is a heavy-duty chassis used for moving cargo onto and off of ships. Cronos entered the rolltrailer market in 1996 when it acquired a Swedish company with an existing fleet of rolltrailers. Open Tops are primarily used to enable loading of heavy machinery from above the container and for the carriage of certain over-height cargoes that would be unsuitable for a standard ISO container. Flat racks similarly are typically used for the transportation of heavy

machinery. Bulkers are a container designed for granular cargoes, including plastics, certain chemicals and agricultural products.

          Operating Segments

      Cronos has four reportable segments, which are determined based on the source of container funding for the Group’s container fleet acquisitions:

      1. US Limited Partnership Programs (“US Limited Partnership Programs”),

      2. Joint Venture Program (“Joint Venture Program”),

      3. Private Container Programs (“Private Container Programs”), and

      4. Owned Containers (“Owned Containers”).

      Prior to December 2004, the US Limited Partnership Programs segment and the Joint Venture Program segment were combined in a single operating segment, Container Equity Programs, in accordance with the aggregation criteria of Statement of Financial Accounting Standards (“SFAS”) No. 131 — “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”). At December 31, 2004, the Joint Venture Program exceeded the 10% revenue threshold of SFAS 131 and accordingly has been reported as a separate segment. Corresponding items of segment information have been restated for prior years.

      Lease agreements with US Limited Partnership Programs, the Joint Venture Program and Private Container Programs. (collectively “Managed Container Programs”). The majority of agreements between the Group and Managed Container Programs are in the form of a master lease, under the terms of which the Group is not liable to make any payments to the Managed Container Programs until such time as the containers have been placed on lease to an ocean carrier. The agreements generally provide that the Group will make payments based upon the rentals collected from ocean carriers after deducting direct operating expenses and the compensation earned by the Group for managing the containers.

      Although all containers, regardless of the source of funding or ownership, are leased as part of a single global fleet, management separately monitors performance of the reportable segments.

      The following chart summarizes the composition of the Cronos fleet by segment (based on original equipment cost) at December 31 for each of the years indicated:

      As of December 31, 2004, no single owner, other than the Group, owned more than 14% of the Cronos fleet (based on original equipment cost).

      The Group evaluates the performance of its reportable segments based on segment profit or loss. Gross lease revenue is deemed to be earned based on the physical location of the containers while on lease and, as substantially all of the Group’s lease revenue is earned on containers used in global trade routes, the Group believes that it does not possess discernible geographic reporting segments as defined in SFAS 131.

      Segment revenues from external customers, segment profit or loss and total assets are disclosed in Note 2 to the 2004 Consolidated Financial Statements, and are incorporated by reference herein.

          US Limited Partnership Programs

      Since 1979, Cronos has sponsored seventeen US limited partnerships and raised over $480 million from over 37,000 investors. The partnerships are all California limited partnerships. Eight of the original seventeen partnerships have now been dissolved. The objectives of the partnerships are to invest in marine cargo containers, to generate a continuing income for distribution to the limited partners, and to realize the residual value of the container equipment at the end of its useful economic life or upon the dissolution of a partnership. See “Material Off-Balance Sheet Arrangements, Transactions and Obligations” under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      The US Limited Partnership Programs provide compensation to Cronos, the general partner, consisting of the following fees and commissions:

      One customer, Mediterranean Shipping Company S.A. (“MSC”), accounted for 10% of gross lease revenue of the US Limited Partnership Programs operating segment for the year ended December 31, 2004. MSC is a private company based in Switzerland and is ranked as the second largest container liner operator in the world.

          Joint Venture Program

      Cronos established the Joint Venture Program in 2002 with one of the Company’s lenders. See “Material Off-Balance Sheet Arrangements, Transactions and Obligations” under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      The Joint Venture Program provides compensation to Cronos consisting of the following fees:

      For the year ended December 31, 2004, two separate customers each accounted for 12% of gross lease revenue for this segment. The first, CMA-CGM S.A., is a private company headquartered in France and is ranked as the fifth largest container liner operator in the world. The second, COSCO Container Lines Company Limited, a company headquartered in China, is ranked as the ninth largest container liner operator in the world.

          Private Container Programs

      Cronos manages containers pursuant to agreements negotiated directly with corporations, partnerships and private individuals located in Europe, the United States and South Africa. 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 equal to gross lease revenue less direct operating expenses less the payment to the Managed Container Programs, computed in accordance with the terms of each individual agreement. In certain cases, Cronos may also earn an incentive fee.

      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).

          Owned Containers

      Cronos uses various forms of funding to finance its owned fleet including bank loans and capital leases. From time to time, Cronos also owns containers on a temporary basis until such time that the containers are sold to the Managed Container Programs. Most containers identified for sale to Managed Container Programs are purchased new by Cronos, and sold to owners of Managed Container Programs within six months. This strategy allows Cronos more flexibility to negotiate and buy containers strategically, based on market conditions. In addition, Cronos may on occasion own equipment that has been acquired specifically for resale to third parties that does not enter the Cronos managed fleet.

      Assets that are funded by capital leases are initially reported at the fair value of the asset categorized within container equipment, with an equivalent liability reported as capital lease obligations. Container equipment is depreciated over its expected useful life. Finance charges are reported over the lease term in accordance with the effective interest method and are recorded as interest expense.

          Employees

      As of December 31, 2004, Cronos had 80 employees worldwide; 41 were located in Europe, 24 in the United States and 15 in Asia and Australia combined. None of Cronos’ employees is covered by a collective bargaining agreement.

          Acquisition Policy

      Cronos’ acquisition policy for the total fleet is driven by capital availability, market requirements and anticipated future demand, including demand generated by trade growth and the replacement of containers retired 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 the two primary suppliers of container refrigeration units headquartered in the United States, both of which have manufacturing plants in the Far East. 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 China, South Africa, the United Kingdom and Belgium.

          Repair and Maintenance

      All containers are inspected and repaired when redelivered in accordance with standardized industry guidelines. Depots in major port areas perform repair and maintenance work that is verified by either independent surveyors or the Cronos technical and operations staff. As described under Item 1 — “Business — Lease Profile” some customers enter into a damage protection plan. All other customers are obligated to pay for all damage repairs, excluding wear and tear.

      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 decision whether to repair or sell the container accordingly. Cronos is authorized to make this decision on behalf of most of the owners for whom it manages equipment and makes the decision by applying the same standards to the managed containers as to its own containers.

          Disposition of Used Containers

      Cronos estimates that the useful operational life for most containers in the Group fleet ranges from 12 to 15 years.

      Cronos disposes of used containers in a worldwide secondary 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 Chennai.

      Cronos also maintains agency relationships with 14 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 areas 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 these areas, together with limited operational support.

      In addition, Cronos relies on the services of approximately 350 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, if necessary, and stored 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 and provides 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

interfaces with Cronos’ finance and accounting system to provide revenue, cost and asset information to management and staff around the world.

      In recent years, Cronos and other lessors have developed certain internet-based applications. For Cronos, these applications enhance its customer support network by allowing customer access for 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.

      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 specific container types.

      Cronos competes with various container leasing companies in the markets in which it conducts business. The container leasing companies essentially comprises three broad groups. The first group includes five leasing companies that control almost 65% of the total leased fleet. The second group, which includes Cronos, controls approximately 24% of the total leased fleet. The third group controlling the remaining 11% comprises the smaller, more specialized fleet operators.

      In Cronos’ experience, ocean carriers generally lease containers from several leasing companies in order to minimize dependence on a single supplier.

      Economies of scale, worldwide operations, diversity, size of fleet and financial strength are increasingly important to the successful operation of a container leasing business. Additionally, as containerization continues to grow, customers may demand more flexibility from leasing companies, particularly regarding the structure of leases, per diem rates, pick-up and drop-off locations, and the availability of containers.

      Cronos believes it has created a strategic advantage due to its product and funding diversity, allowing it to develop a wider customer portfolio and lower risk profile.

      Cronos’ lease agreements typically require ocean carriers 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.

      The operations of the Group are subject to the fluctuations of world economic and political conditions. Such factors may affect the pattern and levels of world trade. The Group believes that the risks associated with leases to non US customers are generally the same as for leases to US customers.

      Lease revenue is deemed to be earned based on the physical location of the containers while on lease. Almost all of the Group’s lease revenue is earned on containers used by its customers in global trade routes.

Accordingly, the Group believes that it does not possess discernible geographic reporting segments (see additional discussion in “Operating Segments” and in Note 2 to the 2004 Consolidated Financial Statements).

      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:

      Market for Common Shares. The market for the Company’s outstanding common shares is not liquid. The Company’s four largest groups of shareholders control approximately 67% of its outstanding common shares. For 2004, the average daily trading volume in the Company’s shares was 15,448.

      Requirement for third party Capital. Cronos is heavily dependent upon third parties to supply it with the capital required for container acquisitions. Such capital may not be available to the Group to enable it to expand its fleet of containers.

      Business & Economic Risks. The Group may be adversely affected by economic and business factors to which the transportation industry in general and the container leasing industry in particular is subject. These factors, which generally are beyond the control of the Group, include:

      Competition. The container leasing industry is highly competitive. 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 addition, the barriers to entry for the container leasing industry are relatively low. If the supply of available equipment increased significantly as a result of new companies entering the industry, demand for Cronos equipment could be adversely affected.

      Defaults by Lessees. A default by a shipping line may result in lost revenue for past leasing services and additional operating expenses. The repossession of containers from shipping lines which have defaulted can prove difficult and, when containers are recovered, the Group may not be able to re-lease the equipment at comparable rates and at favorable lease terms.

      Residual Value of Containers. The majority of containers that are at the end of their useful economic life are sold in the non-maritime secondary market for use as temporary or permanent storage facilities. The proceeds realized on the disposition of such containers depends on a variety of factors including the location of the container at the time of disposition, foreign currency exchange rates, the lease market for marine cargo containers, the cost of new containers, the quantity of used containers being supplied to the secondary market, technological advances in container construction and in techniques of ocean transportation, and developments in world trade. A reduction in container residual values could adversely affect the long-term returns generated by containers resulting in reduced profitability and reduced capital availability.

      Special Purpose Containers. Special purpose containers include refrigerated containers and tanks. Refrigerated containers are subject to inherent risks of mechanical breakdown and technological obsolescence. Tanks, which can be used to transport hazardous materials, include additional risks of environmental and tort liability.

      Environmental. 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. Since then, the environmental impact of CFCs has become increasingly prominent. On January 1, 2001, it became illegal for environmentally destructive refrigerants to be handled, other than for disposal, in most of the countries that are members of the European Union. All of Cronos’ refrigerated containers purchased since June 1993 use non-CFC refrigerant gas in the operation and insulation of the containers, although a reduced quantity of CFCs are still used in the container manufacturing process. At December 31, 2004, 41 of the 3,600 refrigerated containers that were owned by the Group used the CFC refrigerant gas. All of the 41 containers are currently on lease and the Group will dispose of each unit upon its redelivery. The replacement refrigerant used in the Group’s new refrigerated containers may also become subject to similar governmental regulations. In the past, the Group has retrofitted certain refrigerated containers with non-CFC refrigerants. Cronos has decided not to retrofit any additional containers. In the unlikely event that any such further retrofitting expenses should be required, they would not be material to the financial position or results of operations of the Group.

      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 Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      For a discussion of the Group’s legal proceedings, see Item 3 — “Legal Proceedings” herein. For a discussion of the Group’s commitments and contingencies, see Note 15, “Commitments and Contingencies”, to the Company’s 2004 Consolidated Financial Statements. For a discussion of the market for the Company’s common shares, see Item 5 — “Market for the Company’s Common Equity and Related Stockholder Matters” herein.

      Cronos leases approximately 6,300 square feet of office space near London, England, where its container leasing operations are conducted. Cronos also leases approximately 6,700 square feet of office space in San Francisco, California, where its Managed Container Program activities are based. Cronos also conducts its container leasing operations from smaller offices that are leased in New Jersey, Genoa, Gothenburg, Hamburg, Hong Kong, Singapore and Sydney.

      The containers owned and managed by Cronos are described under Item 1 — “Business” and under Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. The following table summarizes the composition of the container fleet as of December 31, 2004 (based on TEU’s):

      The majority of Owned Containers are financed by debt and capital lease obligations. Under the terms of the debt agreements, the containers act as collateral for the outstanding loan balance. For assets financed by capital lease facilities, although the Group takes all the risks and rewards of ownership, the lessor retains title to the equipment until the capital lease obligation has been discharged and any purchase option has been exercised by the Group.

      The following chart summarizes the utilization of each product type as at December 31, 2004 (based on approximate original equipment cost).

      The Group manages containers for investment entities collectively known as Contrin in its Private Container Programs segment. Approximately 1% (measured by TEUs) of the Group’s fleet of containers is owned by Contrin.

      As the Group reported in its 8-K report of the same date, on November 17, 2003, the Group and Contrin entered into a settlement agreement (the “Settlement Agreement”) that resolved three lawsuits that Contrin had brought against the Group, one in Luxembourg and two in the United Kingdom. Under the terms of the Settlement Agreement, the parties undertook to pursue diligently certain claims they had against Stefan M. Palatin, a former chairman of the Group, to prosecute those claims to judgment, and to pursue execution of the judgments against Mr. Palatin’s beneficial interest in an estate located in Amersham, England (the “Amersham Estate”). The Settlement Agreement obligated the Group to pay Contrin a total of $3.5 million over the term of the Agreement. Under the terms of the Settlement Agreement, the Group paid Contrin $0.3 million in November 2003 and $0.250 million in February 2004.

      The Group prosecuted claims aggregating approximately $2.3 million against Mr. Palatin in the UK courts, secured final judgments against Mr. Palatin in this amount (plus interest and costs), and, on June 25, 2004, secured an order of sale of the Amersham Estate from the High Court of Justice, London.

      Pursuant to the Court’s order of sale secured by the Group, the Amersham Estate was sold on January 31, 2005 for £3.4 million British pounds (at the then current exchange rate, approximately

$6.4 million). The Group received $3.2 million of the proceeds in satisfaction of the final judgments secured against Mr. Palatin plus related interest and costs. The balance of the proceeds (the “Amersham Surplus Proceeds”) from the sale of the Amersham Estate was deposited with the Court under the terms of the Court’s order of sale. Pursuant to the Settlement Agreement, $0.550 million of the sales proceeds paid to the Group were retained by the Group to offset payments previously made to Contrin and $2.1 million was paid to Contrin. An amount of $0.6 million was retained by the Group to cover costs incurred by the Group in connection with the foreclosure.

      Under the Settlement Agreement, Contrin pursued a civil action against Mr. Palatin in the UK to recover $2.6 million, plus interest and costs, for monies diverted to Mr. Palatin from Contrin in 1994. Under the Settlement Agreement, any monies Contrin recovered from this action were to be shared between the Group and Contrin.

      The Group is currently in litigation with Transocean Equipment Manufacturing and Trading Limited (“TOEMT”), as described below. The liquidator of TOEMT has secured charging orders against the Amersham Estate, in satisfaction of default judgments he has secured against Mr. Palatin, aggregating in excess of £3 million British pounds. The liquidator asserted that, under his charging orders, he is entitled to the entire Amersham Surplus Proceeds.

      On February 25, 2005, the Group, Contrin, and the TOEMT liquidator settled their differences with respect to the allocation of the Amersham Surplus Proceeds, agreeing to an allocation of such proceeds between Contrin and the liquidator. The agreement is subject to approval of the Court supervising the TOEMT liquidation. Under the agreement, Contrin will be allocated Amersham Surplus Proceeds in an amount sufficient to fully discharge the Group’s remaining payment obligations to Contrin under the terms of Settlement Agreement.

      See Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein and Note 15 to the 2004 Consolidated Financial Statements for a discussion of the related accounting treatment.

      Since the 1980s the Group has managed containers for Transocean Equipment Manufacturing and Trading Limited (“TOEMT (UK)”), an English company. A separate company by the same name was registered in the Isle of Man (“TOEMT (Isle of Man)”). Both TOEMTs are in liquidation in England, represented by the same liquidator. When the Group learned of the insolvency proceeding commenced on behalf of TOEMT (UK) in 1998, it set aside the distributions payable with respect to the containers managed for TOEMT in a separate bank account pending clarification of the proper claimant to the distributions.

      The Group turned over the set-aside distributions (amounting to approximately $1.3 million) to the liquidator in December 2003. As of December 31, 2004, only nine (9) containers remained in the portfolio of containers managed by the Group for TOEMT. As part of the February 25, 2005 settlement agreement, described above under “The Contrin Settlement,” the Group has agreed to purchase the remaining nine containers, effective January 1, 2005. In return, the liquidator of TOEMT has agreed to drop claims with respect to the turnover of the $1.3 million and the Group’s management of containers for TOEMT.

      On December 13, 2004, the liquidator filed his “Ordinary Application” (in the nature of a complaint) in the High Court of Justice, Chancery Division, Companies Court, London, against the Company and two of its subsidiaries, Cronos Containers N.V. (“CNV”) and Cronos Containers (Cayman) Limited (“CAY”). See the 8-K report filed with the SEC on January 13, 2005.

      By the ordinary application, the liquidator seeks a declaration pursuant to Section 213 of the UK Insolvency Act of 1986, as amended (“Insolvency Act”), that the respondents were knowingly parties to the carrying on of the business of the two TOEMTs with the intent to defraud the creditors of the two TOEMTs and/or for other fraudulent purposes, by assisting Mr. Palatin in diverting assets from the two TOEMTs to himself, to entities in which he was interested, and/or to his associates, otherwise than for proper purposes and otherwise than for full consideration.

      The liquidator alleges that the respondents “knowingly” were parties to the carrying on of the business of the two TOEMTs to defraud the creditors of the two TOEMTs by reason of:

      The liquidator further seeks a declaration pursuant to Section 213 of the Insolvency Act that the respondents and each of them is liable to contribute to the assets of the two TOEMTs the amount of the deficiency as regards the creditors of the two TOEMTs, which the liquidator currently estimates to be at least $55 million, or, alternatively, that the respondents make such contributions to the assets of the two TOEMTs as the Court thinks fit.

      The liquidator seeks an order from the Court that the respondents and each of them pay to the liquidator any sums found to be due to him by reason of the conduct alleged above, plus interest and costs.

      Service of the liquidator’s Ordinary Application has only recently been made on the Group, and accordingly the Group has yet to reply to the liquidator’s Ordinary Application. The Group believes the liquidator’s claims are wholly without merit and intends to vigorously defend them.

      Not Applicable

PART II

      At March 14, 2005, there were outstanding 7,286,602 common shares. They were held of record by approximately 1,200 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 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 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.

      On December 10, 2002, the Board of Directors declared an interim dividend of 4 cents per common share. The Group paid 50% of this dividend in January 2003 and 50% in April 2003.

      In each of June and August 2003, the Board of Directors declared dividends of 2 cents per common share which were paid in July and October 2003, respectively. On November 4, 2003, a dividend of 4 cents per common share was approved. The Group paid 50% of this dividend in January 2004 and 50% in April 2004.

      In March 2004, the Board of Directors declared a dividend of 3 cents per common share for the second quarter of 2004, that was paid in July 2004. In August 2004, the Board of Directors of the Group declared a dividend of 4 cents per common share for the third quarter of 2004, that was paid in October 2004. On November 11, 2004, the Board of Directors declared a dividend of 10 cents per common share, of which 5 cents per common share was paid on January 10, 2005, for the fourth quarter of 2004, and 5 cents per common share is payable on April 15, 2005, for the first quarter of 2005.

      In March, 2005, subject to shareholder approval at the 2005 annual meeting of shareholders, the Board of Directors declared a dividend of $0.06 per common share for the second quarter of 2005, payable on July 15, 2005 to shareholders of record as of the close of business on June 24, 2005. The Group currently expects to pay quarterly cash dividends for the third and fourth quarters of 2005 comparable to that proposed for the second quarter of 2005.

      The primary debt facilities of the Group have financial covenants that are tested on a quarterly basis and include covenants that are designed to restrict excessive dividend distributions. The Group does not expect such covenants to have an impact on its current dividend policy.

      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 Luxem-

bourg. The reciprocal tax treaty between the United States and Luxembourg limiting the rate of any withholding tax is therefore inapplicable.

      The top US federal income tax rate for dividends received by an individual subject to US taxation was reduced by the Jobs and Growth Tax Relief Reconciliation Act of 2003 to 15% (in most cases); the same rate that is applicable to capital gains. The reduced rate for dividends expires at the end of 2008. The reduced rate applies to dividends received from a domestic corporation or a “qualified foreign corporation”. The Group currently qualifies as a “qualified foreign corporation” by reason of the fact that its outstanding common shares are traded on Nasdaq. The reduced dividend rate does not apply to dividends paid on common shares owned for less than 60 days in the 120-day period surrounding the ex-dividend date, or on common shares with respect to which the taxpayer elects to include the dividends in investment income for purposes of claiming an investment interest deduction.

          Equity Compensation Plan Information

      Information regarding the Group’s equity compensation plans, including both shareholder approved plans and non-shareholder approved plans, will be set forth in the section entitled “Compensation of Executive Officers and Directors” in the Group’s definitive Proxy Statement to be filed within 120 days after the Group’s fiscal year-end of December 31, 2004, which information is incorporated herein by reference.

      See Note 17 to the 2004 Consolidated Financial Statements for a description of the stock-based compensation plans.

      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 2004 Consolidated Financial Statements and related notes thereto included elsewhere in this Annual Report.

      The following discussion of the Group’s financial condition and results of operations should be read in conjunction with the 2004 Consolidated Financial Statements and the notes thereto and the other financial and statistical information appearing elsewhere in this annual report. The 2004 Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”).

      The segment information presented in Note 2 to the Group’s 2004 Consolidated Financial Statements relates to the containers in the Group’s fleet owned by the Group itself (Owned Containers) or by Managed Container Programs (comprising US Limited Partnership Programs, the Joint Venture Program and Private Container Programs). Owned Containers include containers held for resale.

      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 agreements with the owners of Managed Container Programs contain leases within the scope of SFAS No. 13 — “Accounting for Leases” (“SFAS 13”), 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 2004, 91% of payments to owners of Managed Container Programs 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 the compensation earned by Cronos for managing the equipment. The remaining 9% of payments to Managed Container Programs represented agreements under which there were fixed payment terms. Minimum lease payments on the agreements with fixed payment terms are included in Note 13 (c) to the Group’s 2004 Consolidated Financial Statements.

      Gross lease revenue is generated by leasing containers, both owned by the Group and by Managed Container Programs, to ocean carriers under 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 3 to 5 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 changes in fleet size, utilization rates and per diem rates.

      Equipment trading revenue and expenses represent revenue earned from the sale of equipment and the cost 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, fees earned in connection with equipment consultancy and design services, licence fee income earned in connection with the patented CPCs (see Item 1 — “Business”), fees earned on the disposal of used containers in the Managed Container Programs, foreign exchange gains or losses, and miscellaneous other fees and income. Although acquisition fees are generally received in cash at the inception of a Managed Container Program and are non-refundable, they are recognized in the statement of income, on a straight-line basis over the period of the managed container agreement to which they relate.

      This item is affected by the size of managed programs and the contracted acquisition fee, the quantity of consultancy and design projects undertaken and the profit margins earned in each case, the quantity of CPCs acquired by third parties, the quantity and value of direct financing leases, the proceeds realized on the disposition of used containers and the fee earned in each case and changes in the value of the US dollar in relation to other major currencies.

      Direct operating expenses are direct costs associated with leasing both owned and managed containers. Management analyzes direct operating expenses as a percentage of gross lease revenue. Direct operating expenses may be categorized as follows:

      Payments to Managed Container Programs reflect the amounts due to the owners of containers in Managed Container Programs computed in accordance with the terms of the individual agreements.

      Selling, general and administrative expenses include all employee and office costs, all professional fees, including audit, legal and other professional fees, business insurance and information technology costs.

      Segment profit or loss for reported segments, comprises items directly attributable to specific containers in each of the Group’s operating segments, including gross lease revenue, direct operating expenses, payments to Managed Container Programs, direct financing lease income, container interest expense, container depreciation expense and certain impairment charges.

          Market Overview

      Global container trade experienced strong growth for the third successive year in 2004. China has reported significant increases in both its volumes of imports and exports in recent years, and the pace of growth in the volume of trade between China and other countries has been the catalyst to this growth.

      During 2004, container leasing companies experienced high levels of demand for new and existing containers. The following table summarizes the combined utilization of the Cronos container fleet for the past three years (based on approximate original equipment cost).

      The utilization rates for leased containers are currently at historically high levels. Based on the current market for leased containers and predictions from industry analysts that demand will remain strong in 2005, Cronos does not expect a significant decline in utilization rates in 2005.

      Shipping lines report that freight rates have increased in line with the strong demand on major trade routes, in particular on the Asia to US and Asia to Europe routes. The majority of the leading shipping lines reported earnings growth during 2004.

      The increased volume of trade has resulted in shortages of both containership and container capacity. In order to meet the continuing demand, shipping lines have embarked on a major program of new ship building. The total world order book is at record levels for new containerships that will be delivered between 2005 and 2006. Based on current orders, it is predicted that the capacity of the world’s containership fleet will exceed 10 million TEU by the end of 2007 compared to less than 7 million TEU at the beginning of 2004. Industry analysts are expressing concern that, even if trade growth continues at a sustained rate, the current program of

new ship building may create over-capacity in the industry once the new containerships that are on order are all in service in 2006. Any over-capacity could result in a reduction in freight rates for shipping lines that in turn could reduce profitability for container leasing companies.

      The strong increase in trade volumes has led to increasing port and railroad congestion in certain locations, particularly in the US and Europe. This has increased the turnaround time for containerships and containers and further reduced the amount of available capacity.

      Container manufacturers increased production output levels in 2004 in order to meet the increased container demand. The current price for a new twenty-foot dry cargo container is approximately $2,200 compared to a price of $1,350 in the latter part of 2003. This reflects the combined effect of the increased demand for containers together with increased costs for materials such as steel and wood. The high level of demand for new container equipment means that there is unlikely to be a major reduction in the price of new containers in the near future and that prices could increase further. Cronos has booked sufficient production space with the container manufacturers to meet all of its current requirements.

      In 2004, Cronos achieved a 3% increase in the per diem rate for the total container fleet including a 2% increase for dry cargo containers. Per diem rates for new containers increased in line with the increase in new container costs thereby mitigating the adverse effect on profitability caused by the increase in costs. Per diems rates for older containers increased slightly during lease renegotiations. Cronos expects to maintain existing rates or achieve slight increases over the next twelve months.

      Off-hire inventories of containers have declined throughout the world as shipping lines have employed more leased containers to meet the growth in containerised trade. This decline in inventories has resulted in substantial decreases in storage expenses. Declining inventories have also contributed to an increase in the proceeds realized on the sale of used containers, as fewer containers were available to meet the demand of buyers. Cronos will consider the disposal of off-hire inventories in locations where sales prices equal or exceed internal economic targets.

      The Group did not undertake any major repositioning moves since the first calendar quarter of 2004, due primarily to the shortage of containership capacity. If suitable carriers can be sourced, the Group will reposition off-hire equipment from the US east coast in 2005 in order to take advantage of the strong demand for containers in the Asian trade routes. The objective of each move is to improve future liquidity, as savings in storage expense and increased future lease revenues should exceed the once-off cost of repositioning the containers.

     Funding

      The ability of the Group to add new equipment to both its owned and managed fleets was one of the main reasons for the improvement in profitability in 2004 and in 2003. Cronos recognizes that its ability to secure funding from third parties in order to expand its container fleet is crucial to its future growth and profitability.

      Traditionally, Cronos has utilized funding from each of its operating segments to expand its container fleet. In more recent years, growth has been generated by the Owned Container segment, through debt and capital leases, and by the Joint Venture Program. Each of these sources provides a flexible financing structure with competitive pricing.

      Owned Containers: The primary debt facilities include financial covenants that are tested on a quarterly basis and measure minimum tangible net worth, the maximum level of total liabilities to tangible net worth, the maximum level of debt and capital lease obligations to tangible net worth, interest expense coverage and debt service coverage. At December 31, 2004, 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 at the end of each calendar quarter for the preceding twelve month period and to maintain minimum levels of debt service coverage. The breach of a covenant constitutes an event of default.

      Under the terms of certain loan facilities, the Group is required to hold minimum balances on deposit in restricted cash accounts. The calculation of the minimum balance is based on projected future interest

payments and the balance required will usually increase in line with the loan balances. The accounts would be utilized in the event that adequate funds were not available to meet the scheduled debt service payments.

      At December 31, 2004, the Group had $131.8 million of available container borrowing facilities under which $128 million was outstanding. In addition, the Group had $2.1 million of unutilized credit facilities that are available, if required, for operating activities.

      The primary source of debt funding available to the Group is its revolving credit facility (the “Revolving Credit Facility”) which the Group has utilized to fund the acquisition of new equipment and to refinance existing debt and capital lease facilities. New equipment is funded 80% by debt and 20% by cash provided by the Group. In September 2004, the Revolving Credit Facility was amended to the effect that the revolving credit period was extended to September 23, 2005, and unless the revolving credit period is extended on that date, the balance outstanding as of September 23, 2005, will be repaid over five years. The maximum commitment of the lenders under the Revolving Credit Facility is $70 million. At December 31, 2004, the balance outstanding under the Revolving Credit Facility was $67.8 million. The balance of funds available under the Revolving Credit Facility will be utilized to purchase new equipment during 2005. The Group usually makes monthly repayments under the Revolving Credit Facility and, from time to time, may sell equipment that has been financed by the facility to Managed Container Programs. Any such reductions to the facility may be redrawn to fund the acquisition of new equipment subject to the satisfaction of certain conditions relating to the maintenance of minimum collateral levels.

      The Revolving Credit Facility is subject to annual review, and the ability of the Group to expand its owned container fleet may be constrained if the revolving credit period is not renewed on an annual basis or if the Group cannot provide the 20% cash required for new container acquisitions.

      In addition to the Revolving Credit Facility, the Group finances the acquisition of equipment with term debt and capital lease facilities. In 2004, the Group secured an additional $9.2 million of funding under such facilities. The Group enters into annual discussions with lenders in order to increase the amounts available under existing facilities and to add new facilities. Based on current discussions with a number of lenders, the Group expects that the amount of funding provided by these lenders will increase in 2005.

      Joint Venture Program: The Joint Venture Program has been a major source of funding for the Group since its inception in 2002. At December 2004, the Joint Venture Program had capacity for an additional $63 million of new equipment. Additional debt and equity funding is subject to annual review. Therefore, the future growth of the Joint Venture Program may be constrained if increased equity and debt funding is not approved on an annual basis or if the Group cannot provide the 10% cash required for its equity contribution. See further discussion in “Material Off-Balance Sheet Arrangements, Transactions and Obligations” herein.

      Private Container Programs: The growth experienced in global container trade in recent years has attracted capital to this segment. Private Container Programs acquired over $20 million of new container equipment in 2004 representing the first significant investment in this segment since the downturn in the container leasing market in 2001. Based on current negotiations with several Private Container Programs, the Group expects that the level of capital invested in new container equipment will grow in 2005. See further discussion in “Material Off-Balance Sheet Arrangements, Transactions and Obligations” herein.

      US Limited Partnership Programs: During 2004, the Group introduced a new US Limited Partnership Program. This program is designed to raise a maximum of $25 million of proceeds from limited partners and may also seek to augment the size of its container fleet by financing the purchase of additional equipment under loan facilities secured from commercial lenders. In 2004, this program acquired $3.2 million of new container equipment from the Group. See further discussion in “Material Off-Balance Sheet Arrangements, Transactions and Obligations” herein.

Review of Cronos Operations

      Container Fleet

      During 2004, the size of the Group’s total fleet, both owned and managed, increased by a net 33,500 TEU, representing new container acquisitions of 55,000 TEU less disposals of 21,500 TEU. The total cost of new container acquisitions in 2004 was $122 million.

      The majority of new dry cargo and refrigerated containers were placed on term lease during 2004. This reflects the strong demand from the ocean carriers for this type of lease together with a Cronos funding base designed to add more term leases which provide revenue stability and a low cost base.

      In 2004, the size of the total fleet grew by 8%. At December 31, 2004, the Owned Container fleet included approximately 8,500 TEU of equipment that was held for resale to Managed Container Programs. Excluding equipment held for resale, the Owned Container fleet grew by 7% as Cronos funded the acquisition of new equipment with the Revolving Credit Facility and capital leases. The size of the Joint Venture Program fleet increased by 82% reflecting the funding capacity available to the program. The fleets of both the Private Container Programs and the US Limited Partnership Programs declined as the quantities of equipment disposed at the end of its useful economic life exceeded new container additions.

      In 2003, the size of the total fleet grew by 3%. The Owned Container fleet grew by 7% as Cronos funded the acquisition of new equipment with the Revolving Credit Facility and capital leases. The fleet of the Joint Venture Program demonstrated strong growth since its inception in September 2002. The Private Container Programs fleet declined by 9% due to a lack of any significant new investment in this segment and the disposal of older equipment.

      The Group operates a diversified fleet of containers. Specialized containers, comprising refrigerated containers, tanks and dry freight specials, accounted for 45% of the Cronos owned fleet (based on original equipment cost) at December 31, 2004. Due to their specialized nature, demand for certain of these containers is less likely to be affected by global economic downturns. The following table summarizes the composition of the total fleet at December 31, 2004, by operating segment, based on original equipment cost.

          Per Diem Rental Rates

      As discussed in “Market Overview”, in 2004 Cronos achieved a 3% increase in the per diem rate for the total fleet of containers in 2004.

      In 2003, the per diem rate for the total fleet of containers declined by 3%. The combined per diem rate for dry cargo containers declined by 7% in the same period. This may be attributed to three main factors:

      The following factors should be considered when assessing the impact of a change in per diem rental rates:

          Year Ended December 31, 2004 Compared to Year Ended December 31, 2003

Overview

      Cronos reported net income of $8.9 million in 2004 compared to $4.2 million in the prior year. The increase in profitability in 2004 can be attributed primarily to:

Analysis & Discussion

      Gross lease revenue (“GLR”) of $132.1 million for the year ended December 31, 2004, was $14.6 million, or 12%, higher than for the prior year. Of the increase, $9.4 million was due to the combined effect of the change in utilization and per diem rates and $5.2 million was due to the increase in fleet size. GLR increased for almost all product types, with the exception of refrigerated containers where GLR declined by $0.2 million due to the disposal of older equipment at the end of its economic life.

      Direct operating expenses were $20.6 million in 2004, a decrease of $4.9 million, or 19%, compared to 2003 due to reductions in inventory-related costs:

      Operating segment information (see Note 2 to the 2004 Consolidated Financial Statements).

      US Limited Partnership Programs: segment profit increased to $4 million in 2004 from $3.4 million in 2003.

      Joint Venture Program: segment profit increased to $1.3 million in 2004 from $0.7 million in 2003.

      Private Container Programs: segment profit increased to $2.8 million in 2004 from $1.6 million in 2003.

      Segment profit on Owned Containers increased by $5.2 million to $14.3 million in 2004.

      Equipment trading revenue of $4.7 million in 2004 represented transactions undertaken primarily in Scandinavia and Australia for 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 $0.7 million from equipment trading activity in 2004, compared with $0.4 million in 2003, reflecting improved profit margins for the transactions undertaken.

      Commissions, fees and other operating income of $3.6 million in 2004 were almost unchanged from the prior year. The primary activity included:

      Selling, general and administrative expenses were $18.8 million in 2004, an increase of $3 million, when compared to 2003. Of the total increase, $0.9 million can be attributed to the decline in the value of the US dollar against other major currencies. In 2004, over 50% of selling, general and administrative expenses were incurred in non US dollar currencies. The balance of the increase was primarily due to:

      Recovery of related party loan note of $1.280 million in 2004 represented the reversal of a provision against the principal balance due under a loan note between the Group and Mr. Palatin. The Group had previously established a reserve against the principal balance of $1.280 million in 1997. In December 2004, the Group entered into a contract for the sale of the Amersham Estate. The order for sale of the Amersham Estate had been directed by the UK courts so that the proceeds of the sale could be applied to discharge two charging orders that the Group had secured against Mr. Palatin and his beneficial interest in the Amersham Estate. The first charging order secured by Cronos was in respect of the remaining balance, and related interest, owed under the loan note by Mr. Palatin The second charging order was secured in respect of additional amounts owed by Mr. Palatin for which the Group had not recorded a receivable. In December 2004, the Group conducted a review of the amount due under the loan note and concluded, that in light of the fact that a

contract for the sale of the Amersham Estate had been executed and that no other creditor of Mr. Palatin had secured an equal or better charge over the proceeds from the Amersham Estate, that the loan note was recoverable. Accordingly, the $1.280 million provision that had previously been recorded against the principal balance of the loan note was reversed and the receivable reinstated (see additional discussion in Item 3 — “Legal Proceedings” and Note 15 to the 2004 Consolidated Financial Statements).

      The Group also conducted a review of additional proceeds of $1.333 million expected on the sale of the Amersham Estate, comprising the second charging order and interest due in connection with the first and second charging orders. A receivable had not previously been recorded for these items. The Group concluded that as these items represented contingent gains, they should not be recognized until the consummation of the sale of the Amersham Estate and the settlement of all contingencies requisite to the distribution of funds to the Group.

      The sale of the Amersham Estate was completed in January 2005, and the Group received $2.613 million in respect of its charging orders and related interest. This receipt included $1.280 million in respect of the repayment of the outstanding loan note.

      Equity in earnings of affiliate increased to $2.9 million in 2004 compared to $1.5 million in 2003 due to the expansion of the Joint Venture Program fleet. See additional discussion herein.

      Income Taxes of $1.1 million in 2004 represented an effective tax rate of 15%. The effective tax rate after adjusting for the non-operating recovery of the related party loan note was 19%. In 2003, the tax benefit of $1.5 million included tax charges of $1.2 million which were more than offset by a credit of $2.7 million that was recorded in connection with an asset refinancing transaction. The $0.1 million reduction in the amount of tax charges in 2004 was due primarily to the fact that the increased profit reported in 2004 has been earned in jurisdictions with relatively low tax rates. In addition, the Group recorded a $0.2 million tax benefit in one of its European entities that arose as a result of transactions involving the transfer of container equipment.

          Year Ended December 31, 2003 Compared to Year Ended December 31, 2002

Overview

      Cronos reported net income of $4.2 million in 2003 compared to $2.3 million in the prior year. The increase in profitability in 2003 can be attributed primarily to:

      During 2003, Cronos added $64.8 million of new container equipment to its fleet of which $44.5 million was acquired for the Joint Venture Program and $20.3 million was acquired for Owned Container operations. Dry cargo containers represented 63% of new container investment, refrigerated containers 11%, CPCs 15%, tanks 6%, with rolltrailers and other specials accounting for 5%. The majority of new dry cargo and refrigerated containers were placed on term lease. This reflects the strong demand from the ocean carriers for this type of lease together with a Cronos funding base designed to add more term leases which provide revenue stability and a low cost base.

Analysis & Discussion

      Gross lease revenue (“GLR”) of $117.5 million for the year ended December 31, 2003, was $3.9 million, or 3%, higher than for the prior year. Of the increase, $2.4 million was due to the combined effect of the change in utilization and per diem rates and $1.5 million was due to the increase in fleet size. GLR increased

for almost all product types, with the exception of refrigerated containers where GLR declined by $0.5 million due to the disposal of older equipment at the end of its economic life.

      Direct operating expenses were $25.5 million in 2003, a decrease of $1.3 million, or 5%, compared to 2002. The primary reasons for the decline were:

      Operating segment information (see Note 2 to the 2004 Consolidated Financial Statements).

      US Limited Partnership Programs: segment profit of $3.4 million in 2003 was almost unchanged from the prior year.

      Joint Venture Program: segment profit increased to $0.7 million in 2003 from $0.1 million in 2002.

      Private Container Programs: segment profit increased to $1.6 million in 2003 from $0.4 million in 2002.

      Segment profit on Owned Containers increased by $2 million to $9.1 million in 2003.

      Equipment trading revenue of $5 million in 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 represented equipment and related costs for this activity. The Group earned $0.4 million from equipment trading activity during 2003, compared with $0.1 million in 2002.

      Commissions, fees and other operating income of $3.6 million in 2003 were $0.7 million, or 16%, lower than in 2002. The decrease was primarily due to:

      Interest income of $0.1 million for the year ended December 31, 2003, was $0.2 million lower than in 2002. This is due to the global reduction in interest rates and the utilization of surplus cash balances to pay down revolving credit and overdraft balances.

      Amortization of intangible assets of $0.2 million was unchanged from 2002.

      Selling, general and administrative expenses were $15.8 million in 2003, an increase of $1.5 million, when compared to 2002. Of the total increase, $0.9 million can be attributed to the decline in the value of the US dollar against other major currencies. The balance of the increase was due to:

      Income Taxes. Since 1996, the Group has been able to claim capital allowances (depreciation for tax purposes) on certain equipment purchased in that year and thereby defer taxation payments. In December 2003, as part of a refinancing transaction for the facility that had funded the acquisition of this equipment, the assets were sold to another Group company in a different jurisdiction. As discussed above, the Group incurred $0.5 million of breakage costs in connection with the refinancing transaction. In accordance with the governing UK taxation legislation, the Group was able to complete the transfer of the assets without generating a resulting tax repayment. As a result, the $2.7 million of deferred tax associated with these assets was credited to income. This was partially offset by tax charges of $1.2 million.

      Equity in earnings of affiliate was $1.5 million in 2003 compared to $0.3 million in the period September to December 2003. These earnings represent the recognition of the Cronos share of net income generated by the Joint Venture Program entity that was set up in September of 2002.

Liquidity and Capital Resources

      The Group uses cash from a number of sources in order to meet its operating and other cash flow commitments.

      The primary sources of cash generated by operating activities are gross lease revenue provided by the Group’s container fleet, fee revenues from its Managed Container Programs and other parties and income earned on equipment trading and direct financing lease transactions.

      Cash is utilized to meet costs relating to day-to-day fleet support, payments to Managed Container Programs, selling, general and administrative expenses, interest expense, servicing the current portion of long-term borrowings, financing a portion of Owned Container acquisitions, providing equity contributions to fund 10% of the capital requirements of the Joint Venture Program and making payments to container manufacturers on equipment trading transactions.

      Cash flows relating to gross lease revenue are largely dependent upon the timely collections of lease revenues from shipping lines. At December 31, 2004, the amounts due from lessees was $25.1 million representing an increase of $2.4 million from the position at December 31, 2003. This increase is entirely due to the increase in the amounts billed for gross lease revenue and disposal proceeds in 2004. Based on loss experience for the last twelve 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. There is always a risk that some shipping lines may experience financial difficulty. Any resultant material increase in the level of bad debts could potentially affect the ability of the Group to meet its operating and other commitments.

      The Group utilizes the proceeds arising from the transfer of equipment held for resale to Managed Container Programs to pay the related amount due to container manufacturers. At December 31, 2004, the Group held $17.1 million of container equipment for resale to Managed Container Programs, including the Joint Venture Program. This represented a $6.3 million increase over the position at December 31, 2003, and was due to a significant increase in the number of containers ordered by the Group due to the strong demand for leased containers, an increase in the number of Managed Container Programs seeking to invest in

container equipment and an increase in the level of funding available to programs such as the Joint Venture Program.

      Proceeds generated by the sale of Owned Containers at the end of their economic life are utilized to repay the related balance of any debt or capital lease facility outstanding.

      The Group utilizes surplus cash balances to make short-term debt repayments and thereby reduce interest expense. Such amounts may be redrawn at a later date for operating activities and other purposes.

          Cash Flow Statements for the years ended December 31, 2004, 2003 and 2002

      Cash from Operating Activities. Net cash provided by operating activities during 2004 was 36% higher than in 2003. The increase was primarily due to:

      The increase in cash flow attributable to these items was partially offset by:

      Net cash provided by operating activities during 2003 was 6% higher than in 2002. The increase in net cash generated in 2003 was primarily due to cash flows generated by increased collections of gross lease revenue, reduced payments for direct operating costs and interest costs which were partly offset by increased payments to Managed Container Programs, reduced cash flows from commissions fees and other operating income and increased payments for selling, general and administrative costs.

      The net cash generated in 2002 included $1.2 million of income tax repayments relating primarily to a settlement with a foreign taxation authority during the year. In addition, during 2002, the increase in cash generated by the decline in direct operating expense payments, lower financing costs and reduced distributions to Managed Container Programs were more than offset by the decline in cash flows resulting from the reduction in gross lease revenue receipts and the decline in the level of commissions and fees generated.

      Cash from Investing Activities. Investing activities include the acquisition of containers for the Group’s owned container fleet, the purchase of other assets related to the operation of the worldwide Cronos office network and equity investments in the Joint Venture Program. Net cash used in investing activities for 2004 was $16.6 million and included the following:

      Net cash used in investing activities was $9.8 million in 2003 and included the following items:

      Net cash used in investing activities was $3.3 million in 2002. Proceeds from the sale of container equipment of $12.5 million included $9.8 million of equipment that was sold to the Joint Venture Program. In addition, the Group received a dividend of $1.4 million from the Joint Venture Program. These items were more than offset by total expenditure of $17.2 million on fixed assets and direct financing lease equipment.

      Cash from Financing Activities. Net cash used in financing activities in 2004 was $5.1 million and included the following items:

      Net cash used in financing activities was $10.1 million in 2003 and included the following items:

      Net cash used in financing activities was $18.3 million for 2002. Proceeds from the issuance of new term debt of $17.9 million were more than offset by the repayment of $36.2 million of debt and capital lease obligations, including $11.3 million that was repaid at the inception of the Joint Venture Program.

          Capital Resources

          Capital Expenditures and Commitments

      The Group purchases new containers for its Owned Container operations and for resale to its Managed Container Programs and other parties. At December 31, 2004, the Group owed container manufacturers $27.8 million for equipment. The Group will fund $6.2 million of this equipment utilizing its available container funding facilities, $17.4 million will be paid by the Joint Venture Program, $3.3 million will be paid by Private Container Programs and the remaining $0.9 million will be paid by a US Limited Partnership Program. The Group intends to use the additional capacity created by monthly repayments under the Revolving Credit Facility to fund its $6.2 million of container acquisitions.

      In addition, at December 31, 2004, the Group had commitments of $20.7 million to purchase container equipment in 2005. Of this, $5.9 million will be financed by the Group using available container funding facilities, $6.3 million will be paid by the Joint Venture Program, $6.2 million will be paid for by a Private Container Program and $2.3 million will be paid by third parties under equipment services transactions.

      Capital expenditures for containers in 2004, 2003 and 2002 were $29.1 million, $16.5 million and $15.5 million respectively. Other capital expenditures in 2004, 2003 and 2002 were $0.6 million, $0.3 million and $0.3 million, respectively.

      On April 1, 2003, the Group sold $4.6 million of containers to the Joint Venture Program and transferred an additional $1 million of containers as a capital contribution. The Group utilized the proceeds from the sale of containers to repay approximately $4.6 million of indebtedness outstanding under an existing revolving line of credit. The sale of the containers by the Group to the Joint Venture Program was at book value, which approximated fair value, and therefore did not result in a gain or loss.

      Cronos intends to use funding from each of its operating segments to finance future fleet growth (see “Funding” herein for a discussion of funding for each segment).

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

          Material Off-Balance Sheet Arrangements, Transactions and Obligations

      Joint Venture Program. The Joint Venture Program has been a major source of Managed Container Program funding since its inception in 2002 and is 50% owned by a subsidiary of the Group and 50% owned by a lender to the Group, a major international financial services provider. The purpose of the program is to acquire and lease marine cargo containers to third party lessees with several lenders, including the 50% joint venture owner, 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 program. 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.

      In June 2004, the lenders to the Joint Venture Program increased their maximum debt commitment from $80 million to $150 million. At December 31, 2004, the Joint Venture Program had fixed assets and direct financing leases with a book value of $122.1 million partly funded by debt of $99.4 million. In 2005, it is expected that the Joint Venture Program will acquire an additional $65 million of assets and this investment will require additional equity of approximately $6.5 million from each of the joint venture partners.

      In the twelve months to December 31, 2004, the Group earned $1.3 million as compensation for the management of containers owned by the program, recorded $2.9 million in equity in earnings of the program and contributed $3.6 million of capital to the Joint Venture Program.

      The Group has determined that the Joint Venture Program is within the scope of FIN 46R; however it is not a variable interest entity. The maximum exposure for Cronos to losses as a result of its involvement with the Joint Venture Program at December 31, 2004, was $15.5 million, representing the total of its equity investment in the Joint Venture Program and the management fees due to Cronos from the program.

      A further discussion of the Group’s involvement and transactions with the Joint Venture Program is provided in Item 1 — “Business” and elsewhere in Item 7 — “Management’s Discussion and Analysis of Financial Condition and Results of Operations” herein.

      US Limited Partnership Programs — General Partner. The Group has equity interests as a general partner in nine US limited partnership programs. The partnerships are all California limited partnerships managed by Cronos Capital Corp., an indirect subsidiary of the Company. Since 1979, seventeen public limited partnerships raised over $480 million from over 37,000 investors. Eight of the original seventeen partnerships have now been dissolved. These general partner investments are accounted for using the equity method.

      The objectives of the partnerships are to invest in marine cargo containers, to generate a continuing income for distribution to the limited partners, and to realize the residual value of the container equipment at the end of its useful economic life or upon the dissolution of a partnership. At December 31, 2004, the US Limited Partnership Programs had total assets of $107.3 million and total liabilities of $3.3 million. The general partner is indemnified by the partnerships for any liabilities suffered by it arising out of its activities as

general partner, except in the case of misconduct or negligence. As limited partnerships, the limited partners may not be assessed for additional capital contributions, and it is possible that the general partner could be liable if the assets of the partnerships are not sufficient to pay their liabilities. However, the Group considers that the risk of any such loss is not material. Therefore, the maximum exposure for Cronos to losses as a result of its involvement with the US Limited Partnership Programs at December 31, 2004, was $3.1 million, representing the total amount due for management fees and other items from the partnerships.

      In accordance with FIN 46R, the Company has determined that the nine limited partnerships qualify as variable interest entities. In each case, the Company has concluded that neither the Company, nor any of its subsidiaries, is the primary beneficiary of any US Limited Partnership Program.

      Fixed Operating Leases Obligations. Cronos, as lessee, has entered into fixed operating lease contracts for container equipment, computer equipment and office space. In 2004 the rental expense was $6.9 million of which the fixed operating lease rental expense for container equipment was $6.1 million. See “Contractual Obligations” herein and Note 13 (c) to the 2004 Consolidated Financial Statements for the minimum amount of future lease payments due under fixed operating and other lease contracts.

      Legal Settlement. On November 17, 2003, Cronos and Contrin entered into a Settlement Agreement, resolving litigation which had commenced in August 2000 (see Item 3 — “Legal Proceedings” and Item 7 — “Contractual Obligations” herein). Under the terms of the Settlement Agreement, Cronos has agreed to make certain future payments to Contrin.

      In February 2005, the Group paid $2.1 million to Contrin, under the terms of the Settlement Agreement, on the completion of the sale of the Amersham Estate. In addition, in February 2005, an agreement was reached between the Group, Contrin and the TOEMT liquidator under the terms of which, Contrin will be allocated Amersham Surplus Proceeds in an amount sufficient to fully discharge the Group’s remaining payment obligations to Contrin under the Settlement Agreement. This agreement is subject to Court approval.

      Primary Beneficiary. In December 2003, the Group determined that it was the primary beneficiary of a variable interest entity in which it held a 0.01% share. The Group sold $49.7 million of containers to the variable interest entity in a series of transactions in prior years. The variable interests of the Group in the entity comprised a management fee, that the Group earned in return for managing the containers of the entity, a non-interest bearing loan note and an option to acquire 75% of the container owning company for one US dollar, the exercise of which was subject to the repayment of certain of the indebtedness of the variable interest entity.

      At December 31, 2004, the variable interest entity held cash balances of $1.5 million, restricted cash of $0.5 million, container assets of $21.9 million (stated at net book value) and debt facilities of $20.9 million. The debt is scheduled to be repaid from the cash generated by the container assets. At December 31, 2004, the variable interest entity held total amounts payable to Cronos subsidiaries of $13.4 million. Such amounts are subordinate to the repayment of the variable interest entity debt.

      In February 2005, the Group acquired 100% ownership of the variable interest entity. The debt held by the variable interest entity was restructured on the same date. In connection with this restructuring, the Group issued a guarantee for $10 million of the outstanding debt and the lender cancelled an option to acquire 25% of the variable interest entity. In addition, 200,000 warrants to purchase 200,000 common shares of the Company were cancelled effective February 4, 2005. The warrants, which were exercisable at $4.41 per share were held by the lender to the variable interest entity under the restructured debt facility. See the 8-K report filed with the SEC on February 10, 2005.

      Agreements with Other Private Container Programs — early termination options. At December 31, 2004, approximately 64% (based on original equipment cost) of the total agreements with Private Container Programs contained early termination options, whereby the container owner may terminate the agreement if certain performance thresholds are not achieved. At December 31, 2004, approximately 43% (based on original equipment cost) of the total agreements were eligible for early termination. Cronos believes that early termination of these agreements is unlikely.

      Agreements with Other Private Container Programs — change of control provisions. At December 31, 2004, approximately 61% (based on original equipment cost) of the total agreements with Private Container Programs provided 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, 37% of the 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 24% of the 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.

      A further discussion of the Group’s involvement and transactions with the Private Container Programs is provided in Item 1 — “Business” herein.

Contractual Obligations

      The following table sets forth the payments by period for Cronos contractual obligations. For a discussion of the Group’s commitments and contingencies, see Note 15 to the Company’s 2004 Consolidated Financial Statements.

      Long-term debt obligations and capital lease obligations. The contractual payments detailed by period represent the principal payments due. At December 31, 2004, the Group estimated that the related future interest payments due under long-term debt obligations and capital leases were $16 million and $4.3 million, respectively.

      Amounts payable to container manufacturers. Cronos has outstanding obligations to pay container manufacturers for containers that were acquired by the Group in 2004.

      Container purchase commitments. The Group has contracted with container manufacturers for the production of new equipment in 2005.

      Term lease rental obligations to Managed Container Programs. This represents the amounts payable to Managed Container Programs from the minimum term lease rentals receivable in future years from ocean carriers (see Note 5 and Note 13(c) to the 2004 Consolidated Financial Statements). No amount will be payable to the Managed Container Program if the ocean carrier fails to pay the future term lease rentals to the Group.

Critical Accounting Policies and Estimates

      Container equipment — depreciable lives. Container equipment is either depreciated over a life of 12 years to a residual value of 15%, or, over a life of 15 years to a residual value of 10%. Management 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 owned 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 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 — “Accounting for Income Taxes”, the Group is required to record a valuation allowance if realization of a deferred tax asset is unlikely. 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.

      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, 2004, the Group’s valuation allowance aggregated $4 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 quality. 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 gross lease revenues. Based on this information, Cronos has calculated an allowance for doubtful accounts comprising specific amounts provided against known probable losses on certain customers plus an additional amount based on loss experience for other customers. However, the Group may be subject to unexpected loss in rental revenue from container lessees that default under their container lease agreements.

      Goodwill. On January 1, 2002, the Group adopted SFAS No. 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. 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 judgment for projections relating to utilization rates, per diem rates, the disposal age of the containers, equipment residual values, cash collections and interest rates.

      Gross lease revenue — Managed Container Programs. Cronos leases equipment to ocean carriers that is owned by its Managed Container Programs. Cronos acts as principal in the lease arrangement with shipping lines based on the characteristics of these transactions in which Cronos determines the ocean carrier to which the equipment is leased, sets the applicable lease rental rate, acts as primary obligor in the transaction and collects the lease rentals. Accordingly, Cronos reports the resulting lease income on a gross basis, rather than net of its lease costs to the Managed Container Programs.

      US Limited Partnership Programs — FIN 46R. The Group has determined that the US Limited Partnership Programs are variable interest entities as defined in FIN 46R. Cronos has performed an analysis of the expected losses and the expected residual returns of the US Limited Partnership Programs and determined

that the Group is not the primary beneficiary of these programs. Although the assumptions used in the calculation of expected losses and expected residual returns are based on historical and current available information, they require subjective management judgment for projections relating to utilization rates, per diem rates, the disposal age of the containers, equipment residual values and cash collections.

New Accounting Pronouncements

      In December 2004 the FASB issued SFAS No. 153 — “Exchanges of Nonmonetary Assets — an amendment of APB Opinion No. 29” (“SFAS 153”). This Statement amends Opinion 29 to eliminate the exception for nonmonetary exchanges of similar productive assets and replaces it with a general exception for exchanges of nonmonetary assets that do not have commercial substance. A nonmonetary exchange has commercial substance if the future cash flows of the entity are expected to change significantly as a result of the exchange. The Group does not expect the introduction of SFAS 153 to have any impact on its consolidated financial statements.

      In December 2004, the FASB issued SFAS 123 (Revised 2004) — “Share-Based Payment” (“SFAS 123R”). This Statement is a revision of FASB Statement No. 123 — “Accounting for Stock-Based Compensation”. SFAS 123R supersedes APB 25, and its related implementation guidance.

      SFAS 123R establishes standards for the accounting for transactions in which an entity exchanges its equity instruments for goods or services. It also addresses transactions in which an entity incurs liabilities in exchange for goods or services that are based on the fair value of the entity’s equity instruments or that may be settled by the issuance of those equity instruments. This statement focuses primarily on accounting for transactions in which an entity obtains employee services in share-based payment transactions. This statement does not change the accounting guidance for share-based payment transactions with parties other than employees provided in Statement 123 as originally issued and Emerging Issues Task Force (“EITF”) Issue No. 96-18 — “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”. This Statement does not address the accounting for employee share ownership plans, which are subject to AICPA Statement of Position 93-6 — “Employers’ Accounting for Employee Stock Ownership Plans”.

      SFAS 123R is effective for the first interim period beginning after June 15, 2005 and applies to all awards granted, modified, repurchased or cancelled after this date. The company expects to adopt SFAS 123R from July 1, 2005. Management does not expect the adoption of SFAS 123R to have a significant impact on the financial position, results of operations or cash flows of the Group.

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, 2004:

      Interest rate risk: Outstanding borrowings are subject to interest rate risk. At December 31, 2004, 97% 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: Substantially all purchases of container equipment are in US dollars. In 2004, approximately 95% of the Group’s revenues were billed and paid in US dollars and approximately 84% of expenses were incurred and paid in US dollars. For non US dollar denominated revenues and expenses, the Group may enter into foreign currency contracts to reduce exposure to exchange rate risk. Of the non US dollar expenses, approximately 70% 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 2004, 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 million in any given year.

      The table below summarizes information on transactions that are sensitive to foreign currency exchange rates including Euro (EUR) denominated direct financing leases and Euro denominated capital lease obligations, and presents such information in US dollar equivalents. For debt obligations, the table presents principal cash flows and related weighted average interest rates by expected maturity dates. For direct financing leases the table presents net lease receivable cash flows by expected maturity dates.

      Report of Independent Registered Public Accounting Firm

      Consolidated Balance Sheets at December 31, 2004 and 2003

      Notes to Consolidated Financial Statements

      None

      The principal executive and principal financial officers of the Company have evaluated the disclosure controls and procedures of the Group as of the end of the period covered by this report. As used herein, the term “disclosure controls and procedures” has the meaning given to the term by Rule 13a-15 under the Securities Exchange Act of 1934, as amended (the “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 were effective such 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 and is accumulated and communicated to management of the Group, including the principal executive and principal financial officers, as appropriate to allow timely decisions regarding required disclosures.

      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.

      None

PART III

      Information concerning the directors of the Group, including those standing for re-election, will be set forth under the proposal entitled “Election of Directors” in the Group’s definitive Proxy Statement (the “Proxy Statement”) to be filed with the Commission no later than 120 days after the Company’s fiscal year covered by this annual report, which information is incorporated herein by reference.

      The names of the executive officers of the Group, and their ages, titles, and biographies as of the date hereof, are set forth below:

      Dennis J. Tietz; age 52; Chairman and Chief Executive Officer

      Mr. Tietz was appointed Chief Executive Officer of the Company in December 1998, and Chairman of the Board of Directors in March 1999. From 1986 until his election as Chief Executive Officer of the Company, Mr. Tietz was responsible for the organization and marketing of investment programs managed by Cronos Capital Corp. (“CCC”) (formerly called Intermodal Equipment Associates), an indirect subsidiary of the Company. From 1981 to 1986, Mr. Tietz supervised container lease operations in both the United States and Europe. Prior to joining CCC in 1981, Mr. Tietz was employed by Trans Ocean Leasing Corporation, a container leasing company, as regional manager based in Houston, with responsibility for leasing and operational activities in the US Gulf.

      Mr. Tietz holds a B.S. degree in Business Administration from San Jose State University. Mr. Tietz is a licensed principal with the National Association of Securities Dealers. Mr. Tietz served as Chairman of the International Institute of Container Lessors for its 2001 fiscal year, and currently sits on the Executive Committee of the Institute’s Board of Directors.

      Peter J. Younger; age 48; Chief Operating and Financial Officer

      Mr. Younger was elected to the Board of Directors of the Company at the 1999 annual meeting of shareholders. Mr. Younger was appointed as Chief Operating Officer of the Company in August 2000, as Executive Vice President in April 1999, and as Chief Financial Officer in March 1997. From 1991 to 1997, Mr. Younger served as Vice President — Finance of Cronos. From 1987 to 1991, Mr. Younger served as Vice President and Controller of CCC in San Francisco. Prior to 1987, Mr. Younger was a certified public accountant and a principal with the accounting firm of Johnson, Glaze and Co. in Salem, Oregon.

      Mr. Younger holds a B.S. degree in Business Administration from Western Baptist College, Salem, Oregon.

      John M. Foy; age 59; Senior Vice President

      Mr. Foy is directly responsible for Cronos’ lease marketing operations for the Pacific region covering the west coast of America, Asia, Australia and New Zealand; Mr. Foy is based in San Francisco. From 1985 to 1993, Mr. Foy was Vice President — Pacific of Cronos with responsibility for dry cargo container lease marketing and operations in the Pacific Basin. From 1977 to 1985, Mr. Foy was Vice President of Marketing for Nautilus Leasing Services in San Francisco with responsibility for worldwide leasing activities. From 1974 to 1977, Mr. Foy was Regional Manager for Flexi-Van Leasing, a container lessor, with responsibility for container leasing activities in the Western United States.

      Mr. Foy holds a B.A. degree in Political Science from University of the Pacific and Bachelor of Foreign Trade from Thunderbird Graduate School of International Management.

      Nico Sciacovelli; age 55; Senior Vice President

      Mr. Sciacovelli is directly responsible for Cronos’ lease marketing operations in the South Atlantic region, including Southern Europe, South America, the Middle East, Africa and the Indian sub-continent; Mr. Sciacovelli is based in Italy. Mr. Sciacovelli joined Cronos in 1983 and served as Director of Marketing for Southern Europe, the Middle East and Africa until 1997. Prior to joining Cronos, Mr. Sciacovelli was a sales manager with Interpool, Inc., a container and chassis lessor.

      John C. Kirby; age 51; Senior Vice President

      Mr. Kirby is directly responsible for Cronos’ lease marketing operations in the North Atlantic region, including Northern Europe, the east coast of America and Scandinavia. Mr. Kirby is also responsible for Cronos’ corporate operations including contract and billing administration, container repairs and leasing-related systems; Mr. Kirby is based in the United Kingdom. Mr. Kirby joined CCC in 1985 as European Technical Manager and advanced to Director of European Operations in 1986, a position he held with CCC,

and later CCL, until his promotion to Vice President — Operations of Cronos in 1992. In January 1999, Mr. Kirby was promoted to the position of Senior Vice President — Operations. From 1982 to 1985, Mr. Kirby was employed by CLOU Containers, a container leasing company, as Technical Manager, based in Hamburg, Germany. Mr. Kirby holds a professional engineering qualification from the Mid-Essex Technical College in England.

      Section 16(a) Beneficial Ownership Reporting Compliance

      Information regarding Section 16 (a) beneficial ownership reporting compliance will be set forth under “Security Ownership of Certain Beneficial Owners and Management — Section 16 (a) Beneficial Ownership Reporting Compliance” in the Proxy Statement, which information is incorporated herein by reference.

      Code of Ethics.

      The Group has adopted a Code of Ethics for its directors, officers (including the Company’s principal executive and principal financial officers), and employees. The Code of Ethics is available at the Company’s website at www.cronos.com. Shareholders may request a free copy of the Code of Ethics from:

          The Cronos Group

          c/o Cronos Capital Corp.

          One Front Street, Suite 925

          San Francisco, California, 94111

          Attention: Investor Relations

      Information regarding the Group’s compensation of its directors and named executive officers is set forth under “Compensation of Executive Officers and Directors” in the Proxy Statement, which information is incorporated herein by reference.

      Information regarding security ownership of certain beneficial owners, directors, and executive officers is set forth under “Security Ownership of Certain Beneficial Owners and Management” in the Proxy Statement, which information is incorporated herein by reference.

      Information concerning the Group’s equity compensation plans, including both shareholder approved and non-shareholder approved plans, is set forth under “Compensation of Executive Officers and Directors” in the Proxy Statement, which information is incorporated herein by reference.

      Information concerning certain relationships and related transactions is set forth under “Compensation of Executive Officers and Directors” in the Proxy Statement, which information is incorporated herein by reference.

      Information concerning principal accountant fees and services is set forth under the proposal entitled “Appointment of Deloitte & Touche S.A. as Independent Auditors” in the Proxy Statement, which information is incorporated herein by reference.

      The Company intends to file its definitive Proxy Statement with the Commission no later than 120 days after the end of the Group’s fiscal year (December 31, 2004). In the event that the Company does not file its definitive Proxy Statement with the Commission on or before 120 days after 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.

PART IV

(a) (1) Financial Statements

      Report of Independent Registered Public Accounting Firm

      Notes to Consolidated Financial Statements

(a) (2) Financial Statement Schedules

(a) (3) Exhibits

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 14, 2005

      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.

FINANCIAL STATEMENTS — Item 15 (a)(1) and (a)(2)

THE CRONOS GROUP

Consolidated financial statements as of December 31, 2004 and 2003

and for the years ended December 31, 2004, 2003 and 2002

and Report of Independent Registered Public Accounting Firm

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of The Cronos Group

      We have audited the accompanying consolidated balance sheets of The Cronos Group and subsidiaries (collectively the “Group”) as of December 31, 2004 and 2003, and the related consolidated statements of income, stockholders equity, and cash flows for each of the three years in the period ended December 31, 2004. 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 audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

      In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Group as of December 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche LLP

Reading, United Kingdom

March 14, 2005

THE CRONOS GROUP

CONSOLIDATED STATEMENTS OF INCOME

For the years ended December 31, 2004, 2003 and 2002

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