##### 



Exhibit 2

CP Ships Limited

Managements responsibility for financial reporting

The information in this Annual Report is the responsibility of management
and has been reviewed and approved by the Board of Directors. The consolidated
financial statements have been prepared by management in accordance with
Canadian generally accepted accounting principles and include amounts based on
managements best estimates and careful judgement.

Management maintains a system of internal accounting controls to provide
reasonable assurance that assets are safeguarded and that transactions are
authorized, recorded and reported properly. The internal audit department
reviews these accounting controls on an ongoing basis and reports its findings
and recommendations to management and to the Audit Committee of the Board of
Directors.

The Board of Directors carries out its responsibility for the consolidated
financial statements principally through its Audit Committee, consisting of all
of the non-executive directors. This Committee reviews the consolidated
financial statements with management and the independent auditors prior to
submission to the Board for approval. It also reviews the recommendations of
both the independent and internal auditors for improvements to internal
controls as well as the actions of management to implement such
recommendations.

|                                                                        |  |                                      
|----------------------------------------------------------------------- |  | -------------------------------------
|Raymond R. Miles
Chief Executive Officer                                |  | Ian J. Webber
Chief Financial Officer
|                                                                       
|27th February 2002 except
as to note 22(k) which
is as of 28th May 2002 |  |                                      

i



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##### 



CP Ships Limited

Auditors report

To the shareholders of CP Ships Limited

We have audited the consolidated balance sheets of CP Ships Limited as at
31st December 2001, 2000 and 1999 and the consolidated statements of income,
retained earnings and cash flow for each of the three years then ended. These
consolidated financial statements are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial
statements based on our audits.

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

In our opinion, these consolidated financial statements present fairly, in
all material respects, the financial position of the Company as at 31st
December 2001, 2000 and 1999 and the results of its operations, changes in its
financial position and its cash flow for each of the three years then ended in
accordance with Canadian generally accepted accounting principles.

PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario, Canada

27th February 2002 except
as to note 22(k) which
is as of 28th May 2002

Notice to US readers

In the United States of America, reporting standards for auditors require
the addition of an explanatory paragraph (following the opinion paragraph) when
there are changes, such as the changes described in notes 2 and 22(k) to the
financial statements, that have a material effect on the comparability of the
amounts disclosed in the Companys financial statements. Our report to the
shareholders dated 27th February 2002 and 28th May 2002 is expressed in
accordance with Canadian reporting standards which does not require a reference
in the auditors report to such changes when the change is properly accounted
for and adequately disclosed in the financial statements.

PricewaterhouseCoopers LLP
Chartered Accountants
Toronto, Ontario, Canada

27th February 2002, except
as to note 22(k) which
is as of 28th May 2002

ii



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##### 



CP Ships Limited

Consolidated Statements of Income
(US$ millions except per share amounts)

|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|---------------------------------------------------------------- |  | ------------------------ | ----- | ---- |  | ---- | ----- | - |  | - | ----- | -
|                                                                 |  | Year ended 31st December
|                                                                 |  |                         
|                                                                 |  | 2001                     |       | 2000 |  | 1999
|                                                                 |  |                          |       |      |  |     
|Revenues                                                         |  |                          |       |      |  |      |       |   |  |   |       |  
|Container shipping operations                                    |  |                          | 2,646 |      |  |      | 2,645 |   |  |   | 1,878 |  
|Expenses                                                         |  |                          |       |      |  |      |       |   |  |   |       |  
|Container shipping operations                                    |  |                          | 2,068 |      |  |      | 2,037 |   |  |   | 1,458 |  
|General and administrative                                       |  |                          | 363   |      |  |      | 381   |   |  |   | 281   |  
|Depreciation                                                     |  |                          | 74    |      |  |      | 60    |   |  |   | 47    |  
|Currency exchange loss                                           |  |                          | 2     |      |  |      | 5     |   |  |   | 4     |  
|Gain on disposal of capital assets                               |  |                          |      |      |  |      | (2    | ) |  |   | (1    | )
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|                                                                 |  |                          | 2,507 |      |  |      | 2,481 |   |  |   | 1,789 |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Operating income before exceptional charges                      |  |                          | 139   |      |  |      | 164   |   |  |   | 89    |  
|Spin-off related items (note 3)                                  |  |                          | (17   | )    |  |      |      |   |  |   |      |  
|Unusual charges (note 3)                                         |  |                          | (19   | )    |  |      |      |   |  |   |      |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Operating income                                                 |  |                          | 103   |      |  |      | 164   |   |  |   | 89    |  
|Interest income/(expense), net (note 4)                          |  |                          |      |      |  |      | 1     |   |  |   | (4    | )
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Income before income tax                                         |  |                          | 103   |      |  |      | 165   |   |  |   | 85    |  
|Income tax expense (note 5)                                      |  |                          | (12   | )    |  |      | (12   | ) |  |   | (11   | )
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Income before goodwill charges and minority interest             |  |                          | 91    |      |  |      | 153   |   |  |   | 74    |  
|Minority interest                                                |  |                          | 1     |      |  |      |      |   |  |   | 1     |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Income before goodwill charges                                   |  |                          | 92    |      |  |      | 153   |   |  |   | 75    |  
|Goodwill charges, net of tax ($0)                                |  |                          | (16   | )    |  |      | (18   | ) |  |   | (15   | )
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Net income                                                       |  |                          | 76    |      |  |      | 135   |   |  |   | 60    |  
|Dividends on preference shares                                   |  |                          | (3    | )    |  |      | (2    | ) |  |   |      |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Net income available to common shareholders                      |  | $                        | 73    |      |  | $    | 133   |   |  | $ | 60    |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Average number of common shares outstanding (millions) (note 15) |  |                          | 79.3  |      |  |      | 79.1  |   |  |   | 79.1  |  
|Earnings per common share basic (note 15)                        |  | $                        | 0.92  |      |  | $    | 1.68  |   |  | $ | 0.76  |  
|Earnings per common share diluted (note 15)                      |  | $                        | 0.91  |      |  | $    | 1.68  |   |  | $ | 0.76  |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Consolidated
Statements of Retained Earnings                     |  |                          |       |      |  |      |       |   |  |   |       |  
|Balance, 1st January (restated, note 2 (f))                      |  |                          | 443   |      |  |      | 310   |   |  |   | 250   |  
|Net income                                                       |  |                          | 76    |      |  |      | 135   |   |  |   | 60    |  
|Dividends on preference shares                                   |  |                          | (3    | )    |  |      | (2    | ) |  |   |      |  
|Dividends on common shares                                       |  |                          | (3    | )    |  |      |      |   |  |   |      |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  
|Balance, 31st December                                           |  | $                        | 513   |      |  | $    | 443   |   |  | $ | 310   |  
|                                                                 |  |                          |       |      |  |      |       |   |  |   |       |  

1



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##### 



CP Ships Limited

Consolidated Balance Sheets
(US$ millions)

|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |     | 
|-------------------------------------------------------------------- | --------------------------- | - | ------------------- | --- | ---- | - | ----- | --- |  | - | ----- | --- | 
|                                                                     |                             |   | As at 31st December
|                                                                     |                             |   |                    
|                                                                     |                             |   | 2001                |     | 2000 |   | 1999 
|                                                                     |                             |   |                     |     |      |   |      
|ASSETS                                                               |                             |   |                     |     |      |   |       |     |  |   |       |    
|Current assets                                                       |                             |   |                     |     |      |   |       |     |  |   |       |    
|Cash and cash equivalents                                            |                             |   | 116                 |     |      |   | 122   |     |  |   | 61    |    
|Accounts receivable                                                  |                             |   | 366                 |     |      |   | 392   |     |  |   | 306   |    
|Prepaid expenses                                                     |                             |   | 38                  |     |      |   | 32    |     |  |   | 26    |    
|Loan to former affiliated company due within one year (note 7)       |                             |   |                    |     |      |   | 116   |     |  |   |      |    
|Inventory                                                            |                             |   | 12                  |     |      |   | 14    |     |  |   | 9     |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             |   | 532                 |     |      |   | 676   |     |  |   | 402   |    
|Capital assets (note 8)                                              |                             |   | 795                 |     |      |   | 536   |     |  |   | 355   |    
|Deferred charges (note 9)                                            |                             |   | 14                  |     |      |   |      |     |  |   |      |    
|Deposits on ships to be purchased                                    |                             |   |                    |     |      |   | 5     |     |  |   |      |    
|Goodwill                                                             |                             |   | 510                 |     |      |   | 531   |     |  |   | 461   |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             | $ | 1,851               |     |      | $ | 1,748 |     |  | $ | 1,218 |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|LIABILITIES                                                          |                             |   |                     |     |      |   |       |     |  |   |       |    
|Current liabilities                                                  |                             |   |                     |     |      |   |       |     |  |   |       |    
|Accounts payable and accrued liabilities:                            |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     | Former affiliated companies |   |                     |    |      |   |       | 15  |  |   |       | 25  | 
|                                                                     | Trade and other payables    |   |                     | 505 |      |   |       | 497 |  |   |       | 415 | 
|Loans from former affiliated companies due within one year
(note 10) |                             |   |                    |     |      |   | 86    |     |  |   | 73    |    
|Long-term debt within one year (note 11)                             |                             |   | 15                  |     |      |   | 11    |     |  |   | 14    |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             |   | 520                 |     |      |   | 609   |     |  |   | 527   |    
|Long-term liabilities                                                |                             |   |                     |     |      |   |       |     |  |   |       |    
|Long-term debt due after one year (note 11)                          |                             |   | 215                 |     |      |   | 21    |     |  |   | 30    |    
|Future income taxes (note 5)                                         |                             |   | 8                   |     |      |   | 10    |     |  |   | 7     |    
|Minority interests                                                   |                             |   | 8                   |     |      |   | 9     |     |  |   | 5     |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             |   | 231                 |     |      |   | 40    |     |  |   | 42    |    
|SHAREHOLDERS EQUITY                                                 |                             |   |                     |     |      |   |       |     |  |   |       |    
|Common share capital (note 12)                                       |                             |   | 597                 |     |      |   | 63    |     |  |   | 63    |    
|Preference share capital (note 12)                                   |                             |   |                    |     |      |   | 116   |     |  |   |      |    
|Contributed surplus (note 12)                                        |                             |   |                    |     |      |   | 485   |     |  |   | 282   |    
|Retained earnings                                                    |                             |   | 513                 |     |      |   | 443   |     |  |   | 310   |    
|Cumulative foreign currency translation adjustments                  |                             |   | (10                 | )   |      |   | (8    | )   |  |   | (6    | )  
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             |   | 1,100               |     |      |   | 1,099 |     |  |   | 649   |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|                                                                     |                             | $ | 1,851               |     |      | $ | 1,748 |     |  | $ | 1,218 |    
|                                                                     |                             |   |                     |     |      |   |       |     |  |   |       |    
|Contingent liabilities & commitments notes 17 & 18                   |                             |   |                     |     |      |   |       |     |  |   |       |    

2



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##### 



CP Ships Limited

Consolidated Statements of Cash Flow
(US$millions)

|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|--------------------------------------------------------- |  | ------------------------ | ---- | ---- |  | ---- | ---- | - |  | - | ---- | -
|                                                          |  | Year ended 31st December
|                                                          |  |                         
|                                                          |  | 2001                     |      | 2000 |  | 1999
|                                                          |  |                          |      |      |  |     
|Operating activities                                      |  |                          |      |      |  |      |      |   |  |   |      |  
|Net income                                                |  |                          | 76   |      |  |      | 135  |   |  |   | 60   |  
|Depreciation and goodwill charges                         |  |                          | 90   |      |  |      | 78   |   |  |   | 62   |  
|Unusual and spin-off related charges                      |  |                          | 36   |      |  |      |     |   |  |   |     |  
|Future income tax expense                                 |  |                          |     |      |  |      | 3    |   |  |   | 2    |  
|Gain on disposal of capital assets                        |  |                          |     |      |  |      | (2   | ) |  |   | (1   | )
|Other                                                     |  |                          | 1    |      |  |      | (3   | ) |  |   | (3   | )
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|                                                          |  |                          | 203  |      |  |      | 211  |   |  |   | 120  |  
|Decrease/(increase) in non-cash working capital (note 14) |  |                          | 7    |      |  |      | (37  | ) |  |   | (91  | )
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Cash from operations before unusual and spin-off payments |  |                          | 210  |      |  |      | 174  |   |  |   | 29   |  
|Unusual and spin-off payments                             |  |                          | (18  | )    |  |      |     |   |  |   |     |  
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Cash from operations                                      |  |                          | 192  |      |  |      | 174  |   |  |   | 29   |  
|Financing activities                                      |  |                          |      |      |  |      |      |   |  |   |      |  
|Contributed surplus                                       |  |                          | 2    |      |  |      | 203  |   |  |   | 52   |  
|Return of share capital                                   |  |                          | (14  | )    |  |      |     |   |  |   |     |  
|Issue of preferred shares                                 |  |                          |     |      |  |      | 116  |   |  |   |     |  
|Redemption of preferred shares                            |  |                          | (116 | )    |  |      |     |   |  |   |     |  
|Increase in long-term debt                                |  |                          | 160  |      |  |      | 2    |   |  |   | 2    |  
|Repayment of long-term debt                               |  |                          | (14  | )    |  |      | (14  | ) |  |   | (14  | )
|Deferred charges  finance costs                          |  |                          | (14  | )    |  |      |     |   |  |   |     |  
|Increase in loans from former affiliated companies        |  |                          | 88   |      |  |      | 38   |   |  |   | 37   |  
|Repayment of loans from former affiliated companies       |  |                          | (138 | )    |  |      | (37  | ) |  |   | (63  | )
|Preference dividends paid                                 |  |                          | (3   | )    |  |      | (2   | ) |  |   |     |  
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Cash (outflow)/inflow from financing activities           |  |                          | (49  | )    |  |      | 306  |   |  |   | 14   |  
|Investing activities                                      |  |                          |      |      |  |      |      |   |  |   |      |  
|Additions to capital assets                               |  |                          | (292 | )    |  |      | (307 | ) |  |   | (113 | )
|Deposits on ships to be purchased                         |  |                          |     |      |  |      | (5   | ) |  |   |     |  
|Acquisition of businesses                                 |  |                          |     |      |  |      | (61  | ) |  |   |     |  
|Proceeds from disposal of capital assets                  |  |                          | 15   |      |  |      | 70   |   |  |   | 5    |  
|Proceeds from disposal of investments                     |  |                          | 12   |      |  |      |     |   |  |   |     |  
|Increase in loans to former affiliated company            |  |                          |     |      |  |      | (116 | ) |  |   |     |  
|Repayment of loans to former affiliated company           |  |                          | 116  |      |  |      |     |   |  |   | 31   |  
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Cash (outflow) from investing activities                  |  |                          | (149 | )    |  |      | (419 | ) |  |   | (77  | )
|(Decrease)/increase in cash and cash equivalents*         |  |                          | (6   | )    |  |      | 61   |   |  |   | (34  | )
|Cash and cash equivalents at beginning of year            |  |                          | 122  |      |  |      | 61   |   |  |   | 95   |  
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Cash and cash equivalents at end of year                  |  | $                        | 116  |      |  | $    | 122  |   |  | $ | 61   |  
|                                                          |  |                          |      |      |  |      |      |   |  |   |      |  
|Additional information                                    |  |                          |      |      |  |      |      |   |  |   |      |  
|Taxes paid                                                |  | $                        | 12   |      |  | $    | 13   |   |  | $ | 9    |  
|Interest paid                                             |  | $                        | 7    |      |  | $    | 5    |   |  | $ | 7    |  

(*) Cash and cash equivalents comprises cash and temporary investments with a
maximum maturity of three months.

3



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##### 



CP Ships Limited

Notes to the Consolidated Financial Statements

(Unless otherwise indicated, all amounts are shown in US$ millions)

1. REORGANIZATION

Prior to 1st October 2001, CP Ships Holdings Inc (CPSHI) was the wholly
owned holding company of Canadian Pacific Limiteds (CPL) container shipping
interests. On 1st October 2001, as part of a Plan of Arrangement, CPL
distributed its interests in CPSHI to a newly created subsidiary company, CP
Ships Limited (CP Ships). CPL then distributed its investment in CP Ships to
its common shareholders on the basis of one new common share in CP Ships for
four old CPL common shares. Where appropriate, share numbers in the financial
statements reflect the effect of the share consolidation applied retroactively.
As both CPSHI and CP Ships were under the control of CPL at the time, the
transactions have been accounted for in a manner similar to a
pooling-of-interests and the historical financial information of CPSHI has
become the historical financial information of the now publicly held CP Ships.

In 2001, prior to the reorganization, CPSHI paid a return of capital to
CPL of $14 million and issued shares to CPL valued at $61 million as
consideration for the transfer of shipping related affiliates and other assets
from CPL to CP Ships.

To mark the companys spin-off from CPL, each employee (where legally
permitted) was awarded $1,000 worth of shares. A total of 398,026 shares were
issued from treasury for this Launch Award and no compensation expense was
recorded.

2. SIGNIFICANT ACCOUNTING POLICIES

These consolidated financial statements have been prepared in accordance
with Canadian generally accepted accounting principles (Canadian GAAP) which
differ in certain respects from United States generally accepted accounting
principles (US GAAP). A reconciliation of significant measurement differences
between Canadian and US GAAP has been included in note 22.

(a) Basis of consolidation

The consolidated financial statements include CP Ships and the operations
of all of its subsidiary companies from the date of acquisition until the date
of disposal.

CP Ships share of the results and net assets of 50% joint ventures is
proportionately consolidated in the consolidated statements of income, retained
earnings and cash flows and the consolidated balance sheets.

(b) Revenue and cost recognition

Revenue and costs directly attributable to loaded container movements are
recognized when delivery of the container is completed. Other revenue is
accounted for on completed service delivery and other costs are accounted for
when incurred.

(c) Use of estimates

The preparation of financial statements requires that management make
estimates in reporting the amounts of certain revenues and expenses for each
financial year and certain assets and liabilities at the end of each
financial year. Actual results may differ from these estimates.

4



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##### 



CP Ships Limited

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d) Income taxes

Effective 1st January 2000, CP Ships adopted, retroactively without
restating prior years, the new recommendations of The Canadian Institute of
Chartered Accountants (CICA) with respect to accounting for income taxes. The
new recommendations adopted the liability method for providing for income
taxes. Under this method, future tax assets and liabilities are recognized
based on differences between the basis of assets and liabilities used for
financial statement and income tax purposes, using substantively enacted tax
rates. The effect on 2000 earnings from adopting these changes was immaterial.

Previously, income taxes were provided for based on the deferral method.
Under this method, deferred income taxes are computed by applying current tax
rates to all significant timing differences between accounting and taxable
income. The resulting deferred income tax balances were not adjusted for
subsequent changes in tax rates.

(e) Earnings per common share

Basic earnings per common share are calculated using the weighted average
number of common shares outstanding in the year.

The dilutive effect of outstanding stock options is reflected in diluted
earnings per share by application of the treasury stock method, which assumes
proceeds received from the exercise of stock options are used to purchase
common shares at the average market price during the period. The resulting
incremental shares are included in the denominator of the diluted earnings per
share calculation.

(f) Capital assets

Capital assets are stated at cost less depreciation.

Depreciation on ships is calculated on a straight-line basis at rates to
reduce the book value of each ship to its estimated residual value by the end
of its estimated useful life in the companys business. The estimated useful
life of a ship is calculated as the remaining period of a 25 year life.

Major additions, replacements and capital improvements to ships are
depreciated over the estimated remaining useful life of the ship.

Dry-docking and special survey costs are deferred and amortized over the
dry docking cycle, typically between two to five years. Any unamortized cost is
written off on the disposal of the relevant ship. Prior to 1st January 2000,
dry docking costs were accounted for on an accrual basis. The financial
statements for 1999 were restated retrospectively to reflect the change in
accounting policy. The effect of this change was to increase net income by $6
million in the year ended 31st December 2000 and $2 million in the year ended
31st December 1999.

Containers are depreciated on a straight-line basis over 12 years to their
estimated residual values.

Furniture and equipment is fully depreciated on a straight-line basis over
the estimated service lives of the assets (maximum ten years).

Computer hardware and software is fully depreciated on a straight-line
basis over three to five years from the date that it is brought into use. Costs
directly associated with developing or obtaining internal-use computer software
are capitalized.

5



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##### 



CP Ships Limited

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

Trucking equipment is fully depreciated on a straight-line basis over the
estimated service lives of the assets (maximum ten years). Owned automobiles
are depreciated on a straight-line basis over four years.

Buildings are fully depreciated on a straight-line basis over the
estimated useful lives (maximum 50 years). Land is not depreciated.

Leasehold improvements are amortized over the lesser of the remaining term
of the leases or ten years.

Terminal equipment is depreciated on a straight-line basis over three to
30 years.

When depreciable assets are retired or otherwise disposed of, the related
costs and accumulated depreciation are removed from the accounts and the
remaining balance, net of any proceeds from sale or salvage value, is reflected
in the results from operations.

(g) Leases

Leases are classified as either capital or operating. Those leases which
transfer substantially all the benefits and risks of ownership of property to
CP Ships are accounted for as capital leases.

Capital leases are accounted for as assets and are fully amortized on a
straight-line basis over the period of the relevant lease. Commitments to repay
the principal amounts arising under capital lease obligations are included in
current liabilities to the extent that the amount is repayable within one year,
otherwise the principal is included in amounts due after one year. The
capitalized lease obligation reflects the present value of future lease
payments. The finance element of the lease payments is charged to income over
the term of the lease.

Operating lease costs are charged to income on a straight-line basis.

(h) Goodwill

Goodwill represents the excess of the fair value of consideration paid
over the fair value of net assets acquired and is amortized to income over a
period of 35 years. CP Ships evaluates the carrying value of goodwill for
possible impairment on an annual basis. Goodwill is written down to fair value
when declines in value are considered to be other than temporary, based upon
expected operating performance of the relevant subsidiary.

(i) Foreign currency translation

Revenue and expense items and other transactions denominated in foreign
currencies are recorded in United States Dollars, which is the functional
currency of CP Ships, at the exchange rates in effect on the dates of the
related transactions. Monetary assets and liabilities denominated in foreign
currencies are translated into United States Dollars at the year-end rates of
exchange. Except for unrealized gains and losses on long-term monetary
liabilities, which are deferred and amortized to income over the period to
maturity of the related debt, foreign currency gains and losses arising from
realization or remeasurement of foreign currency denominated
monetary assets and liabilities are recognized in income as incurred.

6



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##### 



CP Ships Limited

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

The financial statements of subsidiary companies denominated in currencies
other than United States Dollars, which are all considered to be self
sustaining, are translated into United States Dollars using year-end rates of
exchange for assets and liabilities and the average rates in effect for the
year for revenues and expenses. Exchange gains or losses arising from such
translation are deferred and included under Shareholders equity as foreign
currency translation adjustments.

(j) Employee future benefits

The costs of pensions are actuarially determined using the projected
benefit method prorated on service and managements best estimate of expected
plan investment performance, salary escalation and retirement ages of
employees. Market related values are used for calculating the expected return
on plan assets. The projected benefit obligation is discounted using a market
interest rate at the beginning of the year on high quality corporate debt
instruments.

Pension expense includes the cost of pension benefits earned during the
year, the interest cost on pension obligations, the expected return on pension
plan assets, settlement gains, the amortization of the net transitional asset,
the amortization of adjustments arising from pension plan amendments, and the
amortization of the excess of the net actuarial gain or loss over 10% of the
greater of the benefit obligation and the market related value of plan assets.
The amortization period covers the expected average remaining service lives of
employees covered by the various plans.

Effective 1st January 2000, CP Ships adopted the new recommendations of
the CICA for accounting for employee benefits. The effect on 2000 earnings from
adopting these changes prospectively was immaterial. The principal difference
between the new recommendations and the accounting policy applied previously
was in the choice of discount rate used for computing benefit obligations.

For defined contribution plans, pension costs generally equal plan
contributions due during the year.

(k) Derivative financial instruments

Hedging instruments are utilized by CP Ships to manage its exposure
relating to foreign currency exchange rates. Payments or receipts under these
contracts are recognized in income concurrently with the hedged transaction and
the fair values of the outstanding contracts are not reflected in the financial
statements.

(l) Stock based compensation

CP Ships has stock based compensation plans described in note 13, under
which stock options and stock appreciation rights (SARs) are granted to
directors and certain key employees or have been granted to former CPL
employees as part of the demerger.

Compensation expense is not recognized for stock options. Any
consideration paid by employees on the
exercise of stock options is credited to share capital. In the event
options are cancelled, no adjustment is made to share capital and no expense is
recognized.

Compensation expense is recognized for exercisable SARs for the excess of
the market value of a common share over the related option price.

7



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##### 



CP Ships Limited

2. SIGNIFICANT ACCOUNTING POLICIES (Continued)

(m) Restructuring costs

Restructuring costs are recorded in the year detailed exit and
restructuring plans are approved. Provisions for restructuring costs are
recorded in liabilities.

(n) Comparative figures

Certain comparatives have been reclassified to conform with the
presentation adopted in the current year.

(o) New Canadian accounting pronouncements

CICA 3870, Stock based compensation and other stock based payments was
issued on 13th November 2001 and will be effective for awards granted after
31st December 2001. The new rules require compensation expense to be calculated
using the fair value method and either expensed to income or the effect
disclosed in the notes to the financial statements. The impact of implementing
this new standard on CP Ships financial position and results of operations is
not yet determinable.

CICA 3062, Goodwill and other intangible assets was issued in August
2001 and will be effective for CP Ships for years beginning 1st January 2002
and will be applied prospectively. CICA 3062 requires that goodwill no longer
be amortized, but instead be subject to an impairment test at least annually.
CP Ships is in the process of preparing for the adoption of CICA 3062 and is
making the determinations as to what its reporting units are and what amounts
of goodwill, other assets and liabilities should be allocated to those
reporting units. CP Ships has not yet determined what effect, if any, the
impairment test will have on its earnings and financial position. The impact of
not amortizing goodwill for the year ended 31st December 2001 would have been
to increase net income by $16 million and increase basic and diluted earnings
per share by $0.20.

CICA 1650, Foreign currency translation will be effective 1st January
2002. CP Ships will retroactively adopt a change in the accounting rules for
the treatment of foreign exchange gains and losses. These changes have not been
applied to these statements. The new rules will no longer allow for the
deferral and amortization of foreign exchange gains and losses on long-term
debt. As the majority of CP Ships debt is denominated in United States
Dollars, this change will not have a material effect on its financial
statements.

CICA AcG-13 Hedging Relationship is effective for fiscal years beginning
1st July 2002 and specifies new criteria for applying hedging accounting. CP
Ships is assessing the impact that this guidance will have on its financial
position and results of operations.

3. EXCEPTIONAL CHARGES

The exceptional charges incurred in 2001 comprise:



| | (a) |  | Spin-off related items of $17 million for professional fees and other
expenses associated with the companys demerger from CPL including $10
million for the cost of terminating a cash-based long-term incentive
plan (LTIP) by converting it into restricted stock awards. The total
value of shares required to terminate LTIP was $22 million. The amount
of $10 million included in the exceptional charge, together with an $8
million provision charged for the year ended 31st December 2000 for LTIP
earned to that date allowed for the purchase on the market of CP Ships
shares at a value of $18 million. Shares valued at $4 million were
issued from treasury. The shares are held by an irrevocable trust which
was established to settle the companys obligations under the LTIP
termination arrangements.
| | --- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8



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##### 



CP Ships Limited

3. EXCEPTIONAL CHARGES (Continued)



| | (b) |  | Unusual charges of $19 million for the restructuring of organization
and offices, mainly in Europe and North America, during 2001 and 2002.
The charges include the cost of employee severance and redundant office
leases and $5 million had been paid at 31st December 2001.
| | --- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4. INTEREST INCOME/(EXPENSE)

|                       |  |      |    |      |  |      |    |   |  |   |    |  
|---------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  | - | -- | -
|                       |  | 2001 |    | 2000 |  | 1999
|                       |  |      |    |      |  |     
|Long-term debt         |  |      | (6 | )    |  |      | (4 | ) |  |   | (7 | )
|Short-term debt        |  |      | (1 | )    |  |      | (1 | ) |  |   |   |  
|                       |  |      |    |      |  |      |    |   |  |   |    |  
|Total interest payable |  |      | (7 | )    |  |      | (5 | ) |  |   | (7 | )
|Interest income        |  |      | 7  |      |  |      | 6  |   |  |   | 3  |  
|                       |  |      |    |      |  |      |    |   |  |   |    |  
|Net                    |  | $    |   |      |  | $    | 1  |   |  | $ | (4 | )
|                       |  |      |    |      |  |      |    |   |  |   |    |  

5. INCOME TAXES

Taxation in these financial statements arises from the activities of CP
Ships trading companies. The company has three principal operating
subsidiaries, Lykes Lines Limited, LLC (Lykes Lines), TMM Lines Limited, LLC
(TMM Lines) and CP Ships (UK) Limited.

Lykes Lines and TMM Lines have the taxation attributes of their Bermudian
parents and hence have low rates of tax. CP Ships (UK) Limited (formerly
Contship Containerlines Limited) entered with effect from 1st January 2001 the
UK Tonnage Tax regime under which taxation is based on the tonnage of
qualifying ships employed in the business, rather than profits. As part of the
Plan of Arrangement described in note 1, the business and assets of each of
ANZDL, Canada Maritime and Cast were transferred to CP Ships (UK) Limited on
27th September 2001 and became part of the Tonnage Tax regime with effect from
that date. Previously, the business and assets had been owned by Bermudian
companies which had received exemption from taxation in Bermuda. Lykes Lines,
TMM Lines and CP Ships (UK) Limited are also subject to taxation in certain
countries on their operations in those countries and, through their
subsidiaries, on the income of their agency and other operations, such as
haulage.

Racine Terminal (Montreal) Company and Cast Terminal Company are taxed in
Canada.

|                   |  |      |    |      |  |      |    |  |  |   |    | 
|------------------ |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|                   |  | 2001 |    | 2000 |  | 1999
|                   |  |      |    |      |  |     
|Income tax expense |  |      |    |      |  |      |    |  |  |   |    | 
|Current            |  |      | 12 |      |  |      | 9  |  |  |   | 9  | 
|Future             |  |      |   |      |  |      | 3  |  |  |   | 2  | 
|                   |  |      |    |      |  |      |    |  |  |   |    | 
|Total              |  | $    | 12 |      |  | $    | 12 |  |  | $ | 11 | 
|                   |  |      |    |      |  |      |    |  |  |   |    | 

9



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##### 



CP Ships Limited

5. INCOME TAXES (Continued)

The difference between the income tax expense and the provision obtained
by applying the Canadian statutory tax rate is as follows:

|                                      |  |      |     |      |  |      |     |   |  |   |     |  
|------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                      |  | 2001 |     | 2000 |  | 1999
|                                      |  |      |     |      |  |     
|Provision at Canadian statutory rates |  |      | 38  |      |  |      | 74  |   |  |   | 46  |  
|Foreign tax rate differentials        |  |      | (23 | )    |  |      | (51 | ) |  |   | (34 | )
|Effect of tonnage tax                 |  |      | (7  | )    |  |      |    |   |  |   |    |  
|Prior year items                      |  |      | 1   |      |  |      | (1  | ) |  |   |    |  
|Other                                 |  |      | 3   |      |  |      | (10 | ) |  |   | (1  | )
|                                      |  |      |     |      |  |      |     |   |  |   |     |  
|Income tax expense                    |  | $    | 12  |      |  | $    | 12  |   |  | $ | 11  |  
|                                      |  |      |     |      |  |      |     |   |  |   |     |  

The provision for future income taxes arises from differences in the
recognition of revenues and expenses for income tax and accounting purposes.
The temporary differences comprising the future income tax liability are:

|                                                     |  |      |   |      |  |      |    |  |  |   |   | 
|---------------------------------------------------- |  | ---- | - | ---- |  | ---- | -- |  |  | - | - | 
|                                                     |  | 2001 |   | 2000 |  | 1999
|                                                     |  |      |   |      |  |     
|Future income tax liabilities                        |  |      |   |      |  |      |    |  |  |   |   | 
|Capital assets carrying value in excess of tax basis |  |      | 7 |      |  |      | 8  |  |  |   | 5 | 
|Other items                                          |  |      | 1 |      |  |      | 2  |  |  |   | 2 | 
|                                                     |  |      |   |      |  |      |    |  |  |   |   | 
|Total                                                |  | $    | 8 |      |  | $    | 10 |  |  | $ | 7 | 
|                                                     |  |      |   |      |  |      |    |  |  |   |   | 

6. BUSINESS ACQUISITIONS

In January 1999, CPSHI completed the formation of the Americana Ships
Limited (Americana Ships) joint venture with Transportación Maritima Mexicana
S.A. de C.V. (TMMsa). CPSHI contributed its holdings of shares in Lykes Lines,
Ivaran Lines Limited and Contship (Med-Gulf) Limited to Americana Ships in
exchange for 50% of the issued shares of Americana Ships. TMMsa contributed all
of its liner shipping business, also for 50% of the issued shares of Americana
Ships.

During 2000, CPSHI completed the acquisition of the 50% of the shares in
the Americana Ships joint venture that was owned by TMMsa and acquired full
ownership of Americana Ships container shipping services. The transaction was
accounted for as a purchase; goodwill amounted to $84 million, representing the
difference between the consideration and the fair value of the net assets
acquired.

Other businesses acquired in 2000, also accounted for as purchases, gave
rise to goodwill of $9 million.

The acquisitions have been accounted for as follows:

|                                          |  |      |   |      |  |      |      |   |  |   |   | 
|----------------------------------------- |  | ---- | - | ---- |  | ---- | ---- | - |  | - | - | 
|                                          |  | 2001 |   | 2000 |  | 1999
|                                          |  |      |   |      |  |     
|Total assets acquired other than goodwill |  |      |  |      |  |      | 135  |   |  |   |  | 
|Goodwill                                  |  |      |  |      |  |      | 93   |   |  |   |  | 
|Total liabilities                         |  |      |  |      |  |      | (167 | ) |  |   |  | 
|                                          |  |      |   |      |  |      |      |   |  |   |   | 
|Total                                     |  | $    |  |      |  | $    | 61   |   |  | $ |  | 
|                                          |  |      |   |      |  |      |      |   |  |   |   | 

Consideration was paid in cash.

10



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##### 



CP Ships Limited

7. LOAN TO FORMER AFFILIATED COMPANY

In 2000, CPSHI made a loan of Cdn$175 million ($116 million) to Canadian
Pacific Securities (Ontario) Limited, a former affiliate, at a floating
interest rate, payable quarterly. The loan was repaid during 2001.

8. CAPITAL ASSETS

|                               |                          |   |       |      |      |   |      |     |   |   |      |     |  
|------------------------------ | ------------------------ | - | ----- | ---- | ---- | - | ---- | --- | - | - | ---- | --- | -
|                               |                          |   | 2001  |      | 2000 |   | 1999
|                               |                          |   |       |      |      |   |     
|Ships                          |                          |   |       |      |      |   |      |     |   |   |      |    
|                               | Cost                     |   |       | 640  |      |   |      | 398 |   |   |      | 182 |  
|                               | Accumulated depreciation |   |       | (114 | )    |   |      | (87 | ) |   |      | (71 | )
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|                               |                          |   | 526   |      |      |   | 311  |     |   |   | 111  |    
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|Containers                     |                          |   |       |      |      |   |      |     |   |   |      |    
|                               | Cost                     |   |       | 135  |      |   |      | 146 |   |   |      | 191 |  
|                               | Accumulated depreciation |   |       | (44  | )    |   |      | (36 | ) |   |      | (35 | )
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|                               |                          |   | 91    |      |      |   | 110  |     |   |   | 156  |    
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|Terminal equipment and other   |                          |   |       |      |      |   |      |     |   |   |      |    
|                               | Cost                     |   |       | 119  |      |   |      | 102 |   |   |      | 99  |  
|                               | Accumulated depreciation |   |       | (53  | )    |   |      | (48 | ) |   |      | (43 | )
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|                               |                          |   | 66    |      |      |   | 54   |     |   |   | 56   |    
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|Computer hardware and software |                          |   |       |      |      |   |      |     |   |   |      |    
|                               | Cost                     |   |       | 162  |      |   |      | 98  |   |   |      | 59  |  
|                               | Accumulated depreciation |   |       | (50  | )    |   |      | (37 | ) |   |      | (27 | )
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|                               |                          |   | 112   |      |      |   | 61   |     |   |   | 32   |    
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|Total cost                     |                          |   | 1,056 |      |      |   | 744  |     |   |   | 531  |    
|Total accumulated depreciation |                          |   | (261  | )    |      |   | (208 | )   |   |   | (176 | )  
|                               |                          |   |       |      |      |   |      |     |   |   |      |    
|Net book value                 |                          | $ | 795   |      |      | $ | 536  |     |   | $ | 355  |    
|                               |                          |   |       |      |      |   |      |     |   |   |      |    

At 31st December 2001 assets held under capital leases included in the
above had a cost of $104 million (2000: $106 million, 1999: $98 million) and
accumulated depreciation of $59 million (2000: $54 million, 1999: $45 million).

Ships with a net book value of $301 million at 31st December 2001 (2000
and 1999: $0 million) were pledged as security against bank and other loans and
buildings with a net book value of $3 million (2000 and 1999: $2 million) were
mortgaged as security against long-term loans.

9. DEFERRED CHARGES

Deferred charges represent $14 million (2000 and 1999: $0) of costs
related to the arrangement of new facilities and the renegotiation of other
arrangements. These costs are amortized evenly over the periods of the
underlying arrangements which end ranging from 2005 to 2012.

11



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##### 



CP Ships Limited

10. LOANS FROM FORMER AFFILIATED COMPANIES DUE WITHIN ONE YEAR

|                                              |  |      |   |      |  |      |    |  |  |   |    | 
|--------------------------------------------- |  | ---- | - | ---- |  | ---- | -- |  |  | - | -- | 
|                                              |  | 2001 |   | 2000 |  | 1999
|                                              |  |      |   |      |  |     
|CP (Bermuda) Limited                          |  |      |  |      |  |      | 37 |  |  |   | 37 | 
|CPL                                           |  |      |  |      |  |      | 31 |  |  |   | 36 | 
|Canadian Pacific Securities (Ontario) Limited |  |      |  |      |  |      | 11 |  |  |   |   | 
|Canadian Pacific Finance Ireland              |  |      |  |      |  |      | 7  |  |  |   |   | 
|                                              |  |      |   |      |  |      |    |  |  |   |    | 
|                                              |  |      |   |      |  |      |    |  |  |   |    | 
|                                              |  | $    |  |      |  | $    | 86 |  |  | $ | 73 | 
|                                              |  |      |   |      |  |      |    |  |  |   |    | 

The loan from CP (Bermuda) Limited of $37 million at 31st December 2000
was interest free and repayable on demand and was cancelled in 2001 upon the
acquisition of CP (Bermuda) Limited by CPSHI as part of the reorganization
described in note 1.

The loan from CPL of $31 million outstanding at 31st December 2000 was
interest free and repayable on demand. It was repaid during 2001.

The loan from CPL of $36 million outstanding at 31st December 1999 was
interest free and repayable on demand. It was repaid during 2000.

The loans from Canadian Pacific Securities (Ontario) Limited of $11
million at 31st December 2000 bore variable rates of interest, were repayable
on demand and were repaid during 2001.

The loans from Canadian Pacific Finance Ireland of $7 million at 31st
December 2000 were for a fixed period of 180 days and carried a fixed interest
rate of 6.5%. They were repaid during 2001.

11. LONG-TERM DEBT

|                            |  |      |     |      |  |      |     |   |  |   |     |  
|--------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                            |  | 2001 |     | 2000 |  | 1999
|                            |  |      |     |      |  |     
|Bank loan                   |  |      | 160 |      |  |      |    |   |  |   |    |  
|Long-term loans             |  |      | 52  |      |  |      | 2   |   |  |   | 2   |  
|Capital leases              |  |      | 18  |      |  |      | 30  |   |  |   | 42  |  
|                            |  |      |     |      |  |      |     |   |  |   |     |  
|                            |  |      | 230 |      |  |      | 32  |   |  |   | 44  |  
|Amounts due within one year |  |      | (15 | )    |  |      | (11 | ) |  |   | (14 | )
|                            |  |      |     |      |  |      |     |   |  |   |     |  
|Amounts due after one year  |  | $    | 215 |      |  | $    | 21  |   |  | $ | 30  |  
|                            |  |      |     |      |  |      |     |   |  |   |     |  

The bank loan represents amounts drawn on a $175 million revolving credit
facility that is committed to August 2005 with a $50 million step down in
August 2004. A second revolving credit facility of $250 million was entered
into in December 2001. This is committed to December 2006, with a 25% step down
in December 2005. Both facilities are secured by certain owned ships and bear
interest at a margin over LIBOR which depends on the facilities credit rating.
As at 31st December 2001 the margins were 1.05% and 1.40% respectively.

Long-term loans comprises $1 million repayable up to 2008 and bearing
interest at LIBOR plus 2.625% secured on an office building and $51 million
repayable up to 2008 bearing interest at 6.71% secured on ships.

The bank loan and long-term loans are subject to covenants which are
customary for these types of facilities. As at 31st December 2001 CP Ships was
in compliance with these covenants.

12



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##### 



CP Ships Limited

11. LONG-TERM DEBT (Continued)

Aggregate maturities of the bank loan and long-term loans for the five
years subsequent to 31st December 2001 are as follows:

|           |       |  |    |     |     |  |  |  |  |  |  |  |  | 
|---------- | ----- |  | -- | --- | --- |  |  |  |  |  |  |  |  | 
|           | 2002  |  |    |     | 7   | 
|           | 2003  |  |    |     | 7   | 
|           | 2004  |  |    |     | 42  | 
|           | 2005  |  |    |     | 133 | 
|           | 2006  |  |    |     | 8   | 
|Thereafter |       |  | 15 |    
|           |       |  |    |    
|           | Total |  | $  | 212 |    
|           |       |  |    |    

The capital leases consist of container leases of $18 million (2000: $29
million, 1999: $41 million) and automobile leases of $0 (2000 and 1999: $1
million).

The capital leases are repayable in monthly installments ending between
2002 and 2005 and are secured on the leased equipment. Obligations under
capital leases bear fixed interest rates, which range from 6% to 13%. Interest
expense on such leases amounted to $3 million (2000 and 1999: $4 million).

Capital lease commitments over the next five years and thereafter are as
follows:

|                                              |  |   |    |   |  |  |  |  |  |  |  | 
|--------------------------------------------- |  | - | -- | - |  |  |  |  |  |  |  | 
|2002                                          |  |   | 9  |  
|2003                                          |  |   | 5  |  
|2004                                          |  |   | 5  |  
|2005                                          |  |   | 1  |  
|                                              |  |   |    |  
|Total minimum lease payments                  |  |   | 20 |  
|Less: imputed interest                        |  |   | (2 | )
|                                              |  |   |    |  
|Present value of minimum lease payments       |  |   | 18 |  
|Less: current portion                         |  |   | (7 | )
|                                              |  |   |    |  
|Long-term portion of capital lease obligation |  | $ | 11 |  
|                                              |  |   |    |  

Financial assets and liabilities

Short-term financial assets and liabilities are valued at their carrying
amounts as presented in the consolidated balance sheet, which are reasonable
estimates of fair value due to the relatively short period to maturity of these
instruments.

The fair value of third-party long-term debt has been estimated based on
rates currently available to CP Ships for long-term borrowing with similar
terms and conditions to those borrowings in place at the balance sheet date.
There is no material difference between the carrying value and the fair value
of third-party long-term debt.

CP Ships does not believe that there are any significant concentrations of
credit risk.

Forward foreign currency exchange contracts

CP Ships is exposed to changes in exchange rates on future cost streams
denominated in certain currencies other than United States Dollars. To manage
these exposures, CP Ships enters into hedges as it deems appropriate, to cover
some or all of its anticipated net exposure, which is principally to Canadian
Dollars, British Pounds and Euros.

13



---



##### 



CP Ships Limited

11. LONG-TERM DEBT (Continued)

At 31st December 2001, CP Ships did not have any outstanding forward
foreign exchange hedges in place. At 31st December 2000, CP Ships had entered
into forward foreign exchange contracts to sell approximately $131 million
(1999: $167 million) and the unrealized gain/loss on these forward foreign
currency exchange contracts at that date not recognized in income was $0 (1999:
unrealized gain $5 million).

12. SHARE CAPITAL AND CONTRIBUTED SURPLUS

On 1st October 2001, as described in note 1, CPL distributed its interests
in CPSHI to CP Ships. CPL then distributed its investment in CP Ships to its
common shareholders. On 1st January 2002, CPSHI amalgamated with CP Ships.

|                                                 |  |      |     |      |  |      |     |  |  |   |    | 
|------------------------------------------------ |  | ---- | --- | ---- |  | ---- | --- |  |  | - | -- | 
|                                                 |  | 2001 |     | 2000 |  | 1999
|                                                 |  |      |     |      |  |     
|Issued share capital of CP Ships:                |  |      |     |      |  |      |     |  |  |   |    | 
|79,969,095 common shares  no par value          |  | $    | 597 |      |  | $    |    |  |  | $ |   | 
|Issued share capital of CPSHI:                   |  |      |     |      |  |      |     |  |  |   |    | 
|871,007,155 common shares  no par value         |  | $    |    |      |  | $    | 63  |  |  | $ | 63 | 
|175,000 redeemable, cumulative preference shares |  | $    |    |      |  | $    | 116 |  |  | $ |   | 

The authorized share capital of CP Ships is an unlimited number of common
shares and an unlimited number of preference shares.

An analysis of CP Ships common shares is as follows:

|                                                               |  |        |            |           |  |   |     | 
|-------------------------------------------------------------- |  | ------ | ---------- | --------- |  | - | --- | 
|                                                               |  | Number |            | $ million
|                                                               |  |        |            |          
|Balance, 1st January 2001                                      |  |        |           |           |  |   |    | 
|New issue                                                      |  |        | 79,127,044 |           |  |   | 597 | 
|Issued under Launch Award, stock option plans and LTIP
buy-out |  |        | 842,051    |           |  |   |    | 
|                                                               |  |        |            |           |  |   |     | 
|Balance, 31st December 2001                                    |  |        | 79,969,095 |           |  | $ | 597 | 
|                                                               |  |        |            |           |  |   |     | 

During 2001, and prior to CPLs disposal of CPSHI to CP Ships, CPL
provided an additional $2 million as contributed surplus, and CPSHI
subsequently increased its stated share capital in the amount of its $487
million contributed surplus. CPSHI also returned $14 million of share capital
to CPL, redeemed the 175,000 redeemable cumulative preference shares and issued
400 common shares to CPL at a value of $61 million as consideration for the
transfer of shipping related affiliates and other assets from CPL.

During 2000, capital totalling $203 million was contributed by CPL to
CPSHI to fund the purchase of the remaining 50% of Americana Ships, the
purchase of ships and the repayment of certain loans owed to CPL. No shares
were issued in respect to these transactions.

In addition in 2000, CPSHI issued preference shares of Cdn$175 million
($116 million) to, and the related proceeds were lent back to, an affiliated
company (note 7). The preference shares carried a floating cumulative dividend
based on the bankers acceptance rate plus 30 basis points. The preference
shares were redeemed in 2001 and the loan repaid.

During 1999 additional capital totalling $52 million was contributed to
finance the repayment of certain loans owed to CPL and to provide additional
capital. No shares were issued in respect of these transactions.

14



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CP Ships Limited

12. SHARE CAPITAL AND CONTRIBUTED SURPLUS (Continued)

Shareholder Rights Plan

On 30th July 2001, CP Ships adopted a Shareholder Rights Plan (the
''Rights Plan) which became effective 1st October 2001. This Rights Plan is
designed to provide CP Ships with sufficient time to explore and develop
alternatives for maximizing shareholder value in the event of a take-over bid
and to provide all shareholders with an equal opportunity to participate in the
bid.

13. STOCK OPTIONS

Under the CP Ships Employee Stock Option Plan (ESOP) and Directors Stock
Option Plan (DSOP) options may be granted to key employees and directors to
purchase CP Ships common shares at a price normally based on the market value
of the shares on or immediately prior to the grant date. Each option may be
exercised on a date or dates set by the Board of Directors and expires ten
years after the grant date.

Transition of CPL Option Plan

On the effective date of the Plan of Arrangement described in note 1,
outstanding options under the CPL Key Employee Stock Option Plan (KESOP) were
replaced pro-rata with new options under the new option plans of the five
separately-listed companies, including CP Ships. Accompanying stock
appreciation rights (SARs) equivalent to one-half of the number of shares
under option were replaced in a similar manner. An SAR entitles the holder to
receive payment of an amount equal to the excess of the market value of a
common share at the exercise date over the related option price. Former CPL
employees options over CP Ships shares may be exercised after two years from
the original grant date under KESOP in respect to one-half of the number of
shares and after three years in respect to the balance and expire ten years
after the original grant date. SARs may be exercised no earlier than three
years and no later than ten years after the grant date.

Where an option has been exercised by a former CPL employee as to one-half
the number of shares to which it relates, any further exercises reduce the
number of SARs granted on a one-for-one basis. At all times, the exercise of an
SAR reduces the number of shares under an option on a one-for-one basis.

In the event of a change in control of CP Ships, all outstanding options
and SARs under all plans become immediately exercisable.

At 31st December 2001, 2,453,429 shares (2000 and 1999: nil) were
available for the granting of future options under the stock option plans out
of the 6,158,000 currently authorized.

15



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CP Ships Limited

13. STOCK OPTIONS (Continued)

Details of the stock options outstanding are as follows:

|                                                              |      |  |           |           |                  |  |               |       |                  |  |   |   |               |  |   |   | 
|------------------------------------------------------------- | ---- |  | --------- | --------- | ---------------- |  | ------------- | ----- | ---------------- |  | - | - | ------------- |  | - | - | 
|                                                              |      |  |           |           |                  |  | 2001          |       |                  |  |   |   | 2000 and 1999
|                                                              |      |  | 2001      |           | Weighted Average |  | 2000 and 1999 |       | Weighted Average
|                                                              |      |  | Number of |           | Exercise Price   |  | Number of     |       | Exercise Price  
|                                                              |      |  | Options   |           | $ Per Share      |  | Options       |       | $ Per Share     
|                                                              |      |  |           |           |                  |  |               |       |                 
|Outstanding at beginning of the year                          |      |  |          |           |                  |  |              |       |                  |  |  |   |               |  |  |  
|Granted to former CPL employees
under the Plan of Arrangement |      |  | 548,983   |           |                  |  | 4.052         |       |                  |  |  |   |               |  |  |  
|Granted under:                                                |      |  |           |           |                  |  |               |       |                  |  |   |   |               |  |   |  
|                                                              | ESOP |  |           | 3,116,000 |                  |  |               | 7.840 |                  |  |   |  |               |  |   |  | 
|                                                              | DSOP |  |           | 48,000    |                  |  |               | 7.840 |                  |  |   |  |               |  |   |  | 
|Exercised                                                     |      |  | (51,051   | )         |                  |  | 4.205         |       |                  |  |  |   |               |  |  |  
|Cancelled                                                     |      |  | (8,412    | )         |                  |  | 4.141         |       |                  |  |  |   |               |  |  |  
|                                                              |      |  |           |           |                  |  |               |       |                  |  |   |   |               |  |   |  
|Outstanding at the end of the year                            |      |  | 3,653,520 |           |                  |  | 7.332         |       |                  |  |  |   |               |  |  |  
|                                                              |      |  |           |           |                  |  |               |       |                  |  |   |   |               |  |   |  

Details as at 31st December 2001 (none outstanding at 31st December 2000
and 31st December 1999) of the stock options outstanding by year of expiry were
as follows:

|        |  |           |           |             |  |                  |               |             |  |                  |       |  |  |      |         |  |  |  |       | 
|------- |  | --------- | --------- | ----------- |  | ---------------- | ------------- | ----------- |  | ---------------- | ----- |  |  | ---- | ------- |  |  |  | ----- | 
|        |  |           |           |             |  | 2001             |               | 2001        |  |                  |       |  |  | 2001
|        |  | 2001      |           | Exercise    |  | Weighted Average |               | 2001        |  | Weighted Average
|Year of |  | Number of |           | Price Range |  | Exercise Price   |               | Number      |  | Exercise Price  
|Expiry  |  | Options   |           | $ Per Share |  | $ Per Share      |               | Exercisable |  | $ Per Share     
|        |  |           |           |             |  |                  |               |             |  |                 
|2002    |  |           | 6,904     |             |  |                  | 2.491         |             |  |                  | 2.491 |  |  |      | 6,904   |  |  |  | 2.491 | 
|2003    |  |           | 35,763    |             |  |                  | 2.695 - 3.040 |             |  |                  | 2.979 |  |  |      | 35,763  |  |  |  | 2.979 | 
|2004    |  |           | 23,481    |             |  |                  | 2.849         |             |  |                  | 2.849 |  |  |      | 23,481  |  |  |  | 2.849 | 
|2005    |  |           | 42,011    |             |  |                  | 3.219 - 3.270 |             |  |                  | 3.221 |  |  |      | 42,011  |  |  |  | 3.221 | 
|2006    |  |           |          |             |  |                  |              |             |  |                  |      |  |  |      |        |  |  |  |      | 
|2007    |  |           | 75,206    |             |  |                  | 4.842 - 5.097 |             |  |                  | 4.845 |  |  |      | 75,206  |  |  |  | 4.845 | 
|2008    |  |           | 9,400     |             |  |                  | 4.529 - 5.493 |             |  |                  | 4.852 |  |  |      | 9,400   |  |  |  | 4.852 | 
|2009    |  |           | 137,445   |             |  |                  | 4.075         |             |  |                  | 4.075 |  |  |      | 137,445 |  |  |  | 4.075 | 
|2010    |  |           | 159,310   |             |  |                  | 4.235 - 5.231 |             |  |                  | 4.297 |  |  |      | 159,310 |  |  |  | 4.297 | 
|2011    |  |           | 3,164,000 |             |  |                  | 7.840         |             |  |                  | 7.840 |  |  |      |        |  |  |  |      | 
|        |  |           |           |             |  |                  |               |             |  |                  |       |  |  |      |         |  |  |  |       | 
|        |  |           | 3,653,520 |             |  |                  | 2.491 - 7.840 |             |  |                  | 7.332 |  |  |      | 489,520 |  |  |  | 4.046 | 
|        |  |           |           |             |  |                  |               |             |  |                  |       |  |  |      |         |  |  |  |       | 

During 2001, $0.7 million was charged to compensation expense for SARs,
and $0.2 million was credited to common share capital for options exercised.

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CP Ships Limited

14. CHANGES IN NON-CASH WORKING CAPITAL BALANCES

|                                                                                                                                    |  |      |     |      |  |      |     |   |  |   |     |  
|----------------------------------------------------------------------------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                                                                                                    |  | 2001 |     | 2000 |  | 1999
|                                                                                                                                    |  |      |     |      |  |     
|Decrease/(increase) in current assets:                                                                                              |  |      |     |      |  |      |     |   |  |   |     |  
|Accounts receivable                                                                                                                 |  |      | 26  |      |  |      | (86 | ) |  |   | (50 | )
|Prepaid expenses                                                                                                                    |  |      | (6  | )    |  |      | (6  | ) |  |   | (5  | )
|Inventory                                                                                                                           |  |      | 2   |      |  |      | (5  | ) |  |   | (5  | )
|                                                                                                                                    |  |      |     |      |  |      |     |   |  |   |     |  
|                                                                                                                                    |  |      | 22  |      |  |      | (97 | ) |  |   | (60 | )
|(Decrease)/increase in current liabilities:                                                                                         |  |      |     |      |  |      |     |   |  |   |     |  
|Accounts payable and accrued liabilities                                                                                            |  |      | (25 | )    |  |      | 72  |   |  |   | (7  | )
|Decrease/(increase) in non-cash working capital balances
from the acquisition and
sale of businesses and joint ventures             |  |      |    |      |  |      | (24 | ) |  |   | (4  | )
|Decrease/(increase) in non-cash working capital balances
transferred in from
shipping-related affiliates prior to spin-off (note 1) |  |      | 9   |      |  |      |    |   |  |   |    |  
|Other changes in non-cash working capital balances                                                                                  |  |      | 1   |      |  |      | 12  |   |  |   | (20 | )
|                                                                                                                                    |  |      |     |      |  |      |     |   |  |   |     |  
|Total                                                                                                                               |  | $    | 7   |      |  | $    | (37 | ) |  | $ | (91 | )
|                                                                                                                                    |  |      |     |      |  |      |     |   |  |   |     |  

15. EARNINGS PER SHARE

Basic and diluted earnings per share are shown on the income statement.
Basic and diluted earnings per share have been calculated using net income
available to common shareholders divided by 79.3 million and 79.9 million
shares respectively for 2001 and 79.1 million and 79.2 million shares
respectively for 2000 and 1999.

The basic and diluted earnings per share figures for 2000 and 1999 have
been restated as if the shares and options outstanding at the spin-off date
(note 1) had been in place for 2000 and 1999.

|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 
|--------------------------------------------------------------------------------- |  | ---- | ---- | ---- |  | ---- | ---- |  |  |  | ---- | 
|Millions of shares                                                                |  | 2001 |      | 2000 |  | 1999
|                                                                                  |  |      |      |      |  |     
|Weighted
average number of common shares outstanding
- basic earnings per share   |  |      | 79.3 |      |  |      | 79.1 |  |  |  | 79.1 | 
|Effect of dilutive securities  stock options                                     |  |      | 0.6  |      |  |      | 0.1  |  |  |  | 0.1  | 
|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 
|Weighted
average number of common shares outstanding
- diluted earnings per share |  |      | 79.9 |      |  |      | 79.2 |  |  |  | 79.2 | 
|                                                                                  |  |      |      |      |  |      |      |  |  |  |      | 

16. RELATED PARTY TRANSACTIONS

Container shipping operating expenses included $90 million for 2001 (2000:
$127 million, 1999: $110 million) in relation to services provided by parties
who were related at the times of the transactions, mainly inland transportation
costs paid to Canadian Pacific Railway, which charges were established on
normal commercial terms. There were dividends on preference shares paid to a
former affiliated company amounting to $3 million in 2001 (2000: $2 million,
1999: $0).

Forward foreign currency exchange contracts referred to in note 11
included contracts with CPL. As at 31st December 2001, CP Ships had no such
contracts with any affiliated companies (2000: $47 million, 1999: $92 million).
As at 31st December 2001, the unrealized gain/loss on these contracts not
recognized in income was $0 (31st December 2000: unrealized gain/loss $0, 31st
December 1999: unrealised gain $7 million).

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CP Ships Limited

17. CONTINGENT LIABILITIES

At 31st December 2001 CP Ships had bank and other guarantees given in the
normal course of business of $1 million (2000: $4 million, 1999: $2 million).

During the normal course of business activity, CP Ships and its
subsidiaries are occasionally involved in litigation proceedings. Two actions
totalling approximately Belgian Francs 3,876 million ($87 million) were
initiated in Belgium in 1999 against CP Ships and certain of its subsidiaries
relating to termination of contracts for stevedoring and related services. One
action for Belgian Francs 298 million ($7 million) was withdrawn in January
2002 at no cost to CP Ships. CP Ships intends to defend vigorously the
remaining action. CP Ships and its subsidiaries do not believe they will incur
any liability in this action and accordingly, no provision has been made in the
financial statements with respect to this matter other than for legal costs.

18. COMMITMENTS

(a) Capital expenditures

CP Ships has capital commitments at 31st December 2001 of $395 million,
principally in respect to shipbuilding contracts, of which $225 million falls
due in 2002 and $170 million in 2003.

(b) Operating leases

CP Ships utilizes ships, containers and other equipment and occupies
premises under non-cancellable operating leases.

Rent expense under operating leases:

|           |  |      |     |      |  |      |     |  |  |   |     | 
|---------- |  | ---- | --- | ---- |  | ---- | --- |  |  | - | --- | 
|           |  | 2001 |     | 2000 |  | 1999
|           |  |      |     |      |  |     
|Ships      |  |      | 308 |      |  |      | 308 |  |  |   | 221 | 
|Containers |  |      | 132 |      |  |      | 124 |  |  |   | 76  | 
|Other      |  |      | 18  |      |  |      | 17  |  |  |   | 12  | 
|           |  |      |     |      |  |      |     |  |  |   |     | 
|           |  | $    | 458 |      |  | $    | 449 |  |  | $ | 309 | 
|           |  |      |     |      |  |      |     |  |  |   |     | 

CP Ships has commitments under operating leases, including obligations
under time charters which include certain ship operating expenses, and under
long-term bareboat charters, two of which expire in 2008 and two in 2012. The
commitments in each of the next five years and thereafter are:

|                    |  |   |     |  |  |  |  |  |  |  |  | 
|------------------- |  | - | --- |  |  |  |  |  |  |  |  | 
|2002                |  |   | 203 | 
|2003                |  |   | 93  | 
|2004                |  |   | 62  | 
|2005                |  |   | 46  | 
|2006                |  |   | 32  | 
|2007 and thereafter |  |   | 149 | 
|                    |  |   |     | 
|                    |  | $ | 585 | 
|                    |  |   |     | 

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CP Ships Limited

19. PENSIONS

CP Ships operates a number of defined contribution and defined benefit
pension plans throughout the world.

Defined benefit plans are based principally on years of service and
compensation levels near retirement. Annual contributions to these plans, which
are based on various actuarial cost methods, are made on the basis of not less
than the minimum amounts required by national, federal or provincial pension
supervisory authorities.

Net benefit plan expense for each year for such defined benefit plans
includes the following components:

|                                               |  |      |    |      |  |      |    |   |  |   |    |  
|---------------------------------------------- |  | ---- | -- | ---- |  | ---- | -- | - |  | - | -- | -
|                                               |  | 2001 |    | 2000 |  | 1999
|                                               |  |      |    |      |  |     
|Service cost  benefits earned during the year |  |      | 1  |      |  |      | 1  |   |  |   | 1  |  
|Interest cost on projected benefit obligation  |  |      | 4  |      |  |      | 5  |   |  |   | 3  |  
|Expected return on pension fund assets         |  |      | (4 | )    |  |      | (5 | ) |  |   | (4 | )
|Amortization of transition asset               |  |      |   |      |  |      | (1 | ) |  |   |   |  
|Recognized net actuarial loss                  |  |      | 4  |      |  |      |   |   |  |   |   |  
|Amount not recognized due to limitation        |  |      | (3 | )    |  |      | 1  |   |  |   | 1  |  
|                                               |  |      |    |      |  |      |    |   |  |   |    |  
|Net benefit plan expense                       |  | $    | 2  |      |  | $    | 1  |   |  | $ | 1  |  
|                                               |  |      |    |      |  |      |    |   |  |   |    |  

Information about changes in CP Ships defined benefit plans is as
follows:

|                                         |  |      |     |      |  |   |    |  
|---------------------------------------- |  | ---- | --- | ---- |  | - | -- | -
|                                         |  | 2001 |     | 2000
|                                         |  |      |     |     
|Change in benefit obligation             |  |      |     |      |  |   |    |  
|Benefit obligation at start of year      |  |      | 85  |      |  |   | 57 |  
|Effect of change in accounting policy    |  |      |    |      |  |   | 2  |  
|Service cost                             |  |      | 1   |      |  |   | 1  |  
|Interest cost                            |  |      | 4   |      |  |   | 5  |  
|Amendments                               |  |      | (2  | )    |  |   |   |  
|Plan participants contributions         |  |      |    |      |  |   | 1  |  
|Actuarial loss/(gain)                    |  |      | (16 | )    |  |   | 6  |  
|(Settlement)/acquisition                 |  |      | (38 | )    |  |   | 21 |  
|Benefits paid                            |  |      | (1  | )    |  |   | (7 | )
|Exchange rate fluctuation                |  |      | (1  | )    |  |   | (1 | )
|                                         |  |      |     |      |  |   |    |  
|Benefit obligation at end of year        |  | $    | 32  |      |  | $ | 85 |  
|                                         |  |      |     |      |  |   |    |  
|Change in plan assets                    |  |      |     |      |  |   |    |  
|Fair value of assets at start of year    |  |      | 83  |      |  |   | 62 |  
|Actual return on plan assets             |  |      | (21 | )    |  |   | 6  |  
|(Settlement)/acquisition                 |  |      | (38 | )    |  |   | 19 |  
|Employer contributions                   |  |      | 2   |      |  |   | 3  |  
|Plan participants contributions         |  |      |    |      |  |   | 1  |  
|Benefits paid                            |  |      | (1  | )    |  |   | (7 | )
|Exchange rate fluctuation                |  |      |    |      |  |   | (1 | )
|                                         |  |      |     |      |  |   |    |  
|Fair value of plan assets at end of year |  | $    | 25  |      |  | $ | 83 |  
|                                         |  |      |     |      |  |   |    |  

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CP Ships Limited

19. PENSIONS (Continued)

Included in the above accrued benefit obligation and fair value of plan
assets are the following amounts in respect to plans that are not fully funded:

|                                                               |  |      |     |      |  |      |     |     |  |   |     |  
|-------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | --- |  | - | --- | -
|                                                               |  | 2001 |     | 2000 |  | 1999
|                                                               |  |      |     |      |  |     
|Funded status                                                  |  |      | (7  | )    |  |      | (2  | )   |  |   | 5   |  
|Unrecognized transition asset                                  |  |      |    |      |  |      | (1  | )   |  |   | (1  | )
|Unrecognized net actuarial loss                                |  |      | 8   |      |  |      | 5   |     |  |   | 2   |  
|Unrecognized prior service cost                                |  |      | (2  | )    |  |      |    |     |  |   |    |  
|Amount not recognized due to limitation                        |  |      | (2  | )    |  |      | (5  | )   |  |   | (6  | )
|                                                               |  |      |     |      |  |      |     |     |  |   |     |  
|(Accrued) benefit cost                                         |  | $    |     | (3)  |  | $    |     | (3) |  | $ |    |  
|                                                               |  |      |     |      |  |      |     |     |  |   |     |  
|Weighted-average assumptions as of 31st December
Discount rate |  |      | 6.5 | %    |  |      | 6.7 | %   |  |   | 7.1 | %
|Expected return on plan assets                                 |  |      | 7.2 | %    |  |      | 6.9 | %   |  |   | 7.0 | %
|Rate of compensation increase                                  |  |      | 4.9 | %    |  |      | 4.6 | %   |  |   | 4.5 | %

CP Ships also has defined contribution plans. The net expense for such
plans was $4 million in both 2001 and 2000 and $3 million in 1999.

20. SEGMENT INFORMATION

CP Ships provides regional containerized ocean and related inland
transportation services across the world in various trade lanes.

CP Ships manages its business by aggregating its container shipping
services into the four major markets that it serves, namely TransAtlantic,
Australasia, Latin America and Asia. Container shipping services in other
regions and services ancillary to container shipping are separately aggregated.
Accordingly, CP Ships has five reportable segments.

Revenue and all operating expenses are either directly related to the
activity in a segment or are centrally managed and are allocated across the
segments.

CP Ships does not analyze or manage its assets by segment and consequently
no segmented analysis of assets is presented. It is impractical to obtain an
analysis of revenue by customers countries of domicile. CP Ships does not rely
on any single major customer or group of major customers. No customer accounts
for more than 10% of CP Ships revenue.

20



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CP Ships Limited

20. SEGMENT INFORMATION (Continued)

|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|------------------------------------------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | ----- | -
|                                                  |  | 2001 |       | 2000 |  | 1999
|                                                  |  |      |       |      |  |     
|Revenues                                          |  |      |       |      |  |      |       |  |  |   |       |  
|TransAtlantic                                     |  |      | 1,323 |      |  |      | 1,406 |  |  |   | 977   |  
|Australasia                                       |  |      | 549   |      |  |      | 574   |  |  |   | 547   |  
|Latin America                                     |  |      | 244   |      |  |      | 242   |  |  |   | 137   |  
|Asia                                              |  |      | 435   |      |  |      | 337   |  |  |   | 154   |  
|Other                                             |  |      | 95    |      |  |      | 86    |  |  |   | 63    |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|Total Revenues                                    |  | $    | 2,646 |      |  | $    | 2,645 |  |  | $ | 1,878 |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|Expenses                                          |  |      |       |      |  |      |       |  |  |   |       |  
|TransAtlantic                                     |  |      | 1,244 |      |  |      | 1,317 |  |  |   | 936   |  
|Australasia                                       |  |      | 520   |      |  |      | 551   |  |  |   | 511   |  
|Latin America                                     |  |      | 216   |      |  |      | 224   |  |  |   | 141   |  
|Asia                                              |  |      | 448   |      |  |      | 317   |  |  |   | 149   |  
|Other                                             |  |      | 79    |      |  |      | 72    |  |  |   | 52    |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|Total Expenses                                    |  | $    | 2,507 |      |  | $    | 2,481 |  |  | $ | 1,789 |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|Operating Income before exceptional charges       |  |      |       |      |  |      |       |  |  |   |       |  
|TransAtlantic                                     |  |      | 79    |      |  |      | 89    |  |  |   | 41    |  
|Australasia                                       |  |      | 29    |      |  |      | 23    |  |  |   | 36    |  
|Latin America                                     |  |      | 28    |      |  |      | 18    |  |  |   | (4    | )
|Asia                                              |  |      | (13   | )    |  |      | 20    |  |  |   | 5     |  
|Other                                             |  |      | 16    |      |  |      | 14    |  |  |   | 11    |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  
|Total Operating Income before exceptional charges |  | $    | 139   |      |  | $    | 164   |  |  | $ | 89    |  
|                                                  |  |      |       |      |  |      |       |  |  |   |       |  

Other includes smaller regional markets, terminal operations and
services ancillary to container shipping.

Depreciation included in expenses:

|              |  |      |    |      |  |      |    |  |  |   |    | 
|------------- |  | ---- | -- | ---- |  | ---- | -- |  |  | - | -- | 
|              |  | 2001 |    | 2000 |  | 1999
|              |  |      |    |      |  |     
|TransAtlantic |  |      | 44 |      |  |      | 40 |  |  |   | 30 | 
|Australasia   |  |      | 6  |      |  |      | 8  |  |  |   | 8  | 
|Latin America |  |      | 5  |      |  |      | 3  |  |  |   | 2  | 
|Asia          |  |      | 8  |      |  |      | 4  |  |  |   | 2  | 
|Other         |  |      | 11 |      |  |      | 5  |  |  |   | 5  | 
|              |  |      |    |      |  |      |    |  |  |   |    | 
|Total         |  | $    | 74 |      |  | $    | 60 |  |  | $ | 47 | 
|              |  |      |    |      |  |      |    |  |  |   |    | 

Geographical analysis of capital assets and goodwill:

|                |  |      |       |      |  |      |       |  |  |   |     | 
|--------------- |  | ---- | ----- | ---- |  | ---- | ----- |  |  | - | --- | 
|                |  | 2001 |       | 2000 |  | 1999
|                |  |      |       |      |  |     
|Canada          |  |      | 36    |      |  |      | 35    |  |  |   | 40  | 
|United States   |  |      | 85    |      |  |      | 37    |  |  |   | 12  | 
|Other Countries |  |      | 57    |      |  |      | 43    |  |  |   | 36  | 
|Ships(1)        |  |      | 526   |      |  |      | 311   |  |  |   | 111 | 
|Containers(1)   |  |      | 91    |      |  |      | 110   |  |  |   | 156 | 
|Goodwill(1)     |  |      | 510   |      |  |      | 531   |  |  |   | 461 | 
|                |  |      |       |      |  |      |       |  |  |   |     | 
|                |  | $    | 1,305 |      |  | $    | 1,067 |  |  | $ | 816 | 
|                |  |      |       |      |  |      |       |  |  |   |     | 



---

|(1) |  | None of the ships, containers or goodwill are located in a particular
country.
|--- |  | ------------------------------------------------------------------------------

21



---



##### 



CP Ships Limited

21. AMERICANA SHIPS JOINT VENTURE

In January 1999, CPSHI completed the formation of a joint venture with
TMMsa (see note 6).

CPSHIs share of the American Ships joint venture assets and the result
for the year to 31st December 1999 are summarized below:

|                           |                        |   |     |      |   |  |  |  |  |  |  |  | 
|-------------------------- | ---------------------- | - | --- | ---- | - |  |  |  |  |  |  |  | 
|Balance sheet              |                        |   |     |     
|                           | Current assets         |   |     | 127  |  
|                           | Long term assets       |   |     | 153  |  
|                           |                        |   |     |     
|                           |                        | $ | 280 |     
|                           |                        |   |     |     
|                           | Short term liabilities |   |     | 142  |  
|                           | Long term liabilities  |   |     | 53   |  
|                           | Equity                 |   |     | 85   |  
|                           |                        |   |     |     
|                           |                        | $ | 280 |     
|                           |                        |   |     |     
|Statement of Earnings      |                        |   |     |     
|                           | Operating revenue      |   |     | 502  |  
|                           | Operating expenses     |   |     | (518 | )
|                           |                        |   |     |     
|Loss for the year          |                        | $ | (16 | )   
|                           |                        |   |     |     
|Statement
of Cash Flows    |                        |   |     |     
|Cash flows resulting from: |                        |   |     |     
|                           | Operating activities   |   |     | (8   | )
|                           | Financing activities   |   |     | 46   |  
|                           | Investing activities   |   |     | (35  | )
|                           |                        |   |     |     
|Increase in cash resources |                        | $ | 3   |     
|                           |                        |   |     |     

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES

Summary of differences

The consolidated financial statements are prepared in accordance with
accounting principles generally accepted in Canada (Canadian GAAP) which
differ in certain respects from United States generally accepted accounting
principles (US GAAP). The material differences are described below along with
their effect on CP Ships Consolidated Statements of Income, Retained Earnings,
Consolidated Balance Sheets and Consolidated Statements of Cash Flow.

(a) Change in accounting policy  dry docks

The effect of a change in accounting policy for dry dock costs in 2000 has
been reflected by retrospectively restating the previous years Canadian GAAP
financial statements. Under US GAAP, the cumulative effect of this change has
been reported in the 2000 income statement.

The effect of this change in 2000 on income before cumulative effect of
change in accounting principles and on net income as determined in accordance
with US GAAP was an increase to net income of $6 million, and an increase in
basic earnings per share of $0.08. If the defer and amortize method had been
applied retroactively for US GAAP the 1999 basic earnings per common share
would have increased by $0.03 from the amounts presented in the US GAAP
reconciliation in note 22(l).

22



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##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(b) Derivative financial instruments

During normal course of business, CP Ships is exposed to foreign currency
risk due to the payment of certain operating expenses in currencies other than
CP Ships functional currency. The most significant non-US currency exposures
are in Canadian dollars, Euros and British pounds. CP Ships makes use of
derivative instruments to limit this risk.

CP Ships enters into contracts as it deems appropriate to hedge some or
all of its anticipated net currency exposures. Under Canadian GAAP, CP Ships
accounts for its foreign currency derivative instruments as hedges and related
exchange gains and losses are deferred until the maturity of the contract.

Prior to 1st January 2001 for United States reporting under FASB Statement
No. 52, Foreign Currency Translation, gains and losses on forward foreign
exchange contracts associated with anticipated future transactions that do not
constitute firm commitments were recognized in income as they arose. Effective
1st January 2001, CP Ships adopted FASB Statement No. 133, Accounting for
Derivative Instruments and Hedging Activities, as amended by FAS 137 and 138
and as interpreted by the Derivatives Implementation Group, for the purposes of
presenting US GAAP financial information.

FAS 133 establishes accounting and reporting standards for derivative
instruments including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging activity.
Changes in the fair value of derivatives are recorded in each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated and committed as part of a hedge transaction and, if it is, the type
of hedge transaction. CP Ships uses various derivative instruments, which are
designated and documented as cash flow hedges, to hedge anticipated foreign
currency expenditures. These contracts provide economic hedging to CP Ships,
and under Canadian GAAP payments or receipts under these contracts are
recognized in income concurrently with the hedged transaction and the fair
values of the outstanding contracts are not reflected in the financial
statements.

CP Ships forward exchange contacts that do not qualify for hedge
accounting under US GAAP have been marked-to-market through earnings.

CP Ships evaluates contracts for embedded derivatives, and considers
whether any embedded derivatives have to be separated from the host contracts
in accordance with FAS 133. Embedded derivatives may have terms that are not
clearly and closely related to the terms of the host contract in which they are
included. If embedded derivatives exist and are not clearly and closely related
to the host contract, they are accounted for separately from the host contract
as derivatives, with changes in their fair value recorded in current earnings.

CP Ships offers to certain of its customers the option to pay trade
receivables in either US Dollars or the local currency of the respective
customer. These terms constitute an embedded derivative and for US GAAP are
accounted for under FAS 133 which requires revaluing these derivatives to fair
market value and recording a liability with the offset to net income. Prior to
the implementation of FAS 133 for the purposes of presenting US GAAP
information on 1st January 2001, no revaluation was made and the gain or loss
was recognized upon settlement.

The cumulative effect of the adoption of FAS 133 at the 1st January 2001
was to reduce net income before taxes under US GAAP by approximately $4
million. Application of FAS 133 to the calculation of US GAAP financial
information results in the recording of pre-tax gains of $2 million for the
year ended 31st December 2001.

23



---



##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(c) Acquisition integration and reorganization costs

There are differences between Canadian and US GAAP as to the timing of the
recognition of certain liabilities associated with acquisition-related
integration and reorganization costs. Further, under US GAAP certain of these
costs are charged to the income statement rather than being allocated to the
cost of the acquisition, with a consequent effect on the amount of goodwill and
the subsequent annual amortization charge.

(d) Employee future benefits  pension costs

Effective 1st January 2000, CP Ships adopted prospectively, without
restating prior years, the provisions of the new recommendations of The
Canadian Institute of Chartered Accountants (CICA) under CICA 3461. This
eliminated most differences between Canadian and US GAAP with respect to
accounting for employee future benefits including pension costs.

Prior to 2000, the principal difference between Canadian and US GAAP in
accounting for pension costs was the choice of discount rate used for computing
the benefit obligation and the service and interest cost components of net
periodic pension expense. Under Canadian GAAP, the discount rate used
represented managements best estimate of the long-term rate of return on
pension fund assets, whereas under US GAAP the discount rate reflects the rate
at which pension benefits can be effectively settled at the date of the
financial statements.

(e) Income taxes

Effective 1st January 2000, CP Ships adopted, without restating prior
years, the new CICA 3465, with respect to accounting for income taxes. Although
now broadly the same as US GAAP, the new Canadian method uses substantively
enacted, rather than enacted only, tax rates to calculate future taxes. Except
for the potential difference in the tax rates to be adopted, there are no
significant differences from the year 2000 between Canadian and US GAAP with
respect to accounting for income taxes.

Prior to 2000, CP Ships followed the Canadian method of accounting for
income taxes, described as the deferral method, which focused on differences
arising between financial statement income and taxable income. The method
followed under US GAAP, described as the liability method, focuses on
differences between the book and tax value of assets and liabilities.

(f) Goodwill charges

Under Canadian GAAP goodwill charges net of any tax effects are reported
separately as a deduction from income after tax, whereas US GAAP requires
goodwill charges to be reported within operating expenses and consequently they
are included in the determination of operating income. Amortization expense for
the years ended 31st December 2001, 2000 and 1999 under US GAAP were $14
million, $16 million and $14 million respectively.

24



---



##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(g) Impairment of long-lived assets including goodwill

Under both Canadian and US GAAP, when factors indicate a possible
impairment in capital assets or goodwill, recoverability is assessed based upon
a cash flow analysis. Under Canadian GAAP, the cash flow analysis includes
interest expense, whereas under US GAAP interest expense is excluded. Under
Canadian GAAP, an impairment loss is recognized to the extent that the assets
carrying amount exceeds its net recoverable amount. Under US GAAP, an
impairment loss is measured as the amount the carrying value exceeds the fair
value of the asset. No impairment losses have been recognized by CP Ships under
either Canadian or US GAAP.

(h) Stock based compensation

In 2001, CP Ships established stock based compensation plans, as described
in note 13. Under Canadian GAAP, compensation expense is not recognized for
stock options or the issuance of shares to employees. Any consideration paid by
employees on the exercise of stock options is credited to share capital. In the
event options are cancelled, no adjustment is made to share capital and no
expense is recognized. For US GAAP under APB 25, the difference between the
market value at the date of grant and the grant price of the stock option or
issuance of shares to employees is recognized as compensation expense.

(i) Comprehensive income

US GAAP requires the disclosure, as other comprehensive income, of changes
in equity during the period from transactions and other events from non-owner
sources. Canadian GAAP does not require similar disclosure. Other comprehensive
income under US GAAP in these financial statements arises from foreign currency
translation adjustments. A statement of comprehensive income under US GAAP for
each of the years ended 31st December 2001, 2000 and 1999 is shown in note 22
(m).

(j) Incorporated joint ventures

US GAAP requires investments in incorporated joint ventures to be
accounted for under the equity method, while under Canadian GAAP the accounts
of incorporated joint ventures are proportionately consolidated. However, under
rules promulgated by the SEC, a foreign registrant may, subject to the
provision of additional information, continue to follow proportional
consolidation for purposes of registration and other filings notwithstanding
the departure from US GAAP. Consequently, the balance sheet and statements of
income and cash flow for 1999 have not been adjusted to restate the accounting
for the Americana Ships joint venture under US GAAP. Additional information
concerning CP Ships interest in joint ventures is presented in note 21.

25



---



##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(k) Ship leases

Under Canadian GAAP, certain ship charters as disclosed within note 18 are
accounted for as operating leases. Under US GAAP, these ships are chartered
from special purpose entities which would be consolidated. This would result
in assets and liabilities, expenses and cash flows relating to these ships
being reported in the financial statements. The US GAAP information as at 31st
December 2001, 2000 and 1999 has been changed to reflect these amounts. The
impact on US GAAP earnings for the years ended 31st December 2001, 2000 and
1999 is not material as the decrease in the charter hire expense of $21 million
is offset by an increase in interest expense and depreciation expense of $13
million and $8 million respectively for each of the three years. The impact on
US GAAP shareholders equity is an $8 million reduction for each of the three
years ended 31st December, 2001. This comprises an increase in capital assets
of $160 million (2000  $168 million, 1999  $175 million, an increase in
long-term debt of $165 million (2000  $173 million and 1999  $180 million)
and an increase in accrued interest of $ 3 million (2000  $3 million and 1999  $3 million). Cash flows from operations would be increased and cash flows
from financing activities would be decreased by $8 million in each of the three
years ended 31st December 2001.

(l) Statements of consolidated income and equity

The following is a reconciliation of net income under Canadian GAAP to net
income under US GAAP:

|                                                                |                                                           |      |                          |      |   |      |      |     |   |   |      |     |  
|--------------------------------------------------------------- | --------------------------------------------------------- | ---- | ------------------------ | ---- | - | ---- | ---- | --- | - | - | ---- | --- | -
|                                                                |                                                           |      | Year ended 31st December
|                                                                |                                                           |      |                         
|(US$ millions except amounts per share)                         |                                                           | 2001 |                          | 2000 |   | 1999
|                                                                |                                                           |      |                          |      |   |      |     
|Net income  Canadian GAAP                                      |                                                           |      | 76                       |      |   |      | 135  |     |   |   | 60   |    
|US GAAP adjustments                                             |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|                                                                | Dry dock accounting policy change                         |      |                          |     |   |      |      |    |   |   |      | (2  | )
|                                                                | Derivative financial instruments                          |      |                          | 2    |   |      |      |    |   |   |      |    |  
|                                                                | Unrealized gain/(loss) on foreign exchange contracts      |      |                          |     |   |      |      | (5  | ) |   |      | 6   |  
|                                                                | Acquisition-related costs                                 |      |                          | (3   | ) |      |      | (15 | ) |   |      | (12 | )
|                                                                | Pension costs                                             |      |                          | (3   | ) |      |      | 3   |   |   |      | 1   |  
|                                                                | Deferred income taxes                                     |      |                          |     |   |      |      | (4  | ) |   |      | (1  | )
|                                                                | Stock based compensation                                  |      |                          | (8   | ) |      |      |    |   |   |      |    |  
|                                                                | Tax effect of US GAAP adjustments                         |      |                          |     |   |      |      |    |   |   |      |    |  
|                                                                |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|Income  US GAAP before cumulative effect of accounting
changes |                                                           |      | 64                       |      |   |      | 114  |     |   |   | 52   |    
|                                                                | Cumulative effect of change in dry dock accounting policy |      |                          |     |   |      |      | 19  |   |   |      |    |  
|                                                                | Cumulative effect of adoption of FAS 133                  |      |                          | (4   | ) |      |      |    |   |   |      |    |  
|                                                                |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|Net income  US GAAP                                            |                                                           |      | 60                       |      |   |      | 133  |     |   |   | 52   |    
|Other Comprehensive income                                      |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|                                                                | Foreign currency translation adjustments                  |      |                          | (2   | ) |      |      | (2  | ) |   |      | (2  | )
|                                                                |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|Comprehensive income  US GAAP                                  |                                                           | $    | 58                       |      |   | $    | 131  |     |   | $ | 50   |    
|                                                                |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|Earnings per common share basic ($          per share)*         |                                                           |      |                          |      |   |      |      |     |   |   |      |    
|Canadian GAAP                                                   |                                                           | $    | 0.92                     |      |   | $    | 1.68 |     |   | $ | 0.76 |    

26



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##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(l) Statements of consolidated income and equity (Continued)
(US$ millions except amounts per share)

|                                                                                |                                                       |   |      |       |      |   |      |      |  |   |      |      | 
|------------------------------------------------------------------------------- | ----------------------------------------------------- | - | ---- | ----- | ---- | - | ---- | ---- |  | - | ---- | ---- | 
|                                                                                |                                                       |   | 2001 |       | 2000 |   | 1999
|                                                                                |                                                       |   |      |       |      |   |     
|US GAAP                                                                         |                                                       |   |      |       |      |   |      |      |  |   |      |     
|                                                                                | Income before cumulative effect of accounting changes |   | $    | 0.77  |      |   | $    | 1.42 |  |   | $    | 0.66 | 
|                                                                                | Cumulative effect of accounting changes               |   | $    | (0.05 | )    |   | $    | 0.24 |  |   | $    |     | 
|                                                                                |                                                       |   |      |       |      |   |      |      |  |   |     
|Basic earnings per common share after cumulative effect of
accounting changes   |                                                       | $ | 0.72 |       |      | $ | 1.66 |      |  | $ | 0.66 |     
|                                                                                |                                                       |   |      |       |      |   |      |      |  |   |     
|Earnings per common share diluted ($          per share)*                       |                                                       |   |      |       |      |   |      |      |  |   |      |     
|Canadian GAAP                                                                   |                                                       | $ | 0.91 |       |      | $ | 1.68 |      |  | $ | 0.76 |     
|US GAAP                                                                         |                                                       |   |      |       |      |   |      |      |  |   |      |     
|                                                                                | Income before cumulative effect of accounting changes |   | $    | 0.76  |      |   | $    | 1.41 |  |   | $    | 0.66 | 
|                                                                                | Cumulative effect of accounting changes               |   | $    | (0.05 | )    |   | $    | 0.24 |  |   | $    |     | 
|Diluted earnings per common share after cumulative effect of
accounting changes |                                                       | $ | 0.71 |       |      | $ | 1.65 |      |  | $ | 0.66 |     
|                                                                                |                                                       |   |      |       |      |   |      |      |  |   |     



---

|* |  | Earnings per common share is calculated after deduction of preference
share dividends
|- |  | -------------------------------------------------------------------------------------

Reconciliation of equity under Canadian GAAP to equity under US GAAP:

|                       |                                                      |      |                          |      |   |      |       |     |   |   |     |     |  
|---------------------- | ---------------------------------------------------- | ---- | ------------------------ | ---- | - | ---- | ----- | --- | - | - | --- | --- | -
|                       |                                                      |      | Year ended 31st December
|                       |                                                      |      |                         
|(US$ millions)         |                                                      | 2001 |                          | 2000 |   | 1999
|                       |                                                      |      |                          |      |   |     
|Equity  Canadian GAAP |                                                      |      | 1,100                    |      |   |      | 1,099 |     |   |   | 649 |    
|US GAAP adjustments    |                                                      |      |                          |      |   |      |       |     |   |   |     |    
|                       | Dry dock accounting policy change                    |      |                          |     |   |      |       |    |   |   |     | (19 | )
|                       | Derivative financial instruments                     |      |                          | (2   | ) |      |       |    |   |   |     |    |  
|                       | Unrealized gain/(loss) on foreign exchange contracts |      |                          |     |   |      |       |    |   |   |     | 5   |  
|                       | Acquisition-related costs                            |      |                          | (41  | ) |      |       | (38 | ) |   |     | (23 | )
|                       | Pension costs                                        |      |                          | 3    |   |      |       | 6   |   |   |     | 3   |  
|                       | Ship leases                                          |      |                          | (8   | ) |      |       | (8  | ) |   |     | (8  | )
|                       | Deferred income taxes                                |      |                          |     |   |      |       |    |   |   |     | 4   |  
|                       | Tax effect of US GAAP adjustments                    |      |                          |     |   |      |       |    |   |   |     |    |  
|                       |                                                      |      |                          |      |   |      |       |     |   |   |     |    
|Equity  US GAAP       |                                                      | $    | 1,052                    |      |   | $    | 1,059 |     |   | $ | 611 |    
|                       |                                                      |      |                          |      |   |      |       |     |   |   |     |    

(m) Additional US GAAP disclosures

Additional US GAAP disclosures are set out below.

Accounts receivable

|                          |  |                          |     |      |  |      |     |  |  |   |     | 
|------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                          |  | Year ended 31st December
|                          |  |                         
|                          |  | 2001                     |     | 2000 |  | 1999
|                          |  |                          |     |      |  |     
|Trade receivables         |  |                          | 254 |      |  |      | 283 |  |  |   | 221 | 
|Third-party agents        |  |                          | 42  |      |  |      | 31  |  |  |   | 35  | 
|Other receivables         |  |                          | 70  |      |  |      | 78  |  |  |   | 50  | 
|                          |  |                          |     |      |  |      |     |  |  |   |     | 
|Total accounts receivable |  | $                        | 366 |      |  | $    | 392 |  |  | $ | 306 | 
|                          |  |                          |     |      |  |      |     |  |  |   |     | 

27



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##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(m) Additional US GAAP disclosures (Continued)

Trade and other payables

|                                               |  |                          |     |      |  |      |     |  |  |   |     | 
|---------------------------------------------- |  | ------------------------ | --- | ---- |  | ---- | --- |  |  | - | --- | 
|                                               |  | Year ended 31st December
|                                               |  |                         
|                                               |  | 2001                     |     | 2000 |  | 1999
|                                               |  |                          |     |      |  |     
|Trade payables                                 |  |                          | 174 |      |  |      | 153 |  |  |   | 45  | 
|Accrued operating expenses                     |  |                          | 246 |      |  |      | 262 |  |  |   | 274 | 
|Third-party agents                             |  |                          | 17  |      |  |      | 16  |  |  |   | 28  | 
|Other payable and accrued liabilities          |  |                          | 68  |      |  |      | 66  |  |  |   | 68  | 
|                                               |  |                          |     |      |  |      |     |  |  |   |     | 
|Total accounts payable and accrued liabilities |  | $                        | 505 |      |  | $    | 497 |  |  | $ | 415 | 
|                                               |  |                          |     |      |  |      |     |  |  |   |     | 

Restructuring

CP Ships recorded a $19 million restructuring charge related to
rationalizing organization and offices, mostly in North America and Europe to
improve efficiency, reduce costs and strengthen competitive positioning. The
charge is comprised $10 million in employee related charges, and $9 million in
office lease related charges and is shown as a separate operating expense line
within the statements of income. The employee related charges represent
severance and related benefits such as outplacement counseling, certain legal
costs, vacation and medical coverage for terminated employees. The
restructuring is expected to be complete by 31st December 2002.

The restructuring plan identified a number of offices to be closed in
various cities. The office lease related charges include the additional cost of
leased office space that will no longer be occupied as well as costs required
to terminate existing lease obligations.

The following table presents a rollforward of 2001 activity related to the
restructuring charges.

|                             |  |               |   |                |  |          |    |      |  |   |    |               |  |   |    | 
|---------------------------- |  | ------------- | - | -------------- |  | -------- | -- | ---- |  | - | -- | ------------- |  | - | -- | 
|                             |  | Reserve as at |   |                |  |          |    |      |  |   |    | Reserve as at
|                             |  | 31st December |   |                |  |          |    |      |  |   |    | 31st December
|                             |  | 2000          |   | Pre-tax charge |  | Payments |    | 2001
|                             |  |               |   |                |  |          |    |     
|Employee related charges     |  |               |  |                |  |          | 10 |      |  |   | (3 | )             |  |   | 7  | 
|Office lease related charges |  |               |  |                |  |          | 9  |      |  |   | (2 | )             |  |   | 7  | 
|                             |  |               |   |                |  |          |    |      |  |   |    |               |  |   |    | 
|Total                        |  | $             |  |                |  | $        | 19 |      |  | $ | (5 | )             |  | $ | 14 | 
|                             |  |               |   |                |  |          |    |      |  |   |    |               |  |   |    | 

Stock-based compensation

Under the CP Ships Employee Stock Option Plan (ESOP) and the Directors
Stock Option Plan (DSOP) options may be granted to key employees and
directors to purchase CP Ships common shares at a price normally based on the
market value of the shares on or immediately prior to the grant date. Each
option may be exercised after three years and no later than ten years after the
grant date.

28



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##### 



CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(m) Additional US GAAP disclosures (Continued)

CP Ships applies the intrinsic value method in accounting for its options
granted to employees. If CP Ships had determined compensation cost based on the
fair value at the grant date for employee share options in accordance with FASB
Statement No. 23, Accounting for Stock-Based Compensation, net income and net
income per share would have changed to the pro forma amounts indicated below.
CP Ships had no stock based compensation prior to 2001:

(US$ millions, except per share amounts)

|                                       |  |      |      | 
|-------------------------------------- |  | ---- | ---- | 
|                                       |  | 2001
|                                       |  |     
|Net income  as reported               |  | $    | 60   | 
|Pro forma net income                   |  | $    | 53   | 
|Pro forma earnings per share  basic   |  | $    | 0.63 | 
|Pro forma earnings per share  diluted |  | $    | 0.63 | 
|                                       |  |      |      | 

The weighted average number of shares in issue used in the above table is
given in Note 15.

The fair value of each employee grant is estimated on the date of the
grant using the Black-Scholes option-pricing method with the following
weighted-average assumptions used for grants made during the year ended 31st
December 2001:

|                             |  |      |     |  
|---------------------------- |  | ---- | --- | -
|                             |  | 2001
|                             |  |     
|Expected option term (years) |  |      | 5   |  
|Expected volatility          |  |      | 30  | %
|Risk free interest rate      |  |      | 3.8 | %
|Dividend yield               |  |      | 2.0 | %
|                             |  |      |     |  

Goodwill

Goodwill and accumulated amortization as at 31st December 2001, 2000 and
1999:

|                              |  |      |     |      |  |      |     |   |  |   |     |  
|----------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                              |  | 2001 |     | 2000 |  | 1999
|                              |  |      |     |      |  |     
|Goodwill                      |  |      | 538 |      |  |      | 541 |   |  |   | 463 |  
|Less accumulated amortization |  |      | (68 | )    |  |      | (54 | ) |  |   | (38 | )
|                              |  |      |     |      |  |      |     |   |  |   |     |  
|Net Goodwill                  |  | $    | 470 |      |  | $    | 487 |   |  | $ | 425 |  
|                              |  |      |     |      |  |      |     |   |  |   |     |  

29



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CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(m) Additional US GAAP disclosures (Continued)

Pensions

Information about CP Ships defined benefit pension plans required in
accordance with FASB Statement No. 132 Employers Disclosures about
Pension and Other Postretirement Benefits is as follows:

|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|---------------------------------------------- |  | ---- | --- | ---- |  | ---- | -- | - |  | - | --- | -
|                                               |  | 2001 |     | 2000 |  | 1999
|                                               |  |      |     |      |  |     
|Change in benefit obligation                   |  |      |     |      |  |      |    |   |  |   |     |  
|Benefit obligation at beginning of year        |  |      | 85  |      |  |      | 59 |   |  |   | 72  |  
|Service cost                                   |  |      | 1   |      |  |      | 1  |   |  |   | 1   |  
|Interest cost                                  |  |      | 4   |      |  |      | 5  |   |  |   | 4   |  
|Plan participants contributions               |  |      |    |      |  |      | 1  |   |  |   | 1   |  
|Actuarial (gain)/loss                          |  |      | (16 | )    |  |      | 6  |   |  |   | 2   |  
|Acquisitions                                   |  |      |    |      |  |      | 21 |   |  |   | 1   |  
|Amendment                                      |  |      | (2  | )    |  |      |    |   |  |   |    |  
|Disposals                                      |  |      |    |      |  |      |   |   |  |   | (19 | )
|Settlements                                    |  |      | (38 | )    |  |      |   |   |  |   |    |  
|Benefits paid                                  |  |      | (1  | )    |  |      | (7 | ) |  |   | (3  | )
|Exchange Rate Fluctuation                      |  |      | (1  | )    |  |      | (1 | ) |  |   |    |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|Benefit obligation at end of year              |  | $    | 32  |      |  | $    | 85 |   |  | $ | 59  |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|Change in plan assets                          |  |      |     |      |  |      |    |   |  |   |     |  
|Fair value of plan assets at beginning of year |  |      | 83  |      |  |      | 62 |   |  |   | 82  |  
|Actual return on plan assets                   |  |      | (21 | )    |  |      | 6  |   |  |   | 3   |  
|Employer contributions                         |  |      | 2   |      |  |      | 3  |   |  |   | 1   |  
|Plan participants contributions               |  |      |    |      |  |      | 1  |   |  |   | 1   |  
|Settlements                                    |  |      | (38 | )    |  |      |   |   |  |   |    |  
|Acquisitions                                   |  |      |    |      |  |      | 19 |   |  |   |    |  
|Disposals                                      |  |      |    |      |  |      |   |   |  |   | (22 | )
|Benefits paid                                  |  |      | (1  | )    |  |      | (7 | ) |  |   | (3  | )
|Exchange Rate fluctuations                     |  |      |    |      |  |      | (1 | ) |  |   |    |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|Fair value of plan assets at end of year       |  | $    | 25  |      |  | $    | 83 |   |  | $ | 62  |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|Funded status                                  |  |      | (7  | )    |  |      | (2 | ) |  |   | 3   |  
|Unrecognised transition (asset)/obligation     |  |      |    |      |  |      | (1 | ) |  |   | (1  | )
|Unrecognised net actuarial (gain)/loss         |  |      | 8   |      |  |      | 5  |   |  |   | (1  | )
|Unrecognised prior service cost                |  |      | (2  | )    |  |      |   |   |  |   |    |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  
|(Accrued)/prepaid benefit cost                 |  | $    | (1  | )    |  | $    | 2  |   |  | $ | 1   |  
|                                               |  |      |     |      |  |      |    |   |  |   |     |  

|                                                               |  |      |     |      |  |      |     |   |  |   |     |  
|-------------------------------------------------------------- |  | ---- | --- | ---- |  | ---- | --- | - |  | - | --- | -
|                                                               |  | 2001 |     | 2000 |  | 1999
|                                                               |  |      |     |      |  |     
|Components of net periodic benefit cost                        |  |      |     |      |  |      |     |   |  |   |     |  
|Service cost                                                   |  |      | 1   |      |  |      | 1   |   |  |   | 1   |  
|Interest cost                                                  |  |      | 4   |      |  |      | 5   |   |  |   | 3   |  
|Expected return on assets                                      |  |      | (4  | )    |  |      | (5  | ) |  |   | (4  | )
|Settlement cost on disposal                                    |  |      | 3   |      |  |      |    |   |  |   |    |  
|                                                               |  |      |     |      |  |      |     |   |  |   |     |  
|Net periodic benefit cost                                      |  | $    | 4   |      |  | $    | 1   |   |  | $ |    |  
|                                                               |  |      |     |      |  |      |     |   |  |   |     |  
|Weighted-average assumptions as of 31st December
Discount rate |  |      | 6.5 | %    |  |      | 6.7 | % |  |   | 6.8 | %
|Expected return on plan assets                                 |  |      | 7.2 | %    |  |      | 6.9 | % |  |   | 6.9 | %
|Rate of compensation increase                                  |  |      | 4.9 | %    |  |      | 4.6 | % |  |   | 4.5 | %
|                                                               |  |      |     |      |  |      |     |   |  |   |     |  

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CP Ships Limited

22. DIFFERENCES BETWEEN ACCOUNTING PRINCIPLES GENERALLY ACCEPTED IN CANADA AND THE UNITED STATES (Continued)

(m) Additional US GAAP disclosures (Continued)

Software development costs

Software development costs are capitalized in accordance with SOP 98-1,
Accounting for the costs of Computer Software Developed or obtained for
internal use. At 31st December 2001, 2000 and 1999 the net book value of
software development costs included within computer hardware and software was
$86 million, $36 million and $10 million respectively.

Allowance for bad debts

The allowance for bad debts as at 31st December 2001, 2000 and 1999 was
$14 million, $22 million and $12 million respectively.

(n) Recent US GAAP pronouncements

On 20th July 2001, the FASB issued Statement No. 141, Business
Combinations, and Statement No. 142, Goodwill and Other Intangible Assets,
which are required to be implemented with effect from 1st July 2001 and 1st
January 2002 respectively. FAS 141 requires that all business combinations be
accounted for by the purchase method. FAS 142 addresses the accounting for
acquired goodwill and other intangible assets and contains certain transitional
provisions which may affect classification of intangible assets, as well as the
balance of goodwill. The ongoing impact will be that goodwill will no longer be
amortized, but instead will be tested at least annually for impairment. The
requirements of both statements apply prospectively from the effective date for
the purposes of presenting US GAAP financial information. CP Ships has not yet
determined what effect, if any, the impairment test will have on its financial
position and results of operations. The impact of not amortizing goodwill for
the year ended 31st December 2001 would have been to increase net income
reported under US GAAP before the cumulative effect of accounting changes by
$14 million and earnings per share by $0.18.

FASB Statement No. 143, Accounting for Obligations Associated with the
Retirement of Long-Lived Assets, was issued in July 2001. This standard will
be effective for CP Ships fiscal year beginning after 1st January 2002;
however, early adoption is permitted. The standard provides the accounting
requirements for retirement obligations associated with tangible long-lived
assets. The standard requires that the obligation associated with the
retirement of the tangible long-lived assets is capitalized into the asset cost
at the time of initial recognition. The liability is then discounted to its
fair value at the time of recognition using the guidance provided by the
standard. The requirements of this statement will be reflected as a cumulative
effect adjustment to income for the purposes of presenting US GAAP financial
information. CP Ships is assessing the impact that this new standard will have
on its financial position and results of operations.

FASB Statement No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets was issued on 3rd October 2001 and will be effective for CP
Ships fiscal year beginning 1st January 2002. The objectives of FAS 144 are to
create a single accounting model, based on the framework established in FAS
121, for long-lived assets including segments of a business to be disposed of
by sale, whether previously held and used or newly acquired. CP Ships is
assessing the impact that this new standard will have on its financial position
and results of operations.

31