e10vq

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q


þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended September 30, 2006


o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission file number 0-27496

CRONOS GLOBAL INCOME FUND XVI, L.P.

(Exact name of registrant as specified in its charter)


California		94-3230380
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

One Front Street, Suite 925, San Francisco, California		94111
(Address of principal executive offices)		(Zip Code)

(415) 677-8990
(Registrant’s telephone number, including area code)

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 þ No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Presented herein are the condensed balance sheets of Cronos Global Income Fund XVI, L.P. (the “Partnership”) as of September 30, 2006 and December 31, 2005, condensed statements of operations for the three and nine months ended September 30, 2006 and 2005, and condensed statements of cash flows for the nine months ended September 30, 2006 and 2005 (collectively the “Financial Statements”) prepared by the Partnership without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these Financial Statements be read in conjunction with the financial statements and the notes thereto included in the Partnership’s December 31, 2005 Annual Report on Form 10-K. These Financial Statements reflect, in the opinion of the Partnership and Cronos Capital Corp. (“CCC”), the general partner, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The statements of operations for such interim periods are not necessarily indicative of the results for the full year.

The information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Partnership with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Partnership’s control. All statements, other than statements of historical facts included in this report, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Partnership’s strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Partnership are forward-looking statements. When used in this report, the words “would”, “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 Partnership 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. Although the Partnership believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable, the Partnership can give no assurance that these plans, intentions or expectations will be achieved. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Condensed Statements of Operations

(Unaudited)


	Three Months Ended						Nine Months Ended
	September 30,			September 30,			September 30,			September 30,
	2006			2005			2006			2005
Net lease revenue	$	617,544		$	702,478		$	1,744,685		$	2,115,072

Other operating income (expenses):
Depreciation		(418,284	)		(455,996	)		(1,295,951	)		(1,392,625	)
Other general and administrative expenses		(25,595	)		(19,550	)		(81,145	)		(60,804	)
Asset impairment loss		—			—			—			(37,972	)
Net (loss) gain on disposal of equipment		(112,636	)		24,600			(247,079	)		38,929

		(556,515	)		(450,946	)		(1,624,175	)		(1,452,472	)


Income from operations		61,029			251,532			120,510			662,600

Other income:
Interest income		10,718			5,150			30,701			10,208


Net income	$	71,747		$	256,682		$	151,211		$	672,808


Allocation of net income:
General partner	$	22,113		$	50,261		$	75,699		$	117,507
Limited partners		49,634			206,421			75,512			555,301


	$	71,747		$	256,682		$	151,211		$	672,808


Limited partners’ per unit share of net income	$	0.03		$	0.13		$	0.05		$	0.35

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

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

(1) Summary of Significant Accounting Policies

	(a)		Nature of Operations

			Cronos Global Income Fund XVI, L.P. (the “Partnership”) is a limited partnership organized under the laws of the State of California on September 1, 1995, for the purpose of owning and leasing marine cargo containers, special purpose containers and container related equipment worldwide to ocean carriers. The Partnership’s operations are subject to the fluctuations of world economic and political conditions. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers are generally the same as those of leases to domestic customers. The Partnership’s leases generally require all payments to be made in United States currency.

			Cronos Capital Corp. (“CCC”) is the general partner and, with its affiliate Cronos Containers Limited (the “Leasing Company”), manages the business of the Partnership. CCC and the Leasing Company also manage the container leasing business for other partnerships affiliated with CCC.

			The Partnership commenced operations on March 29, 1996, when the minimum subscription proceeds of $2,000,000 were received from over 100 subscribers (excluding from such count Pennsylvania residents, CCC, and all affiliates of CCC). The Partnership offered 7,500,000 units of limited partnership interest at $20 per unit or $150,000,000. On February 3, 1997, CCC suspended the offer and sale of units in the Partnership. The offering terminated on December 27, 1997, by which time 1,599,667 limited partnership units had been sold. The Partnership shall continue until December 31, 2015, unless sooner terminated upon the occurrence of certain events.

			The Partnership has commenced its 11th year of operations and has entered into its liquidation phase wherein CCC will focus its attention on the retirement of the remaining equipment in the Partnership’s container fleet. At September 30, 2006, approximately 84% of the original equipment remained in the Partnership’s fleet. CCC takes several factors into consideration when examining options for the timing of the disposal of the containers. These factors include the impact of a diminishing fleet size and current market conditions on the level of gross lease revenue, and fixed operating costs relative to this revenue. Parallel to these considerations is a projected increase in expenses for devoting significant resources to the additional reporting and compliance requirements of Section 404 of the Sarbanes Oxley Act of 2002, which addresses a range of corporate governance, disclosure, and accounting issues. These costs may include increased accounting and administrative expenses for additional staffing and outside professional services by accountants and consultants. These additional costs, depending on their materiality, may reduce the Partnership’s results from operations and therefore negatively affect future distributions to the Limited Partners.

	(b)		Leasing Company and Leasing Agent Agreement

			A Leasing Agent Agreement exists between the Partnership and the Leasing Company, whereby the Leasing Company has the responsibility to manage the leasing operations of all equipment owned by the Partnership. Pursuant to the Agreement, the Leasing Company is responsible for leasing, managing and re-leasing the Partnership’s containers to ocean carriers and has full discretion over which ocean carriers and suppliers of goods and services it may deal with. The Leasing Agent Agreement permits the Leasing Company to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Company and its affiliates, as part of a single fleet operated without regard to ownership. Since the Leasing Agent Agreement meets the definition of an operating lease in Statement of Financial Accounting Standards (SFAS) No. 13, it is accounted for as a lease under which the Partnership is lessor and the Leasing Company is lessee.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

	(b)		Leasing Company and Leasing Agent Agreement (continued)

			The Leasing Agent Agreement generally provides that the Leasing Company will make payments to the Partnership based upon rentals collected from ocean carriers after deducting direct operating expenses and management fees to CCC and the Leasing Company. The Leasing Company leases containers to ocean carriers, generally under operating leases which are either master leases or term leases (mostly one to five years). Master leases do not specify the exact number of containers to be leased or the term that each container will remain on hire but allow the ocean carrier to pick up and drop off containers at various locations, and rentals are based upon the number of containers used and the applicable per-diem rate. Accordingly, rentals under master leases are all variable and contingent upon the number of containers used. Most containers are leased to ocean carriers under master leases; leasing agreements with fixed payment terms are not material to the financial statements. Since there are no material minimum lease rentals, no disclosure of minimum lease rentals is provided in these financial statements.

	(c)		Basis of Accounting

			The Partnership utilizes the accrual method of accounting. Net lease revenue is recorded by the Partnership in each period based upon its leasing agent agreement with the Leasing Company. Net lease revenue is generally dependent upon operating lease rentals from operating lease agreements between the Leasing Company and its various lessees, less direct operating expenses and management fees due in respect of the containers specified in each operating lease agreement.

	(d)		Use of Estimates

			The financial statements are prepared in conformity with accounting principles generally accepted in the United States of America (GAAP), which require the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates.

			The most significant estimates included within the financial statements are the container rental equipment estimated useful lives and residual values, and the estimate of future cash flows from container rental equipment operations. These estimates are used to determine the carrying value of container rental equipment in accordance with SFAS No. 144. Considerable judgment is required in estimating future cash flows from container rental equipment operations. Accordingly, the estimates may not be indicative of the amounts that may be realized in future periods. As additional information becomes available in subsequent periods, recognition of an impairment of the container rental equipment carrying values may be necessary based upon changes in market and economic conditions.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

	(e)		Container Rental Equipment

			Container rental equipment is depreciated over a 15-year life using the straight-line basis to its salvage value, estimated to be 10% of the original equipment cost. Depreciation policies are also evaluated to determine whether subsequent events and circumstances warrant revised estimates of useful lives.

			In accordance with SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” container rental equipment is considered to be impaired if the carrying value of the asset exceeds the expected future cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets are written down to fair value. An analysis projecting future cash flows from container rental equipment operations is prepared annually, or upon material changes in market conditions. Current and projected utilization rates, per-diem rental rates, direct operating expenses, fleet size and container disposals are the primary variables utilized by the analysis. Additionally, the Partnership evaluates future cash flows and potential impairment by container type rather than for each individual container, and as a result, future losses could result for individual container dispositions due to various factors, including age, condition, suitability for continued leasing, as well as the geographical location of containers when disposed.

			In September 2005 the Partnership recorded an impairment charge of $37,972 related to 111 forty-foot standard off-hire dry cargo containers located in North America (the “North American Dry Containers”). The impairment charge was a result of a number of factors identified by CCC and the Leasing Company that impacted the carrying value of the North American Dry Containers:

	•		The age of the North American Dry Containers.

	•		The lack of regional market demand to lease the North American Dry Containers.

	•		The cost to reposition the North American Dry Containers to high demand markets.

	•		The strong North American container sale market.

			CCC and the Leasing Company considered the impact of these factors, and determined a change regarding the current marketing strategy for the containers was required. CCC and the Leasing Company concluded that effective September 1, 2005, the North American Dry Containers would be targeted for immediate sale and committed to a plan to dispose of the North American Dry Containers. It was concluded that the carrying value of these containers, $193,372, exceeded fair value and accordingly, an impairment charge of $37,972, or approximately $0.02 per limited partnership unit, was recorded to operations under impairment losses during the three month period ended September 30, 2005. Fair value was determined by estimating the expected amount to be received at the time of sale. The expected sales price was estimated by evaluating the current sales price of similar containers. During the nine-month period ending September 30, 2006, the Partnership sold four North American Dry Containers targeted for sale. The Partnership recognized a gain of $370 on the sale of these containers. At September 30, 2006, 47 of the original 111 North American Containers remain in the Partnership’s fleet awaiting disposal.

			There were no impairment charges to the carrying value of container rental equipment during the three-month periods ended September 30, 2006 and 2005 and the nine-month period ended September 30, 2006.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

	(f)		Allocation of Net Income or Loss, Partnership Distributions and Partners’ Capital Accounts

			Net income or loss has been allocated between the general and limited partners in accordance with the Partnership Agreement. The Partnership Agreement generally provides that CCC shall at all times maintain at least a 1% interest in each item of income or loss, including the gain arising from the sale of containers. The Partnership Agreement further provides that the gain arising from the sale of containers be allocated first to the partners with capital account deficit balances in an amount sufficient to eliminate any deficit capital account balance. Thereafter, the Partnership’s gains arising from the sale of containers are allocated to the partners in accordance with their share of sale proceeds distributed. The Partnership Agreement also provides for income (excluding the gain arising from the sale of containers) for any period be allocated to CCC in an amount equal to that portion of CCC’s distributions in excess of 1% of the total distributions made to both CCC and the limited partners of the Partnership for such period, as well as other allocation adjustments.

			Actual cash distributions differ from the allocations of net income or loss between the general and limited partners as presented in these financial statements. Partnership distributions are paid to its partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to CCC. Distributions of sales proceeds are allocated 99% to the limited partners and 1% to CCC. The allocations remain in effect until such time as the limited partners have received from the Partnership aggregate distributions in an amount equal to their capital contributions plus an 8% cumulative, compounded (daily), annual return on their adjusted capital contributions. Thereafter, all Partnership distributions will be allocated 85% to the limited partners and 15% to CCC. Cash distributions from operations to CCC in excess of 5% of distributable cash will be considered an incentive fee and will be recorded as compensation to CCC, with the remaining distributions from operations charged to partners’ capital.

			Upon dissolution, the assets of the Partnership will be sold and the proceeds thereof distributed as follows: (i) all of the Partnership’s debts and liabilities to person other than CCC or the limited partners shall be paid and discharged; (ii) all of the Partnership’s debts and liabilities to CCC and the limited partners shall be paid and discharged; and (iii) the balance of such proceeds shall be distributed to CCC and the limited partners in accordance with the positive capital account balances of CCC and the limited partners. CCC shall contribute to the Partnership an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess of the Limited Partners’ capital contribution to the Partnership over the capital contributions previously made to the Partnership by CCC after giving effect to the allocation of income or loss arising from the liquidation of the Partnership’s assets.

	(g)		Financial Statement Presentation

			These financial statements have been prepared without audit pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements be read in conjunction with the financial statements and accompanying notes in the Partnership’s December 31, 2005 Annual Report on Form 10-K.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

	(g)		Financial Statement Presentation (continued)

			The interim financial statements presented herewith reflect, in the opinion of management, all adjustments of a normal recurring necessary to present fairly the results for the interim periods presented. The results of operations for such interim periods are not necessarily indicative of the results to be expected for the full year.

(2)		Net Lease and Other Receivables Due from Leasing Company

		Net lease and other receivables due from the Leasing Company are determined by deducting direct operating payables and accrued expenses, base management fees payable, and reimbursed administrative expenses payable to CCC and its affiliates from the rental billings earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership, as well as proceeds earned from container disposals. Net lease and other receivables at September 30, 2006 and December 31, 2005 were as follows:


	September 30,		December 31,
	2006		2005
Gross lease and other receivables	$	737,045	$	809,608
Less:
Direct operating payables and accrued expenses		274,955		268,591
Damage protection reserve		10,953		81,367
Base management fees payable		4,297		4,212
Reimbursed administrative expenses		11,944		16,585
Allowance for doubtful accounts		88,604		78,626

		390,753		449,381

Net lease and other receivables	$	346,292	$	360,227

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

(3)		Net Lease Revenue

		Net lease revenue is determined by deducting direct operating expenses, base management fees and reimbursed administrative expenses to CCC and its affiliates from the rental revenue earned by the Leasing Company under operating leases to ocean carriers for the containers owned by the Partnership. Net lease revenue for the three and nine-month periods ended September 30, 2006 and 2005 was as follows:


	Three Months Ended				Nine Months Ended
	September		September		September		September
	30,		30,		30,		30,
	2006		2005		2006		2005
Rental revenue	$	839,635	$	972,640	$	2,589,950	$	2,959,458
Less:
Rental equipment operating expenses		126,624		157,543		534,068		485,886
Base management fees		58,418		66,810		178,605		203,338
Reimbursed administrative expenses
Salaries		27,360		34,202		95,732		112,137
Other payroll related expenses		1,886		3,087		11,858		15,084
General and administrative expenses		7,803		8,520		25,002		27,941

Total reimbursed administrative expenses		37,049		45,809		132,592		155,162

		222,091		270,162		845,265		844,386

Net lease revenue	$	617,544	$	702,478	$	1,744,685	$	2,115,072

(4)		Operating Segment

		An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and assess its performance, and about which separate financial information is available. Management operates the Partnership’s container fleet as a homogenous unit and have, therefore, determined that the Partnership has a single reportable operating segment.

		The Partnership derives revenues from dry cargo, refrigerated and tank containers used by its customers in global trade routes. As of September 30, 2006, the Partnership operated 3,681 twenty-foot, 1,194 forty-foot and 1,667 forty-foot high-cube marine dry cargo containers, as well as 82 twenty-foot and 238 forty-foot high-cube refrigerated containers, and 52 twenty-four thousand-liter tanks. A summary of gross lease revenue earned by the Leasing Company, on behalf of the Partnership, by product, for the three and nine-month periods ended September 30, 2006 and 2005 follows:


	Three Months Ended				Nine Months Ended
	September		September		September		September
	30,		30,		30,		30,
	2006		2005		2006		2005
Dry cargo containers	$	556,507	$	675,006	$	1,726,180	$	2,032,805
Refrigerated containers		244,704		260,054		746,852		807,689
Tank containers		38,424		37,580		116,918		118,964


Total	$	839,635	$	972,640	$	2,589,950	$	2,959,458

Due to the Partnership’s lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, the Partnership believes that it does not possess discernible geographic reporting segments as defined in SFAS No. 131 (“SFAS 131”), “Disclosures about Segments of an Enterprise and Related Information.”

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

The following discussion of the Partnership’s financial condition and results of operations should be read in conjunction with the Partnership’s December 31, 2005 Annual Report on Form 10-K and the financial statements and the notes thereto appearing elsewhere in this report.

Market Overview

The Partnership’s container fleet continued to experience robust utilization levels during the third quarter of 2006, reflecting the shipping lines’ strategy to lease containers and reduce their rate of off-hiring containers from existing leases. Container lessors, as well as the shipping lines, have made modest levels of new container investment during the first nine months of 2006, reducing the available surplus of containers in key demand areas. Faced with possible shortages of containers, shipping lines have employed various strategies resulting in the best possible use of their owned and leased containers, including repositioning leased containers back into locations where their requirement is strongest, as opposed to off-hiring containers upon reaching a particular port destination. Traffic volumes on many of the world’s key trade lanes continue to exceed industry analysts’ original forecasts. However, the Partnership’s primary lessees, the shipping lines, have experienced significant decline in profits during 2006, as their financial performance has been impacted by the additional cargo capacity created by the delivery of new containerships, and a corresponding decline in freight rates. Additionally, higher fuel costs and interest rates have also contributed to lower profits for the shipping lines. Certain economic trends that continued throughout the third quarter of 2006, including higher energy costs, coupled with rising interest rates and higher consumer prices in the US and other countries, support a slowing in the growth of the global economy.

In future periods, economic growth and global container trade are expected to have less of an impact on the Partnership’s operations when compared to the effects of CCC’s efforts to retire the remaining equipment in the Partnership’s container fleet. One of the Partnership’s original investment objectives was to realize the residual value of its containers after the expiration of their useful lives, estimated to be between 12 to 15 years after placement in leased service.

Utilization of the Partnership’s dry cargo container fleet averaged 91% and 89% for the three and nine-month periods ended September 30, 2006, respectively. In comparison, dry cargo container utilization rates measured 93% for the three and nine-month periods ended September 30, 2005. The utilization rate for the Partnership’s refrigerated container fleet measured 87% and 86% for the three and nine-month periods ended September 30, 2006, respectively. In comparison, refrigerated container utilization rates for the three and nine-month periods ended September 30, 2005 averaged 89% and 88%, respectively. The utilization rates for the Partnership’s tank container fleet measured 92% and 90% for the three and nine-month periods ended September 30, 2006, respectively. In comparison, tank container utilization rates for the three and nine-month periods ended September 30, 2005 averaged 94% and 91%, respectively. During the same three and nine-month periods ended September 30, 2005, the container leasing industry was benefiting from one of the most favorable periods in its 35-year-plus history, generally resulting in higher levels of demands for existing containers and lower levels of off-hire container inventories than during the same periods in 2006.

During the third quarter of 2006, the secondary market demand for used containers remained favorable. Higher utilization levels contributed to a reduction in container inventories, resulting in a decrease in the volume of containers available for sale and a slight increase in container sale prices. Changes in future inventory levels, as well as significant fluctuations in new container prices, could adversely affect sales proceeds realized on the sale of the Partnership’s remaining containers. The sale of the Partnership’s off-hire containers, in accordance with one of its aforementioned original investment objectives, has positively affected the Partnership’s results from operations, contributing to high utilization levels in recent periods, minimizing storage and other inventory-related costs incurred for its off-hire containers, as well as realizing gains from the sale of its containers.

Since December 31, 2005, the price of a new 20-foot dry cargo container increased from approximately $1,500 to approximately $2,000 by the end of July 2006, then declined to approximately $1,850 by the end of September 2006. The volatility of new container prices is a result of fluctuating demand and the price of raw materials used in the production of containers. Most leasing companies reduced their dry cargo container purchasing during the last half of 2005, took delivery of virtually no additional dry cargo containers during the fourth quarter of 2005, and continued to curtail their investment in new containers during the first nine months of 2006, citing demand uncertainties and anticipating a further decline in new container prices by the end of the year. Shipping lines also curtailed their investment in new containers during 2006 for these same

reasons, as well as the limitations created by their decline in profits. Many container manufacturing plants are reported to be operating at below capacity, which may result in container manufacturers offering additional incentives, contributing to further reductions in new container prices. Although the Partnership no longer purchases new containers, new container production and the price of new containers indirectly contributed to the Partnership’s results of operations by influencing the available surplus of containers and utilization, the level of lease per-diems for existing older containers, as well as container sale prices realized upon their eventual disposal.

The average per-diem rate for the Partnership’s dry cargo containers decreased approximately 8% and 7% for the three and nine-month periods ending September 30, 2006, respectively, when compared to the same periods in the prior year. The average per-diem rate for the Partnership’s refrigerated cargo containers during the three and nine-month periods ending September 30, 2006 decreased approximately 19% and 7%, respectively, when compared to the same periods in the prior year. The average per-diem rate for the Partnership’s tank cargo containers remained consistent during the three-month periods ended September 30, 2006 and 2005 and decreased approximately 2% when compared to the same nine-month period in the prior year. The lease market for the Partnership’s older containers remains competitive and, therefore, will be subject to significant pricing pressures in subsequent periods.

A significant number of new containerships built under various shipbuilding programs have been delivered during 2006, and by the end of 2006 an additional 1.85 million TEU (twenty-foot equivalent unit) slot capacity is expected to be added, an increase of approximately 55% from the prior year. The additional capacity has contributed to lower freight rates as shipping lines position themselves to ensure that they can fill their new capacity, resulting in reduced profitability for the shipping lines that, in turn, could have adverse implications for container leasing companies. Overcapacity and falling freight rates, combined with higher oil prices and interest rates, are contributing to a challenging outlook for the shipping industry through 2007. The Partnership, CCC and the Leasing Company continue to monitor the aging of lease receivables, collections and the credit exposure to various existing and new customers. The financial impact of losses from shipping lines may eventually influence the demand for leased containers, as some shipping lines may experience financial difficulties, consolidate, or become insolvent.

Results of Operations

Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer the business of the Partnership is vested in CCC. A Leasing Agent Agreement (“Agreement”) exists between the Partnership and the Leasing Company, whereby the Leasing Company has the responsibility to manage the leasing operations of all equipment owned by the Partnership. Pursuant to the Agreement, the Leasing Company is responsible for leasing, managing and re-leasing the Partnership’s containers to ocean carriers and has full discretion over which ocean carriers and suppliers of goods and services it may deal with. The Agreement permits the Leasing Company to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Company and its affiliates, as part of a single fleet operated without regard to ownership.

The primary component of the Partnership’s results of operations is net lease revenue. Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses from gross lease revenues billed by the Leasing Company from the leasing of the Partnership’s containers. Net lease revenue is directly related to the size, utilization and per-diem rental rates of the Partnership’s fleet. Direct operating expenses are direct costs associated with the Partnership’s containers. Direct operating expenses may be categorized as follows:

	•		Activity-related expenses, including agent and depot costs such as repairs, maintenance and handling.

	•		Inventory-related expenses for off-hire containers, comprising storage and repositioning costs. These costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered.

	•		Legal and other expenses, including legal costs related to the recovery of containers and doubtful accounts, insurance and provisions for doubtful accounts.

At September 30, 2006, approximately 84% of the original equipment remained in the Partnership’s fleet, as compared to approximately 89% at December 31, 2005. The following table summarizes the composition of the Partnership’s fleet (based on container type) at September 30, 2006.


	Dry Cargo						Refrigerated				Tank
	Containers						Containers				Containers
					40-Foot				40-Foot
	20-Foot		40-Foot		High-Cube		20-Foot		High-Cube		24,000-Liter
Containers on lease:
Master lease		2,659		708		1,109		45		131		29
Term lease
Short term¹		574		292		325		4		63		8
Long term²		225		52		49		—		22		12
Sales-type lease		—		2		4		3		1		—

Subtotal		3,458		1,054		1,487		52		217		49
Containers off lease		223		140		180		30		21		3

Total container fleet		3,681		1,194		1,667		82		238		52


1.		Short term leases represent term leases that are either scheduled for renegotiation or that may expire on or before September 2007.

2.		Long term leases represent term leases, the majority of which will expire between October 2007 and December 2010.


	Dry Cargo															Refrigerated										Tank
	Containers															Containers										Containers
											40-Foot
	20-Foot					40-Foot					High-Cube					20-Foot					40-Foot					24,000-Liter
	Units		%			Units		%			Units		%			Units		%			Units		%			Units		%
Total purchases		4,553		100	%		1,500		100	%		1,750		100	%		90		100	%		300		100	%		52		100	%
Less disposals		872		19	%		306		20	%		83		5	%		8		9	%		62		21	%		—		—

Remaining fleet at September 30, 2006		3,681		81	%		1,194		80	%		1,667		95	%		82		91	%		238		79	%		52		100	%

Three Months Ended September 30, 2006 Compared to the Three Months Ended September 30, 2005

Net lease revenue was $617,544 for the three months ended September 30, 2006 compared to $702,478 for the same period in the prior year. The decline was primarily due to a $133,005 decline in gross rental revenue (a component of net lease revenue). Gross lease revenue was impacted by the Partnership’s smaller fleet size and an 8% decline in the average dry cargo per-diem rental rate. This decline in gross lease revenue was partially offset by a reduction in rental equipment operating expenses (a component of net lease revenue) of $30,919. The decline was attributable to the Partnership’s declining fleet size and a reduction in both activity related and inventory related expenses associated with current levels of utilization. The Partnership’s average fleet size and utilization rates for the three-month periods ended September 30, 2006 and 2005 were as follows:


	Three Months Ended
	September 30,			September 30,
	2006			2005
Fleet size (measured in twenty-foot equivalent units (TEU))
Dry cargo containers		9,474			10,275
Refrigerated containers		590			675
Tank containers		52			52

Average utilization rates
Dry cargo containers		91	%		93	%
Refrigerated containers		87	%		89	%
Tank containers		92	%		94	%

Other components of net lease revenue, including management fees and reimbursed administrative expenses, were lowered by a combined $17,152 when compared to the same period in 2005 due to the declining fleet size and lower operating performance.

Depreciation expense of $418,284 for the three months ended September 30, 2006 declined by $37,712 when compared to the corresponding period in 2005, a direct result of the Partnership’s declining fleet size.

Other general and administrative expenses amounted to $25,595 for the three-month period ended September 30, 2006, an increase of $6,045 or 31% when compared to the same period in 2005, primarily a result of higher professional fees for audit service.

Net loss on disposal of equipment for the three months ended September 30, 2006 was $112,636, compared to a net loss of $24,600 for the corresponding period in 2005. The Partnership disposed of 145 containers, compared to 150 containers during the same three-month period in 2005. The net loss on container disposals in the three-month period ended September 30, 2006 was a result of various factors, including the proceeds realized from the container disposal, age, condition, suitability for continued leasing, as well as the geographical location of the containers when disposed. These factors will continue to influence the amount of sales proceeds received and the related gain or loss on container disposals.

The level of the Partnership’s container disposals in subsequent periods, as well as the price of steel, new container prices and the current leasing market’s impact on sales prices for existing older containers such as those owned by the Partnership, will also contribute to fluctuations in the net gain or loss on disposals. There were no reductions to the carrying value of container rental equipment due to impairment during the three-month periods ended September 30, 2006 and 2005.

Nine Months Ended September 30, 2006 Compared to the Nine Months Ended September 30, 2005

Net lease revenue was $1,744,685 for the nine months ended September 30, 2006 compared to $2,115,072 for the same period in the prior year. The decline was primarily due to a $369,508 decline in gross rental revenue (a component of net lease revenue). Gross lease revenue was impacted by the Partnership’s smaller fleet size, and a 7% decline in the average dry cargo per-diem rental rate. Also contributing to the decline in net lease revenue was an increase in rental equipment operating expenses (a component of net lease revenue) of $48,182, primarily attributable to repositioning costs incurred to move containers to high demand locations.

The Partnership’s average fleet size and utilization rates for the nine-month periods ended September 30, 2006 and 2005 were as follows:


	Nine Months Ended
	September 30,			September 30,
	2006			2005
Fleet size (measured in twenty-foot equivalent units (TEU))
Dry cargo containers		9,644			10,483
Refrigerated containers		633			677
Tank containers		52			52

Average utilization rates
Dry cargo containers		89	%		93	%
Refrigerated containers		86	%		88	%
Tank containers		90	%		91	%

Other components of net lease revenue, including management fees and reimbursed administrative expenses, were lower by a combined $47,303 when compared to the same period in 2005 due to the declining fleet size and lower operating performance.

Depreciation expense of $1,295,951 for the nine months ended September 30, 2006 declined by $96,674 when compared to the corresponding period in 2005, a direct result of the Partnership’s declining fleet size.

Other general and administrative expenses amounted to $81,145 for the nine-month period ended September 30, 2006, an increase of $20,341 or 34% when compared to the same period in 2005, primarily a result of higher professional fees for audit service.

Impairment charge of $37,972 was incurred by the Partnership during the second quarter of 2005, relating to 111 off-hire forty-foot dry cargo containers located in North America (the “North American Dry Containers”). There were no reductions to the carrying value of container rental equipment due to impairment during the nine-month period ended September 30, 2006. The impairment charge was a result of a number of factors identified by CCC and the Leasing Company that impacted the carrying value of the North American Dry Containers:

	•		The age of the North American Dry Containers;

	•		The lack of demand for the North American Dry Containers;

	•		The cost to reposition the North American Dry Containers to high demand markets; and

	•		The strong North American container sale market.

CCC and the Leasing Company considered the impact of these factors, and determined a change regarding the current marketing strategy for the containers was required. CCC and the Leasing Company concluded that effective September 1, 2005, the 111 North American Dry Containers would be targeted for immediate sale. It was concluded that the carrying value of these containers, $193,372, exceeded fair value and accordingly, an impairment charge of $37,972, or approximately $0.02 per limited partnership unit, was recorded to operations under impairment losses during 2005. Fair value was determined by estimating the expected amount to be received at the time of sale. The expected sales price was estimated by evaluating the current sales price of similar containers. During 2005 and 2006, the Partnership sold 64 of the 404 North American dry containers originally targeted for sale. The Partnership recognized a gain of $9,449 on the sale of these containers. At September 30, 2006, 47 of the original 111 North American Containers remain in the Partnership’s fleet awaiting disposal.

Net loss on disposal of equipment for the nine months ended September 30, 2006 was $247,079, as compared to a net gain of $38,929 for the corresponding period in 2005. The Partnership disposed of 466 containers, as compared to 341 containers during the same nine-month period in 2005. Included within the 466 containers disposed during the nine months of 2006 were four North American Dry Containers impaired and targeted for sale as of September 1, 2005. A gain of $370 was attributable to the sale of these four containers. The net loss on container disposals in the nine-month period ended September 30, 2006 was a result of various factors, including the proceeds realized from the container disposal, age, condition, suitability for continued leasing, as well as the geographical location of the containers when disposed.

The level of the Partnership’s container disposals in subsequent periods, the price of steel, new container prices and the current leasing market’s impact on sales prices for existing older containers such as those owned by the Partnership, will also contribute to fluctuations in the net gain or loss on disposals.

Liquidity and Capital Resources

During the Partnership’s first 10 years of operations, the Partnership’s primary objective is to generate cash flow from operations for distribution to its limited partners. Aside from the initial working capital reserve retained from gross subscription proceeds (equal to approximately 1% of such proceeds), the Partnership relies primarily on container rental receipts to meet this objective, as well as to finance current operating needs. No credit lines are maintained to finance working capital. The Partnership has commenced its 11th year of operations and has entered its liquidation phase, wherein CCC began focusing its attention on the retirement of the remaining equipment on the Partnership’s fleet in accordance with another of its original investment objectives, realizing the residual value of its containers after the expiration of their economic useful lives, estimated to be between 12 to 15 years after placement in leased service.

At September 30, 2006, approximately 84% of the original equipment remained in the Partnership’s fleet. The Partnership has been actively disposing of its fleet, with cash proceeds from equipment disposals, in addition to cash from operations, providing the cash flow for distributions to its limited partners. CCC takes several factors into consideration when examining options for the timing of the disposal of the containers. These factors include the impact of a diminishing fleet size and current market conditions on the level of gross lease revenue, and fixed operating costs relative to this revenue. Parallel to these considerations is a projected increase in expenses for devoting significant resources to the additional reporting and compliance requirements of Section 404 of the Sarbanes Oxley Act of 2002, which addresses a range of corporate governance, disclosure, and accounting issues. These costs may include increased accounting and administrative expenses for additional staffing and

outside professional services by accountants and consultants. These additional costs, depending on their materiality, may reduce the Partnership’s results from operations and therefore negatively affect future distributions to the Limited Partners. Upon the liquidation of CCC’s interest in the Partnership, CCC shall contribute to the Partnership, if necessary, an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess of the Limited Partners’ capital contribution to the Partnership over the capital contributions previously made to the Partnership by CCC, after giving effect to the allocation of income or loss arising from the liquidation of the Partnership’s assets.

Distributions are paid monthly, based primarily on each quarter’s cash flow from operations. Monthly distributions are also affected by periodic increases or decreases to working capital reserves, as deemed appropriate by CCC, the general partner. Cash distributions from operations are allocated 5% to CCC and 95% to the limited partners. Distribution of sales proceeds are allocated 1% to CCC and 99% to the limited partners. This sharing arrangement will remain in place until the limited partners have received aggregate distributions in an amount equal to their capital contributions, plus an 8% cumulative, compounded (daily) annual return on their adjusted capital contributions. Thereafter, all distributions will be allocated 15% to CCC and 85% to the limited partners, pursuant to Section 6.1(b) of the partnership agreement. Cash distributions from operations in excess of 5% of distributable cash will be considered an incentive fee and compensation to CCC.

At September 30, 2006, the Partnership had $1,022,412 in cash and cash equivalents, a decrease of $25,850 from the cash balances at December 31, 2005. The Partnership invests its working capital, as well as cash flows from operations and the sale of containers that have not yet been distributed to CCC or its limited partners, in money market funds.

Cash from Operating Activities: Net cash provided by operating activities, primarily generated from the billing and collection of net lease revenue, was $1,682,479 during the nine months ended September 30, 2006, compared to $1,946,208 provided by operating activities for the same nine-month period in 2005.

Cash from Investing Activities: Net cash provided by investing activities was $905,557 during the nine months ended September 30, 2006, compared to $442,726 in the corresponding period of 2005. These amounts represent sales proceeds generated from the sale of container equipment and payment received on the sales-type lease for the sale of rental equipment.

Cash from Financing Activities: Net cash used in financing activities was $2,613,886 during the nine months ended September 30, 2006 compared to $2,093,485 during the nine months ended September 30, 2005. These amounts represent distributions to the Partnership’s general and limited partners. The Partnership’s continuing container disposals should produce lower operating results, and consequently, lower distributions to its partners in subsequent periods.

Critical Accounting Policies

The Partnership’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The Partnership has identified three policies as being significant because they require the Partnership to make subjective and/or complex judgments about matters that are inherently uncertain. These policies include the following:

	•		Container equipment – depreciable lives

	•		Container equipment – valuation

	•		Allowance for doubtful accounts

The Partnership, in consultation with its audit committee, has reviewed and approved these significant accounting policies which are further described in the Partnership’s 2005 Annual Report on Form 10-K.

Inflation

The Partnership believes inflation has not had a material adverse effect on the results of its operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Exchange rate risk: Substantially all of the Partnership’s revenues are billed and paid in US dollars and a significant portion of costs are billed and paid in US dollars. The Leasing Company believes that the proportion of US dollar revenues may decrease in future years, reflecting a more diversified customer base and lease portfolio. Of the non-US dollar direct operating expenses, the majority are individually small, unpredictable and incurred in various denominations. Thus, the Leasing Company determined such amounts are not suitable for cost effective hedging. As exchange rates are outside of the control of the Partnership and Leasing Company, there can be no assurance that such fluctuations will not adversely affect the Partnership’s results of operations and financial condition.

Item 4. Controls and Procedures

The principal executive and principal financial officers of CCC have evaluated the disclosure controls and procedures of the Partnership as of the end of the period covered by this quarterly 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 (“Exchange Act”), and includes the controls and other procedures of the Partnership that are designed to ensure that information required to be disclosed by the Partnership 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 principal financial officers of CCC have concluded that the Partnership’s disclosure controls and procedures were effective such that the information required to be disclosed by the Partnership in this quarterly 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 CCC’s management, including CCC’s principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosures.

There has been no change in the Partnership’s internal control over financial reporting (as defined in Rule 13a-15(f)) that occurred during the fiscal quarter ended September 30, 2006, that has materially affected, or is reasonably likely to materially affect, the Partnership’s internal control over financial reporting.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

Not applicable.

Item 1A. Risk Factors

There are no material changes to the risk factors as previously disclosed in the Partnership’s December 31, 2005 Form 10-K in response to Item 1A to Part I of Form 10-K.. Readers are encouraged to review these risk factors.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

Not applicable.

Item 3. Defaults Upon Senior Securities

Not applicable.

Item 4. Submissions of Matters to a Vote of Securities Holders

Not applicable.

Item 5. Other Information

Not applicable.

Item 6. Exhibits

(a) Exhibits


Exhibit
No.	Description	Method of Filing
3(a)	Limited Partnership Agreement, amended and restated as of December 28, 1995	*

3(b)	Certificate of Limited Partnership	**

10	Form of Leasing Agent Agreement with Cronos Containers Limited	***

31.1	Rule 13a-14 Certification	Filed with this document

31.2	Rule 13a-14 Certification	Filed with this document

32	Section 1350 Certification	Filed with this document ****


*		Incorporated by reference to Exhibit “A” to the Prospectus of the Partnership dated December 28, 1995, included as part of Registration Statement on Form S-1 (No. 33-98290)

**		Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-98290)

***		Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-98290)

****		This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not to be deemed “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.

EXHIBIT INDEX


Exhibit
No.	Description	Method of Filing

3(a)	Limited Partnership Agreement, amended and restated as of December 28, 1995	*

3(b)	Certificate of Limited Partnership	**

10	Form of Leasing Agent Agreement with Cronos Containers Limited	***

31.1	Rule 13a-14 Certification	Filed with this document

31.2	Rule 13a-14 Certification	Filed with this document

32	Section 1350 Certification	Filed with this document ****


*		Incorporated by reference to Exhibit “A” to the Prospectus of the Partnership dated December 28, 1995, included as part of Registration Statement on Form S-1 (No. 33-98290)

**		Incorporated by reference to Exhibit 3.2 to the Registration Statement on Form S-1 (No. 33-98290)

***		Incorporated by reference to Exhibit 10.2 to the Registration Statement on Form S-1 (No. 33-98290)

****		This certification, required by Section 906 of the Sarbanes-Oxley Act of 2002, other than as required by Section 906, is not deemed to be “filed” with the Commission or subject to the rules and regulations promulgated by the Commission under the Securities Exchange Act of 1934, as amended, or to the liabilities of Section 18 of said Act.


	September 30,			December 31,
	2006			2005
Assets

Current assets:
Cash and cash equivalents, includes $1,077,412 at September 30, 2006 and $1,033,262 at December 31, 2005 in interest-bearing accounts	$	1,022,412		$	1,048,262
Net lease and other receivables due from Leasing Company		346,292			360,227


Total current assets		1,368,704			1,408,489


Container rental equipment, at cost		26,767,597			29,463,629
Less accumulated depreciation		(15,392,389	)		(15,671,131	)

Net container rental equipment		11,375,208			13,792,498


Container equipment held for sale		65,800			71,400


Total assets	$	12,809,712		$	15,272,387


Partners’ capital

Partners’ capital (deficit):
General partner	$	(31,054	)	$	(5,678	)
Limited partners		12,840,766			15,278,065


Total partners’ capital	$	12,809,712		$	15,272,387


	Nine Months Ended
	September 30,			September 30,
	2006			2005
Net cash provided by operating activities	$	1,682,479		$	1,946,208

Cash flows provided by investing activities:
Proceeds from sale of container rental equipment		905,557			442,726

Cash flows used in financing activities:
Distributions to general partner		(101,075	)		(93,904	)
Distributions to limited partners		(2,512,811	)		(1,999,581	)

Net cash used in financing activities		(2,613,886	)		(2,093,485	)


Net (decrease) increase in cash and cash equivalents		(25,850	)		295,449


Cash and cash equivalents at the beginning of the period		1,048,262			448,065


Cash and cash equivalents at the end of the period	$	1,022,412		$	743,514


		CRONOS GLOBAL INCOME FUND XVI, L.P.

		By		Cronos Capital Corp.
				The General Partner

		By		/s/ Dennis J. Tietz

				Dennis J. Tietz
				President and Director of
				Cronos Capital Corp. (“CCC”)
				Principal Executive Officer of CCC

		By		/s/ John Kallas

				John Kallas
				Chief Financial Officer and
				Director of Cronos Capital Corp. (“CCC”)
				Principal Financial and Accounting Officer of CCC


		By		/s/ Dennis J. Tietz

				Dennis J. Tietz, President and Chief Executive Officer of Cronos Capital Corp.,
				General Partner of the Partnership

				/s/ John Kallas

				John Kallas, Chief Financial Officer of Cronos
				Capital Corp., General Partner of the Partnership

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	PAGE

PART I — FINANCIAL INFORMATION		3

Item 1. Financial Statements		3

Condensed Balance Sheets – September 30, 2006 and December 31, 2005 (unaudited)		4

Condensed Statements of Operations for the three and nine months ended September 30, 2006 and 2005 (unaudited)		5

Condensed Statements of Cash Flows for the nine months ended September 30, 2006 and 2005 (unaudited)		6

Notes to Condensed Financial Statements (unaudited)		7

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations		13

Item 3. Quantitative and Qualitative Disclosures About Market Risk		19

Item 4. Controls and Procedures		19

PART II — OTHER INFORMATION		20

Item 1. Legal Proceedings		20

Item 1A. Risk Factors		20

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds		20

Item 3. Defaults Upon Senior Securities		20

Item 4. Submissions of Matters to a Vote of Securities Holders		20

Item 5. Other Information		20

Item 6. Exhibits		20
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32

	(i)		The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

	(ii)		The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Partnership.